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 September 30, 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                            (IRS Employer
of incorporation or organization)                     Identification No.)


                      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 November 10, 2003 there were issued and outstanding  29,560,701  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

                                ARKONA, INC.
                               Balance Sheets

                                                      30-Sep-03     31-Mar-03
ASSETS                                               (Unaudited)    (Audited)
                                                   ---------------------------
    Current Assets
       Cash and cash equivalents                       258,119         18,307
       Marketable securities                              --             --
       Accounts receivable, net of allowance           419,530        102,935
       Prepaid expenses                                   --             --
                                                   -----------    -----------
    Total Current Assets                               677,649        121,242
                                                   -----------    -----------
       Equipment                                       639,524        632,481
       Less: Accumulated depreciation                 (523,434)      (509,144)
                                                   -----------    -----------
       Equipment, net                                  116,090        123,337
                                                   -----------    -----------
    Other Assets
       Deposits                                         51,779         13,205
       Other assets, net amortization                  278,095        260,127
                                                   -----------    -----------
    Total Other Assets                                 329,874        273,332
                                                   -----------    -----------
TOTAL ASSETS                                         1,123,613        517,911
                                                   ===========    ===========

          LIABILITIES AND STOCKHOLDERS' EQUITY
    Current Liabilities
       Accounts payable                                 96,122        347,289
       Accrued liabilities                             123,109        244,040
       Deferred revenue                                224,321        172,433
       Current portion of long-term debt                69,322         69,322
                                                   -----------    -----------
    Total Current Liabilities                          512,874        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                    229,708        286,822
                                                   -----------    -----------
    Total Long-Term Liabilities                        182,621        369,674
                                                   -----------    -----------
    Total Liabilities                                  695,495      1,202,758
                                                   ===========    ===========
    Stockholders' Equity
       Common stock                                     33,459         28,436
       Series B preferred stock                        575,000           --
       Additional paid in capital                   21,910,541     21,645,977
       Accumulated unrealized loss on investment
          securities available for sale                (16,942)       (16,942)
       Retained earnings (deficit)                 (22,073,940)   (22,342,318)
                                                   -----------    -----------
    Total Stockholders' Equity                         428,118       (684,847)
                                                   -----------    -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY           1,123,613        517,911
                                                   ===========    ===========



       SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                       1
<PAGE>
<TABLE>
<CAPTION>
                                  ARKONA, INC.

            Unaudited Condensed Consolidated Statements of Operations




                                          Six Months Ended              Three Months Ended
                                       30-Sep-03      30-Sep-02      30-Sep-03      30-Sep-02
                                      -----------    -----------    -----------    -----------

<S>                                     <C>            <C>            <C>              <C>
Revenues                                2,339,132      1,559,032      1,235,890        914,583

Operating Expenses
  Cost of Sales                           999,470        797,559        543,939        476,845
  Research and Development                271,502        390,221        141,164        184,677
  Marketing, Admin & Sales                777,702      1,189,566        405,538        615,574
  Recog. of deferred compensation

                                      -----------    -----------    -----------    -----------
Total Operating Expenses                2,048,674      2,377,346      1,090,641      1,277,096
                                      -----------    -----------    -----------    -----------

Net Income (Loss) From Operations         290,458       (818,314)       145,249       (362,513)

  Interest Income                            --             --             --             --
  Interest Expense                        (22,080)        (4,700)        (7,807)        (2,588)
  Other Income
  Other Expense                              --             --             --             --
                                      -----------    -----------    -----------    -----------
Net Income (Loss)                         268,378       (823,014)       137,442       (365,101)
                                      -----------    -----------    -----------    -----------


Basic Net Income (Loss) per share            0.01          (0.03)          0.00          (0.01)
                                      -----------    -----------    -----------    -----------
Weighted average number
Of Shares Outstanding                  29,660,619     26,109,180     29,660,619     26,109,180
                                      ===========    ===========    ===========    ===========

Diluted Net Income (Loss) per share          0.01          (0.03)          0.00          (0.01)
Diluted Shares Outstanding             30,561,559     26,109,180     30,561,559     26,109,180
                                      ===========    ===========    ===========    ===========
</TABLE>

       SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                       2
<PAGE>



                                  ARKONA, INC.

            Unaudited Condensed Consolidated Statements of Cash Flows


                                                         Six Months Ended
                                                       30-Sep-03   30-Sep-02
                                                       --------    --------
Cash Flows (used by) Operating Activities:
    Net Income (Loss)                                   268,378    (823,014)
    Adjustments to reconcile net income to
    net cash used for operating activities:
        Depreciation and Amortization                    44,601     176,454
        Amortization of unearned compensation              --
        Changes is assets and liabilities:
             Accounts receivable                       (335,476)    (63,264)
             Prepaid Expenses                             1,868
             Accounts Payable                          (243,203)    113,385
              Deferred contract services                 51,889      13,515
             Accrued Liabilities                       (264,043)    (83,188)
                                                       --------    --------
Net Cash (Used By) Operating Activities                (477,854)   (664,244)
                                                       --------    --------

Cash Flows (Used for) Investing Activities:
    Additions to Equipment                              (60,806)    (20,691)
    Other assets                                        (32,090)       --
                                                       --------    --------
Net Cash Used for Investing Activities                  (92,896)    (20,691)
                                                       --------    --------

Cash Flows Provided By Financing Activities:
    Proceeds from Issuance of Preferred  Stock          575,000
    Proceeds from Issuance of Common  Stock             225,000     525,000
    Loan from officer                                    12,853     100,000
    Leases                                               (2,291)     (3,429)
                                                       --------    --------
Net Cash Provided By Financing Activities               810,562     621,571
                                                       --------    --------

Net Increase/(Decrease) in Cash and Cash Equivalents    239,812     (63,364)
                                                       --------    --------

Beginning Cash Balance                                   18,307     120,290

                                                       --------    --------
Ending Cash Balance                                     258,119      56,926
                                                       ========    ========

       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 September 30, 2003, the Company raised $150,000 by
selling  150,000  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.  Also
during the three months ended September 30, 2003, the Company raised $225,000 by
selling 500,000 shares of common stock to four qualified investors at an average
price per share of $0.45.


During the three  months  ended June 30, 2003,  the Company  raised  $425,000 by
selling  425,000  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>
                                  ARKONA, INC.
                    NOTES TO UNAUDITED CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS

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.

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 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 the
periods presented because their inclusion is antidilutive.

(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>
                                  ARKONA, INC.
                    NOTES TO UNAUDITED CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS
(f) 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.  One patent  has been  issued as of  September  30,  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:
                                                             Six Months Ended
                                                              September 30,
                                                         -----------------------
                                                            2003        2002
                                                         --------   -----------
Net Income / (loss) applicable to shareholders (basic
 and diluted) as reported                                $268,378   ($  823,014)
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   $179,926   ($  823,014)
                                                         ========   ===========
Income (loss) per common share (basic and diluted):
As reported                                              $   0.01        ($0.03)
                                                         ========   ===========
Pro forma                                                $   0.00        ($0.03)
                                                         ========   ===========

(i) Advertising Costs

Advertising costs of the Company are charged to expense as incurred.
                                       6
<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 Solutions (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 8-10 systems per month.

         We have,  and believe  that we can  continue  to  increase  our monthly
installs  in the future due to our  relationship  with  Mitsubishi,  other 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.

Results of Operations  for the Three and Six Month  periods Ended  September 30,
2003 and September 30, 2002

         Revenues  for the  three-month  period  ended  September  30, 2003 were
$1,235,890  compared  to  $914,583  for  the  same  period  in the  prior  year,
representing 35% increase for the three-month period. Revenues for the six-month
period ended September 30, 2003 were  $2,339,132  compared to $1,559,032 for the
same period in the prior year,  representing  a 50% increase  for the  six-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  maintenance and support revenue.
During the  six-month  period  ending  September  30, 2003 we installed our ADMS
solution in 44 new car  dealerships  and 10 used car  dealerships.  For the same
period in 2002 we installed  our ADMS solution in 31 new car  dealerships  and 5
used car  dealerships.  In an  effort to grow  revenues  more  rapidly,  we have
increased  the  number of  revenue  generating  activities  with  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, but not least,  we attribute a portion of
increased sales to our increased financial stability. As our financial stability
strengthens, a major obstacle for prospective customers is eliminated.

         Cost of sales totaled $543,939,  or 44% of sales, and $999,470,  or 42%
of sales,  for the  three-month  and six-month  periods ended September 30, 2003
respectively  compared to  $476,845,  or 52% of sales,  and  797,559,  or 51% of
sales, for the same periods in 2002. This decrease in cost 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  process  equate to  efficiencies  and costs savings
throughout the installation process.

                                       7
<PAGE>

         Now  that  we  have  reached  profitability,  we  plan  to  expand  our
operations more rapidly than in the past. 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   $1,090,641   and  $2,048,674  for  the
three-month and six-month periods ended September 30, 2003 respectively compared
to $1,277,096 and $2,377,346 for the same periods ended September 30, 2002. This
represents a year over year decrease of 14% for the  three-month  period and and
13% for the  six-month  period.  The  decrease  is due  primarily  to  economies
realized in our  marketing,  administration  and sales areas.  In fact, the only
area of our business that had actual  increases was the cost of sales,  and cost
of sales  decreased as a percentage of sales.  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 decreased from $184,677 in three-month
period  ended  September  30,  2002 to  $141,164  in  three-month  period  ended
September 30, 2003.  Research and development expense decreased from $390,221 in
the  six-month  period  ended  September  30, 2002 to $271,502 in the  six-month
period  ended  September  30, 2003.  The  decrease in research  and  development
expense  for both  periods  is due  primarily  to  decreases  in  headcount  and
allocation of engineering resources to customer support activities. 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.

         Marketing,  administrative  and sales  expenses  decreased  in both the
three and six-month periods ended September 30, 2003. Marketing,  administrative
and sales  expenses  decreased  from  $615,574 in the  three-month  period ended
September  30, 2002 to $408,538 in the  three-month  period ended  September 30,
2003, and decreased from $1,189,566 in the six-month  period ended September 30,
2002 to $777,702 in the  six-month  period ended  September  30,  2003.  In most
cases,  increases  in  revenue  are  associated  with  increases  in  sales  and
marketing.  However,  we are  currently  experiencing  the  opposite due to 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 six-month  periods ended
September 30, 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 8-10  stores  per  month.  Sales of ADMS are
presently outpacing our ability to install it.

         The net income for the three-month  period ended September 30, 2003 was
$137,442  or $0.00 per share,  compared to a loss of  ($365,101)  or ($0.01) per
share for the same period in 2002.  Net income for the  six-month  period  ended
September 30, 2003 was $268,378 or ($0.01),  compared to a loss of ($823,014) or
($0.03) per share for the same period in 2002. This represents a substantial


                                       8
<PAGE>

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 future for the Company appears bright.

         The  primary   marketing   focus  for  the  quarter   continued  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

         At September 30, 2003, we had cash and cash equivalents of $258,119, as
compared to cash and cash equivalents of $18,307 as of March 31, 2003.

         In order to meet operating  costs during the six months ended September
30, 2003, we relied upon increased revenues, recurring revenues, the issuance of
500,000  shares of common  stock at an average  price of $0.45 per share to four
outside  accredited  investors  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.

         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 as 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 September 30, 2003:
<TABLE>
<CAPTION>

--------------------------------------- ------------- ------------- -------------- ------------- -------------
                                                      Less Than                                  After 5
Contractual Obligations                 Total         1 Year        1-3 years      4-5 Years     Years
--------------------------------------- ------------- ------------- -------------- ------------- -------------
<S>                                     <C>           <C>           <C>            <C>           <C>
Long-term debt                          $   224,500   $  74,500     $    150,000   $    0        $    0
--------------------------------------- ------------- ------------- -------------- ------------- -------------
Operating Leases                             72,156      18,727           53,429        0             0
--------------------------------------- ------------- ------------- -------------- ------------- -------------
Capital Leases                               30,692      18,423           12,269        0             0

--------------------------------------- ------------- ------------- -------------- ------------- -------------
Office Lease                                467,165     121,000          346,165        0             0
--------------------------------------- ============= ============= ============== ============= =============
Total Contractual Obligations           $   794,513   $ 232,650     $    561,863   $    0        $    0
--------------------------------------- ------------- ------------- -------------- ------------- -------------
</TABLE>
                                       9
<PAGE>

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.

         o    Revenue  Recognition.  Revenues  from  continuing  operations  are
              generated from the following  activities:  software  maintenance &
              support,  consulting  services  and the 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 are 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.

                                       10
<PAGE>

         o    Equipment.  We utilize  significant amounts 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    Contingencies.  We are subject to legal  proceedings that arise in
              the  ordinary  course of  business.  We are required to assess the
              likelihood  of any adverse  judgments or outcomes to these matters
              as well as potential ranges of probable losses. A determination of
              the  amount  of  loss   accrual   required,   if  any,  for  these
              contingencies  are made after careful  analysis of each individual
              issue.  We consult  with legal  counsel  and other  experts  where
              necessary  to assess any  contingencies.  A required  accrual  may
              change at some point in the future  due to new  developments  in a
              matter or  changes  in  approach  such as a change  in  settlement
              strategy in dealing with these matters.

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
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.

                                       11
<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.
--------------------------------------------------------------------------------
         We have  experienced  net  losses  in  each  three-month  period  since
inception  except for the three-month  periods ended June 30, 2003 and September
30, 2003. Any projection of continue 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  current  rate of  purchase  or 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.

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

                                       12
<PAGE>

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  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 intentional actions of Internet users,
              current and former employees or others.

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

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

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

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

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

                                       13
<PAGE>

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

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

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.
                                       14
<PAGE>

         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.

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
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

                                       15
<PAGE>

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    the  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;
         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    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 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.

                                       16
<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 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    priced under five dollars;
         o    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.

         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.

                                       17
<PAGE>

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 September 30, 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.

                           PART II. OTHER INFORMATION

Item 2.  Changes In Securities And Use Of Proceeds

         During the three months ended  September 30, 2003,  the Company  raised
$150,000 by selling 150,000 shares of Series B Preferred Stock to two accredited
investor  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 $1.00 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  September  30,  2008.Each  share of
Series B  Preferred  Stock has one (1) vote and votes  together  as a class with
common stock, except that the shares of Series B Preferred Stock vote separately
as a class for (i) any adverse change to the rights,  preferences and privileges
of the Series B Preferred Stock,  (ii) any increase or decrease in the number of
authorized shares of Series B Preferred Stock.

         Also during the three months  ended  September  30,  2003,  the Company
raised  $225,000 by selling  500,000  shares of common stock to four  accredited
investors at an average price per share of $0.45.

         The above-described issuances of shares of our Series B Preferred Stock
and our common stock were 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  investors  represented  and  warranted to us that they were
"accredited investors," 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 investors
represented  and warranted that they were acquiring the securities for their 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  investors
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.
                                       18
<PAGE>

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

         The Company held an Annual Meeting of  Shareholders on October 8, 2003,
at which the Company's shareholders considered and voted as follows on the items
described below:

         1. Our shareholders  considered  whether to elect the following persons
as  directors  of the  Company,  each to serve until the next annual  meeting of
shareholders  of the Company and until his respective  successor shall have been
duly elected and shall qualify:

        Name of Nominee       Votes For        Abstentions     Broker Non-Votes
        Alan Rudd             18,304,507        84,746               0
        Richard Holland       18,365,325        24,000               0
        Bryan Allen           18,331,323        58,000               0

         2. Our shareholders  considered and voted upon a proposal to ratify the
appointment of Mantyla McReynolds,  a Professional  Corporation,  as independent
auditors of the Company for the fiscal year ending  March 31,  2004.  There were
18,280,327 votes cast in favor,  24,181votes cast against,  81,515  abstentions,
and no broker non-votes.

         3. Our  shareholders  considered and voted upon a proposal to amend the
Company's 2001 Stock Incentive Plan in order to increase the number of shares of
common stock available for awards  thereunder from 6 million shares to 9 million
shares. There were 17,357,751 votes cast in favor, 1,018,222 votes cast against,
10,950 abstentions, and no broker non-votes.

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 July 24, 2003 in which it enclosed a press  release  announcing  its earnings
for the quarter ended June 30, 2003.


                                       19
<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 November
14, 2003 by the undersigned thereunto duly authorized.

                                     Arkona, Inc.

         November 14, 2003           /s/ Alan Rudd
                                     --------------------------------------
                                     Alan Rudd, Chief Executive Officer


         November 14, 2003           /s/ Stephen Russo
                                     --------------------------------------
                                     Stephen Russo, Chief Financial Officer





                                       20
<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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