<PAGE>

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

                                  FORM 10-QSB/A

        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 November 30, 2001
                                               -----------------

                                       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

1801 Century Park East, Suite 1830, Los Angeles, California      90067-2320
------------------------------------------------------------   --------------
     (Address of principal executive offices)                    (Zip Code)

Registrant's telephone number, including area code:           (310) 843-3600
                                                    ----------------------------

         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 January 17, 2002 there were 6,434,240 shares of the Registrant's
Common Stock outstanding.

<PAGE>

                                      INDEX

                                                                            PAGE
                                                                            ----

Part I.  Financial Information

         Item 1.  Financial Statements - Unaudited

                  Consolidated Balance Sheet at November 30, 2001              4

                  Consolidated Statements of Operations and Comprehensive
                      Loss for the three and six months ended November 30,
                      2001 and November 30, 2000                               5

                  Consolidated Statements of Cash Flows for the six months
                      ended November 30, 2001 and November 30, 2000            6

                  Notes to Consolidated Financial Statements                   7

         Item 2.  Management's Discussion and Analysis                        12

Part II. Other Information

         Item 1.  Legal Proceedings                                           18

         Item 2.  Change in Securities                                        18

         Item 3.  Defaults upon Senior Securities                             18

         Item 4.  Submission of matters to a vote of Security Holders         18

         Item 5.  Other Information                                           18

         Item 6.  Reports on Form 8-K                                         18

Signatures                                                                    19

                                       2

<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.

           CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS.

     Certain statements we make in this Quarterly Report on Form 10-QSB (as well
as in other public filings, our web site, press releases, and oral statements
made by Company management and/or representatives), constitute forward-looking
statements, which are subject to risks and uncertainties. Please see our Annual
Report on Form 10-KSB for the fiscal year ended May 31, 2001, for a broader
discussion of such risks and uncertainties.

                                       3

<PAGE>
<TABLE>

                                               Part I

ITEM 1.       FINANCIAL STATEMENTS - UNAUDITED

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

                                                                                    NOVEMBER 30,
                                                                                        2001
<S>                                                                                 <C>
ASSETS

CURRENT ASSETS:
  Cash                                                                              $   189,810
  Accounts receivable                                                                   233,495
  Inventory                                                                           1,586,653
  Prepaid expenses and other current assets                                              52,717
                                                                                    ------------

        Total current assets                                                          2,062,675

Property and equipment, net                                                             588,484

TOTAL                                                                               $ 2,651,159
                                                                                    ============

LIABILITIES AND SHAREHOLDERS' DEFICIENCY

CURRENT LIABILITIES:
  Accounts payable                                                                  $ 2,721,134
  Due to franchisees                                                                    162,524
  Current portion of settlement agreement liabilities                                   473,344
  Accrued liabilities                                                                   719,824
                                                                                    ------------

        Total current liabilities                                                     4,076,826

Notes payable                                                                           250,000
Convertible note payable                                                              1,000,000
Settlement agreement liabilities                                                      1,225,986
                                                                                    ------------

        Total liabilities                                                             6,552,812
                                                                                    ------------

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, 6,169,154 outstanding              617
  Additional paid-in-capital                                                          4,707,404
  Treasury stock                                                                       (100,000)
  Accumulated deficit                                                                (8,609,620)
  Accumulated other comprehensive income                                                 99,946
                                                                                    ------------
        Total shareholders' deficiency                                               (3,901,653)
                                                                                    ------------

TOTAL                                                                               $ 2,651,159
                                                                                    ============
</TABLE>

               See accompanying notes to consolidated financial statements.

                                       4

<PAGE>
<TABLE>

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

                                                   THREE MONTHS ENDED             SIX MONTHS ENDED
                                                   ------------------             ----------------
                                               OVEMBER 30,   NOVEMBER 30,     NOVEMBER 30,    NOVEMBER 30,
                                                   2001          2000             2001           2000
                                                   ----          ----             ----           ----
<S>                                               <C>        <C>             <C>            <C>
SALES                                             1,919,828  $    767,440    $  3,335,322   $  2,019,356

COST OF SALES                                     1,284,112       450,821       2,192,001      1,194,910
                                               ------------- -------------   -------------  -------------

GROSS PROFIT                                        635,716       316,619       1,143,321        824,446

SELLING, GENERAL, AND ADMINISTRATIVE
  EXPENSES                                        2,703,825       718,183       5,716,565      1,554,245
                                               ------------- -------------   -------------  -------------

OPERATING LOSS                                   (2,068,109)     (401,564)     (4,573,244)      (729,799)

OTHER INCOME (EXPENSE):
  Franchise fees                                     19,256        20,377          35,975         40,401
  Other income                                       -             19,851             705         40,137
  Interest expense                                 (159,292)      (16,660)       (211,092)       (33,368)
                                               ------------- -------------   -------------  -------------

        Total other income (expense), net          (140,036)       23,568        (174,412)        47,170
                                               ------------- -------------   -------------  -------------

NET LOSS                                         (2,208,145)     (377,996)     (4,747,656)      (682,629)

OTHER COMPREHENSIVE INCOME
  Foreign currency translation                       22,444        65,924          25,991         51,059
                                               ------------- -------------   -------------  -------------

COMPREHENSIVE LOSS                             $ (2,185,701) $   (312,072)   $ (4,721,665)  $   (631,570)
                                               ============= =============   =============  =============

BASIC AND DILUTED LOSS AVAILABLE
  TO COMMON SHAREHOLDERS                       $      (0.37) $      (0.83)   $      (0.83)  $      (1.68)
                                               ============= =============   =============  =============

BASIC AND DILUTED WEIGHTED-AVERAGE
  NUMBER OF SHARES OUTSTANDING                    5,905,574       375,700       5,687,440        375,700
                                               ============= =============   =============   ============

                         See accompanying notes to consolidated financial statements.
</TABLE>
                                                      5

<PAGE>
<TABLE>

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

                                                                   SIX MONTHS ENDED NOVEMBER 30,
                                                                  -------------------------------
                                                                      2001               2000
<S>                                                               <C>               <C>
CASH FLOWS (USED IN) PROVIDED BY
  OPERATING ACTIVITIES:
  Net loss                                                        $(4,747,656)      $  (682,629)
  Adjustments to reconcile net loss to net cash (used in)
    provided by operating activities:
    Depreciation and amortization                                     115,394            37,955
    Stock compensation for services and wages                         266,000                 -
    Beneficial conversion factor on convertible note payable          250,000                 -
    Changes in operating assets and liabilities:
      Accounts receivable                                               1,068            90,055
      Inventory                                                      (947,275)          339,566
      Prepaid expenses and other current assets                        62,281             4,338
      Accounts payable                                              2,022,969           194,941
      Due to franchisees                                             (111,559)           73,175
      Accrued liabilities                                             320,423           (55,168)
                                                                  ------------      ------------

        Net cash (used in) provided by operating activities        (2,768,355)            2,233
                                                                  ------------      ------------

CASH FLOWS USED IN INVESTING ACTIVITIES:
  Purchase of property and equipment                                  (94,605)          (23,660)
                                                                  ------------      ------------

        Net cash used in investing activities                         (94,605)          (23,660)
                                                                  ------------      ------------

CASH FLOWS PROVIDED BY FINANCING
  ACTIVITIES:
  Net proceeds from issuance of common stock                        1,109,223                 -
  Payment on settlement agreement liabilities, net                   (404,812)                -
  Net proceeds from related party loans and advances                        -           113,328
  Net proceeds (repayment) on notes payable                         1,250,000           (29,180)
                                                                  ------------      ------------

        Net cash provided by financing activities                   1,954,411            84,148
                                                                  ------------      ------------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                25,991            (2,264)

(DECREASE) INCREASE IN CASH                                          (882,558)           60,457

CASH, BEGINNING OF PERIOD                                           1,072,368            14,194
                                                                  ------------      ------------
CASH, END OF PERIOD                                               $   189,810       $    74,651
                                                                  ============      ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
    Cash paid during the six months ended for-
    Interest                                                      $    47,292       $    23,213
                                                                  ============      ============
    Taxes                                                         $         -       $         -
                                                                  ============      ============
</TABLE>

               See accompanying notes to consolidated financial statements.

                                            6

<PAGE>

                      CETALON CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                   SIX MONTHS ENDED NOVEMBER 30, 2001 AND 2000
--------------------------------------------------------------------------------
                                   (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
accounting principles generally accepted in the United States of America 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 six months ended November 30, 2001 and 2000 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 financial weaknesses and
cash flow concerns, which are characterized by recurring losses and
shareholders' deficiency. The Company has developed operational and strategic
plans to improve the Company's long-term financial condition, and financial
sourcing strategies with the goal of providing working capital to the business.
The Company has signed an agreement with a group of investors for a $3.0 million
equity line of credit, which is 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 November 30, 2001, 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 November 30, 2001. 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 is also
under negotiation with various financial institutions to establish leasing
facilities and bank lines, which it anticipates will be available to the
Company. 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 adjustments that might result from the outcome of this
uncertainty.

                                       7

<PAGE>

                      CETALON CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   SIX MONTHS ENDED NOVEMBER 30, 2001 AND 2000
--------------------------------------------------------------------------------
                                   (UNAUDITED)

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, (iv) or 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.

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

The Company's shareholders or their relatives own certain franchises. As of
November 30, 2001, approximately $16,000 is payable to related party 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 $19,000 and $19,000 for the three months ended
November 30, 2001 and 2000, respectively. For the six months ended November 30,
2001 and 2000, combined fees paid by related franchisees were approximately
$29,000 and $30,000, respectively.

The Company has purchased certain inventory from a corporation owned by a
shareholder. For the three and six months ended November 30, 2001, the Company
purchased approximately $30,000 and $124,000, respectively, from the related
corporation.

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 $20,000 and $40,000, respectively, for the three and six months
ended November 30, 2000. Such amounts are included in other income in the
accompanying consolidated statements of operations and comprehensive loss.

During March 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 Chairman and 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 six months ended November 30, 2001, the Company
incurred fees with Watley of approximately $51,000 and $135,000, respectively,
for management and consulting services, which are included in selling, general,
and administrative expenses in the accompanying consolidated statements of
operations and comprehensive loss, and $52,500 and $77,500, respectively, for
equity financing placement fees, which have been recorded as a reduction to
additional paid in capital in the accompanying consolidated Balance Sheet.
Effective 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 of
approximately $5,000 plus expense reimbursements.

                                       8

<PAGE>

                      CETALON CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   SIX MONTHS ENDED NOVEMBER 30, 2001 AND 2000
--------------------------------------------------------------------------------
                                   (UNAUDITED)

During the three and six months ended November 30, 2001, the Company incurred
fees with Watley of approximately $15,000 and $29,000, respectively, for rent,
which are included in selling, general and administrative expenses in the
accompanying consolidated statement of operations and comprehensive loss. As of
November 30,2001, the Company owed $17,044 to Watley, and is included in
accounts payable in the accompanying consolidated balance sheet. Effective
November 1, 2001, all obligations for services under the consulting agreement
with Watley have been terminated.

At November 30, 2001, settlement agreement liabilities include approximately
$140,000 due to 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 in
interest expense in the current statement of operations and comprehensive loss
for November 2001. 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. Two directors of the Company are 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 lessor
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 beneficial conversion factor has
been expensed as interest expense in the current statement of operations and
comprehensive loss for November 2001. Watley and another shareholder were each
paid a $25,000 placement fee for the transaction, which are included in other
assets in the accompanying consolidated balance sheet. The fees have been
expensed as interest expense in the current statement of operations and
comprehensive loss for November 2001.

NOTE 7 - STOCK BASED COMPENSATION
---------------------------------

On July 24, 2001 the Company adopted the 2001 Equity Incentive Plan (the "Plan")
to provide stock-based compensation to employees, officers, directors and
consultants. The Plan provides for non-qualified stock options, supplemental
stock options, stock bonus rights, restricted share grants, and stock
appreciation rights. The maximum number of shares authorized under the Plan is
1,550,000. 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.
Supplemental stock options and restricted stock grants may be issued at 85% of
the fair market value on the date of the grant. The options vest over three
years and expire after ten years. 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.

                                       9

<PAGE>

                      CETALON CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   SIX MONTHS ENDED NOVEMBER 30, 2001 AND 2000
--------------------------------------------------------------------------------
                                   (UNAUDITED)

The Company granted 925,500 non-qualified stock options during the six months
ended November 30, 2001 at an exercise price of $0.85 per share. These options
have a vesting period of one-third in the first year from date of issuance and
monthly thereafter for two years. Fair market value as of date of grant was
$1.17, 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. No options have been exercised or canceled during the six
months ended November 30, 2001. No supplemental stock options, stock bonus
rights, or stock appreciation rights were issued or are outstanding as of
November 30, 2001. In accordance with APB 25, the Company valued the options of
approximately $300,000 which will be amortized to compensation expense over the
vesting period. No compensation expense has been recognized as of November 30,
2001.

During the six months ended November 30, 2001, the Company granted 100,000
shares of restricted common stock to an officer of the Company. The restricted
shares were recorded at $1.17 cents per share, with $117,000 recorded to
additional paid-in-capital and compensation expense as of November 2001.

The Company also granted 30,000 shares of restricted common stock to a former
employee of the Company and recorded compensation expense of $31,500.

Additionally, the Company has an incentive program with certain employees
whereby the employees may be granted shares of restricted common stock based on
the Company's retail stores achieving specific sales goals. As of November 30,
2001, a total of 126,000 shares of restricted common stock are available for
grant to the employees, of which none have been granted.

NOTE 8 - EXERCISE OF STOCK WARRANTS
-----------------------------------

On July 5, 2001, a shareholder exercised a warrant to purchase 238,095 shares of
the Company at a price of $2.10 per share, or aggregate consideration of
$500,000, incurring placement fees of $50,000, which has been recorded as a
reduction to additional paid-in capital.

NOTE 9 - REGISTRATION OF COMMON SHARES ON FORM S-8
--------------------------------------------------

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"). The
Plan was created to provide selected employees, directors, and consultants of
the Company, or its affiliates, with options to purchase the Company's common
stock or other equity interests in the Company. The Plan also allows for the
Company to grant stock bonuses, rights to purchase restricted stock, and stock
appreciation rights.

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 valued at $1.35
per share (based on the closing bid price on the date of issuance), with $67,500
recorded to consulting expense as of November 2001, and 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.

                                       10

<PAGE>

                      CETALON CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   SIX MONTHS ENDED NOVEMBER 30, 2001 AND 2000
--------------------------------------------------------------------------------
                                   (UNAUDITED)

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.

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
substantional 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.

NOTE 13 - SUBSEQUENT EVENTS
---------------------------

On December 4, 2001, the Company entered into an investment banking agreement
with Wells Fargo Van Kasper LLC ("WFVK"). WFVK agreed to provide the Company
with investment banking services for business acquisitions being pursued by the
Company, and for a private placement of equity, equity-related, and debt
securities up to $25,000,000. The Company was required to pay a non-refundable
retainer of $75,000 to WFVK upon the signing of the agreement, and was required
to pay $250,000 to WFVK upon completion of a business acquisition. Subsequent to
the finalization of this agreement, the Company decided not to pursue this
agreement and did not complete the conditions to initiate the agreement. In
addition based on the Company's merger/acquisition options the Company is
evaluating a revised proposal from WFVK.

On December 12, 2001, Anthony J. Bryan, Chairman of the Board of Directors, and
John A. Bryan, Chief Executive Officer and Vice Chairman of the Board of
Directors, have resigned from the Company. Key members of the Company's senior
management team will report to the Board of Directors on an interim basis until
a new CEO is appointed.

During December 2001, the Company granted the issuance of 265,086 common shares
to employees and consultants for services and wages valued from $0.042 per share
to $1.40 per share (based on the closing  prices on the date of grant) totaling
$131,120  which was recorded to compensation and consulting expense.

                                       11

<PAGE>

                      CETALON CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   SIX MONTHS ENDED NOVEMBER 30, 2001 AND 2000
--------------------------------------------------------------------------------
                                   (UNAUDITED)

On December 31, 2001 Sears Canada Inc. ("Sears") has advised the Company that
certain terms and conditions of the Company's license with Sears Canada are not
being met. The Company's management team is working on remedies to those
concerns with Sears Canada. Sears Canada has indicated to the Company that it
has until January 31, 2002 to provide resolution adequate to Sears Canada to
address its concerns.

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 January 14, 2002, the Company operates 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 November 30, 2001, the Company opened two new
owned retail stores (all in Canada) and closed no owned stores. No franchise
stores were opened or closed in the United States or Canada during the three
months ended November 30, 2001. The Company acquired one franchise store in
Canada during the three months ended November 30, 2001.

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 were
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 re-capitalization 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.

                                       12

<PAGE>

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.

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.

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
                                                       ------------------        -----------------
                                                   NOV. 30,     NOV. 30,     NOV. 30,    NOV. 30,
                                                     2001          2000        2001         2000
                                                   --------     --------     --------     --------
<S>                                                 <C>           <C>         <C>           <C>
STATEMENT OF OPERATIONS DATA:
Sales                                                100.0%       100.0%       100.0%       100.0%
Cost of sales                                         66.9         58.7         65.7         59.2
                                                   --------     --------     --------     --------

Gross profit                                          33.1         41.3         34.3         40.8
Selling, general, and administrative expenses        140.8         93.6        171.4         77.0
                                                   --------     --------     --------     --------

Loss before other income (expense)                  (107.7)       (52.3)      (137.1)       (36.2)
Franchise fees                                         1.0          2.6          1.1          2.0
Other income (expense)                                 0.0          2.6          0.0          2.0
Interest expense                                      (8.3)        (2.2)        (6.3)        (1.6)
                                                   --------     --------     --------     --------

Net loss                                            (115.0)%      (49.3)%     (142.3)%      (33.8)%
                                                   ========     ========     ========     ========
</TABLE>

                                       13

<PAGE>

THREE MONTHS ENDED NOVEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED NOVEMBER 30,
2000

Sales were approximately $1.9 million for the three months ended November 30,
2001, compared to approximately $0.8 million for the three months ended November
30, 2000. 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 November 30, 2001. The Canadian operation sales were
approximately $1.6 million for the three months ended November 30, 2001,
compared to approximately $0.8 million for the three months ended November 30,
2000. The increase in sales in Canada of 115.0% was mainly the result of a
larger advertising program during the three months ended November 30, 2001 as
compared to the three months ended November 30, 2000 and an improved in stock
position over the prior year. The Company incurred approximately $425,000 of net
advertising expense in Canada during the three months ended November 30, 2001,
compared to approximately $100,000 of net advertising expense for the same
period in the previous year.

Gross profit decreased as a percentage of net sales to 33.1% for the three
months ended November 30, 2001 from 41.3% 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 advertising campaign in the Canadian
operations to drive sales.

Selling, general and administrative expenses increased as a percentage of net
sales to 140.8% for the three months ended November 30, 2001, from 93.6% for the
three months ended November 30, 2000. This increase resulted from the start-up
of store and corporate operations in the United States during 2001, including
business strategy consulting, public relations, and investor communications.
Total selling, general and administrative expenses for the U.S. operation was
approximately $1.3 million, which is comprised of approximately $0.3 million
(23%) stores operating expenses and approximately $1.0 million (77%) other
selling, general and administrative expenses. Total selling, general, and
administrative expenses for the Canadian operation (excluding the U.S. costs)
were approximately $1.4 million or 72.9% as a percentage of net sales for the
three months ended November 30, 2001, compared to approximately $0.7 million or
91.2% as percentage of net sales for the three months ended November 30, 2000.
The decrease as a percentage of net sales was due to better leveraging of store
and corporate labor expenses.

The Company's operating loss before other income (expenses) increased
approximately $1.7 million to approximately $2.1 million for the three months
ended November 30, 2001, from approximately $0.4 million for the three months
ended November 30, 2000. This increase was the result of the significant
increase in selling, general and administrative expenses described above.

Interest expense increased to approximately $159,000 for the three months ended
November 30, 2001 from approximately $17,000 for the three months ended November
30, 2000 due to the long-term settlement agreements entered into by the Company
and its vendors during the period from January 2001 to April 2001.

As a result of the above, the Company reported a net loss of approximately $2.2
million, a loss of $0.37 per share for the three months ended November 30, 2001
compared to a net loss of approximately $0.4 million, a loss of $0.83 per share
for the three months ended November 30, 2000.

SIX MONTHS ENDED NOVEMBER 30, 2001 COMPARED TO SIX MONTHS ENDED NOVEMBER 30,
2000

Sales were approximately $3.3 million for the six months ended November 30,
2001, compared to approximately $2.0 million for the six months ended November
30, 2000. 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 $0.5 million for the six
months ended November 30, 2001. The Canadian operation sales were approximately
$2.8 million for the six months ended November 30, 2001, compared to
approximately $2.0 million for the six months ended November 30, 2000. The
increase in sales in Canada of 41.3% was mainly the result of a larger
advertising program during the three months ended November 30, 2001 as compared
to the three months ended November 30, 2000. The Company incurred approximately
$570,000 of net advertising expense in Canada during the six months ended
November 30, 2001, compared to approximately $150,000 of net advertising expense
for the same period in the previous year.

                                       14

<PAGE>

Gross profit decreased as a percentage of net sales to 34.3% for the six months
ended November 30, 2001 from 40.8% 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 171.4% for the six months ended November 30, 2001, from 77.0% for the
six months ended November 30, 2000. This increase resulted from the start-up of
store and corporate operations in the United States during 2001, 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 $3.4 million, which is comprised of $1.2 million
(35%) start up costs and $2.2 million (65%) other selling, general and
administrative expenses. Total selling, general and administrative expenses for
the Canadian operation (excluding the U.S. costs) were approximately $2.3
million or 69.7% as a percentage of net sales for the six months ended November
30, 2001, compared to approximately $1.6 million or 80.0% as percentage of net
sales for the six months ended November 30, 2000. The increase was primarily due
to additional advertising expenses incurred during the six months ended November
30, 2001 as compared to the same period in the previous year.

The Company's operating loss before other income (expenses) increased $3.9
million to $4.6 million for the six months ended November 30, 2001, from $0.7
million for the six months ended November 30, 2000. This increase was the result
of the significant increase in selling, general and administrative expenses
described above.

Interest expense increased to approximately $211,000 for the six months ended
November 30, 2001 from approximately $33,000 for the six months ended November
30, 2000 due to the long-term settlement agreements entered into by the Company
and its vendors during the period from January 2001 to April 2001.

As a result of the above, the Company reported a net loss of approximately $4.7
million, a loss of $0.83 per share for the six months ended November 30, 2001
compared to a net loss of approximately $0.7 million, a loss of $1.68 per share
for the six months ended November 30, 2000.

Changes in Balance Sheet

Total assets decreased by $19,421 from $2,670,580 as of May 31, 2001 to
$2,651,159 as of November 30, 2001. The significant difference is the decrease
in cash of $882,558 and the increase in inventory of $947,275. 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 $3,077,021 from $3,475,791 as of May 31, 2001
to $6,552,812 as of November 30, 2001. The increase is due primarily to accounts
payable increasing from $698,165 million to $2,721,134 and the accrued
liabilities increasing from $399,401 as of May 31, 2001 as compared to $719,824
as of November 30, 2001. The Company made payments on settlement agreements of
$404,812 as of November 30, 2001. 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.

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 $2,768,355 for the six months ended November 30,
2001, as compared to $2,233 provided by operations for the same period in the
previous year. The significant increase in cash used in operations was primarily
caused by the start-up of the United States operations during the six months
ended November 30, 2001. 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.

                                       15

<PAGE>

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 $94,605 for the six months ended November 30, 2001, as compared
to $23,660 for the same period in the previous 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 has signed an agreement with a group of investors for a $3.0 million
equity line of credit, which is anticipated to be drawn down in 12 monthly
trenches, which was initiated in October 2001. The Company has received cash
from this equity line of $761,729 as of November 30, 2001, with the issuance of
477,161 of the Company's 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 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 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's primary long-term capital requirements consist of 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,
a significant amount of new stores during the next few years. Each location
generally requires capital expenditures of $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 due
to reduced availability of cash to make purchases but has significantly
increased these levels by the summer of 2001. The Company has relied on equity
investment infusions of cash to continue operations. If the Company is unable to
generate and maintain positive operating cash flows and operating income in the
future, or continue to obtain equity financing, it would likely require funding
from other sources. If needed, 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.

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

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 for fiscal years beginning
after June 30, 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.

                                       16

<PAGE>

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
substantional 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.

                                       17

<PAGE>

                           PART II. OTHER INFORMATION

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

On July 13, 2001 Natural Bridge, Inc. filed a Writ of Summons against the
Company styled, 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. Plaintiff has requested
relief according to proof at trial. Plaintiff's complaint alleges that Company
assisted Claydan Enterprises Inc. with breaching the terms of a term sheet.
Management believes that the allegations are without merit and intends to defend
the Company's position vigorously.

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

              The Company has signed an agreement with a group of investors for
              a $3.0 million equity line of credit, which is anticipated to be
              drawn down in 12 monthly trenches, which was initiated in October
              2001. The Company has received cash from this equity line of
              $761,729 as of November 30, 2001, with the issuance of 477,161 of
              the Company's restricted common shares valued at an average price
              of $1.60 per share. The restricted shares were issued to foreign
              investors pursuant to Regulation S of the Securities Act of 1933.

              The Company also 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 valued at $1.35 per share (based on the
              closing bid price on the date of grant), totaling $67,500 which
              was expensed as consulting fees in the current statement of
              operations and comprehensive loss for the period ending November
              30, 2001. The agreement also specified that the Company would also
              issue 750,000 additional shares conditional upon RIG remitting
              payment equal to $1.75 per share for 500,000 shares and $2.00 per
              share for 250,000 shares.

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

              During the three months ended November 30, 2001, the Company had
              no defaults upon Senior Securities.

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

              During the three months ended November 30, 2001, the Company had
              not submission of matters to vote of Security Holders.

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

              None

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

     (b)      Reports on Form 8-K

              During the three months ended November 30, 2001, the Company filed
              no reports on Form 8-K.

                                       18

<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 8, 2002.

                                                   CETALON CORPORATION

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

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

                                       19