DEFINITIONS:
As used in this Report on Form 10-K, the following terms have the stated meaning or meanings:
(1) “Capstone Lighting Technologies, L.L.C.” or “CLTL” is a wholly owned subsidiary of CHDT Corporation
(2) “CHDT Corporation,” a Florida corporation, may also be referred to as “we,” “us” “our,” “Company,” or “CHDT.” Unless the context indicates otherwise, “Company” includes in its meaning all of CHDT’s subsidiaries.
(3) “China” means Peoples’ Republic of China.
(4) “V” means volts.
(5) “W” means watts.
(6) References to "33 Act" or "Securities Act" means the Securities Act of 1933, as amended.
(7) References to "34 Act" or "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(8) “SEC” or “Commission” means the U.S. Securities and Exchange Commission.
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FORWARD-LOOKING STATEMENTS
This Report on Form 10-K contains statements that constitute "forward-looking statements” as defined under the Private Securities Litigation Reform Act 1995, as amended. Those statements appear in a number of places in this Form 10-K Report and include, without limitation, statements regarding the intent, belief and current expectations of the Company, its directors or its officers with respect to: Company’s future business and financial prospects; the Company's policies regarding investments, dispositions, financings, conflicts of interest and other matters; and trends affecting the Company's financial condition or results of operations. Forward looking statements include words
like “expect,” “anticipate,” “hope,” “project,” “may” or similar words. Any such forward-looking statement is not a guarantee of future performance and involves several risks and uncertainties, and actual results may differ materially from those in the forward-looking statement as a result of various factors – some factors being beyond the Company’s control or ability to foresee. The accompanying information contained in this Form 10-K Report, including the "Management's Discussion and Analysis of Results of Operations and Financial Condition," identifies important factors that could cause such differences. With respect to any such forward-looking statement that includes a statement of its underlying assumptions or bases, the Company cautions that, while it believes such assumptions
or bases to be reasonable and has formed them in good faith, assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be significant or “material” depending on the circumstances. When, in any forward-looking statement, the Company, or its management, expresses an expectation or belief as to future results, that expectation or belief is expressed in good faith and is believed to have a reasonable basis, but there can be no assurance that the stated expectation or belief will result or be achieved or accomplished. Further, the Company is a "penny stock" and a micro-cap Company with no primary market makers. Such a status makes highly risky any investment in the Company securities. The forward-looking statements in this Report on Form 10-K are made as of
the date hereof, and we do not assume any obligation to update, amend or clarify them to reflect events, new information or circumstances occurring after the date hereof.
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PART I
Item 1. Business.
We are a public holding Company organized under the laws of the State of Florida and are a leading designer and manufacturer of specialty power failure lighting solutions and innovator of consumer products for the North American and Latin American retail markets. We develop, manufacture and sell a broad range of stylish, innovative and easy to use consumer products including portable booklights, specialty booklights, multi-task lights, e reader lights, power failure lights and night lights, wireless motion sensor lights and desk lamps that are designed to make today’s lifestyles simpler and safer. Our products are sold under our wholly-owned subsidiary Capstone Industries Inc. brand
name as well as being private labeled for our retailer customers. CHDT Corporation seeks to deliver strong, consistent business results and superior shareholder returns by providing consumers on a global basis with products that make their lives simpler and safer.
We oversee the manufacturing of our products, which are all made in China by contract manufacturers, through our two wholly-owned operating subsidiaries; (a) Capstone Industries, Inc., a Florida corporation organized in 1997 and acquired on September 13, 2006 (“Capstone”) and (b) Capstone Lighting Technologies, a Florida limited liability Company (“CLTL”) formerly known as Black Box Innovations, L.L.C., a Florida limited liability Company (“BBIL”) formerly known as “Overseas Building Supply, L.C.” and formed on February 20, 2004. CLTL has no significant business operations at this time.
Strategy
Our strategy is to develop and maintain positions of innovative and technical leadership by continually introducing new ideas and concepts to our consumer product categories while maintaining low competitive prices. We plan to leverage our product successes and continually expanding channels as our brands continue to gain traction at retail levels by merchandisers, buyers and consumers. This brand recognition and expanded product placement is expected to continue to increase annual sales growth. We also plan to selectively acquire business with similar technical capabilities that could benefit from our leadership position
and strategic direction.
We have extensive experience with introducing new products into retail market channels and believe that provides us a competitive edge. Typically, we seek to find niche product opportunities that may be overlooked or underexploited by competitors, and believe that we can win a profitable niche of the market share. We believe these opportunities exist with innovative, aesthetically-pleasing products that include the following characteristics:
·
Designed for an everyday use or task;
Affordable, that is we can produce with a reasonable profit within the range of manufacturer’s suggested retail price for such a product
Represent value when compared with items produced or marketed by major consumer product companies on a national scale; and
Generates reasonable profit and profit margin opportunity with acceptable market penetration costs.
We believe that it can be more economical and efficient to develop and manufacture certain products in China and have them shipped to the United States rather 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. In Hong Kong, we also have personnel experienced in Engineering and Design, Product Development, International Logistics and Quality Control , who work with our OEM Chinese
factories to develop and prototype new product concepts and to ensure products meet Consumer Product Regulations and rigorous Quality Control standards . All products are tested before and during production by company personnel.. This team also provides extensive, product development, quality control and logistics support to our factory partners to ensure on time shipments. The Company plans to expand its staff in Hong Kong and the Company’s relative presence in 2012 as product line extensions and increased number of factories utilized become factors.
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Products and Customers
We are an innovative company in the design and development of a variety of lighting and other products that consumers would typically buy for functional purposes that we design for expanded use as well as aesthetics. Our current largest selling product group is the Eco-i-Lite power failure light and nightlight program, which accounted for 57.7%, of our revenues in 2011, 63.8%, of our revenues in 2010, and 61.05% and, of our revenues in 2009. Our other products include Light Ringers® Lamps, Pathway Lights® book and multi-task lights, Battery Powered Wireless Motion Sensor Lights and eBook-Lite, e reader
lights. We also plan to expand our product line into other growing lighting and security segments specific to different region and market demands.
Since inception, we have focused on establishing and growing relationships with numerous leading international, national and regional retailers including but not limited to: Target, Wal-Mart, Sam’s Club, Costco, BJ’s Warehouse, Barnes & Noble, Brookstone, Meijer Stores, Office Depot, Fred Meyer-Kroger Stores, The Container Store, True Value, and Home Depot. These distribution channels may sell our products through the Internet as well as through retail storefronts and catalogs/mail order.
Our experience in management, operations, and the export business has enabled us to develop the scale, manufacturing efficiencies and design expertise that serves as the foundation for us to aggressively pursue niche product opportunities in the largest consumer markets and growing international market opportunities. While we have traditionally generated the majority of our sales in the domestic market, urbanization, rising family incomes and increased living standards have spurred demand for small consumer appliances internationally. In order to capture this market opportunity, we introduced the Capstone Industries brand of power failure lights to Central and South American markets through
our master distributor Avtek. Due to the rate of natural and man-made occurrences resulting in loss of electricity worldwide, we are optimistic about the potential growth rate in fiscal years 2012 and 2013 for our power failure lighting (assuming sufficient marketing support and subject to the response of competitors and key markets).
We believe CHDT is positioned to become a leading manufacturer in the rapidly growing home emergency lighting and security lighting sector and will continue to be a potential leader of power-failure lighting solutions for consumers in our industry segment. Despite the global recession in 2008, 2009 and 2010, we believe that we were able to maintain our revenue growth because of our ability to deliver products on time, the quality reputation of our products, our business relationships with our retailers and our aggressive expansion in the North American and Latin American markets.
Sales and Marketing
CHDT’s products are marketed primarily through a direct independent sales force, distributors and wholesalers. The sales force markets our products through numerous retail locations worldwide, including mass merchandisers, warehouse clubs, food, drug and convenience stores, department stores and hardware centers. We actively promote our products to retailers and distributors at North American trade shows, but rely on the retail sales channels to advertise our products directly to the end consumer. Domestically and internationally, the sales teams market our full portfolio of product offerings. All sales activities at major account levels involved direct company
executive staff participation.
Working Capital Requirements
The Company's current business model (primarily direct import) does not necessitate carrying large amounts of inventory as we build our products on a demand basis for our advanced sales orders. Parts and components for our products can be quickly developed by our contract manufacturers. However, as is the case in our direct import program , upon receipt of a large order, the Company could have at any point in time within a reporting period a large amount of work in process inventory or finished goods on hand as we complete the order for shipment. In an effort to expand distribution to such noted retailers as Home Depot, Target and Walmart for non
promotional periods, the Company launched a domestic distribution program enabling retailers to stock our products daily and replenish based on rates of sale. This has not only allowed Capstone to add these retailers to its distribution for 2012 but will help to normalize the business by minimizing the spikes in activity associated with the majority of the Company's business being promotional or seasonal. The first retailers to endorse this formal domestic program translates to an estimated increase in store count of 4800 outlets. The revenues of these increased outlets will be recognized over the course of 2012 with launch dates starting as early as April 2012. The large backlog that is traditionally evident in the Company for its direct import orders, will should be impacted as the
business in the domestic distribution program is more evenly spread over the course of the year and orders are generated based on point of sale activity, not in anticipation as is the case on promotions. The Company anticipates this domestic program to be incremental to it's existing direct import programs and moreover it has opened the doors to retailers including Home Depot and Walmart . This could require greater working capital requirements which will be available from existing sources. Our liquidity and cash requirements are discussed more fully in Part II, Item 6, Management’s Discussion and Analysis of Operations below.