Kma Global Solutions International 10QSB Quarterly report (small business)

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 July 31, 2006.

[  ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _____________ to _____________

Commission file number: 0-50046

KMA GLOBAL SOLUTIONS INTERNATIONAL, INC.

(Exact name of small business issuer as specified in its charter)

NEVADA	88-0433489
(State or other jurisdiction of incorporation)	(IRS Employer Identification No.)

5570A Kennedy Road Mississauga, Ontario, Canada

(Address of principal executive offices)

(905) 568-5220

Issuer’s telephone number

(Former name, former address and former fiscal quarter, if changed since last report)

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 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 [  ]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [  ] No [  ]

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date 41,890,911 Shares of Common Stock (no par value).

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

INDEX TO FORM 10-QSB

July 31, 2006

	Page Number
Part I -Financial Information
Item 1. Financial Statements:
Interim Consolidated Balance Sheets - July 31, 2006 (Unaudited) and January 31, 2006 (Audited)
Interim Consolidated Statement of Income and Retained Earnings for the Three and Six Month Periods Ended July 31, 2005 and 2006 (Unaudited)
Interim Consolidated Statements of Cash Flows for the Six Month Periods Ended July 31, 2005 and 2006 (Unaudited)
Notes to the Interim Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K

KMA GLOBAL SOLUTIONS INTERNATIONAL, INC.

FINANCIAL STATEMENTS:

KMA GLOBAL SOLUTIONS INTERNATIONAL, INC.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2006

(unaudited)

(expressed in U.S. dollars)

KMA GLOBAL SOLUTIONS INTERNATIONAL, INC.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2006

(unaudited)

(expressed in U.S. dollars)

INDEX	PAGE
Consolidated Balance Sheet	1 - 2
Consolidated Statements of Income and Retained Earnings	3
Consolidated Statements of Cash Flows	4
Notes to the Consolidated Financial Statements	5 - 11

KMA GLOBAL SOLUTIONS INTERNATIONAL, INC. Page 1

INTERIM CONSOLIDATED BALANCE SHEET

AS AT JULY 31, 2006

(unaudited)

(expressed in U.S. dollars)

July 31, 2006	Jan 31, 2006
(unaudited)	(audited)
$	$

ASSETS
CURRENT
Cash	29,298	126,727
Accounts receivable (net of allowance of $240)	203,527	74,773
Inventories (Note 3)	437,700	452,055
Advances to shareholders (Note 4)	-	50,922
Prepaid expenses	219,208	104,980
TOTAL CURRENT ASSETS	889,733	809,457
DEPOSITS ON EQUIPMENT AND PATENTS	243,584	231,867
EQUIPMENT AND PATENTS (Note 5)	489,046	498,917
FUTURE INCOME TAXES (Note 6)	179,464	-
DEFERRED COSTS (Note 8)	220,926	-
	2,022,753	1,540,241

APPROVED ON BEHALF OF THE BOARD:

_____________________________, Director

_____________________________, Director

The accompanying notes are an integral part of these financial statements.

KMA GLOBAL SOLUTIONS INTERNATIONAL, INC. Page 2

INTERIM CONSOLIDATED BALANCE SHEET

AS AT JULY 31, 2006

(unaudited)

(expressed in U.S. dollars)

July 31, 2006	Jan 31, 2006
(unaudited)	(audited)
$	$

LIABILITIES
CURRENT
Accounts payable and accrued liabilities	1,495,586		829,769
Current portion of capital lease obligation (Note 7)	54,200		52,419
TOTAL CURRENT LIABILITIES	1,549,786		882,188
ADVANCES FROM SHAREHOLDERS (Note 4)	7,571		-
CAPITAL LEASE OBLIGATION (Note 7)	30,231		56,787
FUTURE INCOME TAXES (Note 6)	-		12,836
	1,587,588		951,811
SHAREHOLDERS' EQUITY
CAPITAL STOCK (Note 8)
Common stock, $0.001 par value, 175,000,000 shares
authorized and 41,915,991 shares issued and
outstanding
Preferred stock, $0.001 par value, 25,000,000 shares
authorized and none issued and outstanding	41,916		461,901
ADDITIONAL PAID-IN CAPITAL (Note 8)	700,598		-
ACCUMULATED COMPREHENSIVE INCOME (Note 8)	47,997		43,547
(DEFICIT) RETAINED EARNINGS (Note 8)	(355,346	)	82,982
	435,165		588,430
	2,022,753		1,540,241

The accompanying notes are an integral part of these financial statements.

KMA GLOBAL SOLUTIONS INTERNATIONAL, INC. Page 3

INTERIM CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS

(unaudited)

(expressed in U.S. dollars)

Three Months Ended	Six Months Ended
July 31,	July 31,

2006	2005	2006	2005
$	$	$	$

SALES	1,888,803		1,717,288	3,015,613		2,836,934
COST OF SALES
Inventories, beginning of period	483,313		233,260	452,055		616,157
Purchases	1,487,815		1,546,968	2,421,478		2,047,970
	1,971,128		1,780,228	2,873,533		2,664,127
Less: Inventories, end of period	437,701		446,754	437,700		446,754
	1,533,427		1,333,474	2,435,833		2,217,373
GROSS MARGIN	355,376		383,814	579,780		619,561
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES	650,343		260,253	1,210,119		450,787
(Loss) income before income taxes	(294,967	)	123,561	(630,339	)	168,774
Income taxes - future (Note 6)	(101,611	)	21,653	(192,011	)	41,362
NET (LOSS) INCOME FOR THE PERIOD	(193,356	)	101,908	(438,328	)	127,412
RETAINED EARNINGS (DEFICIT), beginning of
period (Note 8)	(161,990	)	13,304	82,982		(12,200	)
(DEFICIT) RETAINED EARNINGS, end of
period (Note 8)	(355,346	)	115,212	(355,346	)	115,212
(LOSS) EARNINGS PER SHARE
Basic	(0.01	)	0.00	(0.01	)	0.00
Diluted	(0.01	)	0.00	(0.01	)	0.00
Weighted average number of common shares	41,903,219		28,289,000	38,820,601		28,289,000

The accompanying notes are an integral part of these financial statements.

KMA GLOBAL SOLUTIONS INTERNATIONAL, INC Page 4

INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTH PERIODS ENDED JULY 31

(unaudited)

(expressed in U.S. dollars)

2006	2005
$	$

CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income for the period	(438,328	)	127,413
Adjustments for:
Amortization	43,526		33,845
Shares issued for services provided	63,197		-
Future income taxes	(192,011	)	41,362
	(523,616	)	202,620
Changes in non-cash working capital:
(Increase) in accounts receivable	(128,016	)	(172,552	)
Decrease in inventories	17,278		176,440
(Increase) decrease in prepaid expenses	(113,322	)	4,657
Increase (decrease) in accounts payable and
accrued liabilities	659,109		(219,966	)
	435,049		(211,421	)
Cash flows from operating activities	(88,567	)	(8,801	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in bank indebtedness
(Decrease) increase in capital lease obligation	(25,439	)	124,889
Increase (decrease) in advances from shareholders (net)	58,711		(3,320	)
Cash flows from financing activities	33,272		121,569
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in advances to shareholders	-		(19,609	)
Purchase of equipment and patents	(30,416	)	(155,994	)
Deposits on equipment and patents	(10,181	)	71,127
Cash flows from investing activities	(40,597	)	(104,475	)
EFFECT OF CUMULATIVE CURRENCY TRANSLATION
ADJUSTMENTS	(1,537	)	(6,441	)
(Decrease) increase in cash	(97,429	)	1,852
Cash, beginning of period	126,727		41,885
Cash, end of period	29,298		43,737
SUPPLEMENTAL INFORMATION:
Interest paid	6,955		6,793
Income taxes paid	-		-
Equipment acquired by capital lease	-		155,376

The accompanying notes are an integral part of these financial statements.

KMA GLOBAL SOLUTIONS INTERNATIONAL, INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2006 (unaudited) (expressed in U.S. dollars)  Page 5

1. DESCRIPTION OF THE BUSINESS

KMA Global Solutions International, Inc. (“KMA International” or the “Company”) is engaged in the supply of Electronic Article Surveillance (“EAS”) solutions, focusing on providing customized solutions in the apparel, multi media, sporting goods, food and pharmaceutical industries.

2. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the requirements of item 310 (b) of Regulation S-B. Accordingly, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments), which, in the opinion of management, are necessary for a fair presentation of the results for the periods presented. There have been no significant changes of accounting policy since January 31, 2006. The results from operations for the period are not indicative of the results expected for the full fiscal year or any future period.

3. INVENTORIES

	July 31,		January 31,
	2006		2006
	$		$
Finished goods		187,014		206,654
Raw materials		250,686		245,401
		437,700		452,055

4. ADVANCES TO (FROM) SHAREHOLDERS

Advances to (from) shareholders are non-interest bearing, are unsecured and have no fixed terms of repayment.

Continued...

KMA GLOBAL SOLUTIONS INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2006 (unaudited) (expressed in U.S. dollars)  Page 6

5. EQUIPMENT AND PATENTS

					July 31,
			Accumulated		2006
	Cost		Amortization		Net
	$		$		$
Equipment		707,848		444,588		263,260
Equipment under capital lease		168,077		22,410		145,667
Patents		79,821		17,170		62,651
Computer equipment		33,573		19,172		14,401
Office furniture		4,910		1,843		3,067
		994,229		505,183		489,046

					January 31,
			Accumulated		2006
	Cost		Amortization		Net
	$		$		$
Equipment		684,211		414,623		269,588
Equipment under capital lease		166,985		13,916		153,069
Patents		79,303		14,676		64,627
Computer equipment		22,779		12,375		10,404
Office furniture		4,214		2,985		1,229
		957,492		458,575		498,917

Included in equipment is the cost of a machine which remains in the testing phase. The cost of the machine to date is approximately $49,809. This asset has not been amortized.

6. INCOME TAXES

The reconciliation of the income tax provision calculated using the combined Canadian federal and provincial statutory income tax rate with the income tax provision in the consolidated financial statements is as follows:

	July 31,			July 31,
	2006			2005
	$			$
Income tax provision at combined Canadian federal and
provincial statutory rate of 36.12% (2005-18.62%)		(227,678	)		31,426
Increase due to:
Change in effective tax rate		21,787			-
Other		13,880			9,936
		(192,011	)		41,362

Continued...

KMA GLOBAL SOLUTIONS INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2006 (unaudited) (expressed in U.S. dollars)  Page 7

6. INCOME TAXES (Continued)

Significant components of the Company’s future income tax assets and liabilities are as follows:

	July 31,			January 31,
	2006			2006
	$			$
Future income tax assets:
Losses carried forward		250,904			19,908
Future income tax liabilities:
Equipment and patents		(71,440	)		(32,744	)
Future tax asset (liability)		179,464			(12,836	)

7. OBLIGATIONS UNDER CAPITAL LEASE

The Company has entered into a leasing agreement for equipment dated March 15, 2005. The lease bears an effective rate of interest of 13.8% per annum, requires monthly payments of $5,208, and is secured by the equipment.

The following is a summary of future minimum lease payments under this capital lease expiring February 15, 2008, together with the present balance of the obligations:

		2006
		$
Periods ending:	July 31, 2007		54,200
	July 31, 2008		30,231
			84,431

Continued...

KMA GLOBAL SOLUTIONS INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2006 (unaudited) (expressed in U.S. dollars)  Page 8

8. SHAREHOLDERS’ EQUITY

Continuity of Shareholders’ Equity - KMA Canada prior to reverse merger

					Additional
	Common		Par		Paid-in		Comp.		Accumulated
	Shares		Value		Capital		Income		Earnings
	$		$		$		$		$
January 31, 2006		32,136,800		-		461,901		43,547		82,982
Issuance of shares for
consulting services		408,000		-		52,173		-		-
Issuance of shares for
finder’s fee		1,700,000		-		217,391		-		-
March 15, 2006		34,244,800		-		731,465		43,547		82,982

Continuity of Shareholders’ Equity - KMA International

							Additional
	Common			Par			Paid-in			Comp.		Accumulated
	Shares			Value			Capital			Income		Earnings
	$			$			$			$		$
January 31, 2006		4,920,250			4,920			166,421			-		(171,341	)
Retired to treasury		(4,225,427	)		(4,225	)		4,225			-		-
17:1 share split		11,117,168			11,117			(11,117	)		-		-
Issuance of shares in
reverse merger		34,244,800			34,245			525,878			43,547		82,982
Accumulated deficit
acquired in reverse
merger		-			-			-			-		171,341
Retirement of shares		(5,344,800	)		(5,345	)		5,345			-		-
Issuance of replace-
ment shares		1,179,000			1,179			(1,179	)		-		-
Currency translation
adjustment		-			-			-			4,450		-
Issuance of shares
for investor
relations services		25,000			25			11,025 - -
Net loss		-			-			-			-		(438,328	)
July 31, 2006		41,915,991			41,916			700,598			47,997		(355,346	)

Continued...

KMA GLOBAL SOLUTIONS INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2006 (unaudited) (expressed in U.S. dollars)  Page 9

8. SHAREHOLDERS’ EQUITY (Continued)

During the period ended July 31, 2006, the following transactions occurred:

(a) On February 15, 2006, KMA Canada issued 120,000 common shares (408,000 post split reorganization common shares) with a deemed value of Cdn $0.50 per share in exchange for services rendered by a group of consultants of KMA Canada.

(b) OnFebruary 28, 2006, KMA Canada issued 500,000 common shares (1,700,000 post split reorganization common shares) with a deemed value of Cdn $0.50 per share as an advance on finders fees in relation to a planned equity financing. The advance has been reflected as a deferred cost until such time as the planned equity financing is completed.

(c) On March 1, 2006, pursuant to a resolution of the Board of Directors, the issued and outstanding common shares of KMA Canada were subject to a reverse stock split at a ratio of five (5) shares to one (1), reducing the number of shares outstanding from 10,072,000 to 2,014,400 (34,244,800 post split reorganization common shares).

(d) KMA Canada and KMA International, a corporation organized under the laws of the state of Nevada entered into an acquisition agreement dated March 15, 2006. Pursuant to the terms of the agreement and upon the completion of satisfactory due diligence and receipt of applicable regulatory and shareholder approvals, KMA International acquired 100% of the outstanding shares of the capital stock of the KMA Canada in exchange for 34,244,800 post split reorganization common shares. (34,244,800 post split reorganization shares being the aggregate of 28,900,000 owned by KMA LLC and 5,344,800 owned by KMA Canada shareholders.) Pursuant to an agreement between the KMA Canada shareholders and KMA International, the shares in KMA International owned by the KMA Canada shareholders were retired to treasury and cancelled and the KMA Canada shareholders received 1,179,000 post split reorganization shares.

Continued...

KMA GLOBAL SOLUTIONS INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2006 (unaudited) (expressed in U.S. dollars)  Page 10

8. SHAREHOLDERS’ EQUITY (Continued)

KMA International is the surviving corporation as a result of a merger transaction with Espo’s, Ltd., a corporation formed under the laws of the State of New York. The merger occurred March 15, 2006. At the time of the merger transaction, Espo’s, Ltd. was a non-SEC reporting corporation. As a result of the merger and acquisition transactions the former shareholders of Espo’s, Ltd. hold 11,811,991 or 28.2% of the post split reorganization common shares of KMA International. Pursuant to the merger agreement, the remaining 71,832,259 post split reorganization shares (4,225,427 pre split reorganization shares), held by individuals that were former shareholders of Espo’s, were retired to treasury effective March 15, 2006 and cancelled on May 19, 2006.

The terms of the merger transaction and the acquisition agreement provided that the mind and management of KMA International would be replaced by the officers and directors of KMA Canada and having had no significant business activity for a number of years, upon the effective time of the acquisition, KMA International adopted the business plan of KMA Canada. The transaction was therefore accounted for as a reverse acquisition with KMA Canada as the acquiring party and KMA International as the acquired party, in substance, a reorganization of KMA Canada. Generally accepted accounting principles in the United States of America require, among other considerations, that a company whose stockholders retain a majority interest in a business combination be treated as the acquirer for accounting purposes. Accordingly, the results of operations for the periods prior to the combination are those of KMA Canada.

(e) On June 16, 2006, KMA International issued 25,000 common shares with a deemed value of Cdn $0.50 per share in exchange for investor relation services provided by a consulting company for KMA International.

9. COMMITMENTS

a) The Company is committed to minimum annual rentals under a long-term lease for premises which expires October 31, 2008. Minimum rental commitments remaining under this lease approximate $229,254 including $101,891 due within one year, $101,891 due in 2008, and $25,472 due in 2009.

The Company is also responsible for common area costs.

b) The Company has entered into various vehicle leases and has accounted for them as operating leases. Obligations due approximate $106,892 including $61,250 within one year, $35,583 due in 2008 and $10,059 due in fiscal 2009.

Continued...

KMA GLOBAL SOLUTIONS INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2006 (unaudited) (expressed in U.S. dollars)  Page 11

10. RESEARCH AND DEVELOPMENT COSTS

As at January 31, 2004 the Company had a research and development program which was eligible for investment tax credits of $65,507. The investment tax credits earned are generally subject to audit by Canada Revenue Agency ("CRA") before refund or reduction of income taxes payable is allowed. Due to the technical nature of the development undertaken by the Company and CRA's changing interpretation of qualifying activities, there is no certainty that the projects claimed will qualify. Therefore, no provision has been recorded in relation to these tax credits or the related tax liability of approximately $12,200.

11. FINANCIAL INSTRUMENTS

Fair Value

Generally accepted accounting principles in the United States require that the Company disclose information about the fair value of its financial assets and liabilities. Fair value estimates are made at the balance sheet date, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties in significant matters of judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates.

The carrying amounts for cash, accounts receivable and accounts payable and accrued liabilities on the balance sheet approximate fair value because of the limited term of these instruments.

Foreign Exchange Risk

Certain of the Company's sales and expenses are incurred in United States currency and are therefore subject to gains and losses due to fluctuations in that currency.

Credit Risk

The Company is exposed, in its normal course of business, to credit risk from its customers. No one single party accounts for a significant balance of accounts receivable.

Interest Rate Risk

The Company has interest-bearing borrowings for which general rate fluctuations apply.

Continued...

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Unless otherwise indicated or the context otherwise requires, all references to the “Company,” “we,” “us” or “our” and similar terms refer to KMA Global Solutions International, Inc. and its subsidiaries.

The information contained in this report on Form 10-QSB and in other public statements by the Company and Company officers or directors includes or may contain certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included or incorporated by reference in this report, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected revenues, projected costs and plans and objective of management for future operations, are forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “project,” “estimate,” “anticipate,” or “believe” or the negative thereof or any variation thereon or similar terminology.

Such forward-looking statements are made based on management’s beliefs, as well as assumptions made by, and information currently available to, management pursuant to the “safe-harbor” provisions of the Private Securities Litigation Reform Act of 1995. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. Such statements are not guarantees of future performance or events and are subject to known and unknown risks and uncertainties that could cause the Company’s actual results, events or financial positions to differ materially from those included within the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements. Except as required by law, we undertake no obligation to disclose any revision to these forward-looking statements to reflect events or circumstances after the date made, changes in internal estimates or expectations, or the occurrence of unanticipated events.

Item 2. Management’s Discussion and Analysis.

The following Management’s Discussion and Analysis is intended to help the reader understand our results of operations and financial condition. Management’s Discussion and Analysis is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes thereto. The revenue and operating income (loss) amounts in this Management’s Discussion and Analysis are presented in accordance with United States generally accepted accounting principles.

OVERVIEW

KMA Global Solutions International, Inc., through its operating subsidiary, KMA Global Solutions Inc. (“KMA (Canada)”), a corporation formed in April 1996 under the laws of the Province of Ontario, is an innovator and internationally recognized leader in the Electronic Article Surveillance (EAS) market. We serve a diverse and geographically dispersed customer base consisting predominantly of retailer suppliers, branded apparel, multimedia and pharmaceutical companies and contract manufacturers, providing low cost and customized solutions to protect against retail merchandise theft and drastically reduce inventory “shrink”. Shrink often represents up to 2% of a retailer’s cost base and, in aggregate, is a $40 billion problem worldwide. The Company has developed a suite of proprietary EAS products to address the specific needs of a changing marketplace, using patented processes to manufacture its tags at high speeds and deliver its products on a just in time basis. Our EAS solutions are designed to fit the needs of major suppliers to multinational retailers in the apparel, multimedia, sporting goods, food and over-the-counter (OTC) pharmaceutical industries.

The Company is engaged in the supply of Electronic Article Surveillance (“EAS”) solutions (including the Company’s products, NEXTag™ and DUAL Tag™), focusing on providing customized solutions in the apparel, multi media, sporting goods, food and pharmaceutical industries. We seek to grow by concentrating on executing its strategy as a global operating company, while maintaining a continued focus on providing customers with innovative products and solutions, outstanding service, consistent quality, on-time delivery and competitively priced products. Together with continuing investments in new product development, state-of-the-art manufacturing equipment, and innovative sales and marketing initiatives, management believes the Company is well-positioned to compete successfully as a provider of electronic article surveillance, or “EAS,” tagging solutions to the retail apparel, multimedia and pharmaceutical industries, worldwide. The investments needed to fund this growth have been generated to date through investment by the founding shareholders and through reinvestment of profits and private placements of securities.

The Company was formed on March 9, 2006 under the laws of the State of Nevada, and our structure is organized as a holding company, with KMA (Canada) and KMA Global Solutions, LLC (“KMA LLC”), a Nevada limited liability company, as wholly-owned subsidiaries. On March 10, 2006, we entered into a merger agreement with Espo’s Ltd. (“Espo’s”), a corporation incorporated under the laws of the State of New York on September 7, 2001, in which the Company was the surviving corporation. Pursuant to the merger, the Company issued 1,700,000 shares of its common stock to KMA LLC. The Company controlled 314,400 common shares of KMA Canada.

On March 15, 2006, the Company entered into an acquisition agreement with KMA Canada whereby the Company purchased from the remaining shareholders of KMA Canada an aggregate amount of 314,400 common shares in exchange for 1,179,000 common shares of KMA International. Through these series of transactions, the Company acquired directly or indirectly 100% of the issued and outstanding shares of KMA Canada.

The Company’s expansion plan is substantially focused on transferring the majority of existing manufacturing capacity from the Company’s Canadian operations primarily to facilities in China, India and Mexico as well as relocating its headquarters from Ontario, Canada to North Carolina.

The use of EAS systems in the retail environment continues to be a significant cost savings tool for the retailer. With the retail environment being extremely competitive the use of our low cost solutions positions KMA favorably for the future. The addition of new high speed high volume equipment will drive costs of production lower and enable KMA to fulfill a larger per cent of the market. With the completion of the newest equipment we will be able to open up production facilities in high demand locations reducing operating and freight costs. KMA anticipates increased demands for its products in International as well as North American markets. Management’s ongoing strategy includes implementing process improvements to reduce costs in all of its manufacturing facilities, re-deploying assets to balance production capacity with customer demand and expanding production in new and emerging markets to minimize labor costs and maximize operating performance efficiencies.

RESULTS OF OPERATIONS

The Company’s results of operations for the fiscal three month and six month ended July 31, 2006 and 2005, in dollars and as a percent of sales, are presented below:

	Three months ended July 31,								Six months ended July 31,
	2006				2005				2006				2005
Sales		1,888,803	100	%		1,717,288	100	%		3,015,613	100	%		2,836,934	100	%
Cost of Sales		1,533,427	81	%		1,333,474	78	%		2,435,833	81	%		2,217,373	78	%
Gross Profit		355,376	19	%		383,814	22	%		579,780	19	%		619,561	22	%
Selling General &		650,343	34	%		260,253	15	%		1,210,119	40	%		450,787	16	%
Administrative Expenses
Income Before Income Taxes		-294,967	-16	%		123,561	7	%		-630,339	-21	%		168,774	6	%
Net Income		-193,356	-10	%		101, 908	6	%		-438,328	-15	%		127,412	4	%

Sales

The Company’s sales increased $171,515 or 10%, and $178,679 or 6.3% for the three and six months ended July 31, 2006, respectively, compared to the three and six months ending July 31, 2005. This increase was due to a new customer program launch. The Company’s sales have remained stable to this time frame experiencing some delays in implementation of planned retail programs.

KMA has developed direct relationships with customers for our EAS solutions. The customer base is directed by the retailer to use EAS solutions that create the demand for our products. We have been able to improve our direct relationships and have created a two tiered sales approach to the industry that gives us awareness to the retailer and its corresponding supplier. It is this two-tiered approach that we anticipate will develop significant increases in our revenue this fiscal year.

Gross Profit

Gross profit was $355,376 or 19% of sales, and $579,780 or 19% of sales, respectively, for the three and six months ended July 31, 2006, compared with $383,814 or 22%, and $619,561 or 22% of sales, respectively, for the three and six months ended July 31, 2005. The lower gross margin for the six months ended July 31, 2006 as compared to the previous year was primarily the result of differences in exchange rates. Management’s ongoing strategy includes implementing process and purchasing improvements to reduce costs in manufacturing, transferring the majority of existing manufacturing capacity from the Company’s Canadian operations primarily to facilities in China and India to minimize labor, raw materials, freight and duty costs.

Selling, General and Administrative (“SG&A”) Expenses

SG&A expenses were $650,343 and $1,210,119 for the three and six months ended July 31, 2006, respectively, compared with $260,253 and $450,787, respectively, for the three and six months ended July 31, 2005. As a percent of sales, SG&A expenses were 34% and 40% for the fiscal three and six months ended July 31, 2006, compared to 15% and 16% for the fiscal three and six months ended July 31, 2005. This increase in ratio of SG&A to sales is primarily due to increased cost of director’s liability insurance, as well as, increased professional fees, specifically, auditor costs and legal fees in connection with the Company’s recent reverse merger transaction, (Management does not expect professional fees in reference to merger transaction to recur) and increased wages and benefits. KMA has hired an experienced team of professional managers to assist in the implementation of its growth plan. This includes a Vice President of Sales with over 15 years of selling EAS systems to major retailers in North America, Vice President of Operations with over 30 years of Operations experience who will lead our Global Operations requirements and Vice President of Business Development with 25 years of leadership experience in running the leading provider of EAS systems in Canada.

Operating Income (Loss)

Operating Loss before taxes was $294,967 and $630,339 for the three and six months ended July 31, 2006, respectively, compared with an operating income of $123,561 and $168,774 for the three and six months ended July 31, 2005. While there was no operating income for the six months ended July 31, 2006, the Company’s operating income was 4% of sales for the six months ended July 31, 2005.

The company is positioned to move forward with larger programs that we anticipate will deliver increased sales dollars. To date these programs have not started due to seasonal buying cycles. Sales with current customers have remained stable to date. With the addition of new management, we now have the ability to manage our anticipated growth and implement our global strategy of cost cutting by placing manufacturing in the countries of demand.

Taxes on Income

The Company experienced an operating loss in the three and six months ended July 31, 2006 and therefore recognized a future tax benefit of $101,611 and $192,011 for the three and six months ended July 31, 2006.  The future tax provision for the same three and six months ended in 2005 was $21,653 and $41,362 was calculated to take into account applicable losses carried forward and other timing differences.  The effective income tax rates of the future tax provisions for the three and six months ended July 31, 2006 were 34% and 30%. For the same periods in 2005 the effective rates were 17% and 25% respectively.  The statutory income tax rate going forward for the Company, with all of its operating activities taxed in Canada, is approximately 36% as a result of applicable combined federal and provincial tax rates.

Liquidity and Capital Resources

The table below represents summary cash flow information for the six months ended July 31 indicated: 

	Six Months ended July 31,
	2006		2005
Net cash from operating activities	(88,567	)	(8,801	)
Net cash from investing activities	(40,597	)	(104,475	)
Net cash from financing activities	33,272		121,569
Effect of currency translation adjustments	(1,537	)	(6,441	)
Total change in cash and cash equivalents	(97,429	)	1,852

Overview . The Company had, for the six months ended July 31, 2006, current liabilities of $1,549,786 and current assets of $889,733. For the six months ended July 31, 2006, the Company experienced negative cash flow of $523,616 from operations, before accounting for changes in non-cash working capital items of $435,049 (resulting from increases in accounts receivable and prepaid expenses, a decrease in inventory, and an increase in accounts payable and accrued liabilities), compared to cash flow of $202,620, before deducting negative changes in non-cash working capital items of $211,421 (resulting from an increase in accounts receivables and decreases in inventories, prepaid expenses, and accounts payable and accrued liabilities) for the six months ended July 31, 2005.

Management believes that the Company will generate sufficient cash from its operating activities for the foreseeable future, supplemented by an anticipated infusion of capital, to fund its working capital needs, strengthen its balance sheet and support its growth strategy of expanding its geographic distribution and product offerings. The infusion of capital is expected to come from the sale of treasury stock and/or newly issued shares of common stock to investors in the public capital markets.

Operating Activities . Cash flow from operating activities before accounting for changes in non-cash working capital for the six months ended July 31, 2005 decreased from a net inflow amount, as adjusted for amortization, shares issued for services provided and future income taxes, of $202,620, to a net outflow of $523,616 for the six months ended July 31, 2006.

During the six months ended July 31, 2005, the net income, as adjusted for amortization and future income taxes, resulted in a positive cash flow of $202,620, together with negative changes in non-cash working capital of $211,421, resulted in a negative cash flow from operating activities of $8,801. In the six months ended July 31, 2006, the net loss, as adjusted for amortization, shares issued for services provided and future income taxes, resulted in a negative cash flow of $523,616 and with changes in non-cash working capital of $435,049 our cash flows from operating activities decreased by $88,567

The variances in cash flow from operations between six months ended July 31, 2006 and July 31, 2005 are the result of adjustments to the Company’s net loss for increases in inventory and prepaid expenses, and offset by an increase in accounts payable. There was a decrease in inventories of $176,440 at the six months ended of July 31, 2005 compared to a decrease in inventories of $17,278 for six months ended July 31, 2006 . The decrease in inventory for the six months ended July 31, 2006 over previous six months ended July 31, 2005 was due to inventory control management resulting in reduced inventory. Our prepaid expenses decreased by $4,657 for the six months ended July 31, 2005 and experienced a $113,322 increase for the six months ended July 31, 2006. Accounts payable and accrued liabilities for the Company decreased $219,966 through the six months period ended July 31, 2005 primarily as a result of improved inventory control management resulting in reduced inventory. Accounts payable and accrued liabilities increased $659,109 in the six months ended July 31, 2006. This increase in accounts payable and accrued liabilities was primarily the result of certain one-time amounts incurred in connection with the reverse merger transaction.

Financing Activities . The Company’s cash flow from financing activities for the six months ended July 31, 2006 amounted to $33,272 as a result of a decrease in its capital lease obligation of $25,439, and an increase in advances from shareholders of $58,711. In comparison, in the six months ended July 31, 2005 the Company incurred an increase in its capital lease obligation of $124,889 and a decrease in advances from shareholders of $3,320, resulting in a net cash flow from financing activities of $121,569.

Investing Activities . In six months ended July 31, 2005, the Company experienced a decrease in cash flow from investing activities of $104,475, in large part due to deposits on equipment and patents that amounted to $71,127 and the purchase of equipment and patents which cost the Company $155,994. For the six months ended July 31, 2006, the Company experienced a decrease in cash flow from investing activities of $40,597.

Off-Balance Sheet Arrangements . The Company has no material transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have or are reasonably likely to have a material current or future impact on its financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues or expenses.

Market Risk . In the normal course of business, the Company is exposed to foreign currency exchange rate and interest rate risks that could impact its results of operations.

The Company sells its products worldwide, and a substantial portion of its net sales, cost of sales and operating expenses are denominated in foreign currencies. This exposes the Company to risks associated with changes in foreign currency exchange rates that can adversely impact revenues, net income and cash flow. In addition, the Company is potentially subject to concentrations of credit risk, principally in accounts receivable. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company’s major customers are retailers, branded apparel companies and contract manufacturers that have historically paid their balances with the Company.

There were no significant changes in the Company’s exposure to market risk in the past three years.

CRITICAL ACCOUNTING POLICIESAND ESTIMATES

Management has identified the following policies and estimates as critical to the Company’s business operations and the understanding of the Company’s results of operations. Note that the preparation of this Form 10-QSB/A 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 Company’s financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates, and the differences could be material.

Revenue Recognition

SAB No. 104 requires that four basic criteria be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the fee is fixed or determinable; and (4) collectibility is reasonably assured. Should changes in conditions cause management to determine that these criteria are not met for certain future transactions, revenue recognized for a reporting period could be adversely affected.

Sales Returns and Allowances

Management must make estimates of potential future product returns, billing adjustments and allowances related to current period product revenues. In establishing a provision for sales returns and allowances, management relies principally on the Company’s history of product return rates which is regularly analyzed. Management also considers (1) current economic trends, (2) changes in customer demand for the Company’s products and (3) acceptance of the Company’s products in the marketplace when evaluating the adequacy of the Company’s provision for sales returns and allowances. Historically, the Company has not experienced a significant change in its product return rates resulting from these factors. For the six months ended July 31, 2006 and 2005, the provision for sales returns and allowances accounted for as a reduction to gross sales was not material.

Allowance for Doubtful Accounts

Management makes judgments, based on its established aging policy, historical experience and future expectations, as to the ability to collect the Company’s accounts receivable. An allowance for doubtful accounts has been established. The allowance for doubtful accounts is used to reduce gross trade receivables to their estimated net realizable value. When evaluating the adequacy of the allowance for doubtful accounts, management analyzes customer-specific allowances, amounts based upon an aging schedule, historical bad debt experience, customer concentrations, customer creditworthiness and current trends. The Company’s accounts receivable at July 31, 2006 was $203,527, net of an allowance of $240.

Inventories

Inventories are stated at the lower of cost or market value, and are categorized as raw materials, work-in-process or finished goods. The value of inventories determined using the first-in, first-out method at July 31, 2006 was $187,014 for finished goods and $250,686 for raw materials.

On an ongoing basis, the Company evaluates the composition of its inventories and the adequacy of its allowance for slow-turning and obsolete products. The market value of aged inventory is determined based on historical sales trends, current market conditions, changes in customer demand, acceptance of the Company’s products, and current sales activities for this type of inventory.

Goodwill

The Company did not attribute any value to goodwill as at July 31, 2006.

Accounting for Income Taxes

As part of the process of preparing the consolidated financial statements, management is required to estimate the income taxes in each jurisdiction in which the Company operates. This process involves estimating the actual current tax liabilities, together with assessing temporary differences resulting from the different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the consolidated balance sheet. Management must then assess the likelihood that the deferred tax assets will be recovered and, to the extent that management believes that recovery is not more than likely, the Company establishes a valuation allowance. If a valuation allowance is established or increased during any period, the Company records this amount as an expense within the tax provision in the consolidated statement of income. Significant management judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recognized against net deferred tax assets. Valuation allowances are based on management’s estimates of the taxable income in the jurisdictions in which the Company operates and the period over which the deferred tax assets will be recoverable.

Recently Issued Accounting Pronouncement

In November 2004, the Financial Accounting Standards Board issued SFAS No. 151, “Inventory Costs - an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 amends the guidance in Accounting Research Bulletin (“ARB”) No. 43, Chapter 4, “Inventory Pricing” and requires that items such as idle facility expense, freight, handling costs and wasted material (spoilage) be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal” under Paragraph 5 of ARB No. 43, Chapter 4. In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of SFAS No. 151 are effective for inventory costs incurred during fiscal years beginning January 1, 2006. The Company believes that the adoption of SFAS No. 151 will not have a material impact on the Company’s results of operations or financial condition.

Item 3. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Management, including our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report, note that the filing with the Securities and Exchange Commission of our two Forms 10-QSB were delayed and, accordingly, management has instituted enhanced accounting review and scheduling procedures to ensure that the filing of future financial reports are undertaken in a timely manner. Based upon its evaluation, Management has concluded that our disclosure controls and procedures were inadequate and not fully effective, and has revised and enhanced our accounting review and scheduling procedures as well as instituted new training and other support measures for its accounting personnel to ensure that material information relating to this report, including information from our consolidated subsidiaries, will be made known to them by others within those entities, particularly during the periods in which the preparation of our Quarterly Reports shall occur.

Changes in Internal Controls

With the exception of our revised accounting review and scheduling procedures, which are intended to eliminate any delays in the filing of our periodic financial reports, there have been no changes in our internal controls over financial reporting or in other factors identified in connection with the evaluation that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. Accordingly, the only corrective actions required or undertaken were for new and enhanced procedures for the review and filing of our periodic financial reports.

PART II

OTHER INFORMATION

Item6. Exhibits.

The following exhibits are included herein:

Exhibit No. Exhibit

31.1 Certification of Chief Executive Officer and Chief Financial Officer of the Company required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.

32.1 Certification of Chief Executive Officer and Chief Financial Officer of the Company required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

	KMA GLOBAL SOLUTIONS INTERNATIONAL, INC.
Date: September 15, 2006	By:	/s/ Jeffrey D. Reid
		Jeffrey D. Reid
		Chief Executive Officer

EXHIBIT INDEX

Exhibit
Number Description

31.1 Certification of Chief Executive Officer and Chief Financial Officer of the Company required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.

32.1 Certification of Chief Executive Officer and Chief Financial Officer of the Company required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended