##### Table of Contents



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: March 31, 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
    
    (IRS Employer Identification Number)incorporation or organization)
 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
 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 March 31, 2008 (Unaudited) and June 30, 2007
    
    
    1Statements of Operations for the three and nine month periods ended March 31, 2008
and 2007 (Unaudited)
    
    
    2Condensed Statements of Cash Flows for the nine month periods ended March 31, 2008
and 2007 (Unaudited)
    
    
    3Selected Notes to Condensed Financial Statements (Unaudited)
    
    
    4-9Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3. Controls & Procedures
    
    
    13PART II OTHER INFORMATION
    
    
    14Exhibit 31.1Exhibit 32.1




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KOLORFUSION INTERNATIONAL, INC.
 
 PART I  FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 
 CONDENSED BALANCE SHEETS
 March 31,
    
    
    June 30,2008
    
    
    2007(Unaudited)
    
    
    (Audited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    12,289
    
    
    $
    1,617Trade accounts receivable, less allowance for doubtful
accounts of $3,424 and $18,900, respectively
    
    
    167,830
    
    
    
    208,987Inventories, net
    
    
    148,949
    
    
    
    150,763Prepaid expenses
    
    
    13,454
    
    
    
    12,711Total current assets
    
    
    342,522
    
    
    
    374,078LEASEHOLD IMPROVEMENTS AND EQUIPMENT, NET
    
    
    345,871
    
    
    
    359,955OTHER ASSETS:Patents, less accumulated amortization of $3,507,913 and
$3,446,373, respectively
    
    
    61,539
    
    
    
    246,157Other
    
    
    27,600
    
    
    
    27,600Total Other Assets
    
    
    89,139
    
    
    
    273,757TOTAL ASSETS
    
    $
    777,532
    
    
    $
    1,007,790LIABILITIES AND STOCKHOLDERS DEFICITCURRENT LIABILITIES:Accounts payable
    
    $
    200,208
    
    
    $
    240,117Deferred revenue
    
    
    55,208
    
    
    
    69,042Line of credit
    
    
    4,893
    
    
    
    2,400Short-term note payable
    
    
    200,000
    
    
    
    200,000Current portion of long-term debt
    
    
    156,505
    
    
    
    150,293Current portion of capital lease
    
    
    66,448
    
    
    
    52,543Accrued expenses
    
    
    49,524
    
    
    
    13,433Advances from stockholder
    
    
    32,099
    
    
    
    32,233Accrued expenses due officer/stockholders
    
    
    333,373
    
    
    
    333,373Total current liabilities
    
    
    1,098,258
    
    
    
    1,093,434LONG-TERM DEBT, net of current portion
    
    
    14,418
    
    
    
    13,627Capital leases, net of current portion
    
    
    176,688
    
    
    
    190,687DEFERRED REVENUE
    
    
    4,167
    
    
    
    21,667Total Liabilities
    
    
    1,293,531
    
    
    
    1,319,415STOCKHOLDERS 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 and 23,709,540 shares issued and
outstanding
    
    
    24,310
    
    
    
    23,710Additional paid-in capital
    
    
    11,094,400
    
    
    
    10,968,349Accumulated deficit
    
    
    (11,635,786
    )
    
    
    (11,304,761
    )Total Stockholders deficit
    
    
    (515,999
    )
    
    
    (311,625
    )TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT
    
    $
    777,532
    
    
    $
    1,007,790
   1




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KOLORFUSION INTERNATIONAL, INC.
 
 CONDENSED STATEMENTS OF OPERATIONS
 Three Months Ended
    
    
    Nine Months EndedMarch 31
    
    
    March 312008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Sales
    
    $
    384,308
    
    
    $
    268,472
    
    
    $
    1,100,242
    
    
    $
    967,745Royalties
    
    
    14,138
    
    
    
    87,709
    
    
    
    75,429
    
    
    
    263,137Total Revenues
    
    
    398,446
    
    
    
    356,181
    
    
    
    1,175,671
    
    
    
    1,230,882Cost of sales
    
    
    273,488
    
    
    
    152,379
    
    
    
    730,514
    
    
    
    619,678Gross Profit
    
    
    124,958
    
    
    
    203,802
    
    
    
    445,157
    
    
    
    611,204Selling, general and administrative expenses
    
    
    256,535
    
    
    
    222,410
    
    
    
    722,525
    
    
    
    733,993Operating loss
    
    
    (131,577
    )
    
    
    (18,608
    )
    
    
    (277,368
    )
    
    
    (122,789
    )Other income (expense):Other income
    
    
    1,135
    
    
    
    
    
    
    
    1,135
    
    
    
    264Interest Expense
    
    
    (19,755
    )
    
    
    (8,830
    )
    
    
    (54,792
    )
    
    
    (20,658
    )Total Other (Expense)
    
    
    (18,620
    )
    
    
    (8,830
    )
    
    
    (53,657
    )
    
    
    (20,394
    )Loss before income taxes
    
    
    (150,197
    )
    
    
    (27,438
    )
    
    
    (331,025
    )
    
    
    (143,183
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (150,197
    )
    
    $
    (27,438
    )
    
    $
    (331,025
    )
    
    $
    (143,183
    )Net loss per common share  basic and diluted
    
    $
    (0.01
    )
    
    $
    0.00
    
    
    $
    (0.01
    )
    
    $
    (0.01
    )Weighted average outstanding shares  basic and diluted
    
    
    24,227,318
    
    
    
    24,309,540
    
    
    
    23,973,443
    
    
    
    24,309,540
   2




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KOLORFUSION INTERNATIONAL, INC.
 
 CONDENSED STATEMENTS OF CASH FLOWS
 2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net Loss
    
    $
    (331,025
    )
    
    $
    (143,183
    )Adjustments to reconcile net loss to net cash used in operating activities:Stock compensation
    
    
    6,651
    
    
    
    5,488Depreciation and amortization
    
    
    237,179
    
    
    
    198,371Loss on disposal of leasehold improvements & equipment
    
    
    
    
    
    
    45,259Change in Operating Assets and Liabilities:(Increase) decrease in trade accounts receivable
    
    
    41,157
    
    
    
    (20,121
    )(Increase) in prepaid expenses
    
    
    (743
    )
    
    
    (12,711
    )(Increase) decrease in inventories
    
    
    1,814
    
    
    
    (29,109
    )Decrease in other assets
    
    
    
    
    
    
    1,907(Decrease) in accounts payable
    
    
    (39,909
    )
    
    
    (21,420
    )(Decrease) in deferred revenue
    
    
    (31,334
    )
    
    
    (152,058
    )Increase in accrued expenses
    
    
    36,091
    
    
    
    7,190Net cash used in operating activities
    
    
    (80,119
    )
    
    
    (120,387
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of leasehold improvements and equipment
    
    
    
    
    
    
    (39,173
    )Net cash used in investing activities
    
    
    
    
    
    
    (39,173
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from short-term and long-term debt
    
    
    70,682
    
    
    
    85,000Payments on long-term and short-term debt
    
    
    (61,320
    )
    
    
    (42,271
    )Payments on capital leases
    
    
    (38,571
    )
    
    
    (11,675
    )Net proceeds from issuance of stock
    
    
    120,000
    
    
    
    Net cash provided by financing activities
    
    
    90,791
    
    
    
    31,054Increase (decrease) in cash and cash equivalents
    
    
    10,672
    
    
    
    (128,506
    )Cash and cash equivalents:Beginning of period
    
    
    1,617
    
    
    
    139,424End of period
    
    $
    12,289
    
    
    $
    10,918SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash payments for interest
    
    $
    47,598
    
    
    $
    20,658Equipment financed with capital lease obligations
    
    $
    38,477
    
    
    $
    81,200
   3




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4




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WeightedAverageWeighted
    
    
    
    
    
    
    remainingaverage
    
    
    Aggregate
    
    
    contractualNumber
    
    
    exercise
    
    
    intrinsic
    
    
    termof options
    
    
    price
    
    
    value
    
    
    (years)Outstanding at June 30, 2007
    
    
    3,000,000
    
    
    $
    0.71Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    
    
    
    
    Outstanding at March 31, 2008
    
    
    3,000,000
    
    
    $
    0.71
    
    
    $
    
    
    
    
    4.55Exercisable at March 31, 2008
    
    
    2,700,000
    
    
    $
    0.66
    
    
    $
    
    
    
    
    4.37
  Options Outstanding
    
    
    Options ExercisableWeighted
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    Weighted
    
    
    
    
    
    AverageExercise
    
    Number
    
    
    Remaining
    
    
    Average
    
    
    Number
    
    
    Remaining
    
    
    Weighted AveragePrices
    
    Outstanding
    
    
    Contractual Life
    
    
    Exercise Price
    
    
    Exercisable
    
    
    Contractual Life
    
    
    Exercise Price$.38 - .50
    
    
    1,325,000
    
    
    
    3.30
    
    
    $
    .44
    
    
    
    1,275,000
    
    
    
    3.23
    
    
    $
    .43$.75 - 1.00
    
    
    1,575,000
    
    
    
    5.44
    
    
    $
    .89
    
    
    
    1,425,000
    
    
    
    5.38
    
    
    $
    .88$1.01-1.50
    
    
    100,000
    
    
    
    7.01
    
    
    $
    1.50
    
    
    
    
    
    
    
    
    
    
    
    $.38 - 1.50
    
    
    3,000,000
    
    
    
    4.55
    
    
    
    .71
    
    
    
    2,700,000
    
    
    
    4.37
    
    
    $
    .66
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Revolving Notes Payable to Bank
  Line of Credit  Bank
  Long-term Debt
 March 31, 2008
    
    
    June 30, 2007Notes payable to related party, due
dates expired and extended on a
month-to-month, plus interest at 12%
    
    $
    103,297
    
    
    $
    98,597Note 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
    
    
    3,256
    
    
    
    7,848Bank term note at prime rate plus 2%
due in full May 2009 with monthly
payments of $4,500
    
    
    64,370
    
    
    
    44,846Equipment purchase note payable at
9.75% interest payable monthly and due
October 2007
    
    
    
    
    
    
    12,629Totals
    
    
    170,923
    
    
    
    163,920Less: Current portion
    
    
    (156,505
    )
    
    
    (150,293
    )Long-term debt portion
    
    $
    14,418
    
    
    $
    13,627
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March 31, 2008
    
    
    June 30, 2007Equipment
    
    $
    303,283
    
    
    $
    264,806Less: accumulated depreciation
    
    
    (52,141
    )
    
    $
    (11,356
    )$
    251,142
    
    
    $
    253,540
 Future minimum capital lease payments are as follows
 Years ending March 312009
    
    $
    93,7532010
    
    
    76,1052011
    
    
    54,0722012
    
    
    52,2362013
    
    
    23,796Thereafter
    
    
    3,324Total
    
    
    303,286Less amount representing interest
    
    
    (60,150
    )Net capital lease obligations
    
    
    243,136Less current portion
    
    
    (66,448
    )Long-term portion
    
    $
    176,688
  7




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8




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The Fair Value Option for Financial Assets and Financial Liabilities  Including an Amendment of
FASB Statement No. 115
    9




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KOLORFUSION INTERNATIONAL, INC.
 
 Item 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward Looking Statements
  General
   Results of Operations
    10




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Liquidity and Capital Resources
      11




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Significant Accounting Policies
  Use of Estimates
   Inventory Valuation
  Revenue Recognition and Deferred Revenue
  Patent Rights and Impairment of Long-Lived Assets
   12




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Item 3. CONTROLS & PROCEDURES
      13




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PART II  OTHER INFORMATION
 Item 1. Legal Proceedings
  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
  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.  14




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SIGNATURE
  KOLORFUSION INTERNATIONAL, INC.Date: May 13, 2008
    By:
    /s/ Stephen NagelDirector, President and Chief Financial Officer  15




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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.  16