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, 2004

[ ]      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               (IRS Employer Identification No.)
of 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

Name of exchange on which registered: N/A

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

Name of exchange on which registered: OTC Bulletin Board


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

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

       Issuer's revenues for its most recent fiscal year were $5,365,353.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant as of June 30, 2004 was$14,621,512.  The number of shares outstanding
of the issuer's common stock, par value $.001 per share, as of June 30, 2004 was
31,631,823 shares, of which 22,494,634 were held by non-affiliates.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the  Registrant's  Proxy Statement to be used in connection with the
solicitation  of  proxies  voted at the  Registrant's  2004  Annual  Meeting  of
Shareholders are incorporated by reference in Part III as specified.


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




<PAGE>


                                Table of Contents


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


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


   Item 2.  Description of Property..........................................14


   Item 3.  Legal Proceedings................................................15


   Item 4.   Submission of Matters to a Vote of Security Holders.............15

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


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


   Item 6.   Management's Discussion and Analysis............................17


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


   Item 8. Changes in and Disagreement With Accountants
           on Accounting and Financial Disclosure............................22


   Item 8A.  Controls and Procedures.........................................22

PART III.....................................................................23


   Item 9.  Directors,  Executive  Officers,  Promoters
            and Control  Persons;  Compliance  with Section
            16(a) of the Exchange Act........................................23


   Item 10.  Executive Compensation..........................................23


   Item 11.  Security Ownership of Certain Beneficial
             Owners and Management...........................................23


   Item 12.  Certain Relationships and Related Transactions..................23


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


   Item 14.  Principal Accountant Fees and Services..........................25

 Consolidated Financial Statements..........................................F-1



<PAGE>
                                     PART I

Item 1.  Description of Business

         Certain  statements  in this annual  report on Form  10-KSB  constitute
forward-looking  statements  within the meaning of Section 27A of the Securities
Act and Section 21E of the  Exchange  Act.  You should  regard any  statement in
these   sections  that  is  not  a  statement  of   historical   fact  to  be  a
forward-looking  statement of management's beliefs,  expectations and plans, all
of which  may be  adversely  affected  by risks and other  factors  outside  the
control of the Company. Actual results may differ significantly from the results
discussed  in the  forward-looking  statements.  Factors that might cause actual
results to vary from the views expressed in forward-looking  statements include,
but are not limited to, risk factors discussed below in "-Certain Risk Factors."

Overview

         We  primarily  develop  and sell  management  software  for  automobile
dealerships.  The operating  similarities  between  automobile,  marine,  RV and
powersports  dealerships  makes  our  software  attractive  to  marine,  RV  and
powersports  dealerships  as well.  We are currently  licensing  our  management
software to marine and RV  dealerships  and are moving into  providing  software
solutions  to dealers of power  sports  equipment,  such as  motorcycles,  ATVs,
snowmobiles and watercraft.

         Our most important  product is our ARKONA Dealer  Management Suite (the
"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 dealer  because the  significant  processing  is done on computers
maintained at offsite locations that are maintained by us. The dealer 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 connection  with the ADMS software,  we provide  training to
employees of the dealers,  and for a monthly fee, we provide  technical  support
and regular software updates.

         Our  potential  customers  include  new car  dealerships  and  used car
dealerships,  and we are beginning to pursue dealers of  powersports  equipment.
According  to a market  study by the  National  Automobile  Dealers  Association
(NADA),  the market for automobile dealer management systems is dominated by two
major players:  Automatic Data Processing  Inc.  ("ADP") and Reynolds & Reynolds
("Reynolds"). According to the NADA, ADP and Reynolds together control about 76%
of the  market  for  automobile  dealer  management  systems,  with  ARKONA  and


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<PAGE>

Universal  Computer  Systems  ("UCS") and eight other DMS providers  sharing the
remainder of the market. ADP recently purchased the Automotive Retail Group from
EDS and  ProQuest's  Powersports  unit.  Both of these  acquired  companies were
competitors to ARKONA.

         ADP and Reynolds are large well-financed organizations;  they have good
brand  recognition,  and their systems  integrate with all the major  automobile
manufacturers.  Their market dominance creates significant barriers to entry for
us because many  dealerships are hesitant to abandon their existing  systems and
switch to a new system  provided by a smaller  company with  limited  resources.
However, we presently are able to offer a technologically  superior product at a
price that is substantially lower than the standard pricing of Reynolds, ADP and
UCS. We are optimistic  that our technology and price  advantages  will continue
and permit us to rapidly expand our customer base.

         We market our products  primarily  through five traveling  salespeople,
one in-house  salesperson and one marketing  person. We also market our products
via  trade  shows,  seminars,   press  releases,   customer  referral  programs,
relationships  with suppliers,  automobile  manufacturers and industry partners,
and  advertisements  in  trade  publications.   We  also  encourage   automobile
manufactures  to  designate  ARKONA  as  a  preferred   provider  of  dealership
management  software for their dealers.  We are currently the preferred provider
of  dealership  management  software  for  Mitsubishi  USA, and we are trying to
become the  preferred  provider of  dealership  management  software for BMW and
Suzuki motorcycles.

Products and Services

         The ARKONA Dealer Management Suite

         Our main product is the ARKONA Dealer  Management  Suite. The ADMS is a
software suite that allows an automobile,  marine, RV and powersports dealers to
automate  and  effectively  manage  all  aspects  of  its  business  operations,
including its 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  dealer'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 numerous  other  functions  work  together in
order  to  integrate,  automate  and  streamline  the  various  functions  of an
automobile dealer.

         The ADMS software's  modular  structure  allows a dealer 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


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<PAGE>

updating,  of a particular function without the need to alter other functions or
modules.  This  permits us to quickly  customize  a software  system to meet the
needs of dealers of diverse sizes and with varying needs.

         Another key  advantage  of the ADMS  software is its ability to operate
using 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 has several important advantages:

         o    It  significantly  reduces most upfront and ongoing hardware costs
              for the  dealer  because  the  significant  processing  is done on
              computers  maintained at offsite  locations.  The dealer uses only
              basic computers with reliable Internet access.

         o    It  significantly  reduces the need to  maintain  or  periodically
              upgrade  computer  operating  systems because the computers at the
              dealership need only Internet access.  The operating  systems that
              are actually running the ADMS software and processing the data are
              on the computers at the offsite locations, and those computers are
              maintained by ARKONA.

         o    It has a much lower cost of implementation because the dealer pays
              only for access to the  software  and  purchases  basic  computers
              capable of providing reliable Internet access. The dealer does not
              need to actually purchase the software and, as mentioned, does not
              need to have hardware capable of running the software.

         o    It lowers  maintenance  costs  because all  software  upgrades and
              maintenance is done by ARKONA at the offsite location.

         o    It  reduces  the need for  technical  computer  personnel  because
              ARKONA manages and maintains the software and the related hardware
              at the offsite location.

         Our ADMS  software  and the ASP system are highly  reliable and secure.
The ADMS software uses password administration features that allow the dealer to
establish  access  levels for different  users.  The dealer 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.  We use
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
excludes  hosts from outside the private  network even if they are on the public
network. The ASP system is maintained at a secure 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  state-of-the-art  security  and fire  detection  and  suppression
systems.

         Installation  of the ADMS software at a dealership is typically done by
a three-person  installation team who are members of our 38-person  installation
department.  A typical installation takes about 200 to 240 man hours and is done
over a three week period.

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<PAGE>

Dealer-Manufacturer Communications

         Our 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 dealer'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 dealer to integrate  and
share  information  about warranty service claims,  parts,  vehicle orders,  and
other similar  information with the manufacturer can save the dealership and the
manufacturer   thousands  of  dollars  a  month.  We  have  recently   dedicated
substantial  resources to making our ADMS software integrate with the systems of
the major automobile  manufacturers.  Our system  currently  integrates with the
systems of Ford,  Lincoln-Mercury,  GM, Dodge, Chrysler, Jeep, BMW, MINI, Honda,
Acura,  Suzuki,  Mitsubishi,  Mazda,  and Isuzu.  Our system does not  currently
integrate with Toyota, Nissan, SAAB, Volvo, Jaguar, Land Rover, Subaru, Hyundai,
and  Porsche.  We are in the process of  completing  requirements  for  VW/Audi,
Mercedes Benz and KIA  communications.  To date, Toyota,  Nissan and Jaguar have
exclusive  relationships  with our  competitors  and have denied our requests to
integrate our ADMS software with their  systems.  Also, we are in the process of
integrating  our ADMS  software  with the  major  manufacturers  of  powersports
equipment.

     LoyaltyTRAC Cards

     Dealers  using our ADMS  software  can take  advantage  of our  LoyaltyTRAC
program.  Under the  LoyaltyTRAC  program,  dealers  receive cards with embedded
microchips that are branded with the dealers logo and graphics.  The dealers can
program those cards with various incentives, credits and discounts and then give
those cards to its customers.  The LoyaltyTRAC  cards can be scanned through the
ADMS  system  and the  various  credits  on the card  tracked  through  the ADMS
software.

     Bar Coding Products

     Bar  coding is an  important  part of a dealer  management  system.  We are
continually  upgrading  the bar coding  capabilities  of the ADMS  product,  and
during the year ended March 31, 2004,  we developed a bar coding  system for the
vehicle inventory module that significantly  improves the time and cost involved
with maintaining vehicle inventories.  During the year ending March 31, 2005, we
plan to implement bar coding capabilities for our parts and service modules.

     Training and Support Services

     We continue to improve our training and customer support services.  This is
important to dealers because employee turnover and growth at dealerships creates
the need for ongoing training on ADMS.. We currently provide detailed  self-help
manuals,  classroom training at our offices,  onsite training, and training over
the  Internet.  During the year ending March 31, 2005,  we plan to create ARKONA
University.  ARKONA  University's  purpose  will  be to  integrate  the  ongoing
training of employees of dealers and integrate our current  onsite,  offsite and
Internet training  programs.  We are in the process of creating  curriculums and
materials  for  ARKONA  University.  For a monthly  fee,  we  provide  unlimited
technical and customer  support for our ADMS  product.  We are in the process of
developing  an  Internet-based  support  system  that  will  have  pre-recorded,
step-by-step  instructions  for frequently  requested  tasks. We expect that the
system will be available beginning the third quarter of fiscal year 2005.

                                       4
<PAGE>

Markets

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

         Automobile Dealership Market

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

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

         o    Pressure  on profit  margins in all  departments  is  expected  to
              encourage  dealers to  improve  management  procedures,  marketing
              skills and performance in every  department.  We believe 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.

         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
              dealers 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   the  computer   systems  of
              dealerships and manufacturers.

         We view these trends as positive  because we believe our ADMS  software
is feature-rich and highly flexible and will help automobile  dealers meet those
challenges better than our competitors products.

                                       5
<PAGE>

         Powersports Market

         The  powersports  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.  During 2003,  industry  sales were up  approximately  5% over 2002.  The
industry  is  highly   fragmented  with  almost  6,000   franchised   motorcycle
dealerships, most of which are individually owned.

         Many  of the  powersports  dealership  owners  are  motorcycle,  ATV or
snowmobile  enthusiasts with minimal business  training.  The largest dealership
group  generated  revenues of  approximately  $100 million in 2001, or less than
1.0% of total industry sales.

         We are encouraged by our initial research, marketing and selling to the
powersports  market and  believe we can have a  positive  impact on dealers  and
their  businesses.  We expect to deliver a strong  solution  to  dealers  during
fiscal year 2005.  Powersports  dealers who have already  purchased from tell us
they like our product features , attractive  pricing,  and technical  expertise.
ARKONA will  continue  enhance our  product  offering  during the coming year to
incorporate  powersports specific  capabilities that dealers feel are necessary.

Competition

         Automobile Market

         According  to a market  study by the NADA,  the market  for  automobile
dealer  management  systems is dominated by two major  players:  Automatic  Data
Processing Inc. and Reynolds & Reynolds. According to the NADA, ADP and Reynolds
together  control  about 76% of the  market  for  automobile  dealer  management
systems,  with ARKONA,  Universal Computer Systems and eight other DMS providers
sharing the remainder of the market.

         ADP and Reynolds are large, well-financed organizations; they have good
brand  recognition;  and their systems  integrate with all the major  automobile
manufacturers. Their market dominance also creates significant barriers to entry
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 our ADMS product cannot yet integrate. The
price of ADP's and Reynolds'  dealership  systems is  significantly  higher than
ours, and we believe that their  products are generally  antiquated and inferior
to our ADMS product and its ability to run on an ASP model.

         ADP and  Reynolds  have had less  success  penetrating  the  market for
independent  and used-car  dealerships.  Because our products are less expensive
and fully  featured,  we have been successful in competing with ADP and Reynolds
in the market for independent and used-car dealerships.

                                       6
<PAGE>

         Powersports Market

         The  following  companies  sell  dealer  management  systems  into  the
powersports market: Comptron, ProQuest Powersports, MIC, ARI Networks, C Systems
and Shoptech.  Of these  competitors,  ProQuest  Powersports  is the most widely
used. ProQuest Powersport's  Lightspeed product has over 80% market penetration.
As with the leading providers in the automobile market, ProQuest is experiencing
a lot of push-back and dissatisfaction from dealers because of their pricing and
business practices.  This opens the door for ARKONA to begin to win market share
by delivering more value for less money.

         It should be noted that ADP recently purchased ProQuest Powersports. We
will  see  in  the  coming  months  if  this  enhances  or  diminishes  ProQuest
Powersport's presence in the market.

Sales and Marketing

         We market our products primarily through five traveling salespeople who
are headquartered in Utah, one in-house salesperson and one marketing person. We
also market our products through trade shows, seminars, press releases, customer
referral programs,  relationships with suppliers,  automobile  manufacturers and
industry partners, and advertisements in trade publications.

We also work with automobile  manufacturers and dealer associations by trying to
become a manufacturer's  preferred service provider for dealership software.  We
have  entered  into an agreement  with  Mitsubishi  USA pursuant to which we are
Mitsubishi  USA's preferred  service  provider,  and we are working with BMW and
Suzuki  motorcycles  to be their  preferred  service  provider.  We also  pursue
automobile  dealer  associations  and try to sell  our  ADMS  product  to  their
members.

Intellectual Property

         We believe our  intellectual  property is critical to our  success.  We
rely on  copyright,  trademark  and  trade  secret  protection  to  protect  our
intellectual  property.  We rely on common law  copyright  law,  and we have not
formally patented or copyrighted any of our intellectual property. All employees
involved in software development are asked to sign confidentiality and invention
agreements.  There is a risk that our  intellectual  property may be challenged,
invalidated or circumvented,  or our intellectual property may fail to provide a
competitive advantage.

         We spent  $753,423  during the year ended March 31,  2004 and  $635,922
during  the  year  ended  March  31,  2003  on  company-sponsored  research  and
development.

Employees

         As of March 31, 2004, in addition to five corporate officers, we had 64
employees  consisting of nine computer  programmers,  eight  marketing and sales
employees,  45 installation and support  employees,  and two  administrative and
clerical  employees.  None of our  employees  are  represented  by a  collective
bargaining organization, and we consider our relationship with all our employees
to be  satisfactory.  The  employment  agreements  with our  President,  Richard


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<PAGE>

Holland,  and our Vice  President  of  Customer  Support,  Blake  Nielson,  have
expired,  but such agreements remain  enforceable on a terminable  at-will basis
(with  non-competition  provisions  surviving  two years  following  the date of
termination).  We do not have  written  employment  agreements  with  our  other
executive  officers,  but expect to negotiate written agreements with all of our
key management personnel during the coming years.

Corporate History

         ARKONA was formed as a Delaware  corporation in 1992 and was originally
named The  Thorsden  Group,  Ltd. In 1997,  we  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, we changed our name to Sundog Technologies, Inc. In 2000, we purchased the
business and all the assets of Ensign Information  Systems,  which developed and
sold  automobile   dealership  software.   In  2001,  we  abandoned  our  remote
synchronization business, merged with our wholly owned subsidiary, ARKONA, Inc.,
and changed our name to ARKONA, Inc.

Certain Risk Factors

         Our short and long-term  success is subject to certain  risks,  many of
which are  substantial in nature.  You should  carefully  consider the following
risk factors,  in addition to other information  contained in this report as you
evaluate  us and our  business.  Any one of these  factors  could  cause  actual
results of our operations to differ materially from projected results.

We have  incurred  substantial  losses since our  inception  and may continue to
incur losses in the future.
--------------------------------------------------------------------------------
         We  recognized  a profit for the first time during the year ended March
31,  2004.  Prior to that,  we had  experienced  net losses in year period since
inception and have an  accumulated  deficit of  approximately  $20,345,347 as of
March 31, 2004.  Although we have  projected  that we will  continue to generate
positive cash flow from  operations  and earn a net profit during the year ended
March 31, 2005 and thereafter, those projections assume that we will continue to
add new  customers  at a  constant  or  increased  rate and  that our  operating
expenses will increase slower than our revenues.  We may not be able to continue
to add new  customers  at a constant or  increased  rate,  and we may even begin
losing customers.  Assuming we add more customers,  our labor costs,  server and
other  capital  equipment  costs  and  other  expenses  may  begin  to  increase
dramatically,  or we may  experience  unexpected  costs  related to  litigation,
insurance,  acquisitions,  product development,  financing transactions or other
items that may cause our expenses to increase at a faster rate than expected. We
may not be able to  maintain  profitability  or  increase  profitability  in the
future.

We may require  additional  capital to continue  development of our products and
fund our operations.
--------------------------------------------------------------------------------
         Although we believe that we have working capital sufficient to meet our
immediate  obligations,  that  belief  assumes  that we will not  experience  an
unexpected  need  for cash and will  not  significantly  expand  our  operations
through acquisition or otherwise. We do not have a significant cash reserve, and
our cash flow  from  operations  is  presently  approximately  equal to our cash


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<PAGE>

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


We may be unable to increase  the number of  customers  using our ARKONA  Dealer
Management Suite product or other future products.
--------------------------------------------------------------------------------
         ADMS product is relatively new to the market, and we are operating in a
market where two  competitors  control 80% of the market and have a  significant
advantage  relative  to  market  acceptance.  Any  projections  or  expectations
regarding  the number of  customers  that will accept  installation  of our ADMS
product is subject to the risk that  end-users  may decide not to  purchase  our
ADMS product at the rate projected because of our insignificant  position in the
market, concerns over our ability to continue as a going concern, concerns about
our product, cost cutting by our competitors or various other reasons. If we are
unable to increase our monthly  installations of our ADMS product in the future,
it is unlikely that we will maintain profitability.


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

Software  products  tend to evolve  rapidly,  and our  competitors  may  develop
products that are technically superior to our products.
--------------------------------------------------------------------------------
         Our 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 we continually
improve the performance,  features and reliability of our software, particularly


                                       9
<PAGE>

in  response  to  competitive  offerings  by other  companies.  There  can be no
assurance  that  we  will  be able to  respond  quickly,  cost  effectively  and
sufficiently to these developments.

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

         There  can also be no  assurance  that  research  and  development  and
discoveries  by others will not render some or all of our  products or potential
product  offerings  uncompetitive  or  obsolete.  We  compete  with a number  of
entities that are currently  developing  and  producing  software  products that
compete with our current and proposed  products.  Many of these competitors have
substantially greater capital resources,  research and development capabilities,
and production and marketing resources, capabilities and experience than we have
available to us. These  competitors may succeed in developing  products that are
more  effective  or less costly than any products  that we may develop,  or that
gain market acceptance prior to any of our products,  making market  penetration
more difficult for us.

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

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

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

                                       10
<PAGE>

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

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

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

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

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

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

We rely on our  intellectual  property  rights,  and if we are unable to protect
these  rights,  we may  face  increased  competition,  and our  business  may be
materially adversely affected.
--------------------------------------------------------------------------------
         We regard our  intellectual  property,  particularly  our ARKONA Dealer
Management  Suite,  as  critical  to our  success,  and we  rely on  common  law
copyright  and trade  secret  protection  to protect our  proprietary  rights in
intellectual   property.   Any  of  our  intellectual  property  rights  may  be
challenged,  invalidated or circumvented,  or the rights granted  thereunder may
not provide any competitive advantage.  We could also incur substantial costs in
asserting  our  intellectual  property or  proprietary  rights  against  others,
including any such rights  obtained  from third  parties,  and/or  defending any
infringement  suits  brought  against us.  Although  each of our  employees  and
consultants is asked to enter into a  confidentiality  and invention  agreement,
there can be no assurance that such  agreements  will be honored or that we will
be able to effectively protect our rights to trade secrets and know-how.

         In  addition,   there  can  be  no  assurance   that  others  will  not
independently  develop  substantially  equivalent  proprietary  information  and
techniques or otherwise gain access to our trade secrets and know-how. We may be
required to obtain licenses to intellectual property or other proprietary rights
from  third  parties.  Such  licenses  or  proprietary  rights  may  not be made


                                       11
<PAGE>

available  under  acceptable  terms,  if at all.  If we do not  obtain  required
licenses or proprietary rights, we could encounter delays in product development
or find that the  development  or sale of products  requiring  such  licenses is
foreclosed.

We may be  subject  to claims  based  upon  allegations  that our  products  are
defective.
--------------------------------------------------------------------------------
         We have not experienced product liability claims to date. However,  our
products include programs designed for mission critical  applications,  creating
the risk that the failure or  malfunction  of our products may result in serious
damage or loss and expose us to a claim for  damages.  Although  contract  terms
limit our exposure,  there can be no assurance that a court would not rule those
terms to be invalid or  unenforceable,  or that  changes in the law would render
those  terms void or  unenforceable.  A  successful  claim could have a material
adverse  effect  on our  operations  and  finances.  Furthermore,  the  cost  of
defending against a claim, even  successfully,  could be material and could have
an adverse  effect on our  results of  operations  and an adverse  effect on the
marketing of our products.

Trading in our common  stock is thin,  and there is a limit to the  liquidity of
our common stock.
--------------------------------------------------------------------------------
         Our common  stock is quoted on the OTC  Bulletin  Board.  The volume of
trading  in  our  common  stock  is  limited  and  likely  dominated  by  a  few
individuals.  Because of the thinness of the market for our stock,  the price of
our common stock may be subject to manipulation. In addition, the limited volume
of trading  limits  significantly  the number of shares that one can purchase or
sell in a short  period  of time.  Consequently,  an  investor  may find it more
difficult  to dispose  of shares of our common  stock or obtain a fair price for
our common stock in the market.

Our management hold a significant number of our outstanding  shares,  which will
allow them to influence  the outcome of matters  submitted to  stockholders  for
approval.
--------------------------------------------------------------------------------
         Our management owns and has the power to vote  approximately 28% of our
issued and outstanding  common stock.  Three  additional  shareholders  have the
power to vote approximately 11% of our issued and outstanding common stock. As a
result,  these  stockholders  have  substantial  control over matters  requiring
approval by our stockholders,  such as the election of directors and approval of
significant corporate transactions. In addition, this concentration of ownership
may also have the effect of delaying or preventing a change in control.

Our shareholder rights plan and certain provisions in the Delaware corporate law
may permit our board to block a takeover  attempt and adversely affect the value
of our common stock.
--------------------------------------------------------------------------------
         Our board of directors adopted a shareholder  rights plan, and declared
a  dividend  of an  associated  right,  which are  expected  to have the  effect
deterring any takeover of the Company that is not preceded by board  approval of
the proposed  transaction.  The  existence of such  shareholder  rights plan may
deter potential tender offers for our common stock or other  acquisition  offers
and may have the effect of delaying or preventing a change of control.

         In addition,  the Delaware  General  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

                                       12
<PAGE>

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

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

         o    Manipulation   of  our   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  in our  common  stock  in  the  United  States  or
              overseas,
         o    Announcements  by  us  or  competitors  concerning   technological
              innovations,  new  products or  procedures  developed by us or our
              competitors,
         o    The adoption or amendment of governmental  regulations and similar
              developments  in the United  States  and  foreign  countries  that
              affect  our  products  or  markets  specifically  or  our  markets
              generally,
         o    Disputes relating to proprietary rights,
         o    Publicity  regarding  actual  or  potential  results  relating  to
              product candidates under development by us or a competitor,
         o    Slow acceptance of our 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, and
         o    Economic and other external factors,  as well as  period-to-period
              fluctuations in financial results.

Our ability to issue  preferred  stock may  significantly  dilute  ownership and
voting power and negatively affect the price of our common stock.
--------------------------------------------------------------------------------
         Under our certificate of incorporation,  as amended,  we are authorized
to issue up to 10,000,000  shares of preferred stock. Our Board of Directors has
the authority to create various  series of preferred  stock with such voting and
other  rights  superior  to those of our  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 our common stock and may have a
negative effect on the price of our common stock.

                                       13
<PAGE>

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

Our common stock is a "low-priced  stock" and subject to regulation  that limits
or restricts the market for our stock.
--------------------------------------------------------------------------------
         Shares of our common stock may be deemed to be "penny stock," resulting
in increased  risks to our investors and certain  requirements  being imposed on
some brokers who execute  transactions in our common stock. In general,  a penny
stock is a an equity security that:

         o    Is priced under 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; and
         o    Is issued by a company  that has less than $5  million  dollars in
              net  tangible  assets (if it has been in business  less than three
              years) or has less than $2 million  dollars in net tangible assets
              (if it has been in business for at least three years); and
         o    Is issued by a company  that has average  revenues of less than $6
              million for the past three years.

         We believe that our common  stock is presently a "penny  stock." At any
time the common stock  qualifies as a penny stock,  the following  requirements,
among others, will generally apply:

         o        Certain  broker-dealers  who recommend  penny stock 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, certain  broker-dealers must deliver to certain
                  purchasers  the  following:
                  o     bid and offer price quotes and volume information;
                  o     the broker-dealer's compensation for the trade;
                  o     the  compensation  received by certain  salespersons for
                        the trade;
                  o     monthly accounts statements; and
                  o     a  written   statement  of  the   customer's   financial
                        situation and investment goals.

                                       14
<PAGE>

         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 our common stock.

Item 2.  Description of Property

         We own no real  property.  We  currently  lease an 11,800  square  foot
facility  located at 10542 South Jordan Gateway,  Suite 200, South Jordan,  Utah
84005. We conduct all of our corporate, administrative, research and development
activities  at this  facility.  The lease of the  facility  will expire July 31,
2005,  and our base monthly lease payment is $20,225 per month.  The  facilities
are in good condition, and we believe they will adequately serve us for at least
another year. Because our current facilities are adequate,  we do not anticipate
any expansion of existing facilities or any acquisition of additional facilities
for at least one year.

Item 3.  Legal Proceedings

         None.

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, for the periods indicated, the high and low
bid quotations for our common stock as reported on the OTC Bulletin  Board.  Our
common stock is traded on the OTC Bulletin Board under the symbol ARKN.OB.

         Fiscal Year Ended March 31, 2003                 High           Low
                                                       -----------   ----------
         Quarter ended June 30, 2002                        $0.60         $0.34
         Quarter ended Sept. 30, 2002                       $0.60         $0.20
         Quarter ended Dec. 31, 2002                        $0.44         $0.16
         Quarter ended March 31, 2003                       $0.26         $0.17

         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
--------------------------------------------------------------------------------
         Fiscal Year Ended March 31, 2005
         Quarter ended June 30, 2004 (through June
         21, 2004)                                          $0.71         $0.58
--------------------------------------------------------------------------------

                                       15
<PAGE>

         The quotations  set forth above reflect  inter-dealer  prices,  without
retail  mark-up,  mark  down  or  commission,   and  may  not  represent  actual
transactions.  The last sale price of our common  stock,  as reported on the OTC
Bulletin Board on June 30, 2004 was $0.65 per share.

Outstanding Shares and Number of Shareholders
---------------------------------------------

         As of June 30, 2004, there were approximately  31,631,823 shares of our
common  stock  issued  and  outstanding,  which were held by  approximately  500
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
approximately 11 holders of record.  We have never declared or paid dividends on
any class of our equity securities, and we currently intend to retain any future
earnings for use in our business and do not  anticipate  paying any dividends on
our outstanding common stock in the foreseeable future.

Securities Authorized for Issuance Under Equity Compensation Plans
------------------------------------------------------------------

         Set forth below is information,  as of March 31, 2004, 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       Weighted average         future issuance under
                              be issued upon exercise       exercise price of      equity compensation plans
                              of outstanding options,     outstanding options,       (excluding securities
       Plan category            warrants and rights        warrants and rights      reflected in column (a))
---------------------------  -------------------------  -------------------------  --------------------------
                                        (a)                        (b)                        (c)
<S>                                  <C>                          <C>                      <C>
Equity compensation plans
  approved by security
  holders(1)                         2,760,000                    $0.32                    3,335,000

Equity compensation plans
  not approved by security
  holders(2) Nil Nil Nil

Total                                2,760,000                    $0.32                    3,335,000
</TABLE>

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

                                       16
<PAGE>

         (2) Does not  includes  secondary  options  with  respect to  1,475,000
shares of our common stock granted to our  officers,  directors and employees by
shareholders  of the Company.  In 1999,  certain  founding  shareholders  of our
company entered into an agreement with Caldera Holding Company,  L.C., an entity
which is independent  of ARKONA,  pursuant to which Calderas was given the right
to grant secondary  options to third parties with respect to 1,550,000 shares of
common  stock owned by the founders in order to encourage  the  development  and
increased  productivity of ARKONA.  Under the agreement  between Caldera and the
founders,  the secondary options are required to have an exercise price of $0.30
per share and expire no later than December 31, 2006.  Because these options are
granted by shareholders of the Company with respect to outstanding  stock,  upon
the  exercise of these  options,  the Company  will not receive any proceeds and
will not issue any additional shares of common stock.

Recent Sales of Unregistered Securities
---------------------------------------

         We did not offer or sell any unregistered  securities during the fiscal
quarter ended March 31, 2004.

Item 6.   Management's Discussion and Analysis

Overview

         We  primarily  develop  and sell  management  software  for  automobile
dealerships.  The operating  similarities  between  automobile,  marine,  RV and
powersports  dealerships  makes  our  software  attractive  to  marine,  RV  and
powersports  dealerships  as well.  We are currently  licensing  our  management
software to marine and RV  dealerships  and are moving into  providing  software
solutions  to dealers of power  sports  equipment,  such as  motorcycles,  ATVs,
snowmobiles and watercraft.

         Our most important  product is our ARKONA Dealer  Management Suite. 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 dealer
because the  significant  processing is done on computers  maintained at offsite
locations  that are  maintained by us. The dealer 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 connection with
the ADMS software,  we provide  training to employees of the dealers,  and for a
monthly fee, we provide technical support and regular software updates.

         Our  potential  customers  include  new car  dealerships  and  used car
dealerships,  and we are beginning to pursue dealers of  powersports  equipment.
According to a market study by the National Automobile Dealers Association,  the


                                       17
<PAGE>

market  for  automobile  dealer  management  systems is  dominated  by two major
players:  Automatic Data Processing  Inc. and Reynolds & Reynolds.  According to
the  NADA,  ADP and  Reynolds  together  control  about  76% of the  market  for
automobile dealer management systems, with ARKONA and Universal Computer Systems
and eight other DMS providers sharing the remainder of the market.  ADP recently
purchased the Automotive Retail Group from EDS and ProQuest's  Powersports unit.
Both of these acquired companies were competitors to ARKONA.

         ADP and Reynolds are large well-financed organizations;  they have good
brand  recognition,  and their systems  integrate with all the major  automobile
manufacturers.  Their market dominance creates significant barriers to entry for
us because many  dealerships are hesitant to abandon their existing  systems and
switch to a new system  provided by a smaller  company with  limited  resources.
However, we presently are able to offer a technologically  superior product at a
price that is substantially lower than the standard pricing of Reynolds, ADP and
UCS. We are optimistic  that our technology and price  advantages  will continue
and permit us to rapidly expand our customer base.

         We  were  profitable  during  FY 2004  for the  first  time  since  our
inception.  Our net  income/(loss)  increased  by  $3,556,056,  to net income of
$1,996,971 for FY 2004,  from a net loss of $1,559,085 for FY 2003.  Much of the
increase in net income was  attributable to an income tax benefit of $1,560,000.
The increase in net income before the taxes is due primarily to increased sales,
increased recurring support charges, decreases in expenses and general increases
in efficiency.  As explained in greater detail below,  we expect our expenses to
increase  significantly in the coming year as we continue to expand our software
development and installation  headcount in order to improve our product offering
and accelerate growth. As a result of such intended increases in expenses, we do
not expect net income to  continue  to grow at the rate it did during FY 2004 or
at the same rate as our expected increases in revenue.

Results of  Operations  for the Fiscal  Years Ended March 31, 2004 and March 31,
2003

         Revenue
         -------

         Revenue  increased  by  $2,293,071  to  $5,365,353  for  FY  2004  from
$3,072,282 for FY 2003. This increase is due to our continued  success replacing
our  competitors'  systems  with  the  ADMS.  For FY  2004,  revenue  from  ADMS
installations increased by $1,230,912, to $2,736,330 or 51% of total revenue for
FY 2004, from $1,505,418 or 48% of total revenue for FY 2003. We believe that we
will  continue  to be able to replace  our  competitors'  systems  with the ADMS
because we believe  our  system is  superior  to our  competitors'  systems  and
because our improved  financial  stability  gives  customers more comfort in our
reliability.  We believe that our revenues from new installations  will continue
to grow as we begin  providing  software  solutions  to dealers of power  sports
equipment, such as ATVs, snowmobiles and boats.

         In  addition  to  revenue  from new  installations,  our  revenue  from
recurring  monthly services has grown.  Revenue from recurring  monthly services
increased by $1,047,021, to $2,521,716 or 47% of total revenue for FY 2004, from
$1,474,695  or 49% of total  revenue for FY 2003.  This  increase  in  recurring
revenue is due to the increase in the size of our installed base. As of the date


                                       18
<PAGE>

of this report,  our revenue from recurring  monthly  services is  approximately
$300,000  per month.  We expect  revenue  from  recurring  monthly  services  to
continue to grow as a percentage for total revenue in the coming year.

         Revenue from consulting  services  increased by $15,139 to $107,307 for
FY2004 from $92,168 for FY 2003.  We provide  consulting  services when asked by
customers,  but we do not actively market  consulting  services because we focus
our limited marketing resources on higher margin sources of revenue.

         Operating Expenses
         ------------------

         Operating  expenses  are  comprised  of cost  of  sales;  research  and
development  expense;  and  marketing,   general  and  administrative   expense.
Operating  expenses  increased  by $290,182,  to  $4,886,670  for FY 2004,  from
$4,596,488 for FY 2003.  Operating expenses as a percentage of revenue decreased
by 59%, to 91% of total  revenue for FY 2004,  from 150% of total revenue for FY
2003.  This decrease in operating  expenses as a percentage of revenue  resulted
primarily  from a  reduction  in cost  of  sales  as a  percentage  of  revenue,
decreases in travel  expenses,  decreases  in  professional  fees,  decreases in
amortization  of  intangible  assets  and the  capitalization  of a  portion  of
research and development  costs. We expect operating expenses to increase during
the next twelve months as we continue  developing and promoting our products and
services.  We  currently  have  the  capacity  to  install  the ADMS in 10 to 14
dealerships a month. We plan to increase that capacity to 20 or more dealerships
a month.  We believe the  increase in  infrastructure  necessary to achieve that
increase in capacity will be  significant  and will  significantly  increase our
operating expenses.

         Cost of Sales
         -------------

         Cost of sales  increased by $892,948,  to $2,424,654 for FY 2004,  from
$1,531,706  for FY 2003.  Cost of sales as a percentage of revenue  decreased by
5%, to 45% of total revenue for FY 2004,  from 50% of total revenue for FY 2003.
The 5%  decrease  in cost of sales  as a  percentage  of  revenue  is  primarily
attributable  to  increased  efficiencies  in our  installation  procedures.  An
example  of the  increased  efficiencies  is how  we  provide  post-installation
support.  We now  dedicate  one  individual  in  our  support  department  to be
responsible for a new dealership for two to six weeks after an installation.  By
having  a  dedicated  individual  provide  post-installation   support,  we  can
anticipate  many  potential  problems  and solve them before the  customer  even
notices the problem. After the two to six weeks of post-installation monitoring,
new customers are transitioned to our regular customer support department.  This
is an example of how we have made the  installation  process more  efficient and
thereby reduced our installation costs.

         To maintain our revenue growth, we are frequently  hiring  installation
and support  technicians.  To support this growth, we have improved our training
programs.  A year ago a new technician needed up to six months of training to be
effective.  With our new training  programs our new  technicians  are able to be
effective  in half  that  time.  Also,  as we  grow,  our  base  of  experienced
installation  technicians  grows. This growing base of experienced  technicians,
together  with  improved  training  programs  and  more  efficient  installation
procedures,  has resulted in lower cost of sales. Now that we are profitable, we
plan to expand our  operations  more  rapidly by hiring more  technical  support
technicians.  Because of our expansion plans, we do not expect our cost of sales
as a percentage of sales to decrease as it did last year.

                                       19
<PAGE>

         Research and Development Expense
         --------------------------------

         Research and development expense decreased by $134,499, to $501,423 for
FY 2004,  from $635,922 for FY 2003. The decrease is primarily the result of the
capitalization of $252,000 in research and development  expenses.  Including the
capitalized portion,  the amount we spent on research and development  increased
by $117,501 or 18%, to $753,423  for FY 2004,  from  $635,922  for FY 2003.  The
increase in the total amount spent on research and  development is due primarily
to our  hiring  of  additional  software  developers  and a  continued  focus on
research  and  development.  We believe  research and  development  will play an
important  roll  in our  future  success.  Our  goal  is to  keep  our  software
technologically ahead of the competition, and we expect research and development
expense to grow in the future.

         Marketing, General and Administrative Expense
         ---------------------------------------------

         Marketing, general and administrative expense decreased by $468,267, to
$1,960,593 for FY 2004,  from  $2,428,860 for FY 2003. The decrease is primarily
attributable to decreases in travel  expenses,  decreases in professional  fees,
and  decreases  in  amortization  of  intangible  assets.  We are  committed  to
minimizing  overhead expenses.  One way we try to do that is by taking advantage
of available  technology.  We have  decreased  travel  expense by making product
presentations primarily via the Internet instead of traveling to the prospective
customer's location.  The number of onsite visits to one customer have also been
dramatically  reduced  because  our  sales  staff  has  increasingly  presented,
negotiated  and signed  contracts  via the Internet and overnight  delivery.  We
expect to continue to improve these technology-based efficiencies as we complete
the  implementation of an Oracle web conferencing  application.  This technology
will allow us to provide  video and sound via the Internet  for  demonstrations,
sales, and training.

         Net Income
         ----------

         We  were  profitable  during  FY 2004  for the  first  time  since  our
inception.  Our net  income/(loss)  increased  by  $3,556,056,  to net income of
$1,996,971 for FY 2004 from a net loss of $1,559,085 for FY 2004. Net income per
share on a  fully-diluted  basis  increased  by $0.12 per share to net income of
$0.06  per share on a  fully-diluted  basis for FY 2004 from a net loss of $0.06
per share on a  fully-diluted  basis for FY 2003.  Much of the  increase  in net
income  was  attributable  to an  income  tax  benefit  of  $1,560,000.  Our net
income/(loss)  before taxes increased by $1,996,056,  to net income before taxes
of $436,971 for FY 2004, from a net loss before taxes of $1,559,085 for FY 2004.
The increase in net income before the taxes is due primarily to increased sales,
increased recurring support charges, decreases in expenses and general increases
in  efficiency.  Because we intend to expand our capacity,  we do not expect net
income to continue to grow at the rate it did during FY 2004 or at the same rate
as our expected increases in revenue.


Liquidity and Capital Resources

         Our liquidity position has significantly  improved. Our working capital
increased to a $415,264  surplus as of March 31, 2004 from a $711,842 deficit as
of March 31,  2003.  Our cash and cash  equivalents  increased to $361,954 as of
March 31, 2004


                                       20
<PAGE>

from $18,307 as of March 31, 2003.  And our long-term  liabilities  decreased by
$319,674,  to $50,000 for FY 2004 from $ 369,674 for FY 2003. Our improvement in
financial  condition  is  primarily   attributable  to  increased  revenues  and
profitability.

         We funded our expenses through  increased  revenues and the issuance of
1,431,789  shares of common  stock at an average  price of $0.42 per share to 11
outside accredited investors early in FY 2004.

         Cash  from  operations  currently  produces  enough  cash to cover  our
expenses.  Our planned  expansion,  however,  may require cash in excess of that
generated  from  operations.  This may  require  us to issue  additional  equity
securities.  We are  currently  working  with a local  bank to  obtain a line of
credit, which, if obtained, would allow us to better manage our cash. We have no
commitment  from  anyone  to  provide  additional  capital,  but  if we  require
additional  capital,  we believe we can rely on key shareholders,  customers and
others for additional equity financing.

         The  following  table  summarizes  information  about  our  contractual
obligations including long-term debt payments, operating lease payments, capital
lease payments, and office lease payments as of March 31, 2004:
<TABLE>
<CAPTION>

                                                                 Less Than
   Contractual Obligations          Total           1 Year       1 - 3 Years    4 - 5 Years    After 5 Years
   -----------------------          -----           ------       -----------    -----------    -------------
<S>                             <C>              <C>             <C>            <C>            <C>
Long-term debt                  $      50,000    $      6,000    $    50,000    $         0    $           0
Operating leases                       53,392          53,392              0              0                0
Capital leases                              0               0              0              0                0
Office lease                          331,485         247,632         83,853              0                0
Total contractual obligations    $    434,877    $    301,024    $   133,853    $         0    $           0
</TABLE>


Critical Accounting Policies and Estimates

         Management  is basing the  discussion  and  analysis  of our  financial
condition and results of operations on our  consolidated  financial  statements.
The preparation of these financial  statements requires us to make estimates and
judgments that affect the reported amounts of assets,  liabilities,  revenue and
expenses,  and related  disclosure of contingent  assets and liabilities.  On an
on-going  basis,  we evaluate our critical  accounting  policies and  estimates,
including   those  related  to  revenue   recognition,   valuation  of  accounts
receivable, property, plant and equipment, long-lived assets, intangible assets,
and contingencies. We base our estimates on historical experience and on various
other assumptions that we 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.

         We believe the following critical  accounting  policies affect the more
significant  judgments and estimates used in the preparation of our consolidated
financial statements.  These judgments and estimates affect the reported amounts


                                       21
<PAGE>

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 our 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 are billed on a monthly
              basis and revenues are  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
              carried as a liability  called Deferred  Contract  Services on our
              books.  Revenue is recognized  throughout  the  performance of the
              contract on a percentage of completion  basis.  We currently  sell
              limited amounts of hardware to customers;  however, when we do, we
              recognize the revenue for hardware sales upon delivery.

         o    Equipment.   We  utilize   significant  amounts  of  equipment  in
              providing  service  to our  customers.  We  utilize  straight-line
              depreciation  for  equipment  over our  estimate  of their  useful
              lives.  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.  We perform an annual  analysis to confirm
              the  appropriateness  of estimated  economic useful lives for each
              category of equipment.  Estimates and assumptions  used in setting
              depreciable lives require both judgment and estimates.

         o    Goodwill.  We annually evaluate goodwill for potential  impairment
              indicators.   If  impairment  indicators  exist,  we  measure  the
              impairment  in accordance  with FASB 142. Our judgments  regarding
              the existence of impairment indicators are based on legal factors,
              market conditions, and operational conditions. Future events could
              cause us to conclude that impairment indicators exist and that the
              goodwill  associated  with  our  acquired  business  is  impaired.
              Goodwill  is no  longer  amortized,  but  instead  is  subject  to
              impairment tests at least annually.

         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 fiscal year we have  developed  several
              key stand-alone products that we incorporated into our software as
              an added value for our customers. In addition to being stand-alone
              and very significant, they also have an unlimited life. Based upon
              those  and  other  criteria  and  factors   mentioned   above,  we
              determined that  capitalization  is the appropriate  treatment for
              such additional stand-alone products.







                                       22
<PAGE>

Item 7.   Financial Statements

         The Company's  consolidated  financial  statements and associated notes
are set forth following the signature and certification  pages on pages number 1
- 15.

Item 8.  Changes  in  and  Disagreement   With  Accountants  on  Accounting  and
         Financial Disclosure.

         None.

Item 8A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures
------------------------------------------------

         Under the  supervision  and with the  participation  of our management,
including our principal  executive  officer,  president and principal  financial
officer,  we conducted an evaluation of our disclosure  controls and procedures,
as such term is defined under Rule  13a-15(e)  promulgated  under the Securities
Exchange Act of 1934,  as amended (the  "Exchange  Act"),  as of March 31, 2004.
Based  on this  evaluation,  our  principal  executive  officer,  president  and
principal   financial  officer  concluded  that  our  disclosure   controls  and
procedures  are  effective  in  alerting  them on a  timely  basis  to  material
information  relating to our Company  (including its consolidated  subsidiaries)
required to be included in our 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.

                                    PART III

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

         The  information  required by this Item is incorporated by reference to
the Company's definitive proxy statement to be filed with the Commission.

Item 10.  Executive Compensation

         The  information  required by this Item is incorporated by reference to
the Company's definitive proxy statement to be filed with the Commission.

Item 11. Security Ownership of Certain Beneficial Owners and Management

         The  information  required by this Item is incorporated by reference to
the Company's definitive proxy statement to be filed with the Commission.

                                       23


Item 12. Certain Relationships and Related Transactions

         The  information  required by this Item is incorporated by reference to
the Company's definitive proxy statement to be filed with the Commission.

Item 13. Exhibits and Reports on Form 8-K

         (a) Exhibits.

<TABLE>
<CAPTION>

   Exhibit
    Number                       Title of Document                                  Location
---------------    ----------------------------------------------    -----------------------------------------------
<C>                <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

3.6                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                         Incorporated  by  reference to the Annual
                                                                     Report on Form 10-K SB filed with the SEC
                                                                     on July 9, 2002, File No. 0-24372.

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

10.3               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
</TABLE>

                                                      24
<PAGE>
<TABLE>
<CAPTION>

<S>                <C>                                               <C>
10.4               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

2.3                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

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>

         (b) Reports on Form 8-K

         During the quarter ended March 31, 2004,  the Company filed a report on
Form 8-K dated  January  30,  2004 that sets  forth  information  under Item 12,
"Results of Operations and Financial Condition."


Item 14.  Principal Accountant Fees and Services

         The  information  required by this Item is incorporated by reference to
the Company's definitive proxy statement to be filed with the Commission.




                                       25
<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 8, 2004
                                         ---------------------------------------

                   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 S. Rudd and Stephen Russo,  and each
of them, as his true and lawful  attorney-in-fact  and agent, with full power of
substitution,  to sign on his behalf  individually  and in the  capacity  stated
below  and to  perform  any  acts  necessary  to be done in  order  to file  all
amendments and  post-effective  amendments to this Form 10-KSB,  and any and all
instruments or documents filed as part of or in connection with this Form 10-KSB
or the  amendments  thereto and each of the  undersigned  does hereby ratify and
confirm all that said  attorney-in-fact and agent, or his substitutes,  shall do
or cause to be done by virtue hereof.
<TABLE>
<CAPTION>

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


<S>                                                  <C>                                         <C>
    /s/ Alan Rudd                                    Chief Executive Officer and                 July 8, 2004
--------------------------------------------         Director (Principal Executive
    Alan Rudd                                        Officer)


    /s/ Richard Holland                              President, Vice President of                July 8, 2004
--------------------------------------------         Engineering and Director
    Richard Holland


    /s/ Stephen Russo                                Chief Financial Officer                     July 8, 2004
--------------------------------------------         (Principal Financial and
    Stephen Russo                                    Accounting Officer)



    /s/ Bryan Allen                                  Director                                    July 8, 2004
------------------------------------
    Bryan Allen
</TABLE>

                                      26
<PAGE>


                                  ARKONA, INC.

                                 March 31, 2004

                          Independent Auditors' Report
                                       and
                              Financial Statements








<PAGE>


                                  ARKONA, INC.

                                TABLE OF CONTENTS

                                                                          Page

Independent Auditors' Report............................................... F-1

Balance Sheet March 31, 2004............................................... F-2

Statements of Operations For the Years Ended
  March 31, 2004 and 2003.................................................. F-3

Statements of Stockholders' Equity/(Deficit)
  For the Years Ended March 31, 2004 and 2003.............................. F-4

Statements of Cash Flows For the Years Ended March 31, 2004 and 2003....... F-5

Notes to Financial Statements...................................... F-6 -  F-17



<PAGE>


                          Independent Auditors' Report



The Board of Directors and Shareholders
ARKONA, Inc.

We have audited the accompanying  balance sheet of ARKONA, Inc., as of March 31,
2004, and the related statements of operations,  stockholders'  equity, and cash
flows for the years ended March 31, 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 audit.

We conducted  our audit 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.  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  audit  provides  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,
2004,  and the results of operations  and cash flows for the periods ended March
31, 2004 and 2003, in conformity with accounting  principles  generally accepted
in the United States of America.


/s/ MANTYLA McREYNOLDS
------------------------------
MANTYLA McREYNOLDS
Salt Lake City, Utah
June 11, 2004



                                      F-1
<PAGE>
<TABLE>
<CAPTION>

                                  ARKONA, INC.
                                  Balance Sheet
                                 March 31, 2004
<S>                                                                           <C>
ASSETS
Current Assets:
   Cash & cash equivalents - Notes 1 & 2                                      $    361,954
   Accounts receivable, net of allowance of $30,134                                489,602
   Employee advances                                                                41,668
   Prepaid expenses                                                                 11,620
                                                                              ------------
      Total Current Assets                                                         904,844
Property & Equipment, net - Note 6                                                 220,778
Other Assets:
   Deferred tax assets - Note 3                                                  1,560,000
   Deposits - Note 9                                                                79,580
   Goodwill from Ensign purchase (net) - Note 7                                    156,622
   Intangible assets - Note 4                                                      460,818
                                                                              ------------
      Total Other Assets                                                      $  2,257,020
TOTAL ASSETS                                                                     3,382,642
                                                                              ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
   Accounts payable                                                           $    157,780
   Accrued liabilities                                                             192,781
   Deferred revenue                                                                139,019
   Current portion long-term debt                                                     --
                                                                              ------------
      Total Current Liabilities                                                    489,580
Long-Term Liabilities:
    Long-term notes payable - Note 15                                               50,000
    Less current portion long-term debt                                               --
                                                                              ------------
      Total Long-Term Liabilities                                                   50,000
                                                                              ------------
         Total Liabilities                                                         539,580
Stockholders' Equity - Notes 8, 11, 13-14
    Preferred stock, $.001 par value; authorized 10,000,000 shares; issued
    and outstanding 575,000 shares                                                     575
    Common stock, $.001 par value; authorized 50,000,000 shares; issued and
    outstanding 31,331,532                                                          31,332
    Additional paid-in capital                                                  23,173,444
    Accumulated unrealized losses on investments                                   (16,942)
    Accumulated deficit                                                        (20,345,347)
                                                                              ------------
      Total Stockholders' Equity                                                 2,843,062
                                                                              ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                    $  3,382,642
                                                                              ============
</TABLE>


                 See accompanying notes to financial statements

                                      F-2
<PAGE>

                                  ARKONA, INC.
                            Statements of Operations
                   For the Years Ended March 31, 2004 and 2003

                                                 2004           2003
                                            ------------    ------------

Revenues                                    $  5,365,353    $  3,072,282
Operating expenses:
  Cost of Sales                                2,424,654       1,531,706
  Research and development                       501,423         635,922
  Marketing, general and administrative        1,960,593       2,428,860
                                            ------------    ------------
        Total operating expenses               4,886,670       4,596,488
                                            ------------    ------------
        Net Income/(Loss) from Operations        478,683      (1,524,206)
Other Income/(Expense):
     Other income                                   --                 1
     Interest expense                            (41,712)        (34,880)
                                            ------------    ------------
        Total Other Income/(Expense)             (41,712)        (34,879)
                                            ------------    ------------
Net Income/(Loss) Before Taxes                   436,971      (1,559,085)
        Income tax provision (benefit)        (1,560,000)           --
                                            ------------    ------------
Net Income/(Loss)                           $  1,996,971    $ (1,559,085)
                                            ============    ============
Earnings (Loss) per share-Basic             $       0.07    $      (0.06)
                                            ============    ============
Earnings (Loss) per share-Diluted           $       0.06    $      (0.06)
                                            ============    ============
Weighted average number shares-Basic          29,605,856      26,122,740
                                            ============    ============
Weighted average number shares-Diluted        35,044,160      26,122,740
                                            ============    ============




                 See accompanying notes to financial statements



                                      F-3
<PAGE>

<TABLE>
<CAPTION>


                                  ARKONA, INC.
                  Statements of Stockholders' Equity/(Deficit)
                   For the Years Ended March 31, 2004 and 2003


                                                                                 Addit'l       Accum         Accum        Total
                            Preferred   Preferred      Common        Common     Paid-in     unrealized    Loss Devel   Stockholders'
                             Shares       Stock        Shares        Stock      Capital        Loss          Stage         Equity
                          ------------ ------------ ------------ ------------ ------------ ------------  ------------  ------------
<S>                         <C>        <C>          <C>          <C>          <C>          <C>           <C>           <C>
Balance, March 31, 2002                               23,842,798       23,843   20,672,508      (16,942) (20,783,233)    (103,824)
Issued shares for cash
at $0.30 per share                --           --        200,000          200       59,800         --            --          60,000
Issued shares from
warrants for cash at
$0.33 per share                   --           --        303,030          303       99,697         --            --         100,000
Issued shares for cash
at $0.20 per share                --           --      3,890,000        3,890      774,110         --            --         778,000
Issued shares for debt
at $0.20 per share                --           --         39,862         --           --         40,062
Net loss for the twelve
months ended March 31,
2003                              --           --           --           --           --           --      (1,559,085)   (1,559,085)
                          ------------ ------------ ------------ ------------ ------------ ------------  ------------  ------------
Balance, March 31, 2003           --           --     28,435,828 $     28,436 $ 21,645,977 $    (16,942) $(22,342,318) $   (684,847)
Issued stock for cash at
$1.00 per share                575,000          575         --           --        574,425         --            --         575,000
Issued shares to settle
debt at $0.20 and $0.30
per share                         --           --      1,374,415        1,374      316,564         --            --         317,938
Issued shares for cash
at $0.15 to $0.60 per
share                             --           --      1,431,789        1,432      601,468         --            --         602,900
Issued shares for
options exercised at
$0.30 and $0.47 per share         --           --         89,500           90       35,010         --            --          35,100
Net income for  the
twelve months ended
March 31, 2004                    --           --           --           --           --           --       1,996,971     1,996,971
                          ------------ ------------ ------------ ------------ ------------ ------------  ------------  ------------
Balance, March 31, 2004        575,000 $        575   31,331,532 $     31,332 $ 23,173,444 $    (16,942) $(20,345,347) $  2,843,062
                          ============ ============ ============ ============ ============ ============  ============  ============
</TABLE>






                 See accompanying notes to financial statements


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

                                  ARKONA, INC.
                            Statements of Cash Flows
                   For the Years Ended March 31, 2004 and 2003

                                                               2004           2003
                                                           -----------    ------------
<S>                                                        <C>            <C>
Cash Flows from Operating Activities
Net Income/(Loss)                                          $ 1,996,971    $(1,559,085)
Adjustments to reconcile net income to net cash
provided  by  operating activities:
   Depreciation and amortization                               104,684        124,166


   Allowance for Bad debt                                        6,188         17,939
   Deferred income tax                                      (1,560,000)          --
   Decrease (increase) in deposits and prepaid expenses        (77,995)         4,574
   Decrease (increase) in accounts receivable                 (434,523)        73,376
   Increase (decrease)in accounts payable                     (189,509)        85,977
   Increase in deferred revenue                                (33,414)        63,683
   Increase in accrued liabilities                             (51,261)        33,656
                                                           -----------    -----------
                Net Cash Used for Operating Activities        (238,859)    (1,155,714)
Cash Flows from Investing Activities
   Acquisition of property and equipment                      (202,125)       (25,332)
   Software development costs                                 (357,311)          --
                                                           -----------    -----------
                Net Cash Used for Investing Activities        (559,436)       (25,332)
Cash Flows Provided from Financing Activities
Principal increase (decrease) on notes payable                 (71,058)       141,001
Proceeds from issuance of common stock                         638,000        938,062
Proceeds from issuance of preferred stock                      575,000           --
                                                           -----------    -----------
               Net Cash Provided by Financing Activities     1,141,942      1,079,063
                                                           -----------    -----------
                    Net Increase/(Decrease) in Cash            343,647       (101,983)
Beginning Cash Balance                                          18,307        120,290
                                                           -----------    -----------
Ending Cash Balance                                        $   361,954    $    18,307
                                                           ===========    ===========
Supplemental Disclosure Information:
   Cash paid for interest                                  $    41,712    $    34,880
   Cash paid for income/franchise taxes                    $     5,441    $     1,831
   Issued stock for debt                                   $   317,938    $    40,062
</TABLE>




                 See accompanying notes to financial statements

                                      F-5
<PAGE>

                                  ARKONA, INC.
                          Notes to Financial Statements
                                 March 31, 2004

         Note 1   Organization and Summary of Significant Accounting Policies

            (a)  Organization

            ARKONA,  Inc. [the Company] was  originally  incorporated  under the
            laws of the State of Delaware in 1992 as The Thorsden  Group,  Ltd.,
            for the purpose of seeking and acquiring business opportunities.  In
            October  1997,  the  Company  merged  with  Arkona,   Inc.,  a  Utah
            corporation  (formerly Arkona, LLC), in a reverse triangular merger,
            accounted for as a purchase.  After the merger and until November 1,
            2000,   the  Company   continued  the  business  of  Arkona,   Inc.;
            developing,   marketing,   and  selling   software   products  which
            incrementally and automatically updated database content,  reference
            documents,  and enterprise  applications  required by  organizations
            with   distributed    business   centers,    field    professionals,
            telecommuters,  partners,  and  customers.  On  March  25,  1999 the
            Company  changed its name to Sundog  Technologies,  Inc.,  effective
            June 10, 1999.

            On February 22, 2001 the Company changed its name to ARKONA, Inc. On
            November 1, 2000 the Company purchased  substantially all the assets
            of Ensign  Information  System including its intellectual  property.
            Shortly  after the Ensign  purchase the Company  turned its business
            focus to the revenue  generating  products acquired from Ensign. The
            ultimate  success of the  Company  is  dependent  on its  ability to
            adequately develop, enhance and market its products.

            (b)  Income Taxes

            The  Company  applies  the  provisions  of  Statement  of  Financial
            Accounting Standards No. 109 [the Statement], "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 bases and tax bases of
            the Company's  assets and  liabilities at enacted tax rates expected
            to be in effect when such amounts are realized or settled.

            (c)  Net Income / Loss Per Common Share

            In accordance with Financial Accounting Standards 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  weighted  average  number of
            common shares plus  dilutive  common share  equivalents  outstanding
            during the period  using the  treasury  stock  method.  Common stock
            equivalents  were not included in the  computation of loss per share
            for fiscal  period ended March 31, 2003 because  their  inclusion is
            antidilutive.

                                      F-6
<PAGE>


                                  ARKONA, INC.
                    Notes to Financial Statements [continued]
                                 March 31, 2003


         Note 1   Organization and Summary of Significant Accounting Policies
                  [continued]

            (d)  Cash & Cash Equivalents

            For purposes of the statements of cash flows, the Company  considers
            cash on deposit in the bank and other unrestricted  investments with
            original  maturities of three months or less at the time of purchase
            to be cash equivalents.

            (e) Use of Estimates in 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;  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)  Revenue Recognition

            The Company recognizes revenue in accordance with the Securities and
            Exchange  Commission,  Staff  Accounting  Bulletin  (SAB)  no.  101,
            "Revenue  Recognition  in Financial  Statements."  SAB 101 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 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 often completed in
            one month.  Components of the Product  Installation  process include
            software licensing,  training,  forms programming,  data conversion,
            and hardware installation.

            (g) Accounts receivable

            Accounts  receivable  consist  of  amounts  due from  the  Company's
            customers.  A bad debt  reserve  has been  provided in the amount of
            $30,134.  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.

                                      F-7
<PAGE>


                                  ARKONA, INC.
                    Notes to Financial Statements [continued]
                                 March 31, 2003

         Note 1   Organization and Summary of Significant Accounting Policies
                  [continued]

            (g)  Patents

            The Company has obtained  various patents for certain aspects of its
            products. The costs of obtaining patents are capitalized as incurred
            and are  amortized  over  estimated  useful lives.  Amortization  is
            computed on the straight-line  method.  Two patents have been issued
            as of March 31, 2004, and are being  amortized over seven years (see
            Note 4).

            (h)  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. The unrealized loss is based
            on the original cost of the securities  verses current market value.
            As of March 31, 2004 there are no marketable securities on the books
            of the Company.

            (i)  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 until the product
            is available  for general  release to customers.  Capitalized  costs
            have  been  amortized  on  a  product-by-product   basis  using  the
            straight-line  method  over  the  established  economic  life of the
            products,   however  with  the  issuance  of  Financial   Accounting
            Standards  (FAS)   142,"Goodwill   and  Other  Intangible   Assets",
            capitalized software costs are tested for impairment each year along
            with other  intangible  assets.  If  impairment is  discovered,  the
            amount of the impairment is written off in that year.

            (j)  Advertising Costs

            Advertising costs of the Company are charged to expense as incurred.

         Note 2   Concentration

            The  Company's  products  and service  are  primarily  designed  for
            customers in the auto dealership  industry;  however the Company has
            clients  from  other  industries  using its  products,  such as ATV,
            Motorcycle, Marine and RV dealerships. In 2004, the Company expanded
            its  market  to  formally  include  Powersports.  Sales  of  Company
            products and services are not limited to any geographic area. If the
            auto industry  environment were to experience  significant  negative
            conditions, the Company could also be affected.

                                      F-8
<PAGE>

                                  ARKONA, INC.
                    Notes to Financial Statements [continued]
                                 March 31, 2003


         Note 2   Concentration [continued]

            The Company  maintains  cash  balances  in a  financial  institution
            located in Salt Lake City,  Utah.  Accounts at this  institution are
            insured by the Federal Deposit Insurance Corporation up to $100,000.
            As of March 31, 2004,  the Company had cash in excess of the insured
            amount at this institution.

         Note 3   Income Taxes

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

            Income tax benefit  differed  from the amounts  computed by applying
            the U.S. Federal income tax rate of 34 percent to pretax income.

            The  tax  effects  of  temporary   differences  that  give  rise  to
            significant  portions of the  deferred  tax assets and  deferred tax
            liabilities at March 31, 2004 and 2003, are presented below.

                                                March 31,     March 31,
                                                  2004          2003
                                               -----------   -----------
              Deferred tax assets:
  Allowance for bad debts                      $    11,752   $     9,339
  Net Operating loss carryforward                5,650,113     7,297,388
  Stock Compensation                             2,973,038     2,973,038
                                               -----------   -----------
 Gross deferred tax assets                       8,634,903    10,279,765
   Less valuation allowance                      7,057,603    10,259,818
                                               -----------   -----------
 Deferred tax assets                             1,577,300        19,947

Deferred tax liabilities:
  Property and equipment, principally due to
    differences in                                  17,300        19,947
    depreciation
                                               -----------   -----------
Net deferred tax assets                        $ 1,560,000   $      --
                                               ===========   ===========

                                      F-9
<PAGE>

                                  ARKONA, INC.
                    Notes to Financial Statements [continued]
                                 March 31, 2003


         Note 3   Income Taxes [continued]

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

                                            March 31,      March 31,
                                              2004           2003
                                           -----------    -----------
              Current expense (benefit):
  Federal                                  $      --      $      --
  State                                           --             --
                                           -----------    -----------
Deferred expense (benefit):
  Federal                                   (1,360,000)          --
  State                                       (200,000)          --
                                           -----------    -----------
                                            (1,560,000)          --
                                           -----------    -----------
Total provision (benefit) for income tax   $(1,560,000)   $      --
                                           ===========    ===========

            The allowance has decreased  $3,202,215 from $10,259,818 as of March
            31, 2004.  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.  Subsequently  recognized  tax
            benefits relating to the valuation allowance for deferred tax assets
            as of March 31, 2004 will be  reported as a reduction  of income tax
            expense from continuing operations.

         Note 4   Intangible Assets

            The Company has applied and been granted  patent  protection for its
            proprietary  technology  relating to Universal  Update.  The patents
            were granted on December 7, 1999 and November 20, 2001. Amortization
            of cost began on December 7, 1999.  Amortization expense for each of
            the  years  ended  March  31,  2004  and  2003  was $0  and  $7,760,
            respectively.   Unamortized  patent  costs,  related  to  continuing
            operations, as of March 31, 2004, are $27,085.

            As part of the Ensign  asset  acquisition,  see note 7, the  Company
            acquired  rights to technology.  The original cost of the technology
            was  being  amortized  on a  straight  line  basis  over two  years.
            However,  because  of the  adoption  and  application  of  FAS  142,
            "Goodwill and Other Intangible Assets",  the Company determined that
            the asset  does not have a  determined  life and the  asset  will no
            longer be  amortized  but will be tested  annually to  determine  if
            impairment  has occurred.  Based on this  analysis,  the Company has
            recorded no impairment charges for the year ending March 31, 2004.

         Note 5   Leases

            The Company had various capital lease agreements collateralized with
            property and  equipment as of March 31, 2003.  During the year ended
            March 31, 2004 the Company paid off the entire remaining balance due
            on the capital lease agreements.

                                      F-10
<PAGE>

                                  ARKONA, INC.
                    Notes to Financial Statements [continued]
                                 March 31, 2003


         Note 5   Leases [continued]

            The Company has  operating  leases for its office  facilities  which
            expire at various times through June 2005.

                                               Minimum
                  Year Ending                  Lease Payments
                  3/31/2005                        247,632
                  3/31/2006                         83,853
                                               ------------
                  Total                           $331,485

            Rent expense  during the year was $243,892 for 2004 and $244,170 for
2003.

            The  Company  has also  entered  two  operating  leases with IBM for
            equipment.  The terms require payments on a month-to-month  basis in
            the amounts of $3,231 and $1,135.  Upon written notice,  the Company
            is able to return or exchange the equipment at its option.

         Note 6   Property and Equipment

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

                   Asset Class                   Cost          Accumulated          Net         Method/Life
                                                                Depr/Amort         Book
        ----------------------------------- ---------------- ----------------- -------------- ----------------
<S>                                                <C>              <C>              <C>         <C>
        Office Furniture                           $102,979         ($62,000)        $40,979  SL/5
        Computer Software                            70,605          (62,680)          7,925  SL/3
        Computer Equipment                          606,258         (447,827)        158,431  SL/3
        Leasehold Improvements                       54,763          (41,320)         13,443  SL/5
                                            ---------------- ----------------- --------------
             Total                                 $834,605        ($613,827)       $220,778
                                            ================ ================= ==============
</TABLE>

            The Company acquired  approximately  $119,674 in computer  equipment
            financed through capital leases. Depreciation expense, including the
            amortization  of assets  acquired  by  capital  lease,  amounted  to
            $104,684  and  $116,406  during the years  ended  March 31, 2004 and
            2003, respectively.

         Note 7   Ensign 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. The Company structured
            the acquisition to be non-dilutive to shareholders. In order to make
            the transaction non-dilutive, the Company purchased from certain key

                                      F-11
<PAGE>

                                  ARKONA, INC.
                    Notes to Financial Statements [continued]
                                 March 31, 2003


         Note 7   Ensign Goodwill [continued]

            shareholders 1,740,250 shares of outstanding common stock at a price
            of $0.02 per share.

            With the  acquisition of Ensign,  the Company  recorded  Goodwill of
            $313,244.  Through fiscal year March 2002, the Company had amortized
            $156,622,  or  approximately  half of the original book balance.  In
            2003 the Company  adopted  FAS  142,"Goodwill  and Other  Intangible
            Assets".  This statement eliminates the amortization of goodwill and
            requires the Company to test the asset,  annually,  for  impairment.
            Based on  management's  analysis  and  testing  for  impairment,  no
            adjustment is needed for the year ending March 31, 2004.

         Note 8   Stock Issuances

            Common Stock

            In  conjunction  with the sale of  1,862,122  shares of common stock
            sold to  investors  during  fiscal  year 2002 for cash,  the Company
            issued  1,562,122  warrants  with an  exercise  price of  $0.33  and
            100,000  warrants  with an exercise  price of $0.60 all of which are
            exercisable  over  a  five-year  period.   One  December  21,  2001,
            1,212,122 warrants were issued with an exercise price of $0.33 which
            was equal to the market  value of the  Company's  common  stock.  On
            January  24,  2002,  350,000  warrants  were issued with an exercise
            price of $0.33  per  share  and the  market  value of the  Company's
            common  stock was $0.66 per share.  On  February  4,  2002,  100,000
            warrants were issued with an exercise price of $0.60 per share while
            the market value of the Company's common stock was $0.85.

            Due to the volatility of the Company's  stock price,  its low volume
            and the risk associated with stock traded on the OTC Bulletin Board,
            the value of the  warrant  on the date of  issuance  is not  readily
            determinable.

            On May 2, 2002, the Company issued 200,000 shares of common stock to
            an individual at $0.30 per share for cash of $60,000. Throughout the
            rest of the year,  3,890,000  shares of common stock were issued for
            operating cash at $0.20 per share, or $778,000.

            On June 20,  2002,  303,031  warrants to purchase  common stock were
            exercised at $0.33 per share for $100,000  cash.  The proceeds  were
            used to pay operating expenses.

            The Company  has issued  200,000  shares of common  stock as partial
            settlement  of debt.  The shares  were  recorded at $0.20 per share,
            which approximates the market value on the date of issuance.

            The Company issued 1,374,415 shares of common stock in settlement of
            debt. Of these shares,  940,000 were issued to a shareholder/officer
            of the Company, at $0.20

                                      F-12
<PAGE>

                                  ARKONA, INC.
                    Notes to Financial Statements [continued]
                                 March 31, 2003


         Note 8   Stock Issuances [continued]

            per share,  or $188,000.  The  other 434,415  shares  were issued to
            professionals at $0.30 per share, or $129,938.

            During the fiscal year ended  March 31,  2004,  the  Company  issued
stock for cash in the following manner:
<TABLE>
<CAPTION>

                Description                Shares           Per share         Proceeds            Purpose
       ------------------------------- ---------------- ------------------- ------------- ------------------------
<S>                                            <C>                   <C>         <C>         <C>
       Issued to one individual                100,000               $0.15       $15,000     Operating Capital
       Issued to three individuals              44,667                0.30        13,400     Operating Capital
       Issued to three individuals             875,000                0.40       350,000     Operating Capital
       Issued to one individual                150,000                0.53        79,500     Operating Capital
       Issued to two individuals               245,455                0.55       135,000     Operating Capital
       Issued to one individual                 16,667                0.60        10,000     Operating Capital
                                       ---------------- ------------------- -------------
            Total                            1,431,789     (wtd avg) $0.42      $602,900
                                       ================ =================== =============
</TABLE>


            Additionally,  the Company  issued  89,500 shares of common stock to
            three  shareholders  who exercised  options during the year.  39,500
            shares  were  exercised  at $0.30 per share  while the other  50,000
            shares were issued at $0.47 per share.

            Preferred Stock

            In an  effort  to  reduce  debt  and to  meet  operating  cash  flow
            requirements,  the Company raised $575,000 by selling 575,000 shares
            of Series B  Preferred  shares at $1.00 per  share.  Each  preferred
            share is  convertible to five (5) common shares at the option of the
            preferred shareholder.

            Each share of Series B Preferred  shares receives the same dividends
            as common stock on an as converted basis.

            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.

                                      F-13
<PAGE>

                                  ARKONA, INC.
                    Notes to Financial Statements [continued]
                                 March 31, 2003


         Note 8   Stock Issuances-(continued)

            Each Series B Preferred  shares 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.

         Note 9   Deposits

            In conjunction with its facility lease obligations,  the Company has
            placed a security  deposit  with its  landlord.  The deposit  totals
            $13,205 for office  space as of March 31,  2004.  In addition to the
            deposit for the facitlity,  the Company has placed security deposits
            with IBM for computer systems totaling $66,375.

         Note 10  Liquidity

            The Company has  incurred  losses from  inception  to March 31, 2004
            amounting to  $20,345,347.  For the Fiscal Year ended March 31, 2004
            the Company  generated a pre-tax profit of $436,971.  In addition to
            generating  a profit the Company did raise  additional  cash through
            private  placements  totaling  $602,900  In the future  the  Company
            believes that it will generate sufficient cash flow from operations.
            Management  plans to continue  expanding  operations.  In the event,
            that cash flow  requirements  are not met by operations,  management
            intends  to  raise  additional  capital  through  private  placement
            offerings.

         Note 11  Stock Option Plans

            In December  2001 the Company  established  a new stock option plan.
            The  2001  plan  was  established  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-range success.  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
            6,000,000 shares.

            Prior to the establishing the 2001 plan, the Company had established
            two Stock Option Plans (1992 and 1999) 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-range success.

            All options  granted under the 1992 and 1999 stock option plans have
            expired, been cancelled or been converted into options granted under
            the 2001 plan except for 115,000 options granted under the 1999 plan
            with an  exercise  price  of  $1.00.  Options  granted  to  existing
            employees under the 1992 and 1999 stock option plans were

                                      F-14
<PAGE>

                                  ARKONA, INC.
                    Notes to Financial Statements [continued]
                                 March 31, 2003


         Note 11  Stock Option Plans [continued]

            converted to options  under the 2001 stock  option plan.  All of the
            115,000  outstanding options granted under the 1999 option plan have
            vested.

            Through March 31, 2004,  there were outstanding a total of 5,270,000
            stock  options to purchase  Company  common stock  granted under the
            2001 Plan,  all of which have an exercise price of between $0.20 and
            $0.70 per share.  Options granted under the 2001plan vest over a one
            to three year period.  Of the options  granted  under the 2001 plan,
            2,188,700 have vested as of March 31, 2004.

            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.  The amount  amortized to expense
            through  March  31,  2004  was  $5,309,137.   Unearned  compensation
            represents the intrinsic  value of stock options granted but not yet
            vested.  The Company has no  unearned  compensation  as of March 31,
            2004.

            The Company has adopted only the  disclosure  provisions  of FAS 123
            "Accounting for Stock Based Compensation" and applies APB Opinion 25
            "Accounting for Stock Issued to Employees" to stock options.

            Information  on  stock  options  outstanding  at March  31,  2004 is
summarized as follows:
<TABLE>
<CAPTION>

                                   Number of
           Range of exercise        Options         Average      Weighted Average        Number          Weighted
                prices              Granted      Remaining Life   Exercise Price      Exercisable     Average Price
        --------------------     --------------- --------------- ------------------ ----------------- ---------------
<S>                      <C>          <C>            <C>         <C>                       <C>        <C>
        $           0.20-0.70         5,270,000      93 mos      $            0.38         2,188,700  $         0.38
        $                1.00           115,000      58 mos      $            1.00           115,000  $         1.00
                                 --------------- --------------- ------------------ ----------------- ---------------
                                      5,385,000                  $            1.38         2,303,700  $         1.38
</TABLE>

         Note 12  401K Profit Sharing Plan

            The Company has an employee  benefit  program  consisting  of a 401K
            Profit  Sharing  Plan.  The 401K  Plan  provides  for  employees  to
            contribute  on a  pretax  basis,  employer  matching,  and  a  broad
            portfolio of  investment  options  within the plan to be selected by
            the employee.  Employer matching  contributions are made at the sole
            discretion of management. The Company made no matching contributions
            during the years ended March 31, 2004 and 2003.

                                      F-15
<PAGE>

                                  ARKONA, INC.
                    Notes to Financial Statements [continued]
                                 March 31, 2003


         Note 13  Related Party Transactions/Stock Options

            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 7,000,000  shares of common  stock and then,  collectively,
            entered  into an  agreement  with  Caldera  Holding  Company,  L.C.,
            wherein Caldera was given the right to grant  derivative  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 derivative options have an exercise price of $0.30 per share and
            expire no later  than  December  31,  2006.  Holders  of the  shares
            underlying  the  derivative  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.
            Under this  derivative  options  program,  an aggregate of 1,550,000
            options  have been  granted  by  Caldera  to ten  persons,  of which
            1,550,000 have vested.  Exercise of these options will not yield any
            assets to the Company.

         Note 14  Preferred Stock Rights

            Effective  as of January 31,  2001,  the Board of  Directors  of the
            Company declared a dividend of one 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 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  Rights  are  set  forth  in a
            Shareholder  Rights  Agreement  between  the Company and Atlas Stock
            Transfer Corporation, as Rights Agent.

            At the time it approved the Shareholders Rights Agreement, the Board
            of  Directors  of the  Company  believed  that the  market  price of
            Arkona's  common  stock did not reflect the real value of our common
            stock. In light of the low market price of common stock,  management
            and the Board had been  concerned  that a person may seek to acquire
            the Arkona 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 Shareholder  Rights Plan is to encourage
            any person  contemplating an acquisition of Arkona 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.

Note 15   Notes Payable

            The Company has a note payable with an unrelated 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.

                                      F-16
<PAGE>

                                  ARKONA, INC.
                    Notes to Financial Statements [continued]
                                 March 31, 2003


Note 16   Subsequent Events

            In June,  2004 the  Company  sold its  patents  associated  with the
            Universal Update product to an unrelated party for $100,000. As part
            of the agreement,  the Company  retained a perpetual  license to use
            the technology in its products.





                                      F-17