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, 2005

[ ]  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 Identification No.)
   incorporation or organization)


                           10542 South Jordan Gateway
                            South Jordan, Utah 84095
               (Address of principal executive offices) (Zip Code)

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


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

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 $7,254,661.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant as of June 1, 2005 was $12,438,790.  The number of shares outstanding
of the issuer's common stock,  par value $.001 per share, as of June 1, 2005 was
32,169,670 shares, of which 22,615,983 were held by  non-affiliates.  The market
price of the common stock as of June 1, 2005 was $0.55 per share.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                     None.


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

<PAGE>



<TABLE>
<CAPTION>
                                Table of Contents



<S>                                                                                                              <C>
PART I............................................................................................................1


   Item 1.  Description of Business                                                                       1
   Item 2.   Description of Property                                                                      15
   Item 3.   Legal Proceedings                                                                            15
   Item 4.   Submission of Matters to a Vote of Security Holders                                          16

PART II..........................................................................................................16
   Item 5.   Market for Common Equity and Related Stockholder Matters                                     16
   Item 6.   Management's Discussion and Analysis                                                         16
   Item 7.   Financial Statements                                                                         21
   Item 8.   Changes in and Disagreements With Accountants on Accounting
               and Financial Disclosure                                                                   22
   Item 8A.  Controls and Procedures                                                                      22
   Item 8B.  Other Information                                                                            22

PART III.........................................................................................................22
   Item 9.    Directors, Executive Officers, Promoters and Control Persons; Compliance
               with Section 16(a) of the Exchange Act                                                     23
   Item 10.   Executive Compensation                                                                      27
   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                                                                                     35
   Item 14.   Principal Accountant Fees and Services                                                      36
Financial Statements                                                                                     F-1
</TABLE>

                                       i
<PAGE>

         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 statement. 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 the Company's  expectations  are those  described under Item 1.
"Description of Business--Certain  Risk Factors." Readers 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. ("we,"  "Arkona" or the "Company")  develops and licenses
management   software   for   automobile   dealerships.   Because  of  operating
similarities  with  automobile  dealerships,  we  also  license  our  management
software  to a few marine and RV  dealerships,  and we are seeking to expand our
presence among dealers of power sports  equipment  (such as  motorcycles,  ATVs,
snowmobiles and watercraft).

         The Company's  most important  product is its Arkona Dealer  Management
Suite  (the  "ADMS").  The  ADMS  software  is  a  fully  integrated  dealership
management  software 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 software is its ability to run on an Application  Service  Provider ("ASP")
model.  Under an ASP model,  the software  provider  runs software and maintains
data 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 the Company.  The dealership needs only standard  personal
computers with reliable Internet access.  The ASP model may also reduce the need
for technical  computer  personnel because the software and related hardware are
managed by the Company at an offsite location. The ADMS software integrates with
many of the major automobile  manufacturers,  and the Company  continues to seek
cooperation from the other manufacturers to integrate with their systems.

                                      -1-
<PAGE>
         The Company  provides  training to  employees  of the  dealerships  who
purchase the ADMS software license,  and for a monthly fee, provides  additional
technical support and regular software updates.

         The Company is expanding its target  market beyond new and  independent
car dealerships to power sports  equipment  dealerships.  We market our products
primarily through regional sales  representatives,  in-house sales and marketing
personnel and  independent  sales agents.  The Company also markets its products
via  trade  shows,  seminars,   press  releases,   customer  referral  programs,
relationships with suppliers, automobile manufacturers and industry partners, as
well as, advertisements in trade publications.

Products and Services

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

         The Company's  main product is the ADMS.  The ADMS is a software  suite
that allows automobile,  marine, RV and power sports dealerships to automate and
effectively  manage all aspects of their business  operations,  including sales,
accounting, parts, service, and financing functions.

         The ADMS  software uses a highly  integrated,  modular  structure  that
allows  management  decisions to be made based on information  from a variety of
areas of 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  software's  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 the Company to customize a software
system to meet the needs of particular dealerships.

         Another key  advantage  of the ADMS  software is its ability to operate
using an ASP model.  Under an ASP model,  we can run software and maintain  data
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 the Company handles (and pays for) day-to-day  maintenance and upgrades at
the offsite location. The ASP model may also allow an ADMS licensee to avoid the
expense of having its own technical personnel.

                                      -2-
<PAGE>

         We believe the ADMS software and the ASP system are highly reliable and
secure. The ADMS software 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  software  including
system  maintenance,  data  entry,  inquiry,  and  report  generation.  The ADMS
software  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. The Company uses Virtual Private Network ("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.  We maintain  the ASP
system 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
         ----------------------------------

         The Company's ADMS software  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 - for example, 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.  The Company has
dedicated  substantial  resources to making its ADMS software integrate with the
systems  of  many of the  major  automobile  manufacturers.  The  ADMS  software
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, Porsche,  Subaru and BMW Motorcycles.
Major  automobile  manufacturers  with  which  the  Company's  system  does  not
integrate include Toyota, Nissan, Volvo, Lexus,  Infinity,  Jaguar, Range Rover,
Mercedes-Benz, Saab, Hyundai, and VW-Audi.

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

         In connection with the ADMS software,  we develop stand-alone products,
including  bar  coding.  Bar  coding  is an  important  supplement  to a  dealer
management  system  because it assists the  dealership in managing their vehicle
inventories.  The  Company  has  developed  a bar coding  system for the vehicle
inventory  module and the parts and service module that  significantly  improves
the time and cost involved with maintaining vehicle and parts inventories.

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

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

                                      -3-
<PAGE>

         For a  monthly  fee,  the  Company  provides  unlimited  technical  and
customer   support  for  the  ADMS   product.   The  Company  is  developing  an
Internet-based   support  system  that  will  have  pre-recorded,   step-by-step
instructions for frequently requested tasks. The Company expects that the system
will be available during the second quarter of fiscal year 2006.

         The Company also provides  limited  custom  programming  and consulting
services. Our programming and consulting fees are based on the scope of services
provided.

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

         Installation  of the ADMS software at a dealership is typically done by
a three person  installation  team. A typical  installation  is completed over a
three week period.  The Company also sells  installation  hardware in connection
with the installation of the ADMS software.


Markets

         Potential  customers  include new and independent car  dealerships,  as
well as,  dealers  of RV,  marine  and  power  sports  equipment.  The  National
Automobile  Dealers  Association (the "NADA") estimates there are 22,200 new car
dealerships in the United States and over 60,000 independent car dealerships. It
also  estimates   there  are   approximately   6,000  dealers  of  power  sports
(motorcycle, ATV, watercraft/sport boats and snowmobiles) equipment.

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

         The Company believes 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.  The Company's perception
is that,  for the most part,  automobile  dealers  have lagged  behind in taking
advantage of technology for their information systems. The Company believes that
an increasing number of automobile dealers,  wanting to improve customer service
and support, are looking to improve their information technology.

         The NADA has identified  several  significant  trends in the retail car
and truck  environment  that the Company  believes 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
         dealers  to  improve  management   procedures,   marketing  skills  and
         performance in every department.  Reliable,  timely information will be
         important in that process.

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

                                      -4-
<PAGE>

     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 dealers.

     o   The growth of competing  service  providers (such as Jiffy-Lube,  Midas
         Mufflers,  Brake-O, 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  increasing  reporting  requirements  for
         dealerships, increasing 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.

         We believe these trends have favorable  implications for the Company as
a provider of a low-cost  dealership  management  system that enables  extensive
manufacturer-dealer communication.

         Power Sports Market
         -------------------

         The power sports  market is estimated to be an $18 billion  industry in
the U.S. 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 power  sports  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.

         The  Company is  encouraged  by its  initial  research,  marketing  and
selling to the power sports  market.  Many of the power sports dealers that have
already  purchased  the ADMS  software  indicate  that  they  like  the  product
features,  attractive pricing, and technical  expertise.  The Company intends to
enhance its product offering during the coming year to incorporate  power sports
specific capabilities.

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

         We have licensed the ADMS software to a few marine and RV  dealerships.
Such   dealerships  are  able  to  use  the  software   because  of  operational
similarities with automobile dealerships. The Company has not commenced, and has
not plans to commence,  any active  marketing  initiatives or extensive  product
customization for the marine and RV markets.

                                      -5-
<PAGE>
Competition

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

         According   to  a  2003  market   study  by  the  NADA,   conducted  by
Friedman-Swift  Associates,  the market for automobile dealer management systems
is dominated by two major players - ADP Dealer  Services  ("ADP") and Reynolds &
Reynolds  ("Reynolds").  According to NADA,  ADP and Reynolds  together  control
about 71% of the market for automobile dealer management systems.  Approximately
10 providers, including Arkona, compete for the remaining 29% of the market.

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

         Power Sports Market
         -------------------

         The following  companies sell dealer management  systems into the power
sports 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 power sports dealers,
the Company  believes  that  ProQuest is  experiencing  a lot of  push-back  and
dissatisfaction   from  dealerships   because  of  their  pricing  and  business
practices. This opens the door for the Company to win market share by delivering
more value for less money.

Intellectual Property

         The  Company  believes  its  intellectual  property  is critical to its
success. The Company relies on common law copyright,  trademark and trade secret
protection to protect its intellectual  property. We have not formally patented,
copyrighted  or  registered  any  of our  intellectual  property.  However,  all
employees involved in software development are asked to sign confidentiality and
invention  rights  agreements.  There is a risk that the Company's  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.

                                      -6-
<PAGE>

         The Company spent $1,099,469 and $858,735 during the fiscal years ended
March  31,  2005 and  2004,  respectively,  on  company-sponsored  research  and
development activities.

Employees

         As of March 31, 2005, the Company had 78 full-time employees consisting
of 5 corporate  officers,  12 sales and marketing  representatives,  11 computer
engineers  and  programmers,   47  installation  and  support   technicians  and
employees,  and 3 administrative and clerical  employees.  None of the Company's
employees are represented by a collective bargaining organization.


Corporate History

         The  Company  was  formed  as a  Delaware  corporation  in 1992 and was
originally  named The  Thorsden  Group,  Ltd.  ("Thorsden").  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,
Inc.

Certain Risk Factors

         The Company's 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 the Company. Any one of these factors could cause actual results
of operations to differ materially from projected results.

         The Company has incurred substantial losses since its inception and may
         incur losses in the future.
         -----------------------------------------------------------------------
         The Company has  recognized net income during the years ended March 31,
2005 and 2004.  Prior to that, the Company  experienced  losses as it progressed
through its development  stage.  The Company will continue to be profitable only
if it can add new  customers  at a constant or  increased  rate,  while  keeping
increases in costs and  operating  expenses  below  increases  in revenues.  The
Company  may not be able to  continue  to add new  customers  and may even  lose
customers.  Assuming the Company continues to grow,  revenues,  related costs of
operations such as labor and benefits,  server and other capital equipment costs
and  other  expenses  could  increase  disproportionately,  or the  Company  may
experience  unexpected  costs related to  litigation,  insurance,  acquisitions,
product  development,  financing or other items that may cause costs to increase
at a faster  than  expected  rate.  The  Company  may not be able to increase or
maintain profitability in the future.

                                      -7-
<PAGE>

         The Company may require additional  capital to continue  development of
         products and fund operations.
         -----------------------------------------------------------------------
         The Company does not have a significant  cash  reserve,  and cash flows
from  operations is  approximately  equal to cash  expenditures.  If the Company
experiences  an  unexpected  need  for  cash,  expands  its  operations  in  any
significant  way or otherwise  needs  additional  cash,  it would expect to rely
primarily  on the offer  and sale of  convertible  notes,  warrants  and  equity
securities to obtain cash. If financing is needed,  additional financing may not
be available on favorable terms, or at all. If adequate funds are not available,
or are not available on acceptable  terms, the Company's  ability to continue or
expand its operations may be limited.

         The Company may be unable to increase the number of customers using its
         Arkona Dealer Management Suite product or other future products.
         -----------------------------------------------------------------------
         The ADMS  product is  relatively  new to the market and the  Company is
operating  in  a  market  where  two  competitors  (ADP  and  Reynolds)  control
approximately  71% 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 the ADMS product is subject to the
risk that  end-users  may decide not to  purchase  the ADMS  product at the rate
projected  because  of the  Company's  insignificant  position  in  the  market,
concerns over the  Company's  ability to continue as a going  concern,  concerns
about the  Company's  products,  cost cutting by  competitors  or various  other
reasons.  If the Company is unable to increase its installation base of the ADMS
product  in  the  future,   it  is  unlikely  that  the  Company  will  maintain
profitability.

         The Company's competitors have greater resources than the Company does.
         -----------------------------------------------------------------------
         The market for  automobile  dealership  management  software  is highly
competitive,  and the Company must compete with companies  that possess  greater
financial,  technical and marketing resources.  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,  the Company may be
unable to obtain a significant  market share in the automobile dealer management
systems business.  In addition,  competition may result in the Company suffering
price  reductions,  reduced  gross  margins and even loss of market  share.  The
Company may not be able to compete  successfully,  and competitive pressures may
adversely affect results of operations and overall financial condition.

         Software products tend to evolve rapidly and the Company's  competitors
         may develop products that are technically superior.
         -----------------------------------------------------------------------
         The Company's  primary product,  the Arkona Dealer Management Suite, is
primarily  a software  product.  The  software  market is  recognized  for rapid
technological  developments,  frequent  new product  introductions  and evolving
industry  standards.  The rapid evolution of software products requires that the
Company  continually  improves the performance,  features and reliability of its
software,  particularly in response to competitive offerings by other companies.
The  Company  may  not  be  able  to  respond  quickly,   cost  effectively  and
sufficiently to meet these developments.

                                      -8-
<PAGE>

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

         Developments by others may render some or all of the Company's products
or potential product offerings  uncompetitive or obsolete.  The Company competes
with a number of entities that are currently  developing and producing  software
products that compete with the Company's 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 the Company has available.  These competitors may succeed in
developing  products  that are more  effective  or less costly than any products
that the Company may develop, or that gain market acceptance prior to any of the
Company's products, making market penetration more difficult.

         The  Company's  services  are subject to system  failure  and  security
         risks.
         -----------------------------------------------------------------------
         The Company's  operations,  particularly its ASP network, are dependent
upon the Company's ability to protect its network  infrastructure against damage
from natural disasters,  such as fire, earthquakes and floods, as well as, power
loss,  telecommunications  failures, Internet system hackers and similar events.
All of the  Company's  network  and  computer  equipment,  including  components
critical to operations,  are currently  concentrated  in a co-location  facility
provided by MCI. The  occurrence  of a natural  disaster or other  unanticipated
system or power failure could cause  interruptions in the services provided.  In
addition,   failure  of   telecommunications   providers  to  provide  the  data
communications  capacity required as a result of natural disasters,  bankruptcy,
operational disruptions or for any other reason could cause interruptions in the
services provided. Any damage or failure that causes interruptions in operations
could  have a  material  adverse  effect on the  Company's  business,  financial
condition and results of operations.

         The  Company's  ASP network is subject to factors that could also cause
interruptions  in service or reduced capacity for the Company's  customers.  The
core of the Company's  network  infrastructure  is  vulnerable  to  unauthorized
access,  computer  viruses,  equipment  failure and other  disruptive  problems,
including the following:

     o   End users may  experience  interruptions  in service as a result of the
         accidental or intentional actions of Internet users, current and former
         employees or others.

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

                                      -9-
<PAGE>

     o   The Company 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 the Company's ASP
         network.

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

          The occurrence of any unauthorized access,  computer virus,  equipment
failure  or other  disruptive  problem  could lead to a  substantial  decline in
customer  confidence  and  liability  to  customers.  This would have a material
adverse affect on the Company's business,  financial condition and/or results of
operations.

         The Company is dependent upon highly qualified personnel.
         ---------------------------------------------------------
         The Company is highly  dependent upon the efforts of management,  sales
personnel and technically skilled personnel, including programmers,  installers,
and engineers.  The Company's  future  performance  will depend in part upon the
Company's  ability to increase sales,  manage growth  effectively and retain the
services of highly qualified  technical  personnel.  Competition for management,
technical and sales  personnel is intense.  The Company does not have  long-term
employment agreements with any of its employees. As a result, the Company may be
unable to retain its key employees or attract other highly  qualified  employees
in the future.  The loss of the services of any of its management,  technical or
sales team or the failure to attract and retain  additional key employees  could
have a material adverse effect on the Company's  business,  financial  condition
and/or results of operations.

         The  Company  relies on its  intellectual  property  rights  and if the
         Company  is unable  to  protect  these  rights,  it may face  increased
         competition and the business may be materially adversely affected.
         -----------------------------------------------------------------------
         The Company regards its intellectual property,  particularly its Arkona
Dealer  Management Suite, as critical to its success and it relies on common law
to  protect  its  proprietary  rights  in  intellectual  property.  Any  of  its
intellectual property rights may be challenged,  invalidated or circumvented, or
the rights granted  thereunder may not provide any  competitive  advantage.  The
Company  could  also  incur  substantial  costs in  asserting  its  intellectual
property  or  proprietary  rights  against  others,  including  any such  rights
obtained from third parties,  and/or defending any infringement suits.  Although
each of the  Company's  employees  and  consultants  is asked  to  enter  into a
confidentiality and invention agreement,  such agreements may not be honored and
the Company may not be able to  effectively  protect its rights to trade secrets
and  know-how.  In  addition,  others may  independently  develop  substantially
equivalent  proprietary  information  and techniques or otherwise gain access to
the Company's trade secrets and know-how.

                                      -10-
<PAGE>

         Third-party  claims that the Company infringes upon their  intellectual
         property rights could be costly to defend or settle.
         -----------------------------------------------------------------------
         Litigation  regarding  intellectual  property  rights  is common in the
software  industry.  The Company expects 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.  The  Company  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.  The Company 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; or

     o   pay 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,  the Company has 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.  The  Company  could  incur
substantial  costs in defending  itself and its customers  against  infringement
claims.  In the event of a claim of infringement,  the Company and its customers
may be required to obtain one or more licenses from third parties.  The Company,
or its customers,  may be unable to 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 the Company's business,  operating results and
financial condition.

         The Company may be subject to claims  based upon  allegations  that its
         products are defective.
         -----------------------------------------------------------------------
         The Company's  products include programs  designed for mission critical
applications,  creating the risk that the failure or malfunction of its products
may  result in  serious  damage or loss and  expose  the  Company to a claim for
damages.  Although  contract terms purport to limit  exposure,  a court may rule
those  terms to be invalid or  unenforceable,  and changes in the law may render
those  terms void or  unenforceable.  A  successful  claim could have a material
adverse effect on the Company's operations.  Furthermore,  the cost of defending
against a claim, even successfully,  could be material and could have an adverse
effect on the  Company's  results of  operations  and an  adverse  effect on the
marketing of the Company's products.

         Trading in the  Company's  common stock is thin and there is a limit to
its liquidity.

         The  Company's  common stock is quoted on the OTC Bulletin  Board.  The
volume of trading in the Company's  common stock is limited and likely dominated
by a few  individuals.  Because of the thinness of the market for the stock, its


                                      -11-
<PAGE>

price may be subject to manipulation. In addition, the limited volume of trading
limits  significantly  the number of shares that can be  purchased  or sold in a
short period of time.  Consequently,  an investor may find it more  difficult to
dispose of shares of the  Company's  common stock or obtain a fair price for the
stock in the market.

         The  Company's   executive   officers  hold  a  significant  number  of
         outstanding  shares,  which may allow them to influence  the outcome of
         matters submitted to stockholders for approval.
         -----------------------------------------------------------------------
         As of March 31, 2005, the Company's executive officers own and have the
power to vote approximately 23% of the issued and outstanding common stock. Five
additional  shareholders have the power to vote  approximately 15% of the issued
and outstanding  common stock. As a result,  these stockholders have substantial
control over matters requiring  approval,  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.

         The  Company's  shareholder  rights plan and certain  provisions in the
         Delaware  corporate law may permit the Company's  Board of Directors to
         block a takeover attempt and adversely affect the common stock value.
         -----------------------------------------------------------------------
         The Company's Board of Directors adopted a shareholder  rights plan and
declared a dividend of an associate right, which are intended 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 a shareholders'  rights plan may
deter  potential   tender  offers  for  the  Company's  common  stock  or  other
acquisition offers and may have the effect of delaying or preventing a change of
control.

         In addition,  the Delaware  General  Corporation Law prohibits  certain
mergers,  consolidations,  sales of assets  or  similar  transactions  between a
corporation on the one hand and another company which is, or is an affiliate of,
a beneficial holder of 15% or more of that  corporation's  voting power (defined
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   shareholders   (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 shareholder interests.
         -----------------------------------------------------------------------
         The  Company  may  raise  additional  funds in the  future  by  issuing
additional  shares of common stock,  or  securities  that are  convertible  into
common stock, such as convertible notes,  options,  warrants or preferred stock.
Any such sale of common stock or other  securities will lead to further dilution
of the equity ownership of existing holders of the Company's common stock.

                                      -12-
<PAGE>

         The Company's stock price is volatile and subject to manipulation.
         -----------------------------------------------------------------------
         The  market  price of the  Company's  common  stock,  like  that of the
securities of other small public  companies,  may be highly volatile.  The stock
price may change  dramatically as the result of various  factors,  including the
following:

     o   Manipulation of the stock price by existing or future shareholders.

     o   The  purchase  or  sale  of a  large  number  of  shares  by  a  single
         shareholder in a short period of time.

     o   Short selling of the common stock in the United States or overseas.

     o   Announcements by the Company or competitors concerning technological
         innovations, new products or new procedures.

     o   The adoption or amendment of  governmental  regulations  and/or similar
         developments in the United States and/or foreign  countries that affect
         the Company's products or markets specifically or markets generally.

     o   Disputes relating to proprietary rights.

     o   Publicity  regarding  actual or potential  results  relating to product
         candidates under development by the Company or a competitor.

     o   Slow acceptance of the Company's products in new or existing markets.

     o   A  general  lack of  trust in the  financial  markets  as a  result  of
         accounting scandals or for other reasons.

     o   Economic  and  other  external  factors,  as well as,  period-to-period
         fluctuations in financial results.

         The  Company's  ability  to  issue  preferred  stock may  significantly
         dilute  ownership and voting power  and negatively  affect the price of
         the common stock.
         -----------------------------------------------------------------------
         Under the  certificate  of  incorporation,  as amended,  the Company is
authorized to issue up to 10,000,000  shares of preferred  stock.  The Company's
Board of Directors has the authority to create various series of preferred stock
with such voting and other  rights  superior to those of the common stock and to
issue such stock without shareholder  approval.  This issuance of such preferred
stock may dilute the  ownership  and voting  power of the  holders of the common
stock and may have a negative effect on the price of the common stock.

                                      -13-
<PAGE>

         The Company  has not  declared  any  dividends  with  respect to common
         stock.
         -----------------------------------------------------------------------
         The  Company has never paid cash  dividends  on its common  stock.  The
Company  intends to retain  earnings,  if any,  to  finance  the  operation  and
expansion of the  business  and,  therefore,  the Company does not expect to pay
cash dividends on shares of common stock in the foreseeable future.

         The  Company's  common  stock is a  "low-priced  stock" and  subject to
         regulations that limit or restrict the market for the stock.
         -----------------------------------------------------------------------
         Shares of the Company's common stock may be deemed to be "penny stock,"
resulting in increased risks to investors and certain requirements being imposed
on some brokers who execute  transactions  in the common  stock.  In general,  a
penny stock is an equity security that:

     o   Is priced below five dollars.

     o   Is not traded on a national stock exchange,  the Nasdaq National Market
         or the Nasdaq SmallCap Market.

     o   May be listed in the "pink sheets" or the OTC Bulletin Board.

     o   Is issued by a company  that has less than $5 million  in net  tangible
         assets (if it has been in business  less than three  years) or has less
         than $2 million in net tangible  assets (if it has been in business for
         at least three years).

     o   Is  issued  by a  company  that has  average  revenues  of less than $6
         million for the past three years.

         The  Company  believes  that its  common  stock is  presently  a "penny
stock."  At any time that the  common  stock  qualifies  as a penny  stock,  the
following requirements, among others, will generally apply:

     o   Certain broker-dealers who recommend penny stocks to persons other than
         established  customers  and  accredited  investors  must make a special
         written  suitability  determination  for the  purchaser and receive the
         purchaser's written agreement to a transaction prior to sale.

     o   Prior to executing  any  transaction  involving a penny stock,  certain
         broker-dealers must deliver to certain purchasers a disclosure schedule
         explaining   the  risks   involved   in   owning   penny   stock,   the
         broker-dealer's  duties to the customer,  a toll-free  telephone number
         for inquiries about the broker-dealer's  disciplinary  history, and the
         customer's rights and remedies in case of fraud or abuse in the sale.

     o   In connection with the execution of any  transaction  involving a penny
         stock, a purchaser  should provide a written  statement  presenting the
         purchaser's  financial  situation  and  investment  goals,  and certain
         broker-dealers must deliver to certain purchasers the following:

                                      -14-
<PAGE>

     o   Bid and offer price quotes and volume information.

     o   The broker-dealer's compensation related to the trade.

     o   The compensation received by certain salespersons for the trade.

     o   Monthly statements related to the account.

         These requirements significantly add to the burden of the broker-dealer
and limit the market for penny  stocks.  These  regulatory  burdens may severely
affect the liquidity and market price for the Company's common stock.

Item 2.   Description of Property

         The Company  does not own any real  property.  It  currently  leases an
11,800 square foot facility  located at 10542 South Jordan  Gateway,  Suite 200,
South  Jordan,   Utah,  84005.  The  Company  conducts  all  of  its  corporate,
administrative,  and research and development  activities at this facility.  The
lease of the facility will expire July 31, 2005,  and monthly lease payments are
$21,616 per month.

         The Company entered into a certain Office Lease (the "New Lease") for a
facility  located at 10757 South River Front  Parkway,  Suite 400, South Jordan,
Utah 84095. The Company intends to conduct all of its corporate, administrative,
and research and development activities within the leased premises.

         The New Lease is for five (5) years commencing on August 1, 2005 unless
the landlord has not fulfilled its construction obligations. Rental payments for
each month are as follows:  $38,115.85 (first year),  $39,157.27  (second year),
$40,198.68 (third year),  $41,240.10  (fourth year) and $42,281.52 (fifth year).
In  addition,  the  Company is  required  to pay a pro rata  share of  operating
expenses for the property.

         The new facility is under  construction  by the landlord who is fitting
the building in accordance with our  specifications.  The landlord is paying for
the  construction.  The new  facility  will provide  sufficient  space for us to
continue all of our activities for the foreseeable future.

         In the opinion of  management,  the  property  leased by the Company is
adequately covered by insurance.

Item 3.   Legal Proceedings

         None.

                                      -15-
<PAGE>
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.


                                     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 the
Company's  common stock as reported on the OTC  Bulletin  Board.  The  Company's
common stock is traded on the OTC Bulletin Board under the symbol ARKN.OB.
<TABLE>
<CAPTION>
         Fiscal Year Ended March 31, 2005                    High                 Low
                                                        ----------------    ----------------
<S>                                                          <C>                 <C>
            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

         Fiscal Year Ended March 31, 2004
            Quarter ended June 30, 2003                      $0.21               $0.16
            Quarter ended Sept. 30, 2003                     $0.85               $0.10
            Quarter ended Dec. 31, 2003                      $0.83               $0.53
            Quarter ended March 31, 2004                     $0.80               $0.53
         -----------------------------------------------------------------------------------
</TABLE>
         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 Shareholders

         As of March 31,  2005,  there were  32,169,670  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.  The
Company has never declared or paid dividends on any class of equity  securities,
and the Company  currently  intends to retain any future earnings for use in the
Company's business and do not anticipate paying any dividends on its outstanding
common stock in the foreseeable future.

Recent Sales of Unregistered Securities

         Not applicable.

                                      -16-
<PAGE>

Item 6.   Management's Discussion and Analysis

         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 report 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,  unless required by
law.

Overview

         We develop and sell management software for automobile dealerships. The
operating   similarities   between  automobile,   marine,  RV  and  power  sport
dealerships  makes  our  software  attractive  to  marine,  RV and  power  sport
dealerships as well.

         Our primary product is the Arkona Dealer Management Suite ("ADMS"). The
ADMS software 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 software
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 software integrates with most of
the major automobile manufacturers,  and we are continuing our efforts to obtain
cooperation from the others to integrate with their systems. In connections with
the ADMS  software,  we provide  training to  dealership  employees  and,  for a
monthly fee, provide technical support and regular software updates.

         The market for automobile dealer management systems is dominated by two
major players: Automatic Data Processing, Inc. ("ADP") and Reynolds and Reynolds
("Reynolds").  According  to a 2003 market  study by the NADA,  ADP and Reynolds
together  control  about 71% 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.


                                      -17-
<PAGE>

However, we presently offer a system that we believe is technologically superior
at a price that is substantially lower than the standard pricing of both ADP and
Reynolds.

         The  Company's  revenues  continue to grow at a rapid rate,  increasing
35.6%  between the fiscal year ended March 31, 2004 ("fiscal year 2004") and the
fiscal year ended March 31, 2005 ("fiscal year 2005"),  after  increasing  74.1%
between the fiscal year ended  March 31,  2003  ("fiscal  year 2003") and fiscal
year 2004. The Company earns more than half its revenues from recurring  support
and maintenance. These recurring revenues continue to grow at a rate of 3% to 4%
monthly and provide future stability for the Company's financial performance.

         During the last two quarters of fiscal year 2005  the Company  invested
in additional  sales,  engineering  and  installation  support staff in order to
adequately prepare for the expected growth in business in fiscal year 2006. As a
result of this  investment,  the Company  suffered a net loss before  income tax
benefit for the year ended March 31, 2005 of  ($189,718).  It was  necessary  to
make  this  investment  early  in  order to allow  for the  proper  training  of
personnel and for the adequate development and upgrading of software products.

Results of Operations for the Fiscal Years Ended March 31, 2005 and 2004

         Revenues - Revenues increased  $1,904,308 to $7,254,661 for fiscal year
2005 or 35.6% over fiscal year 2004.  For fiscal year 2004,  revenues  increased
$2,278,071 to $5,350,353,  or 74.1% over fiscal year 2003.  These  increases are
due to the Company's success in replacing existing competitors' systems with the
ADMS.

         For  fiscal  year  2005,   revenues  from  recurring  monthly  services
increased  $1,594,492 to  $3,955,582 or 67.5% over fiscal year 2004.  For fiscal
year 2004,  revenues  from  recurring  monthly  services  increased  $983,945 to
$2,361,090  or 71.4% over fiscal year 2003.  These  increases  in revenues  from
recurring  monthly  services are due to the continuing  monthly  increase in the
size of the Company's  installed customer base, as well as, the Company allowing
customers  to  decrease  front-end  installation  charges  in return  for larger
monthly  support  charges.  For the month of March 2005,  revenue from recurring
monthly  support  services  was  approximately  $387,500 and is expected to grow
approximately 3% to 4% per month  throughout  fiscal year 2006, as the installed
customer base continues to grow.

         For  fiscal  year  2005,  revenues  from ADMS  installations  increased
$236,016 to  $2,962,280  or 8.7% over  fiscal  year 2004.  For fiscal year 2004,
revenues from ADMS installations  increased $1,230,191 or 82.2% over fiscal year
2003. The smaller than expected increase installation revenues is due primarily,
as  noted  above,  to the  Company  allowing  customers  to  decrease  front-end
installation charges in return for larger monthly support charges. The Company's
customer  base grew from 195  installed  customers  as of March 31,  2004 to 280
installed  customers as of March 31, 2005. (A single  customer may have multiple
dealerships).  The Company  believes it will  continue to grow its customer base
through  the  replacement  of  competitors'  systems and  installation  into new
dealerships. Additionally, installations are expected to increase as the Company
grows its business to power sports dealerships.

                                      -18-
<PAGE>

         The  Company  is  actively  pursuing  sales of  hardware  equipment  in
connection with its installation  service.  For fiscal year 2005,  revenues from
hardware sales  increased  $242,291 to $324,851 or 293.5% over fiscal year 2004.
For fiscal year 2004,  revenues from hardware sales increased  $43,936 or 113.8%
over fiscal year 2003. It is expected  that  revenues  from hardware  sales will
continue to grow as the Company's customer base continues to grow. Additionally,
the Company anticipates dedicating sales resources to increasing hardware sales.

         Cost  of  Sales  - For  fiscal  year  2005,  cost  of  sales  increased
$1,387,121 to  $3,811,775 or 57.2% over fiscal year 2004.  For fiscal year 2004,
cost of sales  increased  $892,948 to $2,424,654 or 58.3% over fiscal year 2003.
Cost of sales as a percentage  of revenues  increased  7.2% for fiscal year 2005
and decreased 4.6% for fiscal year 2004.

         The  increase  in cost of sales for fiscal year 2005 is a result of the
Company  hiring  additional  installation  and support  technicians  to properly
prepare  for  expected  growth  in its  customer  base.  This  should  result in
increased software  installations in 2006. Additional increases in cost of sales
for fiscal year 2005 are  attributable to increased sales of hardware  equipment
and its related  costs.  It is expected that cost of sales as a percent of sales
will decrease in fiscal year 2006 as increased hiring,  which occurred in fiscal
year 2005, is not expected to occur in 2006.  Additionally,  the Company  should
receive the benefits from the installation and training  efficiencies learned in
previous years.

         The 4.6%  decrease  in cost of sales in fiscal  year 2004 is  primarily
attributable to increased efficiencies in the Company's installation procedures.
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.

         Operating  Expenses - Operating  expenses are comprised of research and
development expense and sales,  marketing and general  administrative  expenses.
For fiscal year 2005,  operating expenses increased  $1,154,362 to $3,679,451 or
45.7% over fiscal year 2004. For fiscal year 2004,  operating expenses decreased
$579,432 to $2,525,089 or 18.7% over fiscal year 2003.  Operating  expenses as a
percentage  of revenue  increased  3.5% during fiscal year 2005 over fiscal year
2004.  Operating  expenses as a  percentage  of revenue  decreased  53.8% during
fiscal year 2004 over fiscal year 2003.

         Research and  Development  Expense - Research and  development  expense
(net of capitalized  software  development costs) increased by $219,646 or 43.8%
for fiscal year 2005 due to the hiring of additional  software  developers and a
continued focus on research and development activities,  as well as   developing
and maintaining software compatible with original equipment  manufacturers.  For
fiscal year 2004,  research  and  development  expense  decreased by $134,499 or
21.2%.  The decrease was primarily  the result of the  completion of much of the
base  development  of the ADMS  software.  The  Company  believes  research  and
development  will play an important  roll in its future  success.  The Company's
goal  is to  keep  its  software  and  processes  technologically  ahead  of the
competition  and it  expects  research  and  development  expense to grow in the
future.
                                      -19-
<PAGE>
         Sales,  Marketing and General Administrative Expense - Sales, marketing
and general  administrative expense increased in fiscal year 2005 by $934,716 or
46.2% over fiscal year 2004 due to the hiring of additional sales, marketing and
administrative  personnel  and  related  costs.  These costs were  necessary  to
support expected  continued growth in revenues.  For example,  the Company hired
four new regional sales  representatives  in  fiscal 2005. For fiscal year 2004,
sales,  marketing and general administrative expense decreased $444,933 or 18.0%
over  fiscal  year  2003  due   primarily  to  decreases  in  travel   expenses,
professional fees and amortization of intangible assets.

         Net Income - For fiscal years 2005 and 2004,  the Company  recorded net
income after tax benefit of $3,289,519 and $1,918,898, respectively. The Company
recorded  a tax  benefit  for  fiscal  years  2005  and 2004 of  $3,479,237  and
$1,560,000,  respectively. For fiscal year 2003, the Company recorded a net loss
after tax benefit of ($1,598,824).  The overall  recognition of profits has been
due to  increased  revenues  from  installations,  increased  recurring  support
charges,   as  well  as,  relative   decreases  in  expenses  and  increases  in
installation  and training  efficiencies.  A tax benefit has been  recognized to
account for future expected taxable income.

Liquidity and Capital Resources

         The Company's liquidity position has significantly  improved during the
last two years.  As of March 31, 2005 and 2004,  working capital totaled $31,344
and $415,265,  respectively. As of March 31, 2003, working capital was a deficit
of  ($680,932).  The decrease in working  capital as of March 31, 2005  compared
with March 31, 2004 is a result of our decision, to the extent feasible, to fund
operations with revenues from operations.

         Cash and cash  equivalents  were  $141,179 and $361,954 as of March 31,
2005  and  2004,  respectively.  Accounts  receivable  net of an  allowance  for
doubtful accounts were $464,426 and $489,602, respectively.  Current liabilities
were  $594,852  and  $489,579,  respectively.  The  Company  did not  incur  any
additional  long-term  liabilities  during the fiscal year ended March 31, 2005.
The  only  long-term  obligation  as of  March  31,  2005 and 2004 is a note for
$50,000,  payable to a related  party,  on which the Company only makes interest
payments at 12% monthly.

Critical Accounting Policies and Estimates

         Management is basing the discussion and analysis of financial condition
and results of operations on the Company's  consolidated  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 its critical accounting
policies  and  estimates,   including  those  related  to  revenue  recognition,
valuation of accounts  receivable,  property,  plant and  equipment,  long-lived

                                      -20-
<PAGE>

assets,  intangible assets and contingencies.  Management bases its estimates on
historical  experience and on various other  assumptions that they believe to be
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.

         The Company believes the following critical  accounting policies affect
the more  significant  judgments and estimates  used in the  preparation  of its
consolidated  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.  Revenues from continuing operations are generated
         from  the  following   activities:   software  maintenance  &  support,
         consulting  services and product  installation  and training.  Software
         maintenance  and  support  services  are billed on a monthly  basis and
         revenue recognized in the month that services are rendered.  Consulting
         services  revenue is recognized and billed upon  completion of customer
         specified tasks.  Installation and training services are stipulated and
         performed in accordance with a signed contract with the customer. These
         contracts require customers to pay an upfront  non-refundable  deposit,
         which is recorded as deferred revenue until the applicable services are
         performed. Contract revenue is recognized throughout the performance of
         the  contract  on  a  percentage-of-completion  basis.  Hardware  sales
         revenue is recognized upon shipment of the hardware to the customer.

     o   Equipment. The Company utilizes significant amounts of equipment in
         providing service to its 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  FASB  142.   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  are  expensed as research  and  development.  Once
         technological  feasibility is established,  costs are capitalized until
         the product is available for general release to customers.  In the last
         two fiscal years the Company developed several key stand-alone products
         that  were  incorporated  into  the  ADMS  software.   Amortization  is
         determined  based  on  the  straight-line  method  over  the  remaining
         estimated useful life of the product.

                                      -21-
<PAGE>
Item 7.   Financial Statements

         The Company's  consolidated  financial  statements and associated notes
are set forth following the signature page beginning on Page F-1.

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  management,
including the principal  executive  officer,  president and principal  financial
officer, management conducted an evaluation of the Company's disclosure controls
and procedures,  as such term is defined under Rule 13a-15(e)  promulgated under
the  Securities  Exchange Act of 1934, as amended (the  "Exchange  Act"),  as of
March 31, 2005.  Based on this  evaluation,  the  principal  executive  officer,
president and principal financial officer concluded that the disclosure controls
and procedures  are effective in alerting  them, in a timely basis,  to material
information  relating to the Company required to be included in reports filed or
submitted under the Exchange Act.

Changes in Internal Controls Over Financial Reporting

         There have been no significant  changes  (including  corrective actions
with regard to significant deficiencies or material weaknesses) in the Company's
internal  controls or in other  factors  that could  significantly  affect these
controls  subsequent to the date of the  evaluation  referenced in the preceding
paragraph.

Item 8B.  Other Information.

         The Company and RiverPark Three,  LLC, a Utah limited liability company
entered into a certain Office Lease (the "Lease") as of January 21, 2005 located
at 10757 South River Front  Parkway,  Suite 400, South Jordan,  Utah 84095.  The
Company  intends to conduct all of its corporate,  administrative,  and research
and development activities on the leased premises.

         The Lease is for five (5) years commencing on August 1, 2005 unless the
landlord has not fulfilled its construction obligations. Rental payments are for
each month as  follows:  $38,115.85  (first  year),  $39,157.27  (second  year),
$40,198.68 (third year),  $41,240.10  (fourth year) and $42,281.52 (fifth year).
In  addition,  the  Company is  required  to pay a pro rata  share of  operating
expenses for the property.
                                      -22-
<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 shareholders  and
until his  successor is duly elected and  qualified.  Certain  information  with
respect to each of the directors of the Company is set forth below.
<TABLE>
<CAPTION>
              Name             Age                       Position                   Director Since
------------------------    -----------    ----------------------------------    ---------------------
<S>                             <C>        <C>                                   <C>
Alan Rudd                       53         Chief Executive Officer, Chairman     January 2000
                                           of the Board
Richard Holland                 44         President, Director                   November 2000

Bryan T. Allen                  38         Director                              August 2000

Paul Henriod                    52         Director                              December 2004

Kent A. Misener                 53         Director                              December 2004
</TABLE>

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

         ALAN RUDD joined the Company as Chairman and Chief Executive Officer on
January 1, 2000.  Rudd  brings  more than 20 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 on July 31, 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 7 years as in-house legal counsel for several  corporations,  including
State Farm Insurance and Prime  Computer,  before joining Novell and moving into
corporate management.

                                      -23-
<PAGE>
         RICHARD  HOLLAND joined the Company 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 and has
been  designing and  developing  technology  systems for more than 23 years.  As
co-founder of Ensign,  Holland was the chief architect of the Company's software
product - a fully integrated  business  management system that provides improved
communications, customer relationships and profitability for its customers.

            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.

         BRYAN T. ALLEN is outside  counsel to the  Company  and has served as a
director of the Company  since August 2000.  Allen is a  shareholder  at the law
firm of Parr  Waddoups  Brown Gee & Loveless in Salt Lake City,  Utah,  where he
advises  clients  on  corporate,  securities,  acquisition  and  other  business
matters. Prior to joining Parr Waddoups,  Allen was a partner at the law firm of
Stoel  Rives,  LLP in Salt Lake City,  Utah.  Allen is a former  Chairman of the
Securities Section of the Utah State Bar. Allen received bachelor degrees, summa
cum  laude,  from the  University  of Utah in  Economics  and  Chinese  Studies,
received a Masters degree in religion, cum laude, from the Yale Divinity School,
and received his Juris Doctorate from Yale Law School.

         PAUL  HENRIOD has served as a director of the  Company  since  December
2004. Henriod is the President of eReinsure,  the 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 the Company since  December
2004. Since 1983, Misener has been the Treasurer and Chief Investment Officer of
Deseret Mutual Benefit  Administrators,  with approximately $4 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
Charterholder and a member of the Salt Lake City Society of Financial Analysts.

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

                                      -24-
<PAGE>

Meetings and Committees

         During the fiscal year ended March 31,  2005,  the  Company's  Board of
Directors (the "Board") 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.

         The  entire  Board  currently  serves  as the  audit  committee  of the
Company. Only Messrs. Henriod and Misener satisfy the independence  requirements
applicable to audit committees of listed companies.  In addition,  the Board has
determined  that the audit  committee  does not have a member  qualifying  as an
audit committee  financial  expert, as defined in Item 401(h) of Regulation S-B.
In order to save limited  capital over the last several  years,  the Company has
chosen not to offer significant cash compensation to its directors.  The absence
of significant cash compensation makes recruiting persons that are not otherwise
interested in the Company more  difficult.  For these reasons,  the Company does
not  have on its  Board a  person  that  would  qualify  as an  audit  committee
financial expert. Now that the Company has reported net income for a full fiscal
year and is preparing for the  possibility of applying for listing on the Nasdaq
SmallCap  Market or the  American  Stock  Exchange,  the Company  expects to add
additional  independent  directors  and, as part of that process,  may recruit a
person that qualifies as an audit committee financial expert.

         The Company does not presently have a standing nominating  committee or
compensation committee. The Company does not have a nominating committee charter
or a compensation  committee  charter.  During fiscal 2006, the Board expects to
organize and adopt charters for such committees.

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.  See "Item 12. Certain
Relationships and Related Transactions."

Directors  of the Company are entitled to  participate  in the  Company's  stock
incentive plan. During the fiscal year ended March 31, 2005, the Company did not
grant  any  options  to  purchase  shares  of  its  common  stock  to any of its
directors.

                                      -25-
<PAGE>

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>
Leland H. Boardman                49         Vice President of Operations and          April 2005
                                             Chief Financial Officer

Blake Nielson                     45         Vice President of Client Services         November 2000


David D. Jenkins                  49         Vice President of Marketing               November 2003
</TABLE>
         LELAND H. BOARDMAN has been the Vice  President of Operations and Chief
Financial  Officer of the  Company  since  April  2005.  Boardman is a certified
public  accountant  with  more  than 24 years of  experience  working  with both
private and public companies, as well as working in public accounting.  Boardman
most recently was the Vice President of Operations for Sorenson Medical, Inc., a
privately-held  manufacturer of disposable medical products, where he served for
3 years.  Prior to working with  Sorenson,  Boardman  served over 8 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.

         BLAKE  NIELSON has been the Vice  President  of Client  Services of the
Company since November 2000. Nielson was a founder of Ensign Information Systems
and brings over 14 years of experience in client services with other  automotive
industry related companies.  He is responsible for customer satisfaction through
successful  product  installations,  client training and ongoing product support
and maintenance. Before joining the Company, Nielson worked as Vice President of
Operations  for Ensign  Information  Systems from 1994 to 2000.  Before  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 the Company
since  November  2003.  Prior to joining the Company,  Jenkins  worked for Vinca
Corporation (and then its purchaser,  Legato Systems, Inc.) for 7 years managing
the multi-OEM sales  relationship  with Novell.  Jenkins has also had experience
selling  software  to  many  large  worldwide  corporations  including  US  Air,


                                      -26-
<PAGE>

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 an MBA from Brigham Young University.

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 on a
review  of the  copies of such  forms  furnished  to the  Company,  the  Company
believes that the following  forms were  delinquent or were not filed during the
most recent fiscal year or prior years (to the extent not previously disclosed):
Richard  Holland,  the  President  of the Company and a director,  entered  into
transactions on March 26, 2004,  April 19, 2004, May 19, 2004 and June 15, 2004,
all of which were  required to be reported  within two business days and none of
which was reported until October 1, 2004.

Code of Ethics

         The Company has 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. The Company posts 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."

Item 10.   Executive Compensation

Summary Compensation Table

         The following table summarizes the compensation  paid or accrued by the
Company to or on behalf of the Company's Chief Executive Officer, as well as the
four most highly  compensated  executive officers of the Company whose aggregate
compensation  for the  fiscal  year  ended  March  31,  2005  exceeded  $100,000
(collectively, the "Named Executive Officers").

                                      -27-
<PAGE>
<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>    <C>
Alan Rudd,                    03/31/05    255,000     --        --          --           --          --     22,917 (1)
Chief Executive Officer and   03/31/04    215,625     --        --          --         250,000       --         --
Chairman of the Board         03/31/03    195,750     --        --          --           --          --         --

Richard Holland,              03/31/05    200,000     --        --          --           --          --         --
President and Director        03/31/04    172,500     --        --          --        1,200,000      --         --
                              03/31/03    171,250     --        --          --           --          --         --

Stephen L. Russo,             03/31/05    159,567     --        --          --         105,000       --         --
Vice President of             03/31/04    137,750     --        --          --         100,000       --         --
Operations and Chief          03/31/03    136,083     --        --          --           --          --         --
Financial Officer

Blake Nielson,                03/31/05    142,083     --        --          --           --          --         --
Vice President of Client      03/31/04    123,333     --        --          --         250,000       --         --
Services                      03/31/03    115,000     --        --          --           --          --         --

David D. Jenkins,             03/31/05    132,500     --        --          --         100,000       --         --
Vice President of Marketing   03/31/04    117,545     --        --          --         85,000        --         --
                              03/31/03    110,000     --        --          --           --          --         --
</TABLE>

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

     (2) Mr. Russo resigned as Vice President of Operations and Chief  Financial
         Officer in April 2005.

         Option Grants in Last Fiscal Year

         The following table sets forth individual  grants of options to acquire
shares of common  stock  made by the  Company  to the Named  Executive  Officers
during the fiscal year ended March 31,  2005.  No SARs were granted to any Named
Executive Officer during the fiscal year ended March 31, 2005.
<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>
Stephen L. Russo,
Vice President of Operations       105,000 (1) (2)            8.2%                   $0.60            7/01/2014 (2)
and Chief Financial Officer
(2)

David D. Jenkins,
Vice President of Marketing          100,000 (1)              7.8%                   $0.60              7/01/2014

</TABLE>

                                      -28-
<PAGE>

     (1) Such options become exercisable 40% on 7/01/2005,  30% on 7/01/2006 and
         30% on 7/01/2007.

     (2) Mr. Russo resigned as Vice President of Operations and Chief  Financial
         Officer in April 2005.  The options  granted to him during  fiscal 2004
         expired by their terms 30 days following his resignation.

Aggregated Option Exercises and Fiscal Year-End Option Values

         The following table provides information  regarding options held by the
Named  Executive  Officers as of March 31, 2005 and  options  exercised  by them
during the year ended March 31, 2005:
<TABLE>
<CAPTION>

                                                          Number of Securities
                        Securities                   Underlying Unexercised Options        Value of Unexercised
                       Acquired on     Aggregate                   at                     In-the-Money Options at
  Name and Position      Exercise        Value               March 31, 2005                 March 31, 2005 (1)
                           (#)         Realized      Exercisable      Unexercisable    Exercisable    Unexercisable
                                          ($)            (#)              (#)              ($)             ($)
---------------------- ------------- --------------  -------------- ----------------- -------------- -----------------
<S>                    <C>              <C>            <C>             <C>             <C>              <C>
Alan Rudd,
Chief Executive                                        100,000         150,000          $46,000         $69,000
Officer and Chairman                                 (2) 70,000                       (2) $25,200
of the Board

Richard Holland,
President and          166,500          $96,280        880,000         720,000         $354,800         $331,200
Director                                             (2) 600,000                     (2) $216,000

Stephen L. Russo,
Vice President of                                      90,000          165,000          $36,400         $33,900
Operations and Chief                                 (2) 520,000                     (2) $187,200
Financial Officer (3)

Blake Nielson,
Vice President of                                      350,000         150,000         $136,000         $69,000
Client Services

David D. Jenkins,
Vice President of                                      246,500         151,000          $92,140         $29,460
Marketing
</TABLE>


     (1) On March 31, 2005,  the closing sale price for a share of the Company's
         common stock on the OTC Bulletin Board was $0.66.

                                      -29-
<PAGE>

     (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."

     (3) Mr. Russo resigned as Vice President of Operations and Chief  Financial
         Officer in April 2005.

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, the Company 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, the Company 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.

Securities Authorized for Issuance Under Equity Compensation Plans

         Set forth below is certain information, as of March 31, 2005, about the
number of shares of common stock  subject to options,  warrants and other rights
granted,  or that  may be  granted,  under  compensation  plans  adopted  by the
Company.
<TABLE>
<CAPTION>

                                                                                          Number of securities
                                                                                         remaining available for
                             Number of securities to be    Weighted-average exercise      future issuance under
                               issued upon exercise of       price of outstanding       equity compensation plans
                                outstanding options,         options, warrants and        (excluding securities
       Plan category             warrants and rights                rights              reflected in column (a))
---------------------------  ---------------------------  ---------------------------  ---------------------------
                                         (a)                          (b)                          (c)
<S>                                   <C>                           <C>                         <C>
Equity compensation plans
approved by security
holders (1)                           8,254,092                     $0.303                      3,095,000

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

Total                                 8,254,092                     $0.303                      3,095,000
</TABLE>

(1)      Does not  include  secondary  options  with  respect  to  shares of the
         Company's  common  stock  granted to certain  officers,  directors  and
         employees by shareholders of the Company. See "Item 12. Certain
         Relationships and Related Transactions."

                                      -30-
<PAGE>
Security Ownership of Certain Beneficial Owners and Management

         The table below sets forth information, as of June 1, 2005, each person
who beneficially owns more than 5% of the Company's  outstanding common stock or
Series B preferred stock, and information as to the ownership of common stock or
Series B preferred stock by each person serving as a director or Named Executive
Officer of the Company as of March 31, 2005.  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.
<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
10542 South Jordan Gateway
South Jordan, Utah  84095                     8,245,189(4)            21.8%               N/A                N/A


Richard Holland, President and Director
10542 South Jordan Gateway
South Jordan, Utah   84095                    1,860,000(5)            4.9%                N/A                N/A


Stephen L. Russo, Vice President of
Operations and CFO (until April 2005)
10542 South Jordan Gateway
South Jordan, Utah   84095                     640,000(6)             1.7%                N/A                N/A


Blake Nielson, Vice
President of Client Services
10542 South Jordan Gateway
South Jordan, Utah   84095                     678,000(7)             1.8%                N/A                N/A

David D. Jenkins, Vice President of
Marketing
10542 South Jordan Gateway
South Jordan, Utah   84095                     272,000(8)             0.7%                N/A                N/A

Bryan T. Allen, Director
201 South Main Street
Suite 1100
Salt Lake City, UT  84111                      138,000(9)             0.4%                N/A                N/A


Paul Henriod, Director
1835 Laird Avenue
Salt Lake City, Utah  84108                  3,424,243(10)            9.0%                N/A                N/A
</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>          <C>                    <C>
All officers and directors                     15,257,432             40.3%               N/A                N/A

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

Larry Battison
P.O. Box 1465
Duncan, OK  73534                                 N/A                  N/A               50,000              8.6%

B. Joe Clayton 4600 Clinton Hwy.
Knoxville, TN  37912                              N/A                  N/A               50,000              8.6%

Chapman Automotive Group
6601 East McDowell Road
Scottsdale, AZ  85257                             N/A                  N/A               50,000              8.6%

Donald Ray Herring
4225 W. Plano Parkway
Plano, TX  75093                                  N/A                  N/A               50,000              8.6%

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              8.6%

Lance Pittack
P.O. Box 546
Blair, NE  68008                                  N/A                  N/A               50,000              8.6%

Paul Cech
P.O. Box 546
Blair, NE  68008                                  N/A                  N/A               50,000              8.6%

H2 Land Trust
P.O. Box 467
Pontiac, IL  61764                                N/A                  N/A              100,000             17.3%
</TABLE>

     (1) Beneficial ownership for each person holding options, warrants or other
         rights  exercisable within 60 days of June 1, 2005 has been included as
         though  shares  of  common  stock  or  Series  B  preferred  stock,  as
         applicable, were outstanding.

                                      -32-
<PAGE>

     (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 shareholder  within 60 days of June 1, 2005 and (b)
         32,169,670,  which is the number of shares of common  stock  issued and
         outstanding as of June 1, 2005.

     (3) The  percentage  indicated  represents the number of shares of Series B
         preferred stock held by the indicated person divided by 575,000,  which
         is the  number  of  shares  of  Series B  preferred  stock  issued  and
         outstanding as of June 1, 2005.

     (4) Includes  175,000  options  granted under the Company's  incentive plan
         that are  exercisable  within 60 days of the date of the table,  70,000
         secondary options granted by shareholders of the Company (See "Item 12.
         Certain  Relationships and Related  Transactions") and 940,000 warrants
         in  connection  with the  issuance of  convertible  debt (See "Item 12.
         Certain Relationships and Related Transactions").

     (5) Includes  1,240,000 options granted under the Company's  incentive plan
         that  are  exercisable  within  60 days of the  date of the  table  and
         420,000  secondary  options granted by shareholders of the Company (See
         "Item 12. Certain Relationships and Related Transactions").

     (6) Includes  120,000  options  granted under the Company's  incentive plan
         that  are  exercisable  within  60 days of the  date of the  table  and
         520,000  secondary  options granted by shareholders of the Company (See
         "Item 12. Certain Relationships and Related Transactions").

     (7) Includes  425,000  options  granted under the Company's  incentive plan
         that are exercisable within 60 days of the date of the table.

     (8) Includes  272,000  options  granted under the Company's  incentive plan
         that are exercisable within 60 days of the date of the table.

     (9) Includes  138,000  options  granted under the Company's  incentive plan
         that are exercisable within 60 days of the date of the table.

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

Item 12.  Certain Relationships and Related Transactions

         During the year ended March 31, 2004,  the Company  raised  $575,000 by
selling 575,000 shares of Series B preferred stock at $1.00 per share to a group
of  thirteen  (13)  investors,  nine  (9)  of  which,  following  the  purchase,
beneficially  owned 5% or more of the Company's  575,000  outstanding  shares of
Series B preferred stock.
                                      -33-
<PAGE>
         Each  share of  Series B  preferred  stock is  convertible  to five (5)
common shares at the option of the preferred shareholder. Each share of Series B
preferred stock receives the same dividends as common stock on an "as converted"
basis.  Shares of Series B preferred stock carry a liquidation  preference equal
to the price per share of Series B  preferred  stock,  plus  accrued  and unpaid
dividends on each share. In the event of a merger or liquidation, the balance of
proceeds is paid to the holders of the common  stock.  If not earlier  converted
into common stock, shares of Series B preferred stock are redeemable with thirty
(30) days advance notice at the option of the Company after June 30, 2008.  Each
share of Series B preferred stock has one (1) vote and votes together as a class
with  common  stock,  except  that the shares of Series B  preferred  stock vote
separately as a class for (i) any adverse change to the rights,  preferences and
privileges of the Series B preferred stock, (ii) any increase or decrease in the
number of authorized shares of Series B preferred stock.

         Certain  founding  shareholders 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
shareholders  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) and Stephen L.
Russo (520,000 options).

         During the years ended March 31, 2005 and 2004, Bryan Allen,  Director,
was a partner with Stoel Rives LLP and then Parr Waddoups  Brown Gee & Loveless.
Mr. Allen, and his law firms, provide legal services to the Company. During each
of the years ended March 31, 2005 and 2004,  such laws firms  billed the Company
approximately $51,000 and $34,600, respectively, in legal services.

         Prior to fiscal  year 2004,  Alan Rudd,  Chief  Executive  Officer  and
Director, loaned the Company an aggregate of $150,000 at an interest rate of 12%
per annum.  Outstanding  principal  and interest on such loans were  convertible
into units,  comprised  of one share of common stock and one warrant to purchase
common stock at an exercise price of $.20 per share during the five-year  period
following issuance, at a rate of $0.20 per unit. During the year ended March 31,
2004, Mr. Rudd converted all outstanding principal and interest under such loans
into an  aggregate  of 940,000  shares of common  stock and 940,000  warrants to
purchase common stock.

         During the years  ended March 31,  2005 and 2004,  the Company  granted
205,000  and  1,975,000,  respectively,  options  to  purchase  common  stock to
executive officers and directors.  The options vest 40% on the first anniversary
of  the  grant  date,  30% on  the  second  anniversary  and  30%  on the  third
anniversary.  The options have exercise  prices ranging  between $0.20 and $0.60
per share and are  exercisable  at any time  within  ten (10) years of the grant
date.
                                      -34-
<PAGE>
Item 13.  Exhibits.
<TABLE>
<CAPTION>
   Exhibit
    Number                       Title of Document                                         Location
---------------    ----------------------------------------------    ----------------------------------------------------
<S>               <C>                                                <C>
     2.1           Asset Purchase and Sale Agreement between         Incorporated  by  reference  to the the Company and
                                                                     Ensign  Information   Systems  Company's  Quarterly
                                                                     Report  on  Form  10-QSB  filed  with  the  SEC  on
                                                                     November 14, 2000, File No. 0-24372

     2.2           Agreement and Plan of Merger between the          Incorporated   by   reference   to  the   Company's
                   Company and ARKONA, Inc. (a Utah corporation)     Quarterly  Report on Form 10-QSB filed with the SEC
                                                                     on February 13, 2001, File No. 0-24372

     3.1           Certificate of Incorporation, as amended to       Incorporated   by   reference   to  the   Company's
                   date                                              Quarterly Report on Form 10-Q 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             File herewith

     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         Filed herewith
                   and the Company

     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 Auditors                   Filed herewith

     31.1          Certification of Chief Executive Officer          Filed herewith
                   pursuant to Section 302 of the
                   Sarbanes-Oxley Act of 2002
</TABLE>
                                      -35-
<PAGE>
<TABLE>
<CAPTION>
   Exhibit
    Number                       Title of Document                                         Location
---------------    ----------------------------------------------    ----------------------------------------------------
<S>               <C>                                                <C>
     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>


Item 14.   Principal Accountant Fees and Services

         Audit Fees

         The  Company's  independent  auditor for the years ended March 31, 2005
and 2004 was Mantyla McReynolds, P.C. ("Mantyla McReynolds"). The aggregate fees
for professional  services rendered by Mantyla McReynolds in connection with its
audit of the Company's consolidated financial statements $14,666 and $11,437 for
the years ended March 31, 2005 and 2004, respectively.

         Audit Related Fees

         The  aggregate  fees for  professional  services  rendered  by  Mantyla
McReynolds for audit related services were $4,024 and $1,528 for the years ended
March 31, 2005 and 2004, respectively.

         Tax Fees

         The aggregate fees for tax related  professional  services  rendered by
Mantyla McReynolds were $1,875 and $2,191 for the years ended March 31, 2005 and
2004, respectively.

         All Other Fees

         Mantyla  McReynolds  did not provide to the Company any other  material
services during the years ended March 31, 2005 and 2004.

         Audit Committee Pre-Approval Policies

         The Board, acting as 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 Board.  As a
result, all engagements of the independent auditors to render audit or non-audit
services were approved by the Board.

                                      -36-
<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: July 14, 2005
                         -------------

                   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>

                                                     Chief Executive Officer and                July 14, 2005
           /s/ Alan Rudd                             Director (Principal Executive
--------------------------------------------         Officer)
     Alan Rudd


           /s/ Richard Holland                       President, Vice President of               July 14, 2005
--------------------------------------------         Engineering and Director
     Richard Holland


           /s/ Leland H. Boardman                    Chief Financial Officer                    July 14, 2005
--------------------------------------------         (Principal Financial and
     Leland H. Boardman                              Accounting Officer)



          /s/ Bryan T. Allen                         Director                                   July 14, 2005
--------------------------------------------
     Bryan T. Allen

                                                     Director                                   July 14, 2005
--------------------------------------------
     Paul Henriod

                                                     Director                                   July 14, 2005
--------------------------------------------
     Kent A. Misener
</TABLE>

                                      -37
<PAGE>


                                  ARKONA, INC.

                             March 31, 2005 and 2004

             Report of Independent Registered Public Accounting Firm

                                       and

                              Financial Statements



                                       F-0
<PAGE>




<TABLE>
<CAPTION>
                                  ARKONA, INC.

                                TABLE OF CONTENTS

                                                                                          Page
                                                                                          ----

<S>                                                                                          <C>
Report of Independent Registered Public Accounting Firm....................................F-2

Balance Sheets as of March 31, 2005 and 2004...............................................F-4

Statements of Operations For the Years Ended March 31, 2005, 2004 and 2003.................F-6

Statements of Stockholders' Equity/(Deficit) For the Years Ended
       March 31, 2005, 2004 and 2003.......................................................F-7

Statements of Cash Flows For the Years Ended March 31, 2005, 2004 and 2003.................F-8

Notes to Financial Statements.............................................................F-10
</TABLE>


                                      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 sheets of Arkona, Inc., as of
         March 31, 2005 and 2004,  and the  related  statements  of  operations,
         stockholders'  equity, and cash flows for the years in the period ended
         March 31,  2005,  2004 and 2003.  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  control  over  financial   reporting.   Out  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,
2005 and 2004,  and the  results of  operations  and cash flows for years  ended
March  31,  2005,  2004,  and  2003 in  conformity  with  accounting  principles
generally accepted in the United States of America.


/s/ MANTYLA McREYNOLDS, LLC
-------------------------------
MANTYLA McREYNOLDS, LLC
Salt Lake City, Utah
July 23, 2005


                                      F-2
<PAGE>
<TABLE>
<CAPTION>

                                  ARKONA, INC.
                                 Balance Sheets
                                 As of March 31,


                                                                Notes                2005             2004
                                                                -----                ----             ----
<S>                                                              <C>             <C>              <C>
ASSETS
Current Assets:
     Cash and Cash Equivalents                                   1               $   141,179      $   361,954
     Accounts Receivable (less allowance for
         doubtful accounts of $75,000 and
         $30,134, respectively)                                  1                   464,426          489,602
     Employee Advances                                                                17,091           41,668
     Prepaid Expenses                                                                  3,500           11,620
                                                                                --------------   --------------
     Total Current Assets                                                            626,196          904,844
                                                                                --------------   --------------
Property and Equipment - net                                     5                   359,810          220,778
                                                                                --------------   --------------
Other Assets:
     Deferred Tax Asset                                       1, 2                 5,039,237        1,560,000
     Capitalized Software Costs - net                         1, 3                   804,549          560,183
     Goodwill - net                                              6                   156,622          156,622
     Deposits                                                    8                   122,080           79,580
     Other - net                                                                        --             27,086
                                                                                --------------   --------------
     Total Other Assets                                                            6,122,488        2,383,471
                                                                                --------------   --------------

Total Assets                                                                     $ 7,108,494      $ 3,509,093
                                                                                ==============   ==============
</TABLE>


                See accompanying notes to financial statements.

                                      F-3
<PAGE>
<TABLE>
<CAPTION>
                                  ARKONA, INC.
                                 Balance Sheets
                                 As of March 31,

                                                         Notes          2005             2004
                                                         -----          ----             ----

<S>                                                      <C>      <C>             <C>
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
     Accounts Payable                                             $    156,076    $    157,779
     Accrued Liabilities                                               238,450         192,781
     Deferred Revenue                                        1         200,326         139,019
                                                                  ------------    ------------
     Total Current Liabilities                                         594,852         489,579
                                                                  ------------    ------------

Long-Term Note Payable                                      14          50,000          50,000
                                                                  ------------    ------------

Total Liabilities                                                      644,852         539,579
                                                                  ------------    ------------
Stockholders' Equity:                               10, 12, 13
     Preferred Stock ($.001 par value; authorized
         10,000,000 shares; issued and outstanding
         575,000 shares)                                     7             575             575
     Common Stock ($.001 par value; authorized
         50,000,000 shares; issued and outstanding
         32,169,670 and 31,565,670, respectively)                       32,170          31,566
     Additional Paid-In Capital                                     23,394,632      23,188,211
     Unearned Compensation - stock options                  10         (19,357)           --
     Accumulated Unrealized Losses on
         Investments                                         1            --           (16,942)
     Accumulated Deficit                                     9     (16,944,378)    (20,233,896)
                                                                  ------------    ------------
     Total Stockholders' Equity                                      6,463,642       2,969,514
                                                                  ------------    ------------

Total Liabilities & Stockholders' Equity                          $  7,108,494    $  3,509,093
                                                                  ============    ============
</TABLE>


See accompanying notes to financial statements

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

                                  ARKONA, INC.
                            Statements of Operations
                          For the Years Ended March 31,

                                    Notes             2005           2004            2003
                                  ---------      ------------    ------------    ------------
<S>                                     <C>      <C>             <C>             <C>
Revenues:
     Installation                       1        $  2,962,280    $  2,726,264    $  1,496,073
     Monthly Support & Maintenance                  3,955,582       2,361,090       1,377,145
     Hardware                                         324,851          82,560          38,624
     Other                                             11,948         180,439         160,440
                                                 ------------    ------------    ------------
     Total Revenues                                 7,254,661       5,350,353       3,072,282

Cost of Sales                                       3,811,775       2,424,654       1,531,706
                                                 ------------    ------------    ------------
Gross Profit                                        3,442,886       2,925,699       1,540,576

Operating Expenses:
     Sales, Marketing & General
         Administrative              1, 4           2,958,382       2,023,666       2,468,599
     Research & Development                           721,069         501,423         635,922
                                                 ------------    ------------    ------------
     Total Operating Expenses                       3,679,451       2,525,089       3,104,521

Net Income (Loss) From Operations                    (236,565)        400,610      (1,563,945)

Other Income (Expense)
         Other income                                   2,038            --                 1
         Gain on sale of patent rights                 72,915            --              --
         Interest expense                             (11,164)        (41,712)        (34,880)
         Realized loss on investment                  (16,942)           --              --
                                                 ------------    ------------    ------------
Income (Loss) Before Income Taxes                    (189,718)        358,898      (1,598,824)

Income Tax Benefit                      2           3,479,237       1,560,000            --
                                                 ------------    ------------    ------------
Net Income (Loss)                                $  3,289,519    $  1,918,898    $ (1,598,824)
                                                 ============    ============    ============


Basic Earnings per Common Share:
     Net Income (Loss)                           $      0.103    $      0.064    $     (0.061)
     Average Number of Shares
           Outstanding              1, 16          31,956,688      29,755,709      26,122,740

Diluted Earnings per Common Share:
     Net Income (Loss)                           $      0.085    $      0.055    $     (0.061)
     Average Number of Shares
           Outstanding              1, 16          38,926,858      35,194,012      26,122,740

</TABLE>


See accompanying notes to financial statements

                                      F-5

<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, 2002           --             --       23,842,798   $     23,843  $  20,672,508

Prior period
adjustment - error in
recording amortization
of software costs                 --             --             --             --             --

Issued shares for cash
at $0.30 per share                --             --          200,000            200         59,800

Issued shares from
warrants for cash at
$0.33 per share                   --             --          303,030            303         99,697

Issued shares for cash
at $0.20 per share                --             --        3,890,000          3,890        774,110

Issued shares for debt
at $0.20 per share                --             --          200,000            200         39,862


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

Balance, March 31, 2003           --             --       28,435,828   $     28,436   $ 21,645,977

Issued stock for cash
at $1.00 per share             575,000            575           --             --          574,425

Issued shares to
settle debt at $0.20
and $0.30 per share               --             --        1,374,415          1,374        316,564

Issued shares for
cash  at $0.15 to
$0.60 per share                   --             --        1,665,927          1,666        616,235

Issued shares for
options exercised at
$0.30 and $0.47 per
share                             --             --           89,500             90         35,010

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


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
</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, 2002             --      $    (16,942)   $(20,783,233)   $   (103,824)

Prior period
adjustment - error in
recording amortization
of software costs                   --              --           229,262         229,262

Issued shares for cash
at $0.30 per share                  --              --              --            60,000

Issued shares from
warrants for cash at
$0.33 per share                     --              --              --           100,000

Issued shares for cash
at $0.20 per share                  --              --              --           778,000

Issued shares for debt
at $0.20 per share                  --              --              --            40,062


Net loss                            --              --        (1,598,824)     (1,598,824)
                            ------------    ------------    ------------    ------------

Balance, March 31, 2003             --      $    (16,942)   $(22,152,795)     (495,324)

Issued stock for cash
at $1.00 per share                  --              --              --           575,000

Issued shares to
settle debt at $0.20
and $0.30 per share                 --              --              --           317,938

Issued shares for
cash  at $0.15 to
$0.60 per share                     --              --              --           617,901

Issued shares for
options exercised at
$0.30 and $0.47 per
share                               --              --              --            35,100

Net income                          --              --         1,918,898       1,918,898
                            ------------    ------------    ------------    ------------
Balance, March 31, 2004             --      $    (16,942)   $(20,233,897)   $  2,969,513
                                                                                       0

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 income                          --              --         3,289,519       3,289,519
                            ------------    ------------    ------------    ------------
Balance, March 31, 2005     $    (19,357)   $       --      $(16,944,378)   $  6,463,642
</TABLE>

See accompanying notes to financial statements.

                                     F-6(B)
<PAGE>

<TABLE>
<CAPTION>
                                  ARKONA, INC.
                            Statements of Cash Flows
                          For the Years Ended March 31,

                                                          2005           2004           2003
                                                      -----------    -----------    -----------
<S>                                                   <C>            <C>            <C>
Cash Flows from Operating Activities:
     Net Income (Loss)                                $ 3,289,519    $ 1,918,898    $(1,598,824)
     Adjustments to Reconcile Net Income
         (Loss) to Net Cash Used by
         Operating Activities:
         Depreciation Expense                             115,760        104,684        116,406
         Amortization Expense                             134,034         63,073         47,499
         Bad Debt Expense                                  44,866          6,188         17,939
         Stock Compensation                                 6,918           --             --
         Realized (Gain) Loss on Investments              (55,973)          --             --
         Deferred Income Tax                           (3,479,237)    (1,560,000)
         Decrease (Increase) in Accounts Receivable       (19,690)      (412,244)        82,512
         Decrease (Increase) in Employee Advances          24,577        (22,279)        (9,136)
         Decrease (Increase) in Prepaid Expenses            8,120        (11,620)         4,574
         Increase (Decrease) in Accounts Payable           (1,703)      (189,509)        85,977
         Increase (Decrease) in Accrued Liabilities        45,669        (51,261)        33,656
         Increase (Decrease) in Deposits & Other          (42,500)       (66,375)          --
         Increase (Decrease) in Deferred Revenue           61,307        (33,414)        63,683
                                                      -----------    -----------    -----------
     Net Cash Provided by (Used in)
         Operating Activities                             131,667       (253,859)    (1,155,714)
                                                      -----------    -----------    -----------
Cash Flows from Investing Activities:
     Acquisition of Property and Equipment               (254,792)      (202,125)       (25,3332
     Cash from sale of intangible asset                   100,000           --             --
     Software Development Costs                          (378,400)      (357,311)          --
                                                      -----------    -----------    -----------
     Net Cash (Used in)
       Provided by Investing Activities                  (533,192)      (559,436)       (25,332)
                                                      -----------    -----------    -----------
Cash Flows from Financing Activities:
     Principal Increase (Decrease) in Notes Payable          --          (71,058)       141,001
     Proceeds from Issuance of Common Stock               180,750        653,000        938,062
     Proceeds from Issuance of Preferred Stock               --          575,000           --
                                                      -----------    -----------    -----------
     Net Cash Provided by Financing Activities            180,750      1,156,942      1,079,063
                                                      -----------    -----------    -----------

Net Increase (Decrease) in Cash                          (220,775)       343,647       (101,983)

Beginning Cash Balance                                    361,954         18,307        120,290
                                                      -----------    -----------    -----------
Ending Cash Balance                                   $   141,179    $   361,954    $    18,307
                                                      ===========    ===========    ===========
</TABLE>

See accompanying notes to financial statements


                                      F-7
<PAGE>

                                  ARKONA, INC.
                            Statements of Cash Flows
                          For the Years Ended March 31,


                                        2005          2004           2003
                                        ----          ----           ----

Supplemental Disclosure Information:
Cash Paid for Interest               $ 11,164       $ 41,712       $ 34,880
Cash Paid for Income Taxes               --         $  5,441       $  1,831
Issued Stock for Debt                    --         $317,938       $ 40,062














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 No. 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 No. 128,
         "Earnings per Share," basic loss per common share is computed using the
         weighted average number of common shares outstanding.  Diluted earnings
         per 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.  Common share  equivalents were
         not  included in the  computation  of loss per common  share for fiscal
         year 2003 because their inclusion was anti-dilutive.

         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, 2005, the
         Company had cash in excess of the insured amount at this institution.

         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.

                                      F-9
<PAGE>

         Revenue Recognition - The Company recognizes revenue in accordance with
         the  Securities and Exchange  Commission's  Staff  Accounting  Bulletin
         ("SAB") No. 104, "Revenue  Recognition." SAB 104 clarifies  application
         of generally accepted  accounting  principles to revenue  transactions.
         During the course of business,  the Company  recognizes revenue for the
         following  activities:  Technical Support,  Hardware Sales,  Consulting
         Services,  and Installation and Training  associated with its Products.
         Support  charges are billed  monthly and are  recognized  as earned and
         stipulated  in contracts  with  customers.  Hardware  Sales  revenue is
         recognized  when the goods are  delivered to the  customer.  Consulting
         Services  fees  are  recognized  as  services  are  rendered.   Product
         Installation  and Training revenue is recognized in accordance with the
         terms of each contract, generally on a percentage-of-completion  basis.
         Advance  deposits  are  deferred  and  recognized  over the life of the
         contract,  which is  usually  less than one  month.  Components  of the
         Product  Installation  process include  software  licensing,  training,
         forms programming, data conversion, and hardware installation.

         Accounts  Receivable - Accounts  receivable consist of amounts due from
         customers. The Company records accounts receivable at the lower of cost
         or fair value. The Company  estimates  allowances for doubtful accounts
         based  on the aged  receivable  balances  and  historical  losses.  The
         Company charges off uncollectible accounts when management estimates no
         possibility of collecting the related receivable. The Company considers
         accounts  receivable to be past due or delinquent  based on contractual
         terms.

         Investment  in  Marketable   Securities  -  Investments  in  marketable
         securities  are  "available-for-sale"  and are  recorded at fair market
         value with the associated  adjustment recorded as an unrealized gain or
         loss.  As of  March  31,  2004,  the  unrealized  loss is  based on the
         original cost of the securities  verses  current  market value.  During
         fiscal year 2005, it was determined that the marketable securities held
         by the Company had no remaining  value and,  therefore,  the securities
         were written off and the unrealized loss recognized.

         Software  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 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  (determined  to be  five
         years). In addition,  with the issuance of SFAS No. 142,  "Goodwill and
         Other  Intangible  Assets",  capitalized  software costs are tested for
         impairment each year along with other intangible  assets. If impairment
         is  determined,  the amount of the  impairment  is written  off in that
         year.

         Note  Payable - The  Company  has a short term note  payable to an auto
         dealership for the purchase of a small passenger van. The original note
         terms are for the note to be paid within six months.  This liability is
         recorded as deferred revenue,  which should be earned in the subsequent
         period.

                                      F-10
<PAGE>
         Advertising  Costs -  Advertising  costs  are  charged  to  expense  as
         incurred.

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

         Recent Accounting  Pronouncements - On December 16, 2004, the Financial
         Accounting   Standards   Board   ("FASB")   issued  SFAS  No.   123(R),
         "Share-Based Payment", which is a revision of SFAS No. 123, "Accounting
         for Stock-Based  Compensation."  SFAS No. 123(R) supersedes APB Opinion
         No. 25,  "Accounting  for Stock Issued to  Employees."  SFAS No. 123(R)
         requires all  share-based  payments to employees,  including  grants of
         employee stock options,  to be recognized in the income statement based
         on their fair values. SFAS No. 123(R) must be adopted by the Company no
         later than July 1, 2005.  The Company  expects to adopt SFAS No. 123(R)
         on July 1, 2005. When the Company adopts SFAS No. 123(R),  it may elect
         the modified prospective method or the modified  retrospective  method.
         The  Company has not yet  determined  which  method it will elect.  The
         Company currently accounts for share-based  payments to employees using
         APB Opinion  No. 25 and the  intrinsic  value  method and, as a result,
         generally  recognizes no compensation  cost for employee stock options.
         The impact of adoption of SFAS No.  123(R) cannot be determined at this
         time because it will depend on levels of share-based  payments  granted
         in the future.

2.       Income Taxes

         The Company has temporary differences and loss carry forward amounts as
         of the balance  sheet date.  The timing  differences  multiplied by the
         estimated  tax rate,  for the  period  the  temporary  differences  are
         expected to reverse, become a deferred tax asset or liability.

         Reconciliation  between  income taxes at statutory  tax rates (39%) and
         the actual income tax provision for  continuing  operations as of March
         31, 2005 follows:

         Expected provision (based on statutory rates)         $    (73,990)
         Effect of:
            Non-deductible permanent differences                      4,098
            Increase/(decrease) in valuation allowance           (3,432,434)
            Increase in NOL carry forward                            23,089
                                                               ------------
         Total actual provision (benefit)                      $ (3,479,237)
                                                               ============


         The tax effects of temporary  differences that give rise to significant
         portions of the deferred tax assets and  deferred  tax  liabilities  at
         March 31, 2005 and 2004, are presented below.
<TABLE>
<CAPTION>
                                                                            March 31, 2005        March 31, 2004
                                                                            ----------------      ---------------
              Deferred tax assets:
<S>                                                                         <C>                   <C>
                  Allowance for bad debts                                   $        29,250       $       11,752
                  Net Operating loss carry forward                                5,532,745            5,519,534
                  Property and equipment, due to differences in
                  depreciation                                                       23,846               31,626
                  Intangibles, due to differences in amortization
                                                                                     74,312               50,068
                                                                            ----------------      ---------------
                  Gross deferred tax assets                                       5,659,783            5,612,980
                  Less valuation allowance                                          620,546            4,052,980
                                                                            ----------------      ---------------
                  Deferred tax assets                                             5,039,237            1,560,000

              Deferred tax liabilities                                                 --                   --
                                                                            ----------------      ---------------

              Net deferred tax assets                                       $     5,039,237       $    1,560,000
                                                                            ================      ===============

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

                                                                            March 31, 2005        March 31, 2004
                                                                            ----------------      ---------------
              Current expense (benefit):
                  Federal                                                   $         --          $        --
                  State                                                               --                   --

              Deferred expense (benefit):
                  Federal                                                       (3,033,181)          (1,360,000)
                  State                                                           (446,056)            (200,000)
                                                                            ----------------      ---------------

              Total provision (benefit) for income tax                      $   (3,479,237)       $  (1,560,000)
                                                                            ================      ===============
</TABLE>

                                      F-11
<PAGE>

         The  allowance  has  decreased  $3,432,434  as of March 31,  2005.  The
         decrease in the allowance is based on the weight of available evidence,
         that it is more  likely than not that the  deferred  tax assets will be
         realized.  Net  operating  loss carry  forwards  expire  through  2025.
         Subsequently   recognized  tax  benefits   relating  to  the  valuation
         allowance for deferred tax assets as of March 31, 2005 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 Sstatement of Accounting  Standards No. 86,
         "Accounting for the Costs of Computer  Software to be Sold,  Leased, or
         Otherwise Marketed." Amortization expenses was $134,034 and $63,073 for
         the years  ended March 31,  2005 and 2004  respectively.  For the years
         ended  March  31,  2005  and  2004,   capitalized  software  costs  and
         accumulated amortization were as follows:

                                                     2005          2004
                                                 -----------    -----------
                    Capitalized Software Costs     1,041,394        662,994
                    Accumulated Amortization        (236,845)      (102,811)
                                                 -----------    -----------
                    Net                          $   804,549    $   560,183
                                                 ===========    ===========

4.      Leases

        The  Company  has an  operating  lease for its office  facilities  which
        expires  July 31,  2005.  On  August 1, the  Company  will move to a new
        facility and has entered into a new five (5) year operating lease.

                     Year                          Minimum
                    Ending                     Lease Payments
                  ---------                    --------------
                  3/31/2006                     $   397,473
                  3/31/2007                         474,842
                  3/31/2008                         487,339
                  3/31/2009                         499,836
                  3/31/2010                         512,333
                  3/31/2011                         172,166
                                                 ----------
                  Total                          $2,543,989
                                                 ==========

        Rent expense under the facility  lease was $274,606 and $243,892 for the
        years ended March 31, 2005 and 2004, respectively.

                                      F-12
<PAGE>

        The  Company has  operating  leases  with IBM for  equipment.  The terms
        require  payments,  on a  month-to-month  basis, in the amounts totaling
        $4,366.  Upon written notice,  the Company is able to return or exchange
        the equipment at its option.

5.      Property and Equipment

        Property  and  equipment  are  summarized  by major  classifications  as
follows:
<TABLE>
<CAPTION>

                                                      2005          2004       Method/Life
                                                 -----------    -----------    ----------
<S>                                              <C>            <C>                   <C>
                      Office Furniture           $   113,572    $   102,979      SL / 5
                      Computer Software              171,487         70,605      SL / 3
                      Computer Equipment             733,172        606,258      SL / 3
                      Leasehold Improvements          54,763         54,763      SL / 5
                      Automobile                      16,403           --        SL / 5
                                                 -----------    -----------
                      Total                        1,089,397        834,605
                      Accumulated Depreciation      (729,587)      (613,827)
                                                 -----------    -----------
                      Net                        $   359,810    $   220,778
                                                 ===========    ===========
</TABLE>

         Depreciation  expense was  $115,760  and  $104,683  for the years ended
         March 31, 2005 and 2004, respectively.

         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

         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, the Company had amortized $156,622,
         or  approximately  half of the original  book  balance.  In fiscal year
         2003, the Company adopted SFAS No.  142,"Goodwill  and Other Intangible
         Assets".  This statement  eliminates the  amortization  of goodwill and
         requires  the  Company  to test the asset for  impairment  on an annual
         basis.  Based on management's  analysis and testing for impairment,  no
         adjustment  in the asset value was  recorded  for the years ended March
         31, 2005 and 2004.

7.       Preferred Stock

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

                                      F-13
<PAGE>

        Series B preferred  shares carry a liquidation  preference  equal to the
        price per share of Series B preferred, 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,  Series B
        preferred  shares  are  redeemable  with 30 days  advance  notice at the
        option of the Company after June 30, 2008.

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

8.      Deposits

        In  conjunction  with its facility  lease  obligations,  the Company has
        placed security deposits with its landlords.  The deposits total $55,705
        and $13,205 as of March 31, 2005 and 2004, respectively.  In addition to
        the facilities  deposits,  the Company has placed security deposits with
        IBM for computer servers totaling $66,375 as of March 31, 2005 and 2004.

9.      Liquidity

        The Company incurred development losses from inception to March 31, 2003
        amounting  to  $22,152,794.  The Company has earned  profits in each the
        last two fiscal years. In the future,  the Company believes that it will
        generate sufficient cash flow from operations to fund its growth. In the
        event that cash flow requirements are not met by operations,  management
        intends to raise additional capital through private placement offerings.

10.     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, 2005,  there were outstanding a total of 8,254,092 stock
        options and warrants to purchase  Company common stock granted under the
        Plan, all of which  have an  exercise  price of  between $0.20 and $0.65
        per  share. Options granted under the Plan vest over a one to three year
        period.  Of the options outstanding under the Plan, 3,147,000 are vested
        as of March 31, 2005.

                                      F-14
<PAGE>

         Compensation  cost for stock options 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 as a result of  compensatory  stock  options,  is
         generally  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.  The
         Company has $19,357 and $0 unearned  compensation  as of March 31, 2005
         and 2004, respectively.

         The Company has adopted only the disclosure provisions of SFAS No. 123,
         "Accounting for Stock Based  Compensation"  and applies APB Opinion No.
         25, "Accounting for Stock Issued to Employees" to stock options.
<TABLE>
<CAPTION>
                                                               Year Ended March 31,
                                                      2005           2004           2003
                                                  -----------    -----------    -----------

<S>                                               <C>            <C>            <C>
            Net income, as reported               $ 3,289,519    $ 1,918,898    $(1,598,824)

            Add: stock-based employee
            compensation expense
            included in reported net income             6,918           --             --

            Deduct:  total stock-based
            employee compensation expense
            determined under fair value
            based method for all awards               (56,480)       (10,868)        (7,152)
                                                  -----------    -----------    -----------
            Pro forma net income                  $ 3,257,192    $ 1,908,030    $(1,605,976)
                                                  ===========    ===========    ===========
</TABLE>

         Information on stock options  outstanding as of March 31, 2005 and 2004
         is as follows:
<TABLE>
<CAPTION>
                                           Number of                     Weighted
                             Range of       Warrants         Average       Average                    Weighted
              Year           Exercise      and Options      Remaining     Exercise       Number        Average
             Ended            Prices       Outstanding        Life          Price      Exercisable      Price
            --------        ----------     -----------      ---------     --------     -----------    ---------
<S>         <C>             <C>                <C>           <C>            <C>           <C>           <C>
            03/31/05        $0.20-0.65         8,254,092     90 mos.        $0.32         3,147,000     $0.30

            03/31/04        $0.20-0.70         7,738,092     93 mos.        $0.38         2,303,700     $0.38
</TABLE>

11.      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, 2005 and 2004.

                                      F-15
<PAGE>

12.     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.

        Prior to fiscal year 2004, the Company's Chief Executive  Officer loaned
        the Company an aggregate of $150,000. Outstanding principal and interest
        on such loans were  convertible  into units,  comprised  of one share of
        common  stock and one  warrant to purchase  common  stock at an exercise
        price of $.20 per  share.  During  the year ended  March 31,  2004,  the
        outstanding  principal and interest on the loans were  converted into an
        aggregate  of 940,000  shares of common  stock and  940,000  warrants to
        purchase common stock.

13.     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.

        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.

                                      F-16
<PAGE>

14.     Long-Term Note Payable

        The Company  has a 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,  2005 and 2004 the  Company  paid  $6,000 in
        interest.

15.     Prior period adjustments

        The Company  determined that their  accounting for software  development
        costs was  inappropriately  reported in prior  periods.  The Company had
        expensed   these  costs   prior  to  their  being   placed  in  service.
        Accordingly,  the Company booked a $229,262  adjustment to retroactively
        capitalize   the   asset.   Additionally,   the   Company   recalculated
        amortization  expense for the years  ended March 31, 2004 and 2003;  for
        which, the adjustments have been presented in the financial statements.

16.     Earnings Per Share

        The following is an illustration of the reconciliation of the numerators
        and denominators of the basic and diluted EPS computations:

<TABLE>
<CAPTION>

                                                      For the year ended March 31, 2005
                                                      ---------------------------------
                                        Income        Shares        Per Share Amount
                                        (Numerator)   (Denominator) (Amount)
                                        -----------   ------------  -------------------
<S>                                     <C>
Net income                              $ 3,289,519          --               --
                                        ===========
Basic EPS:
    Income available to
    common stockholders                 $ 3,289,529    31,956,688   $        0.103

Effect of diluted securities:
    Warrants and options  Convertible          --       2,875,000             --
    preferred stock                            --       4,095,170             --
                                        -----------   -----------   --------------
Diluted EPS:
    Income available to common
    Stockholders and assumed
    Conversions                         $ 3,289,529    38,926,858   $        0.085
                                        ===========   ===========   ==============
</TABLE>











                                      F-17