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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the quarterly period ended: December 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 Commission File Number: 0-28351
 KOLORFUSION INTERNATIONAL, INC.
  COLORADO
    
    84-1317836(State or other jurisdiction of 
incorporation or organization)
    
    (IRS Employer Identification Number)
 16075 E. 32 nd Ave. Unit A, CO 80011
 (303) 340-9994
 þ o
 o þ
 24,309,540 1,076,923




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KOLORFUSION INTERNATIONAL, INC.
 INDEX
 PagePART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)
    
    1Condensed Balance Sheets December 31, 2006 (Unaudited) and June 30, 2006
    
    1Statements of Operations Three and Six month periods ended December 31, 2006 and 2005 (Unaudited)
    
    2Condensed Statements of Cash Flows Six month periods ended December 31, 2006 and 2005 (Unaudited)
    
    3Selected Notes to Condensed Financial Statements (Unaudited)
    
    4-7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    8Item 3.
    
    Controls & Procedures
    
    11PART II
    
    OTHER INFORMATION
    
    12Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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KOLORFUSION INTERNATIONAL, INC.
 
 PART I  FINANCIAL INFORMATION
 
 Item I. FINANCIAL STATEMENTS
 
 BALANCE SHEETS
 December 31,
    
    
    June 30,2006
    
    
    2006(Unaudited)
    
    
    (Audited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    18,093
    
    
    $
    139,424Trade accounts receivable, net of allowance for doubtful
accounts of $8,500 and $8,500, respectively
    
    
    161,378
    
    
    
    177,366Inventories
    
    
    245,543
    
    
    
    198,266Prepaid rent
    
    
    12,711
    
    
    
    Total current assets
    
    
    437,725
    
    
    
    515,056LEASEHOLD IMPROVEMENTS AND EQUIPMENT, NET
    
    
    190,675
    
    
    
    87,685OTHER ASSETS:Patents, less accumulated amortization of $3,323,289 and
$3,200,205, respectively
    
    
    369,241
    
    
    
    492,325Other
    
    
    102,600
    
    
    
    104,507Total Other Assets
    
    
    471,841
    
    
    
    596,832Total Assets
    
    $
    1,100,241
    
    
    $
    1,199,573LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)CURRENT LIABILITIES:Accounts payable
    
    $
    156,035
    
    
    $
    175,665Deferred revenue
    
    
    182,192
    
    
    
    296,647Current portion of capital lease obligation
    
    
    21,331
    
    
    
    Current portion of long-term debt
    
    
    366,522
    
    
    
    301,949Accrued expenses
    
    
    8,626
    
    
    
    13,600Accrued expenses due stockholders
    
    
    333,373
    
    
    
    333,373Total current liabilities
    
    
    1,068,079
    
    
    
    1,121,234Capital lease obligation, net of current portion
    
    
    53,078
    
    
    
    Long-term debt, net of current portion
    
    
    568,372
    
    
    
    563,148Deferred revenue
    
    
    7,606
    
    
    
    Total Liabilities
    
    
    1,697,135
    
    
    
    1,684,382STOCKHOLDERS EQUITY (DEFICIT):Preferred stock, $.001 par value, 10,000,000 shares
authorized, 1,076,923 shares issued and outstanding
    
    
    1,077
    
    
    
    1,077Common stock, $.001 par value, 100,000,000 shares
authorized, 24,309,540 shares issued and outstanding
    
    
    24,310
    
    
    
    24,310Additional paid-in capital
    
    
    11,270,554
    
    
    
    11,266,894Accumulated deficit
    
    
    (11,892,835
    )
    
    
    (11,777,090
    )Total Stockholders deficit
    
    
    (596,894
    )
    
    
    (484,809
    )Total Liabilities and Stockholders deficit
    
    $
    1,100,241
    
    
    $
    1,199,573
   1




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KOLORFUSION INTERNATIONAL, INC.
 
 CONDENSED STATEMENTS OF OPERATIONS
   Three Months Ended
    
    
    Six Months EndedDecember 31
    
    
    December 312006
    
    
    2005
    
    
    2006
    
    
    2005Revenues
    
    $
    418,733
    
    
    $
    540,259
    
    
    $
    874,701
    
    
    $
    1,030,048Cost of sales
    
    
    238,533
    
    
    
    252,006
    
    
    
    467,299
    
    
    
    481,031Gross Profit
    
    
    180,200
    
    
    
    288,253
    
    
    
    407,402
    
    
    
    549,017Selling, general and administrative expenses
    
    
    229,466
    
    
    
    268,898
    
    
    
    511,583
    
    
    
    569,601Operating income (loss)
    
    
    (49,266
    )
    
    
    19,355
    
    
    
    (104,181
    )
    
    
    (20,584
    )Other income (loss):
    
    
    264
    
    
    
    114
    
    
    
    264
    
    
    
    114Interest Expense
    
    
    (8,017
    )
    
    
    (11,717
    )
    
    
    (11,828
    )
    
    
    (25,295
    )Total Other Expense
    
    
    (7,753
    )
    
    
    (11,603
    )
    
    
    (11,564
    )
    
    
    (25,181
    )Income/ (loss ) before income taxes
    
    $
    (57,019
    )
    
    $
    7,752

    
    
    $
    (115,745
    )
    
    $
    (45,765
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (57,019
    )
    
    $
    7,752
    
    
    $
    (115,745
    )
    
    $
    (45,765
    )Net (loss) per common share  basic and diluted
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    (0.01
    )
    
    $
    0.00Weighted average outstanding shares  basic and
diluted
    
    
    24,309,540
    
    
    
    24,117,544
    
    
    
    24,309,540
    
    
    
    24,117,544
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KOLORFUSION INTERNATIONAL, INC.
 
 CONDENSED STATEMENTS OF CASH FLOWS
 2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net Loss
    
    $
    (115,745
    )
    
    $
    (45,765
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Stock compensation
    
    
    3,660
    
    
    
    Depreciation and amortization
    
    
    129,422
    
    
    
    141,513Loss on disposal of leasehold improvements & equipment
    
    
    45,259
    
    
    
    Change in operating assets and liabilities(Increase) decrease in trade accounts receivable
    
    
    15,988
    
    
    
    (26,568
    )(Increase) inventories
    
    
    (47,277
    )
    
    
    (21,411
    )(Increase) prepaid rent
    
    
    (12,711
    )
    
    
    (Increase) in other assets
    
    
    1,907
    
    
    
    36,900(Decrease) increase in accounts payable
    
    
    (19,630
    )
    
    
    130,928(Decrease) in deferred revenue
    
    
    (106,849
    )
    
    
    (338,171
    )(Decrease) in accrued expenses
    
    
    (4,974
    )
    
    
    (913
    )Net cash (used in) operating activities
    
    
    (110,950
    )
    
    
    (123,487
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of leasehold improvements and equipment
    
    
    (27,857
    )
    
    
    (18,526
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from short-term debt
    
    
    50,000
    
    
    
    13,378Principal payments on capital leases
    
    
    (6,791
    )
    
    
    Payments on long-term debt
    
    
    (25,733
    )
    
    
    (15,782
    )Net cash provided by (used in) financing activities
    
    
    17,476
    
    
    
    (2,404
    )Decrease in cash and cash equivalents
    
    
    (121,331
    )
    
    
    (144,417
    )Cash and cash equivalents:Beginning of period
    
    
    139,424
    
    
    
    152,093End of period
    
    $
    18,093
    
    
    $
    7,676SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Leasehold improvements & equipment financed with debt
    
    $
    45,530
    
    
    $
    Cash payments for interest
    
    $
    11,828
    
    
    $
    25,295Equipment financed with capital lease obligation
    
    $
    81,200
    
    
    $
    
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KOLORFUSION INTERNATIONAL, INC.
 NOTES TO CONDENSED FINANCIAL STATEMENTS
          4




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KOLORFUSION INTERNATIONAL, INC.
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 Six months endedDec. 31, 2005Net loss to common shareholders-as reported
    
    $
    (45,765
    )Less: total stock-based employee compensation
expense determined under fair value based method for
all awards, net of related tax effects
    
    
    (3,650
    )Net loss pro-forma
    
    $
    (49,415
    )Basic & diluted net loss per common share-as reported
    
    $
    0.00Basic & diluted net loss per common share-pro-forma
    
    $
    0.00
    WeightedAverageWeighted
    
    
    
    
    
    
    remainingaverage
    
    
    Aggregate
    
    
    contractualNumber
    
    
    exercise
    
    
    intrinsic
    
    
    termof options
    
    
    price
    
    
    value
    
    
    (years)Outstanding at June 30, 2006
    
    
    2,780,000
    
    
    $
    0.70Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    
    
    
    
    Outstanding at December 31, 2006
    
    
    2,780,000
    
    
    $
    0.70
    
    
    $
    0.00
    
    
    
    4.63Exercisable at December 31, 2006
    
    
    2,630,000
    
    
    $
    0.68
    
    
    $
    0.00
    
    
    
    4.36
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KOLORFUSION INTERNATIONAL, INC.
 NOTES TO CONDENSED FINANCIAL STATEMENTS
     December 31, 2006
    
    
    June 30, 2006(unaudited)
    
    
    (audited)Notes payable to related party, due
dates expired and extended on a
month-to-month, plus interest at 12%
    
    $
    97,797
    
    
    $
    94,192Note payable to bank, payable on
demand but no later than July 12,
2007, including interest at 5.50% at
December 31, 2006 collateralized by
substantially all assets and
guaranteed by a Company stockholder
and officer
    
    
    200,000
    
    
    
    201,757Equipment loan payable to a company
in monthly installments of principal
of $3,157 at 0% interest through
October 2007
    
    
    31,574
    
    
    
    Note payable to bank in monthly
installments of principal and
interest of $3,000 at 10.25% interest
through February 2008. This note is
guaranteed by a Company stockholder
and officer
    
    
    39,563
    
    
    
    Note payable bank in monthly
installments of principal and
interest of $558.46 at 9.75% interest
through September 2008,
collateralized by specific equipment
and guaranteed by a Company
stockholder
    
    
    10,722
    
    
    
    13,910Payable to individual-See detail below
    
    
    555,238
    
    
    
    555,238Totals
    
    $
    934,894
    
    
    $
    865,097Less: Current portion
    
    
    (366,522
    )
    
    
    (301,949
    )Long-term debt portion
    
    $
    568,372
    
    
    $
    563,148
 Note Payable to Individual
  6
    Table of Contents   KOLORFUSION INTERNATIONAL, INC.
 NOTES TO CONDENSED FINANCIAL STATEMENTS
             7




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KOLORFUSION INTERNATIONAL, INC.
 
 Item 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
          8
    Table of Contents           9
    Table of Contents                10




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Item 3.
    
    CONTROLS & PROCEDURES
    11




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PART II  OTHER INFORMATION
 Item 1.
    
    Legal Proceeedings
  Item 2.
    
    Changes in Securities and Use of Proceeds
  Item 3.
    
    Defaults Upon Senior Securities
  Item 4.
    
    Submission of Matters to a Vote of Security Holders
  Item 5.
    
    Other Information
  Item 6.
    
    Exhibits and Reports on Form 8-K
 (a)
    
    Exhibits:
 31.1
    
    Certification of Chief Executive Officer pursuant to Securities
Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).*31.2
    
    Certification of Chief Financial Officer pursuant to Securities
Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).*32.1
    
    Certification of Chief Executive Officer pursuant to Securities
Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a) as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.*32.2
    
    Certification of Chief Financial Officer pursuant to Securities
Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a) as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.*
 (b)
    
    No reports on Form 8-K were filed during the six months ended December 31, 2006.
 *
    
    Files herewith.
  12




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SIGNATURE
  KOLORFUSION INTERNATIONAL, INC.Date: February 14, 2007
    By:
    /s/ Stephen NagelDirector, President  13




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EXHIBIT INDEX
 ExhibitNo..
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant to Securities Exchange Act
of 1934 Rule 13a-14(a) or 15d-14(a).31.2
    
    Certification of Chief Financial Officer pursuant to Securities Exchange Act
of 1934 Rule 13a-14(a) or 15d-14(a).32.1
    
    Certification of Chief Executive Officer pursuant to Securities Exchange Act
of 1934 Rule 13a-14(a) or 15d-14(a) as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to Securities Exchange Act
of 1934 Rule 13a-14(a) or 15d-14(a) as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 *
    
    Filed herewith.
  14