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

                                   Form 10-QSB



(Mark One)

[X]      Quarterly  report  pursuant  to Section  13 or 15(d) of the  Securities
         Exchange Act of 1934 for the quarterly period ended June 30, 2004

                                       OR

[ ]      Transition  Report  pursuant  to Section 13 or 15(d) of the  Securities
         Exchange Act of 1934 for the transition  period from  _____________  to
         _____________



                         Commission File Number 0-24372

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



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


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

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



Check  whether the 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 13, 2004 there were issued and outstanding 31,631,823 shares of the
Company's Common Stock, par value $.001 per share.

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


<PAGE>

PART I - Item 1. Financial Statements


                                  ARKONA, INC.
                            Condensed Balance Sheets

                                                     30-Jun-04    31-Mar-04
ASSETS                                              (Unaudited)   (Audited)
                                                  ------------   -----------
   Current Assets
      Cash and cash equivalents                       138,697        361,954
      Accounts receivable, net of allowance           685,950        531,270
      Prepaid expenses                                 13,620         11,620
                                                  -----------    -----------
   Total Current Assets                               838,267        904,844
                                                  -----------    -----------
   Equipment
      Equipment, net of depreciation                  223,999        220,778
   Other Assets
      Deferred tax asset                            3,324,400      1,560,000
      Deposits                                         79,580         79,580
      Other assets, net amortization                  668,396        617,440
                                                  -----------    -----------
   Total Other Assets                               4,072,376      2,257,020
                                                  -----------    -----------
TOTAL ASSETS                                        5,134,642      3,382,642
                                                  ===========    ===========

 LIABILITIES AND STOCKHOLDERS' EQUITY
   Current Liabilities
      Accounts payable                                 48,446        157,780
      Accrued liabilities                             111,049        192,781
      Deferred revenue                                 41,564        139,019
      Current portion of long-term debt                  --             --
                                                  -----------    -----------
   Total Current Liabilities                          201,059        489,580
                                                  -----------    -----------
   Long-Term Liabilities
      Current portion of long-term debt                  --             --
      Note payable - related party                     50,000         50,000
                                                  -----------    -----------
   Total Long-Term Liabilities                         50,000         50,000
                                                  -----------    -----------
   Total Liabilities                                  251,059        539,580
                                                  -----------    -----------
   Stockholders' Equity
      Common stock                                     31,524         31,332
      Series B preferred stock                            575            575
      Additional paid in capital                   23,243,203     23,173,444
      Accumulated unrealized loss on investment
          ecurities available for sale                (16,942)       (16,942)
      Retained earnings (deficit)                 (18,374,777)   (20,345,347)
                                                  -----------    -----------
    otal Stockholders' Equity                       4,883,583      2,843,062
                                                  -----------    -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY          5,134,642      3,382,642
                                                  ===========    ===========



              SEE NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

                                       1

<PAGE>



                                  ARKONA, INC.

                  Unaudited Condensed Statements of Operations


                                           Three Months Ended
                                        30-Jun-04      30-Jun-03
                                      ------------   -------------

Revenues                                 1,800,203       1,103,242

Operating Expenses
  Cost of Sales                            832,089         455,531
  Research and Development                 203,086         130,338
  Marketing, Admin & Sales                 628,893         372,165
                                      ------------    ------------

Total Operating Expenses                 1,664,068         958,034
                                      ------------    ------------

Net Income (Loss) From Operations          136,135         145,208
  Other income                                --              --
  Gain on disposal of asset                 72,915            --
  Interest expense                          (2,880)        (14,273)
                                      ------------    ------------

Net Income (Loss) Before Taxes             206,170         130,935
  Income tax provision                   1,764,400            --
                                      ------------    ------------
Net Income (Loss)                     $  1,970,570    $    130,936
                                      ============    ============



Net Income per share                          0.06            0.01
                                      ============    ============
Weighted average number
Of Shares Outstanding                   31,413,032      28,416,840
                                      ============    ============


Diluted Net Income (Loss) per share           0.06            0.01
                                      ============    ============
Weighted Average Diluted
Shares Outstanding                      35,053,366      28,416,840
                                      ============    ============



              SEE NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

                                       2

<PAGE>
                                  ARKONA, INC.

                  Unaudited Condensed Statements of Cash Flows


                                                   Three Months Ended
                                                 30-Jun-04     30-Jun-03
                                                ----------    ----------

Cash Flows (used by) Operating Activities:

    Net Income (Loss)                            1,970,570       130,935
    Adjustments to reconcile net income
    to net cash used for operating
    activities:
        Depreciation and Amortization               19,126        23,914
        Amortization of unearned compensation         --            --
        Changes in assets and liabilities:
             Deferred Income Tax                (1,764,400)         --
             Accounts Receivable                  (154,680)     (227,707)
             Prepaid Expenses                       (2,000)         --
             Accounts Payable                     (109,334)     (176,520)
             Deferred contract services            (97,455)      (23,834)
             Accrued Liabilities                   (81,732)       (7,464)
                                                ----------    ----------

Net Cash (Used By) Operating Activities           (219,905)     (280,676)
                                                ----------    ----------

Cash Flows (Used for) Investing Activities:
    Additions to Equipment                         (45,387)       (9,125)
    Other assets                                   (27,915)      (23,357)
                                                ----------    ----------

Net Cash Used for Investing Activities             (73,382)      (32,482)
                                                ----------    ----------

Cash Flows Provided By Financing Activities:
    Proceeds from Issuance of Preferred Stock         --         425,000
    Proceeds from Issuance of Common Stock          69,950          --
    Note Payable                                      --            --
    Loan from officer                                 --           6,500
    Leases                                            --          (1,145)
                                                ----------    ----------

Net Cash Provided By Financing Activities           69,950       430,355
                                                ----------    ----------

Net Increase/(Decrease) in Cash and Cash
Equivalents                                       (223,257)      117,197
                                                ----------    ----------

Beginning Cash Balance                             361,954        18,307
                                                ----------    ----------

Ending Cash Balance                                138,697       135,503
                                                ==========    ==========

              SEE NOTES TO UNAUDITED CONDENSED 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.  With minimal  development,  the
Company's products could be customized to meet customer needs in the RV, Marine,
ATV and motorcycle markets.We have now entered the powersports market and expect
to have a version of our product  tailored to powersports this year. 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.
If the industry environment were to experience  significant negative conditions,
the Company could also be affected.

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

Note 3  Equity
--------------

During the three months ended June 30, 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 three months ended June 30, 2004 was $69,950.

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 three-month
period ended June 30, 2004, the valuation allowance has decreased by $1,764,000,
resulting in an income tax benefit.
                                       4
<PAGE>

(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 June 30, 2004  unrealized  loss on
investments  of $16,942 is related to securities  that have been written off but
not disposed.

(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

                                       5
<PAGE>

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:

<TABLE>
<CAPTION>

                                                           Three Months Ended
                                                                30-June
                                                         ------------------------
                                                           2004           2003
                                                         ----------   -----------
<S>                                                      <C>          <C>
Net Income applicable to shareholders (basic
   and diluted) as reported                              $1,970,570   $   130,936
Deduct: stock-based employee compensation
   expense included in reported net loss, net of
    related tax effects                                        --          88,452
Add: total stock-based employee compensation
   expense determined under fair value based
   method for all awards, net of related tax effects           --            --
                                                         ----------   -----------

Pro forma net income applicable to shareholders          $1,970,570   $    42,480
                                                         ==========   ===========

Income per common share (basic and diluted):
   As reported                                           $     0.06   $      0.01
                                                         ==========   ===========
   Pro forma                                             $     0.06   $      0.01
                                                         ==========   ===========
</TABLE>

(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  between  automobile,  marine,  RV and
powersports  dealerships  makes  our  software  attractive  to  marine,  RV  and
powersports  dealerships  as well.  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. 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  powersports  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  Powersports 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
and permit us to rapidly expand our customer base.

         Our net  income for the  three-month  period  ended  June 30,  2004 was
$1,970,570  or $0.06 per share,  compared to $130,935 or $0.01 per share for the
same  period  in 2003.  Of the  $1,970,570  in net  income  for the most  recent
three-month period,  $1,764,400 is attributable to the company recognizing a tax
benefit.  This quarter  represents a  substantial  improvement  in the financial
results for the  Company  and is due to  increased  sales,  increased  recurring
support sales and increased  efficiencies  throughout  the Company.  The primary
marketing focus for the coming quarter continues to be establishing our identity
in the marketplace  and building a secure platform for future growth,  including
recruiting  the key personnel and business  partners  required to build end-user

                                       7
<PAGE>
solutions and grow sales.  As explained in greater  detail below,  we expect our
expenses to increase  significantly  in the coming year as we continue to expand
our  software  development  and  installation  headcount in order to improve our
product offering and accelerate  growth. 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 expected increases in revenue.

Results of Operations for the Three Months Ended June 30, 2004 and June 30, 2003

         Revenues for the three-month period ended June 30, 2004 were $1,800,203
compared to $1,103,242 for the same period in the prior year, representing a 63%
increase  for the  three-month  period.  The  increase  is  attributable  to our
continued  success in  replacing  our  competitor's  systems.  In the  immediate
future,  we do not see our competitors  being able to stop our success replacing
their  solutions with ours. 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  make  selling  against  our
competitors  easy. To date our  competitors  have had to use their size,  market
share and our financial position as points to sell against us. However, with our
continued growth, a year of profitability  behind us and our financial  position
strengthening  every  quarter,  their selling  points are getting  weaker.  More
specifically,  the  increase  in  sales is due to  increases  in the  number  of
installations  of ADMS and associated  monthly  maintenance and support revenue.
During the  three-month  period  ending June 30,  2004,  we  installed  our ADMS
solution  in 32 new car  dealerships  and 3 used car  dealerships.  For the same
period in 2003, we installed our ADMS solution in 25 new car  dealerships  and 1
used car dealership.

         In  addition,  we  continue  to expand  into  other  markets  by making
significant  inroads into the  motorcycle  dealership  market.  To date, we have
installed  our  system  in  new  and  used  automobile  dealerships,  motorcycle
dealerships, ATV dealerships, RV dealerships and marine dealerships. In addition
to new DMS markets,  we continue to add significant  value to our system through
the development of new products.  These new products include  revenue-generating
activities such as credit bureau  services,  loyalty card programs and ancillary
products like our barcode inventory systems.  To date, these new activities have
not had a significant impact on revenue,  but we expect to begin experiencing an
increase in revenue from such new products this year.

         Cost of sales  totaled  $832,089  or 46% of sales  for the  three-month
period ended June 30, 2004  compared to  $455,531,  or 41% of sales for the same
period in 2003.  This  increase in cost 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.  In  interim  periods,  in which a
relatively large number of installations  are multiple store deals, the discount
is reflected in the cost of sales  computation.  During the  three-month  period
ended  June 30,  2004,  we  installed  10,  or  approximately  one  third of our
installations,  in large groups. We plan to continue to expand our operations as
rapidly as  possible,  in part by  continuing  to hire  additional  installation
technicians.  In light of costs  associated with this planned  expansion and our
continued  success with large  dealership  groups,  we do not expect our cost of
sales as a percentage of sales to continue to decrease as it has in the past.

         Operating  expenses totaled $1,664,068 for the three-month period ended
June 30, 2004 compared to $958,033 for the same period ended June 30, 2003.  The
increase is due to expansion being fueled by our  profitability.  We continue to
invest in increasing our installation capacity, our engineering capabilities and
our sales staff and marketing opportunities.

         Research  and  development  expense  increased  from  $130,338  for the
three-month  period ended June 30, 2003 to $203,086 for the same period in 2004.
The  increase  for the  current  quarter is due to  increased  head count on our
development  staff.  Research  and  development  is a major part of the  planned
expansion  of our  operations  mentioned  above.  We expect this  portion of our
business to grow not only to meet the demands of our  expanding  customer  base,
but also to achieve new product innovation.
                                       8
<PAGE>
         Marketing, administrative and sales expenses increased from $372,164 to
$628,893 for the three-month period ended June 30, 2004. Again, we are expanding
every area of our business.  Marketing and Sales are no  exceptions.  Each year,
approximately  20% of the new car  dealerships are at the end of their contracts
with their  current DMS  provider.  Our current  capacity in marketing and sales
allows us to only reach a  fraction  of those  dealers.  We are  increasing  our
marketing and sales efforts as quickly as our  financial  resources  will allow.
Even  though  many  of our  customer  contacts  are  initiated  by  the  dealers
themselves,  rather than our sales staff, each contact requires someone from our
sales department to demo our solutions.  As a result, there are numerous dealers
each quarter who we are unable to contact because of our limited sales staff.

         We had no interest income during the three-month periods ended June 30,
2004 and 2003. This was due to minimal cash balances maintained in banks.

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

Liquidity and Capital Resources

         At June 30, 2004,  we had cash and cash  equivalents  of  $138,697,  as
compared to cash and cash equivalents of $361,954 as of March 31, 2004.

         In order to meet operating costs during the three months ended June 30,
2004, we relied upon installation revenues,  recurring revenues and the issuance
of 191,500  shares of common  stock at an average  price of $0.37 per share.  Of
such shares,  125,000 were sold to two outside accredited investors at $0.40 per
share, and 66,950 were sold in conjunction with the exercise of stock options by
a company officer.

         We expect our revenues to continue to increase in the future. We expect
net  income to  increase  as well;  however,  due to costs  associated  with the
planned   expansion  of  our   installation   and  development   programs,   our
profitability  (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 shareholders, customers and others for additional equity
financing.

         The  following  table  discloses   aggregate   information   about  our
contractual  obligations  including long-term debt,  operating and capital lease
payments and office lease payments, and the periods in which payments are due as
of June 30, 2004:

                                       9
<PAGE>

<TABLE>
<CAPTION>
------------------------------   --------   --------   --------   --------   --------
                                           Less Than                         After 5
Contractual Obligations            Total     1 Year    1-3 years  4-5 Years   Years
------------------------------   --------   --------   --------   --------   --------
<S>                              <C>               <C>            <C>        <C>
Long-term debt                   $  6,000          $   $  6,000   $      0   $      0
------------------------------   --------   --------   --------   --------   --------
Operating Leases                  111,579     47,727     63,852          0          0
------------------------------   --------   --------   --------   --------   --------
Capital Leases                          0          0          0          0          0
------------------------------   --------   --------   --------   --------   --------
Office Lease                      236,720    193,680     43,040          0          0
------------------------------   ========   ========   ========   ========   ========
Total Contractual Obligations    $354,299   $241,407   $112,892   $      0   $      0
------------------------------   --------   --------   --------   --------   --------
</TABLE>

Critical Accounting Policies and Estimates

         Management  is basing this  discussion  and  analysis of our  financial
condition and results of operations on our  consolidated  financial  statements.
The preparation of these financial  statements requires us to make estimates and
judgments that affect the reported amounts of assets,  liabilities,  revenue and
expenses,  and related  disclosure of contingent  assets and liabilities.  On an
on-going  basis,  we evaluate our critical  accounting  policies and  estimates,
including   those  related  to  revenue   recognition,   valuation  of  accounts
receivable, property, plant and equipment, long-lived assets, intangible assets,
and contingencies. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances,  the
results of which form the basis for making  judgments  about the carrying values
of assets and  liabilities  that are not readily  apparent  from other  sources.
Actual results may differ from these estimates  under  different  assumptions or
conditions.

         We believe the following critical  accounting  policies affect the more
significant  judgments and estimates used in the preparation of our consolidated
financial statements.  These judgments and estimates affect the reported amounts
of assets and  liabilities  and the  reported  amounts of revenues  and expenses
during the reporting  periods.  Changes to these  judgments and estimates  could
adversely affect the Company's future results of operations and cash flows.

         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

                                       10
<PAGE>

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

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

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 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.

                                       11
<PAGE>

We may require  additional  capital to continue  development of our products and
fund our operations.
--------------------------------------------------------------------------------
         We do not have a  significant  cash  reserve,  and our cash  flow  from
operations is presently  approximately  equal to our cash  expenditures.  In the
event we experience an unexpected  need for cash,  expand our  operations in any
significant way or otherwise need additional cash, we expect to continue to rely
primarily  on the offer  and sale of  convertible  notes,  warrants  and  equity
securities  to obtain such cash.  If financing is needed,  we cannot  assure you
that additional financing will be available on terms favorable to us, or at all.
If adequate funds are not available,  or are not available on acceptable  terms,
our ability to expand our operations,  or to continue normal operations,  may be
limited.

We may be unable to increase the number of  customers  using our ADMS product or
other future offerings.
--------------------------------------------------------------------------------
         Our ARKONA Dealer  Management  Suite product is relatively  new, and we
are  operating in a market where two  competitors  control 80% of the market and
have a significant  advantage relative to market acceptance.  Any projections or
expectations  regarding the number of customers that will accept installation of
our ADMS  product is subject to the risk that  end-users  may  determine  not to
purchase our ADMS  product at the rate  projected  because of our  insignificant
position  in the  market,  concerns  over our  ability  to  continue  as a going
concern,  concerns  about our  product and  related  services  or various  other
reasons.  If we are unable to  increase  our monthly  installations  of our ADMS
product  in the  future,  it is  unlikely  that we  will  be  able  to  maintain
profitability.

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.
                                       12
<PAGE>

         Our ASP network is subject to factors that could cause interruptions in
service,  reduced  capacity for our  customers  and claims  against the Company.
Despite  the  implementation  of  security  measures,  the  core of our  network
infrastructure is vulnerable to unauthorized access, computer viruses, equipment
failure and other disruptive problems, including the following:

         o    We and our users may  experience  interruptions  in  service  as a
              result of the accidental or malicious  actions of Internet  users,
              current and former employees or others.

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

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

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

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

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

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

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

We rely on our  intellectual  property  rights,  and if we are unable to protect
these  rights,  we may  face  increased  competition,  and our  business  may be
materially adversely affected.
--------------------------------------------------------------------------------
         We regard our  intellectual  property,  particularly  our ARKONA Dealer
Management Suite, as critical to our success, and we rely on copyright and trade
secret  protection to protect our proprietary  rights in intellectual  property.
Any of our  intellectual  property  rights  may be  challenged,  invalidated  or
circumvented,  or the rights granted  thereunder may not provide any competitive
advantage.  In  addition,  there  can  be no  assurance  that  others  will  not
independently  develop  substantially  equivalent  proprietary  information  and

                                       13
<PAGE>

techniques or otherwise gain access to our trade secrets and know-how.  We could
also  incur  substantial  costs  in  asserting  our  intellectual   property  or
proprietary rights against others, including any such rights obtained from third
parties,  and/or defending any  infringement  suits brought against us. Although
each of our employees and  consultants is asked to enter into a  confidentiality
and invention agreement,  there can be no assurance that such agreements will be
honored  or that we will be able to  protect  effectively  our  rights  to trade
secrets and know-how.

         We may be required to obtain licenses to certain intellectual  property
or other  proprietary  rights from third  parties.  Such licenses or proprietary
rights may not be made available under acceptable terms, if at all. If we do not
obtain required  licenses or proprietary  rights,  we could encounter  delays in
product  development or find that the development or sale of products  requiring
such licenses is foreclosed.

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

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

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

We may be  subject  to claims  based  upon  allegations  that our  products  are
defective.
--------------------------------------------------------------------------------
         We have not experienced product liability claims to date. However,  our
products include programs designed for mission critical  applications,  creating
the risk that the failure or  malfunction  of our products may result in serious
damage or loss and open us to a claim for damages. Although contract terms limit
our  exposure,  there  can be no  assurance  that a court  would  not rule  such
provisions  to be invalid  or  unenforceable,  or that  changes in the law would
render  such  terms  void or  unenforceable.  A  successful  claim  could have a
material adverse effect on our operations and finances. Furthermore, the cost of
defending against a claim, even  successfully,  could be material and could have
an adverse  effect on our  results of  operations  and an adverse  effect on the
marketing of our products.

                                       14
<PAGE>

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

Our 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  shareholders  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 shareholder rights plan and certain provisions in the Delaware corporate law
may permit our board to block a takeover  attempt and adversely affect the value
of our common stock.
--------------------------------------------------------------------------------
         Our board of directors adopted a shareholder  rights plan, and declared
a dividend  of an  associated  right,  which are  expected to have the effect of
deterring any takeover of the Company that is not preceded by board  approval of
the proposed  transaction.  The  existence of such  shareholder  rights plan may
deter potential tender offers for our common stock or other  acquisition  offers
and may have the effect of delaying or preventing a change of control.

         In addition,  the Delaware  General  Corporation Law prohibits  certain
mergers,  consolidations,  sales of assets  or  similar  transactions  between a
corporation on the one hand and another company which is, or is an affiliate of,
a beneficial holder of 15% or more of such  corporation's  voting power (defined
as an  "Interested  Stockholder")  for three years after the  acquisition of the
voting power, unless the acquisition of the voting power was approved beforehand
by the  corporation's  board of  directors or the  transaction  is approved by a
majority  of  such   corporation's   shareholders   (excluding   the  Interested
Stockholder).  These provisions prohibiting Interested Stockholder  transactions
could also preserve management's control of the Company.

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

Our stock price is volatile and subject to manipulation.
--------------------------------------------------------------------------------
         The market price of our common  stock,  like that of the  securities of
other 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
              shareholders;
                                       15
<PAGE>

         o    the  purchase  or sale of a larger  number  of  shares by a single
              shareholder in a short period of time;
         o    announcements  by  us  or  competitors  concerning   technological
              innovations,  new  products or  procedures  developed by us or our
              competitors;
         o    the adoption or amendment of governmental  regulations and similar
              developments  in the United  States  and  foreign  countries  that
              affect  our  products  or  markets  specifically  or  our  markets
              generally;
         o    disputes relating to copyrights or proprietary rights;
         o    publicity  regarding  actual  or  potential  results  relating  to
              product candidates under development by us or a competitor;
         o    slow acceptance of our products in new or existing markets;
         o    a general  lack of trust in the  financial  markets as a result of
              accounting scandals or for other reasons; and o economic and other
              external  factors,  as well as  period-to-period  fluctuations  in
              financial results.

Our ability to issue  preferred  stock may  significantly  dilute  ownership and
voting power and negatively affect the price of our common stock.
--------------------------------------------------------------------------------
         Under our Certificate of Incorporation,  as amended,  we are authorized
to issue up to 10,000,000  shares of preferred stock. Our Board of Directors has
the authority to create various  series of preferred  stock with such voting and
other  rights  superior  to those of our  common  stock and to issue  such stock
without shareholder approval. This issuance of such preferred stock would dilute
the ownership and voting power of the holders of our common stock and may have a
negative effect on the price of our common stock.

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

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

         o    Is priced under five dollars;

         o    Is not traded on a national stock  exchange,  the Nasdaq  National
              Market or the Nasdaq SmallCap Market; o May be listed in the "pink
              sheets" or the OTC Bulletin Board; and

         o    Is issued by a company  that has less than $5  million  dollars in
              net  tangible  assets (if it has been in business  less than three
              years) or has less than $2 million  dollars in net tangible assets
              (if it has been in business  for at least three  years);  and

         o    Is issued by a company  that has average  revenues of less than $6
              million for the past three years.

         We believe that our common  stock is presently a "penny  stock." At any
time the common stock  qualifies as a penny stock,  the following  requirements,
among others, will generally apply:

                                       16
<PAGE>

         o    Certain  broker-dealers who recommend penny stock to persons other
              than  established  customers and accredited  investors must make a
              special written  suitability  determination  for the purchaser and
              receive the purchaser's  written  agreement to a transaction prior
              to sale.

         o    Prior  to  executing  any  transaction  involving  a penny  stock,
              certain  broker-dealers  must  deliver  to  certain  purchasers  a
              disclosure  schedule explaining the risks involved in owning penny
              stock,  the  broker-dealer's  duties to the customer,  a toll-free
              telephone   number  for   inquiries   about  the   broker-dealer's
              disciplinary  history,  and the customer's  rights and remedies in
              case of fraud or abuse in the sale.

o        In connection with the execution of any  transaction  involving a penny
         stock,  certain broker  dealers must deliver to certain  purchasers the
         following:

              o    bid and offer price quotes and volume information;
              o    the broker-dealer's compensation for the trade;
              o    the  compensation  received by certain  salespersons  for the
                   trade;
              o    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 president and our chief
financial  officer have  concluded  that,  as of June 30, 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.


                           PART II. OTHER INFORMATION

Item 2.       Changes In Securities And Use Of Proceeds

         During the three months  ended June 30, 2004,  the Company sold 125,000
shares of common stock to two  investors at a purchase  price of $0.40 per share
or $50,000 in the aggregate.

         The above-described issuance of shares of our common stock was effected
in reliance upon the  exemptions  for sales of securities not involving a public
offering set forth in Rule 506 promulgated  under the Securities Act and Section
4(2) of the  Securities  Act,  based  upon  the  following:  (a)  the  investors
represented and warranted to us that he was an "accredited investor," as defined
in Rule 501 of Regulation D promulgated  under the Securities  Act, and had such
background, sophistication,  education, and experience in financial and business
matters as to be able to evaluate the merits and risks of an  investment  in the


                                       17
<PAGE>

securities;  (b) there was no  public  offering  or  general  solicitation  with
respect to the offering,  and the investor represented and warranted that he was
acquiring  the  securities  for  his own  account  and not  with  an  intent  to
distribute such securities;  (c) the investors were provided certain  disclosure
materials regarding the Company and any and all other information requested with
respect to the Company, (d) the investors acknowledged that all securities being
purchased were  "restricted  securities" for purposes of the Securities Act, and
agreed to transfer such securities only in a transaction registered with the SEC
under the Securities Act or exempt from  registration  under the Securities Act;
and (e) a legend was placed on the certificates and other documents representing
each such security  stating that it was restricted and could only be transferred
if  subsequently  registered  under  the  Securities  Act  or  transferred  in a
transaction exempt from registration under the Securities Act.

Item 6.   Exhibits And Reports On Form 8-K

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




                                       18
<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 August 13,
2004 by the undersigned thereunto duly authorized.

                                      ARKONA, Inc.

         August 13, 2004              /s/ Alan Rudd
                                      --------------------------------------
                                      Alan Rudd, Chief Executive Officer


         August 13, 2004              /s/ Stephen Russo
                                      --------------------------------------
                                      Stephen Russo, Chief Financial Officer




                                       19
<PAGE>

<TABLE>
<CAPTION>
                                  EXHIBIT INDEX


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

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

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

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

10.1               Patent Purchase Agreement                         Filed herewith

                   [Portions of this Exhibit have been omitted  pursuant to Rule
                   24b-2, are filed separately with the SEC and are subject to a
                   confidential treatment request.]

31.1               Section 302 Certification of Chief Executive      Filed herewith
                   Officer

31.2               Section 302 Certification of Chief Financial      Filed herewith
                   Officer

32.1               Section 906 Certification of Chief Executive      Filed herewith
                   Officer

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

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