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

                                   Form 10-QSB



(Mark One)

(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities  Exchange
    Act of 1934 for the quarterly period ended December 31, 2003

                                       OR

[ ] Transition Report pursuant to 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 as specified in its charter)



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


                      10542 South Jordan Gateway, Suite 200
                            South Jordan, Utah 84095
                    ----------------------------------------
                    (Address of principal executive offices)

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



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

As of February 12, 2004 there were issued and outstanding  30,331,847  shares of
the Company's Common Stock, par value $.001 per share.



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


<PAGE>



PART I - Item 1. Financial Statements

<TABLE>
<CAPTION>

                                ARKONA, INC.
                               Balance Sheets

                                                                        31-Dec-03      31-Mar-03
ASSETS                                                                 (Unaudited)     (Audited)
                                                                    -----------------------------
<S>                                                                       <C>             <C>
    Current Assets
       Cash and cash equivalents                                          134,818         18,307
       Marketable securities                                                 --             --
       Accounts receivable, net of allowance                              328,426        102,935
       Prepaid expenses                                                    22,761           --
                                                                    -----------------------------
    Total Current Assets                                                  486,005        121,242
                                                                    -----------------------------
    Equipment
       Equipment, net of depreciation                                     132,725        123,337
    Other Assets
       Deposits                                                            51,779         13,205
       Other assets, net amortization                                     563,754        260,127
                                                                    -----------------------------
    Total Other Assets                                                    615,533        273,332
                                                                    -----------------------------
TOTAL ASSETS                                                            1,234,263        517,911
                                                                    =============================

          LIABILITIES AND STOCKHOLDERS' EQUITY
    Current Liabilities
       Accounts payable                                                   138,349        347,289
       Accrued liabilities                                                111,965        244,040
       Deferred revenue                                                   145,227        172,433
       Current portion of long-term debt                                   69,322         69,322
                                                                    -----------------------------
    Total Current Liabilities                                             464,863        833,084
                                                                    -----------------------------
    Long-Term Liabilities
       Current portion of long-term debt                                  (69,322)       (69,322)
       Notes payable legal                                                 22,235        152,174
       Note payable - related party                                        55,628        286,822
                                                                    -----------------------------
    Total Long-Term Liabilities                                             8,541        369,674
                                                                    -----------------------------
    Total Liabilities                                                     473,404      1,202,758
                                                                    =============================
    Stockholders' Equity
       Common stock                                                        30,332         28,436
       Series B preferred stock                                           575,000           --
       Additional paid in capital                                      22,144,627     21,645,977
       Accumulated unrealized loss on investment
          securities available for sale                                   (16,942)       (16,942)
       Retained earnings (deficit)                                    (21,972,157)   (22,342,318)
                                                                    -----------------------------
    Total Stockholders' Equity                                            760,860       (684,847)
                                                                    -----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                              1,234,263        517,911
                                                                    =============================
</TABLE>

       SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                       1
<PAGE>

<TABLE>
<CAPTION>


                                  ARKONA, INC.

            Unaudited Condensed Consolidated Statements of Operations

                                              Nine Months Ended           Three Months Ended
                                           31-Dec-03     31-Dec-02      31-Dec-03     31-Dec-02
                                         ---------------------------------------------------------

<S>                                          <C>            <C>           <C>             <C>
Revenues                                     3,632,678      2,360,674     1,308,546       801,642

Operating Expenses
  Cost of Sales                              1,583,646      1,253,534       584,176       420,406
  Research and Development                     267,751        462,829       146,249       113,270
  Marketing, Admin & Sales                   1,382,513      1,814,342       454,811       620,664
                                         ---------------------------------------------------------
Total Operating Expenses                     3,233,910      3,530,705     1,185,236     1,154,340
                                         ---------------------------------------------------------

Net Income (Loss) From Operations              398,768     (1,170,031)      123,310      (352,698)

  Interest Income                                 --             --            --            --
  Interest Expense                             (28,606)        (6,700)       (6,526)       (2,000)
  Other Income
  Other Expense                                   --             --            --            --
                                         ---------------------------------------------------------
Net Income (Loss)                              370,162     (1,176,731)      116,784      (354,698)
                                         ---------------------------------------------------------


Base Net Income (Loss) per share                  0.01          (0.04)         0.00         (0.01)
                                         ---------------------------------------------------------
Weighted average number
Of Shares Outstanding                       28,956,208     26,735,828    29,435,837    26,735,828
                                         =========================================================

Diluted Net Income (Loss) per share               0.01          (0.04)         0.00         (0.01)
Weighted Average Diluted
Shares Outstanding                          31,531,585     26,735,828    32,111,214    26,735,828
                                         =========================================================

</TABLE>




       SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                       2
<PAGE>


<TABLE>
<CAPTION>
                                  ARKONA, INC.

            Unaudited Condensed Consolidated Statements of Cash Flows

                                                                   Nine Months Ended
                                                                31-Dec-03     31-Dec-02
                                                            -----------------------------
<S>                                                               <C>         <C>
Cash Flows (used by) Operating Activities:
    Net Income (Loss)                                             370,162     (1,176,731)
    Adjustments to reconcile net income to
    net cash used for operating activities:
        Depreciation and Amortization                              62,366        256,184
        Amortization of unearned compensation                        --               --
        Changes is assets and liabilities:
             Accounts receivable                                 (225,491)        57,312
             Prepaid Expenses                                     (22,761)           268
             Accounts Payable                                    (218,940)       111,485
              Deferred contract services                          (27,206)        52,923
             Accrued Liabilities                                 (160,075)       (96,387)
                                                            -----------------------------
Net Cash (Used By) Operating Activities                          (221,945)      (794,946)
                                                            -----------------------------

Cash Flows (Used for) Investing Activities:
    Additions to Equipment                                        (75,100)       (24,056)
    Other assets                                                 (342,201)          --
                                                            -----------------------------
Net Cash Used for Investing Activities                           (417,301)       (24,056)
                                                            -----------------------------

Cash Flows Provided By Financing Activities:
    Proceeds from Issuance of Preferred  Stock                    575,000           --
    Proceeds from Issuance of Common  Stock                       541,890        638,000
    Note Payable                                                 (129,939)          --
    Loan from related party                                      (179,202)       100,000
    Leases                                                        (51,992)        (5,896)
                                                            -----------------------------
Net Cash Provided By Financing Activities                         755,758        732,104
                                                            -----------------------------

Net Increase/(Decrease) in Cash and Cash Equivalents              116,512        (86,898)
                                                            -----------------------------

Beginning Cash Balance                                             18,307        120,290

                                                            -----------------------------
Ending Cash Balance                                               134,818         33,392
                                                            =============================

</TABLE>




       SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                       3
<PAGE>

                                  ARKONA, INC.

                    NOTES TO UNAUDITED CONDENSED CONSOLIDATED

                              FINANCIAL STATEMENTS

Note 1 Basis of Presentation

Arkona,  Inc. (the "Company") has prepared the accompanying  condensed financial
statements,  without  audit,  according  to the  applicable  regulations  of the
Securities and Exchange Commission. Certain information and disclosures normally
included in  financial  statements  prepared  according  to  generally  accepted
accounting  principles have been condensed or omitted. The Company believes that
the  following  disclosures  are adequate and not  misleading.  These  unaudited
condensed  financial  statements  reflect all  adjustments  (consisting  only of
normal recurring  adjustments) that, in management's  opinion,  are necessary to
present  fairly the financial  position and results of operations of the Company
for the  periods  presented.  It is  suggested  that these  unaudited  condensed
financial  statements are read in conjunction  with the  consolidated  financial
statements and the notes thereto included in the Company's Annual Report on Form
10-KSB for the fiscal year ended March 31, 2003.

Note 2  Concentration

The Company is limited in that its products are currently  specifically designed
for customers in the auto dealership  industry.  With minimal  development,  the
Company's products could be customized to meet customer needs in the RV, Marine,
ATV and motorcycle markets.  However, sales of Company products and services are
not  limited  to any  geographic  area.  If the  industry  environment  were  to
experience significant negative conditions, the Company could also be affected.

The Company maintains cash balances in a financial  institution located in Orem,
Utah.  Accounts at this institution are insured by the Federal Deposit Insurance
Corporation up to $100,000.

Note 3  Equity

During the three months ended December 31, 2003, the Company converted  $179,202
of debt and accrued interest to 896,010 shares of common stock.  During the nine
months ended December 31, 2003, the Company raised  $575,000 by selling  575,000
shares of Series B  Preferred  Stock at $1.00 per share.  Each share of Series B
Preferred  Stock is  convertible  to five (5) common shares at the option of the
preferred shareholder.  Each share of Series B Preferred Stock receives the same
dividends as common stock on an as converted basis.

Shares of Series B Preferred Stock carry a liquidation  preference  equal to the
price per share of Series B Preferred  Stock,  plus accrued and unpaid dividends
on each share. In the event of a 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,  shares of Series B Preferred  Stock are  redeemable  with 30
days advance notice at the option of the Company after June 30, 2008.

                                       4
<PAGE>

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

Also during the nine months ended December 31, 2003, the Company raised $362,688
by selling  816,667  shares of common stock to seven  qualified  investors at an
average price per share of $0.44.

Note 4  Significant Accounting Policies

(a) 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.

(b) Net Income / (Loss) Per Common Share

In accordance with Financial Accounting Standards No. 128, "Earnings Per Share,"
basic  income / 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. (c)
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.

(d) 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.

(e) 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:  Support,  Hardware
Sales,  Consulting,  and Implementation of 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  fees are  recognized  as services are  rendered.  Product
Installation  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 complete in one month.
Components  of the Product  Installation  process  include  software  licensing,
training, forms programming data conversion, and hardware installation.

                                       5
<PAGE>

(f) Patents

The Company has applied  for patent 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.
One patent has been issued as of December 31, 2003, and is being  amortized over
seven years.

(g) 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.  The June 30, 2003  unrealized  loss on
investments  of $16,942 is related to securities  that have been written off but
not disposed.

(h) 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  are  amortized  on  a  product-by-product  basis  and  using
straight-line methods over the established economic life of the product.

(i) Stock-Based Compensation

Stock-based  compensation  is  accounted  for using APB 25. Under APB 25, if the
exercise  price of the options is greater  than or equal to the market  price at
the date of grant, no compensation expense is recorded. We have also adopted the
disclosure   only   provisions  of  SFAS  123,   "Accounting   for   Stock-based
Compensation"   for  options  issued,  as  amended  by  SFAS  148.  To  estimate
compensation  expense that would be recognized  under SFAS 123, we have used the
modified  Black-Scholes  option pricing model. If we had accounted for our stock
options using the accounting  method  prescribed by SFAS 123, our net income and
income per share would be as follows:

                                       5
<PAGE>

<TABLE>
<CAPTION>

                                                                               Nine Months Ended
                                                                                     31-Dec
                                                                 ----------------------------------------------
                                                                         2003                     2002
                                                                 ---------------------    ---------------------
<S>                                                                          <C>                   <C>
Net Income / (loss) applicable to shareholders (basic
 and diluted) as reported                                                    $370,162              ($1,176,731)
Deduct: stock-based employee compensation
expense included in reported net loss, net of
 related tax effects                                                           88,452                     --
Add: total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects                                --                       --
                                                                 ---------------------    ---------------------

Pro forma net income (loss) applicable to shareholders                       $281,710              ($1,176,731)
                                                                 =====================    =====================

Income (loss) per common share (basic and diluted):
As reported                                                                     $0.01                   ($0.04)
                                                                 =====================    =====================
Pro forma                                                                       $0.00                   ($0.04)
                                                                 =====================    =====================
</TABLE>


(i) Advertising Costs

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


                                       7
<PAGE>

Item 2.  Management's Discussion and Analysis

Overview

         ARKONA,  Inc.  (formerly  The Thorsden  Group and Sundog  Technologies,
Inc.) was  organized  in 1992.  Since our  acquisition  of the  assets of Ensign
Information  Systems  in late  2000,  our  focus has been on the  Arkona  Dealer
Management Solution (ADMS) and the automobile  dealership  management  industry.
When we acquired  the assets of Ensign,  their  predecessor  to our ADMS product
already  had a  customer  base  and was a  proven  product.  At the  time of the
acquisition,  Ensign had  installed  9 systems  in the prior 12  months.  We are
currently  installing  11-14  systems  per  month  and  have  approximately  367
dealerships using our system.

         We have  increased,  and believe that we can continue to increase,  our
monthly  installs in the future due to our relationship  with Mitsubishi,  other
automobile  manufacturers  (referred to as Original  Equipment  Manufacturers or
OEMs),  several third party  companies  and, most  importantly,  our  customers.
Mitsubishi has selected ARKONA as its preferred  provider of DMS products.  As a
result, ARKONA and Mitsubishi entered into an agreement to work together to roll
out joint marketing programs to all existing and new Mitsubishi  dealers.  Since
the  signing  of  that  agreement,  we  have  installed  our  system  in over 30
Mitsubishi dealerships.

         In  addition  to   Mitsubishi,   this  year  we  have   developed   OEM
communications with, and obtained certification from, BMW, General Motors, Honda
and DaimlerChrysler,  and we are in the late stages of the certification process
with five other OEMs. This brings the number of OEMs with which we are certified
to  provide  communications  to 6, and we are  working to try to  increase  that
number to 12 by  summer.  As we become  certified  to  communicate  with an OEM,
customers using our ADMS are able to automatically  exchange  financial,  parts,
warranty  and  other  data with the OEM.  This  significantly  simplifies  their
reporting to, and ordering  from,  the OEM. As we are certified by each OEM, our
ability to sell our ADMS to the OEM's franchisee dealerships increases.

Results of Operations  for the Three and Nine Month  periods Ended  December 31,
2003 and December 31, 2002

         Revenues  for the  three-month  period  ended  December  31,  2003 were
$1,308,546  compared  to  $801,642  for  the  same  period  in the  prior  year,
representing  63%  increase  for  the  three-month  period.   Revenues  for  the
nine-month period ended December 31, 2003 were $3,632,678 compared to $2,360,674
for the same period  representing a 54% increase for the nine-month period. This
increase is attributable to our continued  success in replacing our competitor's
systems with the Arkona Dealer Management  Solution (ADMS).  More  specifically,
the increase in sales is due to increases in the number of installations of ADMS
and associated  monthly access  charges and support  revenue.  Until recently we
have primarily replaced systems of the three largest Dealer Management  Software
(DMS)  providers in the  industry;  however,  we have over the last quarter been
successful  replacing  systems of some of the smaller  providers as well. During
the nine-month  period ending  December 31, 2003, we installed our ADMS solution
in 74 new car  dealerships  and 12  independent  car  dealerships,  and we added
another new and used RV dealership. For the same period in 2002 we installed our
ADMS solution in 47 new car dealerships and 6 independent  car  dealerships.  We
continue to expand into other  markets by making  significant  in-roads into the


                                       8
<PAGE>

motorcycle  dealership  market. To date, we have installed our system in new and
used  automobile  dealerships,   ATV  dealerships,  RV  dealerships  and  Marine
dealerships. In addition to new DMS markets we continue to add significant value
to our system through the  development of  enhancements  and  complimentary  new
products.  These new products  include  revenue  generating  activities  such as
credit bureau  services,  loyalty card programs and ancillary  products like our
barcode  inventory  systems.  To  date,  these  new  activities  have  not had a
significant  impact on revenue,  but we expect to begin experiencing an increase
in revenue from such new  products in 2004.  Last,  we  attribute a  significant
portion of increased sales to our improved financial stability. As our financial
stability strengthens, a major obstacle for prospective customers is eliminated.

         As a company we have made significant  improvements in the condition of
our balance  sheet.  Our current  assets have  increased  300 % in nine  months.
During the same nine months,  we have reduced  total debt 61%, and we have moved
the  Company  from a negative  equity  position to a positive  equity  position.
Improvements in our operations have been equally significant.

         Cost of sales totaled $584,176,  or 45% of sales, and $1,583,646 or 44%
of sales,  for the  three-month  and nine-month  periods ended December 31, 2003
respectively  compared to $420,406,  or 52% of sales, and $1,253,534,  or 53% of
sales,  for the  same  periods  in  2002.  This  decrease  in cost of sales as a
percentage of sales is primarily due to more efficient  installations.  Since we
entered this market,  we have  regularly  increased  the number of  installation
technicians we employ, and we continue to hire new installation technicians.  As
each quarter passes, our base of experienced  installation technicians continues
to grow.  This  experienced  base of technicians  combined with new processes we
continue to implement in all phases of the  installation  equate to efficiencies
and costs savings throughout the installation  process. Now that we have reached
profitability,  we plan to expand our operations  more rapidly than in the past,
in part by continuing to hire additional installation  technicians.  In light of
costs associated with this planned expansion, we do not expect our cost of sales
as a percentage of sales to continue to decrease as it has in the past.

         Operating   expenses   totaled   $1,185,236   and  $3,233,910  for  the
three-month and nine-month periods ended December 31, 2003 respectively compared
to $1,154,340  and  $3,530,705 for the same periods ended December 31, 2002. The
decrease for the nine-month  period ending December 31, 2003 is due primarily to
economies  realized in our  marketing,  administration  and sales areas.  We are
continuing  to find ways to decrease  actual  expenses,  such as  bringing  some
processes back in house when it makes senses and continuing to leverage  partner
arrangements through outsourcing when the result is a decrease in costs.

         Research and development expense increased from $113,270 in three-month
period ended December 31, 2002 to $146,249 in three-month  period ended December
31, 2003.  Research  and  development  expense  decreased  from  $462,829 in the
nine-month  period ended December 31, 2002 to $267,751 in the nine-month  period
ended  December  31,  2003.  The  increase  for the  current  quarter  is due to
increased  head count in our  development  staff.  The  decrease in research and
development  expense for the  nine-month  period is due primarily to capitalized
development  associated  with new products.  Research and development is a major
part of the planned expansion of our operations  mentioned above. We expect this
portion of our  business to grow not only to meet the  demands of our  expanding
customer base, but also to achieve new product innovation.

                                       9
<PAGE>

         Marketing,  administrative  and sales  expenses  decreased  in both the
three and nine-month periods ended December 31, 2003. Marketing,  administrative
and sales  expenses  decreased  from  $620,664 in the  three-month  period ended
December 31, 2002 to $454,811 in the three-month period ended December 31, 2003,
and decreased from  $1,814,342 in the nine-month  period ended December 31, 2002
to $1,382,513 in the  nine-month  period ended December 31, 2003. In most cases,
increases  in revenue are  associated  with  increases  in sales and  marketing.
However,  we are  currently  experiencing  the opposite due to a high demand,  a
shortened  sales  cycle  resulting  from  OEM  and  customer  relationships  and
technological  improvements.  In the past,  we could  expect the sales  cycle to
average 120 days from first visit to contract  signature.  In recent months,  we
have seen new car dealers signing up in just a few weeks from the first contact.
Many of the contacts are made by the dealers  themselves,  rather than our sales
staff,  as a result  of  recommendations  and  referrals  from new and  existing
customers.  In addition,  in the past, all product  demonstrations were given in
person at a customer  location.  Today,  nearly all product  demonstrations  are
given via the internet.  The cost savings in travel and time is reflected in the
year over year numbers.

         We had no interest income during the three and nine-month periods ended
December 31, 2003 and 2002. This was due to minimal cash balances  maintained in
banks.

         We expect  expenditures to increase in all areas of our business during
the next twelve months as development and promotion of existing and new products
continues,  assuming  available working capital.  One of our biggest  challenges
currently  is meeting the demand for our ADMS  product.  We  currently  have the
capacity  to  install  the ADMS in 10-14  stores  per  month.  Sales of ADMS are
presently outpacing our ability to install it

         The net income for the  three-month  period ended December 31, 2003 was
$116,784 or ($0.00) per share,  compared to a loss of  ($354,698) or ($0.01) per
share for the same period in 2002.  Net income for the  nine-month  period ended
December  31,  2003 was  $370,162  or $0.01  per  share,  compared  to a loss of
(1,176,731) or ($0.04) per share for the same period in 2002.  This represents a
substantial  improvement in the financial  results for the Company and is due to
increased sales,  increased  recurring support sales,  decreases in expenses and
increased  efficiencies  throughout the Company. The primary marketing focus for
the coming quarter  continues to be establishing our identity in the marketplace
and building a secure platform for future growth,  including  recruiting the key
personnel and business  partners  required to build end-user  solutions and grow
sales.

Liquidity and Capital Resources

         As of December 31, 2003, we had cash and cash  equivalents of $134,818,
as compared to cash and cash equivalents of $18,307 as of March 31, 2003.

         In order to meet operating  costs during the nine months ended December
31, 2003, we relied upon increased revenues, recurring revenues, the issuance of
816,667  shares of common stock at an average  price of $0.44 per share to seven
outside accredited  investors in the nine months ended December 31, 2003 and the
issuance to 575,000  shares of preferred  stock at a price of $1.00 per share to
seven  independent  accredited  investors,  most of which  are  also  customers,
between April 24, 2003 and July 7, 2003.

                                       10
<PAGE>

         We expect our revenues to continue to increase in the future. We expect
net  income to  increase  as well;  however,  due to costs  associated  with the
planned   expansion  of  our   installation   and  development   programs,   our
profitability is not expected to grow at the same rate and revenue. With respect
to our future  capital  needs,  our  recurring  revenues and  revenues  from new
installations produce enough cash flow in order to cover our costs at historical
levels.  As a result of the planned  expansion of our  installation  and product
development  programs,  however,  we may  require  capital  in  excess  of  that
generated from our ongoing operations and may issue additional equity securities
in order to raise that capital.  In addition,  we are  currently  working with a
local  bank to secure a line of credit  which,  if  secured,  would  allow us to
smooth out cash flow  needs.  Unless and until we receive  approval on a line of
credit,  we may need to rely on  additional  equity  financing to smooth out our
cash flow. We have no commitments from any parties to provide additional capital
but,  if  additional  capital is  required,  we believe  that we can rely on key
shareholders, customers and others for additional equity financing.

         The  following  table  discloses   aggregate   information   about  our
contractual  obligations  including long-term debt,  operating and capital lease
payments and office lease payments, and the periods in which payments are due as
of December 31, 2003:
<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                          $    8,541    $    8,541    $0             $0            $0
--------------------------------------- ------------- ------------- -------------- ------------- -------------
Operating Leases                           124,656        29,227        95,429      0             0
--------------------------------------- ------------- ------------- -------------- ------------- -------------
Capital Leases                              29,599        17,330        12,269      0             0
--------------------------------------- ------------- ------------- -------------- ------------- -------------
Office Lease                               406,665        60,500       346,165      0             0
--------------------------------------- ============= ============= ============== ============= =============
Total Contractual Obligations           $  569,461    $  115,598    $  453,863     $0            $0
--------------------------------------- ------------- ------------- -------------- ------------- -------------
</TABLE>
Critical Accounting Policies and Estimates

         Management  is basing this  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
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 the Company's future results of operations and cash flows.

                                       11
<PAGE>

         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  between the Company  and 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    Valuation  of  Accounts  Receivable.   A  considerable  amount  of
              judgment is required  when we assess the ultimate  realization  of
              receivables, including assessing the probability of collection and
              the current  credit-worthiness of our customers. As an application
              service  provider,  the majority of our  customers  rely on us for
              access to their  accounting  systems  for  day-to-day  operations.
              Because  of  this  dependence,   the  collectibility  of  accounts
              receivable for monthly  maintenance  and software  support is very
              high, as is the collectibility of billings for installation of our
              software and training services associated with the installation of
              our  software.  However,  even  though  we have a high  degree  of
              confidence  in  the  collection  of  our  accounts   receiveables,
              management  reviews the collectibility and aging of receivables on
              a monthly basis and make appropriate  adjustments to our allowance
              for doubtful accounts. As a result of our experience and analyses,
              we believe that the current allowance is adequate to cover any bad
              debts and credits that may be issued as of the date of the balance
              sheet.

         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.

Cautionary Statement Regarding Forward-Looking Statements

         We consider all forward-looking  statements contained in this Quarterly
Report to be covered by and to qualify for the safe harbor  protection  provided

                                       12
<PAGE>

by Section 21E of the Securities Exchange Act of 1934, as amended.  Shareholders
and  prospective  shareholders  should  understand  that several  factors govern
whether the results described by any such  forward-looking  statement will be or
can be achieved.  Any one of those factors could cause actual  results to differ
materially from those projected in this Report.

         The forward-looking  statements  contained in this report include plans
and  objectives  of  management  for future  operations,  plans  relating to the
products and  predictions  regarding  the economic  performance  of the Company.
Assumptions applicable to the foregoing involve judgments with respect to, among
other  things,  future  economic,  competitive,  and market  conditions,  future
business  decisions,  and the time and money required to  successfully  complete
development  projects,  all of which are  difficult  or  impossible  to  predict
accurately  and many of which are beyond our  control.  Although we believe that
the assumptions underlying the forward-looking statements are reasonable, any of
those assumptions could prove inaccurate.  Therefore,  we cannot assure that the
results  contemplated in any of the forward-looking  statements contained herein
will be realized.  The impact of actual experience and business developments may
cause the Company to alter its marketing,  capital  expenditure  plans, or other
budgets, which may in turn affect the Company's results of operations.  In light
of the inherent  uncertainties in forward-looking  statements,  the inclusion of
any such  statement  does not  guarantee  that  the  objectives  or plans of the
Company will be  achieved.  Among other risk factors to consider are the factors
identified in the subsection  entitled  "Factors That May Affect Future Results"
below.


                                       13
<PAGE>

Factors That May Affect Future Results.

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

We may not continue to experience net income in the future.
--------------------------------------------------------------------------------
         Prior to the three-month period ended June 30, 2003, we had experienced
net  losses in each  three-month  period  since  inception.  Any  projection  of
continued  profitability assumes that we will continue to add new customers at a
constant or increased rate and that our operating  expenses will increase slower
than our  revenues.  We may not be able to  continue to add new  customers  at a
constant or increased rate, and we may even begin losing  customers.  Even if we
add more customers,  our labor costs,  server and other capital  equipment costs
and other  expenses  may begin to increase  dramatically,  or we may  experience
unexpected  costs  related  to  litigation,  insurance,   acquisitions,  product
development  or other  items that may cause our  expense to increase at a faster
rate than expected. We may not be able to maintain  profitability or to increase
profitability in the future.

We may require  additional  capital to continue  development of our products and
fund our operations.
--------------------------------------------------------------------------------
         We do not have a  significant  cash  reserve,  and our cash  flow  from
operations is presently  approximately  equal to our cash  expenditures.  In the
event we experience an unexpected  need for cash,  expand our  operations in any
significant way or otherwise need additional cash, we expect to continue to rely
primarily  on the offer  and sale of  convertible  notes,  warrants  and  equity
securities  to obtain such cash.  If financing is needed,  we cannot  assure you
that additional financing 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 ADMS product or
other future offerings.
--------------------------------------------------------------------------------
         Our Arkona Dealer  Management  Suite product is relatively  new, 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  determine  not to
purchase our ADMS  product at the rate  projected  because of our  insignificant
position  in the  market,  concerns  over our  ability  to  continue  as a going
concern,  concerns  about our  product and  related  services  or various  other
reasons.  If we are unable to  increase  our monthly  installations  of our ADMS
product  in the  future,  it is  unlikely  that we  will  be  able  to  maintain
profitability.

                                       14
<PAGE>

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.

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 single co-location  facility provided by MCI.  Notwithstanding
precautionary  measures  that  we and  our  co-location  host  have  taken,  the
occurrence of a natural disaster or other unanticipated  system or power failure
could cause  interruptions in the services we provide.  In addition,  failure of
our telecommunications  providers to provide the data communications capacity we
require as a result of natural disasters, bankruptcy, operational disruptions or
for any other reason could cause  interruptions in the services we provide.  Any
damage or failure  that  causes  interruptions  in our  operations  could have a
material  adverse  effect on our  business,  financial  condition and results of
operations.

         Our ASP network is subject to factors that could cause interruptions in
service,  reduced  capacity for our  customers  and claims  against the Company.
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 malicious  actions of Internet  users,
              current and former employees or others.

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

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

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

                                       15
<PAGE>

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

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

We are dependent upon highly qualified personnel, and the loss of such personnel
is a risk to our success.
--------------------------------------------------------------------------------
         We are highly  dependent upon the efforts of management and technically
skilled personnel, including programmers,  installers and engineers,  including,
in particular, our President,  Richard Holland, who engineered our Arkona Dealer
Management Suite. Our future performance will depend in part upon our ability to
increase  sales,  manage  growth  effectively,  and retain the  services  of our
management,  our technical  staff and sales staff.  Competition  for management,
technical  and  sales  personnel  is  intense,  and  we do  not  have  long-term
employment  agreements with any of our employees.  As a result, we may be unable
to retain our key employees or attract 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 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.  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 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  protect  effectively  our  rights  to trade
secrets and know-how.

         We may be required to obtain licenses to certain intellectual  property
or other  proprietary  rights from third  parties.  Such licenses or proprietary
rights may not be made 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.

                                       16
<PAGE>

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

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

         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.

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 open us to a claim for damages. Although contract terms limit
our  exposure,  there  can be no  assurance  that a court  would  not rule  such
provisions  to be invalid  or  unenforceable,  or that  changes in the law would
render  such  terms  void or  unenforceable.  A  successful  claim  could have a
material adverse effect on our operations and finances. Furthermore, the cost of
defending against a claim, even  successfully,  could be material and could have
an adverse  effect on our  results of  operations  and an adverse  effect on the
marketing of our products.

Trading in our common  stock is thin,  and there is a limit to the  liquidity of
our common stock.
--------------------------------------------------------------------------------
         Our common  stock is quoted on the OTC  Bulletin  Board.  The volume of
trading  in  our  common  stock  is  limited  and  likely  dominated  by  a  few
individuals.  Because of the thinness of the market for our stock,  the price of
our common stock may increase or decrease  significantly as a result of a single
trade by a single shareholder. 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.

                                       17
<PAGE>

Our founders and officers 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 29% of our
issued and outstanding common stock. Two additional  shareholders have the power
to vote  approximately  15% 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 of
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 such  corporation's  voting power (defined
as an  "Interested  Stockholder")  for three years after the  acquisition of the
voting power, unless the acquisition of the voting power was approved beforehand
by the  corporation's  board of  directors or the  transaction  is approved by a
majority  of  such   corporation's   shareholders   (excluding   the  Interested
Stockholder).  These provisions prohibiting Interested Stockholder  transactions
could also preserve management's control of the Company.

Obtaining  additional  capital  through the sale of common  stock will result in
dilution of shareholder interests.
--------------------------------------------------------------------------------
         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 development stage 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    purchase  or  sale  of a  larger  number  of  shares  by a  single
              shareholder in a short period of time;
         o    announcements  by  us  or  competitors  concerning   technological
              innovations,  new  products or  procedures  developed by us or our
              competitors;

                                       18
<PAGE>

         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 copyrights or 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    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 would dilute
the ownership and voting power of the holders of our common stock and may have a
negative effect on the price of our common stock.

We have not declared any dividends with respect to our common stock.
--------------------------------------------------------------------------------
         We have never paid 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 certain  regulatory
action that limits or restricts the market for such 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 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:

                                       19
<PAGE>

         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.

         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 3.       Controls and Procedures

         (a) Based on the evaluation of our "disclosure controls and procedures"
(as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e))
required by paragraph (b) of Rules 13a-15 or 15d-15, our chief executive officer
and our chief financial  officer,  have concluded that, as of December 31, 2003,
our disclosure controls and procedures were effective.

         (b) There have been no changes in our internal  control over  financial
reporting identified in connection with the evaluation required by paragraph (d)
of  Exchange  Act Rules  13a-15 or 15d-15 that  occurred  during our last fiscal
quarter that have materially  affected,  or are reasonably  likely to materially
affect, our internal control over financial reporting.

                                       20
<PAGE>

                           PART II. OTHER INFORMATION

Item 2.       Changes In Securities And Use Of Proceeds


         In June 2003, in order to conserve  working capital and eliminate debt,
we requested that our Chief Executive Officer,  Alan Rudd, convert approximately
$179,202  of debt  and  accrued  interest  into  shares  of  common  stock  at a
conversion  rate of $0.20 per  share of  common  stock  (which  conversion  rate
exceeded  the market  price of our  common at that  time)  before the end of the
fiscal year. During the three-months ended December 31, 2003, Mr. Rudd converted
such debt and accrued interest into an aggregate of 896,010 shares of our common
stock.

         The above-described issuance of shares of our common stock was effected
in reliance upon the  exemptions  for sales of securities not involving a public
offering set forth in Rule 506 promulgated  under the Securities Act and Section
4(2)  of the  Securities  Act,  based  upon  the  following:  (a)  the  investor
represented and warranted to us that he was an "accredited investor," as defined
in Rule 501 of Regulation D promulgated  under the Securities  Act, and had such
background, sophistication,  education, and experience in financial and business
matters as to be able to evaluate the merits and risks of an  investment  in the
securities;  (b) there was no  public  offering  or  general  solicitation  with
respect to the offering,  and the investor represented and warranted that he was
acquiring  the  securities  for  his own  account  and not  with  an  intent  to
distribute such securities;  (c) the investors were provided certain  disclosure
materials regarding the Company and any and all other information requested with
respect to the Company, (d) the investor  acknowledged that all securities being
purchased were  "restricted  securities" for purposes of the Securities Act, and
agreed to transfer such securities only in a transaction registered with the SEC
under the Securities Act or exempt from  registration  under the Securities Act;
and (e) a legend was placed on the certificates and other documents representing
each such security  stating that it was restricted and could only be transferred
if  subsequently  registered  under  the  Securities  Act  or  transferred  in a
transaction exempt from registration under the Securities Act.

Item 6.   Exhibits And Reports On Form 8-K

         (a)  Exhibits.  See the Exhibit  Index  following  the  signature  page
hereof.

         (b) Reports on form 8-K. The Company filed a Current Report on Form 8-K
on October 10, 2003 in which it enclosed a press release announcing its earnings
for the quarter ended September 30, 2003.



                                       21
<PAGE>


                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this report to be signed on its behalf on February
17, 2004 by the undersigned thereunto duly authorized.

                                        Arkona, Inc.

         February 17, 2004              /s/ Alan Rudd
                                        ----------------------------------------
                                        Alan Rudd, Chief Executive Officer


         February 17, 2004              /s/ Stephen Russo
                                        ----------------------------------------
                                        Stephen Russo, Chief Financial Officer





                                       22
<PAGE>

<TABLE>
<CAPTION>


                                  EXHIBIT INDEX


   Exhibit
    Number                       Title of Document                                  Location
---------------    ----------------------------------------------    ---------------------------------------
<S>                <C>                                               <C>
3.1                Certificate of Incorporation , as amended to      Incorporated by reference to the
                   date (including Certificate of Designation        Company's Quarterly Report on Form
                   for Series B Preferred Stock)                     10-QSB filed with the SEC on August
                                                                     14, 2003.

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

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

4.2                Rights Agreement dated December 22, 2000          Incorporated by reference to the
                                                                     Current Report on form 8-K filed with
                                                                     the SEC on January 18, 2001

31.1               Section 302 Certification of Chief Executive      Filed herewith
                   Officer

31.2               Section 302 Certification of Chief Financial      Filed herewith
                   Officer

32.1               Section 906 Certification of Chief Executive      Filed herewith
                   Officer

32.2               Section 906 Certification of Chief Financial      Filed herewith
                   Officer
</TABLE>


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