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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended: September 30, 2008
 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
 (Address and zip code of principal executive offices)
 (303) 340-9994
 (Registrants telephone number, including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company
þ(Do not check if a smaller reporting company)
 o þ
 24,309,540 1,076,923




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##### 



KOLORFUSION INTERNATIONAL, INC.
 INDEX
 PagePART I FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements (Unaudited)
    
    
    1Condensed Balance Sheets as of September 30, 2008 (Unaudited) and June 30, 2008
    
    
    1Statements of Operations for the three month periods ended September 30, 2008 and 2007 (Unaudited)
    
    
    2Condensed Statements of Cash Flows for the three month periods ended September 30, 2008 and 2007
(Unaudited)
    
    
    3Selected Notes to Condensed Financial Statements (Unaudited)
    
    
    4-8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    11Item 4. Controls and proceduresPART II OTHER INFORMATION
    
    
    12Exhibit 31.1Exhibit 32.1




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KOLORFUSION INTERNATIONAL, INC.
 
 PART I  FINANCIAL INFORMATION
 
 Item I. FINANCIAL STATEMENTS
 
 CONDENSED BALANCE SHEETS
 September 30
    
    
    June 302008
    
    
    2008(Unaudited)
    
    
    (Audited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    12,477
    
    
    $
    7,009Trade accounts receivable, net of allowance for
doubtful accounts of $2,678 as of
September 30, 2008 and June 30, 2008
    
    
    119,077
    
    
    
    131,202Inventories, net
    
    
    145,515
    
    
    
    136,659Prepaid expenses
    
    
    13,454
    
    
    
    13,454Total current assets
    
    
    290,523
    
    
    
    288,324LEASEHOLD IMPROVEMENTS AND EQUIPMENT, NET
    
    
    306,165
    
    
    
    325,856OTHER ASSETS:Other
    
    
    31,296
    
    
    
    27,600Total other assets
    
    
    31,296
    
    
    
    27,600$
    627,984
    
    
    $
    641,780LIABILITIES AND STOCKHOLDERS DEFICITCURRENT LIABILITIES:Current portion of long-term debt
    
    $
    354,510
    
    
    $
    368,630Current portion of capital lease obligations
    
    
    71,414
    
    
    
    93,704Accounts payable
    
    
    220,900
    
    
    
    253,998Deferred revenue
    
    
    40,000
    
    
    
    45,000Customer deposits
    
    
    65,040
    
    
    
    18,015Accrued expenses
    
    
    31,971
    
    
    
    20,076Accrued expenses due officer/stockholders
    
    
    333,373
    
    
    
    333,373Advances from stockholder
    
    
    50,968
    
    
    
    40,968Total current liabilities
    
    
    1,168,176
    
    
    
    1,173,764Long-term debt, net of current portion
    
    
    
    
    
    
    Capital lease obligations, net of current portion
    
    
    140,185
    
    
    
    134,228Total Liabilities
    
    
    1,308,361
    
    
    
    1,307,992STOCKHOLDERS DEFICIT:Preferred stock Series C-1, $.001 par value, 10,000,000 shares
authorized: 1,076,923 issued and outstanding
    
    
    1,077
    
    
    
    1,077Common stock, $.001 par value, 100,000,000 shares
authorized, and 24,309,540 issued and outstanding as of September 30 and June 30, 2008
    
    
    24,310
    
    
    
    24,310Additional paid-in capital
    
    
    11,098,834
    
    
    
    11,096,617Accumulated deficit
    
    
    (11,804,598
    )
    
    
    (11,788,216
    )Total Stockholders Deficit
    
    
    (680,377
    )
    
    
    (666,212
    )Total Liabilities and Stockholders Deficit
    
    $
    627,984
    
    
    $
    641,780
   1




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KOLORFUSION INTERNATIONAL, INC.
 
 CONDENSED STATEMENTS OF OPERATIONS
 Three Months EndedSeptember 30
    
    
    September 302008
    
    
    2007Revenues:Sales
    
    $
    391,790
    
    
    $
    507,361License and royalty revenue
    
    
    25,092
    
    
    
    33,375416,882
    
    
    
    540,736Expenses:Cost of sales
    
    
    243,739
    
    
    
    262,879Selling, general and administrative expenses
    
    
    167,499
    
    
    
    245,448Operating income
    
    
    5,644
    
    
    
    32,409Interest expense
    
    
    (22,026
    )
    
    
    (15,765
    )Net Income (loss) before taxes
    
    
    (16,382
    )
    
    
    16,644Income tax provision
    
    
    
    
    
    
    Net income (loss)
    
    $
    (16,382
    )
    
    $
    16,644NET INCOME (LOSS) PER COMMON SHARE- BASIC
    
    $
    0.00
    
    
    $
    .0.00Weighted average shares outstanding-basic
    
    
    24,309,540
    
    
    
    23,709,540NET INCOME (LOSS) PER COMMON SHARE-DILUTED
    
    $
    0.00
    
    
    $
    0.00Weighted average shares outstanding-diluted
    
    
    24,309,540
    
    
    
    31,794,155
   2




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KOLORFUSION INTERNATIONAL, INC.
 
 CONDENSED STATEMENTS OF CASH FLOWS
 2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net Income (loss)
    
    $
    (16,382
    )
    
    $
    16,644Adjustments to reconcile net loss to net cash used in operating activities:Stock compensation
    
    
    2,217
    
    
    
    2,217Depreciation and amortization
    
    
    19,690
    
    
    
    79,820Non-cash interest expense added to principle of long-term debt
    
    
    2,400
    
    
    
    2,400Change in Operating Assets and Liabilities(Increase) decrease in trade accounts receivable
    
    
    12,125
    
    
    
    (99,319
    )(Increase) in inventories
    
    
    (8,856
    )
    
    
    (3,482
    )(Increase) in other assets
    
    
    (3,696
    )
    
    
    (Decrease) in accounts payable
    
    
    (33,098
    )
    
    
    47,352(Decrease) in deferred revenue
    
    
    (5,000
    )
    
    
    (709
    )Increase in customer deposits
    
    
    47,025
    
    
    
    Increase in accrued liabilities
    
    
    11,895
    
    
    
    12,449Net cash provided from operating activities
    
    
    28,321
    
    
    
    57,372CASH FLOWS FROM INVESTING ACTIVITIES:Net cash used in investing activities
    
    
    
    
    
    
    CASH FLOWS FROM FINANCING ACTIVITIES:Payments on line of credit
    
    
    
    
    
    
    (95
    )Payments on long-term and short-term debt
    
    
    (16,520
    )
    
    
    (21,363
    )Payments on capital leases
    
    
    (16,333
    )
    
    
    (11,876
    )Advances from (repayments to) stockholder
    
    
    10,000
    
    
    
    (8,231
    )Net cash used in financing activities
    
    
    (22,853
    )
    
    
    (41,565
    )Increase in cash and cash equivalents
    
    
    5,468
    
    
    
    15,807Cash and cash equivalents:Beginning of period
    
    
    7,009
    
    
    
    1,617End of period
    
    $
    12,477
    
    
    $
    17,424SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash payments for interest
    
    $
    19,626
    
    
    $
    13,365
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WeightedAverageWeighted
    
    
    
    
    
    
    remainingaverage
    
    
    Aggregate
    
    
    contractualNumber
    
    
    exercise
    
    
    intrinsic
    
    
    termof options
    
    
    price
    
    
    value
    
    
    (years)Outstanding at June 30, 2008
    
    
    3,000,000
    
    
    $
    0.71Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    
    
    
    
    Outstanding at September 30, 2008
    
    
    3,000,000
    
    
    $
    0.71
    
    
    $
    
    
    
    
    4.05Exercisable at September 30, 2008
    
    
    2,800,000
    
    
    $
    0.67
    
    
    $
    
    
    
    
    3.68
  Options Outstanding
    
    
    Options ExercisableWeighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    Average
    
    
    WeightedExercise
    
    Number
    
    
    Remaining
    
    
    Average
    
    
    Number
    
    
    Remaining
    
    
    AveragePrices
    
    Outstanding
    
    
    Contractual Life
    
    
    Exercise Price
    
    
    Exercisable
    
    
    Contractual Life
    
    
    Exercise Price$.38 - .50
    
    
    1,325,000
    
    
    
    2.80
    
    
    $
    .44
    
    
    
    1,325,000
    
    
    
    2.75
    
    
    $
    .44$.75 - 1.00
    
    
    1,575,000
    
    
    
    4.94
    
    
    $
    .89
    
    
    
    1,475,000
    
    
    
    5.00
    
    
    $
    .89$1.01-1.50
    
    
    100,000
    
    
    
    6.51
    
    
    $
    1.50
    
    
    
    
    
    
    
    
    
    
    
    $.38 - 1.50
    
    
    3,000,000
    
    
    
    4.05
    
    
    $
    .71
    
    
    
    2,800,000
    
    
    
    3.68
    
    
    $
    .67
   5




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September 30,
    
    
    June 30,2008
    
    
    2008Notes payable to related party, due dates expired and
extended on a month-to-month, plus interest at 12%
    
    $
    108,097
    
    
    $
    105,697Note payable to bank, payable on demand but no later
than January, 2009, including interest at 5.5% at
September 30, 2008, collateralized by substantially
all assets and guaranteed by a Company stockholder
    
    
    200,000
    
    
    
    200,000Note 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
    
    
    
    
    
    
    1,648Line of credit US Bank at 14% revolving month-to-month
    
    
    5,057
    
    
    
    5,057Bank term note at prime rate plus 2% due in full
May 2009 with monthly payments of $4,500
    
    
    41,356
    
    
    
    56,228Totals
    
    
    354,510
    
    
    
    368,630Less current portion
    
    
    (354,510
    )
    
    
    (368,630
    )Long-term portion
    
    $
    
    
    
    $
    
    September 30,
    
    
    June 30,2008
    
    
    2008Equipment
    
    $
    303,263
    
    
    $
    303,263Less: accumulated depreciation
    
    
    (83,485
    )
    
    $
    (68,789
    )$
    219,798
    
    
    $
    234,474
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Future minimum capital lease payments are as follows
 Years ending September 302009
    
    $
    93,0102010
    
    
    57,0072011
    
    
    54,0722012
    
    
    39,0242013
    
    
    13,296Thereafter
    
    
    Total
    
    
    256,409Less amount representing interest
    
    
    (  44,810
    )Net capital lease obligations
    
    
    211,599Less current portion
    
    
    ( 71,414
    )Long-term portion
    
    $
    140,185
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Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities Earnings per Share
 Determination of the Useful
Life of Intangible Assets
 157- 2.
   8




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KOLORFUSION INTERNATIONAL, INC.
 
 Item 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
          9




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10




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Use of Estimates
  Inventory Valuation
  Revenue Recognition and Deferred Revenue
  
 Item
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 4. CONTROLS & PROCEDURES
 (a) Evaluation of Disclosure Controls and Procedures
     11




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(b) Changes in Internal Controls over Financial Reporting
   
 PART II  OTHER INFORMATION
 Item 1. Legal Proceedings
  Item 1 A. Risk Factors
  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
   12




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Item 6. Exhibits and Reports on Form 8-K
  31.1
    
    Certification of Chief Executive 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.*
  *
    
    Files herewith.  13




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SIGNATURE
  KOLORFUSION INTERNATIONAL, INC.Date: November 14, 2008
    By:
    /s/ Stephen NagelDirector, President and Chief Financial Officer  14




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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)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
 *
    
    Filed herewith.  15