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

                                   Form 10-QSB



(Mark One)

[X]      Quarterly  report  pursuant  to Section  13 or 15(d) of the  Securities
         Exchange Act of 1934 for the quarterly period ended September 30, 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
incorporation or organization)                              Identification No.


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

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



Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the  registrant  was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes [X]   No [ ]


As of November 10, 2004 there were issued and outstanding  32,094,323  shares of
the Company's Common Stock, par value $.001 per share.



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

<PAGE>

 PART I - Item 1. Financial Statements

                              ARKONA, INC.
                        Condensed Balance Sheets

                                                    30-Sep-04      31-Mar-04
ASSETS                                             (Unaudited)      (Audited)
                                                  ------------    ------------
   Current Assets
      Cash and cash equivalents                   $    172,732    $    361,954
      Accounts receivable, net of allowance            748,992         531,270
      Prepaid expenses                                     121          11,620
                                                  ------------    ------------
   Total Current Assets                                921,845         904,844
                                                  ------------    ------------
   Equipment
      Equipment, net of depreciation                   260,248         220,778
   Other Assets
      Deferred tax asset                             5,084,756       1,560,000
      Deposits                                          79,580          79,580
      Other assets, net amortization                   617,754         617,440
                                                  ------------    ------------
   Total Other Assets                                5,782,090       2,257,020
                                                  ------------    ------------
TOTAL ASSETS                                      $  6,964,183    $  3,382,642
                                                  ============    ============

 LIABILITIES AND STOCKHOLDERS' EQUITY
   Current Liabilities
      Accounts payable                                  38,240         157,780
      Accrued liabilities                                 --           192,781
      Deferred revenue                                 119,691         139,019
                                                  ------------    ------------
   Total Current Liabilities                           157,931         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                                   207,931         539,580
                                                  ------------    ------------
   Stockholders' Equity
      Common stock                                      32,054          31,332
      Series B preferred stock                             575             575
      Additional paid in capital                    23,323,737      23,173,444
      Accumulated unrealized loss on investment
         securities available for sale                 (16,942)        (16,942)
      Retained earnings (deficit)                  (16,583,172)    (20,345,347)
                                                  ------------    ------------
   Total Stockholders' Equity                        6,756,252       2,843,062
                                                  ------------    ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY        $  6,964,183    $  3,382,642
                                                  ============    ============

              SEE NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

                                       2
<PAGE>

<TABLE>
<CAPTION>
                                  ARKONA, INC.

                  Unaudited Condensed Statements of Operations

                                            Six Months Ended               Three Months Ended
                                        30-Sep-04       30-Sep-03       30-Sep-04       30-Sep-03
                                      ------------    ------------    ------------    ------------

<S>                                   <C>             <C>             <C>             <C>
Revenues                              $  3,539,612    $  2,339,132    $  1,739,409    $  1,235,890

Operating Expenses

  Cost of Sales                          1,713,687         999,470         881,598         543,939

  Research and Development                 490,715         271,502         287,629         141,164

  Marketing, Admin & Sales               1,169,017         777,702         540,124         405,538

                                      ------------    ------------    ------------    ------------
otal Operating Expenses                 3,373,419       2,048,674       3,373,419       2,048,674
                                      ------------    ------------    ------------    ------------


Net Income (Loss) From Operations          166,193         290,458          30,058         145,208

  Other income                                --              --              --              --

  Gain on disposal of asset                 72,915            --              --              --

  Interest expense                          (5,733)        (22,080)         (2,853)         (7,807)
                                      ------------    ------------    ------------    ------------
Net Income (Loss) Before Taxes             233,375         268,378          27,205         137,442

  Income tax provision                   3,528,800            --         1,764,400            --
                                      ------------    ------------    ------------    ------------

Net Income (Loss)                     $  3,762,175    $    268,378    $  1,791,605    $    137,442
                                      ============    ============    ============    ============

Net Income per share                          0.11            0.01            0.05            0.00
                                      ============    ============    ============    ============
Weighted average number
Of Shares Outstanding                   31,953,332      29,660,619      31,993,332      29,660,619
                                      ============    ============    ============    ============

Diluted Net Income (Loss) per share           0.10            0.01            0.01            0.00
                                      ============    ============    ============    ============
Weighted Average Diluted
Shares Outstanding                      35,331,866      30,561,559      35,515,866      2,8416,840
                                      ============    ============    ============    ============
</TABLE>



              SEE NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS


                                       3
<PAGE>
                                  ARKONA, INC.
                  Unaudited Condensed Statements of Cash Flows

                                                 Three Months Ended
                                              30-Sep-04      30-Sep-03
                                             -----------    -----------
Cash Flows (used by) Operating Activities:

    Net Income (Loss)                        $ 3,762,175    $   268,378

    Adjustments to reconcile net income
      to net cash used for operating
      activities:
        Gain on sale of Asset                    (72,915)          --
        Depreciation and Amortization             45,588         44,601

        Changes in assets and liabilities:
             Deferred Income Tax              (3,524,756)          --
             Accounts Receivable                (217,723)      (335,476)
             Prepaid Expenses                     11,499          1,868
             Accounts Payable                   (119,540)      (243,203)
             Deferred contract services          (19,328)        51,889
             Accrued Liabilities                (192,752)      (264,043)
                                             -----------    -----------

Net Cash (Used By) Operating Activities      $  (327,752)   $  (477,854)
                                             -----------    -----------

Cash Flows (Used for) Investing
Activities:
    Additions to Equipment                       (85,086)       (60,806)
    Proceeds from sale of Patent                 100,000           --
    Other assets                                 (27,085)       (32,090)
                                             -----------    -----------

Net Cash Used for Investing Activities       $   (12,171)   $   (92,896)
                                             -----------    -----------

Cash Flows Provided By Financing
Activities:
    Proceeds from Issuance of Preferred
     Stock                                          --          575,000
    Proceeds from Issuance of Common
     Stock                                       150,701        225,000
    Note Payable                                    --
    Loan from officer                               --           12,853
    Leases                                          --           (2,291)
                                             -----------    -----------

Net Cash Provided By Financing Activities    $   150,701    $   810,562
                                             -----------    -----------

Net Increase/(Decrease) in Cash and Cash
Equivalents                                     (189,222)       239,812
                                             -----------    -----------

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

Ending Cash Balance                          $   172,732    $   258,119
                                             ===========    ===========

              SEE NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

                                       4
<PAGE>

                                  ARKONA, INC.

                          NOTES TO UNAUDITED CONDENSED

                              FINANCIAL STATEMENTS


Note 1 Basis of Presentation

ARKONA,  Inc. (the "Company") has prepared the accompanying  condensed financial
statements,  without  audit,  according  to the  applicable  regulations  of the
Securities and Exchange Commission. Certain information and disclosures normally
included in  financial  statements  prepared  according  to  generally  accepted
accounting  principles have been condensed or omitted. The Company believes that
the  following  disclosures  are adequate and not  misleading.  These  unaudited
condensed  financial  statements  reflect all  adjustments  (consisting  only of
normal recurring  adjustments) that, in management's  opinion,  are necessary to
present  fairly the financial  position and results of operations of the Company
for the  periods  presented.  It is  suggested  that these  unaudited  condensed
financial  statements are read in conjunction  with the  consolidated  financial
statements and the notes thereto included in the Company's Annual Report on Form
10-KSB for the fiscal year ended March 31, 2004.

Note 2  Concentration

The Company is limited in that its products are currently  specifically designed
for customers in the auto dealership industry.  For this reason, if the industry
environment  were to experience  significant  negative  conditions,  the Company
could  also be  affected.  However,  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.

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 six months  ended  September  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 six months  ended  June 30,  2004 was  $69,950.  During the six
months ended September 30, 2004, Jeff Swain, resigned as Vice President of Sales
and, upon leaving, exercised options to purchase 282,500 shares of common stock.
Total proceeds from the sale of those shares was $80,750.

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 $3,525,800
resulting in an income tax benefit.
                                       5
<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.

                                       6
<PAGE>

(h) Stock-Based Compensation

Stock-based  compensation  is  accounted  for using APB 25. Under APB 25, if the
exercise  price of the options is greater  than or equal to the market  price at
the date of grant, no compensation expense is recorded. We have also adopted the
disclosure   only   provisions  of  SFAS  123,   "Accounting   for   Stock-based
Compensation"   for  options  issued,  as  amended  by  SFAS  148.  To  estimate
compensation  expense that would be recognized  under SFAS 123, we have used the
modified  Black-Scholes  option pricing model. If we had accounted for our stock
options using the accounting  method  prescribed by SFAS 123, our net income and
income per share would be as follows:
<TABLE>
<CAPTION>

                                                           Three Months Ended
                                                                30-June
                                                       --------------------------
                                                           2004          2003
                                                       ------------   -----------
<S>                                                    <C>            <C>
Net Income applicable to shareholders (basic
   and diluted) as reported                            $  3,762,175   $   268,378
Deduct: stock-based employee compensation
   expense included in reported net loss, net of
    related tax effects                                        --            --
Add: total stock-based employee compensation
   expense determined under fair value based
   method for all awards, net of related tax effects           --            --
                                                       ------------   -----------

Pro forma net income applicable to shareholders        $  3,762,175   $   268,378
                                                       ============   ===========

Income per common share (basic and diluted):
   As reported                                         $       0.11   $      0.01
                                                       ============   ===========
   Pro forma                                           $       0.11   $      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.

                                       7
<PAGE>

Item 2.  Management's Discussion and Analysis

Overview

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

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

         Our  potential  customers  include  new car  dealerships  and  used car
dealerships,  and we are beginning to pursue dealers of  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 to
permit us to rapidly expand our customer base.

Results of Operations for the Six-Month and Three-Month  Periods Ended September
30, 2004 and September 30, 2003:

         Our net income for the  six-month  period ended  September 30, 2004 was
$3,762,175  or $0.10 per share,  and our net income for the  three-month  period
ended  September  30, 2004 was  $1,791,605  or $0.05 per share.  Included in net
income is the  recognition  of an  income  tax  benefit  of  $3,528,800  for the
six-months  ended  September 30, 2004 and  $1,764,400 for the three month period
ended  September 30, 2004.  Net income from  operations for the six months ended

                                       8
<PAGE>

September 30, 2004 was $166,193,  as compared to $290,458 for the same period in
2003. For the three months ended  September 30, 2004, net income from operations
was $30,058,  as compared to $145,249 for the three months ended  September  30,
2003. As explained in greater detail below, we expected our expenses to increase
in the coming year as we continue to expand in all areas of our  business.  As a
result of such  intended  increases in expenses,  we do not expect net income to
continue  to grow at the rate it did  during  FY 2004 or at the same rate as our
expected increases in revenue. During the three months ended September 30, 2004,
we made a significant  commitment to expand our sales capabilities by opening up
offices in California, Colorado and Massachusetts. In addition, we increased our
installation  capacity  during  the  quarter  and  continue  to hire  and  train
installation  technicians  as quickly as  possible.  To  accommodate  our client
growth,  we added an additional  server at our data center that provides us with
twice the capacity that its predecessors provided. In addition to increasing our
client  capacity  at the  data  center,  we are  currently  in  the  process  of
implementing high availability in a many-to-many cluster. This high availability
implementation will provide additional  assurance to our clients that their data
is safe and always available.

         We realized  significant  increases in revenues in the  three-month and
six-month  period ended September 30, 2004.  Revenue  increased  $503,519,  from
$1,235,890  for the three months ended  September  30, 2003 to 1,739,409 for the
same period in 2004.  This  represents a 40% increase.  For the six months ended
September 30, 2004,  revenue was  $3,539,612,  as compared to $2,339,132 for the
six months  ended  September  30, 2003,  representing  a  $1,200,480,  or a 51%,
increase from year to year. These increases represent a substantial  improvement
in revenues  for the Company and are  primarily  due to  increased  installation
sales and continued growth in recurring support sales.

         These sales  increases are  attributable  to our  continued  success in
replacing our competitor's  systems.  In the immediate future, we do not see our
competitors  being able to significantly  slow down 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  contribute to a persuasive sales
pitch.  We continue to take 5-6  dealerships  on average each month from ADP and
Reynolds  and  Reynolds.  Those  stores we do not succeed in taking from ADP and
Reynolds and Reynolds  used our pricing to force such  competitors  to come down
substantially  in their pricing.  Therefore,  when we are competing for business
with ADP and Reynolds & Reynolds,  it is almost always a win for the  dealership
because  they enjoy a  substantial  price  reduction  and/or we become their DMS
provider.

         Our marketing efforts continue to focus on establishing our identity in
the  marketplace  and building a secure  platform for future  growth,  including
recruiting  the key personnel and business  partners  required to build superior
end-user solutions and grow sales.

         Cost of sales  totaled  $1,713,687,  or 48% of sales for the  six-month
period ended  September  30, 2004,  compared to $999,470 or 42% of sales for the
same period in 2003. For the  three-month  period ended September 30, 2004, cost
of sales totaled $881,598 or 50% of sales, compared to $ 543,939 or 44% of sales
for the same period in 2003.  The increase in cost of sales as a  percentage  of
sales is partially due to our success installing large dealership  groups.  When
large dealership groups come on board, they are given a multiple store discount,
which  decreases  the  margin on those  installations.  Another  reason  for the
increase in cost of sales is due to our focus on customer  service.  We now have
specialized  consultants that occasionally  work on installation;  however their
primary  focus is to make sure  that  after an  install,  new  customers  have a
specific  individual or liaison within the company.  As a result, for the 6 - 12
weeks following an  installation  new customers have a direct support contact to
assist them. We have also discovered that the demand for training long after the

                                       9
<PAGE>

installation  is complete is increasing.  Now that a large number of dealerships
have been on our  system  for at least a year,  they are  needing  new  employee
training  due to turn  over in the  dealership.  Training  and our post  install
specialist  impact our cost of sales because the margins on those activities are
smaller than the margins on  installation.  As we expand our  operations we will
maintain a priority on customer service.  In light of costs associated with this
planned expansion and our continued focus on customer service,  we do not expect
our cost of sales as a  percentage  of sales  to  continue  to  decrease  in the
foreseeable future.

         Operating expenses, not including cost of sales, totaled $1,659,732 for
the six-month  period ended  September 30, 2004,  compared to $1,049,204 for the
same period in 2003.  Operating expenses,  not including cost of sales,  totaled
$827,753 for the  three-month  period  ended  September  30,  2004,  compared to
$546,702 for the same period in 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.   Almost   every  area  of  the  business  has  grown
significantly in the past year.

         Research  and  development  expense  nearly  doubled,  increasing  from
$271,502  for the six months ended  September  30, 2004 to $490,715 for the same
period in 2003.  For the three  months  ended  September  30, 2004  Research and
Development  more than doubled,  with expenses  growing from $141,164 in 2003 to
287,629  in 2004.  The  increases  are a result of  increased  head count of our
development  staff. In order for us to stay on top  technologically,  we need to
continue to increase  our  development  efforts.  We expect this  portion of our
business to grow not only to meet the demands of our  expanding  customer  base,
but also to achieve new product innovation.

         Marketing,  administrative  and sales expenses  increased from $777,702
for the six months ended  September  30, 2003 to $1,169,017  for the  six-months
ended September 30, 2004, and from $405,538 for the three months ended September
30, 2003 to $540,124 for the three months ended September 30, 2004. As mentioned
above, we have significantly  increased our sales capacity by opening offices in
California, Colorado and Massachusetts.  Each year, approximately 20% of the new
car  dealerships  are at the end of  their  contracts  with  their  current  DMS
provider  and are,  therefore,  able to move to a new DMS.  Even with the recent
increases  in sales  capacity,  we are only  able to reach a  fraction  of those
dealers.

         We had no interest  income during the six-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 September 30, 2004, we had cash and cash  equivalents of $172,732 as
compared to cash and cash equivalents of $361,954 as of March 31, 2004.

         In order to meet operating  costs during the six months ended September
30, 2004, we relied upon installation revenues and recurring revenues. We issued
282,500 shares of common stock  associated  with the  resignation and subsequent
option exercise by Jeff Swain, our former Vice President of Sales. Proceeds from
the issuance of Mr. Swain's stock was approximately  $150,000.  In addition,  we
issued  125,000  shares of stock sold to two  qualified  investors  at $0.40 per
share during the three-month ended June 30, 2004.

                                       10
<PAGE>

         We expect our revenues to continue to increase in the future. We expect
net  income to  increase  as well;  however,  due to costs  associated  with the
planned expansion  programs,  our profitability  (net of income tax benefits) is
not  expected  to grow at the same rate as revenue.  With  respect to our future
capital  needs,  our  recurring  revenues  and revenues  from new  installations
produce enough cash flow in order to cover our costs at historical  levels. As a
result of the planned  expansion  of our  installation  and product  development
programs,  however,  we may require capital in excess of that generated from our
ongoing  operations and may issue additional equity securities in order to raise
that capital. In addition,  we are currently working with a local bank to secure
a line of credit  which,  if  secured,  would  allow us to smooth  out cash flow
needs.  Unless and until we receive approval on a line of credit, we may need to
rely on  additional  equity  financing  to smooth out our cash flow.  We have no
commitments  from any parties to provide  additional  capital but, if additional
capital is required, we believe that we can rely on key shareholders,  customers
and others for additional equity financing.

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

--------------------------------------- --------------- ----------- -------------- ------------- -------------
       Contractual Obligations              Total       Less Than     1-3 years     4-5 Years      After 5
                                                          1 Year                                    Years
--------------------------------------- --------------- ----------- -------------- ------------- -------------
<S>                                            <C>          <C>            <C>                <C>           <C>
Operating Leases                               108,814      38,818         69,996             0             0
--------------------------------------- --------------- ----------- -------------- ------------- -------------
Capital Leases                                       0           0              0             0             0
--------------------------------------- --------------- ----------- -------------- ------------- -------------
Office Lease                                   174,160     131,120         43,040             0             0
--------------------------------------- =============== =========== ============== ============= =============
Total Contractual Obligations                $ 288,971   $ 169,938      $ 119,036           $ 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.
                                       11
<PAGE>


         o    Revenue  Recognition.  Revenues  from  continuing  operations  are
              generated from the following  activities:  software  maintenance &
              support,   consulting   services  and  product   installation  and
              training. Software maintenance and support are billed on a monthly
              basis,  and revenues are recognized in the month that services are
              rendered.  Consulting  services  revenue is recognized  and billed
              upon  completion of  customer-specified  tasks.  Installation  and
              training  services are stipulated and performed in accordance with
              a signed  contract  with the  customer.  These  contracts  require
              customers  to pay an  upfront  non-refundable  deposit,  which  is
              carried as a liability  called Deferred  Contract  Services on our
              books.  Revenue is recognized  throughout  the  performance of the
              contract on a percentage of completion  basis.  We currently  sell
              limited amounts of hardware to customers;  however, when we do, we
              recognize  the  revenue  for  hardware  sales  upon  delivery.

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

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

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

Cautionary Statement Regarding Forward-Looking Statements

         We consider all forward-looking  statements contained in this Quarterly
Report to be covered by and to qualify for the safe harbor  protection  provided
by Section 21E of the Securities Exchange Act of 1934, as amended.  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

                                       12
<PAGE>

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.

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

                                       13
<PAGE>

position  in the  market,  concerns  over our  ability  to  continue  as a going
concern,  concerns  about our  product and  related  services  or various  other
reasons.  If we are unable to  increase  our monthly  installations  of our ADMS
product  in the  future,  it is  unlikely  that we  will  be  able  to  maintain
profitability.

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

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

         Our ASP network is subject to 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.

                                       14
<PAGE>

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

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

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

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

We rely on our  intellectual  property  rights,  and if we are unable to protect
these  rights,  we may  face  increased  competition,  and our  business  may be
materially adversely affected.
--------------------------------------------------------------------------------
         We regard our  intellectual  property,  particularly  our ARKONA Dealer
Management Suite, as critical to our success, and we rely on copyright and trade
secret  protection to protect our proprietary  rights in intellectual  property.
Any of our  intellectual  property  rights  may be  challenged,  invalidated  or
circumvented,  or the rights granted  thereunder may not provide any competitive
advantage.  In  addition,  there  can  be no  assurance  that  others  will  not
independently  develop  substantially  equivalent  proprietary  information  and
techniques or otherwise gain access to our trade secrets and know-how.  We could
also  incur  substantial  costs  in  asserting  our  intellectual   property  or
proprietary rights against others, including any such rights obtained from third
parties. Although each of our employees and consultants is asked to enter into a
confidentiality  and invention  agreement,  there can be no assurance  that such
agreements  will be honored or that we will be able to protect  effectively  our
rights to trade secrets and know-how.

Third-party  claims that we infringe  upon their  intellectual  property  rights
could be costly to defend or settle.
--------------------------------------------------------------------------------
         Litigation  regarding  intellectual  property  rights  is common in the
software  industry.  We  expect  that  software  products  and  services  may be
increasingly  subject  to  third-party  infringement  claims  as the  number  of
competitors in our industry  segment grows and the  functionality of products in
different  industry  segments  overlaps.  We may  from  time to  time  encounter
disputes over rights and obligations  concerning  intellectual  property.  Third
parties  may bring  claims of  infringement  against us,  which may be with,  or
without, merit.
                                       15
<PAGE>

         We could be required,  as a result of an intellectual property dispute,
to do one or more of the following:

         o    cease  selling,  incorporating  or using products or services that
              rely upon the disputed intellectual property;

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

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

         o    pay monetary  damages to the holder of the  intellectual  property
              right.

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

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


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

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

         There  can also be no  assurance  that  research  and  development  and
discoveries  by others will not render some or all of our  products or potential
product  offerings  uncompetitive  or  obsolete.  We  compete  with a number  of
entities that are currently  developing  and  producing  software  products that
compete with our current and proposed  products.  Many of these competitors have
substantially greater capital resources,  research and development capabilities,
and production and marketing resources, capabilities and experience than we have
available to us. These  competitors may succeed in developing  products that are
more  effective  or less costly than any products  that we may develop,  or that
gain market acceptance prior to any of our products,  making market  penetration
more difficult for us.
                                       16
<PAGE>

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

Trading in our common  stock is thin,  and there is a limit to the  liquidity of
our common stock.
--------------------------------------------------------------------------------
         Our common  stock is quoted on the OTC  Bulletin  Board.  The volume of
trading  in  our  common  stock  is  limited  and  likely  dominated  by  a  few
individuals.  Because of the thinness of the market for our stock,  the price of
our common stock may increase or decrease  significantly as a result of a single
trade by a single 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  stockholders  have the
power to vote approximately 11% of our issued and outstanding common stock. As a
result,  these  stockholders  have  substantial  control over matters  requiring
approval by our stockholders,  such as the election of directors and approval of
significant corporate transactions. In addition, this concentration of ownership
may also have the effect of delaying or preventing a change in control.

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

         In addition,  the Delaware  General  Corporation Law prohibits  certain
mergers,  consolidations,  sales of assets  or  similar  transactions  between a
corporation on the one hand and another company which is, or is an affiliate of,
a beneficial holder of 15% or more of such  corporation's  voting power (defined
as an  "Interested  Stockholder")  for three years after the  acquisition of the
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.

                                       17
<PAGE>

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;
         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 stockholder approval. This issuance of such preferred stock would dilute
the ownership and voting power of the holders of our common stock and may have a
negative effect on the price of our common stock.

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

Our  common  stock is a  "low-priced  stock" and  subject to certain  regulatory
action that limits or restricts the market for such stock.
--------------------------------------------------------------------------------
         Shares of our common stock may be deemed to be "penny stock," resulting
in increased  risks to our investors and certain  requirements  being imposed on
some brokers who execute  transactions in our common stock. In general,  a penny
stock is an equity security that:
                                       18
<PAGE>

         o    Is priced under five dollars;
         o    Is not traded on a national stock  exchange,  the Nasdaq  National
              Market or the Nasdaq SmallCap Market;
         o    May be listed in the "pink sheets" or the OTC Bulletin Board; and
         o    Is issued by a company  that has less than $5  million  dollars in
              net  tangible  assets (if it has been in business  less than three
              years) or has less than $2 million  dollars in net tangible assets
              (if it has been in business  for at least three  years);  and
         o    Is issued by a company  that has average  revenues of less than $6
              million for the past three years.

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

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

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

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

                   o    bid and offer price quotes and volume information;

                   o    the broker-dealer's compensation for the trade;

                   o    the  compensation  received by certain  salespersons for
                        the trade;

                   o    monthly accounts statements; and

                   o    a  written   statement  of  the   customer's   financial
                        situation and investment goals.

         These requirements significantly add to the burden of the broker-dealer
and limit the market for penny  stocks.  These  regulatory  burdens may severely
affect the liquidity and market price for our common stock.

                                       19
<PAGE>

Item 3.       Controls and Procedures


         (a) Based on the evaluation of our "disclosure controls and procedures"
(as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e))
required by paragraph (b) of Rules 13a-15 or 15d-15, our Chief Executive Officer
and our Chief  Financial  Officer have concluded that, as of September 30, 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 6.   Exhibits

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



                                       20
<PAGE>




                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this report to be signed on its behalf on November
15, 2004 by the undersigned thereunto duly authorized.

                                ARKONA, Inc.

November 15, 2004               /s/ Alan Rudd
                                ----------------------------------------
                                Alan Rudd, Chief Executive Officer


November 15, 2004               /s/ Stephen Russo
                                ----------------------------------------
                                Stephen Russo, Chief Financial Officer




                                       21
<PAGE>



<TABLE>
<CAPTION>

                                  EXHIBIT INDEX


   Exhibit
    Number                       Title of Document                                  Location
---------------    ----------------------------------------------    ---------------------------------------
<C>                <C>                                               <C>
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>



                                       22