U. S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

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

               For the quarterly period ending February 29, 2004

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

    For the transition period from _____ to _____.

                          Commission File No. 000-32475

                               Cetalon Corporation
            (Exact name of registrant as specified in its character)

          Nevada                                     84-1408762
         --------                                    ----------
(State or other jurisdiction of             (IRS Employer Identification Number)
incorporation or organization)

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

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

      Indicate  by check  mark  whether  the  registrant  (1) filed all  reports
required to be filed by Section 13 or 15(d) of the  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 No X --- ---

      Indicate the number of shares  outstanding of each of the issuer's classes
of  common  equity,  as of June 7,  2004  (the  day  immediately  preceding  the
effective date of the registrant's Second Amended Plan of Reorganization

            Class                                 Number of Shares
            -----                                 ----------------
         Common stock                                13,997,489

  Transitional Small Business Disclosure format: (Check one)  Yes      No  X .
                                                                  ---     ---

<PAGE>

                         CETALON CORPORATION AND SUBSIDIARIES
                                (DEBTOR-IN-POSSESSION)
               INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

PART I      FINANCIAL INFORMATION
------      ---------------------
ITEM 1        CONSOLIDATED BALANCE SHEET - (Unaudited)
                As of February 29, 2004........................................1

              CONSOLIDATED STATEMENT OF OPERATIONS - (Unaudited)
                For three month and nine month periods ending
                February 29, 2004 and February 28, 2003........................2

              CONSOLIDATED STATEMENT OF CASH FLOWS - (Unaudited)
                For nine months periods ending
                February 29, 2003 and February 28, 2003........................4

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.......................5

ITEM 2        MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION.......9

ITEM 3        CONTROLS AND PROCEDURES.........................................10

ITEM 4        SUBSEQUENT EVENTS...............................................10

PART II       OTHER INFORMATION
-------       -----------------
ITEM 5        EXHIBITS AND REPORTS ON FORM 8-K................................10

SIGNATURES
----------

<PAGE>

PART I......FINANCIAL INFORMATION
------

ITEM 1
------
                      CETALON CORPORATION AND SUBSIDIARIES
                             (DEBTOR-IN-POSSESSION)
                     CONSOLIDATED BALANCE SHEET (UNAUDITED)

                                                                    February 29,
                                                                       2004
                                                                   ------------
                                    Assets
Current assets:
  Cash                                                             $      6,303
                                                                   ------------

Total assets                                                       $      6,303
                                                                   ============
                      Liabilities and Stockholders' Deficit

Current liabilities not subject to compromise:
  Accounts payable and accrued expenses                            $    191,686
  Accrued compensation and expenses due to related parties              308,813
  Notes payable - related parties                                        50,000
                                                                   ------------
      Total liabilities not subject to compromise                       550,499
                                                                   ------------
Current liabilities subject to compromise:
  Accounts payable                                                    2,949,363
  Due to related parties                                                881,937
  Accrued expenses                                                      303,835
  Convertible note                                                    1,000,000
                                                                   ------------
      Total liabilities subject to compromise                         5,135,135
                                                                   ------------
Total liabilities                                                     5,685,634
                                                                   ------------
Stockholders' deficit:
  Preferred stock, $.0001 par value; 50,000,000
   authorized; none outstanding                                              --
  Common stock, $.0001 par value; 50,000,000
   authorized; 13,997,489 outstanding at February 29, 2004                1,400
  Additional paid-in capital                                          6,410,231
  Treasury stock                                                       (100,000)
  Accumulated deficit                                               (11,990,962)
                                                                   ------------
Total stockholders' deficit                                          (5,679,331)
                                                                   ------------

Total liabilities and stockholders' deficit                        $      6,303
                                                                   ============

       See notes to unaudited condensed consolidated financial statements.


                                        1

<PAGE>

                      CETALON CORPORATION AND SUBSIDIARIES
                             (DEBTOR-IN-POSSESSION)
                CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

                                                    For the Three-Month Period
                                                               Ended
                                                    ---------------------------
                                                   February 29,    February 28,
                                                       2004            2003
                                                   ------------    ------------
General and administrative                         $     70,018    $     25,341
Rent - related party                                     11,850           3,950
                                                   ------------    ------------
   Loss before reorganization items and
    discontinued operations                              81,868          29,291
                                                   ------------    ------------

Reorganization items                                     42,243          15,400
                                                   ------------    ------------

Loss from discontinued U.S. operations                       --       1,046,215
                                                   ------------    ------------

Net loss                                           $   (124,111)   $ (1,090,906)
                                                   ============    ============
Loss per common share, basic and diluted:
   Loss before reorganization items and
    discontinued operations                        $      (0.01)   $         --
   Reorganization items                                      --              --
   Discontinued operations                                   --           (0.08)
                                                   ------------    ------------
Net loss per common share, basic and diluted       $      (0.01)   $      (0.08)
                                                   ============    ============
Weighted average shares, basic and diluted           13,997,489      13,997,489
                                                   ============    ============

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


                                        2

<PAGE>

                      CETALON CORPORATION AND SUBSIDIARIES
                             (DEBTOR-IN-POSSESSION)
                CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

                                                     For the Nine-Month Period
                                                              Ended
                                                   ----------------------------
                                                   February 29,    February 28
                                                       2004            2003
                                                   ------------    ------------
General and administrative                         $    344,753    $     25,341
Rent - related party                                     35,550           3,950
                                                   ------------    ------------
   Loss before reorganization items and
    discontinued operations                             380,303          29,291
                                                   ------------    ------------

Reorganization items                                    154,958          15,400
                                                   ------------    ------------

Loss from discontinued U.S. operations                       --       1,400,234
                                                   ------------    ------------

Net loss                                           $   (535,261)   $ (1,444,925)
                                                   ============    ============
Loss per common share, basic and diluted:
   Loss before reorganization items and
    discontinued operations                        $      (0.03)   $         --
   Reorganization items                                   (0.01)             --
   Discontinued operations                                   --           (0.10)
                                                   ------------    ------------
Net loss per common share, basic and diluted       $      (0.04)   $      (0.10)
                                                   ============    ============

Weighted average shares, basic and diluted           13,997,489      13,997,489
                                                   ============    ============

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


                                        3

<PAGE>

                      CETALON CORPORATION AND SUBSIDIARIES
                             (DEBTOR-IN-POSSESSION)
                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

                                                      For the Nine-Month Period
                                                               Ended
                                                     ---------------------------
                                                     February 29,    February 28
                                                         2004           2003
                                                     -----------    -----------
Cash flows from operating activities:
   Net loss                                          $  (535,261)   $(1,444,925)
   Deduct:
      United States discontinued operations                   --     (1,400,234)
      Reorganization items                              (154,958)       (15,400)
                                                     -----------    -----------
   Net loss from continuing operations                  (380,303)       (29,291)
   Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities:
     Increase in liabilities:
       Accounts payable and accrued expenses               7,976             --
       Accrued compensation and expense
         due to related parties                          308,813             --
                                                     -----------    -----------
Cash used in operating activities of continuing
 operations                                              (63,514)       (29,291)
                                                     -----------    -----------
Cash used in U.S. discontinued operations                     --        (28,496)
                                                     -----------    -----------
Cash used in reorganization activities                        --        (15,400)
                                                     -----------    -----------
Cash from investing activities:
   Proceeds from the sale of equipment                        --         75,000
                                                     -----------    -----------
Cash provided by financing activities:
   Proceeds from issuance of notes payable
    to related parties                                    50,000             --
                                                     -----------    -----------
Net (decrease) increase in cash                          (13,514)         1,813
Cash at beginning of period                               19,817            355
                                                     -----------    -----------

Cash at end of period                                $     6,303    $     2,168
                                                     ===========    ===========

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


                                        4

<PAGE>

                      CETALON CORPORATION AND SUBSIDIARIES
                             (DEBTOR-IN-POSSESSION)
           CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)

1.   BASIS OF PRESENTATION

     The financial information furnished reflects all adjustments, which are, in
     the  opinion  of  management,  necessary  for a  fair  presentation  of the
     financial position at February 29, 2004 and of the consolidated  statements
     of operations and consolidated statements of cash flows for three month and
     nine month periods ended February 29, 2004 and February 28, 2003.

     On January 15, 2003,  the Company filed a petition for relief under Chapter
     11 of the federal bankruptcy laws in the United States Bankruptcy Court for
     the Central  District of  California,  Los  Angeles  Division,  Case No. LA
     03-11306-VZ.  After a hearing held on May 27, 2004,  the  Bankruptcy  Court
     entered  an  order   confirming  the  Company's   Second  Amended  Plan  of
     Reorganization  (the "Plan")  followed by  confirmation  of the Plan by the
     Bankruptcy  Court  on May 28,  2004.  On  June 8,  2004,  the  Plan  became
     effective ("effective date") and the Cetalon Corporation  Liquidation Trust
     (the "Trust") was created. See Note 4 for a description of the Plan.

     The  accompanying  unaudited  consolidated  financial  statements have been
     prepared in accordance with generally  accepted  accounting  principles for
     interim financial information.  Accordingly, they do not include all of the
     information  and  footnotes  required  by  generally  accepted   accounting
     principles.  For  further  information  refer to the  audited  consolidated
     financial  statements  and notes  thereto for the year ended May 31,  2003,
     included in the  Company's  10-KSB filed with the  Securities  and Exchange
     Commission on May 27, 2004.

2.    DESCRIPTION OF BUSINESS

     Cetalon  Corporation  and  Subsidiaries  (the  "Company" or "Cetalon")  had
     previously  operated  health food and  fitness  retail  stores  pursuant to
     licensing  agreements  with  Sears  Canada,  Inc.  and Sears  Roebuck & Co.
     (collectively,  "Sears") through  corporate-owned and franchised  locations
     within Sears stores throughout  Canada. The Company began operations in the
     United States in July 2001 when ten owned  locations  opened in California.
     The Company  operated under the name of Sears Health Food and Fitness Shops
     in Canada and Sears Health Food and Nutrition Centers in the United States.
     The operations in the United States and Canada have been discontinued.  The
     Company's Canadian  operation was effectively  abandoned as of May 31, 2002
     with the  closing  of all  locations  and the  termination  of its  license
     arrangement with Sears Canada.

     In the United  States,  the Company closed five stores in June 2002 and the
     remaining  stores were closed in December  2002. On December 31, 2002,  the
     license  agreement with Sears was terminated.  The operations in the United
     States are  reported as a  discontinued  operation.  As of May 31, 2003 all
     assets related to the U.S. operations have been sold.

     On January 15, 2003,  the Company filed a petition for relief under Chapter
     11 of the federal bankruptcy laws in the United States Bankruptcy Court for
     the Central  District of  California,  Los  Angeles  Division,  Case No. LA
     03-11306-VZ.  After a hearing held on May 27, 2004,  the  Bankruptcy  Court
     entered  an  order   confirming  the  Company's   Second  Amended  Plan  of
     Reorganization  ("the  Plan")  followed  by  confirmation  of the  plan  by
     Bankruptcy  Court  on May 28,  2004.  On  June 8,  2004,  the  plan  became
     effective ("effective date") and the Cetalon Corporation,  Inc. Liquidating
     Trust (the "Trust") was created. See Note 4 for a description of the Plan.


                                        5

<PAGE>

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     PRINCIPLES OF CONSOLIDATION

     The consolidated  financial  statements include the accounts of the Company
     and its wholly-owned  subsidiaries.  All significant  intercompany accounts
     and  transactions  are  eliminated in  consolidation.  1129 Holding Inc., a
     Delaware  corporation  ("1129  Holding"),   is  a  first-tier  wholly-owned
     subsidiary of the Company, which is currently inactive.  Cetalon Company of
     Canada is a second tier wholly-owned  subsidiary of the Company,  which has
     been abandoned.

     USE OF ESTIMATES

     The  preparation  of financial  statements  in conformity  with  accounting
     principles  generally  accepted  in the United  States of America  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.

     INCOME TAXES

     Deferred  income taxes are provided for temporary  differences  between the
     bases of assets and  liabilities  for  financial  statement  and income tax
     purposes.  Deferred  income  taxes  represent  amounts that will be paid or
     received  in future  periods  based on enacted tax rates in effect when the
     temporary  differences  are  expected  to reverse.  The  Company  records a
     valuation   allowance  for  deferred  income  tax  assets  when,  based  on
     management's best estimates of taxable income in the foreseeable future, it
     is more likely than not that some portion of the deferred  income tax asset
     may not be realized.

     REORGANIZATION ITEMS

     Reorganization items represent primarily legal fees directly related to the
     Chapter 11 bankruptcy proceeding.

     COMMON SHARES AND PER SHARE AMOUNTS

     Basic  and  diluted   loss  per  share  is  computed  on  a  basis  of  the
     weighted-average  number of common  shares  outstanding  during the periods
     presented.   The  effects  of  stock   options  and  stock   warrants   are
     anti-dilutive.  The  Company's  Plan  of  Reorganization  approved  by  the
     bankruptcy  court contains  provisions that resulted in the cancellation of
     common shares and other equity  interests.  See Note 4 for a description of
     the Plan.

     NEW ACCOUNTING PRONOUNCEMENTS

     In  January  2003,  the FASB  issued  FIN 46R,  CONSOLIDATION  OF  VARIABLE
     INTEREST ENTITIES-AN  INTERPRETATION OF ARB NO. 51, and revised in December
     2003.  FIN  46R  requires   certain  variable   interest   entities  to  be
     consolidated  by the  primary  beneficiary  of  the  entity  if the  equity
     investors in the entity do not have the  characteristics  of a  controlling
     financial  interest or do not have sufficient equity at risk for the entity
     to finance its activities without additional subordinated financial support
     from other  parties.  FIN 46R is effective  for all new  variable  interest
     entities created or acquired after December 31, 2003. For variable interest
     entities  created or acquired prior to December 31, 2003, the provisions of
     FIN 46R must be applied for the first  interim or annual  period  beginning
     after March 15, 2004.  The Company does not expect that the adoption of FIN
     46R will have a material  impact on its  consolidated  financial  position,
     results of  operations  or cash  flows,  as the  Company has no interest in
     variable interest entities.

     In June 2003,  FASB issued SFAS No. 146,  ACCOUNTING  FOR COSTS  ASSOCIATED
     WITH EXIT OR DISPOSAL ACTIVITIES,  which addresses financial accounting and
     reporting  for  costs  associated  with  exit or  disposal  activities  and
     nullifies  Emerging  Issues Task Force ("EITF") Issue No. 94-3,  "Liability
     Recognition for Certain  Employee  Termination  Benefits and Other Costs to
     Exit an Activity  (including  Certain Costs Incurred in a  Restructuring)".
     However,  adoption of SFAS No. 146 is not  expected  to have a  significant
     effect  on  the  Company's  consolidated  balance  sheets,   statements  of
     operations, or statements of cash flows.


                                        6

<PAGE>

4.   BANKRUPTCY AND PLAN OF REORGANIZATION

     On January 15, 2003,  the Company filed a petition for relief under Chapter
     11 of the federal bankruptcy laws in the United States Bankruptcy Court for
     the Central  District of  California,  Los  Angeles  Division,  Case No. LA
     03-11306-VZ.  After a hearing held on May 27, 2004,  the  Bankruptcy  Court
     entered  an  order   confirming  the  Company's   Second  Amended  Plan  of
     Reorganization  ("the  Plan") on May 28,  2004.  On June 8, 2004,  the Plan
     became effective (the "effective date") and the Cetalon  Corporation,  Inc.
     Liquidating Trust (the "Trust") was created.

     PROVISIONS OF PLAN OF REORGANIZATION

     o    Company  pre-petition  liabilities totaling $5,135,135 were discharged
          and transferred to the Trust.

     o    All Company  unpaid  administrative  claims and  liabilities  incurred
          after the filing of bankruptcy were transferred to the Trust.

     o    Assets of the Company (except administrative cash) were transferred to
          the Trust.

     o    The Company's  recovery rights related to any award resulting from the
          legal  action  pending  against  Logic  Nutrition,  LLC,  et al.  were
          transferred to the Trust.

     o    All  Company  equity  interests  that were in  existence  prior to the
          effective date, which included, but were not limited to, common stock,
          warrants,  conversion  rights under debt agreements and options,  were
          cancelled on the effective  date.  Those  pre-petition  equity holders
          will be entitled to a pro rata  distribution of remaining Trust assets
          based on their  pre-petition  portion  of  ownership,  when and if all
          unpaid  creditor  claims that were assigned to the Trust are satisfied
          in full with interest.

     o    The Trust will receive  156,000  post-effective  date common shares of
          the  Company,  which  will be used as a source  of  funds  to  satisfy
          certain pre- and  post-petition  creditors  and provide cash for Trust
          expenses.  The amount of pro rata  distribution  that the pre-petition
          creditors  will  receive from the sale of  post-effective  date common
          shares of the Company  will be subject to the  resolution  of disputed
          outstanding  claims.  The Company will issue 609,000 of post-effective
          date common shares to satisfy specific  administrative claims approved
          by the Bankruptcy Court.

     o    The Plan  anticipates  that the Company will be combined  with Cadogan
          Investments   Limited,  a  South  African  based  company  and  Optron
          Technologies,  Inc. a Nevada corporation (collectively,  the "Business
          Combination  Transaction").  The Plan  anticipates  that  6,275,000 of
          post-effective  date common shares will be issued to the  shareholders
          of Cadogan  Investments Limited in exchange for 100% ownership of that
          entity;  and  1,800,000 of  post-effective  date common shares will be
          issued to the stockholders of Optron Technologies in exchange for 100%
          ownership of that entity.

     o    The Company  will issue to certain  administrative  claim note holders
          1,560,000 of  post-effective  date common  shares in  satisfaction  of
          $54,000 of administrative claim notes payable.

     ELECTION OF FRESH-START ACCOUNTING

     As a result of the cancellation of all pre-petition  equity instruments and
     the issuance of new  post-effective  date common  shares of the Company,  a
     change  in  control  has taken  place  that  allows  the  Company  to adopt
     fresh-start  reporting upon its emergence from Chapter 11. The  application
     of fresh-start  reporting resulted in remaining liabilities being stated at
     their  present  values.  The adoption of  fresh-start  reporting  created a
     reorganized  entity for  financial  reporting  purposes  with no  beginning
     retained  earnings  or  deficit.  The  effects of the  adjustments  and the
     forgiveness  of debt will be reflected in the entity's  final  statement of
     operations prior to the adoption of fresh-start  reporting.  Forgiveness of
     debt  resulting  from the Plan  becoming  effective  will be reported as an
     extraordinary item on that statement.


                                        7

<PAGE>

     NEW NASDAQ TRADING SYMBOL

     Shortly  after the effective  date,  the Company  halted  trading under its
     symbol  "CETA.PK".  The Company is in the process  for  applying  for a new
     trading symbol and a new CUSIP number. As part of the Business  Combination
     Transaction, the Company expects to change its name to "Astrata, Inc."

5.   RELATED PARTY TRANSACTIONS

     RENT - RELATED PARTY

     Cetalon  rents  office  space  from a  company  that is owned by a pre- and
     post-petition  shareholder and officer of the Company.  Monthly payments of
     $3,950 are made under and pursuant to Cetalon's bankruptcy proceedings.

     DUE TO RELATED PARTIES - SUBJECT TO COMPROMISE

     As of February  29,  2004,  the Company has a payable to current and former
     officers and to the Watley Group LLC totaling $881,937,  which is a payable
     subject to compromise.

     DUE TO RELATED PARTIES - NOT SUBJECT TO COMPROMISE

     As of February  29,  2004,  the Company has a payable to current and former
     officers and a company owned by an officer,  totaling  $308,813  related to
     salary compensation, rent and reimbursement of expenses.

     NOTES PAYABLE - RELATED PARTIES

     On October 21, 2003,  the Company  raised  $50,000  through the issuance of
     three  Debtors  in  Possession  8%  promissory  notes  to  pre-confirmation
     shareholders  of the  Company.  The notes were issued under and pursuant to
     the Company's bankruptcy proceedings. The notes bear interest of 8% and are
     secured by the assets of the Company. The notes become due August 27, 2004.

6.   COMMITMENTS AND CONTINGENCIES

     INSURANCE

     The Company  does not carry  directors'  and  officers'  insurance or other
     types of insurance.

     LATE FILINGS WITH THE SEC

     During the pendency of the Chapter 11  proceedings,  the Company was unable
     to  complete  its  periodic   filings  with  the  Securities  and  Exchange
     Commission  which include  reports on Form 10-KSB,  10-QSB,  8-K, and other
     filings.  The  Company  is in the  process  of filing  such  Forms with the
     Securities and Exchange Commission.

7.   SUBSEQUENT EVENTS

     After a hearing on May 27,  2004,  the  Bankruptcy  Court  entered an order
     confirming the Company's Second Amended Plan of  Reorganization  on May 28,
     2004.  On  June  8,  2004,  the  Plan  became  effective  and  the  Cetalon
     Corporation,  Inc.  Liquidating  Trust  was  created.  See  Note  4  for  a
     description of the Plan.


                                       8

<PAGE>

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

     This  report  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," "expects," "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 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 Company  expectations  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
     this Form 10-QSB is filed, and the Company does not intend to update any of
     the forward-looking statements after the date this 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  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.

     FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

     Cash decreased  during the nine months ended February 29, 2004, by $13,514,
     compared to a increase of $1,813 during the nine months ended  February 28,
     2003.  The  Company is  currently  in  transition  following  its filing of
     Chapter 11 bankruptcy  and the  confirmation  of its Second Amended Plan of
     Reorganization (see Note 4 for details to the Plan and Reorganization). The
     reduction  of cash  during  the nine  months  ended  February  29,  2004 is
     directly related to the administrative expenses incurred. During June 2002,
     five of the ten U.S.  operating stores within Sears Roebuck & Co. ("Sears")
     were closed,  leaving five stores in Southern California in operation until
     December 31, 2002 when the license agreement with Sears was terminated.

     Per the Plan, as a result of the  cancellation of all  pre-petition  equity
     instruments  and the issuance of new  post-effective  date common shares of
     the  Company,  a change in control has taken place that allowed the Company
     to adopt  fresh-start  reporting  upon its  emergence  from Chapter 11. The
     application  of  fresh-start  reporting  resulted in remaining  liabilities
     being stated at their present values. The adoption of fresh-start reporting
     created a  reorganized  entity for  financial  reporting  purposes  with no
     beginning  retained earnings or deficit.  The effects of the adjustments to
     the  reported  amounts  of  individual   assets  and  liabilities  and  the
     forgiveness  of debt will be reflected in the entity's  final  statement of
     operations prior to the adoption of fresh-start  reporting.  Forgiveness of
     debt  resulting  from the plan  becoming  effective  will be reported as an
     extraordinary item on that statement.

     RESULTS OF OPERATIONS

     For the three months ended February 29, 2004,  compared to the three months
     ended February 28, 2003, total expenses for the three months ended February
     29,  2004 was  $124,111  as compared to  $1,090,906  of  discontinued  U.S.
     operations and other expense for the three months ending February 28, 2003.
     These  expenses  included  compensation,  office  rent  and  administrative
     expenses totaling $81,868 and reorganization items of $42,243 for the three
     months  ending  February 29, 2004.  During June 2002,  five of the ten U.S.
     operating  stores  within  Sears  Roebuck + Co. were  closed,  leaving five
     stores in Southern California in operation until December 31, 2002 when the
     license agreement with Sears was terminated.


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<PAGE>

     For the nine months ended  February  29, 2004,  compared to the nine months
     ended February 28, 2003,  total expenses for the nine months ended February
     29,  2004,  was $535,261 as compared to  $1,444,925  of  discontinued  U.S.
     operations  and other expense for the nine months ended  February 28, 2003.
     These  expenses  included  compensation,  office  rent  and  administrative
     expenses totaling $380,303,  and  reorganization  items of $154,958 for the
     nine months  ending  February 29, 2004.  During June 2002,  five of the ten
     U.S.  operating  stores within Sears Roebuck + Co.  ("Sears")  were closed,
     leaving five stores in Southern  California in operation until December 31,
     2002 when the license  agreement with Sears was terminated.  On January 15,
     2003,  the  Company  filed a petition  for relief  under  Chapter 11 of the
     federal  bankruptcy  laws in the  United  States  Bankruptcy  Court for the
     Central  District  of  California,   Los  Angeles  Division,  Case  No.  LA
     03-11306-VZ.

     The current and past historical trends are not reflective of the future for
     the  Company.  The Plan  anticipates  that the Company  will  complete  the
     Business   Combination   Transaction   which  will  give  the  Company  new
     opportunities  in a completely  different  revenue  stream.  See Note 4 for
     detail on the Plan and Reorganization of the Company.

ITEM 3:    CONTROLS AND PROCEDURES

     Upon the court issuing its Order  confirming  the Company's  Second Amended
     Plan  of   Reorganization  on  May  28,  2004,  the  Company  conducted  an
     evaluation,  under  the  supervision  and  with  the  participation  of the
     principal  executive  officer  and  principal  financial  officer,  of  the
     Company's disclosure controls and procedures (as defined in Rules 13a-15(e)
     and  15d-15(e)  under the  Securities  Exchange Act of 1934 (the  "Exchange
     Act").  Based on this  evaluation,  the  principal  executive  officer  and
     principal  financial  officer  concluded  that  the  Company's   disclosure
     controls and procedures are effective to ensure that  information  required
     to be disclosed  by the Company in reports  that it files or submits  under
     the Exchange Act is recorded, processed, summarized and reported within the
     time periods  specified in Securities  and Exchange  Commissions  rules and
     forms. There was no change in the Company's internal control over financial
     reporting during the Company's most recently  completed fiscal quarter that
     has materially  affected or is reasonably  likely to materially  affect the
     Company's internal control over financial reporting.

ITEM 4:    SUBSEQUENT EVENTS

     After a hearing on May 27,  2004,  the  Bankruptcy  Court  entered an order
     confirming the Company's Second Amended Plan of  Reorganization  on May 28,
     2004.  On  June  8,  2004,  the  Plan  became  effective  and  the  Cetalon
     Corporation,  Inc.  Liquidating  Trust  was  created.  See  Note  4  for  a
     description of the Plan.

PART II

ITEM 5.    EXHIBITS AND REPORTS ON FORM 8-K

(a) The following are included as exhibits as part of this  Quarterly  Report on
Form 10-QSB:

     Exhibit 31.1 Certification Pursuant to 18 U.S.C.  Section 1350, as Adopted
                  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

     Exhibit 32.1 Certification Pursuant to 18 U.S.C.  Section 1350, as Adopted
                  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b)  Reports on Form 8-K:

     On May 27, 2004,  the Company  filed a Current  Report on Form 8-K in which
     the Company  announced the change in  registrant's  certifying  accountants
     from Squar, Milner, Reehl + Williamson,  LLP to Kelly + Company. There were
     no  disagreements  on any matter or  accounting  principles  or  practices,
     financial statement disclosures, or auditing scope or procedures.


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<PAGE>

                                   SIGNATURES

Pursuant  to the  requirements  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.

                                             CETALON CORPORATION
                                             (Registrant)



                                             By:/s/ A. John A. Bryan, Jr.
                                                    A. John A. Bryan, Jr.
                                                    Chief Executive Officer and
                                                    Chief Financial Officer

Date: June 23, 2004


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