<PAGE>

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


                                   FORM 10-QSB


  Quarterly or Transitional Report Under Section 13 or 15(d) of the Securities
                       and Exchange Act of 1934 Quarterly
                             or Transitional Report

(Mark One)

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2002

                                       OR

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

       FOR THE TRANSITION PERIOD FROM ________________ TO _______________

                        COMMISSION FILE NUMBER 000-32475

                               Cetalon Corporation
        ----------------------------------------------------------------
         (Name of small business registrant as specified in its charter)

         Nevada                                           84-1408762
------------------------------              -----------------------------------
State or other jurisdiction of              (I.R.S. Employer Identification No.)
incorporation or organization

   16510 Aston St. Irvine California                       92606
----------------------------------------             ------------------
(Address of principal executive offices)                 (Zip Code)

Registrant's telephone number, including area code:   (949) 862-5969
                                                    ------------------



         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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. Yes X No ____


         On May 16, 2002 there were 14,435,209 shares of the Registrant's Common
Stock outstanding.




<PAGE>
<TABLE>


                                      INDEX
<CAPTION>


                                                                                       PAGE
                                                                                       ----
<S>                                                                                     <C>
Part I.  Financial Information

         Item 1.   Financial Statements - Unaudited

                   Condensed Consolidated Balance Sheet at February 28, 2002             4

                   Condensed Consolidated Statements of Operations and
                       Comprehensive Loss for the three and nine months ended
                       February 28, 2002 and February 28, 2001                           5

                   Condensed Consolidated Statements of Cash Flows for the nine
                       months ended February 28, 2002 and February 28, 2001              6

                   Notes to Condensed Consolidated Financial Statements                  7

         Item 2.   Management's Discussion and Analysis                                 13


Part II. Other Information

         Item 1.   Legal Proceedings                                                    20

         Item 2.   Changes in Securities                                                20

         Item 3.   Defaults in Senior Securities                                        20

         Item 4.   Submission of matters to a vote of Security Holders                  20

         Item 5.   Other Information                                                    21

         Item 6.   Reports on Form 8-K                                                  21


Signatures                                                                              22

</TABLE>




<PAGE>



                           FORWARD-LOOKING INFORMATION


              This Quarterly Report on Form 10-QSB contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, and
Section 21E of the Securities Exchange Act of 1934. These statements relate to
future events or the Company's future financial performance. The Company has
attempted to identify forward-looking statements by terminology including
"anticipates", "believes", "can", "continue", "could", "estimates", "expects",
"intends", "may", "plans", "potential", "predicts", "should", or "will" or the
negative of these terms or other comparable terminology. These statements are
only predictions, and forward-looking statements, and involve known and unknown
risks, uncertainties and other factors, including the risks outlined under
"Business Risks" contained in Part I of the Company's Annual Report on Form
10-KSB for the fiscal year ended May 31, 2001, that may cause the Company's
actual results, levels of activity, performance or achievements to be materially
different from any future results, levels or activity, performance or
achievements expressed or implied by these forward-looking statements. For all
of these predictions and forward-looking statements, we claim the protection of
the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995.

              Although the Company believes that the expectations reflected in
the forward-looking statements are reasonable, the Company cannot guarantee
future results, levels of activity, performance, or achievements. The Company's
expectations are as of the date of this Form 10-QSB is filed, and the Company
does not intend to update any of the forward-looking statements after the date
this Quarterly Report on Form 10-QSB is filed to conform these statements to
actual results, unless required by law.







                                       3



<PAGE>


                          PART I. FINANCIAL INFORMATION

ITEM 1.       FINANCIAL STATEMENTS

<TABLE>

                              CETALON CORPORATION AND SUBSIDIARIES
                              CONDENSED CONSOLIDATED BALANCE SHEET
                                           (UNAUDITED)
-----------------------------------------------------------------------------------------------
<CAPTION>


                                                                                   FEBRUARY 28,
                                                                                      2002
                                                                                  -------------
<S>                                                                               <C>
ASSETS

CURRENT ASSETS:
  Cash                                                                            $      9,605
  Accounts receivable                                                                  346,668
  Inventory                                                                          1,140,906
  Prepaid expenses and other current assets                                             37,894
                                                                                  -------------

        Total current assets                                                         1,535,073

PROPERTY AND EQUIPMENT, net                                                            517,998
                                                                                  -------------

TOTAL                                                                             $  2,053,071
                                                                                  =============

LIABILITIES AND SHAREHOLDERS' DEFICIENCY

CURRENT LIABILITIES:
  Accounts payable                                                                $  3,473,733
  Due to franchisees                                                                   272,003
  Current portion of settlement agreement liabilities                                  473,344
  Accrued liabilities                                                                1,842,453
                                                                                  -------------

        Total current liabilities                                                    6,061,533

NOTES PAYABLE                                                                          250,000
CONVERTIBLE NOTE PAYABLE, NET OF DISCOUNT                                            1,000,000
SETTLEMENT AGREEMENT LIABILITIES                                                     1,164,616
                                                                                  -------------

        Total liabilities                                                            8,476,149
                                                                                  -------------

COMMITMENTS AND CONTINGENCIES                                                               --

SHAREHOLDERS' DEFICIENCY:
  Preferred stock, $.0001 par value, 50,000,000 authorized, none outstanding
  Common stock, $.0001 par value, 50,000,000 authorized, 14,051,476 outstanding          1,405
  Additional paid-in-capital                                                         4,821,236
  Treasury stock                                                                      (100,000)
  Accumulated deficit                                                              (11,286,069)
  Accumulated other comprehensive income                                               140,350
                                                                                  -------------
        Total shareholders' deficiency                                              (6,423,078)
                                                                                  -------------

TOTAL                                                                             $  2,053,071
                                                                                  =============
                  See accompanying notes to consolidated financial statements.

</TABLE>

                                               4


<PAGE>
<TABLE>


                                   CETALON CORPORATION AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                                                (UNAUDITED)
---------------------------------------------------------------------------------------------------------
<CAPTION>


                                                  THREE MONTHS ENDED               NINE MONTHS ENDED
                                            -----------------------------   -----------------------------
                                             FEBRUARY 28,   FEBRUARY 28,     FEBRUARY 28,    FEBRUARY 28,
                                                2002            2001             2002           2001
                                            -------------   -------------   -------------   -------------
<S>                                         <C>             <C>             <C>             <C>
SALES                                       $  1,441,885    $    673,189    $  4,777,207    $  2,633,481

COST OF SALES                                    962,839         405,065       3,154,840       1,564,955
                                            -------------   -------------   -------------   -------------

GROSS PROFIT                                     479,046         268,124       1,622,367       1,068,526

SELLING, GENERAL, AND ADMINISTRATIVE
  EXPENSES                                     3,147,393         630,056       8,863,958       2,044,541
                                            -------------   -------------   -------------   -------------

OPERATING LOSS                                (2,668,347)       (361,932)     (7,241,591)       (976,015)

OTHER INCOME (EXPENSE):
  Franchise fees                                 (24,334)         52,082          11,641         186,337
  Other income                                        --              --             705              --
  Interest expense                                16,232          (7,015)       (194,860)        (37,986)
                                            -------------   -------------   -------------   -------------

        Total other income (expense), net         (8,102)         45,067        (182,514)        148,351
                                            -------------   -------------   -------------   -------------

NET LOSS                                      (2,676,449)       (316,865)     (7,424,105)       (827,664)

OTHER COMPREHENSIVE INCOME
  Foreign currency translation                    40,404          30,209          66,395          27,715
                                            -------------   -------------   -------------   -------------

COMPREHENSIVE LOSS                          $ (2,636,045)   $   (286,656)   $ (7,357,710)   $   (799,949)
                                            =============   =============   =============   =============

BASIC AND DILUTED LOSS PER SHARE            $      (0.26)   $      (0.76)   $      (1.06)   $      (2.13)
                                            =============   =============   =============   =============

WEIGHTED-AVERAGE NUMBER OF SHARES
  USED IN COMPUTATION OF BASIC AND
  DILUTED LOSS PER SHARE                      10,312,390         375,700       6,961,859         375,700
                                            =============   =============   =============   =============


                       See accompanying notes to consolidated financial statements.




                                                     5
</TABLE>


<PAGE>
<TABLE>


                            CETALON CORPORATION AND SUBSIDIARIES
                       CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                         (UNAUDITED)
-------------------------------------------------------------------------------------------
<CAPTION>


                                                               NINE MONTHS ENDED FEBRUARY  28,
                                                                   2002            2001
                                                                ------------   ------------
<S>                                                             <C>            <C>
CASH FLOWS PROVIDED BY (USED IN)
  OPERATING ACTIVITIES:
  Net loss                                                      $(7,424,105)   $  (827,664)
  Adjustments to reconcile net loss to net cash provided by
    (used in) operating activities:
    Depreciation and amortization                                   158,006         55,293
    Stock compensation for services and wages                       315,620             --
    Beneficial conversion factor on convertible note payable        250,000             --
   Changes in operating assets and liabilities:
      Accounts receivable                                          (112,105)         5,563
      Inventory                                                    (501,528)       543,297
      Prepaid expenses and other current assets                      77,104         26,115
    Accounts payable                                              2,775,568        205,505
      Due to franchisees                                             (2,080)       158,228
    Accrued liabilities                                           1,443,052        (58,582)
                                                                ------------   ------------

        Net cash (used in) provided by operating activities      (3,020,468)       107,755
                                                                ------------   ------------

CASH FLOWS USED IN INVESTING ACTIVITIES:
  Purchase of property and equipment                                (66,731)       (33,417)
                                                                ------------   ------------

        Net cash used in investing activities                       (66,731)       (33,417)
                                                                ------------   ------------

CASH FLOWS PROVIDED BY (USED IN)
  FINANCING ACTIVITIES:
  Net proceeds from issuance of common stock                      1,174,223             --
  Net proceeds (payments) on related party loans and advances            --        (55,881)
  Net proceeds from issuance of notes payable                     1,250,000             --
  Payment on settlement agreement liabilities, net                 (466,182)            --
                                                                ------------   ------------

        Net cash provided by financing activities                 1,958,041        (55,881)
                                                                ------------   ------------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                              66,395         27,715

INCREASE (DECREASE) IN CASH                                      (1,062,763)        46,172

CASH, BEGINNING OF PERIOD                                         1,072,368         14,206
                                                                ------------   ------------

CASH, END OF PERIOD                                             $     9,605    $    60,378
                                                                ============   ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
    Cash paid during the nine months ended for-
    Interest                                                    $   101,586    $    39,581
    Taxes                                                       $        --    $        --


                See accompanying notes to consolidated financial statements.


                                              6
</TABLE>



<PAGE>

                      CETALON CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                  NINE MONTHS ENDED FEBRUARY 28, 2002 AND 2001
                                   (UNAUDITED)
--------------------------------------------------------------------------------

NOTE 1 - GENERAL
----------------

The accompanying unaudited consolidated financial statements of Cetalon
Corporation and subsidiaries ("Cetalon" or "the Company") have been prepared by
the Company's management in accordance with accounting principles generally
accepted in the United States of America for interim financial information.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for financial statements. In the
opinion of management, the accompanying consolidated financial statements
reflect all adjustments of a normal recurring nature and necessary for a fair
statement of the results for the interim periods presented.

Because of the seasonal nature of the Company's business, the results of
operations for the nine months ended February 28, 2002 and 2001 are not
necessarily indicative of the results to be expected for the full year. For
further information, refer to the financial statements and footnotes thereto for
the fiscal year ended May 31, 2001, included in the Company's Annual Report on
Form 10-KSB (File No. 000-32475) filed with the Securities and Exchange
Commission on October 2, 2001.

NOTE 2 - PLANS REGARDING GOING CONCERN
--------------------------------------

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern, which contemplates, among other
things, the realization of assets and satisfaction of liabilities in the normal
course of business.

The Company and its management recognize the Company's historical financial
weaknesses and cash flow concerns, which are characterized by recurring losses
and shareholder's deficiency.

The Company has signed an agreement with a group of investors for a $3.0 million
equity line of credit, which was anticipated to be drawn down in 12 monthly
traunches, which was initiated in October 2001. The Company has received cash
from this equity line of $761,729 as of February 28, 2002, with the issuance of
477,161 of the Company's restricted common shares valued at an average price of
$1.60 per share. Related fund raising fees of $52,500 were expensed in interest
expense in the current statement of operations and comprehensive loss for the
period ending February 28, 2002. Prior to Cetalon initiating the equity line,
the price per share stipulated under the equity agreement, was revised to better
reflect the market price for Cetalon's stock. The price per share went from
$3.27 per share to $2.00 per share.

The Company has also received term sheets from various debt, equity and
strategic investors for investment commitments, which are currently under
consideration by the Company. The Company was unsuccessful in receiving
favorable terms and therefore has not honored any of the terms sheets received.
The Company is also under negotiation with various financial institutions to
establish leasing facilities and bank lines, which it anticipates will be
available to the Company.

The Company entered into a Strategic Relationship Agreement with Logic
Nutrition, Inc. ("Logic") on January 19, 2002 that resulted in a restructuring
of the Company's management, Board of Directors, and ownership of the Company's
stock. Logic has agreed to work with Cetalon in helping provide resources for
future working capital requirements. Under the terms of the agreement, funds
advanced shall accrue no interest and are payable to Logic within 30 days of
Cetalon's receipt of a written demand by Logic. As part of the Company's
strategic growth plan, the Company has developed and executed operational
initiatives within the last 90 days, which have resulted in significant expense
reductions in overhead and operating costs. To maintain and improve operating
cash levels, the Company has received new business that includes direct
marketing sales for Logic products, distributor agreements with third parties
to distribute Logic products to retailer/consumer outlets.



                                        7


<PAGE>

                      CETALON CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                  NINE MONTHS ENDED FEBRUARY 28, 2002 AND 2001
                                   (UNAUDITED)
--------------------------------------------------------------------------------

The Company has further negotiated and put in place merchandise credit lines for
new products and has also secured a factoring credit line for new merchandise
products. In addition to a strategic growth plan, the Company has developed
operational initiatives, including marketing plans, customer programs, and
enhanced associate training. To maintain operating cash levels, the Company
expects to periodically obtain equity funding, attempting to balance cash needs
and the shareholder dilution that is created by the issuance of new shares. In
addition, inventory management and expense control policies and programs are
being enhanced to maximize the Company's working capital efficiency. While the
Company's strategic, operational, and financing plans are designed to improve
the Company's financial condition and meet its working capital needs, there can
be no assurance that the Company will be able to achieve its desired results or
that other factors may not cause the Company's financial condition to be further
weakened.

These circumstances raise substantial doubt about the Company's ability to
continue as a going concern. The accompanying consolidated financial statements
do not include any adjustment that might result from the outcome of this
uncertainty.

NOTE 3 - CREDITOR SETTLEMENT AGREEMENTS
---------------------------------------

During the period from January 2001 through April 2001, the Company entered into
Settlement Agreements totaling $1,700,000 with its major creditors, including
its trade vendors, notes payable holders, and related parties. The Settlement
Agreements offered creditors the following options for repayment of the
outstanding balance: (i) 40 percent over 12 months, (ii) 60 percent over 24
months, (iii) 75 percent over 36 months, or (iv) 120 percent over 48 months. The
Company's creditors primarily selected either 40 percent over 12 months or 120
percent over 48 months. For the year ended May 31, 2001 the Company recorded
approximately $52,000 as other income as a result of certain creditors accepting
settlement agreements, which was less than the balance owed to the creditor.
Amounts owed under the Settlement Agreements have been classified as current and
long term according to the terms of repayment. The amount that will ultimately
be paid to the creditors in excess of the original balances owed is being
recorded as interest expense over the term of the repayment. In January 2002,
the Company has discontinued payments on these agreements until additional cash
resources are secured.

NOTE 4 - RELATED PARTY TRANSACTIONS
-----------------------------------

The Company's shareholders or their relatives own certain franchises. As of
February 28 2002, approximately $75,000 is payable to related franchisees and
are included in due to franchisees in the accompanying consolidated balance
sheet.

Combined franchise fees and advertising fees were paid by related franchisees in
the amounts of approximately $15,000 and $15,000 for the three months ended
February 28, 2002 and 2001, respectively. For the nine months ended February 28,
2002 and 2001, combined fees paid by related franchisees are approximately
$44,000 and $45,000, respectively.

The Company has purchased certain inventory from a corporation owned by a
shareholder. For the three and nine months ended February 28, 2001, the Company
purchased $17,000 and $141,000, respectively, from the related corporation. No
purchases have been made in the current three and nine months ended February 28,
2002.

The Company received management fees from franchises owned by related parties
and the supplier owned by a shareholder of the Company in the amount of
approximately $13,000 and $53,000, respectively, for the three and nine months
ended February 28, 2001. Such amounts are included in other income.


                                        8



<PAGE>

                      CETALON CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                  NINE MONTHS ENDED FEBRUARY 28, 2002 AND 2001
                                   (UNAUDITED)
--------------------------------------------------------------------------------

In 2001, the Company entered into a consulting agreement with the Watley Group,
LLC ("Watley"), a shareholder and an investment banking company in which the
Company's former Chairman and former Vice Chairman - Chief Executive Officer are
executive officers or directors. Services provided by Watley include strategic
and operational planning, providing senior management for the Company,
investment banking, debt or equity offering placement, and acquisition
assistance. During the three and nine months ended February 28, 2002, the
Company incurred fees with Watley of approximately $15,000 and $150,000,
respectively, for management and consulting services, which are included in
selling, general, and administrative expenses, and $77,500, for equity financing
placement fees, which have been recorded as a reduction to additional paid in
capital. Effective with November 01, 2001, The Watley Group, LLC ("Watley")
provided notice of immediate termination of the agreement, which has been
accepted by Cetalon. During June 2001, the Company entered into a month-to-month
rental agreement with Watley for executive office space, which provides for
monthly rent expense of approximately $5,000 plus expense reimbursements. The
Company provided notice to The Watley Group in December of 2001 of its
intentions to terminate the office leasing arrangement and in February of 2002
moved its corporate headquarters to Irvine California. During the three and nine
months ended February 28, 2002, the Company incurred fees with Watley of
approximately $15,000 and $44,000, respectively, for rent, which are included in
selling, general and administrative expenses. As of February 28, 2002, the
Company owed approximately $27,000 to Watley, and is included in accounts
payable in the accompanying consolidated balance sheet.

At February 28, 2002, settlement agreement liabilities include approximately
$141,000 due to a franchises owned by related parties.

NOTE 5 - NOTE PAYABLE
---------------------

In October 2001, the Company received cash in exchange for a note payable in the
amount of $250,000 from a vendor who is also a shareholder. Two directors of the
Company are also executive officers of the vendor/shareholder. The loan bears
interest at a rate of 5 percent of the principal, $12,500, which was expensed as
interest expense in the current statement of operations and comprehensive loss
for February 2002, and is payable in full, with accrued interest, in April 2002.

NOTE 6 - CONVERTIBLE NOTE PAYABLE
---------------------------------

In August 2001, the Company received a $1,000,000 loan from a vendor who is also
a shareholder. At the date of the loan, two directors of the Company were also
executive officers of the vendor/shareholder. The loan bears interest at 12
percent per annum and is payable in full, with accrued interest, in August 2004.
The Company, at its option, has the right to repay up to one-third of the
original note amount, without penalty, each year during the term of the note.
The note payable can be converted, in whole or in part, into common stock of the
Company at the option of the creditor at any time after July 2002. The
conversion price is the lesser of 80 percent of the fair market value of the
Company's common stock as defined in the note payable, or $2.00, with a floor
conversion price of $1.40. The value of the conversion feature was determined to
be $250,000, based on the fair market value of the common stock of the Company
on the commitment date and the conversion price on the commitment date. This
discount has been expensed as interest expense in the statement of operations
for nine months ended February 28, 2002. Watley and another shareholder were
each paid a $25,000 placement fee for the transaction, which has been expensed
as interest expense in the statement of operations for nine months ended
February 28, 2002.


                                        9



<PAGE>

                      CETALON CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                  NINE MONTHS ENDED FEBRUARY 28, 2002 AND 2001
                                   (UNAUDITED)
--------------------------------------------------------------------------------

NOTE 7 - STRATEGIC RELATIONSHIP AGREEMENT
-----------------------------------------

The Company entered into a Strategic Relationship Agreement with Logic
Nutrition, Inc. ("Logic") on January 19, 2002 (See Note 2) that resulted in a
restructuring of the Company's management, Board of Directors, and ownership of
the Company's stock. In accordance with the Strategic Relationship Agreement,
Logic has agreed to advance such funds to appropriate third parties or Cetalon
as are reasonably required (as mutually determined by Logic and Cetalon in good
faith) through existing and new credit facilities to procure Cetalon's inventory
requirements for its existing Canadian and U.S. facilities; and meet Cetalon's
daily operating overhead requirements for past, current and future needs. Logic
also agreed to assign designated distribution agreements to Cetalon as
additional channels of revenue and cash flow. In exchange, Cetalon agreed to
issue an additional 6,889,736 (issued at par value) of its restricted common
shares to Logic Nutrition's nominee GenTrust Finance SA ("Gen Trust"), which
resulted in Logic Nutrition's nominee controlling 51% of the outstanding voting
stock. Logic also was entitled to appoint additional board members to obtain
majority control and Elwood Sprenger was appointed as Chairman and Chief
Executive Officer of the Company. At the time of the transaction, Mr. Sprenger
was the Chief Executive Officer of Logic.

The Company, Logic and GenTrust have agreed in principal to certain terms and
conditions, which have transferred the Strategic Relationship agreement with
Cetalon from Logic to GenTrust. The Company is in the process of finalizing
formal distribution and licensing agreements.

The Company is current seeking a third party valuation on this agreement
therefore, no value has been recorded in the condensed consolidated balance
sheet for February 28, 2002.

NOTE 8 - STOCK BASED COMPENSATION
---------------------------------

On July 24, 2001 the Company adopted the 2001 Equity Incentive Plan (the "Plan")
which on November 30, 2001, the Company filed a registration statement on Form
S-8 with the Securities and Exchange Commission for the issuance of up to
1,550,000 shares of its $0.0001 par value common stock to be used for various
future issuances, including the Company's 2001 Equity Incentive Plan. The Plan
provides the exercise price of non-qualified stock options granted under the
Plan is to be at fair market value on the date of the grant. The Plan also
allows for the Company to grant stock bonuses, stock for service performed,
rights to purchase restricted stock, and stock appreciation rights. Supplemental
stock options and restricted stock grants may be issued at 85% of the fair
market value on the date of the grant. Non-qualified stock options under the
Plan vest 1/3 after 1 year from date of grant and 1/24 for each month
thereafter. The Plan provides for accelerated vesting for certain executives in
the event of a change of control or other events as defined by the Plan.

The Company granted 1,023,000 non-qualified stock options with the cancellation
of 399,000 options due to terminations resulting in 624,000 net options
outstanding as of February 28, 2002. 526,500 non-qualified stock options were
granted during the six months ended November 2001 at an exercise price of $0.85
per share. Fair market value as of date of grant was $1.17 per share, however
there were 35,000 stock option grants at the fair market value price as of the
date of the stock option grant for two of the Company's managers, their stock
option grant date is October 26th and the price was $1.60 on that date,
accordingly the Company is recognizing compensation expense over the vesting
period. In accordance with APB 25, the Company valued the options at
approximately $31,000 that will be amortized to compensation expense over the
vesting period. No compensation expense has been recognized as of February 28,
2002. On January 17, 2002 the Company granted 97,500 non-qualified stock options
were granted during the three months of December 2001 and February 2002 at an
exercise price ranging from $0.28 to $1.50 per share (based on closing price at
date of grant). These options have a vesting period of one-third in the first
year from date of issuance and monthly thereafter for two years. A total of
300,000 options vested for one previous officer of the Corporation as a result
of the change in control of the Corporation that occurred on January 19, 2002
with Logic Nutrition. No supplemental stock options, stock bonus rights, or
stock appreciation rights were issued or are outstanding as of February 28,
2002.

                                       10



<PAGE>

                      CETALON CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                  NINE MONTHS ENDED FEBRUARY 28, 2002, AND 2001
                                   (UNAUDITED)
--------------------------------------------------------------------------------

During the nine months ended February 28, 2002, the Company granted 150,000
shares of restricted common stock to an officer of the Company. The 100,000
restricted shares were recorded at $1.17 per share (based on the closing price
at date of grant), with $117,000 recorded to compensation expense as of November
2001. The 50,000 restricted shares were recorded at $0.80 per share (based on
the closing price at date of grant), with $40,000 recorded to compensation
expense as of January 2002.

During December 2001, the Company issued 7,500 common shares to a consultant
valued at $2.00 per share (based on the closing price at the date of grant),
with $15,000 recorded to legal expense.

During January 2002, the Company issued 214,286 of common shares to a consultant
valued at $0.42 per share (based on the closing price at date of grant), with
$90,000 recorded to consulting expense.

As of February 28, 2002, the Company granted 800 restricted common shares valued
$1.40 per share (based on the closing price the date of grant), to employees who
achieved their sales goals with $1,120 recorded to compensation expense.

The Company also granted 30,000 shares of restricted common stock to a former
employee of the Company and had previously recorded compensation expense of
$31,500 which was cancelled in February of 2002 when it was determined that the
compensation was not earned based on performance goals established at the date
of grant.

NOTE 9 - EXERCISE OF STOCK WARRANTS
-----------------------------------

On July 5, 2001, a shareholder exercised an option to purchase 238,095 shares of
the Company at a price of $2.10 per share, or aggregate consideration of
$500,000. Watley and another shareholder each received $25,000 for financing
placement fees, which has been recorded as a reduction to additional paid-in
capital.

NOTE 10 - FINANCIAL ADVISORY AGREEMENT
--------------------------------------

On October 30, 2001, the Company entered into an agreement with Rubin Investment
Group, Inc. ("RIG") for financial advisory services. As consideration for RIG's
services, the Company issued 50,000 shares of its common stock to RIG at a value
of $1.35 per share (based on the closing price on the date of grant), in the
amount of $67,500, which was recorded as consulting expense in November 2001,
with options to purchase 500,000 shares at $1.75 per share and 250,000 shares at
$2.00 per share respectively of the Company's common stock that were registered
on November 30, 2001. On December 31, 2001 the Company and Rubin Investment
Group had agreed to an immediate purchase of the shares for a value of $375,000
that were recorded as a shareholder receivable against additional paid-in
capital. Accordingly, the Company delivered an additional 750,000 shares to
Rubin Investment Group. Rubin Investment was requested to pay for the shares
pursuant to the agreement within the specified period but failed to pay for the
shares and has since refused to return the shares. The Company has sent a final
demand letter to Rubin Investment through its legal counsel requesting immediate
submission of payment for these shares.

NOTE 11 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
---------------------------------------------------

Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended, is effective for the
Company beginning June 1, 2001. SFAS No. 133 requires that an entity recognize
all derivatives as either assets or liabilities measured at fair value. The
adoption of SFAS No. 133 did not have a material impact on the Company's
financial position or results of operations.

SFAS No. 141, "Business Combinations," is effective July 1, 2001 and establishes
accounting and reporting standards to reflect only the purchase method of
accounting for business combinations. The adoption of SFAS No. 141 did not have
a material impact on the Company's financial statements.

                                       11


<PAGE>
                      CETALON CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                  NINE MONTHS ENDED FEBRUARY 28, 2002, AND 2001
                                   (UNAUDITED)
--------------------------------------------------------------------------------


SFAS No. 142, "Goodwill and Other Intangible Assets," is effective for fiscal
years beginning after December 15, 2001 and establishes accounting and reporting
standards for goodwill and other intangible assets. The adoption of SFAS No. 142
will not have a material impact on the Company's future financial statements.

SFAS No. 143, "Accounting for Asset Retirement Obligations", is effective for
fiscal years beginning after June 15, 2002 and addresses financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The Company's
management has not determined if the adoption of SFAS No. 143 would have any
substantial impact on the Company's future financial statements.

SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets",
is effective for fiscal years beginning after December 15, 2001 and addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets, including accounting for a segment of a business accounted for as a
discontinued operation. The adoption of SFAS No. 144 will not have a material
impact on the Company's future financial statements.

NOTE 12 - COMMITMENTS AND CONTINGENCIES
---------------------------------------

Certain Key Senior Executives of the Company have entered into employment
agreements with the Company. The agreements include provisions regarding change
of control of the Company, as defined, such as acceleration of stock options and
certain severance benefits including salary continuation, entitlement to bonus
payments and medical benefit coverage's for a specified period of time. The
agreements also provide for severance payments in the event of termination for
reasons other than cause. As a result of the strategic merger with Logic
Nutrition on January 19, 2002, a change in control has occurred in which certain
severance benefits, continuation of medical coverage and acceleration of stock
options became operative for one officer of the Corporation. The Company has
recognized the liability for these expenses, which are reflected in the
accompanying financial statements.

NOTE 13 - BUSINESS SEGMENTS
---------------------------

The Company reports its business segments based on geographic regions, which are
as follows for the quarter ended February 28, 2002:

(000's)              NET SALES        NET LOSS       DEPRECIATION
-------              ---------        --------       ------------

Cetalon, Canada      $  1,155.4      $    (715.3)     $    40.9
Cetalon, U.S.        $    286.5      $  (1,961.1)     $     1.7


NOTE 14 - SUBSEQUENT EVENTS
---------------------------

On April 8, 2002, Jim Mault, Craig Huff and Dan Howells provided notice of their
voluntary resignation to the Cetalon Board of Directors and the Company. On
April 29, 2002, Mary Claire Quella and Mark Miller provided notice of their
voluntary resignation as a Director of the Company.

As of March 13, 2002 the Company granted 240,000 restricted common shares to
employees in lieu of compensation valued at $0.20 per share (based on the
closing price at date of grant), $48,000 recorded as compensation expense as of
March 2002.

As of March 13, 2002 the Company granted 135,333 restricted common shares to
consultants valued at $0.20 per share (based on the closing price at date of
grant), $270,666 was recorded as consulting expense as of March 2002.

As of March 13, 2002, a total of which 8,400 shares valued at $1.40 per share
(based on the closing price at date of grant), for $11,770 of restricted common
stock were granted to employees who achieved their sales goals.

On March 15, 2002, John Danylowich provided notice of his voluntary resignation
as Director of the Company.


                                       12


<PAGE>


ITEM 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------

Except for the historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could materially differ from those discussed here.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in this section, as well as in the sections entitled
Stores, Distribution, Information Systems, Competition, Government Regulation,
and Business Risks included in the Company's Form 10-KSB for the year ended May
31, 2001.

OVERVIEW

Cetalon Corporation, formerly Sportsman's Wholesale Co., and its subsidiaries
are engaged in retailing nutritional and personal care products through licensed
retail departments in Sears Canada and Sears U.S. department stores. The Company
operates its "store within a store" locations under the name "Sears Health Food
and Fitness Shops" in Canada and under the name "Sears Health Food and Nutrition
Centers" in the United States. As of February 28, 2002, the Company operated 46
Sears Health Food and Fitness Shops in Canada (including 10 locations through
franchisees) and 10 Sears Health Food and Nutrition Centers in the United States
(all in California).

During the three months ended February 28, 2002, the Company acquired two
franchisee locations and converted them into Company owned stores. No new stores
were opened during the three months ending February 28, 2002.

CLAYDAN TRANSACTION AND SHARE EXCHANGE

In early 2001, the Company and its subsidiaries entered into a series of
transactions that altered the ultimate ownership of the operating assets of the
business and created the new consolidated entity that exists as of November 30,
2001.

On February 6, 2001, 1129 Holding and Cetalon Canada entered into an Asset
Purchase Agreement to acquire substantially all of Claydan's assets and assume
substantially all of its recorded liabilities (the "Claydan Transaction"). To
effect the Claydan Transaction, 362,561 shares of 1129 Holding's stock was
exchanged for the net assets of Claydan. Upon the closing of the Claydan
Transaction, the acquired assets and business operations of Claydan constituted
virtually the entire operating assets of Cetalon Canada and 1129 Holding.
Therefore, the Claydan Transaction was accounted for as a recapitalization of
Claydan with the assets acquired and liabilities assumed recorded at their
existing basis of accounting. Cetalon Canada and 1129 Holding also adopted the
May 31 fiscal year-end of Claydan.

Effective March 12, 2001, approximately one month following the closing of the
Claydan Transaction, the Company, then an enterprise with limited operations,
whose common stock was eligible to be quoted on the OTC Bulletin Board, entered
into an Agreement and Plan of Share Exchange with the stockholders of 1129
Holding (the "Share Exchange"). As a result of the Share Exchange, 1129 Holding
became a wholly-owned subsidiary of the Company and, in conjunction with other
share and business transactions that occurred in or about the same time frame,
more than 50% voting control of the Company changed in favor of 1129 Holding's
stockholders and operational control of the Company changed in favor of 1129
Holding's management. Pursuant to the terms of the Share Exchange, the Company
issued 2,064,802 shares of its $.0001 par value common stock to the stockholders
of 1129 Holding for an equal number of shares of common stock of 1129 Holding,
which shares represented all of the outstanding shares of capital stock of 1129
Holding.

Included in such other share transactions was the return by the majority
shareholder of 23,950,000 shares of the Company's common stock to its treasury
for cancellation in consideration of the payment by the Company of the sum of
$100,000. The majority shareholder was the Company's sole executive officer and
director immediately prior to the closing of the Share Exchange. As of such
time, the shares returned by him constituted approximately 90% of the Company's
then-issued and outstanding shares.

Also included in such other business transactions, the sole remaining executive
officer and director of the Company resigned in favor of the officers and
directors of 1129 Holding and the Company disposed of all of the capital stock
of its wholly-owned subsidiary, Cap's Wholesale Sporting Goods, Inc. ("Caps").
The assets and business operations of Caps were insignificant prior to and as of
the date of the transactions.


                                       13


<PAGE>


Shortly before the closing of the Share Exchange, 1st Zamora Corporation, a
Nevada corporation ("1st Zamora"), sold 2,393,280 shares of the Company's common
stock, which were then owned by 1st Zamora, to various third-party investors.
1st Zamora had acquired such shares on December 29, 2000, from the Company's
former chief executive officer. Included in such share sales were 455,180 shares
of the Company's common stock that were purchased by certain stockholders of
1129 Holding.

As a result of the Share Exchange and the other share and business transactions,
the Company's acquisition of 1129 Holding was accounted for as a "Reverse
Acquisition" because the stockholders of 1129 Holding, as the legal acquiree,
obtained more than 50% voting control of the Company, the legal acquirer.
Accordingly, for accounting purposes, 1129 Holding was treated as the continuing
reporting entity and "Accounting Acquirer" that acquired the Company, which
accounting treatment resulted in the Company adopting the May 31 fiscal year-end
of 1129 Holding.

As a result of these business transactions, the Company, through its wholly
owned subsidiaries, continued substantially the same business operations in
which Claydan had been engaged.

STRATEGIC RELATIONSHIP AGREEMENT

The Company entered into a Strategic Relationship Agreement with Logic
Nutrition, Inc. ("Logic") on January 19, 2002 that resulted in a restructuring
of the Company's management, Board of Directors, and ownership of the Company's
stock. In accordance with the Strategic Relationship Agreement, Logic has agreed
to advance such funds to appropriate third parties or Cetalon as are reasonably
required (as mutually determined by Logic and Cetalon in good faith) through
existing and new credit facilities to procure Cetalon's inventory requirements
for its existing Canadian and U.S. facilities; and meet Cetalon's daily
operating overhead requirements for past, current and future needs. Logic also
agreed to assign designated distribution agreements to Cetalon as additional
channels of revenue and cash flow. In exchange, Cetalon agreed to issue an
additional 6,889,736 (issued at par value) of its restricted common shares to
GenTrust Finance SA ("GenTrust"), nominee for Logic Nutrition, which represents
51% of the outstanding voting stock. Logic also was entitled to appoint
additional board members and appointed Elwood Sprenger as Chairman and Chief
Executive Officer of the Company. At the time of the transaction, Mr. Sprenger
was the Chief Executive Officer of Logic.

The Company, Logic and GenTrust have agreed in principal to certain terms and
conditions that have transferred the Strategic Relationship agreement with
Cetalon from Logic to GenTrust. The Company is in the process of finalizing
formal distribution and licensing agreements.

The Company is currently seeking an independent third party valuation on this
agreement therefore, no value has been recorded in the condensed consolidated
balance sheet for February 28, 2002.

RESULTS OF OPERATIONS

The following table presents the percent to sales of certain items included in
the Company's consolidated statements of operations, unless otherwise indicated:
<TABLE>
<CAPTION>

                                                      THREE MONTHS ENDED   SIX MONTHS ENDED
                                                       -----------------   -----------------
                                                       FEB. 28,  FEB. 28,  FEB. 28, FEB. 28,
                                                         2002      2001     2002       2001
                                                       -------   -------   -------   -------
<S>                                                     <C>       <C>       <C>       <C>
STATEMENT OF OPERATIONS DATA:
Sales                                                   100.0%    100.0%    100.0%    100.0%
Cost of sales                                            66.8      60.2      66.0      59.4
                                                       -------   -------   -------   -------
Gross profit                                             33.2      39.8      34.0      40.6
Selling, general, and administrative expenses           218.3      93.6     185.5      77.6
                                                       -------   -------   -------   -------
Loss before other income (expense) and income taxes    (185.1)    (53.8)   (151.5)    (37.0)
Franchise fees                                           (1.7)      7.7       0.2       7.1
Other income (expense)                                    0.0       0.0       0.0       0.0
Interest expense                                          1.1      (1.0)     (4.1)     (1.4)
                                                       -------   -------   -------   -------
Net loss before income taxes                           (185.7)%   (47.1)%  (155.4)%   (31.3)%
                                                       =======   =======   =======   =======

</TABLE>

                                       14


<PAGE>
<TABLE>

SEGMENTED REPORTING OF OPERATIONS
(000'S)

<CAPTION>

                                    THREE MONTHS ENDED                      NINE MONTHS ENDED
                                    FEBRUARY 28,  2002                      FEBRUARY 28, 2002
                       ---------------------------------------   ---------------------------------------
                           U.S.         CANADA      COMBINED         U.S.        CANADA       COMBINED
                       -----------   -----------   -----------   -----------   -----------   -----------
<S>                    <C>           <C>           <C>           <C>           <C>           <C>
Sales                  $    286.5    $  1,155.4    $  1,441.9    $    769.4    $  4,007.8    $  4,777.2
Cost of sales               237.9         725.0         962.9         562.4       2,592.5       3,154.9
                       -----------   -----------   -----------   -----------   -----------   -----------
Gross profit                 48.6         430.4         479.0         207.0       1,415.3       1,622.3
Selling, general,
  and administrative
  expenses                2,003.8       1,143.5       3,147.3       5,445.9       3,418.0       8,863.9
                       -----------   -----------   -----------   -----------   -----------   -----------
Loss before other
   income (expense)      (1,955.2)       (713.1)     (2,668.3)     (5,238.9)     (2,002.7)     (7,241.6)
Franchise fees                0.0         (24.3)        (24.3)          0.0          11.7          11.7
Other income
   (expenses)                 0.0           0.0           0.0           0.0           0.7           0.7
Interest expense             (5.9)         22.1          16.2         (55.9)       (139.0)       (194.9)
                       -----------   -----------   -----------   -----------   -----------   -----------
Net loss               $ (1,961.1)   $   (715.3)   $ (2,676.4)   $ (5,294.8)   $ (2,129.3)   $ (7,424.1)
                       ===========   ===========   ===========   ===========   ===========   ===========


                                  THREE MONTHS ENDED                        NINE MONTHS ENDED
                                   FEBRUARY 28, 2001                         FEBRUARY 28, 2001
                       ---------------------------------------   ---------------------------------------
                          U.S.         CANADA       COMBINED        U.S.         CANADA       COMBINED
                       -----------   -----------   -----------   -----------   -----------   -----------
Sales                  $      0.0    $    673.2    $    673.2    $      0.0    $  2,633.5    $  2,633.5
Cost of sales                 0.0         405.1         405.1           0.0       1,564.9       1,564.9
                       -----------   -----------   -----------   -----------   -----------   -----------
Gross profit                  0.0         268.1         268.1           0.0       1,068.6       1,068.6
Selling, general,
  and administrative
  expenses                    0.0         630.0         630.0           0.0       2,044.6       2,044.6
                       -----------   -----------   -----------   -----------   -----------   -----------
Loss before other
   income (expense)          0.0         (361.9)       (361.9)          0.0        (976.0)       (976.0)
Franchise fees               0.0           52.0          52.0           0.0         186.3         186.3
Other income
   (expenses)                0.0            0.0           0.0           0.0           0.0           0.0
Interest expense             0.0           (7.0)         (7.0)          0.0         (38.0)        (38.0)
                       -----------   -----------   -----------   -----------   -----------   -----------
Net loss               $     0.0     $   (316.9)   $    (316.9)  $      0.0    $   (827.7)   $   (827.7)
                       ===========   ===========   ============  ===========   ===========   ============

</TABLE>



                                       15


<PAGE>

THREE MONTHS ENDED FEBRUARY 28, 2002 COMPARED TO THREE MONTHS ENDED FEBRUARY 28,
2001

Sales were approximately $1.4 million for the three months ended February 28,
2002, compared to approximately $0.7 million for the three months ended February
28, 2001. The increase in sales was due to a significant increase in sales in
the Company's Canadian locations and the opening of ten new stores in the United
States in June 2001. The U.S. sales were approximately $0.3 million for the
three months ended February 28, 2002. The Canadian operation sales were
approximately $1.1 million for the three months ended February 28, 2002,
compared to approximately $0.7 million for the three months ended February 28,
2001. The increase in sales in Canada of 171.6% was mainly the result of a more
aggressive advertising and marketing programs during the three months ended
February 28, 2002 as compared to the three months ended February 28, 2001 and an
improved stock position over the previous year. The Company incurred
approximately $118,000 of net advertising expense in Canada during the three
months ended February 28, 2002, compared to approximately $6,000 of net
advertising expense for the same period in the previous year.

Gross profit decreased as a percentage of net sales to 33.2% for the three
months ended February 28, 2002 from 39.8% for the same period in the previous
year. The decrease in gross profit as a percentage of net sales was mainly the
result of certain aggressive promotional campaigns in the Canadian operations to
increase revenues and store traffic.

Selling, general and administrative expenses increased as a percentage of net
sales to 218.3.7% for the three months ended February 28, 2002, from 93.6% for
the three months ended February 28, 2001. This increase resulted primarily from
the recording of .9 million in one-time costs associated with the restructuring
of personnel as a result of the change of control of the Company, including
business strategy consulting, public relations, and investor communications.
Total selling, general and administrative expenses for the U.S. operation was
approximately $2.0 million, which is comprised of $0.4 million (20%) stores
operating expenses and $1.6 million (80%) other selling, general and
administrative expenses. Total selling, general and administrative expenses for
the Canadian operation (excluding the U.S. costs) were approximately $1.1
million or 99.0% as a percentage of net sales for the three months ended
February 28, 2002, compared to approximately $0.6 million or 92.5% as percentage
of net sales for the three months ended February 28, 2001. The increase as a
percentage of net sales was due to primarily to the one time transitional costs
associated with the restructuring of the Company in addition to the increase in
advertising and marketing costs associated with the start-up of the U.S. store
operations. The Company's operating loss increased approximately $2.3 million to
approximately $2.7 million for the three months ended February 28, 2002, from
approximately $0.4 million for the three months ended February 28, 2001. This
increase was the result of the significant increase in selling, general and
administrative expenses described above.

Interest expense increased to approximately $44,000 for the three months ended
February 28, 2002 from approximately $7,000 for the three months ended February
28, 2001 due to the long-term settlement agreements entered into between the
Company and its vendors during from January to April 2001. During the current
quarter an adjustment reducing interest expense approximately $60,000 relating
to a foreign exchange transaction that was recorded, resulting in a $16,000
income for interest expense on the condensed consolidated statement of
operations and comprehensive loss ending February 28, 2002.

As a result of the above, the Company reported a net loss of approximately $2.7
million, a loss of $0.26 per share for the three months ended February 28, 2002
compared to a net loss of approximately $0.3 million, a loss of $0.76 per share
for the three months ended February 28, 2001.

NINE MONTHS ENDED FEBRUARY 28, 2002 COMPARED TO NINE MONTHS ENDED FEBRUARY 28,
2001

Sales were approximately $4.8 million for the nine months ended February 28,
2001, compared to approximately $2.6 million for the nine months ended February
28, 2001. The increase in sales was due to a significant increase in sales in
the Company's Canadian locations and the opening of ten new stores in the United
States in June 2001. The U.S. sales were approximately $0.8 million for the nine
months ended February 28, 2002.


                                       16


<PAGE>


The Canadian operation sales were approximately $4.0 million for the nine months
ended February 28, 2002, compared to approximately $2.6 million for the nine
months ended February 28, 2001. The increase in sales in Canada of 65.7% was
mainly the result of a larger advertising program during the three months ended
February 28, 2002 as compared to the three months ended February 28, 2001. The
Company incurred approximately $700,000 of net advertising expense in Canada
during the nine months ended February 28, 2002, compared to approximately
$151,000 of net advertising expense for the same period in the previous year.

Gross profit decreased as a percentage of net sales to 34.0% for the nine months
ended February 28, 2001 from 40.6% for the same period in the prior year. The
decrease in gross profit as a percentage of net sales was mainly the result of
an aggressive promotional advertising campaign in Canada stores to drive traffic
and sales and lower initial gross margins in the United States stores as a
result of special grand opening price reduction offers.

Selling, general and administrative expenses increased as a percentage of net
sales to 185.5% for the nine months ended February 28, 2002, from 77.6% for the
nine months ended February 28, 2001. This increase resulted from the start-up of
store and corporate operations in the United States during 2001,the recording of
..9 million in one time costs associated with the restructuring of personnel as a
result of the change of control of the Company, including business strategy
consulting, public relations, investor communications, grand opening
advertising, other store pre-opening costs, and pre-opening temporary store
labor. Total selling, general and administrative expenses for the U.S. operation
was approximately $5.4 million, which is comprised of $1.2 million (22%) start
up costs and $4.2 million (88%) other selling, general and administrative
expenses. Total selling, general and administrative expenses for the Canadian
operation (excluding the U.S. costs) were approximately $3.4 million or 85.3% as
a percentage of net sales for the nine months ended February 28, 2002, compared
to approximately $2.0 million or 76.2% as percentage of net sales for the nine
months ended February 28, 2001. The increase as a percentage of net sales was
due to primarily to the one time transitional costs associated with the
restructuring of the Company in addition to the increase in advertising and
marketing costs associated with the start-up of the U.S. store operations.

The Company's loss before other income increased $6.3 million to $7.2 million
for the nine months ended February 28, 2002, from $0.9 million for the nine
months ended February 28, 2001. This increase was the result of the significant
increase in selling, general and administrative expenses described above.

Interest expense increased to approximately $195,000 for the nine months ended
February 28, 2002 from approximately $38,000 for the nine months ended February
28, 2001 due to the long-term settlement agreements entered into the Company and
its vendors during from January to April 2001.

As a result of the above, the Company reported a net loss of approximately $7.4
million, a loss of $1.06 per share for the nine months ended February 28, 2002
compared to a net loss of approximately $0.8 million, a loss of $2.13 per share
for the nine months ended February 28, 2001.

ASSETS AND LIABILITIES

Total assets decreased by $617,509 from $2,670,580 as of May 31, 2001 to
$2,053,071 as of February 28, 2002. The significant difference is the decrease
in cash of $1,062,763 and the increase in inventory of $501,528. These variances
were primarily due to the additional 10 new stores in the U.S., which were not
opened as of May 31, 2001.

Total liabilities increased by $5,000,358 from $3,475,791 as of May 31, 2001 to
$8,476,149 as of February 28, 2002. The increase is due primarily to accounts
payable increasing from $698,165 to $3,473,733 and the accrued liabilities
increasing from $399,401 as of May 31, 2001 as compared to $1,842,453 as of
February 28, 2002. During the nine months ended February 28, 2002 the Company
made payment of $466,182 against the settlement agreement liabilities. The
Company accepted notes payable from a related party in the amount of $1,250,000
for additional funding. The increase in payables and accrued liabilities reflect
the increase in expenses and corresponding payable and accrued liabilities for
cost associated with the company's entry into the U.S. market.



                                       17


<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations and expansion program to date
principally through debt issuances, advances from related parties, and equity
infusions. Additional sources of financing have included vendor terms on
inventory purchases.

Cash used in operations was $3,020,468 for the nine months ended February 28,
2002, compared to cash provided by operations of $107,755 for the same period in
the prior year. The significant increase in cash used in operations was
primarily caused by the start-up of the United States operations during the nine
months ended February 28, 2002. During the period from January 2001 through
April 2001, the Company entered into Settlement Agreements totaling
approximately $1,700,000 with its major creditors, including its trade vendors,
notes payable holders, and related parties. The Settlement Agreements offered
the creditors the following options for repayment of the outstanding balance:
(i) 40% over 12 months, (ii) 60% over 24 months, (iii) 75% over 36 months, or
(iv) 120% over 48 months. The Company's creditors primarily selected either 40%
over 12 months or 120% over 48 months.

The Company has used cash in investing activities since inception to purchase
leaseholds, fixtures and equipment for new stores. Net cash used in investing
activities was $66,731 for the nine months ended February 28, 2002, as compared
to $33,417 for the same period in the prior year.

Net cash provided by financing activities consist primarily of repayments on the
Company's settlement agreement liabilities and proceeds from notes payable and
equity infusions.

The Company had signed an agreement with a group of investors for a $3.0 million
equity line of credit, anticipated to be drawn down in 12 monthly traunches,
which was initiated in October 2001. The Company had received cash from this
equity line of $761,729 through February 28, 2002, with the issuance of 477,161
of the Company's restricted common shares valued at an average price of $1.60
per share. Prior to Cetalon initiating the equity line, the price per share
stipulated under the equity line agreement, was revised to better reflect the
market price for Cetalon" stock. The price per share was revised from $3.27 per
share to $2.00 per share. The Company made the decision to temporarily suspend
access to the equity line based on the Logic strategic relationship that was
completed on January 19, 2002.

The Company's primary long-term capital requirements consist of debt repayment,
opening new stores, costs related to closing and/or acquisition of franchise
operations, and investments in capital improvements/working capital.

All of the Company's stores are located within Sears' department stores. The
Company pays Sears a commission based on net sales as part of the Sears License
Agreements. The Company expects to open contingent upon the approval of Sears,
additional new stores during the next few years. Each of these locations
generally requires capital expenditures of approximately $30,000 for fixtures
and equipment and leasehold improvements. Additionally, store openings require
cash of approximately $20,000 for inventory, before accounts payable financing.

Earlier this year the Company negotiated extended terms on a significant portion
of its trade payables, notes payable, and related party advances due to cash
flow constraints. The Company has had inventory levels reduced in its stores
recently due to reduced availability of cash to make purchases and is in the
process of rebuilding these inventory levels. The Company has relied on equity
investment infusions of cash to continue operations. The Company has made
significant overhead and expenses reductions in the last 90 days, which has
improved the operating cash flows and is anticipated to reduce the operating
losses for the future. The Company as a result of the strategic relationship
with Logic Nutrition has received new business channels, which generate both
revenue and cash. These business channels include a direct marketing business
for Logic Nutrition products, master distribution agreements for Logic Nutrition
products with certain regional operators and third party distributors. The
Company has negotiated merchandise credit lines with selected vendors to allow
for shipment of new products to be provided to stores, which is anticipated to
increase sales and operating cash flow. The Company continues to consider and
evaluate equity financing, as an added source to increase the Company's
liquidity to meet its past, current and future obligations with trade vendors
and creditors. The Company's inability to raise capital would materially and
adversely harm the Company's business and financial condition. To the extent
that additional capital is raised through the sale of equity or convertible debt
securities, the issuance of these securities could result in dilution to the
Company's stockholders.


                                       18


<PAGE>

SEASONALITY AND INFLATION

The Company's business is subject to some seasonal fluctuations and it typically
realizes lesser sales volume and operating profits during the summer months. In
addition, because Sears' department stores typically draw customers from a large
trade area, sales may be impacted by adverse weather or travel conditions.

The Company's results of operations and financial position are presented based
upon historical cost. Although the Company cannot accurately anticipate the
effect of inflation on its operations, it does not believe inflation is likely
to have a material adverse effect on its net sales or results of operations.

RECENT ACCOUNTING PRONOUNCEMENTS

SFAS No. 141, "Business Combinations," is effective July 1, 2001 and establishes
accounting and reporting standards to reflect only the purchase method of
accounting for business combinations. The adoption of SFAS No. 141 did not have
a material impact on the Company's financial statements.

SFAS No. 142, "Goodwill and Other Intangible Assets," is effective for fiscal
years beginning after December 15, 2001 and establishes accounting and reporting
standards for goodwill and other intangible assets. The adoption of SFAS No. 142
will not have a material impact on the Company's future financial statements.

SFAS No. 143, "Accounting for Asset Retirement Obligations", is effective for
fiscal years beginning after June 15, 2002 and addresses financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The Company's
management has not determined if the adoption of SFAS No. 143 would have any
substantial impact on the Company's future financial statements.

SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets",
is effective for fiscal years beginning after December 15, 2001 and addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets, including accounting for a segment of a business accounted for as a
discontinued operation. The adoption of SFAS No. 144 will not have a material
impact on the Company's future financial statements.





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<PAGE>


                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS
-------  -----------------

         In the matter of Natural Bridge, Inc. v. Claydan Enterprises, Inc.,
         John Danylowich and Cetalon Corporation, in the Court of Common Pleas,
         Civil Trial Division, Philadelphia Country, docket number 1614, the
         Court has compelled the Plaintiff, Claydan and John Danylowich to
         participate in arbitration. The action against the Company has been
         stayed pending resolution by arbitration.

         On March 13, 2002, Baker Designed Communications filed a Summons and
         Complaint against the Company styled, Gary Robert Baker, Inc. D.b.a.
         Baker Designed Communications v. Cetalon Corporation in the Superior
         Court for the State of California, Los Angeles, Superior Court. Case
         No. BC269899 in the amount of approximately $96,000. Plaintiff has
         requested relief according to proof at trial. Plaintiff's complaint
         alleges that the Company breached a contract for the Plaintiff to
         provide design, marketing and merchandising services. Management
         disputes these allegations and intends to defend the Company's position
         vigorously. Management does not believe that this will have a material
         adverse effect on the Company's financial condition, results of
         operations, or future cash flows.

         From time to time, the Company may be engaged in litigation in the
         ordinary course of business or in respect of which it is insured or the
         cumulative effect of which litigation the Company's management does not
         believe may reasonably be expected to be materially adverse. With
         respect to existing claims or litigation, the Company's management does
         not believe that they will have a material adverse effect on the
         Company's financial condition, results of operations, or future cash
         flows.

ITEM 2.  CHANGE IN SECURITIES
-------  --------------------

         On December 6, 2002, the Company granted 800 restricted common shares
         of stock at a value of $1.40 per share (based on the closing price on
         the date of grant) to an employee in relation to a sales incentive
         program. The shares were issued pursuant to Regulation 4(2) of the
         Securities Act of 1933.

         On December 28, 2001 the Company granted 50,000 restricted common
         shares of stock at a value of $0.80 per share (based on the closing
         price on the date of grant) to an officer per their employment
         contract. The shares were issued pursuant to Regulation 4(2) of the
         Securities Act of 1933.

         On January19, 2002, the Company issued 6,889,736 restricted common
         shares at par value to GenTrust Finance SA, a Swiss corporation, as
         nominee for Logic Nutrition, as part of the terms and conditions of the
         Strategic Relationship Agreement with Logic Nutrition. The shares were
         issued in an isolated transaction not involving a public offering
         pursuant to Regulation 4(2) of the Securities Act of 1933.

         The Company also granted 30,000 shares of restricted common stock to a
         former employee of the Company and had previously recorded compensation
         expense of $31,500 which was cancelled in February of 2002 when it was
         determined that the compensation was not earned based on performance
         goals established at the date of grant.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
-------  -------------------------------

         During the three months ended February 28, 2002, the Company had no
         defaults upon Senior Securities.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-------  ---------------------------------------------------

         During the three months ended February 28, 2002, the Company had no
         submission of matters to vote of Security Holders.


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<PAGE>


ITEM 5.  OTHER INFORMATION
-------  -----------------

         On March 8, 2002, the Company filed and distributed to its shareholders
         a report on Schedule 14f-1 announcing that a change in the majority of
         the Company's Board of Directors had occurred.

ITEM 6.  REPORTS ON FORM 8-K
-------  -------------------

  (b)    Reports on Form 8-K

         On January 19, 2002, the Company filed a report on Form 8-K announcing
         the Company had entered into a Strategic Relationship Agreement with
         Logic Nutrition, Inc. and the appointment of six Directors to the Board
         of Directors and Elwood Sprenger as Cetalon's Chief Executive Officer.

         On April 16, 2002, the Company filed a report on Form 8-K announcing
         the change of its independent auditors from Deloitte and Touche LLP to
         Squar, Milner, Reehl, & Williamson, LLP for the fiscal year ended May
         30, 2002. The Company also announced the resignation of Jim Mault,
         Craig Huff and Dan Howells as Directors of the Company.






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<PAGE>


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on May 14, 2002.

                                                CETALON CORPORATION

                                                BY: /s/ Thomas A. Wagner
                                                    ----------------------------
                                                    Thomas A. Wagner
                                                    Chief Accountant


                                                BY: /s/ Elwood Sprenger
                                                    ----------------------------
                                                    Elwood Sprenger
                                                    Chief Executive Officer














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