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

                               Amendment No. 1 on
                                  FORM 10-QSB/A

(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]

<PAGE>

Explanatory Note

This Amendment No. 1 to Quarterly Report on Form 10-QSB/A (this  "Amendment") is
being filed by Arkona,  Inc.  (the  "Company") in order to amend and restate its
Quarterly  Report on Form 10-QSB for the quarter  ended June 30, 2005 filed with
the SEC on August 15, 2005 (the "Form 10-QSB").

This Amendment is being filed primarily in order to amend the following Items in
Part I of the Form 10-QSB:

     o   "Item 1.  Financial  Statements"  in order to  correct  an error in the
         financial statements,  which arises from an error in the Company's Form
         10-QSB  for the year ended  March 31,  2005  described  in the Form 8-K
         filed by Arkona,  Inc.  on  October  24,  2005,  and in order to add or
         clarify related notes to the financial statements;

     o   "Item 2.  Management's  Discussion and Analysis,"  which contains cross
         references to the financial statements, in order to correct those cross
         references and related  explanations  of accounting  policies and other
         matters; and

     o   "Item 3. Controls and Procedures" in order to modify the determinations
         set forth therein.

The  remainder  of the Form  10-QSB  is being  restated  in its  original  form,
provided  that all officer  certifications  have been updated to the date of the
Amendment.


                                       2
<PAGE>

PART I - Item 1. Financial Statements


                                  ARKONA, INC.

                        Restated 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        675,240         481,518
        Prepaid expenses                              74,973           3,499
                                                ------------    ------------
     Total Current Assets                            842,885         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              1,160,741       1,148,935
        Deposits                                     125,367         122,080
        Other intangible assets, net of
           accumulated amortization                  233,042         233,042
                                                ------------    ------------
     Total Other Assets                            6,558,387       6,543,294
                                                ------------    ------------
TOTAL ASSETS                                    $  7,755,892    $  7,529,300
                                                ============    ============

LIABILITIES & STOCKHOLDERS' EQUITY

     Current Liabilities:
        Accounts payable                        $    130,830    $    156,074
        Accrued liabilities                          246,040         238,450
        Deferred revenue                             245,678         200,326
                                                ------------    ------------
     Total Current Liabilities                       622,548         594,850
                                                ------------    ------------

     Note Payable - related party                     50,000          50,000
                                                ------------    ------------
     Total Liabilities                               672,548         644,850
                                                ------------    ------------
     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                      (16,330,166)    (16,523,570)
                                                ------------    ------------
     Total Stockholders' Equity                    7,083,344       6,884,450
                                                ------------    ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY      $  7,755,892    $  7,529,300
                                                ============    ============

See notes to restated condensed financial statements.

                                       3
<PAGE>


                                  ARKONA, INC.

                  Restated Condensed Statements of Operations

                                                 Three Months Ended
                                              30-Jun-05       30-Jun-04
                                            (Unaudited) (Unaudited)
                                            ------------    ------------

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

Cost of Sales                                  1,365,605         969,125
                                            ------------    ------------
Gross Profit                                   1,163,594         665,474
                                            ------------    ------------
Operating Expenses:
     Sales, marketing & general
         administrative                          739,162         653,965
     Research and development                    229,326         169,336
                                            ------------    ------------
Total Operating Expenses                         968,488         823,301
                                            ------------    ------------

Operating Income (Loss)                          195,106        (157,827)

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

Net Income (Loss) Before Taxes                   193,404         (88,554)

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

Net Income                                  $    193,404    $    781,255
                                            ============    ============


Basic Earnings per Common Share:
     Net Income                             $      0.006    $      0.026
     Average Number of Shares Outstanding     32,170,384      31,687,379

Diluted Earnings per Common Share:
     Net Income                             $      0.005    $      0.021
     Average Number of Shares Outstanding     38,974,917      39,236,940



See notes to restated condensed financial statements.


                                       4
<PAGE>


                                  ARKONA, INC.

                  Restated Condensed Statements of Cash Flows

                                                   Three Months Ended
                                                30-Jun-05      30-Jun-04
                                               (Unaudited) (Unaudited)
                                               -----------    -----------
Cash Flows Provided By (Used In) Operating
     Activities:
     Net income                                $   193,404    $   781,255
     Adjustments to reconcile net income
         to net cash provided by (used in)
         operating activities:
         Depreciation and amortization             113,640         79,641
         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                 (176,731)        (6,728)
              Prepaid expense                      (71,474)          --
              Deposits                              (3,287)          --
              Accounts payable                     (25,244)       (20,766)
              Accrued liabilities                    7,590       (188,274)
              Deferred revenue                      45,352       (105,820)
                                               -----------    -----------
Net Cash Provided By (Used In) Operating
     Activities                                     68,449       (403,415)
                                               -----------    -----------
Cash Flows Used In Investing Activities:
     Additions to equipment                        (35,239)       (33,890)
     Software development costs                    (85,017)       (94,600)
     Proceeds from sale of asset                      --          100,000
                                               -----------    -----------
Net Cash Used In Investing Activities             (120,256)       (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)      (361,955)

Beginning Cash Balance                             141,179        361,955
                                               -----------    -----------
Ending Cash Balance                            $    92,672    $         0
                                               ===========    ===========

See notes to restated condensed financial statements.



                                       5
<PAGE>
                                  ARKONA, INC.

                NOTES TO RESTATED CONDENSED FINANCIAL STATEMENTS


Note 1 - Basis of Presentation

ARKONA,  Inc. (the "Company") has prepared the accompanying  restated  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  restated  condensed  financial  statements  reflect all  adjustments
(consisting only of normal recurring adjustments) that, in management's opinion,
are  necessary to present  fairly the restated  financial  position and restated
results of operations of the Company for the periods presented.  It is suggested
that these un-audited restated condensed financial  statements should be read in
conjunction  with  the  restated  financial  statements  and the  notes  thereto
included in the Company's  Annual Report on Amendment No. 1 on Form 10-KSB/A 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 restated  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.
                                       6
<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 SEC's Staff  Accounting
Bulletin (SAB) No. 104, Revenue Recognition." Following SAB No. 104, the Company
recognizes revenue when (i) persuasive  evidence of an arrangement  exists; (ii)
delivery has occurred or services have been  rendered;  (iii) the sales price is
fixed or determinable; and (iv) collectibility is reasonably assured. During the
course of business, the Company recognizes revenue for the following activities:
Technical   Support  &  Maintenance,   Hardware  Sales,   Consulting   Services,
Installation  and Training  Services,  and Software Sales.  Technical  support &
maintenance  includes  monthly  service charges for ongoing  technical  support,
automatic  software  upgrades,  data transfer,  data storage,  data backup,  bar
coding, and server maintenance.  These services are billed monthly as stipulated
in contracts with  customers and earned as the services are performed.  Hardware
Sales  include  the sales of standard  computer  systems  and  peripherals,  and
revenue  is  recognized  when  title  passes  upon  shipment  to  the  customer.
Installation of the hardware and/or  peripherals is not a required  component of
the purchase contract.  Consulting  Services include fees charged for additional
system training and programming.  The Company recognizes consulting service fees
under the percentage-of-completion  method over the period in which the services
are  provided.  Installation  and  Training  Services  include fees for software
licensing,  server file configuration,  on-site training,  software and hardware
installation,  forms  programming and data conversion.  Revenue is recognized in
accordance with the terms of each contract, on a percentage-of-completion basis.
Installation   and   Training   Service   contracts   require   the  payment  of
non-refundable  security  deposits.  These  deposits are deferred and recognized
over  the life of the  installation  and  training  service  contract,  which is
usually  less  than on  month.  Software  Sales  (where  software  is  hosted on
customers'  servers)  include  licensing  fees,  server  configuration,  initial
training, programming, and data conversion. Software sales revenue is recognized
when title passes upon installation of the software onto the customers' servers.

In certain  cases,  the company has multiple  agreements  with the same customer
under the company's  Application  Service  Provider (ASP)  agreements.  In those
cases,  the Company  determines  whether or not the fees  qualify  for  separate
accounting  treatment as required by SAB No. 104 and the American  Institute for
Certified Public Accountant's Emerging Issues Task Force (EITF) Issue No. 00-21,
"Revenue Arrangements with Multiple Deliverables." For these arrangements, which
include  ASP  agreements,  the  Company  allocates  and defers  revenue  for the
undelivered elements based on their vendor-specific objective evidence (VSOE) of
fair  value.  VSOE is  generally  the price  charged  when that  element is sold
separately.  In  situations  where VSOE exists for all elements  (delivered  and
undelivered),  the Company  allocates  the total  revenue to be earned under the
arrangement among the various elements,  based on their relative fair value. For
transactions  where VSOE exists only for the undelivered  elements,  the Company
defers  the full fair  value of the  undelivered  elements  and  recognizes  the
difference  between the total  arrangement  fee and the amount  deferred for the
undelivered items as revenue.  If VSOE does not exist for undelivered items that
are services,  then the Company  recognizes the entire  arrangement  fee ratably
over the  remaining  service  period.  If VSOE does not  exist  for  undelivered
elements that are specified  product or features,  the Company  defers  revenues
until the  earlier  of the  delivery  of all  elements  or the point at which we
determine VSOE for these undelivered elements.

The Company  recognizes  revenue  related to the delivered  products or services
only if (i) the above revenue recognition criteria are met; (ii) any undelivered
                                       7
<PAGE>

products or services are not  essential to the  functionality  of the  delivered
products and services;  (iii) payment for the delivered  products or services is
not contingent upon delivery of the remaining services; and (iv) the Company has
an  enforceable  claim to  receive  the  amount  due in the event that we do not
deliver the undelivered products or services.

For arrangements  where undelivered  services are essential to the functionality
of the  delivered  items,  the Company  recognizes  service  revenues  under the
percentage-of-completion  contract  method in accordance  with the provisions of
SOP  81-1,   "Accounting  for  Performance  of  Construction  Type  and  Certain
Production Type Contracts."

(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,
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:

                                       8
<PAGE>

         Net income, as restated            $  193,404

         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       (18,858)
                                            -----------
         Pro forma restated net income      $  176,736
                                            ===========

         Basic earnings per share              $.006
         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.

(k)      Prior Period Adjustments

During  fiscal  year 2005,  the Company  determined  that their  accounting  for
software  development  costs was  erroneously  reported  in prior  periods.  The
Company had expensed all software development costs during the years ended March
31, 2001, 2002 and 2003. Beginning with the fiscal year ended March 31, 2004 the
Company   capitalized   software   development   costs   related  to  automobile
manufacturer  integration software that were incurred between the date technical
feasibility  was  established  and the date the  software  became  ready for its
intended use. Similar expenses  incurred during fiscal years 2001, 2002 and 2003
should have been consistently capitalized.  Accordingly,  the Company has booked
$119,165,   $389,988  and  $376,497  in  fiscal  years  2001,   2002  and  2003,
respectively, to retroactively capitalize the asset.

The Company amortizes  capitalized software development expenses over the useful
life of the underlying  software,  deemed to be five years.  Having  capitalized
certain   software   development   expenses  as  described  above,  the  Company
recalculated  amortization  expense for the years ended March 31, 2003, 2004 and
2005,  beginning  with the completion of the first  integration  software in May
2002.

In  addition,  the  Company  mistakenly  combined a software  asset  capitalized
through an acquisition with the capitalized software development costs described
above. This combination  resulted in an inaccurate  reporting of software assets
and an inaccurate calculation of related accumulated amortization.

Adjustments  to fiscal years 2005,  2004 and 2003 were reported in the Amendment
No. 1 on Form  10-KSB/A.  The effect on certain line items on this  Amendment is
set forth below:

                                       9
<PAGE>

                          As of June 30, 2005          As of March 31, 2005
                      --------------------------    --------------------------
                      Capitalized
                       Software       Accumulated   Capitalized    Accumulated
                         Costs       Amortization  Software Costs  Amortization
                      -----------    -----------    -----------    -----------

Previously reported   $ 1,126,411    $  (281,058)   $ 1,041,395    $  (236,846)

Adjustment            $   579,967    $  (264,579)   $   579,967    $  (235,581)
                      -----------    -----------    -----------    -----------
Adjusted amount       $ 1,706,378    $  (545,637)   $ 1,621,362    $  (472,427)


                        Other                          Other
                      Intangible     Accumulated     Intangible     Accumulated
                        Assets       Amortization      Assets       Amortization
                      -----------    -----------    -----------    -----------

Previously reported   $   313,244    $  (156,622)   $   313,244    $  (156,622)

Adjustment            $   305,682    $  (229,262)   $   305,682    $  (229,262)
                      -----------    -----------    -----------    -----------
Adjusted amount       $   618,926    $  (385,884)   $   618,926    $  (385,884)



                       Three Months Ended June 30,  Three Months Ended June 30,
                                  2005                         2004
                      --------------------------    ----------------------------
                       Income from                  Income (Loss)
                       Operations     Net Income  from Operations   Net Income
                      -----------    -----------    -----------    -----------

Previously reported   $   224,104    $   222,402    $  (101,624)   $   837,458

Adjustment            $   (28,998)   $   (28,998)   $   (56,203)   $   (56,203)
                      -----------    -----------    -----------    -----------
Adjusted amount       $   195,106    $   193,404    $  (157,827)   $   781,255


                       Basic EPS     Diluted EPS     Basic EPS     Diluted EPS
                      -----------    -----------    -----------    -----------

Previously reported   $     0.007    $     0.006    $     0.026    $     0.021

Adjustment            $    (0.001)        (0.001)        (0.001)   $    (0.001)
                      -----------    -----------    -----------    -----------
Adjusted amount       $     0.006    $     0.005    $     0.025    $     0.020



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.

                                       10
<PAGE>

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
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  $166,610 or 20.9%, from $796,213
for the three  months ended June 30, 2004 to $962,823 for the three months ended
June 30, 2005.  Monthly support and maintenance  revenues  increased $395,687 or
46.5%,  from $850,113 for the three months ended June 30, 2004 to $1,245,800 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.

Net income (loss) before income tax benefit increased $281,958 or 318.4%, from a
loss of ($88,554) or ($.002) per diluted common share for the three months ended
June 30, 2004 to $193,404 or $.005 per diluted common share for the three months
ended June 30, 2005.  Included in net income for the three months ended June 30,


                                       11
<PAGE>
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  $396,480 or 40.9%,  from $969,125 for the three months
ended June 30, 2004 to $1,365,605  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.

Operating expenses,  consisting of research and development  expenses and sales,
marketing and general administrative expenses, increased $145,187 or 17.6%, from
$823,301  for the three  months  ended June 30, 2004 to  $968,488  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  $220,337  compared  to $31,346 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
$675,240 as of June 30, 2005 compared to $481,518 as of March 31, 2005.  Current
liabilities  totaled  $622,548  as of June 30,  2005  compared to $594,850 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:

                                       12
<PAGE>

<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>


Critical Accounting Policies and Estimates

Management is basing this discussion and analysis of our financial condition and
results of operations on our restated financial  statements.  The preparation of
these restated 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:   technical  support  &  maintenance,
         hardware  sales,   consulting   services,   installation  and  training
         services,  and  software  sales.  The Company  recognizes  revenue,  in
         accordance  with  SAB No.  104,  when  (i)  persuasive  evidence  of an
         arrangement  exists;  (ii)  delivery has occurred or services have been
         rendered;  (iii)  the  sales  price  is  fixed  or  determinable;  (iv)
         collectibility is reasonably  assured.  Technical support & maintenance
         services are billed  monthly as stipulated in contracts  with customers
         and earned as the services are rendered.  Hardware sales are recognized
         when title passes upon  shipment to the customer.  Consulting  services
         revenue is recognized  under the  percentage-of-completion  method over
         the  period  in which  the  services  are  provided.  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.  Software sales revenue
         (where  software is hosted on customers'  servers) is  recognized  when
         title  passes upon  installation  of the software  onto the  customers'
         servers.

                                       13
<PAGE>

         In certain  cases, the Company  has multiple  agreements  with the same
         customer  under the  Company's  ASP  agreements.  In those  cases,  the
         Company  determines  whether  or not  the  fees  qualify  for  separate
         accounting treatment as required by SAB No. 104 and EITF No. 00-21. For
         additional  information  on the  revenue  recognition  policies  of the
         Company,  see note 3(e) to the financial  statements included with this
         Report.

     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  Costs - 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 in
         accordance  with SFAS No. 86 until the product is available for general
         release to customers.  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,
         capitalized  software costs are tested for impairment  each period and,
         if impairment is determined, the amount of impairment is written off in
         that period.

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

                                       14
<PAGE>

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.

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.

                                       15
<PAGE>

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

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

Our ASP network is subject to 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.

     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.

                                       16
<PAGE>

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

We rely on our  intellectual  property  rights,  and if we are unable to protect
these  rights,  we may  face  increased  competition,  and our  business  may be
materially adversely affected
--------------------------------------------------------------------------------
We regard our intellectual  property,  particularly our 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.

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.

                                       17
<PAGE>

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
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.

                                       18
<PAGE>

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.

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;

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<PAGE>

     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:

     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.

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<PAGE>

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 the Company's  management,
including  the Company's  principal  executive  officer and principal  financial
officer,  the Company  conducted an  evaluation of its  disclosure  controls and
procedures,  as such term is defined under Rule 13a-14(c)  promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of June 30,
2005. Based on this evaluation,  the Company's  principal  executive officer and
principal  financial  officer  concluded that, for the reasons and in the manner
set forth in the  following  paragraph,  the Company's  disclosure  controls and
procedures  were not  effective  in  ensuring  that  information  required to be
disclosed  by the  Company in its  reports  that it files or  submits  under the
Securities Exchange Act of 1934 (as amended) is recorded, processed,  summarized
and  reported  within the time  periods  specified in the rules and forms of the
SEC.

In the course of  preparing a response  to a routine  SEC comment  letter on the
Company's  Annual Report on Form 10-KSB for the fiscal year ended March 31, 2005
(the "Form 10-KSB"),  the principal  executive  officer and principal  financial
officer determined that an adjustment reflected in the Form 10-KSB was partially
inaccurate  and, as a result,  the Company has filed an Amendment  No. 1 on Form
10-KSB/A  for the year ended  March 31, 2005  correcting  that  inaccuracy.  The
original Form 10-QSB filed for the quarter ended June 30, 2005  perpetuated  the
inaccurate  assumptions set forth in the Form 10-KSB.  Information regarding the
correction  is  disclosed  in Note  3(k)  to the  restated  condensed  financial
statements included herewith. Based upon this occurrence, the Company determined
that it needs to take  steps,  and is taking  steps,  to  facilitate  timely and
comprehensive  discussions with the Company, and with the Company's  independent
public  accountants,  regarding  issues  that arise in the course of  developing
financial statements for public disclosure.

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<PAGE>

Changes in Internal Controls Over Financial Reporting

With  the  participation  of  its  principal  executive  officer  and  principal
financial officer,  management of the Company has, as required by Rule 13a-15(d)
under the Exchange  Act,  evaluated  whether  there were any changes  during the
fiscal  quarter  ended June 30,  2005 in its  internal  control  over  financial
reporting  that  materially  affected,  or are  reasonably  likely to materially
affect, its internal control over financial  reporting.  The Company hired a new
Chief  Financial  Officer on or about April 11, 2005. In the course of preparing
the financial statements for the fiscal year ended March 31, 2005, the new Chief
Financial  Officer  expanded and enhanced  procedures  related to the  Company's
capitalization   and   amortization  of  various  assets,   including   software
development  expenses.  The Chief Financial  Officer also began a general review
and enhancement of the Company's internal controls over financial  reporting and
is expected to make recommendations and changes throughout the coming quarters.



                                       22
<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 Amendment No. 1 on Form 10-QSB/A to be signed on
its behalf on November 15, 2005 by the undersigned thereunto duly authorized.

                                   ARKONA, Inc.

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


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



                                       23
<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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