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

                                   FORM 10-KSB

[x]  Annual report under section 13 or 15(d) of the  Securities  Exchange Act of
     1934 for the fiscal year ended March 31, 2006

[    ] Transition  report under section 13 or 15(d) of the  Securities  Exchange
     Act of 1934 for the transition period from to


                         Commission File Number 0-24372

                                  ARKONA, Inc.
                 ----------------------------------------------
                 (Name of small business issuer in its charter)

                            Sundog Technologies, Inc.
                     (Former name of small business issuer)


         DELAWARE                                            33-0611746
-------------------------------                          -------------------
(State or other jurisdiction of                            (IRS Employer
incorporation or organization)                           Identification No.)




                         10757 South River Front Parkway
                                   Suite #400
                            South Jordan, Utah 84095
               (Address of principal executive offices) (Zip Code)

                    Issuer's telephone number: (801) 501-7100


Name of exchange on which registered:                     None

Securities registered under Section 12(b) of the Act:     N/A

Securities registered under to Section 12(g) of the Act:  Common Stock,
                                                          par value $.001

Name of exchange on which registered:                     OTC Bulletin Board

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Securities  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  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. [ ]

       Issuer's revenues for its most recent fiscal year were $11,129,798.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant as of June 6, 2006 was $14,651,530.  The number of shares outstanding
of the issuer's common stock,  par value $.001 per share, as of June 6, 2006 was
32,492,323 shares, of which 22,540,816 were held by  non-affiliates.  The market
price of the common stock as of June 6, 2006 was $0.65 per share.

                       DOCUMENTS INCORPORATED BY REFERENCE

None.


Transitional Small Business Disclosure Format (Check one):  Yes [ ]    No  [X]


<PAGE>

                                Table of Contents





PART I.........................................................................1


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


Item 2.  Description of Property..............................................13


Item 3.   Legal Proceedings...................................................14


Item 4.   Submission of Matters to a Vote of Security Holders.................14

PART II.......................................................................15


Item 5.   Market for Common Equity and Related Stockholder Matters............15


Item 6.   Management's Discussion and Analysis
            of Financial Condition and Results of Operations..................16


Item 7.  Financial Statements.................................................22


Item 8.  Changes In and Disagreements with Accountants
           on Accounting and Financial Disclosure.............................23


Item 8A. Controls and Procedures..............................................23


Item 8B. Other Information....................................................23

PART III......................................................................24


Item 9.  Directors, Executive Officers, Promoters
           and Control Persons; Compliance with Section 16(a)
           of the Exchange Act................................................24


Item 10.  Executive Compensation..............................................28


Item 11. Security Ownership of Certain Beneficial Owners
           and Management and Related Stockholder Matters.....................30


Item 12.  Certain Relationships and Related Transactions......................33


Item 13.  Exhibits............................................................34


Item 14.   Principal Accountant Fees and Services.............................35






<PAGE>


                           FORWARD LOOKING STATEMENTS

         This  Annual   Report  on  Form   10-KSB   (this   "Report")   contains
forward-looking  statements  within the meaning of Section 27A of the Securities
Act  of  1933,  as  amended  (the  "Securities  Act"),  and  Section  21E of the
Securities  Exchange  Act  of  1934,  as  amended  (the  "Exchange  Act").  Such
statements  can be  identified  by the  use of  forward-looking  words  such  as
"anticipate,"  "estimate," "project," "likely," "believe," "intend," "expect" or
similar words.  These statements relate to our, and, in some cases, our clients'
or business  partners' future plans,  objectives,  expectations,  intentions and
financial  performance and the assumptions that underlie these  statements.  All
forward-looking  statements  included  in this  Report  are  made as of the date
hereof,  based on information  available to us as of such date, and we assume no
obligation  to update any  forward-looking  statements.  It is important to note
that such  statements  may not prove to be accurate and that our actual  results
and  future  events  will  differ,  and  could  differ  materially,  from  those
anticipated  in such  statements.  Among the  factors  that could  cause  actual
results to differ  materially  from our  expectations  are those described under
"Item  1.  Description  of  Business  -  Certain  Risk  Factors."  You are  also
encouraged  to  review  our  other  filings  with the  Securities  and  Exchange
Commission  (the  "SEC")  describing  other  factors  that may affect our future
results. All subsequent written and oral forward-looking statements attributable
to us or persons acting on our behalf are expressly  qualified in their entirety
by this section and other factors included elsewhere in this Report.

                                     PART I

Item 1.  Description of Business

Overview

         Arkona, Inc. develops and provides fully integrated, on-demand business
management solutions to new and independent automobile  dealerships.  Because of
operating  similarities with automobile  dealerships,  we also provide on-demand
business management solutions to dealers of powersports equipment and RVs.

         Our principal  product is our Arkona Dealer Management Suite or "ADMS".
The ADMS is an  on-demand,  software-based,  dealership  management  system that
allows  dealerships  to  manage  substantially  all  aspects  of their  business
operations.  It is a modular system, which makes it scalable for different types
and sizes of  dealerships.  A key  advantage of the ADMS is that it is run on an
Application  Service  Provider or "ASP" model.  The ASP model bundles  software,
hardware,   systems   development,   integration   and   management   into   one
cost-effective  offering.  Under our ASP model, we provide the software and host

                                      -1-
<PAGE>

customer  data on servers at central  locations,  and customers use the software
over the Internet.  The ASP model may  significantly  reduce upfront and ongoing
hardware costs for the dealership because the significant  processing is done on
computers  maintained at offsite locations by us. The dealership generally needs
only standard personal  computers with reliable  Internet access.  The ASP model
reduces the need for  technical  computer  personnel  because the  software  and
related hardware are managed by us at an offsite  location.  The ADMS integrates
with most of the major automobile  manufacturers and we continue to work towards
integration with the remaining manufacturers.

         We provide  installation  services,  which  includes  G/L  setup,  data
conversion,  Virtual Private Network ("VPN")  connection,  forms programming and
consultative  training to employees of the dealerships who purchase the right to
use of the ADMS.  For a  continuing  monthly  fee, we provide  post-installation
services,  including  continuous access to the latest version of the ADMS hosted
on our  servers,  data  hosting,  technical  support  and 24x7  maintenance  and
security of the servers.

         We  are  expanding  our  target  market  beyond  new  and   independent
automobile  dealerships  to dealers of powersports  equipment.  For all types of
dealerships,   we  market  our  products   primarily   through   regional  sales
representatives,  in-house sales and marketing  personnel and independent  sales
agents. We also market our products via trade shows,  seminars,  press releases,
trade  publications,  customer referral programs,  relationships with suppliers,
automobile manufacturers and industry partners.

Products and Services

         The Arkona Dealer Management Suite
         ----------------------------------

         Our main  product  is the  ADMS.  The ADMS is a  software-based  dealer
management  suite that allows new and  independent  automobile,  marine,  RV and
other   powersports   dealerships  to  manage  all  aspects  of  their  business
operations,  including  sales,  customer  relationship  management,  accounting,
parts, service, and financing functions.

         The ADMS  uses a  highly  integrated,  modular  structure  that  allows
management  decisions  to be made based on  information  from a variety of areas
within the dealership's  business.  For example,  the ADMS sales module provides
management  and  the  sales  department  with  real-time  vehicle-specific  cost
information  in order to  facilitate  price  negotiations  and, if the potential
customer has previously done business with the dealership,  provides information
regarding that customer's previous purchases,  use of the service department and
other  associated  activity.  The ADMS service  module  includes an  appointment
system that facilitates order writing and technician  analysis and automatically
integrates with accounting in order to produce and track invoices.  If parts are
drawn from  inventory in  connection  with a repair,  the ADMS service and parts
modules  can  be  set  to  automatically  order  a  replacement  part  from  the
manufacturer or merely to make  recommendations  when the inventory of a certain
part or product is low.  These and other  functions  work  together  in order to
integrate,  automate,  and  streamline  the various  functions of an  automobile
dealership.

         The ADMS  modular  structure  allows a  dealership  to choose  only the
modules  it needs at the time while  retaining  the  ability  to add  additional
modules in the future. The modular structure also permits custom programming, or
updating,  of a particular function without the need to alter other functions or
modules.  This  permits  us to  customize  the ADMS  system to meet the needs of
particular dealerships.

                                      -2-
<PAGE>

         Another key  advantage  of the ADMS is its ability to operate  using an
ASP  model.  Under  an ASP  model,  the  underlying  software  runs  and data is
maintained  offsite,  while  customers use the software and access or manipulate
data over the Internet.  Application of the ASP model can  significantly  reduce
most upfront and ongoing  hardware and operating system costs for the dealership
because the significant processing is done on computers maintained at an offsite
location.  The  dealership  uses only basic  personal  computers  with  reliable
Internet  access,  while we  handle  (and pay for)  day-to-day  maintenance  and
upgrades at the offsite  location.  The ASP model may also allow a dealership to
avoid the expense of having its own technical personnel.

         The ASP version of our ADMS is highly  reliable  and  secure.  The ADMS
uses password  administration  features  that allow the  dealership to establish
access levels for different users. The dealership can restrict or give access to
each of the key elements of the system including system maintenance, data entry,
inquiry,  and report generation.  The ADMS has built-in recovery systems so that
if a system fails,  it can be restarted,  and the system will remember  where it
left off and continue  running from that point. We use VPN technology to protect
data  transmission  over the Internet.  A VPN is a private  network built atop a
public network. Hosts within the private network use encryption to talk to other
hosts;  the  encryption  is intended to exclude  hosts from  outside the private
network even if they are on the public network.  The ASP system is maintained at
a hosting  facility with multiple  fiber trunks from  multiple  sources,  backup
generators,  fully redundant hardware,  power and Internet connections,  climate
control  systems,  seismically  braced  rack  systems,  and  security  and  fire
detection and suppression systems.

         Dealer-Manufacturer Communications
         ----------------------------------

         Our ADMS  integrates  with the systems of many of the major  automobile
manufacturers. An important element of a dealer management system is its ability
to integrate a  dealership's  system with a  manufacturer's  system.  An example
would be the ability of a Ford dealership's  system to integrate and communicate
with Ford Motor Company's system. The ability of the dealership to integrate and
share  information  about warranty service claims,  parts,  vehicle orders,  and
other similar  information with the manufacturer can save the dealership and the
manufacturer  thousands  of  dollars  a  month.  We have  dedicated  substantial
resources to make our ADMS  integrate  with the systems of the major  automobile
manufacturers.   The  ADMS  currently  integrates  with  the  systems  of  Ford,
Lincoln-Mercury,  GMC,  Buick,  Chevrolet,  Pontiac,  Cadillac,  Hummer,  Dodge,
Chrysler,  Jeep, BMW, MINI, Honda,  Acura,  Suzuki,  Mitsubishi,  Mazda,  Isuzu,
Subaru and BMW Motorcycles.  Porsche and VW-Audi  integrations are scheduled for
completion  during fiscal year 2007. Major automobile  manufacturers  with which
our system does not integrate include Toyota,  Nissan,  Volvo, Lexus,  Infinity,
Jaguar, Range Rover, Mercedes-Benz, Saab, and Hyundai.

         Stand Alone Products
         --------------------

         In connection  with the ADMS, we have  developed  stand-alone  products
such as a customer  relationship  management or (CRM) solution, Do Not Call, and
bar  coding.  Each of these  products  provides  an  important  supplement  to a
dealer's ability to manage a dealership.

         Training and Support Services; Consulting
         -----------------------------------------

         We provide training and customer support services. This is important to
dealerships  because  employee  turnover and growth creates the need for ongoing
training on our ADMS.  We also provide  detailed  self-help  manuals,  classroom
training, onsite training, and training over the Internet.

                                      -3-
<PAGE>

         For a monthly fee, we provide unlimited  technical and customer support
for our ADMS. We continue to develop an  Internet-based  support system that has
pre-recorded, step-by-step audio and video instructions for frequently requested
tasks.

         We also provide limited custom programming,  post-installation training
and other consulting services. Our programming, training and consulting fees are
based on the scope of services provided.

         Installation
         ------------

         Installation  of the ADMS at a dealership is typically  done by a three
person  installation  team. A typical  installation is completed over a three to
four  week  period.  Installation  includes  G/L  setup,  data  conversion,  VPN
connection,   forms  programming  and  training.   We  also  sell  hardware  and
accessories in connection with the installation of the ADMS.

Markets

         Our  potential   customers  include  new  and  independent   (used-car)
automobile dealerships, and we are beginning to pursue dealers of RV, marine and
powersports  equipment.  We estimate there are between 22,000 and 23,000 new car
dealerships in the United States and over 60,000 independent car dealerships. We
estimate there are approximately 6,000 dealers of powersports (motorcycle,  ATV,
watercraft/sportboats and snowmobiles) equipment.

         Automobile Dealership Market
         ----------------------------

         We believe the  automobile  dealership  market is  evolving  and moving
toward using more technology in the management of their  businesses.  Automobile
dealers are consistently  trying to reduce costs and improve  efficiency through
the use of  information  technology.  Our perception is that, for the most part,
automobile  dealers have lagged behind  taking  advantage of technology in their
information  systems.  We believe that, in an effort to improve customer service
and  support,  more and more  automobile  dealers are  looking to improve  their
information technology.

         The National  Automobile  Dealers  Association  has identified  several
significant  trends in the retail car and truck environment that we believe will
pressure dealers to look for ways to better manage their business.  Those trends
include the following:

     o   Pressure on profit margins in all  departments is expected to encourage
         dealerships  to improve  management  procedures,  marketing  skills and
         performance in every department.  Reliable,  timely information will be
         important in that process.

     o   The increasing geographic concentration of automobile dealerships is
         reducing profit margins and pressuring dealerships to increase volume.

     o   Improvements   in  product   quality  and  extended   warranties   have
         significantly reduced the required service for vehicles,  which reduces
         an important source of revenue for automobile dealerships.

                                      -4-
<PAGE>

     o   The growth of competing  service  providers (such as Jiffy-Lube,  Midas
         Mufflers,  Brake-O,  Tunex,  etc.) is putting  pressure  on  automobile
         dealerships  to operate their service  departments  as  efficiently  as
         possible and with an increased emphasis on customer satisfaction.

     o   Automobile   manufacturers   are  demanding  more  control  over  their
         marketing  channels in an effort to manage  customer  satisfaction  and
         volume.  This effort  includes  increased  reporting  requirements  for
         dealerships,  increased involvement in maintaining physical facilities,
         more  communication  between  manufacturers  and  dealerships  and  the
         integrating of computer systems of dealerships and manufacturers.

     o   The  increase  in  dealership  groups  and  corresponding  decrease  in
         independent  dealerships  is  leading  to  increased  competition  from
         business-savvy competitors.

         We  believe  these  trends  have  favorable  implications  for  us as a
provider of a low-cost, comprehensive dealership management system solution like
our ADMS.

         Powersports Market
         ------------------

         The  powersports  market is estimated to be an $18 billion  industry in
the United  States.  It consists of new and used  motorcycles,  ATV's,  personal
watercraft,  and snowmobiles,  as well as, parts, accessories and mechanical and
financial services related to these products.

         Over the past five years,  the industry has grown an average of 15% per
annum. The industry is highly fragmented.  For example, of the approximate 6,000
franchised motorcycle dealerships, most are individually owned.

         Many  of the  powersports  dealership  owners  are  motorcycle,  ATV or
snowmobile  enthusiasts with minimal business  training.  The largest dealership
group  generated  revenues of  approximately  $100 million in 2005, or less than
1.0% of total industry sales.

         We are encouraged by our initial research, marketing and selling to the
powersports  market.  Many of the powersports dealers that have already licensed
the ADMS indicate that they like the product features,  attractive pricing,  and
technical expertise. We intend to enhance its product offering during the coming
year to incorporate power sports specific capabilities.

         Marine and RV Markets
         ---------------------

         We have  licensed  the ADMS to a few marine and RV  dealerships.  These
dealerships are able to use the system because of operational  similarities with
automobile dealerships. We have not commenced, nor do we have any current plans,
to commence any active marketing  initiatives or extensive product customization
for the marine and RV markets.

Competition

         Automobile Market
         -----------------

         According to a 2005 Woods and Seaton  automotive  retailing  study, the
market  for  automobile  dealer  management  systems is  dominated  by two major
players - ADP Dealer  Services  ("ADP")  and  Reynolds & Reynolds  ("Reynolds").


                                      -5-
<PAGE>

According  to the study,  ADP and  Reynolds  together  control  about 80% of the
market for automobile  dealer  management  systems.  Approximately 10 providers,
including Arkona, compete for the remaining 20% of the market.

         ADP and Reynolds are large, well-financed organizations with good brand
name  recognition.  Their  systems  integrate  with  all  the  major  automobile
manufacturers.  Their  market  dominance  also creates  significant  hurdles for
Arkona because many  dealerships are hesitant to abandon their existing  systems
and switch to a new system provided by a smaller vendor with limited  resources.
Their  ability  to  integrate  their  systems  with  all  the  major  automobile
manufacturers  is  highly  appealing  to large  automobile  dealerships  selling
automobiles  from  most of the major  automobile  manufacturers  and  especially
automobile  manufacturers with systems with which our ADMS cannot yet integrate.
However,  the price of ADP's and  Reynolds'  dealer  systems is  generally  much
higher  than our price  for the  ADMS,  and we  believe  that ADP and  Reynolds'
products generally do not reflect recent technological  developments,  including
the  ability  to run on an ASP model.  Our  success  in  competing  with ADP and
Reynolds in the market for  independent  automobile  dealerships  supports  this
belief.

         Powersports Market
         ------------------

         The  following  companies  sell  dealer  management  systems  into  the
powersports market: Comptron, ProQuest Powersports, MIC, ARI Networks, C Systems
and Shoptech.  Of these competitors,  ProQuest Powersports (a subsidiary of ADP)
is the  most  widely  used.  ProQuest  Powersport's  Lightspeed  product  has an
estimated over 80% market penetration. Based upon conversations with powersports
dealers,  we believe  that  ProQuest  is  experiencing  a lot of  push-back  and
dissatisfaction   from  dealerships   because  of  their  pricing  and  business
practices.  This may open the door for us to win market share by delivering more
value for less money.

Intellectual Property

         We believe our  intellectual  property is critical to our  success.  We
rely on common law copyright,  trademark and trade secret  protection to protect
our  intellectual  property.  We have  not  formally  patented,  copyrighted  or
registered any of our intellectual property.  However, all employees involved in
any of our software  development are asked to sign confidentiality and invention
rights  agreements.  There is a risk  that our  intellectual  property  could be
challenged,  invalidated or circumvented, that it could be deemed to infringe on
third-party intellectual property or that it could fail to provide a competitive
advantage in the future.

         We spent $1,331,492 and $1,039,160  during the fiscal years ended March
31, 2006 and 2005, respectively,  on company-sponsored  research and development
activities.

Employees

         As of March 31, 2006,  we had 91 full-time  employees  consisting  of 6
corporate  officers,  15  sales  and  marketing  representatives,   13  computer
engineers  and  programmers,  53  installation  and support  technicians,  and 4
administrative and clerical employees.  None of our employees are represented by
a collective bargaining organization.

Corporate History

         We were formed as a Delaware  corporation  in 1992 and were  originally
named The Thorsden Group, Ltd. In 1997,  Thorsden acquired Arkona,  Inc., a Utah
corporation,  as a wholly-owned subsidiary.  Arkona, Inc. was in the business of


                                      -6-
<PAGE>

developing software for remote synchronization and replication of databases.  In
1999,  Thorsden changed its name to Sundog  Technologies,  Inc. In 2000,  Sundog
acquired the business and assets of Ensign Information Systems,  which developed
and sold automobile  dealership  software.  In 2001, Sundog abandoned its remote
synchronization  business,  merged with its wholly-owned  subsidiary and changed
its name to Arkona, Inc.

Certain Risk Factors

         Our short and long-term  success is subject to certain  risks,  many of
which are substantial in nature.  The following risk factors should be carefully
considered,  in addition to other  information  contained in this  report,  when
evaluating an  investment  in our common  stock.  Any one of these factors could
cause actual results of operations to differ materially from projected results.

         We may not continue to experience net income in the future.
         -----------------------------------------------------------------------

         Any projection of continued profitability assumes that we will continue
to add new  customers  at a constant or  increased  rate and that our  operating
expenses will increase slower than our revenues.  We may not be able to continue
to add new  customers  at a constant or  increased  rate,  and we may even begin
losing  customers.  Even if we add more customers,  our labor costs,  server and
other  capital  equipment  costs  and  other  expenses  may  begin  to  increase
dramatically,  or we may  experience  unexpected  costs  related to  litigation,
insurance,  acquisitions, product development, or other items that may cause our
expenses  to  increase  at a faster  rate than  expected.  We may not be able to
maintain profitability or to increase profitability in the future.

         We may  require  additional  capital  to  continue  development  of our
         products, pursue our expansion plan and fund our operations.
         -----------------------------------------------------------------------

         We do  not  have  a  significant  cash  reserve.  If we  experience  an
unexpected  need for cash,  expand  our  operations  in any  significant  way or
otherwise need  additional  cash, we expect to continue to rely primarily on the
offer and sale of convertible  notes,  warrants and equity  securities to obtain
such  cash.  If  financing  is  needed,  we cannot  assure  you that  additional
financing  may be  available  on terms  favorable  to us, or at all. If adequate
funds are not available,  or are not available on acceptable  terms, our ability
to expand our operations, or to continue normal operations, may be limited.

         We may be unable to continue to increase the number of customers  using
         our ADMS product or other future offerings.
         -----------------------------------------------------------------------

         Our ADMS is  relatively  new and we are operating in a market where two
competitors (ADP and Reynolds)  control 80% of the market and have a significant
advantage  relative  to  market  acceptance.  Any  projections  or  expectations
regarding  the number of  customers  that will accept  installation  of our ADMS
product is subject to the risk that  end-users may determine not to purchase our
ADMS product at the rate projected because of our insignificant  position in the
market, concerns over our ability to continue as a going concern, concerns about
our product and related  services or various other reasons.  If we are unable to
increase  our monthly  installations  of our ADMS  product in the future,  it is
unlikely that we will be able to maintain profitability.

                                      -7-
<PAGE>

         Our  competitors  have greater  resources  than we do, which may permit
         them  to  rapidly  develop  or  purchase  new  technologies,  undertake
         significant marketing campaigns or price more aggressively than we do.
         -----------------------------------------------------------------------

         The market for automobile  dealership data management systems is highly
competitive,  and we must compete with companies that possess greater financial,
technical and marketing  resources than we do. These  advantages may enable them
to respond more quickly to new or emerging  technologies and changes in customer
preferences.  These  advantages  may also allow them to engage in more extensive
research and development,  undertake extensive far-reaching marketing campaigns,
adopt  more  aggressive  pricing  policies  and make more  attractive  offers to
potential  employees and strategic  partners.  As a result,  we may be unable to
obtain a significant  market share in the automobile dealer  management  systems
business. In addition, competition may result in price reductions, reduced gross
margin and loss of market share. We may not be able to compete successfully, and
competitive  pressures may adversely affect our business,  results of operations
and financial condition.

         We are  subject to various  regulatory  regimes,  and may be  adversely
         affected  by allegations that we have not complied with governing rules
         and laws.
         -----------------------------------------------------------------------

         We are subject to a variety of laws and regulatory  regimes as a result
of our  status as a public  company,  in  addition  to those  applicable  to all
businesses   generally.   Laws  and  rules  governing  public  companies  change
frequently,  and are often complex. In connection with such laws, we are subject
to periodic audits, inquiries and investigations. Any such audits, inquiries and
investigations  may  divert  considerable  financial  and  human  resources  and
adversely  affect our execution of our business plan. In addition,  through such
audits,  inquiries and investigations,  we or a regulator have from time to time
determined,  and may in the future determine, that we are out of compliance with
one or more  governing  rules or laws. In fact,  we have recently  filed Current
Reports on Form 8-K indicating a need to restate  certain  financial  statements
from the fiscal  year ended March 31, 2005 and  subsequent  quarters.  Remedying
such non-compliance  has, during the last few months diverted,  and may continue
to divert  additional  financial  and human  resources.  In addition,  we may be
subject to a formal charge or determination  that we have materially  violated a
governing  law,  rule  or  regulation.   Any  charge,   and   particularly   any
determination, that we had materially violated a governing law would likely have
a material  adverse  effect on the market  price of our  stock,  our  ability to
execute  our  business  plan and our  ability  to retain and  attract  qualified
management.

                                      -8-
<PAGE>

         Our services are subject to system failure and security risks.
         -----------------------------------------------------------------------

         Our operations,  particularly  our ASP service,  are dependent upon our
ability to protect  our  network  infrastructure  against  damage  from  natural
disasters,  such as  fire,  earthquakes  and  floods,  as well  as  power  loss,
telecommunications  failures and similar events. All of our network and computer
equipment,  including  components  critical  to our  operations,  are  currently
concentrated in a single co-location  facility provided by MCI.  Notwithstanding
precautionary  measures  that  we and  our  co-location  host  have  taken,  the
occurrence of a natural disaster or other unanticipated  system or power failure
could cause  interruptions in the services we provide.  In addition,  failure of
our telecommunications  providers to provide the data communications capacity we
require as a result of natural disasters, bankruptcy, operational disruptions or
for any other reason could cause  interruptions in the services we provide.  Any
damage or failure  that  causes  interruptions  in our  operations  could have a
material  adverse  effect on our  business,  financial  condition and results of
operations.

         Our  ASP  network  is  subject  to  other   factors  that  could  cause
interruptions in service,  reduced capacity for our customers and claims against
us. Despite the  implementation  of security  measures,  the core of our network
infrastructure is vulnerable to unauthorized access, computer viruses, equipment
failure and other disruptive problems, including the following:

     o   We and our  customers  may  experience  interruptions  in  service as a
         result of the  accidental  or  malicious  actions  of  Internet  users,
         current and former employees or others.

     o   Unauthorized   access  may  jeopardize  the  security  of  confidential
         information stored in our computer systems and our customers'  computer
         systems,  which may result in liability to our  customers  and also may
         deter potential customers.

     o   We may face  liability for  transmitting  viruses to third parties that
         damage or impair their access to computer networks,  programs,  data or
         information.

     o   There may be a systemic failure of Internet communications,  leading to
         claims associated with the general unavailability of our ASP product.

     o   Eliminating   computer  viruses  and  alleviating   other  security  or
         technical  problems may require  interruptions,  delays or cessation of
         service to our customers.

          The occurrence of any unauthorized access,  computer virus,  equipment
failure or other disruptive  problem could have a material adverse affect on our
business, financial condition and results of operations.

         We are dependent upon highly qualified personnel,  and the loss of such
         personnel is a risk to our success.
         -----------------------------------------------------------------------

         We are highly  dependent upon the efforts of management and technically
skilled personnel, including programmers,  installers, and engineers. Our future
performance  will depend,  in part, upon our ability to increase  sales,  manage
growth  effectively,  and retain the services of our  management,  our technical
staff and sales staff. Competition for management, technical and sales personnel
is intense, and we do not have long-term  employment  agreements with any of our
employees.  As a result, we may be unable to retain our key employees or attract


                                      -9-
<PAGE>

other highly qualified  employees in the future. The loss of the services of any
of our management,  technical or sales team or the failure to attract and retain
additional key employees  could have a material  adverse effect on our business,
financial condition and results of operations.

         We rely on our intellectual  property  rights,  and if we are unable to
         protect  these  rights,  we may  face  increased  competition,  and our
         business may be materially adversely affected.
         -----------------------------------------------------------------------

         We regard our intellectual property, particularly our ADMS, as critical
to our success,  and we rely on copyright and trade secret protection to protect
our  proprietary  rights  in  intellectual  property.  Any of  our  intellectual
property rights may be challenged,  invalidated or  circumvented,  or the rights
granted  there under may not provide any  competitive  advantage.  In  addition,
others  may   independently   develop   substantially   equivalent   proprietary
information  and  techniques  or otherwise  gain access to our trade secrets and
know-how.  We could also incur  substantial  costs in asserting our intellectual
property  or  proprietary  rights  against  others,  including  any such  rights
obtained from third parties.  Although each of our employees and  consultants is
asked to enter into a confidentiality and invention  agreement,  there can be no
assurance  that  such  agreements  will  be  honored  or that we will be able to
protect effectively our rights to trade secrets and know-how.

         Third-party  claims that we infringe upon their  intellectual  property
         rights could be costly to defend or settle.
         -----------------------------------------------------------------------

         Litigation  regarding  intellectual  property  rights  is common in the
software and software-based  service industry.  We expect that software products
and services may be increasingly  subject to third-party  infringement claims as
the number of competitors in our industry segment grows and the functionality of
products in different  industry  segments  overlaps.  We may, from time to time,
encounter disputes over rights and obligations concerning intellectual property.
Third parties may bring claims of infringement against us, which may be with, or
without,  merit. We could be required,  as a result of an intellectual  property
dispute, to do one or more of the following:

     o   Cease  selling,  incorporating  or using products or services that rely
         upon the disputed intellectual property;

     o   Obtain from the holder of the intellectual  property right a license to
         sell or use the disputed intellectual  property,  which license may not
         be available on reasonable terms;

     o   Redesign  products or services that incorporate  disputed  intellectual
         property; and/or

     o   Pay  significant  monetary  damages to the  holder of the  intellectual
         property right.


         The occurrence of any of these events could result in substantial costs
and  diversion of resources or could  severely  limit the services we can offer,
which  could  seriously  harm our  business,  operating  results  and  financial
condition.

         In addition,  we have agreed, and may agree in the future, to indemnify
certain of our customers  against  claims that our software  infringes  upon the
intellectual  property  rights of others.  We could incur  substantial  costs in
defending ourselves and our customers against  infringement claims. In the event
of a claim of  infringement,  we and our customers may be required to obtain one
or more  licenses from third  parties.  We, or our  customers,  may be unable to


                                      -10-
<PAGE>

obtain  necessary  licenses from third parties at a reasonable  cost, or at all.
Defense of any  lawsuit or failure to obtain any such  required  licenses  could
harm our business, operating results and financial condition.

         Software-based products tend to evolve rapidly, and our competitors may
         develop products that are technically superior to our products.
         -----------------------------------------------------------------------

         Our primary product, the ADMS, is a software-based  product. The market
for software and software-based  products is recognized for rapid  technological
developments,   frequent  new  product   introductions   and  evolving  industry
standards. The rapid evolution of software products requires that we continually
improve the performance,  features and reliability of our software, particularly
in  response  to  competitive  offerings  by other  companies.  There  can be no
assurance  that we will  successfully  respond  quickly,  cost  effectively  and
sufficiently to these developments.

         In addition,  the widespread  adoption of new technologies or standards
could  require  substantial  expenditures  to modify or adapt our  products  and
services  and which  could  have a  material  adverse  effect  on our  business,
financial  condition and results of  operations.  Furthermore,  our new software
enhancements  may  contain  design  flaws  or other  defects  that  limit  their
marketability.

         Research and  development  and discoveries by others may render some or
all of our products or potential product offerings uncompetitive or obsolete. We
compete with a number of entities  that are currently  developing  and producing
software products that compete with our current and proposed  products.  Many of
these competitors have  substantially  greater capital  resources,  research and
development capabilities,  and production and marketing resources,  capabilities
and experience  than we have available to us. These  competitors  may succeed in
developing  products  that are more  effective  or less costly than any products
that  we may  develop,  or  that  gain  market  acceptance  prior  to any of our
products, making market penetration more difficult for us.

         We may be subject to claims  based upon  allegations  that our products
         are defective.
         -----------------------------------------------------------------------

         Our  products   include   programs   designed   for  mission   critical
applications,  creating the risk that the failure or malfunction of our products
may  result  in  serious  damage  or loss  and open us to a claim  for  damages.
Although contract terms limit our exposure,  a court may rule such provisions to
be invalid or unenforceable,  or changes in the law could render such terms void
or unenforceable. A successful claim could have a material adverse effect on our
operations  and finances.  Furthermore,  the cost of defending  against a claim,
even  successfully,  could be material  and could have an adverse  effect on our
results of operations and an adverse effect on the marketing of our products.

         Trading  in our  common  stock  is  thin,  and  there is a limit to the
         liquidity of our common stock.
         -----------------------------------------------------------------------

         Our common  stock is quoted on the OTC  Bulletin  Board.  The volume of
trading  in  our  common  stock  is  limited  and  likely  dominated  by  a  few
individuals.  Because of the  thinness  of the market for our stock the price of
our common stock may increase or decrease  significantly as a result of a single
trade by a single stockholder. In addition, the limited volume of trading limits
significantly  the  number of shares  that one can  purchase  or sell in a short


                                      -11-
<PAGE>

period of time without adversely  affecting the market price.  Consequently,  an
investor may find it more  difficult to dispose of shares of our common stock or
obtain a fair price for our common stock in the market.

         Our management  owns a significant  number of our  outstanding  shares,
         which will allow them to influence the outcome of matters  submitted to
         stockholders for approval.
         -----------------------------------------------------------------------

         Our  officers and  directors  own  approximately  30% of our issued and
outstanding common stock.  Eight additional  stockholders have the power to vote
approximately 12% of our issued and outstanding common stock. As a result, these
stockholders  have substantial  control over matters  requiring  approval by our
stockholders,  such as the  election of directors  and  approval of  significant
corporate  transactions.  In addition,  this concentration of ownership may also
have the effect of delaying or preventing a change in control.

         Our  stockholder  rights plan and certain  provisions  in the  Delaware
         corporate  law may  permit our Board of  Directors  to block a takeover
         attempt and adversely affect the value of our common stock.
         -----------------------------------------------------------------------

         Our Board of Directors adopted a stockholder  rights plan, and declared
a dividend  of an  associated  right,  which are  expected to have the effect of
deterring any takeover of the company that is not preceded by Board  approval of
the proposed  transaction.  The  existence of such  stockholder  rights plan may
deter potential tender offers for our common stock or other  acquisition  offers
and may have the effect of delaying or preventing a change of control.

         In addition,  the Delaware General  Corporations Law prohibits  certain
mergers,  consolidations,  sales of assets  or  similar  transactions  between a
corporation  and another  company  which is, or is an affiliate of, a beneficial
holder of 15% or more of such  corporation's  voting  power  (referred  to as an
Interested  Stockholder)  for three  years after the  acquisition  of the voting
power, unless the acquisition of the voting power was approved beforehand by the
corporation's board of directors or the transaction is approved by a majority of
such corporation's  stockholders (excluding the Interested  Stockholder).  These
provisions prohibiting  Interested Stockholder  transactions could also preserve
management's control of the company.

         Obtaining  additional  capital  through  the sale of common  stock will
         result in dilution of stockholder interests.
         -----------------------------------------------------------------------

         We may  raise  additional  funds in the  future by  issuing  additional
shares  of common  stock or  securities,  such as  convertible  notes,  options,
warrants or preferred stock that are convertible  into or exercisable for common
stock.  Any such sale of common stock or other  securities  will lead to further
dilution of the equity ownership of existing holders of our common stock.

         The  market  price for our  common  stock is  volatile  and may  change
         dramatically at any time.
         -----------------------------------------------------------------------

         The market price of our common  stock,  like that of the  securities of
other early stage companies,  may be highly volatile. Our stock price may change
dramatically  as the  result of  announcements  of our  quarterly  results,  new
products  or  innovations  by  us or  our  competitors,  significant  customers'
contracts,  significant  litigation  or other  factors  or events  that would be
expected to affect our business or financial  condition,  results of  operations


                                      -12-
<PAGE>

and other factors  specific to our business and future  prospects.  In addition,
the market  price for our common  stock may be affected  by various  factors not
directly related to our business, including the following:

     o   intentional  manipulation  of our  stock  price by  existing  or future
         stockholders;

     o   short selling of our common stock or related derivative securities;

     o   a single acquisition or disposition, or several related acquisitions or
         dispositions, of a large number of our shares;

     o   the interest of the market in our business  sector,  without  regard to
         our financial condition or results of operations;

     o   the adoption of governmental regulations and similar developments in
         the United  States or abroad  that may affect our  ability to offer our
         products and services or affect our cost structure;

     o   disputes relating to patents or other significant intellectual property
         rights held by others that we, our suppliers or our customers use;

     o   developments in the automobile or automobile dealership industry; and

     o   economic and other external market  factors,  such as a general decline
         in market prices due to poor economic indicators or investor distrust.

         Our  ability  to   issue  preferred  stock  may  significantly   dilute
         ownership  and  voting  power  and  negatively  affect the price of our
         common stock.
         -----------------------------------------------------------------------

         Under our Certificate of Incorporation,  as amended,  we are authorized
to issue up to 10,000,000 shares of preferred stock. There are presently 575,000
shares of Series B preferred  stock  issued and  outstanding,  convertible  into
2,875,000  shares of common  stock.  Our Board of Directors has the authority to
create various series of preferred stock with such voting, dividend, conversion,
liquidation  and other rights superior to those of our common stock and to issue
such stock without stockholder  approval.  This issuance of such preferred stock
would dilute the  ownership  and voting power of the holders of our common stock
and may have a negative effect on the price of our common stock.

         We have not declared any dividends with respect to our common stock.
         -----------------------------------------------------------------------

         We have never paid a cash  dividend on our common  stock.  We intend to
retain earnings,  if any, to finance the operation and expansion of our business
and,  therefore,  we do not expect to pay cash dividends on our shares of common
stock in the foreseeable future.

Item 2.  Description of Property

         We do not own any real  property.  We  currently  lease an  approximate
25,000 square foot facility  located at 10757 South River Front  Parkway,  Suite
400, South Jordan, Utah, 84095. We conduct all of our corporate, administrative,
and research and  development  activities  at this  facility.  The facility will
provide  sufficient  space  for us to  continue  all of our  activities  for the
foreseeable future.

                                      -13-
<PAGE>

         The facility  lease is for five (5) years,  terminating  July 31, 2010.
Lease payments for each month are as follows: $38,894 (first year - through July
31, 2006),  $39,935 (second year),  $40,977 (third year),  $42,018 (fourth year)
and $43,060 (fifth year).  In addition,  we are required to pay a pro rata share
of operating expenses for the property.

         In the  opinion of  management,  the  property  we lease is  adequately
covered by insurance.

Item 3.   Legal Proceedings

         We are  from  time to time  party to  certain  legal  actions  which we
consider  routine  to  our  business  activities.  As of  March  31,  2006,  our
management  believed,  after consultation with legal counsel,  that the ultimate
outcome of such legal matters is not likely to have a material adverse effect on
our financial position, liquidity or results of operations.

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

         No matter was  submitted to a vote of the security  holders  during the
fourth quarter of the fiscal year covered by this report.



                                      -14-
<PAGE>

                                     PART II

Item 5.   Market for Common Equity and Related Stockholder Matters

Market Price

         The table  below  sets  forth the high and low bid  quotations  for our
common stock as reported on the OTC Bulletin  Board.  Our common stock is quoted
on the OTC Bulletin Board under the symbol ARKN.

                                                    High                 Low
                                                    ----                 ---
         Fiscal Year Ended March 31, 2006
            Quarter ended June 30, 2005             $0.70               $0.47
            Quarter ended Sept. 30, 2005            $0.69               $0.51
            Quarter ended Dec. 31, 2005             $0.85               $0.50
            Quarter ended March 31, 2006            $0.75               $0.55

         Fiscal Year Ended March 31, 2005
            Quarter ended June 30, 2004             $0.71               $0.58
            Quarter ended Sept. 30, 2004            $0.68               $0.39
            Quarter ended Dec. 31, 2004             $0.65               $0.40
            Quarter ended March 31, 2005            $0.72               $0.57

         The quotations  set forth above reflect  inter-dealer  prices,  without
retail  mark-up,   mark-down  or  commission,   and  may  not  represent  actual
transactions.

Outstanding Shares and Number of Stockholders

         As of March 31,  2006,  there were  32,489,670  shares of common  stock
issued and outstanding,  which were held by approximately 400 holders of record.
In addition,  as of that date, there were issued and outstanding  575,000 shares
of Series B  Convertible  Preferred  Stock  (convertible  into an  aggregate  of
2,875,000  shares of common  stock)  which  were held by 13  holders  of record,
6,793,667  options to purchase  common stock granted  under our stock  incentive
plans and 2,349,092 warrants to purchase common stock. We have never declared or
paid  dividends on any class of equity  securities,  and we currently  intend to
retain any future earnings for use in our business and do not anticipate  paying
any dividends on our outstanding common stock in the foreseeable future.

                                      -15-
<PAGE>

Securities Authorized for Issuance under Equity Compensation Plans

         Set forth below is certain information, as of March 31, 2006, about the
number of shares of common  stock  subject  to options  granted,  or that may be
granted, under compensation plans adopted by us.
<TABLE>
<CAPTION>

                                                                                          Number of securities
                                                                                         remaining available for
                                                                                          future issuance under
                             Number of securities to be    Weighted-average exercise    equity compensation plans
                               issued upon exercise of       price of outstanding         (excluding securities
       Plan category             outstanding options                options             reflected in column (a))
---------------------------  ---------------------------  ---------------------------  ---------------------------
                                         (a)                          (b)                          (c)
<S>                                   <C>                           <C>                         <C>
Equity compensation plans
approved by security
holders (1) (2)                       6,793,667                     $0.363                      2,206,333

Equity compensation plans
not approved by security
holders                                  N/A                          N/A                          N/A

Total                                 6,793,667                     $0.363                      2,206,333
</TABLE>

     (1) All such options represent options granted or available for grant under
         our 2001 Stock Incentive Plan.

     (2) Does not include secondary options with respect to shares of our common
         stock  granted to certain  officers,  directors  and  employees  by our
         stockholders.   See  "Item  12.  Certain   Relationships   and  Related
         Transactions."

Recent Sales of Unregistered Securities

         Not applicable.

Item 6.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

         The  following  discussion  should  be read  in  conjunction  with  our
Financial  Statements and Notes thereto included elsewhere in this Report.  This
discussion   contains   forward-looking   statements   that  involve  risks  and
uncertainties.  Any statements in this section about our expectations,  beliefs,
plans,  objectives,   assumptions  or  future  events  or  performance  are  not
historical  facts and are  forward-looking  statements.  You can identify  these
forward-looking  statements  by the use of words or phrases  such as  "believe,"
"could," "may,"  "anticipate,"  "intend,"  "expect," "will," "plan," "estimate,"
"continue,"  "should" or  "would."  Among the  factors  that could cause  actual
results  to  differ  materially  from  those  indicated  in the  forward-looking
statements  are risks and  uncertainties  inherent  in our  business  including,
without  limitation,  the discussions set forth under the caption  "Certain Risk
Factors."

         Although   we  believe   that  the   expectations   reflected   in  our
forward-looking  statements are reasonable,  we cannot guarantee future results,
events,  levels  of  activity,  performance  or  achievement.  We  undertake  no
obligation to publicly update or revise any forward-looking statements,  whether
as a result of new information, future events or otherwise.

                                      -16-
<PAGE>

Overview

         We  develop  and sell  access to  management  software  for  automobile
dealerships.  The operating  similarities  between  automobile,  marine,  RV and
powersports   dealerships  make  our  software  attractive  to  marine,  RV  and
powersport dealerships as well.

       Our primary product is our software-based  Arkona Dealer Management Suite
or  ADMS.  The  ADMS  is a fully  integrated  automobile  dealership  management
software system that allows automobile  dealerships to manage  substantially all
aspects of their business  operations.  It is a modular  system,  which makes it
scalable for different  types and sizes of  dealerships.  A key advantage of the
ADMS is its ability to run on an ASP model.  An ASP model  involves the software
provider  running  software  and  maintaining  data  at  central  locations  and
customers  accessing  and using the software  over the  Internet.  The ASP model
significantly reduces most upfront and ongoing hardware costs for the dealership
because the  significant  processing is done on computers  maintained at offsite
locations that are maintained by us. The dealership needs only standard personal
computers with reliable Internet access. The ASP model also reduces the need for
technical  computer  personnel  because the  software  and related  hardware are
managed by us at our  offsite  location.  Our ADMS  integrates  with many of the
major  automobile  manufacturers,  and we are  continuing  our efforts to obtain
cooperation from the others to integrate with their systems.  In connection with
the ADMS, we provide installation and post-installation  training and consulting
and, for a monthly fee, hosting services, technical support and 24 x 7 access to
the ADMS.

         The market for automobile dealer management systems is dominated by two
major  players:  Automatic  Data  Processing,  Inc.  or ADP,  and  Reynolds  and
Reynolds.  According to a 2005 market study by Ward's Dealer  Business,  ADP and
Reynolds  together  control  about  80%  of the  market  for  automobile  dealer
management  systems.  ADP and Reynolds are large,  well-financed  organizations.
They have good brand name  recognition and their systems  integrate with all the
major  automobile  manufacturers.  Their market  dominance  creates  significant
barriers to entry for us because many  dealerships are hesitant to abandon their
existing  systems and switch to a new system  provided by a smaller company with
limited resources. However, we offer a system that we believe is technologically
superior  at a price that is  generally  substantially  lower than the  standard
pricing of both ADP and Reynolds.

         Our revenues continue to grow at a rapid rate, increasing 52.3% between
the fiscal year ended  March 31, 2005 and the fiscal year ended March 31,  2006.
We earn more than half of our revenues from recurring  support and  maintenance.
These  recurring  revenues grew at a rate in excess of 3% monthly  during fiscal
year 2006 and help provide long term stability for us.

         We believe that we have reached a critical point in our development. We
have  established  a strong sales  pipeline for our primary  product,  our ADMS,
after a significant  investment in sales,  installation and technical personnel.
We are experiencing  accelerated  growth in our revenues and profitability  from
operations.  We believe,  however, that our size relative to our competitors and
in  comparison  to other public  companies  continues to be an impediment to our
efforts to expand sales and to increase the market value of our common stock. We
are  considering  various  options for  accelerating  our growth and  increasing
interest in our common stock.  These options include,  without  limitation,  the
following:

     o   We are  continuing  to lay the  foundation  for a possible  move to the
         American Stock Exchange or the Nasdaq Capital Market (formerly known as
         the Nasdaq SmallCap Market). We believe that an appropriately time move
         onto an exchange or Nasdaq  market  would  increase  institutional  and
         other interest in our common stock.

                                      -17-
<PAGE>

     o   We  have  entered  into a long  term  relationship  with a  stockholder
         relationship  consulting firm in an attempt to leverage their expertise
         in  assisting  us to  increase  stockholder  value.  We held our  first
         earnings call on June 29, 2006 and expect to continue such  stockholder
         outreach programs in the future.

     o   We are in  discussions  regarding  possible  acquisition  transactions,
         licensing  transactions,  coordinated roll-outs to significant customer
         groups and other  transactions  designed to accelerate  revenue growth.
         All of these  discussions are in various  stages,  and we are uncertain
         whether any will lead to a definitive transaction.

     o   We are considering  adapting, or working on the adaptation of, our ADMS
         product for other  vertical  markets (in either an ADMS or  shrink-wrap
         version) and are developing and evaluating various related products are
         services  that we could  offer to our current  customer  base or a core
         customer base.

As we move  forward  on one or  more  of  these  initiatives  we may  experience
increasing  expenses and a need to raise additional  capital,  as well as normal
pressures and disruptions associated with major transactions and expansions.  We
believe,   however,   that  when  and  if  implemented,   any  initiative  under
consideration will  significantly  enhance the long-term status and value of the
company.

Results of Operations for the Fiscal Years Ended 2006 and 2005

         Revenues - Revenues increased $3,820,868 to $11,129,798 for fiscal year
2006 or 52.3% over fiscal  year 2005.  These  increases  continue to reflect our
success in replacing existing  competitors' systems with the ADMS. Growth in our
revenues  over the five year  period  from  fiscal year 2002 to fiscal year 2006
exceeded 375.0%,  from $2,338,176 for fiscal year 2002 to $11,129,798 for fiscal
year 2006.

         We  earn  our  revenues  through  installation  and   post-installation
services.  Installation  services consist of pre-installation  functions such as
G/L setup, data conversion and VPN connections, forms programming, and training.
Installation  services are generally  performed  over a four (4) week period and
provide a customer with the tools and  knowledge  necessary in order for them to
access and use the ADMS on a go-forward basis. Post-installation services, which
are billed on a month to month basis,  include the right to continuous access to
the latest version of the ADMS hosted on our servers,  to have their data hosted
on  our  servers,   to  24x7  maintenance  and  security  of  the  servers,   to
post-contract phone support services, and to manufacturers' parts price updates.
Additional  revenues are earned from the sales of hardware and  peripherals  and
from post-installation consulting services.

         For  fiscal  year  2006,  revenues  from  ADMS  installation   services
increased  $1,037,860  to  $3,735,327  or  38.5%  over  fiscal  year  2005.  The
significant  increase in installation  services  revenue is due primarily to the
increased sales and marketing  personnel and continued market  acceptance of the
ADMS as a cost-effective  alternative to the technology of our competitors.  Our
customer  base grew from 389  installed  customers  as of March 31,  2005 to 563
installed  customers as of March 31, 2006.  We believe that we will  continue to
grow our  customer  base through the  replacement  of  competitors'  systems and
installation into new dealerships.  Additionally,  installations are expected to
increase as we grow our business to powersports dealerships.

                                      -18-
<PAGE>

         For fiscal year 2006, revenues from recurring monthly post-installation
services increased $1,786,291 to $5,783,424 or 44.7% over fiscal year 2005. This
increase reflects  continued growth in our installed  customer base, which grew,
as noted above,  to 563 customers as of March 31, 2006.  It's  important to note
that  post-installation  customer contracts are entered into on a month-to-month
basis.  Customers have the right to cancel our services at any time upon written
notice,  without penalty. We must earn the customer's on-going business each and
every  month.  Our revenue  growth,  especially  that of our  recurring  monthly
post-installation  services,  indicates  our  continued  success at earning  our
customers' business each month.

           We are actively  pursuing  sales of hardware  equipment in connection
with our  installation  service.  For fiscal year 2006,  revenues  from hardware
sales  increased  $690,725 to  $1,026,373 or 205.8% over fiscal year 2005. It is
expected that revenues from hardware sales will continue to grow as our customer
base  continues to grow and as we continue to dedicate  resources to  increasing
hardware sales.

         Post-installation  consulting services also continue to grow due to the
increasing  installed  customer  base.  For  fiscal  year  2006,  revenues  from
consulting  services  increased  $314,090 to $578,525 or 118.8% over fiscal year
2005.

         Cost  of  Sales  - For  fiscal  year  2006,  cost  of  sales  increased
$1,608,680  to  $5,858,545  or 37.9% over fiscal  year 2005.  Cost of sales as a
percentage  of revenues  decreased  5.5% for fiscal year 2006 compared to fiscal
year 2005.

         The 5.5%  increase in gross  margin for fiscal year 2006 is a result of
our hiring  additional  installation and support  technicians  during the end of
fiscal year 2005 to properly  prepare for expected  growth in our customer base.
This  relative  hiring  increase was not  necessary  during fiscal year 2006. We
continue to gain, through experience,  installation  efficiencies.  For example,
our  post-installation  service  includes having one individual from the support
department  dedicated  to a new  dealership  for  two  to  six  weeks  after  an
installation.   By  having  a  dedicated  individual  provide  post-installation
support,  potential  problems can be anticipated and solved by someone  familiar
with the customer's needs in a timely and cost-efficient  manner.  After the two
to six weeks of post-installation  monitoring, new customers are transitioned to
normal customer support.

         We expect to see continued  gross margin benefit from the growth of our
recurring  post-installation  services revenue, as related costs of sales (phone
support staff, fixed infrastructure) are relatively small.

         Operating  Expenses - Operating  expenses are comprised of research and
development expense and sales,  marketing and general  administrative  expenses.
For  fiscal  year  2006,  total  operating  expenses  increased   $1,089,812  to
$4,440,780 or 32.5% over fiscal year 2005. Operating expenses as a percentage of
revenue decreased 5.9% for fiscal year 2006 over fiscal year 2005.

         Research  and   development   expense  (net  of  capitalized   software
development  costs)  increased  by $301,948 to $962,708 or 45.7% for fiscal year
2006 due to the hiring of additional  software developers near the end of fiscal
year 2005,  a  continued  focus on  research  and  development  activities,  and
developing  and  maintaining   software   compatible  with  original   equipment
manufacturers.  As a percentage  of revenue,  research and  development  expense


                                      -19-
<PAGE>

decreased  0.4% for fiscal year 2006 over fiscal year 2005. We believe  research
and development  will play an important roll in our future success.  Our goal is
to keep our software and processes  technologically ahead of the competition and
we expect research and development expense to continue to grow in the future.

       Sales,  marketing and general  administrative expense increased in fiscal
year 2006 by  $787,864  or 29.3% over  fiscal  year  2005.  As a  percentage  of
revenue,  sales, marketing and general administrative expense decreased 5.5% for
fiscal  year 2006 over  fiscal  year 2005.  Total  sales and  marketing  expense
increased  due to the  hiring  of  additional  regional  sales  representatives,
resulting in our  increased  revenue.  We recently  announced the opening of new
sales  territories and will continue to expand our sales and marketing  presence
as we grow. General administrative expenses remained relatively constant between
the two  years as is  reflective  in the  overall  decrease  in total  operating
expenses as a percent of revenues.

         Net Income - For fiscal year 2006,  we recorded  net income  before tax
benefit of $821,062  compared  with a net loss before tax benefit in fiscal year
2005 of $(245,056).  We recorded a tax benefit (principally due to net operating
loss carry  forwards) for fiscal years 2006 and 2005 of $1,244,000 and $152,682,
respectively.  The overall  recognition  of profits in fiscal year 2006 has been
due  primarily  to  the  increased   customer   base,   resulting  in  increased
installation and post-installation recurring revenues.

Liquidity and Capital Resources

         Our liquidity  position has significantly  improved during the year. As
of March 31, 2006 and 2005,  our working  capital  (current  assets in excess of
current liabilities) totaled $736,572 and $(21,974),  respectively. The increase
in working  capital as of March 31, 2006 is  principally  a result of increasing
cash flows from  operations and increased  receivables  from  installations  and
post-installation services growth. Cash and cash equivalents were $570,766 as of
March 31, 2006.

         We have utilized long-term lease financing to purchase office furniture
and computer  systems.  As of March 31, 2006, notes payable,  including  capital
lease obligations,  totaled $278,686. During fiscal year 2006, we entered into a
$250,000 line of credit with a financial  institution.  As of March 31, 2006, we
had not utilized any funds available under the line of credit  agreement.  As of
March 31, 2006, included in notes payable is a demand note for $50,000,  payable
to a related party, on which we make interest only payments at 12% monthly.

Critical Accounting Policies and Estimates

         Management is basing the discussion and analysis of financial condition
and results of operations on our financial statements.  The preparation of these
financial statements requires the use of estimates and judgments that affect the
reported amounts of assets,  liabilities,  revenue and expenses, as well as, the
related  disclosure of contingent assets and liabilities.  On an on-going basis,
management  evaluates our critical accounting policies and estimates,  including
those related to revenue recognition,  property, plant and equipment,  goodwill,
capitalization  of  software  expense  and income  taxes.  Management  bases our
estimates on  historical  experience  and on various other  assumptions  that we
believe are reasonable  under the  circumstances,  the results of which form the
basis for making  judgments  about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.

                                      -20-
<PAGE>

         We believe the following critical  accounting  policies affect the more
significant  judgments and estimates  used in the  preparation  of our financial
statements.  These judgments and estimates affect the reported amounts of assets
and  liabilities  and the reported  amounts of revenues and expenses  during the
reporting  periods.  Changes to these  judgments and estimates  could  adversely
affect future results of operations and cash flows.

     o   Revenue  Recognition.  During  the  course of  business,  we  recognize
         revenue  from  the   following   activities:   Installation   Services;
         Post-installation Services; Hardware Sales; and Consulting Services.

         Installation Services include fees for G/L setup, data conversion,  VPN
         connection,  forms programming,  and training. Each of these activities
         are separately  stated on a customer's Sales and Service  Agreement and
         individually  priced. The Installation  Service is generally  performed
         over a four (4) week period and provides a customer  with the tools and
         knowledge  necessary  in order for them to access and use the ADMS on a
         go-forward  basis.  We  recognize   installation  services  revenue  in
         accordance  with  American  Institute of Certified  Public  Accountants
         Statement of Position 97-2, "Software Revenue Recognition" or SOP 97-2.
         We recognize revenue when persuasive evidence of an arrangement exists,
         delivery has occurred or services have been  rendered,  the sales price
         is fixed or determinable,  and collection is probable.  Under SOP 97-2,
         we determine whether a Service Agreement  includes multiple elements as
         defined in Emerging Issues Task Force No. 00-21,  "Revenue Arrangements
         with  Multiple  Deliverables,"  and,  if  so,  whether  vendor-specific
         objective  evidence,  or VSOE,  of fair value  exists for each of those
         elements.  G/L setup,  data conversion,  forms programming and training
         are each separate  deliverables with each having  stand-alone value and
         revenue is  recognized  as the services are  performed  and  completed,
         based upon the VSOE of fair value for each element.  The VPN connection
         does not have  stand-alone  value and,  therefore,  VPN  connection fee
         revenue is recognized over the expected period of performance under the
         customer Service Agreement.

         Service  Agreements  generally  require the  payment of  non-refundable
         security  deposits.  These deposits are generally in an amount equal to
         25% of the combined  installation  fees and represent  security against
         the labor and travel  related  costs we will incur even if the contract
         is  terminated  prior to the  completion of the  installation  process.
         These deposits are recorded as deferred  revenue until the installation
         services are  completed and  invoiced.  At that time,  the deposits are
         recorded as payments  against the related  receivable and recognized as
         explained above.

         Post-installation Services provide the customer the right to continuous
         access to the latest version of the ADMS hosted on our servers, to have
         their data hosted and stored on our servers,  to 24x7  maintenance  and
         security of the  servers,  to  post-contract  phone  technical  support
         services,  and to  receive  manufacturers'  parts  price  updates.  The
         post-installation services are available and billed on a month-to-month
         basis and also separately identified and priced on a customer's Service
         Agreement.  Post-installation services fees are recognized ratably over
         the period that the services are performed.

         Hardware  Sales  include  the sales of  standard  computer  systems and
         peripherals and revenues are recognized when title passes upon shipment
         to the customer. Installation of the hardware and/or peripherals is not
         a required component of the Service Agreement.

                                      -21-
<PAGE>

         Consulting    Services    generally    include    fees    charged   for
         post-installation   training  and  forms   programming.   We  recognize
         consulting services fees under the percentage-of-completion method over
         the period in which the services are provided.

     o   Equipment.  We utilize  significant  amounts of  equipment in providing
         service  to  our  customers.   Equipment  is   depreciated   using  the
         straight-line  method over the estimated  useful life of the equipment.
         Changes in  technology  or changes in the intended use of equipment may
         cause  the  estimated  period  of use or the  value of these  assets to
         change.   Management   performs  an  annual  analysis  to  confirm  the
         appropriateness of estimated economic useful lives for each category of
         equipment.

     o   Goodwill.   Management   annually   evaluates  goodwill  for  potential
         impairment  indicators.  If impairment indicators exist, the impairment
         is  measured in  accordance  with  Statement  of  Financial  Accounting
         Standards,  or SFAS, No. 142,  "Goodwill and Other Intangible  Assets."
         Management's  judgment regarding the existence of impairment indicators
         are based on legal  factors  and  market  and  operational  conditions.
         Future  events  could  cause  management  to conclude  that  impairment
         indicators  exist and that the  goodwill is  impaired.  Goodwill is not
         amortized, but instead is subject to impairment tests quarterly.

     o   Capitalization  of Software  Expense.  Costs  incurred to establish the
         technological  feasibility of software  products to be sold,  leased or
         otherwise marketed by us are expensed as research and development. Once
         technological  feasibility  is  established,  costs are  capitalized in
         accordance  with SFAS No.  86,  "Accounting  for the Costs of  Computer
         Software to Be Sold,  Leased, or Otherwise  Marketed" until the product
         is available for general release to customers.  Judgment is required in
         determining when technological feasibility of a product is established.
         Capitalized  costs,  which consist primarily of payroll and benefits of
         both  employees  and  outside  contractors,  have been  amortized  on a
         product-by-product  basis  using  the  straight-line  method  over  the
         established  economic  life of the products.  In addition,  capitalized
         software costs are tested for impairment  each year in accordance  with
         SFAS No. 142.

     o   Income Taxes. We apply the provisions of SFAS No. 109,  "Accounting for
         Income  Taxes." SFAS No. 109 requires an asset and  liability  approach
         for  financial  accounting  and  reporting  for income  taxes,  and the
         recognition  of deferred tax assets and  liabilities  for the temporary
         differences  between the financial reporting basis and tax basis of our
         assets and  liabilities,  at enacted tax rates expected to be in effect
         when such  amounts  are  realized or settled.  The  deferred  tax asset
         valuation  allowance has been determined  pursuant to the provisions of
         SFAS No. 109, including our estimation of future taxable income,  where
         necessary,  and is adequate to reduce the total net  deferred tax asset
         to an amount that will more likely than not be realized.  The valuation
         allowance is an accounting  estimate being made by our  management.  We
         have  considered  all  available  negative  and  positive  evidence  in
         determining the amount of the valuation allowance.

Item 7.  Financial Statements

         Our financial  statements and associated  notes are set forth following
the signature page beginning on Page F-1.

                                      -22-
<PAGE>

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

         None.

Item 8A.  Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

         Under the  supervision  and with the  participation  of our management,
including our principal  executive officer and principal  financial officer,  we
conducted an evaluation of our disclosure controls and procedures,  as such term
is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of
1934 as of March 31, 2006.  Based on this  evaluation,  our principal  executive
officer and principal  financial officer concluded that our disclosure  controls
and  procedures  are  effective  in  ensuring  that  information  required to be
disclosed  by the  Company in the  reports  that it files or  submits  under the
Exchange Act is recorded,  processed,  summarized and reported,  within the time
periods specified in the Commission's rules and forms.

Changes in Internal Controls over Financial Reporting

         With the participation of our principal executive officer and principal
financial  officer,  our management has, as required by Rule 13a-15(d) under the
Exchange Act, determined that there were no changes during the fiscal year ended
March 31, 2006 in our  internal  control  over  financial  reporting  that would
materially  affect,  or would be  reasonably  likely to materially  affect,  our
internal control over financial reporting.

Item 8B.  Other Information.

         None.


                                      -23-
<PAGE>



                                    PART III

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

Directors

         Each director serves until the next annual meeting of stockholders  and
until his  successor is duly elected and  qualified.  The  following  table sets
forth certain information with respect to our directors.
<TABLE>
<CAPTION>

              Name                        Age                       Position                       Director Since
----------------------------------     -----------    --------------------------------------    ---------------------
<S>                                        <C>        <C>                                       <C>
Alan Rudd                                  54         Chief Executive Officer, Chairman of      January 2000
                                                      the Board
Richard Holland                            45         President, Director                       November 2000

Paul Henriod                               53         Director                                  December 2004
Kent A. Misener                            54         Director                                  December 2004
Marc A. Fuller                             37         Director                                  August 2005
</TABLE>

         The following  paragraphs  set forth certain  biographical  information
about each of the directors:

         ALAN RUDD joined  Arkona as  Chairman  and Chief  Executive  Officer on
January 1, 2000.  Rudd  brings  more than 25 years  experience  in the  computer
industry to the Company.  From March 1996 to November  1999,  Rudd was the Chief
Executive  Officer of Vinca  Corporation,  a Utah-based  company  that  provided
continuous  availability  software  for  Microsoft,  Novell and IBM  distributed
network  platforms.  In recognition of his achievements at Vinca, Rudd was named
Utah's 1999  Entrepreneur  of the Year.  Vinca was acquired by Legato Systems of
Palo Alto, California in 1999.

         Prior to  joining  Vinca  Corporation,  Rudd  spent 10 years in  senior
management  positions at Novell. His positions at Novell included Legal Counsel,
Regional  Sales  Manager,   Area  Sales  Director  and  Vice  President  of  OEM
Operations.

         Rudd has a Bachelor's Degree in Business Administration and Finance, as
well as a Juris Doctorate from Brigham Young  University.  Following law school,
he spent  seven  years as  in-house  legal  counsel  for  several  corporations,
including  State Farm  Insurance and Prime  Computer,  before joining Novell and
moving into corporate management.

         RICHARD  HOLLAND  joined  Arkona as a director  and Vice  President  in
November 2000 and has been  President of the Company  since April 2001.  Holland
was formerly the President and co-founder of Ensign Information  Systems,  where
he worked from 1994 to 2000, and has been  designing and  developing  technology
systems for more than 23 years.  As co-founder of Ensign,  Holland was the chief
architect of our ADMS software.
                                      -24-
<PAGE>

         Before starting Ensign in 1994,  Holland was the national sales manager
for Cars/Dyatron,  a specialist in General Motors dealership software, from 1980
to 1994.  Prior to working at  Cars/Dyatron,  he was general manager of Advanced
Computer  Systems (ACS), the first company to introduce IBM PC-based systems for
the automotive dealer industry.

         Holland has a Bachelor of Science  Degree in Tax Accounting and Finance
from the University of Utah. He is also a Certified IBM Professional.

         PAUL  HENRIOD has served as a director of Arkona since  December  2004.
Henriod  is the  President  of  eReinsure,  a  leading  provider  of  web-hosted
technologies for the reinsurance  industry.  Prior to joining eReinsure in 2000,
Henriod held several management positions with AON Insurance, including Managing
Director of AON  Technology  Group,  President of AON Risk  Services of Utah and
President of AON Risk  Services of  Colorado.  Prior to AON,  Henriod  owned and
managed ITA Insurance,  one of the nation's leading insurance firms dedicated to
the technology industry.

         KENT A. MISENER has served as a director of Arkona since December 2004.
Since  1983,  Misener has been the  Treasurer  and Chief  Investment  Officer of
Deseret Mutual Benefit  Administrators,  with approximately $5 billion in assets
under management. He is also a member of the board of directors of Deseret First
Federal Credit Union CUSO and a member of the  investment  committees of various
nonprofit  corporations,  including Intermountain  Healthcare.  Misener is a CFA
Charter holder and a member of the Salt Lake City Society of Financial Analysts.

         Misener   has  a   Bachelor's   Degree  in   Economics   and   Business
Administration, as well as a Masters of Business Administration Degree from Utah
State University.

         MARC A. FULLER has served as a director of Arkona  since  August  2005.
Fuller joined  Leucadia  National  Corporation,  a diversified  holding  company
engaged in a variety of business,  in 1998.  While at Leucadia,  Fuller has held
executive  management  positions at various operating  companies including Chief
Financial  Officer  for  American  Investment  Bank.  Fuller  is  currently  the
president of BIA  Investments  and serves on the boards of directors of Sangart,
Inc.,  Chakshu Research and Goober Drilling.  Prior to joining Leucadia,  Fuller
was an Associate at Robertson  Coleman,  a merchant bank based in San Francisco,
as well as a  financial  analyst  in the  Corporate  Finance  Group for CS First
Boston in New York.

         Fuller earned a Bachelor of Arts Degree in Economics from Brigham Young
University in 1993 and a Masters of Business  Administration Degree from Harvard
University in 1998.

         No family relationship exists among any of our directors or executive
officers.

Meetings and Committees

         During the fiscal year ended  March 31,  2006,  our Board of  Directors
held formal  meetings and also met  informally on numerous  occasions to approve
relevant matters by written consent.  All incumbent  directors attended at least
75% of all board meetings and applicable committee meetings.

                                      -25-
<PAGE>

Audit Committee

         In August  2005,  the Board of Directors  appointed an Audit  Committee
consisting of Marc A. Fuller  (Chair),  Paul Henriod,  and Kent A. Misener.  All
members of the Audit  Committee are  independent  according to Nasdaq's  listing
standards,  and the Board of  Directors of the Company has  determined  that the
Audit  Committee  has one  member  qualifying  as an audit  committee  financial
expert,  as defined in Item 401(h) of  Regulation  S-K.  The person the Board of
Directors has determined is an audit committee financial expert is Mr. Fuller

         We  do  not  presently   have  a  standing   nominating   committee  or
compensation  committee.  We do not have a  nominating  committee  charter  or a
compensation  committee  charter.  During fiscal year 2007, the Board expects to
organize and adopt charters for such committees.

Executive Officers and Key Employees

         In addition to Messrs.  Rudd and  Holland,  whose  biographies  are set
forth above, certain biographical information is furnished below with respect to
the following executive officers and key employees of the Company:
<TABLE>
<CAPTION>

              Name                        Age                       Position                       Officer Since
----------------------------------     -----------    -------------------------------------     ---------------------

<S>                                        <C>        <C>                                       <C>
Blake Nielson                              46         Vice President of Client Services         November 2000


David D. Jenkins                           50         Vice President of Marketing               November 2003


Leland H. Boardman                         50         Vice President of Operations and          April 2005
                                                      Chief Financial Officer

Michael R. Critchfield                     38         Vice President of Sales                   January 2006
</TABLE>

         BLAKE NIELSON has been the Vice President of Client  Services of Arkona
since November  2000.  Nielson was a founder of Ensign  Information  Systems and
brings over 18 years of  experience  in client  services  with other  automotive
industry  related  companies.  Before  joining  Arkona,  Nielson  worked as Vice
President of Operations for Ensign Information Systems from 1994 to 2000. Before
joining  Ensign,  Nielson  was the  Regional  Director  of Client  Services  for
Sunguard Business System, beginning in 1992. Prior to joining Sunguard,  Nielson
was Head of Client Services for Advanced  Computer  Systems,  from 1990 to 1992.
Nielson has a Bachelors  Degree  from  Brigham  Young  University  in  Financial
Planning and is an AS/400 Certified  Specialist.  He also served one term on the
Internal Revenue Service Technology Committee.

         DAVID D. JENKINS has been Vice  President of Marketing for Arkona since
November 2003.  Prior to joining  Arkona,  Jenkins worked for Vinca  Corporation
(and then its  purchaser,  Legato  Systems,  Inc.) for seven years  managing the
multi-OEM  sales  relationship  with  Novell.  Jenkins  has also had  experience
selling  software  to  many  large  worldwide  corporations  including  US  Air,
Northwest Airlines,  Martin Marietta, Jet Propulsion  Laboratories,  Luxor Hotel
and Casinos,  and 3 Com  Corporation.  Jenkins has a Bachelors  Degree from Utah
State  University  and a Masters of Business  Administration  from Brigham Young
University.

                                      -26-
<PAGE>

         LELAND H. BOARDMAN has been the Vice  President of Operations and Chief
Financial  Officer of Arkona  since April 2005.  Boardman is a certified  public
accountant  with more than 25 years of  experience  working with both public and
private  companies,  as well as  working  in public  accounting.  Boardman  most
recently  was the Vice  President  of Finance  for  Sorenson  Medical,  Inc.,  a
privately-held  manufacturer of disposable medical products, where he served for
three years. Prior to working with Sorenson, Boardman served over eight years as
the Chief  Accounting  Officer  for Ballard  Medical  Products,  a  wholly-owned
subsidiary of Kimberly Clark Corporation. Before joining Ballard, Boardman was a
Senior Manager with Deloitte and Touche, LLC, an international public accounting
firm, where he worked for over 12 years.  Boardman holds a Bachelor's  Degree in
Accounting from the University of Utah.

         MICHAEL R.  CRITCHFIELD has been the Vice President of Sales for Arkona
since January 2006. Critchfield joined Arkona in July 2000 as Director of Sales.
Prior to joining Arkona, he served in the U.S. Army and Utah National Guard with
a background in Logistics and Counter  Intelligence.  He also served and managed
in many sales and service  capacities at Word  Perfect,  Novell,  Corel,  Vinca,
Legato and Manage.com.

Section 16(a) Beneficial Ownership Reporting Compliance

         Section  16(a) of the  Securities  Exchange  Act of 1934  requires  the
Company's executive officers and directors,  as well as persons who beneficially
own more than ten  percent  of the  Common  Stock,  to file  initial  reports of
ownership and reports of changes in ownership  with the  Securities and Exchange
Commission ("SEC"). Reporting persons are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file.  Based solely upon
a review of the  copies of such  forms  furnished  to the  Company  and  written
representations from the Company's executive officers and directors,  we believe
that no forms were  delinquent  or were not filed during the most recent  fiscal
year or prior years (to the extent not previously disclosed), except as follows:

          A Form 4 required to be filed by Marc A. Fuller on August 18, 2005 was
filed on August 22, 2005.

Code of Ethics

         We  have  adopted  the  "Arkona  Code of  Ethics  and  Conduct,"  which
constitutes  a code of ethics that applies to the principal  executive  officer,
principal financial officer, principal accounting officer or controller,  and/or
persons performing  similar functions,  as defined in Item 406 of Regulation S-B
under  the  Securities  Exchange  Act of 1934.  We post the Code of  Ethics  and
Conduct and any  amendments to or waivers from the Code Ethics on our website at
www.arkona.com under "Investor Relations."


                                      -27-
<PAGE>

Item 10.  Executive Compensation

Summary Compensation Table

         The following table summarizes the  compensation  paid or accrued by us
to or on behalf of our Chief Executive Officer,  as well as our four most highly
compensated  executive  officers,  whose aggregate  compensation for fiscal year
2006 exceeded $100,000 (collectively, the "Named Executive Officers").

<TABLE>
<CAPTION>
                                                                              Long Term Compensation
                                                                        -----------------------------------
                                              Annual Compensation                Awards           Payouts
                                         ------------------------------          ------           -------
                                                               Other                 Securities
                                                              Annual    Restricted   Underlying              All Other
                                                              Compen-      Stock      Options/      LTIP      Compen-
          Name and                        Salary     Bonus    sation     Award(s)       SARs      Payouts     sation
     Principal Position         Year        ($)       ($)       ($)         ($)          (#)        ($)         ($)
----------------------------- ---------- ---------- -------- ---------- ------------ ------------ --------- ------------

<S>                           <C>        <C>        <C>      <C>        <C>          <C>          <C>       <C>
Alan Rudd,                    03/31/06    276,500     --        --          --           --          --         --
Chief Executive Officer and   03/31/05    255,000     --        --          --           --          --     22,917 (1)
Chairman of the Board         03/31/04    215,625     --        --          --         250,000       --         --

Richard Holland,              03/31/06    225,000     --        --          --           --          --         --
President and Director        03/31/05    200,000     --        --          --           --          --         --
                              03/31/04    172,500     --        --          --        1,200,000      --         --

Blake Nielson,                03/31/06    152,000     --        --          --         150,000       --         --
Vice President of Client      03/31/05    142,083     --        --          --           --          --         --
Services                      03/31/04    123,333     --        --          --         250,000       --         --

David D. Jenkins,             03/31/06    143,500     --        --          --           --          --         --
Vice President of Marketing   03/31/05    132,500     --        --          --         100,000       --         --
                              03/31/04    117,545     --        --          --         85,000        --         --

Michael R. Critchfield,       03/31/06    152,000     --        --          --         150,000       --         --
Vice President of Sales       03/31/05    142,417     --        --          --         250,000       --         --
                              03/31/04    128,000     --        --          --         100,000       --         --
</TABLE>

     (1) Represents $22,917 of deferred  compensation from fiscal years 2001 and
         2002, paid in fiscal year 2005.

Option Grants in Last Fiscal Year

         The following table sets forth individual  grants of options to acquire
shares of common stock made us to the Named  Executive  Officers  during  fiscal
year 2006.  No SARs were granted to any Named  Executive  Officer  during fiscal
year 2006.

<TABLE>
<CAPTION>

                                      Number of         Percent of Total
                                     Securities        Options Granted to
                                 Underlying Options    Employees in Fiscal
             Name                      Granted                Year              Exercise Price       Expiration Date
-------------------------------  ------------------    -------------------      --------------       ---------------
<S>                              <C>                   <C>                      <C>                  <C>
Blake Nielson,
Vice President of Client             150,000 (1)              12.4%                  $0.65             10/01/2015
Services

Michael R. Critchfield,
Vice President of Sales              150,000 (1)              12.4%                  $0.65             10/01/2015
</TABLE>

                                      -28-
<PAGE>


     (1) Such options become exercisable 25% per year on the anniversary date of
         the grant.

Aggregated Option Exercises and Fiscal Year-End Option Values

         The following  table provides  information  regarding  options held and
exercised by the Named Executive  Officers as of March 31, 2006 and for the year
then ended:
<TABLE>
<CAPTION>



                                                           Number of Securities
                                                      Underlying Unexercised Options        Value of Unexercised
                                                                    at                    In-the-Money Options at
                        Securities     Aggregate              March 31, 2006                  March 31, 2006 (1)
                          Acquired       Value       ------------------------------- ---------------------------------
                        on Exercise    Realized        Exercisable    Unexercisable     Exercisable    Unexercisable
 Name and Position         (#)           ($)           Realized ($)         (#)             (#)              ($)
---------------------- ------------- -------------- --------------  ---------------- -------------- -----------------
<S>                    <C>           <C>               <C>              <C>             <C>             <C>
Alan Rudd,
Chief Executive            n/a            n/a          175,000          75,000          $84,000         $36,000
Officer and Chairman                                 (2) 70,000                       (2) $26,600
of the Board

Richard Holland,
President and              n/a            n/a         1,340,000        260,000         $593,200         $124,800
Director                                             (2) 600,000                     (2) $228,000

Blake Nielson,
Vice President of          n/a            n/a          425,000         225,000         $179,000         $40,500
Client Services

David D. Jenkins,
Vice President of          n/a            n/a          312,000          85,500         $112,510         $17,040
Marketing                                            (2) 102,500                      (2) $38,950

Michael Critchfield,
Vice President of          n/a            n/a          270,000         330,000          $85,600         $39,900
Sales                                                (2) 25,000                       (2) $9,500
</TABLE>

(1)      On March 31,  2006,  the  closing  sale price for a share of our common
         stock on the OTC Bulletin Board was $0.68.  The value of each option is
         calculated as the difference between the exercise price and the closing
         sale price of our common stock.

(2)      Represents  options to purchase  outstanding common stock for which the
         Company  will not be  required to issue any  additional  shares if such
         options are exercised. See "Item 12. Certain Relationships and Related
         Transactions."

                                      -29-
<PAGE>

Directors' Compensation

         Directors  who are not  officers  of the  Company  do not  receive  any
regular compensation for their service on the board of directors.  Directors who
are officers of the Company receive no additional compensation for their service
as a director of the Company. Directors are entitled to receive compensation for
services  unrelated  to their  service  as a director  to the  extent  that they
provide such unrelated services to the Company.

         Directors of the Company are entitled to  participate  in the Company's
stock incentive  plan.  During the fiscal year ended March 31, 2006, the Company
granted  options  to  purchase  100,000  shares of its  common  stock to Marc A.
Fuller. The options were granted August 1, 2005, have an exercise price of $0.65
and vest  ratably  over two years.  No other  options  were granted to directors
during fiscal year 2006.

Employment  Contracts  and  Termination  of  Employment,  and  Change-in-Control
Arrangements

         In  connection  with the  purchase of the assets of Ensign  Information
Systems in November  2000,  Arkona  entered into an  Employment  Agreement  (the
"Holland  Agreement")  with  Richard  Holland,  currently  the  President of the
Company. The fixed term of the Holland Agreement has expired;  however, parts of
the  Holland  Agreement,  including  the  confidentiality,  non-competition  and
invention ownership  provisions,  continue to govern Mr. Holland's  relationship
with the Company.

         In  connection  with the  purchase of the assets of Ensign  Information
Systems in November  2000,  Arkona  entered into an  Employment  Agreement  (the
"Nielson Agreement") with Blake Nielson,  currently the Vice President of Client
Services of the Company.  The fixed term of the Nielson  Agreement  has expired;
however,  parts  of  the  Nielson  Agreement,   including  the  confidentiality,
non-competition  and  invention  ownership  provisions,  continue  to govern Mr.
Nielson's relationship with the Company.


Item 11. Security  Ownership of Certain  Beneficial  Owners and  Management  and
         Related Stockholder Matters.

Security Ownership of Certain Beneficial Owners and Management

         The table  below  sets  forth  information,  as of June 6,  2006,  with
respect  to each  person  who  beneficially  owns more than 5% of the  Company's
outstanding   common  stock  or  Series  B  Convertible   Preferred  Stock,  and
information  as to the  ownership  of  common  stock  or  Series  B  Convertible
Preferred Stock by each person serving as a director or Named Executive  Officer
of the  Company  as of March 31,  2006.  Except as  otherwise  indicated  in the
footnotes to this table,  all shares are owned directly and the persons named in
the table have sole voting and investment  power with respect to shares shown as
beneficially being owned by them.

                                      -30-
<PAGE>
<TABLE>
<CAPTION>

                                                                                         Beneficial Ownership of
                                           Beneficial Ownership of Common Stock          Series B Preferred Stock
                                          -------------------------------------     ---------------------------------
                                            Ownership Amount                        Ownership Amount
                                             and Nature of                           and Nature of
                                               Beneficial          Percentage          Beneficial         Percentage
  Name and Address of Beneficial Owner        Ownership(1)        Ownership(2)        Ownership(1)       Ownership(3)
----------------------------------------  ------------------     --------------     ----------------     ------------
<S>                                           <C>                     <C>            <C>                 <C>
Alan Rudd, CEO and Chairman of the Board
10757 River Front Parkway, #400
South Jordan, Utah  84095                     8,320,189(4)            21.5%               N/A                N/A


Richard Holland, President and Director
10757 River Front Parkway, #400
South Jordan, Utah   84095                    2,400,000(5)            6.2%                N/A                N/A


Blake Nielson, Vice
President of Client Services
10757 River Front Parkway, #400
South Jordan, Utah   84095                     753,000(6)             1.9%                N/A                N/A

David D. Jenkins, Vice President of
Marketing
10757 River Front Parkway, #400
South Jordan, Utah   84095                     440,000(7)             1.1%                N/A                N/A

Michael R. Critchfield, Vice President
of Sales
10757 River Front Parkway, #400
South Jordan, Utah  84095                     325,000(8)              0.8%                N/A                N/A

Paul Henriod, Director
1835 Laird Avenue
Salt Lake City, Utah  84108                 3,424,243(9)              8.9%                N/A                N/A

Kent A. Misener, Director
489 N. 1250 E.
Bountiful, Utah 84010                          50,000(10)             0.1%                N/A                N/A

Marc A. Fuller
25 G Street
Salt Lake City, Utah  84103                        0                   0%                 N/A                N/A

All officers and directors                  15,712,432               40.6%                 N/A               N/A

   5% Series B Preferred Stockholders
   (Who are not Executive Officers or
               Directors)

Larry Battison
P.O. Box 1465
Duncan, OK  73534                                 N/A                  N/A               50,000              8.7%

B. Joe Clayton 4600 Clinton Hwy.
Knoxville, TN  37912                              N/A                  N/A               50,000              8.7%

Chapman Automotive Group
6601 East McDowell Road
Scottsdale, AZ  85257                             N/A                  N/A               50,000              8.7%
</TABLE>

                                      -31-
<PAGE>

<TABLE>
<CAPTION>

                                                                                         Beneficial Ownership of
                                           Beneficial Ownership of Common Stock          Series B Preferred Stock
                                          -------------------------------------     ---------------------------------
                                            Ownership Amount                        Ownership Amount
                                             and Nature of                           and Nature of
                                               Beneficial          Percentage          Beneficial         Percentage
  Name and Address of Beneficial Owner        Ownership(1)        Ownership(2)        Ownership(1)       Ownership(3)
----------------------------------------  ------------------     --------------     ----------------     ------------
<S>                                           <C>                     <C>

Donald Ray Herring
4225 W. Plano Parkway
Plano, TX  75093                                  N/A                  N/A               50,000              8.7%

Anne K. Swope
1100 North Dixie
Elizabethtown, KY  42701                          N/A                  N/A               75,000             13.0%

Robert Woodhouse
2171 S. Hwy. 30
Blair, NE  68008                                  N/A                  N/A               50,000              8.7%

Lance Pittack
P.O. Box 546
Blair, NE  68008                                  N/A                  N/A               50,000              8.7%

Paul Cech
P.O. Box 546
Blair, NE  68008                                  N/A                  N/A               50,000              8.7%

H2 Land Trust
P.O. Box 467
Pontiac, IL  61764                                N/A                  N/A              100,000             17.4%
</TABLE>


(1)      Beneficial ownership for each person holding options, warrants or other
         rights  exercisable within 60 days of June 6, 2006 has been included as
         though the  shares of common  stock or Series B  Convertible  Preferred
         Stock  issuable  upon  the  exercise  thereof,   as  applicable,   were
         outstanding.

(2)      The  percentage  indicated  represents  the  number of shares of common
         stock,  together  with the number of shares of common stock  subject to
         warrants  and options to purchase  common stock  exercisable  within 60
         days held by the indicated  person divided by the sum of (a) the number
         of shares  subject to options and  warrants to  purchase  common  stock
         exercisable by such stockholder  within 60 days of June 6, 2006 and (b)
         32,492,323,  which is the number of shares of common  stock  issued and
         outstanding as of June 6, 2006.

(3)      The  percentage  indicated  represents the number of shares of Series B
         Convertible  Preferred  Stock held by the indicated  person  divided by
         575,000,  which  is the  number  of  shares  of  Series  B  Convertible
         Preferred Stock issued and outstanding as of June 6, 2006.

(4)      Includes  250,000  options  granted under the Company's stock incentive
         plan  that are  exercisable  within  60 days of the date of the  table,
         70,000  secondary  options  granted by stockholders of the Company (See
         "Item 12. Certain Relationships and Related  Transactions") and 940,000
         warrants to purchase  common stock in  connection  with the issuance of
         convertible debt.

(5)      Includes  1,600,000 options granted under the Company's stock incentive
         plan that are  exercisable  within 60 days of the date of the table and
         600,000  secondary  options granted by stockholders of the Company (See
         "Item 12. Certain Relationships and Related Transactions").

                                      -32-
<PAGE>

(6)      Includes  500,000  options  granted under the Company's stock incentive
         plan that are exercisable within 60 days of the date of the table.

(7)      Includes  337,500  options  granted under the Company's stock incentive
         plan that are  exercisable  within 60 days of the date of the table and
         102,500  secondary  options granted by stockholders of the Company (See
         "Item 12. Certain Relationships and Related Transactions").

(8)      Includes  300,000  options  granted under the Company's stock incentive
         plan that are  exercisable  within 60 days of the date of the table and
         25,000  secondary  options  granted by stockholders of the Company (See
         "Item 12. Certain Relationships and Related Transactions").

(9)      Includes 1,409,092 warrants to purchase common stock.

(10)     Includes  50,000 options  granted under the Company's  stock  incentive
         plan that are exercisable within 60 days of the date of the table.

Item 12.  Certain Relationships and Related Transactions

         Certain  founding  stockholders of the Company obtained common stock in
return for contributions and development of the Company's  predecessor,  Arkona,
L.L.C.,  which  was  subsequently  merged  into  the  Company.   These  founding
stockholders  received a total of 7,523,000  shares of common  stock and,  then,
collectively,  entered into an agreement (the "Caldera  Agreement") with Caldera
Holdings,  LLC  ("Caldera"),  wherein  Caldera  was  given  the  right  to grant
secondary  options to third  parties  with  respect to  3,761,500  (subsequently
reduced to 1,550,000) of such shares in order to encourage the  development  and
increased  productivity  of the Company.  Holders of the shares  underlying  the
secondary  options are entitled to dividends and  distributions  with respect to
such shares until the options are exercised.  However,  Caldera has been granted
dispositive  voting  power with  respect to all  shares  subject to the  Caldera
Agreement  with  the  founding  shareholders  so long as the  Caldera  Agreement
remains in place.  The right of Caldera to grant  secondary  options  expired in
January  2003;  however,  Caldera  retains  voting  power  with  respect  to the
underlying  shares.  The  secondary  options have an exercise  price of $.30 per
share and expire prior to December 31, 2006.  As an inducement to certain of the
officers of Arkona to join the Company,  Caldera  granted  secondary  options to
Alan Rudd (70,000  options),  Richard Holland (600,000  options),  David Jenkins
(102,500 options) and Michael Critchfield (25,000 options).

                                      -33-
<PAGE>

Item 13.  Exhibits.

<TABLE>
<CAPTION>

   Exhibit
    Number                       Title of Document                                  Location
---------------    ----------------------------------------------    ---------------------------------------

<S>  <C>           <C>                                               <C>
     3.1           Certificate of Incorporation, as amended          Incorporated   by   reference   to  the   Company's
                   to date                                           Quarterly  Report on Form 10-QSB filed with the SEC
                                                                     on August 14, 2003, File No. 0-24372

     3.2           Bylaws                                            Incorporated by reference to Company's registration
                                                                     statement on Form 10-SB, File No. 0-24372

     4.1           Specimen Stock Certificate                        Incorporated by reference to Company's registration
                                                                     statement on Form 10-SB, File No. 0-24372

     4.2           Rights Agreement dated December 22, 2000          Incorporated  by reference to the Current Report on
                                                                     form 8-K filed  with the SEC on January  18,  2001,
                                                                     File No. 0-24372

     10.1          2001 Stock Incentive Plan, as amended             Incorporated  by reference to the Company's  Annual
                                                                     Report on Form  10-KSB  filed  with the SEC on July
                                                                     14, 2005, File No. 0-24372

     10.2          Master Lease between Parkway Tower, L.L.C.        Incorporated by reference to Annual
                   and the Company.                                  Report on Form 10-KSB filed with the
                                                                     SEC on July 14, 2000, File No. 0-24372

     10.3          Office Lease between RiverPark Three, LLC         Incorporated  by reference to the Company's  Annual
                   and the Company                                   Report on Form  10-KSB  filed  with the SEC on July
                                                                     14, 2005, File No. 0-24372

     10.4          Employment Agreement with Richard Holland         Incorporated   by   reference   to  the   Company's
                                                                     Quarterly  Report on Form 10-QSB filed with the SEC
                                                                     on November 14, 2000, File No. 0-24372

     10.5          Employment Agreement with Blake Nielson           Incorporated   by   reference   to  the   Company's
                                                                     Quarterly  Report on Form 10-QSB filed with the SEC
                                                                     on November 14, 2000, File No. 0-24372

     23.1          Consent of Independent Registered Public          Filed herewith
                   Accounting Firm

     24.1          Power of Attorney                                 Set forth on the signature page hereof

     31.1          Certification of Chief Executive Officer          Filed herewith
                   pursuant to Section 302 of the
                   Sarbanes-Oxley Act of 2002

     31.2          Certification of Chief Financial Officer          Filed herewith
                   pursuant to Section 302 of the
                   Sarbanes-Oxley Act of 2002

     32.1          Certifications of Chief Executive Officer         Filed herewith
                   pursuant to Section 906 of the
                   Sarbanes-Oxley Act of 2002

     32.2          Certifications of Chief Financial Officer         Filed herewith
                   pursuant to Section 906 of the
                   Sarbanes-Oxley Act of 2002
</TABLE>

                                                          -34-
<PAGE>

Item 14. Principal Accountant Fees and Services

         Audit Fees

         The  Company's  independent  auditor for the years ended March 31, 2006
and 2005 was Mantyla McReynolds,  LLC ("Mantyla").  The aggregate fees for audit
services  totaled  $31,829 and $14,666 for the fiscal years ended March 31, 2006
and 2005, respectively.

         Audit Related Fees

         The aggregate fees for  professional  services  rendered by Mantyla for
audit  related  services  were  $16,936 and $4,375 for the years ended March 31,
2006 and 2005, respectively.

         Tax Fees

         The aggregate fees for tax related  professional  services  rendered by
Mantyla  were  $2,304 and $1,875 for the years  ended  March 31,  2006 and 2005,
respectively.

         All Other Fees

         Mantyla  did not provide to the  Company  any other  material  services
during the years ended March 31, 2006 and 2005.

         Audit Committee Pre-Approval Policies

         The  Audit   Committee  has  established   pre-approval   policies  and
procedures  that would not permit  engagement of  accountants to render audit or
non-audit  services without prior approval of the Audit Committee.  As a result,
all  engagements  of the  independent  auditors  to  render  audit or  non-audit
services were approved by the Audit Committee.

                                      -35-
<PAGE>



<PAGE>


                                   SIGNATURES

         In  accordance  with the  requirements  of  Section  13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-KSB
to be signed on its behalf by the undersigned, thereunto duly authorized.

                                   ARKONA, INC.

                                   By:       /s/   Alan Rudd
                                        ----------------------------------------

                                            Alan  Rudd
                                            Chief Executive Officer

                                  Date: June 29, 2006
                                        ----------------------------------------

                   POWER OF ATTORNEY AND ADDITIONAL SIGNATURES

         In accordance with the  requirements of the Securities  Exchange Act of
1934, this report has been signed by the following persons in the capacities and
on the dates indicated. Each person, whose signature to this Form 10-KSB appears
below,  hereby  constitutes  and appoints Alan Rudd and Leland H. Boardman,  and
each of them, as his true and lawful attorney-in-fact and agent, with full power
of substitution,  to sign on his behalf  individually and in the capacity stated
below  and to  perform  any  acts  necessary  to be done in  order  to file  all
amendments and  post-effective  amendments to this Form 10-KSB,  and any and all
instruments or documents filed as part of or in connection with this Form 10-KSB
or the  amendments  thereto and each of the  undersigned  does hereby ratify and
confirm all that said  attorney-in-fact and agent, or his substitutes,  shall do
or cause to be done by virtue hereof.
<TABLE>
<CAPTION>

                    Signature                                      Title                             Date
                    ---------                                      -----                             ----
<S>                                                  <C>                                      <C>


         /s/ Alan Rudd                             Chief Executive Officer and               June 29, 2006
--------------------------------------------       Director (Principal Executive
   Alan Rudd                                         Officer)


         /s/ Richard Holland                       President and Director                    June 29, 2006
--------------------------------------------
   Richard Holland


         /s/ Leland H. Boardman                    Chief Financial Officer                   June 29, 2006
--------------------------------------------         (Principal Financial and
   Leland H. Boardman                                 Accounting Officer)



        /s/ Mark A. Fuller                         Director                                  June 29, 2006
--------------------------------------------
   Marc A. Fuller

        /s/ Paul Henriod                           Director                                  June 29, 2006
--------------------------------------------
   Paul Henriod

        /s/ Kent A. Misener                        Director                                  June 29, 2006
--------------------------------------------
   Kent A. Misener
</TABLE>


                                                          -36-
<PAGE>



                                  Arkona, Inc.

                                 March 31, 2006

             Report of Independent Registered Public Accounting Firm

                                       and

                              Financial Statements




                                  Arkona, Inc.

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

Report of Independent Registered Public Accounting Firm......................F-2

Balance Sheet as of March 31, 2006...........................................F-4

Statements of Operations for the Years Ended
       March 31, 2006 and 2005 (as restated).................................F-6

Statements of Stockholders' Equity for the Years Ended
       March 31, 2006 and 2005 (as restated).................................F-7

Statements of Cash Flows for the Years Ended
       March 31, 2006 and 2005 (as restated).................................F-8

Notes to Financial Statements...............................................F-10



                                      F-1
<PAGE>

                                  Arkona, Inc.



             Report of Independent Registered Public Accounting Firm


The Board of Directors and Shareholders of Arkona, Inc.:

We have audited the accompanying  balance sheet of Arkona, Inc., as of March 31,
2006 and the statements of operations,  stockholders' equity, and cash flows for
the  years  ended  March  31,  2006  and  2005 (as  restated).  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 the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company has determined that it
is not  required  to  have,  nor were we  engaged  to  perform,  an audit of its
internal control over financial reporting.  Our audit included  consideration of
internal  control  over  financial  reporting  as a basis  for  designing  audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the  effectiveness of the Company's  internal  controls
over  financial  reporting.  Accordingly,  we express no such opinion.  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 Arkona,  Inc., as of March 31,
2006 and the results of operations  and cash flows for the years ended March 31,
2006 and 2005 (as restated),  in conformity with accounting principles generally
accepted in the United States of America.


/s/ MANTYLA McREYNOLDS, LLC
------------------------------
MANTYLA McREYNOLDS, LLC
Salt Lake City, Utah
May 18, 2006

                                      F-2
<PAGE>

<TABLE>
<CAPTION>

                                  Arkona, Inc.
                                  Balance Sheet
                                 As of March 31,


                                                                        Notes                    2006
<S>                                                                     <C>                  <C>
ASSETS
Current Assets:
     Cash and Cash Equivalents                                             1                 $  570,766
     Accounts Receivable, including unbilled amounts
         of $111,470 (less allowance for doubtful
         accounts of $25,000)                                              1                    902,060
     Prepaid Expenses                                                                            73,693
     Notes Receivable - current portion                                    1                     77,324
     Other                                                                                        4,170
                                                                                             ----------
     Total Current Assets                                                                     1,628,013
                                                                                             ----------
Property and Equipment - net                                               5                    623,505
                                                                                             ----------
Other Assets:
     Deferred Tax Asset                                                 1, 2, 14              1,560,000
     Capitalized Software Costs - net                                     1, 3                1,215,041
     Goodwill                                                              6                    156,622
     Intellectual Property                                                 6                     76,420
     Security Deposits                                                     8                     75,690
     Notes Receivable                                                      1                     40,192
                                                                                             ----------
     Total Other Assets                                                                       3,123,965
                                                                                             ----------

Total Assets                                                                                 $5,375,483
                                                                                             ==========
</TABLE>


See accompanying notes to financial statements



                                      F-3
<PAGE>

<TABLE>
<CAPTION>


                                  Arkona, Inc.
                                  Balance Sheet
                                 As of March 31,


                                                                         Notes                2006
<S>                                                                   <C>                 <C>
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
     Accounts Payable                                                                     $    159,901
     Accrued Liabilities                                                                       411,560
     Deferred Contract Revenue                                        1                        207,417
     Note Payable to Related Party                                   13                         50,000
     Current Portion Long-Term Notes Payable                         13                         62,563
                                                                                          ------------
     Total Current Liabilities                                                                 891,441
                                                                                          ------------

Long-Term Notes Payable                                              13                        166,123
                                                                                          ------------

Total Liabilities                                                                            1,057,564
                                                                                          ------------
Stockholders' Equity:                                            10, 11, 12
     Preferred Stock ($.001 par value; authorized
         10,000,000 shares; issued and outstanding
         575,000 shares)                                              7                            575
     Common Stock ($.001 par value; authorized
         75,000,000 shares; issued and outstanding
         32,489,670)                                                  7                         32,490
     Additional Paid-In Capital                                                             23,479,767
     Unearned compensation - stock options                            9                         (5,848)
     Accumulated Deficit                                             9, 14                 (19,189,065)
                                                                                          ------------
     Total Stockholders' Equity                                                              4,317,919
                                                                                          ------------

Total Liabilities & Stockholders' Equity                                                  $  5,375,483
                                                                                          ============

</TABLE>


See accompanying notes to financial statements


                                      F-4
<PAGE>
<TABLE>
<CAPTION>

                                  Arkona, Inc.
                            Statements of Operations
                          For the Years Ended March 31,

                                                       Notes              2006              2005
                                                                                       (as restated)
<S>                                                    <C>            <C>               <C>
Revenues:                                              1, 14
     Installation Services                                            $  3,735,327      $  2,697,467
     Post-Installation Services                                          5,783,424         3,997,133
     Hardware Sales                                                      1,026,373           335,648
     Consulting Services                                                   578,525           264,435
     Other                                                                   6,149            14,247
                                                                      ------------      ------------
     Total Revenues                                                     11,129,798         7,308,930
Cost of Sales                                        1, 3, 4             5,858,545         4,249,865
                                                                      ------------      ------------
Gross Profit                                                             5,271,253         3,059,065

Operating Expenses:                                  1, 4, 5
     Sales, Marketing & General
         Administrative                                                  3,478,072         2,690,208
     Research & Development                                                962,708           660,760
                                                                      ------------      ------------
     Total Operating Expenses                                            4,440,780         3,350,968
                                                                      ------------      ------------
Income (Loss) from Operations                                              830,473          (291,903)
Other (Expense) Income - net                                                (9,411)           46,847
                                                                      ------------      ------------
Income (Loss) Before Income Taxes                                          821,062          (245,056)
Income Tax Benefit                                   1, 2                1,244,000           152,682
                                                                      ------------      ------------
Net Income (Loss)                                                     $  2,065,062      $    (92,374)
                                                                      ============      ============
Basic Earnings per Common Share:                     15
     Income (Loss) from Operations                                    $      0.026      $     (0.009)
     Net Income (Loss)                                                $      0.064      $     (0.003)
     Average Number of Shares
           Outstanding                                                  32,278,717        31,956,688
Diluted Earnings per Common Share:                   15
     Income (Loss) from Operations                                    $      0.021      $     (0.009)
     Net Income (Loss)                                                $      0.053      $     (0.003)
     Average Number of Shares
           Outstanding                                                  39,236,273        31,956,688

</TABLE>

See accompanying notes to financial statements


                                      F-5
<PAGE>

<TABLE>
<CAPTION>
                                  ARKONA, INC.
                  Statements of Stockholders' Equity/(Deficit)
                          For the Years Ended March 31,
                                  (split table)


                                                                                       Additional
                          Preferred       Preferred        Common         Common        Paid-In
                            Shares          Stock          Shares          Stock        Capital
                          ------------   ------------   ------------   ------------   ------------
<S>                       <C>            <C>              <C>          <C>            <C>

Balance, March 31, 2004        575,000   $        575     31,565,670   $     31,566   $ 23,188,211

Prior period adjustment -
see Note 14                       --             --             --             --             --

Issued shares for
options exercised at
$.20 and $.30 per share           --             --          474,000            474        127,726

Issued shares for cash
and services at $.40
to $.51 per share                 --             --          130,000            130         52,420

Unearned compensation             --             --             --             --           26,275

Compensation earned               --             --             --             --             --

Stock investment
write-off                         --             --             --             --             --

Net income                        --             --             --             --             --
                          ------------   ------------   ------------   ------------   ------------
Balance, March 31, 2005        575,000   $        575     32,169,670   $     32,170   $ 23,394,632

Issued shares for options
exercised at $.20 to $.66
per share                         --             --          320,000            320         98,010

Unearned compensation             --             --             --             --            1,100

Compensation earned               --             --             --             --             --

Options forfeited                 --             --             --             --          (13,995)

Net loss                          --             --             --             --             --
                          ------------   ------------   ------------   ------------   ------------

Balance March 31, 2006        575,000    $        575     32,489,670   $     32,490   $ 23,479,967


</TABLE>



See accompanying notes to financial statements

                                     F-6(A)
<PAGE>
<TABLE>
<CAPTION>

                                  ARKONA, INC.
                  Statements of Stockholders' Equity/(Deficit)
                          For the Years Ended March 31,
                             (split table concluded)


                              Unearned      Accumulated
                            Compensation     Unrealized                       Total
                                - Stock       Losses on      Accumulated    Stockholders'
                                Options      Investments      Deficit     Equity/(Deficit)
                            ------------    ------------    ------------  ----------------
<S>                         <C>             <C>             <C>             <C>
Balance, March 31, 2004             --      $    (16,942)   $(19,698,942)   $  3,504,468

Prior period adjustment -
see Note 14                         --              --        (1,462,811)     (1,462,811)

Issued shares for
options exercised at
$.20 and $.30 per share             --              --              --           128,200

Issued shares for cash
and services at $.40
to $.51 per share                   --              --              --            52,550

Unearned compensation            (26,275)           --              --              --

Compensation earned                6,918            --              --             6,918

Stock investment
write-off                           --            16,942            --            16,942

Net loss                            --              --           (92,374)        (92,374)
                            ------------    ------------    ------------    ------------
Balance, March 31, 2005     $    (19,357)   $       --      $(21,254,127)   $  2,153,893

Issued shares for options
exercised at $.20 to $.66
per share                         --                --              --            98,330

Unearned compensation             (1,100)            --              --              --

Compensation earned                8,955            --              --             8,955

Options forfeited                  5,654            --              --            (8,321)

Net income                          --              --         2,065,062       2,065,062
                            ------------    ------------    ------------    ------------

Balance March 31, 2006      $     (5,848)   $       --      $(19,189,065)   $  4,317,919



</TABLE>

See accompanying notes to financial statements.


                                      F-6(B)
<PAGE>

See accompanying notes to financial statements


<PAGE>

<TABLE>
<CAPTION>

                                  Arkona, Inc.
                            Statements of Cash Flows
                          For the Years Ended March 31,
<S>                                                      <C>            <C>
                                                             2006           2005
                                                                        (as restated)
                                                         -----------    ------------
Cash Flows from Operating Activities:
     Net Income (Loss)                                   $ 2,065,062    $   (92,374)
     Adjustments to Reconcile Net Income
         (Loss) to Net Cash Provided by Operating
         Activities:
            Depreciation Expense                             195,620        115,760
            Amortization Expense                             302,678        248,181
            Bad Debt (Write Offs)                            (50,000)       (10,134)
            Loss on Asset Disposition                            323
            Stock Compensation Expense (Income)                  634          6,918
            Realized Gain on Investments                        --          (55,973)
            Deferred Income Tax Benefit                   (1,248,000)      (156,000)
            Decrease (Increase) in Accounts Receivable      (387,634)       (19,690)
            Decrease (Increase) in Prepaid Expenses          (73,693)        11,621
            Decrease (Increase) in Other                      16,421         21,077
            Decrease (Increase) in Notes Receivable         (117,516)          --
            Decrease (Increase) in Security Deposits          46,390        (42,500)
            Increase (Decrease) in Accounts Payable            3,825         (1,703)
            Increase (Decrease) in Accrued Liabilities       169,792         45,292
            Increase (Decrease) in Deferred Revenue            7,091         61,307
                                                         -----------    -----------
     Net Cash Provided by Operating Activities               930,993        131,782
                                                         -----------    -----------
Cash Flows from Investing Activities:
     Acquisition of Property and Equipment                  (459,638)      (254,792)
     Cash from Sale of Intangible Asset                      100,000
     Software Development Costs                             (368,784)      (378,400)
                                                         -----------    -----------
     Net Cash Used in Investing Activities                  (828,422)      (533,192)
                                                         -----------    -----------
Cash Flows from Financing Activities:
     Net increase in Notes Payable                           228,686           --
     Proceeds from Issuance of Common Stock                   98,330        180,750
                                                         -----------    -----------
     Net Cash Provided by Financing Activities               327,016        180,750
                                                         -----------    -----------
Net Increase (Decrease) in Cash                              429,587       (220,660)

Beginning Cash and Cash Equivalents Balance                  141,179        361,839
                                                         -----------    -----------
Ending Cash and Cash Equivalents Balance                 $   570,766    $   141,179
                                                         ===========    ===========
</TABLE>



See accompanying notes to financial statements

<PAGE>

                                      F-7
<PAGE>


<PAGE>

<TABLE>
<CAPTION>

                                  Arkona, Inc.
                            Statements of Cash Flows
                          For the Years Ended March 31,


                                                            2006             2005
<S>                                                      <C>            <C>
Supplemental Disclosure Information:
     Cash Paid for Interest                              $     17,275   $      9,126
     Cash Paid for Income Taxes                          $      3,318   $      3,695
</TABLE>








See accompanying notes to financial statements





                                      F-8

<PAGE>
                                  Arkona, Inc.
                          Notes to Financial Statements


1.      Organization and Summary of Significant Accounting Policies

        Organization - Arkona,  Inc.  ("Arkona" or the "Company") was originally
        incorporated  under  the laws of the  State of  Delaware  in 1992 as The
        Thorsden  Group,  Ltd.  ("Thorsden"),  for the  purpose of  seeking  and
        acquiring  business  opportunities.  In 1997,  Thorsden acquired Arkona,
        Inc., a Utah corporation, as a wholly-owned subsidiary. Arkona, Inc. was
        in the business of developing  software for remote  synchronization  and
        replication of databases.  In 1999,  Thorsden changed its name to Sundog
        Technologies, Inc. ("Sundog"). In 2000, Sundog acquired the business and
        assets  of  Ensign  Information   Systems,   which  developed  and  sold
        automobile  dealership  software.  In 2001,  Sundog abandoned its remote
        synchronization  business,  merged  with  its  wholly-owned  subsidiary,
        Arkona, Inc., and changed its name to Arkona.

        Income  Taxes  - The  Company  applies  the  provisions  of  SFAS  #109,
        "Accounting  for Income  Taxes."  The  Statement  requires  an asset and
        liability  approach for  financial  accounting  and reporting for income
        taxes,  and the  recognition of deferred tax assets and  liabilities for
        the temporary  differences between the financial reporting basis and tax
        basis of the  Company's  assets and  liabilities  at  enacted  tax rates
        expected to be in effect when such amounts are realized or settled.

        Net  Income  (Loss)  Per Common  Share - In  accordance  with SFAS #128,
        "Earnings per Share" basic  earnings per common share is computed  using
        the  weighted  average  number of  common  shares  outstanding.  Diluted
        earnings per common share is computed using the weighted  average number
        of common  shares plus  dilutive  common share  equivalents  outstanding
        during the period using the treasury stock method.

        Cash & Cash  Equivalents - For purposes of the statements of cash flows,
        the Company  considers  cash on deposit in banks and other  unrestricted
        investments with original  maturities of three months or less to be cash
        equivalents.  The Company  maintains cash balances in a local  financial
        institution.  Accounts  at this  institution  are insured by the Federal
        Deposit Insurance  Corporation up to $100,000. As of March 31, 2006, the
        Company  had cash in excess of the insured  amounts at this  institution
        totaling $301,926.

        Use of  Estimates  in the  Preparation  of  Financial  Statements  - 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,
        the 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.

       Revenue  Recognition  -  During  the  course  of  business,  the  Company
       recognizes revenue from the following activities:  Installation Services;
       Post-installation Services; Hardware Sales; and Consulting Services.

                                      F-9
<PAGE>


       Installation  Services include fees for G/L setup,  data conversion,  VPN
       connection, forms programming, and training. Each of these activities are
       separately  stated on a  customer's  Sales  and  Service  Agreement  (the
       "Service Agreement") and individually priced. The Installation Service is
       generally  performed  over a four (4) week period and provides a customer
       with the tools and  knowledge  necessary  in order for them to access and
       use the ADMS on a go-forward basis. The Company  recognizes  installation
       services  revenue in  accordance  with  American  Institute  of Certified
       Public  Accountants   ("AICPA")   Statement  of  Position  ("SOP")  97-2,
       "Software  Revenue  Recognition."  The Company  recognizes  revenue  when
       persuasive  evidence of an arrangement  exists,  delivery has occurred or
       services have been  rendered,  the sales price is fixed or  determinable,
       and  collection  is  probable.  Under SOP 97-2,  the  Company  determines
       whether a Service  Agreement  includes  multiple  elements  as defined in
       Emerging Issues Task Force ("EITF") #00-21,  "Revenue  Arrangements  with
       Multiple  Deliverables,"  and, if so, whether  vendor-specific  objective
       evidence  ("VSOE") of fair value exists for each of those  elements.  G/L
       setup, data conversion,  forms programming and training are each separate
       deliverables with each having stand-alone value and revenue is recognized
       as the services are performed and completed,  based upon the VSOE of fair
       value for each  element.  The VPN  connection  does not have  stand-alone
       value and,  therefore,  VPN connection fee revenue is recognized over the
       expected period of performance under the customer Service Agreement.

       Service  Agreements  generally  require  the  payment  of  non-refundable
       security deposits. These deposits are generally in an amount equal to 25%
       of the combined  installation  fees and  represent  security  against the
       labor  and  travel  related  costs the  Company  will  incur  even if the
       contract  is  terminated  prior  to the  completion  of the  installation
       process.  These  deposits  are  recorded  as deferred  revenue  until the
       installation  services are  completed  and  invoiced.  At that time,  the
       deposits  are  recorded as payments  against the related  receivable  and
       recognized as explained above.

       Post-installation  Services  provide the customer the right to continuous
       access to the latest version of the ADMS hosted on the Company's servers,
       to have their data hosted and stored on the  company's  servers,  to 24x7
       maintenance and security of the servers, to post-contract phone technical
       support  services,   and  to  manufacturers'  parts  price  updates.  The
       post-installation  services are  available and billed on a month to month
       basis and also separately  identified and priced on a customer's  Service
       Agreement.  Post-installation  services fees are recognized  ratably over
       the period that the services are performed.

       Hardware  Sales  include  the  sales of  standard  computer  systems  and
       peripherals  and revenues are recognized  when title passes upon shipment
       to the customer. Installation of the hardware and/or peripherals is not a
       required component of the Service Agreement.

       Consulting Services generally include fees charged for  post-installation
       training  and  forms  programming.   The  Company  recognizes  consulting
       services fees under the  percentage-of-completion  method over the period
       in which the services are provided.

                                      F-10
<PAGE>


       Accounts and Notes Receivable - The Company regularly reviews receivables
       and  records  an  allowance  for  doubtful  accounts  based on a specific
       identification  basis  for  those  accounts  that  they  consider  to  be
       uncollectible.  As of March 31, 2006, the allowance for doubtful accounts
       was $25,000.

       During  fiscal  year  2006,  the  Company   financed   several   customer
       installations on long-term notes.  Accordingly,  the Company has recorded
       the  principal  payments that extend into future  periods as  non-current
       assets. The Company believes these notes are fully collectible.

       Revenues  earned on  contracts  in  progress  in excess of  billings  are
       classified as current assets and included in Accounts Receivable.

       Software   Development   Costs  -  Costs   incurred  to   establish   the
       technological  feasibility  of software  products  to be sold,  leased or
       otherwise   marketed  by  the  Company  are   expensed  as  research  and
       development.  Once  technological  feasibility is established,  costs are
       capitalized  in accordance  with SFAS #86,  "Accounting  for the Costs of
       Computer Software to Be Sold,  Leased,  or Otherwise  Marketed" until the
       product is  available  for  general  release to  customers.  Judgment  is
       required in determining  when  technological  feasibility of a product is
       established.  Capitalized  software  costs,  which  consist  primarily of
       payroll and benefits of both employees and outside contractors, have been
       amortized on a  product-by-product  basis using the straight-line  method
       over the established economic life of the products (determined to be five
       years). In addition,  with the issuance of SFAS #142, "Goodwill and Other
       Intangible Assets",  capitalized software costs are tested for impairment
       each  quarter  along with  other  intangible  assets.  If  impairment  is
       determined, the amount of the impairment is written off in that period.

       Advertising  Costs - Advertising costs are charged to expense as services
       are  provided.  For the years ended March 31, 2006 and 2005,  the Company
       expensed  $106,724  and $34,584,  respectively,  in  advertising  related
       costs.

       Reclassifications  -  Certain  reclassifications  have been made to prior
       year balances in order to conform to current year classifications.

       Recent Accounting Pronouncements - In December 2004, the FASB issued SFAS
       #123(R),   "Share-Based   Payments."   SFAS  #123(R)  amends  SFAS  #123,
       "Accounting for Stock-Based  Compensation," and APB #25,  "Accounting for
       Stock  Issued  to  Employees."  SFAS  #123(R)  requires  that the cost of
       share-based  payment  transactions  (including  those with  employees and
       non-employees)  be recognized in the financial  statements at fair value.
       On April 14, 2005, the SEC issued a rule allowing small business  issuers
       to delay  implementation  of this statement  until the beginning of their
       first  fiscal  year after  December  15,  2005 rather than at the interim
       period. The Company will implement this pronouncement  effective April 1,
       2006.

       In December 2004, the FASB issued SFAS #153,  "Exchanges of  Non-monetary
       Assets - An  Amendment  of APB  Opinion  #29." The  guidance  in APB #29,
       "Accounting  for  Non-monetary  Transactions,"  is based on the principle
       that  exchanges of  non-monetary  assets should be measured  based on the


                                      F-11
<PAGE>

       fair value of the  assets  exchanged.  The  guidance,  however,  included
       certain  exceptions  to  that  principle.  SFAS  #153  amends  APB #29 to
       eliminate the exception for non-monetary  exchanges of similar productive
       assets  and  replaces  it  with a  general  exception  for  exchanges  of
       non-monetary assets that do not have commercial substance. The provisions
       of SFAS #153 are effective for non-monetary asset exchanges  occurring in
       fiscal  periods  beginning  after June 15,  2005.  Early  application  is
       permitted  and  companies  must  apply the  standard  prospectively.  The
       adoption of the standard is not expected to have a material effect on the
       company's results of operations of financial position.

       In May 2005,  the FASB  issued SFAS #154,  "Accounting  Changes and Error
       Corrections," which replaces APB Opinion #20,  "Accounting  Changes," and
       supersedes FASB #3,  "Reporting  Accounting  Changes in Interim Financial
       Statements - an amendment of APB #28." SFAS #154  requires  retrospective
       application  to  prior  periods'  financial   statements  of  changes  in
       accounting  principle,  unless it is impractical to determine  either the
       period-specific  effects or the cumulative effect of the change.  When it
       is  impracticable  to  determine  the   period-specific   effects  of  an
       accounting change on one or more individual prior periods presented, SFAS
       #154  requires  that  the new  accounting  principle  be  applied  to the
       balances of assets and  liabilities  as of the  beginning of the earliest
       period for which  retrospective  application  is  practicable  and that a
       corresponding  adjustment  be made to the  opening  balance  of  retained
       earnings  for  that  period  rather  than  being  reported  in an  income
       statement. When it is impracticable to determine the cumulative effect of
       applying a change in accounting principle to all prior periods, SFAS #154
       requires  that the new  accounting  principle  be  applied  as if it were
       adopted prospectively from the earliest date practicable. SFAS #154 shall
       be effective for  accounting  changes and  corrections  of errors made in
       fiscal years  beginning  after  December  15, 2005.  The adoption of this
       standard is not expected to have material effect on the Company's results
       of operations or financial position.

       In February  2006,  the FASB issued  SFAS #155,  "Accounting  for Certain
       Hybrid  Financial  Instruments,  an amendment of FASB Statements #133 and
       #140." This statement  permits fair value  re-measurement  for any hybrid
       financial  instrument that contains an embedded derivative that otherwise
       would require  bifurcation.  It  establishes  a  requirement  to evaluate
       interests in securitized  financial assets to identify interests that are
       freestanding  derivatives or that are hybrid  financial  instruments that
       contain an embedded derivative requiring  bifurcation.  This statement is
       effective  for all  financial  instruments  acquired or issued  after the
       beginning of an entity's  first  fiscal year that begins after  September
       15, 2006.  The adoption of this standard is not expected to have material
       effect on the Company's results of operations or financial position.

       In  March  2006,  the  FASB  released  statement  #156,  "Accounting  for
       Servicing  of  Financial  Assets,  an  amendment of FASB #140." SFAS #156
       requires that all separately  recognized servicing assets and liabilities
       in  accordance  with SFAS #140 be  initially  measured as fair value,  if
       practicable.  Furthermore,  this standard permits,  but does not require,
       fair value  measurement for separately  recognized  servicing  assets and
       liabilities in subsequent reporting periods.  This statement is effective


                                      F-12
<PAGE>


       after the  beginning  of an entity's  first fiscal year that begins after
       September 15, 2006. The adoption of this standard is not expected to have
       a material  effect on the  Company's  results of  operations of financial
       position.

2.     Income Taxes

       The tax effects of temporary  differences  that give rise to  significant
       portions of the deferred  tax asset and  deferred tax  liability at March
       31, 2006, are presented below.

       Deferred Tax Assets:
          Net operating loss carry forward                    $ 5,398,998
          Intangibles, due to differences in
             amortization                                          70,034
                                                              ---------------
         Gross Deferred Tax Assets                              5,469,032
          Less valuation allowance                             (3,571,949)
                                                              ---------------
          Total Deferred Tax Assets                             1,897,083

       Deferred Tax Liabilities:
          Capitalized software costs, due to
             differences in amortization                         (330,099)
          Property and equipment, due to
             differences in depreciation                           (6,984)
                                                              ---------------
       Total Net Deferred Tax Assets                          $ 1,560,000
                                                              ===============

       Current Net Deferred Tax Assets                        $         0
       Long Term Net Deferred Tax Assets                        1,560,000
                                                              ---------------
       Total Net Deferred Tax Assets                          $ 1,560,000
                                                              ===============

                                      F-13
<PAGE>


       The deferred tax asset valuation allowance decreased  $1,598,005 from the
       previous  year's  account  balance.  The  allowance  has been  determined
       pursuant  to  the  provisions  of  SFAS  #109,  including  the  Company's
       estimation of future taxable income, where necessary,  and is adequate to
       reduce  the total  net  deferred  tax  asset to an amount  that will more
       likely than not be realized.  The  valuation  allowance is an  accounting
       estimate  being  made  by  management.   Management  has  considered  all
       available negative and positive evidence in determining the amount of the
       valuation allowance.

        Reconciliation between income taxes at statutory tax rates (39%) and the
        actual income tax provision from continuing operations are as follows:
<TABLE>
<CAPTION>

                                                                                   03/31/2006     03/31/2005
<S>                                                                               <C>            <C>
       Expected provision (benefit) based
          on statutory rates                                                      $   308,389    $  (118,507)
       Effect of:
          Change in valuation allowance                                            (1,598,005)       (63,332)
          Minimum state franchise tax                                                   4,000          3,318
          Nondeductible differences                                                    41,616         25,839
                                                                                  -----------    -----------
       Provision (Benefit) for Income Tax                                         $(1,244,000)   $  (152,682)
                                                                                  ===========    ===========

       The components of the provision (benefit) for income tax are as follows:

                                                                                   03/31/2006     03/31/2005
       Current provision (benefit):
          Federal                                                                 $   231,919    $  (156,879)
          State                                                                        38,106        (19,753)

       Deferred provision (benefit):
          Federal                                                                  (1,319,919)        20,879
          State                                                                      (194,106)         3,071
                                                                                  -----------    -----------
Provision (Benefit) for Income Tax                                                $(1,244,000)   $  (152,682)
                                                                                  ===========    ===========
</TABLE>

        Net  operating  loss  carry  forwards  expire  thru  2025.  Subsequently
        recognized tax benefits relating to the valuation allowance for deferred
        tax  assets as of March 31,  2006 will be  reported  as a  reduction  of
        income tax expense from continuing operations.

3.      Capitalized Software Costs

        The  Company  capitalizes  certain  costs  of  developing  its  software
        products  in  accordance  with  SFAS #86,  "Accounting  for the Costs of
        Computer  Software  to  be  Sold,   Leased,   or  Otherwise   Marketed."
        Amortization  expense,  charged to cost of sales,  totaled  $302,678 and
        $248,181 for the years ended March 31, 2006 and 2005, respectively.  For
        the  year  ended  March  31,  2006,   capitalized   software  costs  and
        accumulated amortization was as follows:

                                      F-14
<PAGE>

                                                               2006

                  Capitalized Software Costs               $ 1,990,146
                  Accumulated Amortization                    (775,105)
                                                           -----------
                  Net                                      $ 1,215,041
                                                           ===========

4.      Operating Leases

        The  Company  has an  operating  lease for its office  facilities  which
        expires July 31, 2010.  The  following  table  summarizes  the remaining
        obligation under the operating lease.

                     Year                                Minimum
                    Ending                           Lease Payments
                  03/31/2007                            $   475,056
                  03/31/2008                                487,556
                  03/31/2009                                500,052
                  03/31/2010                                512,552
                  03/31/2011                                172,240
                                                        -----------
                  Total                                 $ 2,147,456
                                                        ===========

        Rent expense under the facility  lease was $396,718 and $277,093 for the
        years ended March 31, 2006 and 2005, respectively.

        The Company has operating leases with a major vendor for computer server
        equipment.  The terms require  payments,  on a month-to-month  basis, in
        amounts  approximating  $4,500. Upon written notice, the Company is able
        to return or exchange the equipment at its option.


                                      F-15
<PAGE>


5.      Property and Equipment

        Property  and  equipment  are  summarized  by major  classifications  as
        follows:

                                                       2006       Method / Life
                  Office Furniture                $   342,290         SL / 5
                  Computer Software                   195,293         SL / 3
                  Computer Equipment                  931,051         SL / 3
                  Leasehold Improvements                9,235         SL / 5
                  Automobile                           16,403         SL / 5
                                                  -----------
                  Total                             1,494,272
                  Accumulated Depreciation           (870,767)
                                                  -----------
                  Net                             $   623,505
                                                  ===========

        Depreciation expense was $195,620 and $115,760 for the years ended March
        31, 2006 and 2005, respectively.  The Company has property and equipment
        that serves as collateral  on capital  leases in the amount of $248,486.
        Accumulated  depreciation  on this equipment  totals $14,842 as of March
        31, 2006.

        The Company charges repairs and maintenance to expense as incurred,  and
        capitalizes  replacements and  improvements  when these costs extend the
        useful life of the assets.

6.      Goodwill and Intellectual Property

        On November 9, 2000 the Company  entered into an Asset Purchase and Sale
        Agreement  ("Agreement") with Ensign Information Systems ("Ensign").  In
        accordance with the Agreement,  the Company issued  1,500,000  shares of
        common stock for  substantially  all of the assets of Ensign,  including
        intellectual property.

        With the  acquisition  of  Ensign,  the  Company  recorded  goodwill  of
        $313,244.  Through  fiscal  year 2002 and into  fiscal  year  2003,  the
        Company had amortized $156,622, or half of the original book balance. In
        addition, the Company acquired from Ensign intellectual property related
        to the core management system software of $305,682.  Through fiscal year
        2002 and into fiscal year 2003,  the Company had  amortized  $229,262 of
        the asset. In fiscal year 2003, the Company adopted SFAS  #142,"Goodwill
        and Other Intangible Assets". This statement eliminates the amortization
        of goodwill and other intangible assets and requires the Company to test
        the assets for  impairment,  which the  Company  performs on a quarterly
        basis.  Based on management's  analysis and testing for  impairment,  no
        adjustment in the asset values was recorded for the year ended March 31,
        2006.


                                      F-16
<PAGE>


7.      Preferred and Common Stock

        During fiscal year 2003, the Company raised  $575,000 by selling 575,000
        shares of Series B Convertible  Preferred Stock (the "Preferred  Stock")
        to unrelated  parties at $1.00 per share.  Each Preferred Stock share is
        convertible  to five (5) common  shares at the  option of the  preferred
        shareholder.  Each Preferred  Stock share receives the same dividends as
        common stock on an as converted basis.

        The Preferred Stock shares carry a liquidation  preference  equal to the
        price  per  share  of the  Preferred  Stock,  plus  accrued  and  unpaid
        dividends on each share. In the event of a "liquidation," the balance of
        proceeds  is paid to common  stock.  A merger,  reorganization  or other
        transaction in which control of the Company is transferred is treated as
        a liquidation. If not earlier converted into common stock, the Preferred
        Stock shares are redeemable with 30 days advance notice at the option of
        the Company after June 30, 2008.

        Each  Preferred  Stock  share has one (1) vote and votes  together  as a
        class with common stock except that the Preferred Stock votes alone as a
        class  for  (i)  any  adverse  change  to the  rights,  preferences  and
        privileges of the Preferred Stock,  (ii) any increase or decrease in the
        number of authorized Preferred Stock shares.

        In December  2005,  the  stockholders  of the Company  voted in favor of
        amending the Company's  Certificate  of  Incorporation,  increasing  the
        number of authorized common shares to 75,000,000.

8.      Security Deposits

        In  conjunction  with its  facility  lease  obligation,  the Company has
        placed a security deposit with its landlord totaling $42,500 as of March
        31, 2006. In addition to the facility deposit,  the Company has placed a
        security deposit for computer servers totaling $33,190.

9.      Stock Options and Warrants

        In December  2001,  the  Company  established  a stock  option plan (the
        "Plan") to provide incentives to its directors,  officers, employees and
        advisors  to do  business  with the Company and to enable the Company to
        obtain and  retain  the  services  of the type of  directors,  officers,
        advisors and employees  considered  essential for long-term success. The
        granting of options is at the  discretion of the Stock Option  Committee
        of the Board.  The Committee  may determine the terms and  conditions of
        options,  consistent  with the Plan.  The Plan  currently has authorized
        9,000,000 shares for distribution.

        As of March 31, 2006,  there were outstanding a total of 6,793,667 stock
        options to purchase  Company common stock granted under the Plan, all of
        which  have an  exercise  price of  between  $0.20 and $0.75 per  share.
        Options  granted under the Plan vest over a one to four year period.  Of
        the options outstanding under the Plan, 4,650,667 are vested as of March
        31, 2006.

                                      F-17
<PAGE>

        The Company  applies the  provisions of APB #25,  "Accounting  for Stock
        Issued  to  Employees"  to stock  option  grants.  Compensation  cost is
        measured as the excess,  if any, of the  estimated  fair market value of
        the  Company's  stock at the date of grant over the amount the recipient
        must pay to acquire the stock. Unearned compensation,  which is recorded
        as a separate component of stockholders' equity, is amortized to expense
        over the  vesting  periods of the  underlying  stock  options.  Unearned
        compensation represents the intrinsic value of stock options granted but
        not yet vested. As of March 31, 2006, the Company had $5,848 in unearned
        compensation.

        For fiscal year 2006, the Company adopted only the disclosure provisions
        of SFAS #123,  "Accounting for Stock Based Compensation" and applied APB
        #25 to stock options. To determine the pro forma impact of applying SFAS
        #123,  the  Company  estimated  the fair  value  of  options  using  the
        Black-Scholes option valuation model. Assumptions used for the valuation
        model are set forth below:

                           Expected volatility factor         126.0%

                           Risk-free interest rate              3.0%

        The following table  illustrates the effect on net income and net income
        per share if the provisions of SFAS #123 had been applied to stock-based
        incentives using the Black-Scholes valuation model:

                                                 Year Ended March 31,
                                                 2006            2005

           Net (loss), as reported           $ 2,065,062    $   (92,374)
           Add: stock-based employee
           compensation expense
           included in reported net income           634          6,918

           Deduct:  total stock-based
           employee compensation expense
           determined under fair value
           based method for all awards          (204,721)       (56,480)
                                             -----------    -----------
           Pro Forma Net Income (Loss)       $ 1,860,975    $  (141,936)
                                             ===========    ===========
          Net Income (Loss) Per Share:
             Basic - pro forma               $     0.058    $     0.004
             Diluted - pro forma             $     0.047    $     0.004

        Information  on stock options and warrants  outstanding  as of March 31,
        2006 and 2005 is as follows:

                                      F-18
<PAGE>


<TABLE>
<CAPTION>

                                            Number of                     Weighted
                             Range of      Options and       Average       Average                    Weighted
              Year           Exercise        Warrants       Remaining     Exercise       Number        Average
             Ended            Prices       Outstanding        Life          Price      Exercisable      Price
            --------        ----------     -------------    ---------    ----------    ------------   ---------
<S>         <C>             <C>                <C>           <C>            <C>           <C>           <C>
            03/31/06        $0.20-0.75         9,142,759     90 mos.        $0.36         7,000,759     $0.36

            03/31/05        $0.20-0.65         8,420,759     90 mos.        $0.32         3,147,000     $0.32
</TABLE>

       The Company issued an additional  1,311,000  options and warrants  during
       the fiscal year end March 31, 2006. Options and warrants totaling 589,000
       expired or were cancelled during the same period.

10.     401K Profit Sharing Plan

        The Company has an employee benefit program  consisting of a 401K Profit
        Sharing Plan (the "401K Plan").  The 401K Plan provides for employees to
        contribute on a pretax basis, provides employer matching, and presents a
        broad  portfolio of  investment  options to be selected by the employee.
        Employer  matching  contributions  are  made at the sole  discretion  of
        management.  The Company has not contributed to the 401K Plan during the
        years ended March 31, 2006 or 2005.

11.     Related Party Transactions

        Certain  founding  shareholders  acquired common stock of the Company in
        return for contributions  and development of the Company's  predecessor,
        Arkona, L.L.C. These founding shareholders received a total of 7,523,000
        shares of common stock and then, collectively, entered into an agreement
        with Caldera  Holding  Company,  L.C.  ("Caldera"),  wherein Caldera was
        given the right to grant secondary options to third parties with respect
        to 1,550,000 of such shares in order to encourage  the  development  and
        increased  productivity  of the Company.  The secondary  options have an
        exercise price of $0.30 per share and expire December 31, 2006.  Holders
        of the shares underlying the secondary options are entitled to dividends
        and  distributions  with  respect to such  shares  until the options are
        exercised.  However,  Caldera has been granted  dispositive voting power
        with respect to all shares  subject to its  agreement  with the founding
        shareholders so long as the agreement  remains in place.  Certain of the
        secondary options have been granted to officers of the Company. Exercise
        of these secondary  options will not yield any assets to the Company nor
        dilute the Company's equity position.

12.     Preferred Stock Rights

        Effective  January  31,  2001,  the Board of  Directors  of the  Company
        declared a dividend of one  Preferred  Stock Right for each  outstanding
        share of common  stock of the Company to  shareholders  of record at the
        close of  business  on January  31,  2001.  Each  Preferred  Stock Right
        entitles  the  registered  holder  to  purchase  from  the  Company  one
        one-hundredth of a share of Series A preferred stock at a purchase price
        of $60.00.  The  description and terms of the Preferred Stock Rights are
        set forth in a Shareholder  Rights Agreement (the  "Agreement")  between
        the Company and Atlas Stock Transfer Corporation, as Rights Agent.

                                      F-19
<PAGE>


        At the time it approved  the  Agreement,  the Board of  Directors of the
        Company believed that the market price of the Company's common stock did
        not reflect its real value.  In light of the low market  price of common
        stock,  management  and the Board of  Directors  were  concerned  that a
        person may seek to acquire substantially all of the Company's stock at a
        price that is in line with current market value,  but not the real value
        of the common stock. The structure of such acquisition  offers can often
        be coercive and leave  shareholders no choice but to participate even if
        they believe the offer price is too low. The purpose of the Agreement is
        to encourage any person  contemplating  an acquisition of  substantially
        all of the  Company's  stock to  negotiate  with the Board of  Directors
        first,  prior to making an offer to  shareholders,  so that the Board of
        Directors  can  consider  whether the price and other terms of the offer
        are fair to all shareholders.

13.     Notes Payable

        The Company has a demand note payable with a related party in the amount
        of $50,000.  The note has an interest rate of 12% and is unsecured.  The
        principal payments are at the discretion of the Company.  During each of
        the years  ended  March 31,  2006 and 2005 the  Company  paid  $6,000 in
        interest.

        The Company has an unused,  unsecured line of credit (interest at prime)
        with a local bank in the amount of $250,000.  The line of credit expires
        on September 30, 2006.

        The  Company  has long term  capital  lease  obligations  related to the
        purchase  of  office  furniture  and  computers.  The  weighted  average
        interest rate on these  borrowings is 7.0%. The following table reflects
        the future minimum lease payments:

                     Year                          Minimum
                    Ending                      Lease Payments
                  03/31/2007                    $      62,563
                  03/31/2008                           63,046
                  03/31/2009                           50,534
                  03/31/2010                           38,945
                  03/31/2011                           13,598
                                                 ------------
                  Total                         $     228,686
                                                 ============

                                      F-20
<PAGE>

14.    Prior Period Adjustments

       During fiscal year 2005, the Company determined that their accounting for
       software development costs was erroneously reported in prior periods. The
       Company had  expensed  all  software  development  costs during the years
       ended March 31, 2001, 2002 and 2003. Beginning with the fiscal year ended
       March 31,  2004,  the  Company  capitalized  software  development  costs
       related  to  automobile  manufacturer   integration  software  that  were
       incurred  between the date technical  feasibility was established and the
       date the software  became ready for its intended  use.  Similar  expenses
       incurred  during  fiscal  years  2001,  2002 and 2003  should  have  been
       consistently capitalized.  Accordingly,  the Company has booked $119,165,
       $389,988 and $376,497 in fiscal years 2001, 2002 and 2003,  respectively,
       to retroactively capitalize the asset.

       The Company amortizes  capitalized software development expenses over the
       useful life of the underlying  software,  deemed to be five years. Having
       capitalized certain software development expenses as described above, the
       Company  recalculated  amortization expense for the years ended March 31,
       2003,  2004  and  2005,  beginning  with  the  completion  of  the  first
       integration software in May 2002.

       In addition, the Company mistakenly combined a software asset capitalized
       through  the  acquisition  of  Ensign  (see  Notes  1  and  6)  with  the
       capitalized  software development costs described above. This combination
       resulted in an inaccurate  reporting of software assets and an inaccurate
       calculation of related accumulated amortization.

       As a result of the above  review  and as part of its  enhancement  of its
       internal  controls and procedures  related to financial  statements,  the
       financial  staff of the  Company  reviewed  and  attempted  to  reconcile
       certain  revenue,  cash and other  entries in the  general  ledger of the
       Company for fiscal years 2005 and 2004 with  previously  filed reports on
       Form 10-KSB. It was determined that certain  reclassifications of expense
       items  between cost of sales and  operating  expenses  were  necessary to
       properly reflect classifications adopted for fiscal year 2006.

       Finally, the Company has determined to restate downward the amount of the
       income tax benefit recorded in fiscal years 2005 and 2004.

       The effect on certain line items to the financial  statements  for fiscal
       year 2005, as reported with the Company's  10-KSB/A filed on November 16,
       2005, affected by these adjustments is set forth below:

                                            03/31/05
              Deferred Tax Asset
                   As reported             $ 5,039,237
                   Net adjustments          (4,727,237)
                                           -----------
                   As amended              $   312,000

              Revenues
                   As reported             $ 7,254,661
                   Net adjustments              54,269
                                           -----------
                   As amended              $ 7,308,930

                                      F-21
<PAGE>


              Cost of Sales
                   As reported             $ 4,059,955
                   Net adjustments             189,910
                                           -----------
                   As amended              $ 4,249,865

              Operating Expenses
                   As reported             $ 3,545,418
                   Net adjustments            (194,450)
                                           -----------
                   As amended              $ 3,350,968

              Net Loss Before Tax
                   As reported             $  (303,865)
                   Net adjustments              58,809
                                           -----------
                   As amended              $  (245,056)

              Tax Benefit
                   As reported             $ 3,479,237
                   Net adjustments          (3,326,555)
                                           -----------
                   As amended              $   152,682

              Net Income (Loss)
                   As reported             $ 3,175,372
                   Net adjustments          (3,267,746)
                                           -----------
                   As amended              $   (92,374)

              Basic Earnings per Share
                   As reported             $     0.099
                   Net adjustments              (0.102)
                                           -----------
                   As amended              $    (0.003)

              Diluted Earnings per Share
                   As reported             $     0.082
                   Net adjustments              (0.085)
                                           -----------
                   As amended              $    (0.003)

                                      F-22
<PAGE>


15.     Earnings per share

        The following is a reconciliation  of the numerators and denominators of
        the basic and diluted EPS computations:
<TABLE>
<CAPTION>

                                                             Year Ended March 31,
                                                             2006             2005

<S>                                                      <C>            <C>
         Net Income (Loss)                               $  2,065,062   $    (92,374)
                                                         ============   ============
         Shares used in Basic per Share amounts:
            Weighted average common shares outstanding     32,278,717     31,956,688

         Shares used in Diluted per Share amounts:
            Diluted warrants and options                    2,875,000           --
           Dilutive preferred stock                         4,082,556           --
                                                         ------------   ------------
            Dilutive Weighted Average Common Shares
              Outstanding                                  39,236,273     31,956,688
                                                         ============   ============

         Basic Net Income (Loss) per Share               $      0.064   $     (0.003)
                                                         ============   ============

         Diluted Net Income (Loss) per Share             $      0.053   $     (0.003)
                                                         ============   ============
         Anti-dilutive Weighted Average Common Shares
            Outstanding                                       277,467      6,670,170
                                                         ============   ============
</TABLE>

16.    Subsequent Events

       On May 10, 2006,  the Company  entered into an agreement with an investor
       relations  firm. In connection  with this  agreement,  the Company issued
       warrants to purchase  100,000 shares of the Company's  restricted  common
       stock in two separate  series of 50,000 warrants each at $0.68 per share.
       The first  series  allows for 6,000  warrants to vest upon the signing of
       the agreement with the remaining shares vesting at 4,000 shares per month
       commencing  on July 1, 2006 until  fully  vested.  The  second  series of
       50,000 shares vest based upon the following contingencies:

              12,500  shares  vest on  September  30,  2006,  provided  that the
              Company's  stock  price has been  quoted at or above  $1.00 at any
              time  during any  particular  day for at least 20 days  during the
              period June 30, 2006 to September 30, 2006.

              12,500  shares  vest on  December  31,  2006,  provided  that  the
              Company's  stock  price has been  quoted at or above  $1.00 at any
              time  during any  particular  day for at least 20 days  during the
              period October 1, 2006 to December 31, 2006.


                                      F-23
<PAGE>


              12,500 shares vest on March 31, 2007,  provided that the Company's
              stock  price has been  quoted at or above $1.00 at any time during
              any  particular day for at least 20 days during the period January
              1, 2007 to March 31, 2007.

              12,500  shares vest on June 30, 2007,  provided that the Company's
              stock  price has been  quoted at or above $1.00 at any time during
              any particular day for at least 20 days during the period April 1,
              2007 to June 30, 2007.


                                      F-24
<PAGE>