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

                                   FORM 10-KSB
                                   ------------
(Mark One)
[X]      Annual  Report  Pursuant  to  Section  13 or  15(d)  of The  Securities
         Exchange Act of 1934

                   For the Fiscal Year Ended December 31, 2001

[ ]      Transition  Report  Pursuant  to Section 13 or 15(d) of The  Securities
         Exchange Act of 1934

                        Commission File Number 000-32189

                                 CHALLEDON, INC.
                                 ---------------
                 (Name of small business issuer in its charter)

            UTAH                                         87-0472608
------------------------------                       -------------------
State or other jurisdiction of                        (I.R.S. Employer
incorporation or organization)                       Identification No.)

              1037 East 3300 South #203, Salt Lake City, Utah 84106
              -----------------------------------------------------
               (Address of principal executive offices) (Zip Code)

Issuer's telephone no.:  (801) 467-6715

Securities registered pursuant to Section 12(b) of the Exchange Act:   None

Securities registered pursuant to Section 12(g) of the Exchange Act:   Common

         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days. Yes [X]
  No  [ ]

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will be
contained,  to the best of the  Registrant's  knowledge,  in definitive proxy or
information  statements  incorporated  by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. [ ]

         State the issuer's revenues for its most recent fiscal year.  $ -0-

         State  the  aggregate   market  value  of  the  voting  stock  held  by
non-affiliates  computed by  reference to the price at which the stock was sold,
or the average bid and ask prices of such stock as of a specified date within 60
days. $ 0

         State the number of shares  outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.

          Class                             Outstanding as of Decmber 31, 2001
Common Stock, Par Value $.001                          1,412,000

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      NONE
Transitional Small Business Disclosure Format.   Yes  [ ] No [X]


<PAGE>



                                 CHALLEDON, INC.

                                TABLE OF CONTENTS
                                                                            Page
                                                                            ----
                                     PART I

Item 1.           Description of Business ..................................  3

Item 2.           Description of Property...................................  6

Item 3.           Legal Proceedings.........................................  6

Item 4.           Submission of Matter to a Vote of Security Holders........  6

                                     PART II

Item 5.           Market for Common Equity and Related
                  Stockholder Matters.......................................   6

Item 6.           Management's Discussion and Analysis
                  or Plan of Operation......................................   8

Item 7.           Financial Statements......................................   9

Item 8.           Changes in and Disagreements with Accountants
                  on Accounting and Financial Disclosure....................  21

                                    PART III

Item 9.           Directors, Executive Officers, Promoters
                  and Control persons; Compliance with Section 16(a)
                  of the Exchange Act.......................................  21

Item 10.          Executive Compensation....................................  22

Item 11.          Security Ownership of Certain Beneficial
                  Owners and Management.....................................  22

Item 12.          Certain Relationships and Related Transactions............  22

Item 13.          Exhibits and Reports on Form 8-K..........................  23

                  SIGNATURES................................................  24

                                       -2-

<PAGE>



                                     PART I

Item 1.  Description of Business

Business Development

         Challedon,  Inc. (the  "Company") was organized on May 24, 1990,  under
the laws of the State of Utah.  Since its  inception,  the  Company has had only
limited operations and is considered a development stage company. The Company is
currently seeking potential operating businesses and business opportunities with
the intent to acquire or merge with such  businesses.  Because of the  Company's
current status having minimal assets, if the Company does  successfully  acquire
or merge with an  operating  business  opportunity,  it is likely  that  current
shareholders will experience  substantial dilution and there will most likely be
a change in control of the Company.

         In  December  2000,  the  Company  voluntarily  filled  a  registration
statement  on Form 10-SB in order to make  information  concerning  itself  more
readily  available  to the  public.  As a  result  of  filing  its  registration
statement,  the Company is  obligated to file with the  Securities  and Exchange
Commission (the "SEC") certain interim and periodic reports  including an annual
report containing audited financial statements.  The Company anticipates that it
will  continue  to file such  reports,  notwithstanding  the fact  that,  in the
future,  it may not  otherwise  be  required to file such  reports  based on the
criteria set forth under Section 12(g) of the Exchange Act.

         A target  acquisition  or merger  candidate  will become subject to the
same reporting  requirements  as the Company upon  consummation of any merger or
acquisition.   Accordingly,  any  acquired  entity  must  also  provide  audited
financial statements for at least the two most recent fiscal years or, if it has
been in business for less than two years,  audited  statements  will be required
from the period of inception.  This could limit the Company's  potential  target
business  opportunities due to the fact that many private business opportunities
either do not have  audited  financial  statements,  or are  unable  to  produce
audited statements without undo time and expense.

         The Company's principal executive offices are located at 1037 East 3300
South  #203,  Salt Lake City,  Utah  84106,  and its  telephone  number is (801)
467-6715.

Business of Issuer

         The Company has a limited  operating  history and no  representation is
made,  nor is any  intended,  that the  Company  will be able to carry on future
business activities  successfully.  Further,  there can be no assurance that the
Company  will have the ability to acquire or merge with an  operating  business,
business opportunity or property that will be of material value to the Company.

         The Company does not have  significant  cash or other material  assets,
nor does it have an  established  source  of  revenues  sufficient  to cover its
operating costs and to allow it to continue as a going concern. Accordingly, the
Company's  independent  accountants  have  included in the  Company's  financial
statements a going  concern  qualification  footnote.  Further,  there can be no
assurance  that the  Company  will have the  ability to acquire or merge with an
operating  business,  business  opportunity or property that will be of material
value to the Company.

         Management   plans  to   investigate,   research   and,  if  justified,
potentially   acquire  or  merge  with  one  or  more   businesses  or  business
opportunities.  The Company currently has no commitment or arrangement,  written
or oral,  to  participate  in any business  opportunity  and  management  cannot
predict  the nature of any  potential  business  opportunity  it may  ultimately
consider.   Management  will  have  broad  discretion  in  its  search  for  and
negotiations with any potential business or business opportunity.

Sources of Business Opportunities

         Management intends to use various resources in the search for potential
business opportunities including, but not limited to, the Company's officers and
directors,  consultants,  special advisors,  securities broker-dealers,  venture
capitalists,  members of the  financial  community  and  others who may  present
management with unsolicited proposals. Because of the Company's lack of capital,
it may not be able to retain on a fee basis  professional  firms specializing in
business acquisitions and reorganizations.  Rather, the Company will most likely
rely on outside sources,  not otherwise  associated with the Company,  that will
accept  their  compensation  only after the Company has  finalized a  successful
acquisition or merger.  To date, the Company has not engaged or entered into any
discussion,  agreement or understanding with a particular  consultant  regarding
the Company's search for business  opportunities.  Presently,  no final decision
has been made nor is management in a position to identify any future prospective
consultants for the Company.

         If the Company elects to engage an independent consultant, it will look
only to  consultants  that have  experience  in working with small  companies in
search  of an  appropriate business opportunity. Also,  the consultant must have

                                      -3-
<PAGE>


experience in locating  viable merger and/or  acquisition  candidates and have a
proven track record of finalizing  such business  consolidations.  Further,  the
Company  would like to engage a consultant  that will provide  services for only
nominal up-front  consideration  and is willing to be fully  compensated only at
the close of a business consolidation.

         The Company does not intend to limit its search to any specific kind of
industry or  business.  The Company may  investigate  and  ultimately  acquire a
venture  that  is in  its  preliminary  or  development  stage,  is  already  in
operation,  or in various  stages of its corporate  existence  and  development.
Management  cannot  predict at this time the status or nature of any  venture in
which the Company may  participate.  A potential  venture might need  additional
capital or merely  desire to have its shares  publicly  traded.  The most likely
scenario for a possible business arrangement would involve the acquisition of or
merger with an operating  business that does not need  additional  capital,  but
which merely desires to establish a public trading market for its shares.

Evaluation

         Once the  Company has  identified  a  particular  entity as a potential
acquisition  or merger  candidate,  management  will seek to  determine  whether
acquisition  or  merger  is  warranted  or  whether  further   investigation  is
necessary.  Such determination will generally be based on management's knowledge
and  experience,  or with the  assistance  of outside  advisors and  consultants
evaluating the preliminary  information  available to them. Management may elect
to engage outside  independent  consultants to perform  preliminary  analysis of
potential  business  opportunities.  However,  because of the Company's  lack of
capital  it may not have the  necessary  funds  for a  complete  and  exhaustive
investigation of any particular opportunity.

         In  evaluating  potential  business  opportunities,  the  Company  will
consider,  to the extent relevant to the specific  opportunity,  several factors
including:

         *        potential benefits to the Company and its shareholders;
         *        working  capital,  financial  requirements and availability of
                  nature of present and expected competition;
         *        quality and experience of management;
         *        need for further research, development or exploration;
         *        potential for growth and expansion;
         *        potential for  profits;  and
         *        other factors deemed relevant to the specific opportunity.

         Because the Company has not to date located or identified  any specific
business  opportunity,  there are  certain  unidentified  risks  that  cannot be
adequately  expressed  prior  to  the  identification  of  a  specific  business
opportunity. There can be no assurance following consummation of any acquisition
or merger that the business venture will develop into a going concern or, if the
business is already  operating,  that it will continue to operate  successfully.
Many of the  potential  business  opportunities  available  to the  Company  may
involve new and untested products,  processes or market strategies which may not
ultimately prove successful.

Form of Potential Acquisition or Merger

         Presently,  the  Company  cannot  predict  the manner in which it might
participate  in a prospective  business  opportunity.  Each  separate  potential
opportunity  will be reviewed  and,  upon the basis of that  review,  a suitable
legal structure or method of participation will be chosen. The particular manner
in which the Company participates in a specific business opportunity will depend
upon the nature of that  opportunity,  the  respective  needs and desires of the
Company and management of the opportunity, and the relative negotiating strength
of the parties involved. Actual participation in a business venture may take the
form of an asset purchase,  lease, joint venture,  license,  partnership,  stock
purchase, reorganization,  merger or consolidation. The Company may act directly
or indirectly through an interest in a partnership,  corporation,  or other form
of  organization,  however,  the  Company  does not  intend  to  participate  in
opportunities through the purchase of minority stock positions.

         Because the  Company  has only  minimal  assets,  if the  Company  does
successfully  acquire  or merge  with an  operating  business  opportunity,  the
Company's present shareholders will most likely experience substantial dilution.
It is also  likely that the owners of a business  opportunity  which the Company
acquires or mergers  with will  acquire  control of the Company  following  such
transaction.  Management has not  established any guidelines as to the amount of
control it will offer to prospective business  opportunities,  rather management
will attempt to negotiate  the best  possible  agreement  for the benefit of the
Company's shareholders.

         Management does not presently  intend to borrow funds to compensate any
persons, consultants, promoters or affiliates in relation to the consummation of
a potential  merger or  acquisition.  However,  if the Company  engages  outside
advisors or  consultants  in its search for  business  opportunities,  it may be
necessary for the Company to attempt to raise  additional  funds. As of the date
hereof,  the Company has not made any  arrangements or definitive  agreements to


                                       -4-

<PAGE>



use outside  advisors or consultants  or to raise any capital.  In the event the
Company does need to raise capital, most likely the only method available to the
Company  would be the private sale of its  securities.  These  possible  private
sales  would most  likely have to be to persons  known by the  directors  of the
Company  or to  venture  capitalists  that  would be willing to accept the risks
associated with investing in a company with no current operation. Because of the
nature of the Company as a  development  stage  company,  it is unlikely that it
could make a public sale of securities or be able to borrow any  significant sum
from either a commercial or private  lender.  Management will attempt to acquire
funds on the best  available  terms for the  Company.  However,  there can be no
assurance that the Company will be able to obtain additional funding when and if
needed, or that such funding, if available,  can be obtained on terms reasonable
or acceptable to the Company. There is also a possibility that the Company could
sell securities to its management or affiliates.

         In  the  case  of a  future  acquisition  or  merger,  there  exists  a
possibility  that a  condition  of such  transaction  might  include the sale of
shares  presently  held by officers  and/or  directors of the Company to parties
affiliated with or designated by the potential business opportunity.  Presently,
management has no plans to seek or actively  negotiate such terms.  However,  if
this  situation  does arise,  management  is obligated  to follow the  Company's
Articles of Incorporation and all applicable  corporate laws in negotiating such
an  arrangement.  Under  this  scenario  of a  possible  sale  by  officers  and
directors,  it is unlikely that similar terms and conditions would be offered to
all other  shareholders of the Company or that the  shareholders  would be given
the opportunity to approve such a transaction.

         In the event of a successful  acquisition or merger, a finder's fee, in
the  form  of cash  or  securities,  may be  paid  to  persons  instrumental  in
facilitating  the  transaction.  The Company has not established any criteria or
limits for the  determination  of a finder's fee,  although it is likely that an
appropriate  fee  will  be  based  upon  negotiations  by the  Company  and  the
appropriate business opportunity and the finder.  Management cannot at this time
make an estimate as to the type or amount of a potential finder's fee that might
be paid.  It is unlikely that a finder's fee will be paid to an affiliate of the
Company because of the potential conflict of interest that might result. If such
a fee was paid to an  affiliate,  it would have to be in such a manner so as not
to  compromise  an  affiliate's  possible  fiduciary  duty to the  Company or to
violate the doctrine of corporate opportunity.  Further, in the unlikely event a
finder's  fee was to be paid to an  affiliate,  the  Company  would have such an
arrangement ratified by the shareholders in an appropriate manner.

         Presently, it is highly unlikely that the Company will acquire or merge
with a business  opportunity  in which the Company's  management,  affiliates or
promoters have an ownership interest.  Any possible related party transaction of
this type would have to be ratified by a disinterested Board of Directors and by
the  shareholders.  Management does not anticipate that the Company will acquire
or merge with any related entity.  Further,  as of the date hereof,  none of the
Company's  officers,  directors,  or  affiliates  or  associates  have  had  any
preliminary contact or discussions with any specific business  opportunity,  nor
are there any present plans, proposals, arrangements or understandings regarding
the  possibility  of  an  acquisition  or  merger  with  any  specific  business
opportunity.

Rights of Shareholders

         It is presently  anticipated by management that prior to consummating a
possible  acquisition or merger, the Company, if required by relevant state laws
and regulations,  will seek to have the transaction  ratified by shareholders in
the appropriate manner.

         Under the  corporation  laws of the State of Utah,  shareholders of the
Company may be entitled to assert  dissenters' rights if the Company acquires or
merges  with a business  opportunity.  Shareholders  will be entitled to dissent
from and  obtain  payment  of the fair  value of their  shares  in the  event of
consummation of a plan of merger to which the Company is a party, if approval by
the shareholders is required under applicable Utah law. Also,  shareholders will
be entitled to dissenters' rights if the Company enters into a share exchange if
the Company's shares are to be acquired. A shareholder who is entitled to assert
dissenter's  rights  and  obtain of the fair  value for  their  shares,  may not
challenge the corporate action creating this  entitlement,  unless the action is
unlawful  or  fraudulent  with  respect to the  shareholder  or the  Company.  A
dissenting shareholder shall refrain from voting their shares in approval of the
corporate  action.  If the proposed  action is approved by the required  vote of
shareholders,  the Company must give notice to all shareholders who delivered to
the Company their written notice of dissent.


Competition

         Because the Company has not  identified  any potential  acquisition  or
merger  candidate,  it is unable to  evaluate  the type and extent of its likely
competition.  The Company is aware that there are several other public companies
with only nominal  assets that are also  searching for operating  businesses and
other business opportunities as potential acquisition or merger candidates.  The

                                       -5-

<PAGE>

Company will be in direct  competition  with these other public companies in its
search for business  opportunities  and, due to the Company's lack of funds,  it
may be difficult to successfully compete with these other companies.

Employees

         As of the date hereof,  the Company does not have  employees and has no
plans for retaining employees until such time as the Company's business warrants
the  expense,  or until the  Company  successfully  acquires  or merges  with an
operating  business.  The Company may find it  necessary  to  periodically  hire
part-time clerical help on an as-needed basis.

Facilities

         The Company is currently  using as its principal  place of business the
personal offices of a shareholder,  James R. Glavas,  located in Salt Lake City,
Utah. Mr. Glavas is the father of the Company's President,  James E. Glavas. The
facilities are shared with other businesses. Although the Company has no written
agreement and pays no rent for the use of this facility, it is contemplated that
at  such  future  time as the  Company  acquires  or  merges  with an  operating
business,  the Company  will secure  commercial  office space from which it will
conduct  its  business.  However,  until such time as the Company  completes  an
acquisition or merger, the type of business in which the Company will be engaged
and the type of office and other  facilities  that will be  required is unknown.
The Company has no current plans to secure such commercial office space.

Industry Segments

         No information is presented regarding industry segments. The Company is
presently a development  stage  company  seeking a potential  acquisition  of or
merger with a yet to be identified  business  opportunity.  Reference is made to
the  statements of income  included  herein in response to Part F/S of this Form
10-SB for a report of the  Company's  operating  history for the past two fiscal
years.

Item 2.  Description of Property

         The Company does not own any material property.

Item 3.  Legal Proceedings

         The Company is not a party to any material  pending  legal  proceedings
and no such action by, or to the best of its knowledge,  against the Company has
been threatened.

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

         No matters were submitted to a vote of the Company's Securities Holders
during the fourth quarter of the Company's fiscal year ending December 31, 2001.

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

         The  Company  has made an  application  to the  NASD for the  Company's
shares to be quoted on the OTC Bulletin Board. The Company's  application to the
NASD consists of current corporate  information,  financial statements and other
documents as required by Rule 15c2-11 of the Securities Exchange Act of 1934, as
amended.  Inclusion on the OTC Bulletin  Board permits price  quotations for the
Company's  shares to be published by such  service.  The Company is not aware of
any  established  trading market for its common stock nor is there any record of
any reported trades in the public market in recent years.  The Company  believes
that most likely its shares will not be traded in the public  market  until such
time as a merger or  acquisition  can be  consummated.  Also,  future  secondary
trading  of the  Company's  shares  may be  subject  to  certain  state  imposed
restrictions regarding shares of shell companies.  Except for its application to
the  OTC  Bulletin  Board,  there  are  no  plans,  proposals,  arrangements  or
understandings with any person concerning the development of a trading market in
any of the Company's securities.  The Company's common stock has not traded in a
public market.

         The ability of an  individual  shareholder  to trade their  shares in a
particular  state may be subject to various rules and regulations of that state.
A number of states  require that an issuer's  securities  be registered in their
state or  appropriately  exempted from  registration  before the  securities are
permitted  to  trade  in that  state.  Presently,  the  Company  has no plans to
register  its  securities  in any  particular  state.  Further,  most likely the
Company's  shares will be subject to the  provisions  of Section  15(g) and Rule
15g-9 of the Securities  Exchange Act of 1934, as amended (the "Exchange  Act"),
commonly referred to as the "penny stock" rule. Section 15(g) sets forth certain

                                       -6-

<PAGE>



requirements for transactions in penny stocks and Rule 15g-9(d)(1)  incorporates
the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.

         The SEC generally  defines  penny stock to be any equity  security that
has a market  price less than $5.00 per  share,  subject to certain  exceptions.
Rule 3a51-1  provides that any equity security is considered to be a penny stock
unless that security is: registered and traded on a national securities exchange
meeting  specified  criteria  set by the SEC;  authorized  for  quotation on The
NASDAQ Stock Market;  issued by a registered  investment company;  excluded from
the  definition on the basis of price (at least $5.00 per share) or the issuer's
net  tangible  assets;  or  exempted  from the  definition  by the  SEC.  If the
Company's  shares are deemed to be a penny stock,  trading in the shares will be
subject to additional  sales practice  requirements on  broker-dealers  who sell
penny  stocks  to  persons  other  than  established  customers  and  accredited
investors,  generally  persons  with  assets in excess of  $1,000,000  or annual
income exceeding $200,000, or $300,000 together with their spouse.

         For  transactions  covered by these rules,  broker-dealers  must make a
special  suitability  determination for the purchase of such securities and must
have received the purchaser's  written  consent to the transaction  prior to the
purchase.  Additionally,  for any  transaction  involving a penny stock,  unless
exempt,  the rules require the delivery,  prior to the first  transaction,  of a
risk disclosure  document  relating to the penny stock market.  A broker- dealer
also must disclose the  commissions  payable to both the  broker-dealer  and the
registered representative,  and current quotations for the securities.  Finally,
monthly  statements  must be sent  disclosing  recent price  information for the
penny stocks held in the account and  information on the limited market in penny
stocks. Consequently,  these rules may restrict the ability of broker-dealers to
trade and/or maintain a market in the Company's  common stock and may affect the
ability of shareholders to sell their shares.

         As of December 31, 2001,  there were 1,412,000  shares of the Company's
common stock issued and  outstanding  and 44 holders of record of the  Company's
common stock,  which figure does not take into account those  shareholders whose
certificates are held in the name of broker-dealers  or other nominees.  Because
there  has  been  no  established   public  trading  market  for  the  Company's
securities, no trading history is presented herein.

         The  Company  did not  file a  registration  statement  with the SEC in
connection with the issuance of any of its outstanding  shares of commons stock.
In the  absence of any  evidence  that the  Company  ever  filed a  registration
statement  with the SEC or with any other  agency  relating  to the  issuance of
shares,  it is concluded  that all shares were issued as restricted  securities.
Available  corporate  records  indicate  that all of the  Company's  issued  and
outstanding  shares of common stock were issued between 1988 and 1998 in various
private,  isolated  transactions.  The  Company  has relied  upon the  exemption
provided by Section  4(2) of the Act in the  issuance  of all of its shares.  No
private placement memorandum was used in relation to the issuance of shares.

         The  Company's   outstanding  shares  may  not  be  sold  or  otherwise
transferred  unless  pursuant to an effective  registration  statement under the
Securities Act of 1933, as amended (the "1933 Act"), or an appropriate exemption
therefrom.  Shareholders  desiring to sell or transfer their share may rely upon
the exemption  provided by Rule 144 of the 1933 Act. In general,  under Rule 144
as currently in effect,  a person (or persons whose shares are  aggregated)  who
has beneficially  owned restricted  shares of the Company for at least one year,
including any person who may be deemed to be an  "affiliate"  of the Company (as
the term "affiliate" is defined under the Act), is entitled to sell,  within any
three-month  period, an amount of shares that does not exceed the greater of (i)
the average  weekly trading  volume in the Company's  common stock,  as reported
through the automated quotation system of a registered  securities  association,
during the four calendar weeks preceding such sale or (ii) 1% of the shares then
outstanding.  A person who is not deemed to be an "affiliate" of the Company and
has not been an  affiliate  for the most recent three  months,  and who has held
restricted  shares for at least two years  would be entitled to sell such shares
without regard to the resale limitations of Rule 144.

Dividend Policy

         The  Company  has  not   declared  or  paid  cash   dividends  or  made
distributions  in the past, and the Company does not anticipate that it will pay
cash dividends or make  distributions  in the  foreseeable  future.  The Company
currently   intends  to  retain  and  invest  future  earnings  to  finance  its
operations.

Item 6.  Management's Discussion and Analysis or Plan of Operation

         The  following  information  should  be read in  conjunction  with  the
consolidated  financial statements and notes thereto appearing elsewhere in this
Form 10-KSB.

         The Company is  considered  a  development  stage  company with minimal
assets and with no  significant  operations  or income.  The costs and  expenses
associated  with  the  preparation  and  filing  of the  Company's  registration
statement  and  periodic  reports  have  been  paid  for  by an  advance  from a
shareholder of the Company.

                                       -7-

<PAGE>



It is anticipated that the Company will require only nominal capital to maintain
the corporate  viability of the Company and necessary  funds will most likely be
provided by the  Company's  officers  and  directors  in the  immediate  future.
However,  unless the Company is able to facilitate an  acquisition  of or merger
with an operating business or is able to obtain  significant  outside financing,
there is substantial doubt about its ability to continue as a going concern.

Plan of Operation

         During the next 12 months,  the Company will  continue to actively seek
out and investigate  possible business  opportunities with the intent to acquire
or  merge  with  one or more  business  ventures.  In its  search  for  business
opportunities,  management will follow the procedures  outlined in Item 1 above.
Because the Company lacks funds, it may be necessary for the officers, directors
or  shareholders  to either  advance funds to the Company or to accrue  expenses
until such time as a successful business  consolidation can be made.  Management
intends to hold  expenses to a minimum and to obtain  services on a  contingency
basis  when  possible.   Further,   the  Company's   directors  will  defer  any
compensation until such time as an acquisition or merger can be accomplished and
will  strive  to have  the  business  opportunity  provide  their  remuneration.
However,  if the Company engages  outside  advisors or consultants in its search
for business  opportunities,  it may be necessary  for the Company to attempt to
raise  additional  funds.  As of the date  hereof,  the Company has not made any
arrangements or definitive  agreements to use outside advisors or consultants or
to raise any capital. In the event the Company does need to raise capital,  most
likely the only method available to the Company would be the private sale of its
securities. Because of the nature of the Company as a development stage company,
it is  unlikely  that it could make a public  sale of  securities  or be able to
borrow any significant sum from either a commercial or private lender. There can
be no assurance that the Company will be able to obtain additional  funding when
and if needed,  or that such  funding,  if  available,  can be obtained on terms
acceptable to the Company.

         In the  foreseeable  future,  the  Company  does not  intend to use any
employees,  with the possible exception of part-time  clerical  assistance on an
as-needed  basis.  Outside advisors or consultants will be used only if they can
be obtained  for minimal  cost or on a deferred  payment  basis.  Management  is
confident  that it will be able to operate in this  manner and to  continue  its
search for business opportunities during the next twelve months.

Net Operating Loss

         The Company has accumulated approximately $19,750 of net operating loss
carryforwards  as of December  31,  2001,  which may be offset  against  taxable
income and income taxes in future years through 2021. The use of these losses to
reduce future income taxes will depend on the  generation of sufficient  taxable
income prior to the expiration of the net operating loss  carryforwards.  In the
event of certain  changes in  control  of the  Company,  there will be an annual
limitation on the amount of net operating loss carryforwards  which can be used.
No tax benefit has been reported in the financial  statements for the year ended
December 31, 2001 because there is a 50% or greater chance that the carryforward
will  not  be  used.  Accordingly,   the  potential  tax  benefit  of  the  loss
carryforward is offset by a valuation allowance of the same amount.

Recent Accounting Pronouncements

         In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement  of  Financial   Accounting   Standards  (SFAS)  133,  Accounting  for
Derivative  Instruments  and Hedging  Activities.  The new standard  establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts,  and for hedging activities.
It requires  companies to record  derivatives  on the balance sheet as assets or
liabilities,  measured  at fair value.  Accounting  for changes in the values of
those  derivatives  depends on the intended use of the  derivatives  and whether
they  qualify  for hedge  accounting.  SFAS 133, as amended by SFAS 137 and SFAS
138, was adopted as of April 1, 2001.  Management  believes the adoption of this
statement will have no material impact on the Company's financial statements.

         In June 2001, the FASB issued SFAS 141, Business Combinations, and SFAS
142, Goodwill and Other Intangible  Assets.  SFAS 141 requires that the purchase
method of accounting be used for all business combinations  initiated after June
30, 2001 as well as all purchase  method business  combinations  completed after
June 30, 2001. SFAS 141 also specifies criteria  intangible assets acquired in a
purchase  method  business  combination  must meet to be recognized and reported
apart from goodwill,  noting that any purchase price allocatable to an assembled
workforce may not be accounted for  separately.  SFAS 142 requires that goodwill
and intangible  assets with indefinite  useful lives no longer be amortize,  but
instead  tested  for  impairment  at  least  annually  in  accordance  with  the
provisions  of SFAS 142.  SFAS 142 also  requires  that  intangible  assets with
estimatable  useful lives be amortized over their  respective  estimated  useful
lives to their  estimated  residual  values,  and  reviewed  for  impairment  in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for  Long-Lived  Assets to be Disposed  Of. The adoption of SFAS 141 and 142
will not affect the Company's consolidated financial statements.


                                       -8-

<PAGE>

         On August 16, 2001, the FASB issued SFAS No. 143,  Accounting for Asset
Retirement  Obligations,"  which is effective for fiscal years  beginning  after
June 15, 2002. It requires that obligations  associated with the retirement of a
tangible  long-lived asset be recorded as a liability when those obligations are
incurred,  with the amount of the  liability  initially  measured at fair value.
Upon initially  recognizing  an accrued  retirement  obligation,  an entity must
capitalize  the cost by  recognizing  an increase in the carrying  amount of the
related  long-lived  asset.  Over time, the liability is accreted to its present
value each period,  and the capitalized cost is depreciated over the useful life
of the related asset. Upon settlement of the liability, an entity either settles
the obligation for its recorded amount or incurs a gain or loss upon settlement.
Although  management has not completed the process of determining  the effect of
this new accounting pronouncement,  it currently expects that the effect of SFAS
No. 143 on the Company's financial statements,  when it becomes effective,  will
not be significant.

         In  October  2001,  the  FASB  issued  SFAS  144,  Accounting  for  the
Impairment  or  Disposal  of  Long-Lived  Assets,   which  addresses   financial
accounting  and reporting for the  impairment or disposal of long-lived  assets.
Although  SFAS 144  supersedes  SFAS 121,  it  retains  many of the  fundamental
provisions of SFAS 121. SFAS 144 also  supersedes  the  accounting and reporting
provisions of Accounting  Principles Board Opinion No. 30, Reporting-the Results
of Operations-Reporting  the Effects of Disposal of a Segment of a Business, and
Extraordinary,  Unusual and Infrequently Occurring Events and Transactions,  for
the disposal of a segment of a business.  However, it retains the requirement in
APB 30 to report separately  discontinued  operations and extends that reporting
to a  component  of an  entity  that  either  has  been  disposed  of,  by sale,
abandonment,  or in a distribution to owners, or is classified as held for sale.
SFAS 144 is effective  for fiscal years  beginning  after  December 15, 2001 and
interim periods within those fiscal years.  Management  believes the adoption of
SFAS  144  will  not  have  a  significant  effect  on the  Company's  financial
statements.

Inflation

         In the  opinion of  management,  inflation  has not and will not have a
material  effect on the operations of the Company until such time as the Company
successfully  completes an acquisition or merger. At that time,  management will
evaluate the possible effects of inflation on the Company related to it business
and operations following a successful acquisition or merger.

Forward-Looking  and Cautionary Statements

         This report contains certain  forward-looking  statements.  The Company
wishes to advise readers that actual results may differ  substantially from such
forward-looking   statements.   Forward-looking  statements  involve  risks  and
uncertainties  that could cause actual results to differ  materially  from those
expressed in or implied by the  statements,  including,  but not limited to, the
following:   the  ability  of  the  Company  search  for  appropriate   business
opportunities  and subsequently  acquire or merge with such entity,  to meet its
cash and working  capital  needs,  the  ability of the  Company to maintain  its
existence as a viable entity, and other risks detailed in the Company's periodic
report filings with the SEC.

Item 7.  Financial Statements

         The Company's financial statements as of and for the fiscal years ended
December 31, 2001 and 2000 have been  examined to the extent  indicated in their
report by H J & Associates,  LLC, independent  certified  accountants,  and have
been prepared in accordance  with generally  accepted  accounted  principles and
pursuant  to  Regulation  S-B as  promulgated  by the  SEC.  The  aforementioned
financial  statements  are  included  herein in  response to Item 7 of this Form
10-KSB.

                                       -9-

<PAGE>








                                 CHALLEDON, INC.
                          (A Development Stage Company)

                              FINANCIAL STATEMENTS

                                December 31, 2001







                                      -10-

<PAGE>



       McGLADREY NETWORK                            American Institute of
An Independently Owned Member                          Certified Public
      Worldwide Services                                 Accountants
   Through RSM International                         Utah Association of
                                                       Certified Public
                                                         Accountants
                                                    SEC Practice Section
                                                      Private Companies
                                                       Practice Section

                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------


To the Stockholders of
Challedon, Inc.
(A Development Stage Company)
Salt Lake City, Utah


We have audited the accompanying balance sheet of Challedon, Inc. (a development
stage company) as of December 31, 2001 and the related statements of operations,
stockholders'  equity  (deficit) and cash flows for the years ended December 31,
2001 and 2000,  and from  inception on May 24, 1990  through  December 31, 2001.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Challedon,  Inc. (a development
stage company) as of December 31, 2001 and the results of its operations and its
cash flows for the years ended December 31, 2001 and 2000, and from inception on
May 24, 1990 through December 31, 2001 in conformity with accounting  principals
generally accepted in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 3 to the
financial  statements,  the  Company  is a  development  stage  company  with no
significant  operating results to date, which raises substantial doubt about its
ability to continue as a going  concern.  Management  s plans in regard to these
matters are also  described in Note 3. The  financial  statements do not include
any adjustments that might result from the outcome of the uncertainty.




/S/HJ & Associates, LLC
-------------------------
   HJ & Associates, LLC
   Salt Lake City, Utah
   March 5, 2002

         50 South Main Street, Suite 1450 * Salt Lake City, Utah 84144 *
              Telephone (801) 328-4408 * Facsimile (801) 328-4461


                                      -11-

<PAGE>



                                 CHALLEDON, INC.
                          (A Development Stage Company)
                                  Balance Sheet

                                     ASSETS
                                     ------

                                                      December 31,
                                                          2001
                                                      ------------
CURRENT ASSETS

  Cash                                                $        137
                                                      ------------
    Total Current Assets                                       137
                                                      ------------
    TOTAL ASSETS                                      $        137
                                                      ============

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                 ----------------------------------------------

CURRENT LIABILITIES

  Accounts payable                                    $        225
  Accrued expenses                                           1,200
                                                      ------------
    Total Current Liabilities                                1,425
                                                      ------------
STOCKHOLDERS' EQUITY (DEFICIT)

  Common stock, $0.001 par value, 50,000,000 shares
    authorized; 1,412,000 shares issued
    and outstanding                                          1,412
  Additional paid-in capital                                17,372
  Deficit accumulated during the development stage         (20,072)
                                                      ------------
    Total Stockholders' Equity (Deficit)                    (1,288)
                                                      ------------
    TOTAL LIABILITIES
      AND STOCKHOLDERS EQUITY (DEFICIT)               $       (137)



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


                                      -12-

<PAGE>


<TABLE>
<CAPTION>

                                CHALLEDON, INC.
                         (A Development Stage Company)
                            Statements of Operations



                                                                            From
                                               For the                  Inception on
                                              Year Ended                 May 24, 1990
                                              December 31            Through December 31,
                                       2001                 2002             2001
                                      --------------------------     --------------------
<S>                                   <C>             <C>                    <C>
REVENUES                              $        -      $        -             $          -
                                      ----------      ----------             ------------
EXPENSES

  General and administrative               9,260           9,619                   20,072
                                      ----------      ----------             ------------
    Total Expenses                         9,260           9,619                   20,072
                                      ----------      ----------             ------------
(LOSS) FROM OPERATIONS                    (9,260)         (9,619)                 (20,072)
                                      ----------      ----------             ------------
NET (LOSS)                            $   (9,260)     $   (9,619)            $    (20,072)
                                      ==========      ==========             ============
BASIC (LOSS) PER SHARE                $    (0.01)     $    (0.01)
                                      ==========      ==========
WEIGHTED AVERAGE NUMBER
  OF SHARES                            1,412,000       1,412,000
                                      ==========      ==========
</TABLE>

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


                                      -13-

<PAGE>


<TABLE>
<CAPTION>

                                 CHALLEDON, INC.
                          (A Development Stage Company)
                  Statements of Stockholders' Equity (Deficit)
                                                                                                         Deficit
                                                                                                       Accumulated
                                                                      Additional                       During the
                                             Common Stock               Paid-In       Subscriptions    Development
                                        Shares          Amount          Capital         Receivable        Stage
                                        ----------------------        ----------      -------------    -----------
<S>                                     <C>         <C>               <C>             <C>               <C>

Balance at inception on
  May 24, 1990                                  -   $        -        $        -      $           -     $        -

Net loss for the period ended
December 31, 1990                               -            -                 -                  -           (174)
                                        ---------   ----------        ----------      -------------     ----------
Balance at
December 31, 1990                               -            -                 -                  -           (174)

Common stock issued on
subscription at $0.002 per
share - September 27, 1991                350,000          350               350               (700)             -

Net loss for the year ended
December 31, 1991                               -            -                 -                  -           (115)
                                        ---------   ----------        ----------      -------------     ----------
Balance at
December 31, 1991                         350,000          350               350               (700)          (289)

Net loss for the year ended
December 31, 1992                               -            -                 -                  -           (120)
                                        ---------   ----------        ----------      -------------     ----------
Balance at
December 31, 1992                         350,000          350               350               (700)          (409)

Common stock issued on
subscription at $0.002 per
share, September 24, 1993                 350,000          350               350               (700)             -

Net loss for the year ended
December 31, 1993                               -            -                 -                  -           (115)
                                        ---------   ----------        ----------      -------------     ----------
Balance at
December 31, 1993                         700,000          700               700             (1,400)          (524)

Common stock issued on
subscription at $0.002 per
share, February 11, 1994                  350,000          350               350               (700)             -

Common stock issued for
services at $0.002 per share,
September 30, 1994                          2,500            3                 2                  -              -

Net loss for the year ended
December 31, 1994                               -            -                 -                  -           (115)
                                        ---------   ----------        ----------      -------------     ----------
Balance at
December 31, 1994                       1,052,500   $    1,053        $    1,052      $      (2,100)    $     (639)
                                        ----------  ----------        ----------      -------------    -----------
</TABLE>

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


                                      -14-

<PAGE>


<TABLE>
<CAPTION>

                                 CHALLEDON, INC.
                          (A Development Stage Company)
            Statements of Stockholders' Equity (Deficit) (Continued)

                                                                                                         Deficit
                                                                                                       Accumulated
                                                                      Additional                       During the
                                             Common Stock               Paid-In       Subscriptions    Development
                                        Shares          Amount          Capital         Receivable        Stage
                                        ----------------------        ----------      -------------    -----------

<S>                                     <C>         <C>               <C>             <C>               <C>
Balance at
December 31, 1994                       1,052,500  $     1,053        $    1,052      $      (2,100)   $      (639)

Common stock issued for
services at $0.002 per share,
September 29, 1995                          4,500            4                 5                  -              -

Net loss for the year ended
December 31, 1995                               -            -                 -                  -           (115)
                                        ---------   ----------        ----------      -------------     ----------
Balance at
December 31, 1995                       1,057,000        1,057             1,057            (2,100)           (754)

Common stock issued on
subscription at $0.002 per
share, May 17, 1996                       350,000          350               350               (700)             -

Common stock issued for
services at $0.002 per share,
September 27, 1996                          2,500            2                 3                  -              -

Net loss for the year ended
December 31, 1996                               -            -                 -                  -           (110)
                                        ---------   ----------        ----------      -------------     ----------
Balance at
December 31, 1996                       1,409,500        1,409             1,410             (2,800)          (864)

Common stock issued for
services at $0.001 per share,
September 26, 1997                          2,500            3                 2                  -              -

Performance on stock
subscriptions                                   -            -                 -              2,800              -

Net loss for the year ended
December 31, 1997                               -            -                 -                  -           (110)
                                        ---------   ----------        ----------      -------------     ----------
Balance at
December 31, 1997                       1,412,000        1,412             1,412                  -           (974)

Net loss for the year ended
December 31, 1998                               -            -                 -                  -           (110)
                                        ---------   ----------        ----------      -------------     ----------
Balance at
December 31, 1998                       1,412,000        1,412             1,412                  -         (1,084)

Net loss for the year ended
December 31, 1999                               -            -                 -                  -           (110)
                                        ---------   ----------        ----------      -------------     ----------
Balance at
December 31, 1999                       1,412,000   $    1,412        $    1,412      $           -     $   (1,194)
                                        ---------   ----------        ----------      -------------     ----------
</TABLE>

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


                                      -15-

<PAGE>


<TABLE>
<CAPTION>
                                 CHALLEDON, INC.
                          (A Development Stage Company)
            Statements of Stockholders' Equity (Deficit) (Continued)



                                                                                                         Deficit
                                                                                                       Accumulated
                                                                      Additional                       During the
                                             Common Stock               Paid-In       Subscriptions    Development
                                        Shares          Amount          Capital         Receivable        Stage
                                        ----------------------        ----------      -------------    -----------
<S>                                     <C>         <C>               <C>             <C>               <C>
Balance at
December 31, 1999                       1,412,000   $    1,412        $    1,412      $           -     $   (1,194 )

Contributed capital                             -            -             7,500                  -              -

Net loss for the year ended
December 31, 2000                               -            -                 -                  -         (9,619)
                                        ---------   ----------        ----------      -------------     ----------
Balance at
December 31, 2000                       1,412,000        1,412             8,912                  -        (10,813)

Contributed capital                             -            -             8,460                  -              -

Net loss for the year ended
December 31, 2001                               -            -                 -                  -         (9,260)
                                        ---------   ----------        ----------      -------------     ----------
Balance at
December 31, 2001                       1,412,000   $    1,412        $   17,372      $           -     $  (20,072)
                                        =========   ==========        ==========      =============     ==========
</TABLE>



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


                                      -16-

<PAGE>

<TABLE>
<CAPTION>
                                 CHALLEDON, INC.
                          (A Development Stage Company)
                            Statements of Cash Flows



                                                                                       From
                                                          For the                  Inception on
                                                         Year Ended                 May 24, 1990
                                                         December 31            Through December 31,
                                                  2001                 2002             2001
                                                 --------------------------     --------------------
CASH FLOWS FROM OPERATING ACTIVITIES

<S>                                              <C>              <C>                  <C>
  Net loss                                       $    (9,260)     $  (9,619)           $    (20,073)
  Adjustments to reconcile net loss
    to net cash used by operations:
    Common stock issued for services                       -              -                      24
  Changes in operating assets
    and liabilities accounts:
    Increase (decrease) in accounts payable                  (63)       862                     225
    Increase in accrued expenses                             100        100                   1,200
    Increase (decrease) in due to related party             (470)       100                       -
                                                     -----------  ---------            ------------
      Net Cash Used by Operating Activities              (10,267)    (8,557)                (18,624)
                                                     -----------  ---------            ------------
CASH FLOWS FORM INVESTING ACTIVITIES                           -          -                       -

CASH FLOWS FROM FINANCING ACTIVITIES

  Contributed capital                                      8,461      7,500                  15,961
  Common stock issued for cash                                 -          -                   2,800

    Net Cash Provided by Financing Activities              8,461      7,500                  18,761
                                                     -----------  ---------            ------------
NET INCREASE (DECREASE) IN CASH                           (1,057)    (1,057)                    137

CASH AT BEGINNING OF PERIOD                                1,943      3,000                       -
                                                     -----------  ---------            ------------
CASH AT END OF PERIOD                                $       137  $   1,943            $        137
                                                     ===========  =========            ============
CASH PAID FOR:

  Interest expense                                   $         -  $       -            $          -
  Income taxes                                       $         -  $       -            $          -

NON-CASH FINANCING ACTIVITIES

  Common stock issued for services                   $         -  $       -            $         24
</TABLE>


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


                                      -17-

<PAGE>

                                 CHALLEDON, INC.
                          (A Development Stage Company)
                        Notes to the Financial Statements
                           December 31, 2001 and 2000


NOTE 1 - NATURE OF ORGANIZATION

         The financial  statements  presented  are those of  Challedon,  Inc. (a
         development  stage  company) (the  Company).  The Company was organized
         under the laws of the State of Utah on May 24,  1990.  The  Company was
         organized to seek  potential  business  opportunities  or merge with an
         existing operating company.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         a. Accounting Method

         The  financial  statements  are  prepared  using the accrual  method of
         accounting. The company has elected a December 31 year end.

         b. Basic Loss Per Share

         The computation of basic loss per share of common stock is based on the
         weighted average number of shares  outstanding during the period of the
         financial statements (see Note 5).

         c. Use of Estimates

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

         d. Cash and Cash Equivalents

         The Company considers all highly liquid  investments with a maturity of
         three months or less when purchased to be cash equivalents.

         e. Revenue Recognition Policy

         The Company will develop its revenue recognition  policies when planned
         principal operations commence.

         f. Provision for Taxes

         No provision for income taxes has been accrued  because the Company has
         net  operating   losses  from   inception.   The  net  operating   loss
         carryforwards of  approximately  $19,750 at December 31, 2001 expire in
         2003 through  2021.  No tax benefit has been  reported in the financial
         statements  because the Company is uncertain if the carryforwards  will
         expire unused. Accordingly,  the potential tax benefits are offset by a
         valuation account of the same amount.


                                      -18-

<PAGE>



                                 CHALLEDON, INC.
                          (A Development Stage Company)
                        Notes to the Financial Statements
                           December 31, 2001 and 2000


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         f. Provision for Taxes (Continued)

         The income tax  benefit  differs  from the amount  computed  at federal
         statutory rates of  approximately  38% as follows:
<TABLE>
<CAPTION>

                                                               For the Years Ended
                                                                   December 31,
                                                             2001               2000
                                                          -----------       ------------
<S>                                                       <C>               <C>
         Income tax benefit at statutory rate             $    (3,396)      $     (4,109)
         Change in valuation allowance                          3,396              4,109
                                                          -----------       ------------
                                                          $         -       $          -
                                                          ===========       ============

         Deferred tax assets (liabilities) are comprised of the following:

                                                               For the Years Ended
                                                                   December 31,
                                                             2001               2000
                                                          -----------       ------------
         Income tax benefit at statutory rate             $    (7,505)      $     (4,109)
         Change in valuation allowance                          7,505              4,109
                                                          -----------       ------------
                                                          $         -       $          -
                                                          ===========       ============
</TABLE>

         Due to the  change in  ownership  provisions  of the Tax  Reform Act of
         1986, net operating loss carryforwards for Federal income tax reporting
         purposes  are  subject  to  annual  limitations.  Should  a  change  in
         ownership occur, net operating loss  carryforwards may be limited as to
         use in future years.

NOTE 3 - GOING CONCERN

         The  Company's  financial   statements  are  prepared  using  generally
         accepted  accounting  principles  applicable  to a going  concern which
         contemplates  the  realization of assets and liquidation of liabilities
         in the normal course of business.  The Company has not yet  established
         an ongoing source of revenues  sufficient to cover its operating  costs
         and allow it to continue as a going concern. The ability of the Company
         to continue as a going  concern is dependent  on the Company  obtaining
         adequate capital to fund operating losses until it becomes  profitable.
         If the Company is unable to obtain adequate capital, it could be forced
         to cease operations.


                                      -19-

<PAGE>



                                 CHALLEDON, INC.
                          (A Development Stage Company)
                        Notes to the Financial Statements
                           December 31, 2001 and 2000


NOTE 3 - GOING CONCERN (Continued)

         In order to continue as a going concern,  develop a reliable  source of
         revenues, and achieve a profitable level of operations the Company will
         need, among other things,  additional capital  resources.  Management's
         plans to continue as a going concern include raising additional capital
         through sales of common stock.  However,  management cannot provide any
         assurances that the Company will be successful in accomplishing  any of
         its plans.

         The ability of the Company to continue as a going  concern is dependent
         upon its ability to successfully  accomplish the plans described in the
         preceding  paragraph and  eventually  secure other sources of financing
         and attain profitable operations. The accompanying financial statements
         do not include any  adjustments  that might be necessary if the Company
         is unable to continue as a going concern.

NOTE 4 - RELATED PARTY TRANSACTIONS

         The  Company's  president  has  paid  out-of-pocket   expenses  through
         December 31, 2001  totaling  $15,960.  The amount has been  recorded as
         contributed capital.

NOTE 5 - BASIC LOSS PER SHARE

         The  following  is  an  illustration  of  the   reconciliation  of  the
         numerators and  denominators  of the basic loss per share  calculation:

<TABLE>
<CAPTION>
                                                               For the Years Ended
                                                                   December 31,
                                                             2001               2000
                                                          -----------       ------------

<S>                                                       <C>               <C>
         Net loss (numerator)                             $    (9,260)      $     (9,619)

         Weighted average shares outstanding
          (denominator)                                     1,412,000          1,412,000
                                                          -----------       ------------
         Basic loss per share                              $    (0.01)      $      (0.01)
                                                          ===========       ============
</TABLE>

NOTE 6 - NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS

         During the years ended December 31, 2001, and 2000, the Company adopted
         the provisions of FASB Statement No. 140  "Accounting for Transfers and
         Servicing of Financial  Assets and  Extinguishments  of  Liabilities (a
         replacement  of FASB  Statement  No.  125.),  FASB  Statement  No. 141,
         "Business  Combinations,"  FASB Statement No. 142,  "Goodwill and Other
         Intangible  Assets,"  FASB  Statement  No. 143,  "Accounting  for Asset
         Retirement  Obligations,"  FASB Statement No. 144,  "Accounting for the
         Impairment  or Disposal of Long-Lived  Assets," and FIN 44  "Accounting
         for   Certain    Transactions    Involving   Stock   Compensation   (an
         interpretation  of APB  Opinion No.  25)." The effect of these  adopted
         provisions on the Company's financial statements was not significant.


                                      -20-

<PAGE>



Item 8.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
         Financial Disclosure

         Not applicable.

                                    PART III

ITEM 9.  Directors,   Executive   Officers,   Promoters  and  Control   Persons;
         Compliance with Section 16(a) of the Exchange Act

         The executive officers and directors of the Company are as follows:

                Name               Age                Position
                ----               ---                --------

         James E. Glavas            49      President, Chief Executive Officer
                                            and Director
         Randy Flanders             51      Vice President and Director
         Guy H. Ivins               75      Secretary / Treasurer and Director
___________________________

         All directors hold office until the next annual meeting of stockholders
and until their  successors  have been duly elected and qualified.  There are no
agreements  with  respect to the  election  of  directors.  The  Company has not
compensated its directors for service on the Board of Directors or any committee
thereof,  but directors are entitled to be reimbursed for expenses  incurred for
attendance  at meetings of the Board of Directors and any committee of the Board
of Directors.  However,  due to the Company's lack of funds,  the directors will
defer their  expenses  and any  compensation  until such time as the Company can
consummate  a  successful  acquisition  or  merger.  As of the date  hereof,  no
director  has  accrued any  expenses or  compensation.  Officers  are  appointed
annually by the Board of  Directors  and each  executive  officer  serves at the
discretion  of the Board of  Directors.  The Company  does not have any standing
committees.

         Except for Guy H. Ivins, none of the Company's directors are currently,
nor for the past  three  years have been,  a  director  of any other  "shell" or
"blank  check"  company  or  other   corporation   that  is  actively   pursuing
acquisitions or mergers.  Mr. Ivins is presently the President and a director of
Jaipur, Inc., a shell / blank check company, incorporated in Utah on February 2,
1989.

         No director,  officer, affiliate or promoter of the Company has, within
the past five years,  filed any bankruptcy  petition,  been convicted in or been
the  subject of any  pending  criminal  proceedings,  or is any such  person the
subject or any order,  judgment,  or decree involving the violation of any state
or federal securities laws.

         All of the Company's present directors have other full-time  employment
or sources of income and will  routinely  devote  only such time to the  Company
necessary to maintain its  viability.  It is estimated  that each  director will
devote less than ten hours per month to the Company's activities.  The directors
will, when the situation  requires,  review potential business  opportunities or
actively participate in negotiations for a potential merger or acquisition on an
as-needed-basis.

         Currently, there is no arrangement,  agreement or understanding between
the  Company's   management   and   non-management   shareholders   under  which
non-management  shareholders  may  directly  or  indirectly  participate  in  or
influence the management of the Company's  affairs.  Present  management  openly
accepts  and   appreciates   any  input  or   suggestions   from  the  Company's
shareholders. However, the Board of Directors is elected by the shareholders and
the  shareholders  have the ultimate say in who represents  them on the Board of
Directors. There are no agreements or understandings for any officer or director
of the  Company  to resign at the  request  of  another  person  and none of the
current  offers or directors of the Company are acting on behalf of, or will act
at the direction of any other person.

         In  connection  with  the  preparation  and  filing  of  the  Company's
registration  statement and  subsequent  periodic  reports,  James R. Glavas,  a
shareholder,  has  advanced  funds to the Company to pay for  certain  legal and
professional  fees related to the registration  statement.  Although,  as of the
date hereof  there is no  agreement  or  arrangement  for Mr.  Glavas to provide
additional  funds,  the Company is not precluded from  approaching Mr. Glavas or
any other shareholder and requesting  additional financial  assistance.  Because
such  additional  funding is only  speculative at this time, the Company has not
developed  any  criteria or plans  related to this  funding.  Mr.  Glavas is the
father of the Company's President, James E. Glavas.

         The business  experience of each of the persons listed above during the
past five years is as follows:

         James E.  Glavas  has been a  purchasing  agent and  estimator  for Sun
Lithographing Company in Salt Lake City, Utah for more than 25 years. Mr. Glavas
attended the University of Utah from 1972 to 1976 majoring in Sociology, but did
not receive a degree.

                                      -21-

<PAGE>

         Randy  Flanders  has been for the past 14 years a manager and  salesman
for Realty  Brokers of Utah, a Salt Lake City,  Utah real estate firm.  Prior to
his  association  with Realty Brokers of Utah, he was for ten years a purchasing
agent for Utah Mobile Homes,  Inc. Mr. Flanders attended Kearney State from 1970
to 1972 and the  University  of  Nebraska  from 1972 to 1974 where he majored in
Business, but did not receive a degree.

         Guy H. Ivins  retired in 1985  after  working  for 12 years as Chief of
Right-of-Way for the Utah Department of  Transportation.  Previously,  Mr. Ivins
served for two years as head of the Office of Economic Opportunity for the State
of Utah and was County Assessor of Utah County, Utah for six years. He graduated
from Brigham Young University in 1951 with a B.S. Degree in Economics.

Section 16(a) Beneficial Ownership Reporting Compliance

         Each of the  Company's  officers  and  directors  is  required  to file
certain reports and an Annual Statement of Changes in Beneficial  Ownership,  on
or before the 45th day after the end of the fiscal year.  These reports have not
filed on a timely basis and will be submitted to the SEC.

Item 10. Executive Compensation

         The  Company  has  not  had  a  bonus,   profit  sharing,  or  deferred
compensation plan for the benefit of its employees,  officers or directors.  The
Company  has not  paid  any  salaries  or other  compensation  to its  officers,
directors or employees for the years ended December 31, 2001 and 2000.  Further,
the  Company  has not  entered  into an  employment  agreement  with  any of its
officers,  directors or any other persons and no such agreements are anticipated
in the immediate future. It is intended that the Company's  directors will defer
any compensation until such time as an acquisition or merger can be accomplished
and will strive to have the business opportunity provide their remuneration.  As
of the date hereof, no person has accrued any compensation.

Item 11. Security Ownership of Certain Beneficial Owners and Management

         The  following  table  sets  forth  information,  to  the  best  of the
Company's knowledge,  as of December 31, 2001, with respect to each person known
by the Company to own beneficially more than 5% of the outstanding Common Stock,
each director and all directors and officers as a group.

Name and Address                   Amount and Nature of          Percent
of Beneficial Owner                Beneficial Ownership         of Class(1)
-------------------                --------------------         -----------

James E. Glavas*                         70,000                     4.96%
  6640 South 2475 East
  Salt Lake City, UT 84121
Randy Flanders*                             500                     0.04%
  1336 East 8330 South
  Salt Lake City, UT 84093
Guy H. Ivins*                            70,000                     4.96%
  1120 East 700 North
  American Fork, UT 84003
All directors and officers              140,500                     9.95%
  a group (3 persons)

         *       Director and/or executive officer

Note:    Unless otherwise indicated in the footnotes below, the Company has been
         advised  that each person  above has sole voting  power over the shares
         indicated above.

         (1)  Based  upon  1,412,000  shares  of  common  stock  outstanding  on
              December 31, 2001.

Item 12. Certain Relationships and Related Transactions

         During  the past two  fiscal  years,  there  have been no  transactions
between the Company and any officer, director, nominee for election as director,
or any  shareholder  owning  greater  than five  percent  (5%) of the  Company's
outstanding  shares,  nor  any  member  of  the  above  referenced  individuals'
immediate family

         The  Company's  officers and  directors are subject to the "doctrine of
corporate opportunities" only insofar as it applies to business opportunities in
which the  Company has  indicated  an  interest,  either  through  its  proposed
business  plan or by way of an express  statement  of interest  contained in the
Company's minutes.  If directors are presented with business  opportunities that
may  conflict  with  business   interests   identified  by  the  Company,   such
opportunities  must be promptly  disclosed  to the Board of  Directors  and made
available to the Company.  In the event the Board shall reject an opportunity so
presented and only in that event,  any of the  Company's  officers and directors

                                      -22-

<PAGE>


may  avail  themselves  of such an  opportunity.  Every  effort  will be made to
resolve any  conflicts  that may arise in favor of the Company.  There can be no
assurance, however, that these efforts will be successful.

         In the event of a successful  acquisition or merger, a finder's fee, in
the  form  of cash  or  securities,  may be  paid  to  persons  instrumental  in
facilitating  the  transaction.  The Company has not established any criteria or
limits for the  determination  of a finder's fee,  although it is likely that an
appropriate  fee  will  be  based  upon  negotiations  by the  Company  and  the
appropriate  business  opportunity and the finder. Such fees are estimated to be
customarily  between  1% and 5% of the  size of the  transaction,  based  upon a
sliding  scale of the amount  involved.  Management  cannot at this time make an
estimate  as to the type or amount of a  potential  finder's  fee that  might be
paid,  but is expected to be comparable to  consideration  normally paid in like
transactions. It is unlikely that a finder's fee will be paid to an affiliate of
the Company because of the potential conflict of interest that might result. Any
such fee would have to be approved by the shareholders or a disinterested  Board
of Directors.

                                     PART V

Item 13. Exhibits and Reports on Form 8-K

         (a)  Exhibits

               *2(i)  Articles of Incorporation filed as Exhibit to Form 10-SB.

               *2(ii) By-Laws filed as Exhibit to Form 10-SB.

               *4     Specimen Stock Certificate filed as Exhibit to Form 10-SB.
         *     Exhibits so marked have heretofore been filed with the Securities
               and Exchange Commission as part of its registration  statement on
               Form 10-SB and are incorporated herein by reference.

         (b)   Reports on Form 8-K

                      None

                                      -23-

<PAGE>



                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
Registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

                                            Challedon, Inc.



                                            BY: /S/ JAMES E. GLAVAS
                                                --------------------------------
                                                    James E. Glavas
                                                    President and Director

Dated:  April 15, 2002

         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  Registrant and in the capacities and
on the dates indicated.

         Signature                    Title                             Date
         ---------                    -----                             ----


                                President, C.E.O.               April 15, 2002
 /S/JAMES E. GLAVAS             and Director
---------------------------
    James E. Glavas


                                Secretary/Treasurer             April 15, 2002
 /S/GUY H. IVINS                and Director
---------------------------     (Principal Accounting Officer)
    Guy H. Ivins

                                      -24-

<PAGE>