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 December 31, 2004

                                       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.

                      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 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 February 1, 2005, there were issued and outstanding  32,144,323  shares of
the Company's Common Stock, par value $.001 per share.

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

<PAGE>

 PART I - Item 1. Financial Statements
<TABLE>
<CAPTION>
                                  ARKONA, INC.

                            Condensed Balance Sheets
                                                      31-Dec-04      31-Mar-04
                                                     (Unaudited)     (Audited)
                                                     ------------    ------------
ASSETS
<S>                                                  <C>             <C>
       Current Assets
             Cash and cash equivalents               $    268,123    $    361,954
             Accounts receivable, net of allowance        777,661         531,270
             Prepaid expenses                              15,121          11,620
                                                     ------------    ------------
       Total Current Assets                             1,060,905         904,844
                                                     ------------    ------------

       Equipment net of depreciation                      261,060         220,778

       Other Assets
              Deferred tax assets                       6,853,200       1,560,000
              Deposits                                     79,580          79,580
              Other assets, net of amortization           802,454         617,440
                                                     ------------    ------------
        Total Other Assets                              7,735,234       2,257,020
                                                     ------------    ------------
TOTAL ASSETS                                         $  9,057,199       3,382,642
                                                     ============    ============

LIABILITIES & STOCKHOLDERS' EQUITY
       Current Liabilities
              Accounts payable                             13,204         157,780
              Accrued liabilities                         188,465         192,781
              Deferred contract services                   89,592         139,019
                                                     ------------    ------------
        Total Current Liabilities                         291,261         489,580
                                                     ------------    ------------

        Note payable - related party                       50,000          50,000

                                                     ------------    ------------
        Total Liabilities                                 341,261         539,580
                                                     ------------    ------------

       Stockholders' Equity
              Common stock                                 32,094          31,332
              Series B preferred stock                        575             575
              Additional paid in capital               23,345,249      23,173,444
             Accumulated unrealized loss on
               investment securities for sale             (16,942)        (16,942)
             Retained earnings (deficit)              (14,645,038)    (20,345,347)
                                                     ------------    ------------
        Total Stockholders' Equity                      8,715,938       2,843,062
                                                     ------------    ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
                                                        9,057,199       3,382,642
                                                     ============    ============
</TABLE>

              See notes to condensed unaudited financial statements

                                       1
<PAGE>

<TABLE>
<CAPTION>
                                  ARKONA, INC.
                  Unaudited Condensed Statements of Operations

                                     Nine Months Ended              Three Months Ended
                                 31-Dec-04       31-Dec-03       31-Dec-04       31-Dec-03
                               ------------    ------------    ------------    ------------
<S>                            <C>             <C>             <C>             <C>
Revenues                       $  5,430,884    $  3,632,678    $  1,891,272    $  1,308,546
Operating Expenses
 Cost of sales                    2,436,535       1,583,646         722,848         584,176
 Research and development           744,493         267,751         253,778         146,249
 Marketing, admin & sales         1,905,930       1,382,513         736,913         454,811
                               ------------    ------------    ------------    ------------

Total Operating Expenses          5,086,958       3,233,910       1,713,539       1,185,236
                               ------------    ------------    ------------    ------------

Net Income From Operations          343,926         398,768         177,733         123,310
                               ------------    ------------    ------------    ------------

 Other income                          --              --              --              --
 Gain on disposal of asset           72,915            --              --              --
 Interest expense                    (9,732)        (28,606)         (4,000)         (6,526)
                               ------------    ------------    ------------    ------------

Net Income Before Taxes             407,109         370,162         173,733         116,784
                               ------------    ------------    ------------    ------------

 Income tax benefit               5,293,200            --         1,764,400            --
                               ------------    ------------    ------------    ------------
Net Income
                                  5,700,309         370,162       1,938,133         116,784
                               ============    ============    ============    ============


Net Income Per Share           $       0.18            0.01    $        .06    $       --
                               ============    ============    ============    ============

Weighted Average Number Of
Shares Outstanding               32,003,421      28,956,208      32,094,323      29,435,837
                               ============    ============    ============    ============

Diluted Net Income Per Share   $       0.16    $       0.01    $       0.05    $       --
                               ============    ============    ============    ============

Weighted Average Diluted
Shares Outstanding               35,803,844      31,531,585      35,894,746      32,111,214
                               ============    ============    ============    ============
</TABLE>

              See notes to condensed unaudited financial statements

                                       2
<PAGE>


                                  ARKONA, INC.
                  Unaudited Condensed Statements of Cash Flows

                                                  Nine Months Ended
                                              31-Dec-04     31-Dec-03
                                             -----------    -----------
Cash Flows (Used) / Provided by
   Operating Activities:
  Net income                                 $ 5,700,309    $   370,162
 Adjustments  to reconcile  net income
 to net cash (used) provided by Operating
 Activities:
 Gain on sale of asset                           (72,915)          --
 Depreciation and amortization                    80,575         62,366

 Changes in assets & liabilities:
   Deferred income tax benefit                (5,293,200)          --
   Accounts receivable                          (246,391)      (225,491)
   Prepaid expense                                (3,501)       (22,761)
   Accounts payable                             (144,576)      (218,940)
   Accrued liabilities                            (4,316)       (27,206)
   Deferred contract services                    (49,427)      (160,075)
                                             -----------    -----------
Net Cash (Used) By Operating Activities      $   (33,442)   $  (221,945)
                                             -----------    -----------

Cash Flows (Used) / Provided for
   Investing Activities:
  Additions to equipment                        (112,633)       (75,100)
  Proceeds from the sale of patent               100,000           --
  Additions to other assets                     (198,456)      (342,201)
                                             -----------    -----------
Net Cash (Used) for Investing Activities     $  (211,089)   $  (417,301)
                                             -----------    -----------

Net Cash Provided By Financing Activities:
 Proceeds from issuance of
  referred stock
 p                                                  --          575,000
 Proceeds from issuance of
  common stock                                   150,700        541,890
 Note payable                                       --         (129,939)
 Loan from related party                            --         (179,202)
 Leases                                             --          (51,992)
                                             -----------    -----------
Net Cash Provided By Financing Activities:   $   150,700    $   755,757
                                             -----------    -----------

Net Increase / (Decrease) In Cash
And Cash Equivalents                         $   (93,831)   $   116,512
                                             -----------    -----------
Beginning Cash Balance                           361,954         18,307
                                             -----------    -----------
Ending Cash Balance                          $   268,123    $   134,818
                                             ===========    ===========

              See notes to condensed unaudited financial statements

                                       3
<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  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, 2004.

Note 2  Concentration

The Company 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 into  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 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 nine  months  ended  December  31,  2004,  an officer of the  Company
exercised  options to purchase  66,500  shares of stock at an exercise  price of
$0.30 or $19,950  and the Company  sold  125,000  shares of common  stock to two
accredited investors at $0.40 per share or $50,000. Total proceeds from the sale
of stock for the nine months ended  December  31, 2004 was  $150,700. During the
nine months ended December 31, 2004,  Jeff Swain,  resigned as Vice President of
Sales and, upon leaving,  exercised options to purchase 282,500 shares of common
stock. Total proceeds from the options exercised was $80,750.

                                       4
<PAGE>

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. At March 31,
2004, the Company had a valuation  allowance of  $7,057,603.  For the nine-month
period ended  December 31, 2004,  the  valuation  allowance  has  decreased by $
5,293,200 resulting in an income tax benefit.

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

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

(c) Cash & Cash Equivalents

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

(d) Use of Estimates in Preparation of Financial Statements

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities,  disclosure of contingent
assets and liabilities at the date of the financial  statements and the reported
amounts of revenues and expenses  during the reporting  period.  Actual  results
could differ from those estimates.

(e) Revenue Recognition

The Company  recognizes  revenue in accordance  with the Securities and Exchange
Commission,  Staff Accounting  Bulletin (SAB) No. 101,  "Revenue  Recognition in
Financial  Statements."  SAB 101  clarifies  application  of generally  accepted
accounting  principles to revenue  transactions.  During the course of business,
the Company recognizes revenue for the following activities:  Support,  Hardware
Sales,  Consulting,  and Implementation of Products.  Support charges are billed
monthly and are recognized as earned and stipulated in contracts with customers.
Hardware  Sales  revenue  is  recognized  when the  goods are  delivered  to the
customer.  Consulting  fees are  recognized  as services are  rendered.  Product
Installation  revenue is recognized in accordance  with terms of each  contract,
generally on a percentage of completion basis. Advance deposits are deferred and
recognized over the life of the contract,  which is often complete in one month.
Components  of the Product  Installation  process  include  software  licensing,
training, forms programming, data conversion, and hardware installation.

(f) 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 versus current market value. The December 31, 2004 unrealized loss on
investments  of $16,942 is related to securities  that have been written off but
not disposed.
                                       5
<PAGE>

(g) 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  using
straight-line methods over the established economic life of the product.

(h) 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:


                                                           Nine Months Ended
                                                             31-December
                                                       ------------------------
                                                          2004         2003
                                                       ----------   -----------
Net Income applicable to stockholders (basic
   and diluted) as reported                            $5,700,309   $   370,162
Deduct: stock-based employee compensation
   expense included in reported net loss, net of
    related tax effects                                      --            --
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 applicable to stockholders        $5,700,309   $   370,162
                                                       ==========   ===========

Income per common share (basic and diluted):
   As reported                                         $     0.16   $      0.01
                                                       ==========   ===========
   Pro forma                                           $     0.16   $      0.01
                                                       ==========   ===========


(i) Advertising Costs

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

Note 5  Sale of Patents


In June 2004, the Company sold its patents  associated with the Universal Update
product to an unrelated party for $100,000,  resulting in a gain of $72,915.  As
part of the  agreement,  the  Company  retained a  perpetual  license to use the
technology in its products.


                                       6
<PAGE>

Item 2.  Management's Discussion and Analysis

Overview

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

         Our most  important  product  is our  ARKONA  Dealer  Management  Suite
("ADMS").  The  ADMS  software  is  a  fully  integrated  automobile  dealership
management  software  system  that  allows  automobile   dealerships  to  manage
substantially all aspects of their business operations.  It is a modular system,
which makes it scalable  for  different  types and sizes of  dealerships.  A key
advantage  of the ADMS  software is its  ability to run on an ASP model.  An ASP
model involves the software  provider  running  software and maintaining data at
central  locations  and  customers  accessing  and using the  software  over the
Internet.  The ASP model significantly reduces most upfront and ongoing hardware
costs for the dealer  because the  significant  processing  is done on computers
maintained at offsite locations that are maintained by us. The dealer needs only
standard personal  computers with reliable  Internet access.  The ASP model also
reduces the need for  technical  computer  personnel  because the  software  and
related  hardware are managed by us at our offsite  location.  Our ADMS software
integrates  with  most  of  the  major  automobile  manufacturers,  and  we  are
continuing our efforts to obtain  cooperation  from the others to integrate with
their  systems.  In connection  with the ADMS software,  we provide  training to
employees of the dealers,  and for a monthly fee, we provide  technical  support
and regular software updates.

         Our  potential  customers  include  new car  dealerships  and  used car
dealerships,  and we are beginning to pursue dealers of power sports  equipment.
According to a market study by the National Automobile Dealers Association,  the
market  for  automobile  dealer  management  systems is  dominated  by two major
players:  Automatic Data Processing  Inc. and Reynolds & Reynolds.  According to
the  NADA,  ADP and  Reynolds  together  control  about  76% of the  market  for
automobile dealer management systems, with ARKONA and Universal Computer Systems
and eight other DMS providers sharing the remainder of the market.  ADP recently
purchased the Automotive Retail Group from EDS and ProQuest's Power sports unit.
Both of these acquired companies were competitors to ARKONA.

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

Results of Operations for the Nine-Month and Three-Month  periods Ended December
31, 2004 and December 31, 2003:

         Net  income for the  nine-month  period  ended  December  31,  2004 was
$5,700.309,  or $0.18 per share, and net income for the three-month period ended
December 31, 2004 and $1,938,133,  or $0.06 per share. Included in net income is
the recognition of an income tax benefit of $5,293,200 for the nine-month period

                                       7
<PAGE>

ended December 31, 2004 and $1,764,400 for the three-month period ended December
31, 2004. Net income from operations for the nine months ended December 31, 2004
was $407,109, as compared to $370,162 per share for the same period in 2003. For
the three months ended December 31, 2004,  net income was $173,733,  compared to
$116,784 for the three months ended  December 31, 2003.  As explained in greater
detail  below,  we expect our  expenses  to  increase  in the coming  year as we
continue  to expand  all  areas of our  business.  As a result of such  intended
increases  in  expenses,  we do not expect net income to continue to grow at the
rate it did  during FY 2004 or at the same  rate as our  increases  in  revenue.
During  the  three  months  ended  September  30,  2004  we  made a  significant
commitment to expand our sales capabilities by opening up offices in California,
Colorado  and  Massachusetts.  With a quarter  under their  belt,  our new sales
offices are  beginning  to have an impact.  For the quarter  ended  December 31,
2004,  the  efforts of these new sales  offices  paid  dividends  in the form of
enlarging  the sales  funnel  and  back-log.  We  currently  have  installations
scheduled  as  far  out  as  June  2005.  As  usual,   increases  in  number  of
installations  will require  additional  increases in the number of installation
technicians and support  technicians.  To accommodate our client growth,  during
the quarter ended September 30, 2004, we added an additional  server at our data
center.  We also implemented high availability in a many-to-many  cluster.  This
high  availability  implementation  will  provide  additional  assurance  to our
clients that their data is safe and always  available.  In the nine months ended
December  31,  2004,  we  brought  on 74  new  automobile  dealerships,  9  used
automobile dealerships and 4 power sports dealerships. In the three month period
ended December 31, 2004 we brought on 30 new automobile  dealerships,  or 40% of
the new car  installations  for the year, 4 used  automobile  dealerships  and 1
power sports dealership.

         We realized  significant  increases in revenues for the three-month and
nine-month  periods ended December 31, 2004.  Revenue increased  $582,726,  from
$1,308,546  for the three months ended  December 31, 2003 to $1,891,272  for the
same period in 2004. This  represents a 45% increase.  For the nine months ended
December 31, 2004, revenue was $5,430,884, compared to $3,632,678,  representing
a $1,798,206  or a 50% increase  over the same period in 2003.  These  increases
represent  a  substantial  improvement  in  revenues  for  the  Company  and are
primarily due to increased installation sales and recurring support sales.

         These sales  increases are  attributable  to our  continued  success in
replacing  our  competitors'  systems.  In the  immediate  future,  we expect to
continue to expand the number of new  installations  and our recurring  revenue.
The  combination of our ASP model's cost savings and  efficiencies,  our product
features and  capabilities  and our paradigm of not locking our  customers  into
long-term contracts  contribute to a persuasive sales pitch. We continue to take
5-6 dealerships on average each month from ADP and Reynolds and Reynolds.  Those
stores we do not succeed in taking from ADP and Reynolds  and Reynolds  used our
pricing to force such  competitors to come down  substantially in their pricing.
Therefore,  when  we are  competing  for  business  with  ADP and  Reynolds  and
Reynolds,  it is almost  always a win for the  dealership  because  they enjoy a
substantial price reduction and/or we become their DMS provider.

         Our marketing efforts continue to focus on 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 superior
end-user solutions and grow sales.

         Cost of sales totaled  $2,436,535,  or 45% of sales, for the nine-month
period ended December 31, 2004 compared to $1,583,646,  or 44% of sales, for the
same period in 2003. For the three month period ended December 31, 2004, cost of
sales totaled $722,848,  or 45% of sales, compared to $584,176, or 45% of sales,
for the same period in 2003.  The  increase in cost of sales for the nine months
ended December 31, 2004 as a percentage of sales is partially due to our success
installing large dealership groups.  When large dealership groups come on board,
they are given a multiple store  discount,  which  decreases the margin on those

                                       8
<PAGE>

installations.  Another  reason for the  increase in cost of sales is due to our
increased focus on customer  service.  We now have specialized  consultants that
occasionally work on installations; however, their primary focus is to make sure
that after an installation,  new customers have a specific individual or liaison
within the company. As a result, for the 6 - 12 weeks following an installation,
new  clients  have a  direct  support  contact  to  assist  them.  We have  also
discovered that the demand for training long after the  installation is complete
is increasing.  Now that a large number of  dealerships  have been on our system
for at least a year,  they often need new  employee  training due to turnover in
the dealership. Training and our post-installation specialist impact our cost of
sales  because the margins on those  activities  are smaller than the margins on
installation.  As we expand our  operations,  we will  maintain  a  priority  on
customer  service.  In light of costs associated with this planned expansion and
our continued focus on customer service, we do not expect our cost of sales as a
percentage of sales to decrease in the foreseeable future.

          Operating  expenses,  not including cost of sales,  totaled $2,650,423
for the nine months ended December 31, 2004, compared to $1,650,264 for the nine
months ended December 31, 2003, and $990,691 for the three months ended December
31, 2004, compared to $601,060 for the three months ended December 31, 2003. The
increase is due to a decision to continue to fuel our  expansion  by  increasing
our installation capacity, our engineering  capabilities and our sales staff and
marketing   opportunities.   Almost   every  area  of  the  business  has  grown
significantly in the past year.

          Research and  development  expense more than doubled,  increasing from
$267,751  for the nine months  ended  December  31,  2003,  to $744,493  for the
nine-month  period ended  December 31, 2004.  Research and  development  expense
increased from $146,249 for the three months ended December 31, 2003 to $253,778
for the three months ended  December 31,  2004.  The  increases  are a result of
increased head count of our  development  staff.  In order for us to stay on top
technologically,  we need to continue to increase our  development  efforts.  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 increased from $1,382,513
for  the  nine-month  period  ended  December  31,  2003 to  $1,905,930  for the
nine-month period ended December 31, 2004 and from $454,811 for the three months
ended  December 31, 2003 to $736,913  for the three  months  ended  December 31,
2004. As mentioned above, we have significantly  increased our sales capacity by
opening  offices  in  California,   Colorado  and   Massachusetts.   Each  year,
approximately  20% of the new car  dealerships are at the end of their contracts
with their current DMS provider and are,  therefore,  able to move to a new DMS.
Even with the recent  increases in sales  capacity,  we are only able to reach a
fraction of those dealers.

         We had no interest income during the nine-month  periods ended December
31,  2004  and  2003.  This  was due to  minimal  cash  balances  maintained  in
interest-bearing accounts.

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

Liquidity and Capital Resources

         At December 31, 2004, we had cash and cash  equivalents  of $268,123 as
compared to cash and cash equivalents of $361,954 as of March 31, 2004.

                                       9
<PAGE>
         In order to meet operating  costs during the nine months ended December
31, 2004, we relied upon installation  revenues and recurring revenues.  We also
receive  $50,000  selling  125,000  shares  of our  common  stock  in a  private
placement  in  the  three-months  ended  June  30,  2004  and  an  aggregate  of
approximately  $100,000 from the exercise of options to purchase  349,000 shares
of common stock by current and former employees.

         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  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,  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 stockholders,  customers
and others for additional equity financing.

         The  following  table  discloses   aggregate   information   about  our
contractual  obligations  including long-term debt, operating lease payments and
office lease payments,  and the periods in which payments are due as of December
31, 2004:
<TABLE>
<CAPTION>
--------------------------------------- ------------- ------------- -------------- ------------- -------------
                                                      Less Than
Contractual Obligations                 Total         1 Year        1-3 years      4-5 Years     After 5
--------------------------------------- ------------- ------------- -------------- ------------- -------------
<S>                                        <C>           <C>           <C>             <C>           <C>
Operating Leases                           89,405        19,409        69,996          0             0
--------------------------------------- ------------- ------------- -------------- ------------- -------------
Capital Leases                               0             0             0             0             0
--------------------------------------- ------------- ------------- -------------- ------------- -------------
Office Lease                              155,526        66,650        88,876          0             0
--------------------------------------- ============= ============= ============== ============= =============
Total Contractual Obligations           $ 244,931     $  86,059     $ 158,872      $   0         $   0
--------------------------------------- ------------- ------------- -------------- ------------- -------------
</TABLE>
Critical Accounting Policies and Estimates

         Management  is basing this  discussion  and  analysis of our  financial
condition and results of operations on our  consolidated  financial  statements.
The preparation of these financial  statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities,  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

                                       10
<PAGE>

of assets and  liabilities  and the  reported  amounts of revenues  and expenses
during the reporting  periods.  Changes to these  judgments and estimates  could
adversely affect 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 called Deferred Contract  Services on our books.  Revenue
             is  recognized  throughout  the  performance  of the  contract on a
             percentage of completion  basis.  We currently sell limited amounts
             of hardware to  customers;  however,  when we do, we recognize  the
             revenue for hardware sales upon delivery.

         o   Equipment. We utilize significant amounts of equipment in providing
             service to our customers. We utilize straight-line depreciation for
             equipment  over our  estimate  of their  useful  lives.  Changes in
             technology  or changes in the intended  use of equipment  may cause
             the estimated period of use or the value of these assets to change.
             We perform an annual  analysis  to confirm the  appropriateness  of
             estimated  economic  useful lives for each  category of  equipment.
             Estimates and assumptions used in setting depreciable lives require
             both judgment and estimates.

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

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

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.

                                       11
<PAGE>

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

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 76% of the market and
have a significant  advantage relative to market acceptance.  Any projections or

                                       12
<PAGE>

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.

                                       13
<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,  including,
in particular, our President,  Richard Holland, who engineered our ARKONA Dealer
Management  Suite,  and Alan  Rudd,  our Chief  Executive  Officer.  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. 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


                                       14
<PAGE>

disputes over rights and obligations  concerning  intellectual  property.  Third
parties  may bring  claims of  infringement  against us,  which may be with,  or
without, merit.

         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  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 ARKONA Dealer Management Suite, is primarily a
software  product.  The software  market is recognized  for rapid  technological
developments,   frequent  new  product   introductions   and  evolving  industry
standards. The rapid evolution of software products requires that we continually
improve the performance,  features and reliability of our software, particularly
in  response  to  competitive  offerings  by other  companies.  There  can be no
assurance  that we will  successfully  respond  quickly,  cost  effectively  and
sufficiently to these developments.

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

         There  can also be no  assurance  that  research  and  development  and
discoveries  by others will not render some or all of our  products or potential
product  offerings  uncompetitive  or  obsolete.  We  compete  with a number  of
entities that are currently  developing  and  producing  software  products that
compete with our current and proposed  products.  Many of these competitors have
substantially greater capital resources,  research and development capabilities,
and production and marketing resources, capabilities and experience than we have
available to us. These  competitors may succeed in developing  products that are
more  effective  or less costly than any products  that we may develop,  or that
gain market acceptance prior to any of our products,  making market  penetration
more difficult for us.
                                       15
<PAGE>

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 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 28% 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 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


                                       16
<PAGE>

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.



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 dealer 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.


                                       17
<PAGE>

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

         o   manipulation of our stock price by existing or future stockholders;
         o   the  purchase  or sale of a larger  number  of  shares  by a single
             stockholder 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   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. 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 cash  dividends  on our common  stock.  We intend to
retain earnings,  if any, to finance the operation and expansion of our business
and,  therefore,  we do not expect to pay cash dividends on our shares of common
stock in the foreseeable future.

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

         o   Is priced under five dollars;
         o   Is not traded on a national  stock  exchange,  the Nasdaq  National
             Market or the Nasdaq SmallCap Market;

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<PAGE>

         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.

Item 3.       Controls and Procedures


         (a) Based on the evaluation of our "disclosure controls and procedures"
(as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e))
required by paragraph (b) of Rules 13a-15 or 15d-15, our Chief Executive Officer
and our Chief  Financial  Officer have concluded  that, as of December 31, 2004,
our disclosure controls and procedures were effective.


         (b) We are not presently  required to conduct quarterly  evaluations of
our internal control over financial reporting pursuant to paragraph (d) of Rules
13a-15 or 15d-15  promulgated  under the Exchange Act. We are,  however,  in the
process  of  designing,   evaluating  and  implementing   internal  controls  in
anticipation  of the  date  when  we will  become  subject  to  such  evaluation
requirements.
                                       19
<PAGE>

                           PART II. OTHER INFORMATION

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

         The Company held an Annual Meeting of Shareholders on December 8, 2004,
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              26,395,647      33,151                  0
        Richard Holland        26,395,647      33,151                  0
        Bryan Allen            26,395,647      33,151                  0
        Paul Henroid           26,428,798        0                     0
        Kent Misener           26,428,798        0                     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,  2005.  There were
26,295,940 votes cast in favor,  74,308 votes cast against,  58,550 abstentions,
and no broker non-votes.

         3. Our  shareholders  considered  and  voted  upon a  resolution  which
authorizes the Board of Directors of the Company,  in its discretion at any time
prior to November 1, 2005, to take all steps necessary to effect a consolidation
of the common  stock of the Company on the basis of a ratio  within the range of
one  post-consolidation  share of common stock for every four  pre-consolidation
shares of common stock to one post-consolidation share of common stock for every
twelve  pre-consolidation  shares of common stock, with the ratio to be selected
and implemented by the Corporation's  Board of Directors in its sole discretion,
if at all.  There  were  26,257,935  votes  cast in favor,  109,913  votes  cast
against, 60,950 abstentions, and no broker non-votes.

All items considered at the meeting were approved by the stockholders.

Item 6.   Exhibits

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

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<PAGE>


                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this report to be signed on its behalf on February
14, 2005 by the undersigned thereunto duly authorized.

                                          ARKONA, Inc.

February 14, 2005                        /s/ Alan Rudd
                                         ---------------------------------------
                                         Alan Rudd, Chief Executive Officer


February 14, 2005                        /s/ Stephen Russo
                                         ---------------------------------------
                                         Stephen Russo, Chief Financial Officer






                                       21
<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


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