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

                                   FORM 10-QSB

(Mark One)

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

                                       OR

{ }  Transition report under Section 13 or 15(d) of the Securities  Exchange Act
     of 1934 for the transition period from _____________ to_____________

                         Commission File Number 0-24372

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


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

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

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

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

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

As of November 8, 2005, there were issued and outstanding  32,338,670  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-05      31-Mar-05
                                                 (Unaudited)     (Audited)
                                                ------------    ------------
 ASSETS

      Current Assets:
        Cash and cash equivalents               $    206,593    $    141,179
        Accounts receivable, net of allowance        702,709         481,518
        Prepaid expenses                              32,963           3,499
        Notes receivable                              79,796
                                                ------------    ------------
     Total Current Assets                          1,022,061         626,196
                                                ------------    ------------
     Property & Equipment, net of
        accumulated depreciation                     521,849         359,810
                                                ------------    ------------
     Other Assets:
        Deferred tax assets                        5,039,237       5,039,237
        Capitalized software costs, net of
             accumulated amortization              1,141,503       1,148,935
        Deposits                                     108,875         122,080
        Other intangible assets, net of
           accumulated amortization                  233,042         233,042
                                                ------------    ------------
     Total Other Assets                            6,522,657       6,543,294
                                                ------------    ------------
TOTAL ASSETS                                    $  8,066,567    $  7,529,300
                                                ============    ============

LIABILITIES & STOCKHOLDERS' EQUITY

     Current Liabilities:
        Accounts payable                        $     84,748    $    156,074
        Accrued liabilities                          246,843         238,450
        Deferred revenue                             177,245         200,326
        Current portion long-term debt                28,826
                                                ------------    ------------
     Total Current Liabilities                       537,662         594,850
                                                ------------    ------------

     Long-Term Debt                                  177,088          50,000
                                                ------------    ------------
     Total Liabilities                               714,750         644,850
                                                ------------    ------------
     Stockholders' Equity:
        Preferred stock ($.001 par value)                575             575
        Common stock ($.001 par value)                32,280          32,170
        Additional paid-in capital                23,423,422      23,394,632
        Unearned compensation                        (16,016)        (19,357)
        Accumulated deficit                      (16,088,444)    (16,523,570)
                                                ------------    ------------
     Total Stockholders' Equity                    7,351,817       6,884,450
                                                ------------    ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY      $  8,066,567    $  7,529,300
                                                ============    ============


See notes to condensed financial statements.

                                      -2-
<PAGE>

<TABLE>
<CAPTION>

                                  ARKONA, INC.

                      Condensed Statements of Operations

                                           Six Months Ended               Three Months Ended
                                     ----------------------------    ----------------------------
                                      30-Sep-05        30-Sep-04      30-Sep-05       30-Sep-04
                                     (Unaudited)      (Unaudited)    (Unaudited)     (Unaudited)
                                     ------------    ------------    ------------    ------------
<S>                                  <C>             <C>             <C>             <C>
Revenues                             $  5,261,504    $  3,175,621    $  2,732,305    $  1,541,022

Cost of Sales                           2,763,807       1,784,073       1,398,201         814,948
                                     ------------    ------------    ------------    ------------
Gross Profit                            2,497,697       1,391,548       1,334,104         726,074

Operating Expenses:
     Sales, marketing, general
      & administrative                  1,560,373       1,214,903         821,211         560,938
     Research and development             498,513         345,726         269,187         176,390
                                     ------------    ------------    ------------    ------------
    Total Operating Expenses            2,058,886       1,560,629       1,090,398         737,328
                                     ------------    ------------    ------------    ------------

Operating Income (Loss)                   438,811        (169,081)        243,706         (11,254)

Other Income (Expense)                     (3,685)         65,681          (1,984)         (3,592)
                                     ------------    ------------    ------------    ------------

Net Income (Loss) Before Taxes            435,126        (103,400)        241,722         (14,846)

Income Tax Benefit                      1,739,618         869,809
                                     ------------    ------------    ------------    ------------

Net Income                           $    435,126    $  1,636,218    $    241,722    $    854,963
                                     ============    ============    ============    ============

Basic Earnings per Common Share:
     Net Income                      $      0.014    $      0.051    $      0.007    $      0.027
     Average Number of Shares
        Outstanding                    32,201,185      31,953,332      32,231,652      31,993,332

Diluted Earnings per Common Share:
     Net Income                      $      0.011    $      0.046    $      0.006    $      0.024
     Average Number of Shares
        Outstanding                    39,017,673      35,331,866      39,212,465      35,515,866
</TABLE>
See notes to condensed financial statements.

                                      -3-
<PAGE>

                                  ARKONA, INC.

                       Condensed Statements of Cash Flows

                                                     Six Months Ended
                                                 30-Sep-05     30-Sep-04
                                               (Unaudited)   (Unaudited)
                                               -----------    -----------
Cash Flows Provided By (Used In) Operating
     Activities:
     Net income                                $   435,126    $ 1,636,218
     Adjustments to reconcile net income
         to net cash provided by (used in)
         operating activities:
         Depreciation and amortization             179,672        123,717
         Bad debt write offs                       (43,208)          --
         Stock compensation                          4,440           --
         Deferred income tax                                   (1,739,618)
         Changes in assets & liabilities:
              Accounts receivable                 (177,982)       113,525
              Prepaid expense                      (29,464)           191
              Notes receivable                     (79,796)          --
              Deposits                              13,205           --
              Accounts payable                     (71,326)      (126,522)
              Accrued liabilities                    8,393       (188,274)
              Deferred revenue                     (23,081)       (24,922)
                                               -----------    -----------
Net Cash Provided By (Used In) Operating
     Activities                                    215,979       (205,685)
                                               -----------    -----------
Cash Flows Used In Investing Activities:
     Additions to equipment                       (194,615)       (14,263)
     Software development costs                   (139,664)      (189,200)
                                               -----------    -----------
Net Cash Used In Investing Activities             (334,279)      (203,463)
                                               -----------    -----------
Cash Flows Provided By Financing Activities:
     Proceeds from issuance of common stock         27,800        153,250
     Proceeds from long-term debt                  155,914
                                               -----------    -----------
Net Cash Provided By Financing Activities          183,714        153,250
                                               -----------    -----------

Net Increase (Decrease)
   in Cash and Cash Equivalents                     65,414       (255,898)

Beginning Cash Balance                             141,179        361,955
                                               -----------    -----------
Ending Cash Balance                            $   206,593    $   106,057
                                               ===========    ===========

See notes to condensed financial statements.

                                      -4-
<PAGE>
                                  ARKONA, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

Note 1 - Basis of Presentation

ARKONA,  Inc. (the "Company") has prepared the accompanying  condensed financial
statements,  without  audit,  according  to the  applicable  regulations  of the
Securities and Exchange Commission. Certain information and disclosures normally
included in financial  statements prepared in accordance with generally accepted
accounting  principles have been condensed or omitted. The Company believes that
the following  disclosures  are adequate and not  misleading.  These  un-audited
condensed  financial  statements  reflect all  adjustments  (consisting  only of
normal recurring  adjustments) that, in management's  opinion,  are necessary to
present  fairly the financial  position and results of operations of the Company
for the periods  presented.  It is  suggested  that these  un-audited  condensed
financial statements should be read in conjunction with the financial statements
and the notes thereto included in Amendment No. 1 to the Company's Annual Report
on Form 10-KSB/A for the fiscal year ended March 31, 2005.

Note 2 - Concentration

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

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

Note 3 - Significant Accounting Policies

(a)  Income Taxes

The  Company  applies  the  provisions  of  Statement  of  Financial  Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS No. 109 requires
an asset and  liability  approach for  financial  accounting  and  reporting for
income taxes, and the recognition of deferred tax assets and liabilities for the
temporary differences between the financial reporting basis and tax basis of the
Company's assets and liabilities,  at enacted tax rates expected to be in effect
when such amounts are realized or settled.

(b)  Net Income Per Common Share

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

(c)  Cash & Cash Equivalents

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

                                      -5-
<PAGE>
(d) Use of Estimates in the Preparation of Financial Statements

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

(e)      Revenue Recognition

The Company  recognizes  revenue in accordance  with the SEC's Staff  Accounting
Bulletin (SAB) No. 104, Revenue Recognition." Following SAB No. 104, the Company
recognizes revenue when (i) persuasive  evidence of an arrangement  exists; (ii)
delivery has occurred or services have been  rendered;  (iii) the sales price is
fixed or determinable; and (iv) collectibility is reasonably assured. During the
course of business, the Company recognizes revenue for the following activities:
Technical   Support  &  Maintenance,   Hardware  Sales,   Consulting   Services,
Installation  and Training  Services,  and Software Sales.  Technical  support &
maintenance  includes  monthly  service charges for ongoing  technical  support,
automatic  software  upgrades,  data transfer,  data storage,  data backup,  bar
coding, and server maintenance.  These services are billed monthly as stipulated
in contracts with  customers and earned as the services are performed.  Hardware
Sales  include  the sales of standard  computer  systems  and  peripherals,  and
revenue  is  recognized  when  title  passes  upon  shipment  to  the  customer.
Installation of the hardware and/or  peripherals is not a required  component of
the purchase contract.  Consulting  Services include fees charged for additional
system training and programming.  The Company recognizes consulting service fees
under the percentage-of-completion  method over the period in which the services
are  provided.  Installation  and  Training  Services  include fees for software
licensing,  server file configuration,  on-site training,  software and hardware
installation,  forms  programming and data conversion.  Revenue is recognized in
accordance with the terms of each contract, on a percentage-of-completion basis.
Installation   and   Training   Service   contracts   require   the  payment  of
non-refundable  security  deposits.  These  deposits are deferred and recognized
over  the life of the  installation  and  training  service  contract,  which is
usually  less  than on  month.  Software  Sales  (where  software  is  hosted on
customers'  servers)  include  licensing  fees,  server  configuration,  initial
training, programming, and data conversion. Software sales revenue is recognized
when title passes upon installation of the software onto the customers' servers.

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

                                      -6-
<PAGE>

The Company  recognizes  revenue  related to the delivered  products or services
only if (i) the above revenue recognition criteria are met; (ii) any undelivered
products or services are not  essential to the  functionality  of the  delivered
products and services;  (iii) payment for the delivered  products or services is
not contingent upon delivery of the remaining services; and (iv) the Company has
an  enforceable  claim to  receive  the  amount  due in the event that we do not
deliver the undelivered products or services.

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

(f)  Software Costs

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

(h) Stock-Based Compensation

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

As of September  30, 2005,  there were  outstanding  a total of 6,032,500  stock
options  under the Plan and  2,349,092  stand-alone  stock  warrants to purchase
Company  common stock,  all of which have an exercise price of between $0.20 and
$0.65 per share. Stock options and warrants vest over a one to four year period.
There were 170,000 options and no warrants granted during the three months ended
September 30, 2005.

The Company has accounted for share-based payments to employees using Accounting
Principles  Board  ("APB")  Opinion  No.  25,  "Accounting  for Stock  Issued to
Employees"  and the intrinsic  value method and, as a result,  has not generally
recognized any  compensation  cost for employee  stock options.  On December 16,
2004, the Financial  Accounting Standards Board ("FASB") issued SFAS No. 123(R),
"Share-Based  Payments",  which requires all share-based  payments to employees,
including  grants of employee  stock  options,  to be  recognized  in the income
statement  based on their fair values.  For public  companies that file as small
business issuers, the reporting requirements under SFAS No. 123(R) are effective
in the first interim or annual  reporting  period that begins after December 15,
2005. The Company expects to elect the modified prospective method of accounting
and reporting for any future share-based payments.

                                      -7-
<PAGE>

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

         Net income                                           $  435,126

         Add:    stock-based employee
             compensation expense included
             in reported net income                                4,440

         Deduct:  total stock-based
             employee compensation expense
             determined under fair value
             based method for all awards                        (39,376)
                                                            -----------
         Pro forma restated net income                       $  400,190
                                                            ===========

         Basic earnings per share                            $    0.012

         Diluted earnings per share                          $    0.010

(i)  Advertising Costs

Advertising costs are charged to expense as incurred.

(j)      Reclassifications

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


Item 2.  Management's Discussion and Analysis

Overview

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

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

                                      -8-
<PAGE>

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

We believe that Arkona has reached a critical point in its development.  We have
established a strong sales  pipeline for our primary  product,  our ADMS system,
after a significant  investment in sales,  installation and technical  personnel
last  year.  We are  experiencing  accelerated  growth in our  revenues  and our
profitability from operations.  We believe,  however,  that our size relative to
our competitors and in comparison to other public  companies  continues to be an
impediment  to our efforts to expand  sales and to increase  the market value of
Arkona's common stock. We are considering  various options for  accelerating the
growth of Arkona and  increasing  interest in its common  stock.  These  options
include, without limitation, the following:

         o    We are continuing to lay the foundation for a possible move to the
              American Stock  Exchange or the Nasdaq  Capital  Market  (formerly
              known  as  the  Nasdaq  SmallCap  Market).   We  believe  that  an
              appropriately  timed move onto an exchange or Nasdaq  market would
              increase  institutional and other interest in the Company's common
              stock.

         o    We  are  in  discussions   with  investment   banks,   shareholder
              relationship  consultants  and other  experts  about  methods  for
              increasing shareholder value and various possible transactions.

         o    We are in discussions regarding possible acquisition transactions,
              licensing  transactions,   coordinated  roll-outs  to  significant
              customer  groups and other  transactions  designed  to  accelerate
              revenue growth.  All of these discussions are in early stages, and
              we  are   uncertain   whether  any  will  lead  to  a   definitive
              transaction.

         o    We are considering  adapting, or working on the adaptation of, our
              ADMS product for other vertical markets (in an ADMS or shrink-wrap
              version)  and  are  developing  and  evaluating   various  related
              products and services that we could offer to our current  customer
              base or a core customer base.

We are at various stages of decision making and  implementation  with respect to
these  initiatives.  We are  uncertain  as to when,  or whether,  we will make a
definitive  commitment with respect to any such initiative.  We caution that any
transaction  designed  to  accelerate  revenue  growth  and/or  increase  market
interest in Arkona common stock would include  associated costs and risks. These
costs would include  additional  expenses and diversion of human  resources from
our core  business.  The risks  would  include the risks that a  transaction  or
product  initiative  would not lead to  expected  revenue  growth or increase in
stock value,  that  associated  financial and  non-financial  costs would exceed
benefits  and/or that the election to move forward with one transaction or other
initiative would tie up key resources and, as a result,  preclude moving forward
with a different  transaction  or  initiative  that, in  retrospect,  seems more
attractive.

                                      -9-
<PAGE>

Results of Operations
<TABLE>
<CAPTION>
---------------- ---------------------------------------------  ------------------------------------------------
                       Three Months Ended September 30                 Six Months Ended September 30 (in
                                (in Thousands)                                    Thousands)
---------------- ---------------------------------------------  ------------------------------------------------
                                                    % Change                                          % Change
                   2005       2004       Change                    2005        2004        Change
---------------- ---------- ---------- ------------ ----------  ----------- ------------ ------------ ----------
<S>              <C>        <C>        <C>            <C>       <C>         <C>          <C>           <C>
Revenues         $2,732     $1,541     $ 1,191        77.3%     $ 5,262     $ 3,176      $ 2,086       65.7%
---------------- ---------- ---------- ------------ ----------  ----------- ------------ ------------ ----------
Gross Profit     $1,334     $  726     $   608        83.7%     $ 2,498     $ 1,392      $ 1,106        79.5%
---------------- ---------- ---------- ------------ ----------  ----------- ------------ ------------ ----------
% of Revenues      48.8%      47.1%         -           -         47.5%        43.8%         -            -
---------------- ---------- ---------- ------------ ----------  ----------- ------------ ------------ ----------
Operating
Expenses         $1,090     $  737     $   353        47.9%     $ 2,059     $ 1,561      $   498        31.9%
---------------- ---------- ---------- ------------ ----------  ----------- ------------ ------------ ----------
Operating
Income (Loss)    $  244     $  (11)    $   255      2265.5%     $   439     $  (169)     $   608       359.5%
---------------- ---------- ---------- ------------ ----------  ----------- ------------ ------------ ----------
% of Revenues      8.9%      (0.7%)         -           -          8.3%        (5.3%)        -            -
---------------- ---------- ---------- ------------ ----------  ----------- ------------ ------------ ----------
Net Income       $  242     $  855     $  (613)      (71.7%)    $   435     $ 1,636      $(1,201)      (73.4%)
---------------- ---------- ---------- ------------ ----------  ----------- ------------ ------------ ----------
Basic   EPS      $0.007     $0.027     $(0.020)      (74.1%)    $ 0.014     $ 0.051      $(0.037)      (72.5%)
---------------- ---------- ---------- ------------ ----------  ----------- ------------ ------------ ----------
Diluted EPS      $0.006     $0.024     $(0.018)      (75.0%)    $ 0.011     $ 0.046      $(0.035)      (76.1%)
---------------- ---------- ---------- ------------ ----------  ----------- ------------ ------------ ----------
</TABLE>

Total  revenues  increased  77.3% and 65.7% for the  three-month  and  six-month
periods  ended  September  30, 2005,  respectively,  compared  with 2004.  These
increases  are a result of  consistent  installation  sales growth and resultant
growth in recurring  monthly  support  revenues.  Monthly  support  revenues now
exceed 50% of the Company's total revenues each month.  These increases continue
to reflect the Company's  success in penetrating  the dealer  management  system
market controlled by ADP and Reynolds. The combination of our products' superior
features  and  capabilities,  the  ASP  model's  significant  cost  savings  and
efficiencies,   our  practice  of  not  locking  our  customers  into  long-term
contracts,  as well as, our  reputation  for providing  outstanding  service and
support contribute to the Company's revenue growth. We are adding  approximately
12 to  16  new  dealerships  each  month.  Our  monthly  support  revenues  grow
approximately 3% every month.

Revenues include one-time fees from the installation of and training on the ADMS
system,  on-going monthly support and maintenance  fees, sales of hardware,  and
miscellaneous  consulting  fees.  Installation and training  revenues  increased
$425,196 or 84.0% to $931,265 for the three months ended September 30, 2005. For
the six months ended  September  30, 2005,  installation  and training  revenues
increased  $591,806 or 45.4% to  $1,894,088.  Monthly  support  and  maintenance
revenues  increased  $437,182 or 46.0% to $1,387,722  for the three months ended
September 30, 2005. For the six months ended September 30, 2004, monthly support
and maintenance  revenues  increased  $832,869 or 46.3% to $2,633,522.  Hardware
revenues  increased  1,080.7%  and 1,105.9% for the  three-month  and  six-month
periods ended September 30, 2005 over 2004.

Gross profit  increased 83.7% to $1,334,104 for the three months ended September
30, 2005. For the six months, gross profit increased 79.5% to $2,497,697.  These
increases  result from the  increases  in monthly  support  charges and the more
efficient utilization of client service representatives.

                                      -10-
<PAGE>

Operating expenses increased 47.9% for the three months ended September 30, 2005
but only increased  31.9% for the six months ended  September 30, 2005.  Overall
increases  are  attributable  primarily  to  increases  in sales  and  marketing
efforts,  the  impact of  additional  operating  costs  associated  with the new
offices,  and  increased  research and  development  costs  associated  with the
continued development of new products and enhancements.

Included in net income for the three-month and six-month periods ended September
30, 2004 is the recognition of an income tax benefit of $869,809 and $1,739,618,
respectively,  recorded to account for the future  benefit from previous  years'
net operating losses.

Liquidity and Capital Resources

Our  liquidity  position has greatly  improved.  As of September 30, 2005 we had
working  capital of $484,399  compared to $31,346 as of March 31, 2005. Cash and
cash equivalents  totaled $206,593 as of September 30 compared to $141,179 as of
March 31.  Accounts  receivable,  net of  allowance  for bad  accounts,  totaled
$702,709  as of  September  30  compared  to  $481,518  as of March 31.  Current
liabilities totaled $537,662 as of September 30 compared to $594,850 as of March
31.

The  Company  moved  into  its new  offices  in  August  2005.  In  order to add
additional office cubicles to meet expanding growth,  the Company entered into a
five-year capital lease arrangement with an equipment financing company totaling
$158,227. In addition, the Company continues to carry a long-term obligation for
$50,000,  payable to a related  party,  on which the Company only makes  monthly
interest payments at a 12% annual rate.

In order to meet operating costs during the  three-month  and six-month  periods
ended  September 30, 2005, we relied upon cash provided from  operations.  There
were no significant funds received from the sale of equity securities. We expect
our  revenues to  continue  to  increase in the future.  We expect net income to
increase  as well;  however,  due to costs  associated  with  planned  expansion
programs, our profitability (net of income tax benefits) is not expected to grow
at the same rate as revenue. With respect to our future capital needs, we expect
our recurring  revenues and revenues from new  installations to produce adequate
cash flow to meet our costs.

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

The  following  table  discloses  aggregate  information  about our  contractual
obligations  including  office,  capital and  operating  lease  payments and the
long-term  note  payable,  and  the  periods  in  which  payments  are due as of
September 30, 2005:

                                      -11-
<PAGE>
<TABLE>
<CAPTION>
                                         Less Than
                                Total         1 Year      1-3 years      4-5 Years     After 5
                         ------------- ------------- -------------- ------------- -------------
<S>                        <C>           <C>           <C>            <C>
Office Lease               $2,379,769    $ 468,593     $1,480,761     $ 430,415         --
------------------------ ------------- ------------- -------------- ------------- -------------
Operating Leases              168,615      126,691         41,924          --           --
------------------------ ------------- ------------- -------------- ------------- -------------
Capital Lease                 155,914       28,826        100,121        26,967         --
------------------------ ------------- ------------- -------------- ------------- -------------
Long-term Note Payable         50,000         --             --            --       $  50,000
------------------------ ============= ============= ============== ============= =============
Total                      $2,754,298    $ 624,110     $1,622,806     $ 457,382     $  50,000
</TABLE>
Critical Accounting Policies and Estimates

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

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

o    Revenue  Recognition - Revenues from  continuing  operations  are generated
     from the following  activities:  technical support & maintenance,  hardware
     sales,  consulting  services,   installation  and  training  services,  and
     software sales. The Company recognizes  revenue, in accordance with SAB No.
     104, when (i) persuasive  evidence of an arrangement  exists; (ii) delivery
     has occurred or services have been rendered; (iii) the sales price is fixed
     or  determinable;  (iv)  collectibility  is reasonably  assured.  Technical
     support  &  maintenance  services  are  billed  monthly  as  stipulated  in
     contracts with customers and earned as the services are rendered.  Hardware
     sales are  recognized  when title  passes upon  shipment  to the  customer.
     Consulting     services     revenue     is     recognized     under     the
     percentage-of-completion  method over the period in which the  services are
     provided.  Installation and training  services are stipulated and performed
     in accordance  with a signed  contract with the customer.  These  contracts
     require  customers  to pay an  upfront  non-refundable  deposit,  which  is
     carried as a liability on our books.  Revenue is recognized  throughout the
     performance of the contract on a  percentage-of-completion  basis. Software
     sales  revenue  (where  software  is  hosted  on  customers'   servers)  is
     recognized  when title passes upon  installation  of the software  onto the
     customers' servers.

     In  certain  cases,  the  Company  has  multiple  agreements  with the same
     customer under the Company's ASP  agreements.  In those cases,  the Company
     determines  whether  or  not  the  fees  qualify  for  separate  accounting
     treatment  as  required  by SAB No.  104 and  EITF  No.  00-21.  Additional
     information with respect to our revenue  recognition policy is set forth in
     subpart (e) of Note 3 to the financial statements included in this Report.

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

                                      -12-
<PAGE>

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

o    Capitalization  of  Software  Costs  -  Costs  incurred  to  establish  the
     technological  feasibility  of  software  products  to be sold,  leased  or
     otherwise   marketed  are  expensed  as  research  and  development.   Once
     technological   feasibility  is  established,   costs  are  capitalized  in
     accordance  with SFAS No. 86 until the  product is  available  for  general
     release to customers. Capitalized costs, which consist primarily of payroll
     and benefits of both employees and outside contractors, have been amortized
     on a  product-by-product  basis  using the  straight-line  method  over the
     established economic life of the products (determined to be five years). In
     addition, with the issuance of SFAS No. 142, capitalized software costs are
     tested for  impairment  each period and, if impairment is  determined,  the
     amount of impairment is written off in that period.

Cautionary Statement Regarding Forward-Looking Statements

We consider all forward-looking statements contained in this Quarterly Report to
be covered by and to qualify for the safe harbor protection  provided by Section
21E of the  Securities  Exchange  Act of  1934,  as  amended.  Stockholders  and
prospective  stockholders  should understand that several factors govern whether
the results  described by any such  forward-looking  statement will be or can be
achieved.  Any one of  those  factors  could  cause  actual  results  to  differ
materially from those projected in this report.

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

Factors That May Affect Future Results

Our short and long-term  success is subject to certain risks,  many of which are
substantial in nature. You should consider carefully the following risk factors,
in addition to other  information  contained  in this report as you evaluate the
Company and its business. Any one of these factors could cause actual results of
our operations to differ materially from projected results.

We may not continue to experience net income in the future
--------------------------------------------------------------------------------
We have  experienced  net losses in prior  periods.  Any projection of continued
profitability  assumes that we will  continue to add new customers at a constant

                                      -13-
<PAGE>

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,
pursue our expansion plan 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 continue to increase the number of customers  using our ADMS
product or other future offerings
--------------------------------------------------------------------------------
Our  ARKONA  Dealer  Management  Suite  product  is  relatively  new  and we are
operating in a market where two  competitors  (ADP and Reynolds)  control 71% of
the market and have a significant  advantage relative to market acceptance.  Any
projections or  expectations  regarding the number of customers that will accept
installation  of our ADMS  product  is subject  to the risk that  end-users  may
determine not to purchase our ADMS product at the rate projected  because of our
insignificant position in the market, concerns over our ability to continue as a
going concern,  concerns about our product and related services or various other
reasons.  If we are unable to  increase  our monthly  installations  of our ADMS
product  in the  future,  it is  unlikely  that we  will  be  able  to  maintain
profitability.

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

Our services are subject to system failure and security risks
--------------------------------------------------------------------------------
Our operations,  particularly our ASP product, are dependent upon our ability to
protect our network infrastructure  against damage from natural disasters,  such
as fire,  earthquakes  and  floods,  as well as power  loss,  telecommunications
failures  and  similar  events.  All  of our  network  and  computer  equipment,
including components critical to our operations, are currently concentrated in a


                                      -14-
<PAGE>

single  co-location  facility  provided  by MCI.  Notwithstanding  precautionary
measures  that we and our  co-location  host have  taken,  the  occurrence  of a
natural  disaster or other  unanticipated  system or power  failure  could cause
interruptions  in  the  services  we  provide.  In  addition,   failure  of  our
telecommunications  providers  to provide  the data  communications  capacity we
require as a result of natural disasters, bankruptcy, operational disruptions or
for any other reason could cause  interruptions in the services we provide.  Any
damage or failure  that  causes  interruptions  in our  operations  could have a
material  adverse  effect on our  business,  financial  condition and results of
operations.

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

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

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

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

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

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

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

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

We rely on our  intellectual  property  rights,  and if we are unable to protect
these  rights,  we may  face  increased  competition,  and our  business  may be
materially adversely affected
--------------------------------------------------------------------------------
We regard our intellectual  property,  particularly our ADMS, as critical to our
success,  and we rely on copyright  and trade secret  protection  to protect our
proprietary rights in intellectual  property.  Any of our intellectual  property


                                      -15-
<PAGE>

rights may be  challenged,  invalidated or  circumvented,  or the rights granted
there under may not provide any competitive advantage. In addition, there can be
no assurance that others will not independently develop substantially equivalent
proprietary  information  and  techniques or otherwise  gain access to our trade
secrets and  know-how.  We could also incur  substantial  costs in asserting our
intellectual  property or proprietary rights against others,  including any such
rights  obtained  from  third  parties.  Although  each  of  our  employees  and
consultants is asked to enter into a  confidentiality  and invention  agreement,
there can be no assurance that such  agreements  will be honored or that we will
be able to protect effectively our rights to trade secrets and know-how.

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

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

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

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

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

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

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

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

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

                                      -16-
<PAGE>

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

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

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

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

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

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  40% 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


                                      -17-
<PAGE>

deterring any takeover of the Company that is not preceded by board  approval of
the proposed  transaction.  The  existence of such  stockholder  rights plan may
deter potential tender offers for our common stock or other  acquisition  offers
and may have the effect of delaying or preventing a change of control.

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

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

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

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

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

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

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

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

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

o    Developments in the automobile or automobile dealership industry; and

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

                                      -18-
<PAGE>

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

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

Item 3.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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, 2005,  our
disclosure  controls and procedures were effective in ensuring that  information
required  to be  disclosed  by the  Company in reports  that it files  under the
Exchange Act is recorded,  processed,  summarized  and reported  within the time
periods required by governing rules and forms.

Changes in Internal Controls Over Financial Reporting

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.  With the
participation  of  its  principal  executive  officer  and  principal  financial
officer,  management of the Company has, as required by Rule 13a-15(d) under the
Exchange Act,  determined  that there were no changes  during the fiscal quarter
ended September 30, 2005 in its internal  control over financial  reporting that
would materially  affect, or would reasonably likely to materially  affect,  its
internal control over financial reporting.


                           PART II. OTHER INFORMATION


Item 6.  Exhibits

See the Exhibit Index following the signature page hereof.


                                      -19-
<PAGE>





                                   SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant has duly
caused  this  report to be signed on its  behalf  on  November  14,  2005 by the
undersigned, thereunto duly authorized.

                                   ARKONA, Inc.

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


November 14, 2005                    /s/ Leland H. Boardman
                                   ---------------------------------------
                   Leland H. Boardman, Chief Financial Officer




                                      -20-
<PAGE>



                                    EXHIBIT INDEX


   Exhibit
    Number                  Title of Document                      Location
------------  ----------------------------------------------    ----------------
31.1          Section 302 Certification of Chief Executive      Filed herewith
              Officer

31.2          Section 302 Certification of Chief Financial      Filed herewith
              Officer

32.1          Section 906 Certification of Chief Executive      Filed herewith
              Officer

32.2          Section 906 Certification of Chief Financial      Filed herewith
              Officer




                                      -21-


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