digitaljun06amd


DIGITAL NETWORK ALLIANCE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS



		*30-Jun-06*	*31-Dec-05*
		*(Unaudited)*	*Audited*

		*USD*	*USD*
ASSETS
Current assets
	Cash and cash equivalents	$ 134,241	$ 50,738
	Trade accounts receivable	78,934	135,713
	Prepaid expenses and other assets	56,730	49,702
Total current assets		269,905	236,153
	Plant and equipment, net	35,377	36,047
Total assets		$ 305,282	$ 272,200

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
	Trade accounts payable	$ 440,853	$ 514,972
	Accrued expenses	9,542	18,646
	Deposits	54,051	74,353
	Deferred revenue	10,417	22,917
	Loan from director	233,818	0
	Current portion of long-term debt	613	2,900
Total current liabilities		749,294	633,788


Stockholders' deficit
	Common stock - Par value $.001; authorized 200,000,000
	shares authorized, 11,100,000 shares
	issued and outstanding	11,100	11,100
	Additional paid in capital	2,282,140	2,282,140
	Retained deficit	(2,740,229)	(2,657,954)
	Accumulated other comprehensive income	2,977	3,126

Total stockholders' deficit		(444,012)	(361,588)

Total liabilities and stockholders' deficit		$ 305,282	$ 272,200

See the accompanying notes to the unaudited consolidated financial statements

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DIGITAL NETWORK ALLIANCE INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)

		*Three months ended June 30,*
		*2006*	*2005*
		*(Unaudited)*	*(Unaudited)*

		*USD*	*USD*

Sales revenues		$ 276,051	$ 427,278

Cost of goods sold		205,967	408,276

Gross profit		70,084	19,002

General and administrative expenses		114,518	140,124

Net operating loss		(44,434)	(121,122)

Other income
	Interest expense	(120)	(120)
	Other	2,289	10,006
Total other income		2,169	9,886

Net loss before income tax and minority interest		(42,265)	(111,236)

Taxes		-	-

Net loss before minority interest		(42,265)	(111,236)

Minority interest in subsidiary loss		0	0

Net Loss		$ (42,265)	$ (111,236)

Foreign currency translation adjustment		(70)	0

Comprehensive loss		$ (42,335)	$ (111,236)

Net loss per common share		$ (0.00381)	$ (0.01002)

Weighted average common stock outstanding		11,100,000	11,100,000

See the accompanying notes to the unaudited consolidated financial statements

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DIGITAL NETWORK ALLIANCE INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)

		*Six months ended June 30,*
		*2006*	*2005*
		*(Unaudited)*	*(Unaudited)*

		*USD*	*USD*

Sales revenues		$ 581,807	$ 1,031,732

Cost of goods sold		453,450	954,822

Gross profit		128,357	76,910

General and administrative expenses		213,988	285,404

Net operating loss		(85,631)	(208,494)

Other income
	Interest expense	(241)	(241)
	Other	3,597	14,728
Total other income		3,356	14,487

Net loss before income tax and minority interest		(82,275)	(194,007)

Taxes		-	-

Net loss before minority interest		(82,275)	(194,007)

Minority interest in subsidiary loss		0	0

Net Loss		$ (82,275)	$ (194,007)

Foreign currency translation adjustment		(149)	0

Comprehensive loss		$ (82,424)	$ (194,007)

Net loss per common share		$ (0.00741)	$ (0.01748)

Weighted average common stock outstanding		11,100,000	11,100,000

See the accompanying notes to the unaudited consolidated financial statements

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DIGITAL NETWORK ALLIANCE INTERNATIONAL. INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)

			*Six months ended June 30,*
			*2006*	*2005*
			*(Unaudited)*	*(Unaudited)*
			*USD*	*USD*
Operating activities:

Net loss			$ (82,275)	$ (82,771)
Adjustments to reconcile net loss to net cash used
in operating activities:
	Depreciation, depletion and amortization		13,029	4,110
	Change in operating assets and liabilities
		Trade accounts receivable	56,779	(773,684)
		Prepaid expenses and other assets	(7,028)	66,517
		Stock subscription receivables	0	100,000
		Installation in progress	0	(350,000)
		Trade accounts payable	(74,119)	510,456
		Accrued expenses	(9,104)	(38,763)
		Deposits	(20,302)	8,555
		Deferred revenue	(12,500)	500,000
Net cash used in operating activities			(135,669)	(55,580)

Investing activities:
Capital expenditures, including:
	Purchase of plant and equipment, net		(12,359)	(1,619)
Net cash used in investing activities			(12,359)	(1,619)

Financing activities:
Proceeds from loans from director			233,818	11,779
Repayment of long-term debt			(2,287)	(1,143)
Net cash provided by financing activities			231,531	10,636

Effect of rate changes on cash			0	0

Net change in cash and cash equivalents			83,503	(46,563)

Cash and cash equivalents, beginning of period			50,738	71,343

Cash and cash equivalent, end of period			$ 134,241	$ 24,780
Cash paid for interest			$ 241	$ 241
Cash paid for income taxes			$ 0	$ 0

See the accompanying notes to the unaudited consolidated financial statements

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DIGITAL NETWORK ALLIANCE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NATURE OF OPERATIONS

Digital Network Alliance International, Inc. (the Company) was incorporated on August 20, 1997 in the State of Delaware as Sheffield Products, Inc. On August 13, 2004 the Company acquired all of the outstanding stock of Digital Network Alliance Holdings (BVI) Inc., a British Virgin Islands Corporation (Digital BVI) in exchange for stock of the Company. On November 30, 2004 the Company changed its name to Digital Network Alliance International, Inc. The consolidated results of operations are primarily those of Digital BVI and its consolidated subsidiaries.

The principal activities of the consolidated company are that of provision of voice termination, satellite and broadband Internet services throughout the Asia Pacific region, including Hong Kong, Singapore, Indonesia, Bangladesh, Pakistan and Mongolia.

BASIS OF PRESENTATION

The accompanying consolidated financial statements include those of the Company and its wholly owned subsidiaries; Digital BVI, Digital Network Alliance (S) Pte. Ltd. (“Digital S”), and Digital Network Alliance (HK) Limited (“Digital HK”), as well as its 70% owned subsidiary DNA Financial Systems Inc. BVI (“Financial BVI”). The accounts of Financial BVI include its 100% owned subsidiary DNA Financial Systems (HK), Limited (“Financial HK”). Digital BVI incorporated in British Virgin Islands on June 4, 2004, Digital S incorporated in the Republic of Singapore on October 19, 2001, and Digital HK incorporated in Hong Kong on November 12, 2001. Financial BVI incorporated in British Virgin Islands on March 15, 2005 for the purpose of holding Financial HK, which incorporated in Hong Kong on April 1, 2005.

The accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP). This basis differs from that used in the statutory accounts of the Company, which were prepared in accordance with the accounting principles and relevant financial regulations applicable to enterprises in Singapore and Hong Kong. All necessary intercompany transactions and balances have been eliminated in consolidation, and all necessary adjustments have been made to present the consolidated financial statements in accordance with US GAAP.

Quarterly Financial Statements

The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-QSB but do not include all of the information and footnotes required by generally accepted accounting principles and should, therefore, be read in conjunction with the Company’s 2005 financial statements in Form 10-KSB. These statements do include all normal recurring adjustments which the Company believes necessary for a fair presentation of the statements. The interim operating results are not necessarily indicative of the results for a full year.

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DIGITAL NETWORK ALLIANCE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Economic and Political Risks

The Company faces a number of risks and challenges as a result of having primary operations and markets in the PRC. Changing political climates in the PRC could have a significant effect on the Company’s business.

Cash and Cash Equivalents

For purposes of the statements of cash flows, cash and cash equivalents includes cash on hand and demand deposits held by banks. None of the Company’s deposits are insured by the Federal Deposit Insurance Corporation or any other entity of the U.S. government.

Trade Accounts Receivable

Trade accounts receivable are recognized and carried at original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful accounts is made when collection of the full amount becomes questionable. At June 30, 2006 the allowance for doubtful accounts totaled $102,875.

Prepaid Expenses

Prepaid expenses consist primarily of prepayments made to contractors for circuits and services not yet received by the Company.

Plant and Equipment

Property, plant and equipment is carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the useful lives of the assets. Major renewals and betterments are capitalized and depreciated; maintenance and repairs that do not extend the life of the respective assets are charged to expense as incurred. Upon disposal of assets, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in income. Depreciation related to property and equipment used in production is reported in cost of sales. Property and equipment are depreciated over their estimated useful lives as follows:

Computer equipment

2 years

Office equipment

4 years

Network equipment

3 years

Furniture & fixtures

4 years

Long-term assets of the Company are reviewed annually to assess whether the carrying value has become impaired, according to the guidelines established in Statement of Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The Company also evaluates the periods of depreciation to determine whether subsequent events and circumstances warrant revised estimates of useful lives. No impairment of assets was recorded in the periods reported.

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DIGITAL NETWORK ALLIANCE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Deposits

The Company commonly receives payments of deposit in advance for circuits and voice termination services to be provided to customers. Those deposits are recognized into income in accordance with the Company’s revenue recognition policy, as stated below.

Revenue Recognition

Revenue from provision of voice termination, satellite and broadband Internet services is recognized as earned when customers are invoiced for monthly services they have received in accordance with the service contracts. At that time the Company considers the earnings process to be complete and collectibility to be reasonably assured.

Advertising Expenses

Advertising costs will be expensed when and if incurred. The Company has incurred no advertising expenses to date.

Related Party Transactions

The captions “Loan from Directors” represent loans payable that are unsecured, non-interest bearing and have no fixed terms of repayment and are therefore deemed payable on demand.

Loan from Directors

Loan from Directors consist of the following:

June 30,

2006

Terence Yap Wing Khai

$233,818

Retirement Benefits

The Company has a defined contribution benefit plan. The Company’s contributions are discretionary. For the period ended June 30, 2006, the contribution made by Digital Network Alliance amounted to $3,740.

Foreign Currency and Comprehensive Income

The accompanying consolidated financial statements are presented in United States (US) dollars. The functional currency is the Singapore dollar (S$) and Hong Kong dollar (HK$). The consolidated financial statements are translated into US dollars from S$ and HK$ at year-end exchange rates for assets and liabilities, and weighted average exchange rates for revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

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DIGITAL NETWORK ALLIANCE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statement of operations in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.

Estimates

The preparation of consolidated 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 and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

Loss Per Share

Basic loss per common share ("LPS") is calculated by dividing net loss by the weighted average number of common shares outstanding during the year. Diluted earnings per common share are calculated by adjusting the weighted average outstanding shares, assuming conversion of all potentially dilutive securities, such as stock options and warrants.

The Company had no potentially dilutive securities outstanding at June 30, 2006.

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

DISCLAIMER REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this report, including statements in the following discussion, are what are known as “forward-looking statements,” which are basically statements about the future. For that reason, these statements involve risk and uncertainty since no one can accurately predict the future. Words such as “plans,” “intends,” “hopes,” “seeks,” “anticipates,” “expects,” and the like, often identify such forward-looking statements, but are not the only indication that a statement is a forward-looking statement. Such forward-looking statements include statements concerning our plans and objectives with respect to the present and future operations of the Company, and statements which express or imply that such present and future operations will or may produce revenues, income or profits. Numerous factors and future events could cause the Company to change such plans and objectives, or fail to successfully implement such plans or achieve such objectives, or cause such present and future operations to fail to produce revenues, income or profits. We caution you not to place undue reliance on these forward-looking statements. Although we base these forward-looking statements on our expectations, assumptions, and projections about future events, actual events and results may differ materially, and our expectations, assumptions, and projections may prove to be inaccurate. The forward-looking statements speak only as of the date hereof, and we expressly disclaim any obligation to publicly release the results of any revisions to these forward-looking statements to reflect events or circumstances after the date of this filing.

OVERVIEW

Our overall objective is to build a comprehensive telecommunications network which delivers cost-effective services to our customers within the Asia Pacific region, and beyond. This is a long-term objective, involving many elements, and there is no assurance that it can be achieved. Our ability to do so will be dependent upon a number of factors including, but not limited to, our ability to achieve and maintain strategic partnerships and alliances with various local partners and suppliers, our ability to achieve and maintain consistently profitable operations and the availability of necessary working capital.

Our plan of operations for 2006 includes maintenance of our existing operations, and to the extent possible, expansion and improvement of our existing operations as well as commencement of new operations. The extent to which we will be able to expand and improve existing operations and commence new operations will be dependent to a large extent on the availability of working capital either from our pending stock offering, or from other sources. Since there is no assurance that the offering will be successful, or that working capital will be available to us from other sources, there is also no assurance regarding the extent to which we will be able to expand our current operations or commence new operations.

The Company does not directly carry on any business activities. All of our business operations are carried on through three operating subsidiaries. The operating subsidiaries are Digital Network Alliance (S) Pte Ltd., a Singapore corporation (“DNA Singapore”), Digital Network Alliance (HK) Ltd., a Hong Kong corporation (“DNA Hong Kong”), and DNA Financial Systems (HK) Ltd., a Hong Kong corporation (“DNA Financial”). DNA Financial provides real-time online financial data solutions in Hong Kong. DNA Singapore and DNA Hong Kong

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perform identical business activities of providing satellite Internet connections to customers in the Asia Pacific Region, and providing managed broadband services to commercial office buildings and apartment buildings in Hong Kong and Singapore. DNA Singapore manages business activities in Singapore and Indonesia. DNA Honk Kong conducts and manages the business activities in Honk Kong, Mongolia, Bangladesh and Pakistan.

The following discussion concerning the results of operations, liquidity and capital resources of Digital Network Alliance International, Inc. (the “Company”), is based solely upon the business operations that are carried on by the Company’s operating subsidiaries for the six-month interim period ended June 30, 2006. However, DNA Financial was incorporated in Hong Kong on April 1, 2005, and revenues received to date from its operations have not been significant. Therefore, the results of operations of DNA Financial are not included in the following discussion regarding our Results of Operations.

RESULTS OF OPERATIONS

Net sales for period ended June 30, 2006 and June 30, 2005 were $581,807 and $1,031,732 respectively. This decrease of $449,925 or approximately 44% was the result of managed network services and network build out and system integration in 2005, for which there was no such income in 2006. We have terminated service to our customers in Pakistan due to non-payment from December 2005 onward. The amount contributed by Pakistan customers amounted to USD $168,000, or approximately 16% of the net sales for the period ended June 30, 2005.

Cost of goods sold for the month ended June 30, 2006 was $453,450 compared to $954,822 in the same period of 2005. The decrease of $501,372 or 53% was due to the fact that there were no costs incurred in the setting up of managed network services in Indonesia in 2006.

Gross profit increased by $51,447 to $128,357 from $76,910 for the six months ended June 30, 2006 and June 30, 2005 respectively. The gross margin percentage has shown an increase of 14.5% from June 30, 2006 to June 30, 2005. The increase in gross margin reflects the well controlled cost in satellite business and the increased profit margin in the broadband business in Hong Kong and Singapore. It also reflects the higher gross profit margin for the satellite business after switching to the new vendor, Sinosat (HK) Limited.

General and administration expenses for the period ended June 30, 2006 totaled $213,988 compared to $285,404 in the same period ended 2005. The decrease of $71,416 or 25% was primarily due to: (i) entertainment, decreased by $5,000; (ii) professional fees, incurred in the course of public reporting, dropped by $48,145; (iii) overseas traveling and hotel & accommodation, incurred for the U.S. trip in March 2005, decreased by $18,271.

Net loss before tax for the periods ended June 30, 2006 and June 30, 2005 were $(82,275) and $(194,007) respectively. The decrease of $111,732 or 58% was mainly due to the increase in the gross profit margin and the decrease in general and administrative expenses as explained above.

LIQUIDITY AND CAPITAL RESOURCES

For the period ended June 30, 2006, the Company balance sheet reflects current assets of $269,905, total assets of $305,282 total current liabilities of $749,294 and shareholder’s equity of $(444,012). As of December 31, 2005, the Company’s balance sheet reflects current assets of

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$236,153 total assets of $272,200, total current liabilities of $633,788 and shareholder’s equity of $(361,588). The slightly decrease in liquidity from 0.37 to 0.36 was the result of our net loss with an increase in director’s loan financing.

We will continue to rely upon prepayment deposits and monthly service fees from our customers as the primary source of cash. Although there is no guarantee, we anticipate that our current cash and cash equivalents will be sufficient to fund our operations for at least 12 months. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary

ITEM 3.

CONTROLS AND PROCEDURES

The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean a company's controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq .) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC's rules and forms and that information required to be disclosed is accumulated and communicated to principal executive and principal financial officers to allow timely decisions regarding disclosure.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our chief executive officer and principal accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our chief executive officer and principal accounting officer concluded that our disclosure controls and procedures are designed to provide reasonable assurance of achieving the objectives of timely alerting them to material information required to be included in our periodic SEC reports and of ensuring that such information is recorded, processed, summarized and reported with the time periods specified. Our chief executive office and principal accounting officer also concluded that our disclosure controls and procedures were effective as of June 30, 2006 to provide reasonable assurance of the achievement of these objectives.

There was no change in the Company's internal control over financial reporting during the quarter ended June 30, 2006, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

After completing our evaluation, we received comments from the SEC staff in relation to our Registration Statement on Form SB-2. After considering the staff’s comments, our management concluded that we needed to restate certain of our financial statements to correct an error regarding revenue recognition . Such restatement is described in more detail in Note 4 to our Financial Statements included in our Annual Report on Form 10-KSB/A for the year ended December 31, 200 5 . Based on the foregoing, our principal executive officer and principal financial officer reviewed and reevaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded processed, summarized and reported within the time periods specified by the SEC. Based on our re-evaluation of our disclosure controls and procedures, the Company’s principal executive officer and principal financial officer have now concluded that a material weakness existed in the Company’s internal control over financial reporting and that the controls and procedures were ineffective as of the end of the period ended June 30, 2006 . The material weakness in internal control over financial reporting related to a lack of knowledge of United States GAAP procedures on the part of the Company. The Company CFO plans to seek specific training in the area of revenue recognition in order to remedy this weakness.

PART II - OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

None.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5.

OTHER INFORMATION

None

ITEM 6.

EXHIBITS

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The following exhibits are filed herewith:

3.1

Articles of Incorporation (herein incorporated by reference from Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on September 12, 2002).

3.2

Bylaws (herein incorporated by reference from Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on September 12, 2002).

31.1

Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

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

DIGITAL NETWORK ALLIANCE INTERNATIONAL, INC.

/s/ Terence Yap, Director

Date: December 28 , 2006

/s/ Eppie Wong, Chief Financial Officer and Director

Date: December 28 , 2006

/s/ Edward Chan, Chief Operations Officer , Chief Executive Officer and Director

Date: December 28 , 2006

/s/ Michael Yap, Director

Date: December 28 , 2006

/s/ Leslie Ter Chiew Kim, Director

Date: December 28 , 2006

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Delaware	0-50002	52-2175896
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

Room 1301, 13/F., Jubilee Centre 18 Fenwick Street Wanchai, Hong Kong
(Address of Principal Executive Office)


	Page

Consolidated balance sheets	6

Consolidated statements of operations	7

Consolidated statements of cash flows	9

Notes to unaudited consolidated financial statements	10

Management’s Discussion and Analysis	14