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

                                   FORM 10-QSB

(Mark One)

[X]          Quarterly  report  under  Section  13 or  15(d)  of the  Securities
             Exchange Act of 1934 for the quarterly period ended June 30, 2005

                                       OR

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


                         Commission File Number 0-24372

                                  ARKONA, Inc.
        -----------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)


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

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

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

Check  whether the issuer (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 August 1, 2005, there were issued and outstanding 32,219,670 shares of the
Company's common stock, par value $.001 per share.

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


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                                     Page 1
<PAGE>

PART I - Item 1. Financial Statements


                                  ARKONA, INC.

                            Condensed Balance Sheets
                                                        30-Jun-05      31-Mar-05
                                                       (Unaudited)     (Audited)
                                                     ------------   ------------
 ASSETS

      Current Assets:
        Cash and cash equivalents                  $     92,672    $    141,179
        Accounts receivable, net of allowance           675,238         481,517
        Prepaid expenses                                 74,974           3,500
                                                   ------------    ------------
     Total Current Assets                               842,884         626,196
                                                   ------------    ------------

     Property & Equipment, net of
        accumulated depreciation                        354,620         359,810
                                                   ------------    ------------
     Other Assets:
        Deferred tax assets                           5,039,237       5,039,237
        Capitalized software costs, net of
             accumulated amortization                   845,353         804,549
        Deposits                                        125,367         122,080
        Other                                           156,622         156,622
                                                   ------------    ------------
     Total Other Assets                               6,166,579       6,122,488
                                                   ------------    ------------
TOTAL ASSETS                                       $  7,364,083    $  7,108,494
                                                   ============    ============

LIABILITIES & STOCKHOLDERS' EQUITY
     Current Liabilities:
        Accounts payable                           $    130,831    $    156,076
        Accrued liabilities                             246,040         238,450
        Deferred revenue                                245,678         200,326
                                                   ------------    ------------
     Total Current Liabilities                          622,549         594,852
                                                   ------------    ------------

     Note payable - related party                        50,000          50,000
                                                   ------------    ------------
     Total Liabilities                                  672,549         644,852
                                                   ------------    ------------

     Stockholders' Equity:
        Preferred stock ($.001 par value)                   575             575
        Common stock ($.001 par value)                   32,175          32,170
        Additional paid in capital                   23,397,927      23,394,632
        Unearned compensation                           (17,167)        (19,357)
        Accumulated deficit                         (16,721,976)    (16,944,378)
                                                   ------------    ------------
     Total Stockholders' Equity                       6,691,534       6,463,642
                                                   ------------    ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY         $  7,364,083    $  7,108,494
                                                   ============    ============

See notes to condensed unaudited financial statements.

                                     Page 2
<PAGE>

                                  ARKONA, INC.

                  Unaudited Condensed Statements of Operations

                                                         Three Months Ended
                                                    30-Jun-05        30-Jun-04
                                                  ------------     ------------

Revenues                                          $  2,529,199     $  1,634,599

Cost of Sales                                        1,292,395          912,922
                                                  ------------     ------------
Gross Profit                                         1,236,804          721,677
                                                  ------------     ------------
Operating Expenses:
     Sales, marketing & general
         administrative                                783,374          653,965
     Research and development                          229,326          169,336
                                                  ------------     ------------
Total Operating Expenses                             1,012,700          823,301
                                                  ------------     ------------

Operating Income (Loss)                                224,104         (101,624)

Other (Expense) Income                                  (1,702)          69,273
                                                  ------------     ------------

Net Income (Loss) Before Taxes                         222,402          (32,351)

Income Tax Benefit                                     869,809
                                                  ------------     ------------

Net Income                                        $    222,402     $    837,458
                                                  ============     ============


Basic Earnings per Common Share:
     Net Income                                   $      0.007     $      0.026
     Average Number of Shares Outstanding           32,170,384       31,687,379

Diluted Earnings per Common Share:
     Net Income                                   $      0.006     $      0.021
     Average Number of Shares Outstanding           38,974,917       39,236,940



See notes to condensed unaudited financial statements.

                                     Page 3
<PAGE>

                                  ARKONA, INC.

                  Unaudited Condensed Statements of Cash Flows

                                                         Three Months Ended
                                                     30-Jun-05       30-Jun-04
                                                    -----------     -----------
Cash Flows Provided By (Used In) Operating
     Activities:
     Net income                                     $   222,402     $   837,458
     Adjustments to reconcile net income
         to net cash provided by (used in)
         operating activities:
         Depreciation and amortization                   84,641          23,440
         Gain on sale of asset                          (72,914)
         Bad debt write offs                            (16,991)           --
         Stock compensation                               2,190            --
         Deferred income tax                           (869,809)
         Changes in assets & liabilities:
              Accounts receivable                      (176,730)         (6,730)
              Prepaid expense                           (71,474)           --
              Deposits                                   (3,287)           --
              Accounts payable                          (25,245)        (20,766)
              Accrued liabilities                         7,590        (188,273)
              Deferred revenue                           45,352        (105,820)
                                                    -----------     -----------
Net Cash Provided By (Used In) Operating
     Activities                                          68,448        (403,414)
                                                    -----------     -----------
Cash Flows Used In Investing Activities:
     Additions to equipment                             (35,238)        (33,890)
     Software development costs                         (85,017)        (94,600)
     Proceeds from sale of asset                        100,000
                                                    -----------     -----------
Net Cash Used In Investing Activities                  (120,255)        (28,490)
                                                    -----------     -----------
Cash Flows Provided By Financing Activities:
     Proceeds from issuance of common stock               3,300          69,950
                                                    -----------     -----------
Net Cash Provided By Financing Activities                 3,300          69,950
                                                    -----------     -----------

Net Decrease In Cash and Cash Equivalents               (48,507)       (361,954)

Beginning Cash Balance                                  141,179         361,954
                                                    -----------     -----------
Ending Cash Balance                                 $    92,672     $         0
                                                    ===========     ===========

See notes to condensed unaudited financial statements.


                                     Page 4
<PAGE>


                                  ARKONA, INC.

                NOTES TO UNAUDITED CONDENSED 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 in accordance with generally accepted
accounting  principles have been condensed or omitted. The Company believes that
the following  disclosures  are adequate and not  misleading.  These  un-audited
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  un-audited  condensed
financial  statements  should  be  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, 2005.

Note 2 - Concentration

The   Company's   business  is  limited  in  that  its  products  are  currently
specifically  designed for customers in the auto dealership  industry.  For this
reason,  if the industry  environment  were to experience  significant  negative
conditions, the Company would also be affected.  However, the Company's products
can meet customer needs in the RV, Marine,  ATV and motorcycle  markets.  We now
have a small  number of  customers  in the marine and RV markets  and are moving
towards  providing  a tailored  software  solution  to  dealers of power  sports
equipment, such as motorcycles,  ATVs, snowmobiles and personal watercraft.  Our
plan is to move into  other  vertical  markets  as soon as  development  allows.
However,  sales  of  Company  products  and  services  are  not  limited  to any
geographic area.

The Company maintains cash balances in local financial institutions. Accounts at
these  institutions are insured by the Federal Deposit Insurance  Corporation up
to $100,000 each.

Note 3 - Significant Accounting Policies

(a)  Income Taxes

The  Company  applies  the  provisions  of  Statement  of  Financial  Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS No. 109 requires
an asset and  liability  approach for  financial  accounting  and  reporting for
income taxes, and the recognition of deferred tax assets and liabilities for the
temporary differences between the financial reporting basis and tax basis of 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 Per Common Share

In accordance  with SFAS No. 128,  "Earnings Per Share," basic income per common
share  is  computed   using  the  weighted   average  number  of  common  shares
outstanding.  Diluted  income per common  share is computed  using the  weighted
average  number  of  common  shares   outstanding  plus  dilutive  common  share
equivalents  outstanding  during the period,  computed  using the treasury stock
method.

(c)  Cash & Cash Equivalents

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

                                     Page 5
<PAGE>

(d) Use of Estimates in the Preparation of Financial Statements

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities,  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. 104, "Revenue  Recognition."
SAB  No.  104  clarifies  the  application  of  generally  accepted   accounting
principles to revenue transactions.  During the course of business,  the Company
recognizes revenue for the following  activities:  Technical  Support,  Hardware
Sales,  Consulting  Services,  and Installation and Training associated with its
products.  Technical  support  charges are billed  monthly and are recognized as
earned and  stipulated in contracts  with  customers.  Hardware sales revenue is
recognized  when the hardware is shipped to the  customer.  Consulting  services
fees are recognized as services are rendered.  Product installation and training
revenue is recognized in accordance  with the terms of each contract,  generally
on  a  percentage-of-  completion  basis.  Advance  deposits  are  deferred  and
recognized over the life of the contract,  which is usually less than one month.
Components  of the product  installation  process  include  software  licensing,
training, forms programming, data conversion, and hardware installation.

(f)  Software Costs

Costs incurred to establish the  technological  feasibility of software products
to be sold, leased or otherwise marketed by the Company are expensed as research
and  development.  Once  technological  feasibility  is  established,  costs are
capitalized  in  accordance  with  SFAS No.  86,  "Accounting  for the  Costs of
Computer Software to Be Sold,  Leased, or Otherwise  Marketed" until the product
is  available  for  general  release  to  customers.  Judgment  is  required  in
determining  when  technological   feasibility  of  a  product  is  established.
Capitalized  costs,  which  consist  primarily  of payroll and  benefits of both
employees and outside  contractors,  have been amortized on a product-by-product
basis using the straight-line  method over the established  economic life of the
products  (determined to be five years). In addition,  with the issuance of SFAS
No. 142, "Goodwill and Other Intangible Assets",  capitalized software costs are
tested  for  impairment  each  period  along with other  intangible  assets.  If
impairment is  determined,  the amount of the  impairment is written off in that
period.

(h) Stock-Based Compensation

In December 2001, the Company established a stock incentive plan (the "Plan") to
provide  incentives  to its  directors,  officers,  employees and advisors to do
business  with the  Company  and to enable the  company to obtain and retain the
services of the type of directors,  officers,  advisors and employees considered
essential for  long-term  success.  The granting of options and other  incentive
awards is at the discretion of the Stock Option Committee of the Board.

As of June 30, 2005,  there were  outstanding a total of 8,369,092 stock options
to purchase  Company  common stock granted under the Plan,  all of which have an
exercise price of between $0.20 and $0.65 per share. Stock options granted under
the Plan vest over a one to four year period. No options were granted during the
three months ended June 30, 2005.

The Company has accounted for share-based payments to employees using Accounting
Principles  Board  ("APB")  Opinion  No.  25,  "Accounting  for Stock  Issued to
Employees"  and the intrinsic  value method and, as a result,  has not generally
recognized any  compensation  cost for employee  stock options.  On December 16,
2004, the Financial  Accounting Standards Board ("FASB") issued SFAS No. 123(R),
"Share-Based  Payments",  which requires all share-based  payments to employees,


                                     Page 6
<PAGE>

including  grants of employee  stock  options,  to be  recognized  in the income
statement  based on their fair values.  For public  companies that file as small
business issuers, the reporting requirements under SFAS No. 123(R) are effective
in the first interim or annual  reporting  period that begins after December 15,
2005. The Company expects to elect the modified prospective method of accounting
and reporting for any future share-based payments.

The  Company  has  adopted  only the  disclosure  provisions  of SFAS  No.  123,
"Accounting for Stock Based  Compensation." The following  represents the impact
of the  issuance of employee  stock  options for the three months ended June 30,
2005 had compensation cost been recognized:

         Net income, as reported            $  222,402

         Add:    stock-based employee
             compensation expense included
             in reported net income              2,190

         Deduct:  total stock-based
             employee compensation expense
             determined under fair value
             based method for all awards       (15,464)
                                            -----------
         Pro forma net income               $  209,128
                                            ===========

         Basic earnings per share              $.007
         Diluted earnings per share            $.005

(i)  Advertising Costs

Advertising costs are charged to expense as incurred.

(j)      Reclassifications

Certain  reclassifications  have been made to prior period  balances in order to
conform to current period classifications.

Item 2.  Management's Discussion and Analysis

Overview

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

Our primary product is the Arkona Dealer  Management  Suite  ("ADMS").  The ADMS
software is a fully integrated  automobile dealership management software system
that allows automobile  dealerships to manage substantially all aspects of their
business  operations.  It is a  modular  system,  which  makes it  scalable  for
different types and sizes of  dealerships.  A key advantage of the ADMS software
is its ability to run on an Application  Service  Provider ("ASP") model. An ASP
model involves the software  provider  running  software and maintaining data at
central  locations,  and  customers  accessing  and using the software  over the
Internet.  The ASP model significantly reduces most upfront and ongoing hardware
costs for the dealership because the significant processing is done on computers
maintained at offsite  locations that are maintained by us. The dealership needs
only standard personal  computers with reliable  Internet access.  The ASP model
also may reduce the need for technical  computer  personnel because the software
and  related  hardware  are  managed  by us at our  offsite  location.  Our ADMS
software integrates with most of the major automobile manufacturers,  and we are

                                     Page 7
<PAGE>
continuing our efforts to obtain  cooperation  from the others to integrate with
their  systems.  In connection  with the ADMS software,  we provide  training to
dealership  employees  and, for a monthly  fee,  provide  technical  support and
regular software updates.

The market for automobile  dealer  management  systems is dominated by two major
players:  Automatic  Data  Processing,  Inc.  ("ADP")  and  Reynolds  & Reynolds
("Reynolds").  According  to a 2003  market  study  conducted  by  the  National
Automobile Dealers  Association,  ADP and Reynolds together control about 71% of
the market for automobile dealer management systems. ADP and Reynolds are large,
well-financed  organizations.  They have good brand name  recognition  and their
systems  integrate  with all the major  automobile  manufacturers.  Their market
dominance creates significant  barriers to entry for us because many dealerships
are  hesitant  to  abandon  their  existing  systems  and switch to a new system
provided by a smaller  company with  limited  resources.  However,  we presently
offer a system  that we believe is  technologically  superior at a price that is
substantially lower than the standard pricing of both ADP and Reynolds.

Results of Operations

We realized  significant  increases in total revenues for the three months ended
June 30, 2005  compared  with 2004.  Total  revenues  increased  $894,600,  from
$1,634,599  for the three months ended June 30, 2004 to $2,529,199 for the three
months ended June 30, 2005.  This represents a 54.7% increase in total revenues.
This increase  continues to reflect the  Company's  success in  penetrating  the
dealer management system market controlled by ADP and Reynolds.  The combination
of our  products'  superior  features  and  capabilities,  the ASP model's  cost
savings  and  efficiencies,  our  practice of not  locking  our  customers  into
long-term  contracts,  as well as,  our  reputation  for  providing  outstanding
service and support  contribute to the Company's  revenue growth.  We are adding
approximately  12 to 16 new dealerships  each month.  Revenues  include one-time
fees from the installation of and training on the ADMS system,  on-going monthly
support and maintenance fees, sales of hardware,  and  miscellaneous  consulting
fees.

Installation and training  revenues  increased  $202,163 or 25.3%, from $798,413
for the three  months  ended June 30, 2004 to  $1,000,576  for the three  months
ended June 30, 2005. Monthly support and maintenance revenues increased $398,877
or 47.1%,  from  $846,108 for the three months ended June 30, 2004 to $1,244,985
for the three months ended June 30, 2005.  Hardware revenues  increased $198,902
or  1,133.9%,  from $17,541 for the three months ended June 30, 2004 to $216,443
for the three months ended June 30, 2005.  Consulting revenues increased $43,114
or 136.5%,  from $31,581 for the three months ended June 30, 2004 to $74,695 for
the three months ended June 30, 2005.

Net income from  operations  (before income tax benefit)  increased  $254,753 or
787.5%,  from a loss of  ($32,351)  or ($.0008)  per share for the three  months
ended June 30, 2004 to $222,402  or $.006 per share for the three  months  ended
June 30,  2005.  Included in net income for the three months ended June 30, 2004
is the recognition of an income tax benefit of $869,809, recorded to account for
the future benefit from previous years' net operating losses. The recognition of
profits for the first quarter has been due to the increases in revenues as noted
above, as well as, from the expected  operating  efficiencies  obtained from the
investments  made in personnel and equipment  during the last half of the fiscal
year ended March 31, 2005 ("fiscal year 2005").

Cost of sales  increased  $379,473 or 41.6%,  from $912,922 for the three months
ended June 30, 2004 to $1,292,395  for the three months ended June 30, 2005. The
increase  in cost  of  sales  is due  primarily  to the  increase  in  revenues,
especially the increase in hardware  revenues and their related  hardware costs.
Additionally,  cost of sales  increased  because  of the  increased  demand  for
post-installation  support and training.  As the number of installed dealerships
increase,  new employee training due to turnover at these dealerships increases.
Margins on these activities are smaller than the margins on installation.  As we
expand our operations, we will maintain a priority on customer service.

                                     Page 8
<PAGE>

Operating expenses,  consisting of research and development  expenses and sales,
marketing and general administrative expenses, increased $189,399 or 23.0%, from
$823,301 for the three months  ended June 30, 2004 to  $1,012,700  for the three
months ended June 30, 2005. The increase is principally due to investments  made
in the last half of fiscal year 2005 in sales and engineering  personnel to fuel
our  revenue  growth.  We have  significantly  increased  our sales  capacity by
opening sales offices in California,  Colorado,  North Carolina, Ohio and Maine.
We have increased the number of our engineering  development  staff in order for
us to continue to focus on developing new and enhanced products.

Liquidity and Capital Resources

Our liquidity position is steadily improving. As of June 30, 2005 we had working
capital of  $220,335  compared  to $31,344 as of March 31,  2005.  Cash and cash
equivalents totaled $92,672 as of June 30, 2005 compared to $141,179 as of March
31, 2005.  Accounts  receivable,  net of  allowance  for bad  accounts,  totaled
$675,238 as of June 30, 2005 compared to $481,517 as of March 31, 2005.  Current
liabilities  totaled  $622,549  as of June 30,  2005  compared to $594,852 as of
March 31, 2005. We did not incur any additional long-term liabilities during the
three months ended June 30, 2005. The only long-term obligation,  as of June 30,
2005 and March 31, 2005, is a note for $50,000,  payable to a related party,  on
which the Company only makes monthly interest payments at a 12% annual rate.

In order to meet operating costs during the three months ended June 30, 2005, we
relied upon cash  provided  from  operations.  There were no  significant  funds
received from the sale of equity securities.  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 planned expansion programs,  our profitability (net
of income tax  benefits)  is not  expected  to grow at the same rate as revenue.
With respect to our future capital needs,  we expect our recurring  revenues and
revenues from new installations to produce adequate cash flow to meet our costs.

We do not have a significant  cash reserve.  If we experience a material adverse
event, expand our operations in any significant way or otherwise need additional
cash, we would need to raise  additional  capital.  We believe that,  absent the
occurrence of a material adverse event, we could raise needed additional capital
through the offer and sale of convertible notes,  warrants and equity securities
or through  commercial  financing  arrangements.  We do not,  however,  have any
commitments from any party to provide such capital,  and there is a risk that we
would not be able to raise capital, or may be compelled to pay a very high price
for additional capital, under certain circumstances.  If adequate capital is not
available,  our  ability  to  expand  our  operations,  or  to  continue  normal
operations, may be limited.

The  following  table  discloses  aggregate  information  about our  contractual
obligations including office and operating lease payments and the long-term note
payable, and the periods in which payments are due as of June 30, 2005:
<TABLE>
<CAPTION>
                                       Less Than
                            Total        1 Year     1-3 years    4-5 Years    After 5
                         ----------   ----------   ----------   ----------   ---------

<S>                      <C>          <C>          <C>          <C>          <C>
Office Lease             $2,479,138   $  449,251   $1,471,388   $  558,498        --
----------------------   ----------   ----------   ----------   ----------   ---------
Operating Leases            418,704      194,352      218,352        6,000        --
----------------------   ----------   ----------   ----------   ----------   ---------
Long-term Note Payable       50,000         --           --           --          --
----------------------   ==========   ==========   ==========   ==========   =========
Total                    $2,947,842   $  643,603   $1,689,740   $  564,498      None
</TABLE>

                                     Page 9
<PAGE>
Critical Accounting Policies and Estimates

Management is basing this discussion and analysis of our financial condition and
results of operations  on our financial  statements.  The  preparation  of these
financial statements requires us to make estimates and judgments that affect the
reported  amounts of assets,  liabilities,  revenues 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 product  installation and training.  Software  maintenance and
     support are billed on a monthly  basis,  and revenues are recognized in the
     month that services are rendered. Consulting services revenue is recognized
     and billed upon completion of  customer-specified  tasks.  Installation and
     training  services are stipulated and performed in accordance with a signed
     contract with the customer.  These  contracts  require  customers to pay an
     upfront  non-refundable  deposit,  which is carried as a  liability  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 shipment.

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 SFAS No. 142. Our  judgments  regarding  the  existence of
     impairment  indicators are based on legal factors,  market conditions,  and
     operational  conditions.  Future  events  could cause us to  conclude  that
     impairment  indicators  exist  and that the  goodwill  associated  with our
     acquired business is impaired. Goodwill is no longer amortized, but instead
     is subject to impairment tests at least annually.

o    Capitalization  of  Software  Expense - Costs  incurred  to  establish  the
     technological  feasibility  of  software  products  to be sold,  leased  or
     otherwise   marketed  are  expensed  as  research  and  development.   Once
     technological  feasibility is established,  costs are capitalized until the
     product is available for general  release to customers.  In the last fiscal
     year  we  have  developed   several  key   stand-alone   products  that  we
     incorporated  into our  software  as an added value for our  customers.  In
     addition  to being  stand-alone  and very  significant,  they  also have an
     unlimited life.  Based upon those and other criteria and factors  mentioned
     above, we determined that  capitalization is the appropriate  treatment for
     such additional stand-alone products.
                                    Page 10
<PAGE>
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.  Stockholders  and
prospective  stockholders  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.

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

We may require  additional  capital to continue  development of our products 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.

                                    Page 11
<PAGE>

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  (ADP and Reynolds)  control 71% of
the market and have a significant  advantage relative to market acceptance.  Any
projections or  expectations  regarding the number of customers that will accept
installation  of 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.

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 other  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.

                                    Page 12
<PAGE>

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

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

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

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

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

We rely on our  intellectual  property  rights,  and if we are unable to protect
these  rights,  we may  face  increased  competition,  and our  business  may be
materially adversely affected
--------------------------------------------------------------------------------
We regard our intellectual  property,  particularly our ADMS, as critical to our
success,  and we rely on copyright  and trade secret  protection  to protect our
proprietary rights in intellectual  property.  Any of our intellectual  property
rights may be  challenged,  invalidated or  circumvented,  or the rights granted
there under may not provide any competitive advantage. In addition, 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.  Although  each  of  our  employees  and
consultants is asked to enter into a  confidentiality  and invention  agreement,
there can be no assurance that such  agreements  will be honored or that we will
be able to protect effectively our rights to trade secrets and know-how.

Third-party  claims that we infringe  upon their  intellectual  property  rights
could be costly to defend or settle
--------------------------------------------------------------------------------
Litigation  regarding  intellectual  property  rights is common in the  software
industry.  We expect that  software  products and  services may be  increasingly
subject to third-party  infringement  claims as the number of competitors in our
industry segment grows and the  functionality of products in different  industry
segments overlaps. We may, from time to time, encounter disputes over rights and
obligations concerning intellectual property.  Third parties may bring claims of
infringement against us, which may be with, or without, merit.

                                    Page 13
<PAGE>
We could be required, as a result of an intellectual property dispute, to do one
or more of the following:
--------------------------------------------------------------------------------
o    Cease selling,  incorporating  or using products or services that rely upon
     the disputed intellectual property;

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

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

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

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

In addition,  we have agreed,  and may agree in the future, to indemnify certain
of  our  customers   against  claims  that  our  software   infringes  upon  the
intellectual  property  rights of others.  We could incur  substantial  costs in
defending ourselves and our customers against  infringement claims. In the event
of a claim of  infringement,  we and our customers may be required to obtain one
or more  licenses from third  parties.  We, or our  customers,  may be unable to
obtain  necessary  licenses from third parties at a reasonable  cost, or at all.
Defense of any  lawsuit or failure to obtain any such  required  licenses  could
harm our business, operating results and financial condition.

Software  products  tend to evolve  rapidly,  and our  competitors  may  develop
products that are technically superior to our products
--------------------------------------------------------------------------------
Our primary  product,  the ADMS, 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.

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

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

Our  products  include  programs  designed  for mission  critical  applications,
creating the risk that the failure or  malfunction of our products may result in

                                    Page 14
<PAGE>

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

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

Our management hold a significant number of our outstanding  shares,  which will
allow them to influence  the outcome of matters  submitted to  stockholders  for
approval
--------------------------------------------------------------------------------
Our management  owns and has the power to vote  approximately  31% of our issued
and outstanding  common stock.  Three additional  stockholders have the power to
vote  approximately 11% of our issued and outstanding common stock. As a result,
these  stockholders have substantial  control over matters requiring approval by
our stockholders,  such as the election of directors and approval of significant
corporate  transactions.  In addition,  this concentration of ownership may also
have the effect of delaying or preventing a change in control.

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

In addition,  the Delaware  general  corporation law prohibits  certain mergers,
consolidations,  sales of assets or similar  transactions  between a corporation
and another company which is, or is an affiliate of, a beneficial  holder of 15%
or  more  of  such  corporation's   voting  power  (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   stockholders  (excluding  the  Interested  Stockholder).   These
provisions prohibiting  Interested Stockholder  transactions could also preserve
management's control of the Company.

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

                                    Page 15
<PAGE>

The market price for our common stock is volatile and may change dramatically at
any time
--------------------------------------------------------------------------------
The market price of our common stock, like that of the securities of other early
stage companies, may be highly volatile. Our stock price may change dramatically
as the  result of  announcements  of our  quarterly  results,  new  products  or
innovations  by  us  or  our  competitors,   significant  customers'  contracts,
significant  litigation  or other  factors or events  that would be  expected to
affect our  business or financial  condition,  results of  operations  and other
factors specific to our business and future prospects.  In addition,  the market
price for our common  stock may be  affected  by various  factors  not  directly
related to our business, including the following:

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

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

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

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

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

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

o    Developments in the automobile or automobile dealership industry; and

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

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

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

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:
                                    Page 16
<PAGE>
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;

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, a purchaser  should provide a written  statement of the  purchaser's
     financial  situation and investment  goals, and certain broker dealers must
     deliver to certain purchasers the following:
     a.  bid and offer price quotes and volume information;
     b.  the broker-dealer's  compensation for the trade;
     c.  the compensation  received by certain salespersons for the trade; and
     d.  monthly account statements.

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

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the  participation  of management,  including the
principal  executive  officer  and  principal   financial  officer,   management
conducted an evaluation of the Company's disclosure controls and procedures,  as
such term is  defined  under Rule  13a-15(e)  promulgated  under the  Securities
Exchange Act of 1934,  as amended  (the  "Exchange  Act"),  as of June 30, 2005.
Based  on  this  evaluation,  the  principal  executive  officer  and  principal
financial  officer  concluded  that the  disclosure  controls and procedures are
effective in alerting them, in a timely basis, to material  information relating
to the Company  required to be included in reports filed or submitted  under the
Exchange Act.

Changes in Internal Controls Over Financial Reporting

There have been no significant changes (including corrective actions with regard
to significant  deficiencies or material  weaknesses) in the Company's  internal
controls or in other  factors that could  significantly  affect  these  controls
subsequent to the date of the evaluation referenced in the preceding paragraph.
                                    Page 17
<PAGE>

PART II. OTHER INFORMATION

Item 5.  Other Information

No material  agreements were entered into during the three months ended June 30,
2005.

Item 6.  Exhibits

See the Exhibit Index following the signature page hereof.



                                   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 August 15,
2005 by the undersigned thereunto duly authorized.

                                   ARKONA, Inc.

August 15, 2005                    /s/ Alan Rudd
                                   ---------------------------------------------
                                   Alan Rudd, Chief Executive Officer


August 15, 2005                    /s/ Leland H. Boardman
                                   ---------------------------------------------
                                   Leland H. Boardman, Chief Financial Officer


                                    Page 18
<PAGE>



                                    EXHIBIT INDEX


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



                                    Page 19