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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: September 30, 2007
 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. 32nd Ave. Unit A, CO 80011
 
  (303) 340-9994
 
  þ o
 o þ
 23,709,540 1,076,923




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KOLORFUSION INTERNATIONAL, INC.
 INDEX
 PagePART I
    
    FINANCIAL INFORMATION
    
    
    1Item 1.
    
    Financial Statements (Unaudited)
    
    
    1Condensed Balance Sheets September 30, 2007 (Unaudited) and June 30, 2007
    
    
    1Statements of Operations Three month periods ended September 30, 2007 and 2006 (Unaudited)
    
    
    2Condensed Statements of Cash Flows Three month periods ended September 30, 2007 and 2006 (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 I. FINANCIAL STATEMENTS
 
 CONDENSED BALANCE SHEETS
 September 30,
    
    
    June 30,2007
    
    
    2007(Unaudited)
    
    
    (Audited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    17,424
    
    
    $
    1,617Trade accounts receivable, allowance for doubtful
accounts of $6,300 and $18,900, respectively
    
    
    308,306
    
    
    
    208,987Inventories
    
    
    154,245
    
    
    
    150,763Prepaid rent
    
    
    12,711
    
    
    
    12,711Total current assets
    
    
    492,686
    
    
    
    374,078LEASEHOLD IMPROVEMENTS AND EQUIPMENT, NET
    
    
    341,675
    
    
    
    359,955OTHER ASSETS:Patents, less accumulated amortization of
$3,507,913 and $3,446,373, respectively
    
    
    184,617
    
    
    
    246,157Other
    
    
    27,600
    
    
    
    27,600Total Other Assets
    
    
    212,217
    
    
    
    273,757TOTAL ASSETS
    
    $
    1,046,578
    
    
    $
    1,007,790LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)CURRENT LIABILITIES:Accounts payable
    
    $
    287,469
    
    
    $
    240,117Deferred revenue
    
    
    75,417
    
    
    
    69,042Line of Credit
    
    
    2,305
    
    
    
    2,400Short-term note payable
    
    
    200,000
    
    
    
    200,000Current portion of long-term debt
    
    
    144,957
    
    
    
    150,293Capital lease current portion.
    
    
    52,278
    
    
    
    52,543Accrued expenses
    
    
    25,882
    
    
    
    13,433Advances from stockholder
    
    
    24,002
    
    
    
    32,233Accrued expenses due officer/stockholders
    
    
    333,373
    
    
    
    333,373Total current liabilities
    
    
    1,145,683
    
    
    
    1,093,434LONG-TERM DEBT, net of current portion
    
    
    
    
    
    
    13,627Capital leases net of current portion
    
    
    179,076
    
    
    
    190,687DEFERRED REVENUE
    
    
    14,583
    
    
    
    21,667Total Liabilities
    
    
    1,339,342
    
    
    
    1,319,415STOCKHOLDERS 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, 23,709,540 shares issued and
outstanding
    
    
    23,710
    
    
    
    23,710Additional paid-in capital
    
    
    10,970,566
    
    
    
    10,968,349Accumulated deficit
    
    
    (11,288,117
    )
    
    
    (11,304,761
    )Total Stockholders deficit
    
    
    (292,764
    )
    
    
    (311,625
    )TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT
    
    $
    1,046,578
    
    
    $
    1,007,790
   1




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KOLORFUSION INTERNATIONAL, INC.
 
 CONDENSED STATEMENTS OF OPERATIONS
 Three Months EndedSeptember 302007
    
    
    2006Revenues:Sales
    
    $
    507,361
    
    
    $
    379,921License and royalties
    
    
    33,375
    
    
    
    76,047Total Revenue
    
    
    540,736
    
    
    
    455,968Cost of sales
    
    
    262,879
    
    
    
    228,766Gross Profit
    
    
    277,857
    
    
    
    227,202Selling, general and administrative expenses
    
    
    245,448
    
    
    
    282,117Operating income (loss)
    
    
    32,409
    
    
    
    (54,915
    )Interest expense
    
    
    (15,765
    )
    
    
    (3,811
    )Income / (loss ) before income taxes
    
    
    16,644
    
    
    
    (58,726
    )Income tax provision
    
    
    
    
    
    
    Net Income (loss)
    
    $
    16,644
    
    
    $
    (58,726
    )Net income (loss) per common share-basic
    
    $
    0.00
    
    
    $
    0.00Weighted average outstanding shares-basic
    
    
    23,709,540
    
    
    
    24,309,540Net income (loss) per common share   diluted
    
    $
    0.00
    
    
    $
    0.00Weighted average outstanding shares  diluted
    
    
    31,794,155
    
    
    
    24,309,540
   2




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KOLORFUSION INTERNATIONAL, INC.
 
 CONDENSED STATEMENTS OF CASH FLOWS
 2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net Income (loss)
    
    $
    16,644
    
    
    $
    (58,726
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Stock compensation
    
    
    2,217
    
    
    
    1,830Depreciation and amortization
    
    
    79,820
    
    
    
    64,568Loss on disposal of leasehold improvements & equipment
    
    
    
    
    
    
    45,259Change in Operating Assets and Liabilities(Increase) decrease in trade accounts receivable
    
    
    (99,319
    )
    
    
    85,166(Increase) in prepaid rent
    
    
    
    
    
    
    (12,711
    )(Increase) in inventories
    
    
    (3,482
    )
    
    
    (55,516
    )Decrease in other assets
    
    
    
    
    
    
    1,908Increase (decrease) in accounts payable
    
    
    47,352
    
    
    
    (94,696
    )(Decrease) in deferred revenue
    
    
    (709
    )
    
    
    (30,046
    )Increase in accrued expenses
    
    
    12,449
    
    
    
    6,804Net cash provided (used in) operating activities
    
    
    54,972
    
    
    
    (46,160
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of leasehold improvements and equipment
    
    
    
    
    
    
    (23,697
    )CASH FLOWS FROM FINANCING ACTIVITIES:Payment on line of credit
    
    
    (95
    )
    
    
    Proceeds from long-term debt
    
    
    
    
    
    
    50,000Payments on long-term debt
    
    
    (18,963
    )
    
    
    (9,437
    )Payments on capital leases
    
    
    (11,876
    )
    
    
    Repayment of advances from shareholders
    
    
    (8,231
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    (39,165
    )
    
    
    40,563Increase (decrease) in cash and cash equivalents
    
    
    15,807
    
    
    
    (29,294
    )Cash and cash equivalents:Beginning of period
    
    
    1,617
    
    
    
    139,424End of period
    
    $
    17,424
    
    
    $
    110,130SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Leasehold improvements & equipment financed with debt
    
    $
    
    
    
    $
    45,530Cash payments for interest
    
    $
    15,765
    
    
    $
    3,811
   3




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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
    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 September 30, 2007
    
    
    3,000,000
    
    
    $
    0.71
    
    
    $
    0.00
    
    
    
    5.13Exercisable at September 30, 2007
    
    
    2,700,000
    
    
    $
    0.66
    
    
    $
    0.00
    
    
    
    4.30
  5




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KOLORFUSION INTERNATIONAL, INC.
 NOTES TO CONDENSED FINANCIAL STATEMENTS
  Options Outstanding
    
    
    Options ExercisableWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedExercise
    
    Number
    
    
    Remaining
    
    
    Average
    
    
    Number
    
    
    AveragePrices
    
    Outstanding
    
    
    Contractual Life
    
    
    Exercise Price
    
    
    Exercisable
    
    
    Exercise Price$.38  .50
    
    
    1,325,000
    
    
    
    3.88
    
    
    $
    .44
    
    
    
    1,275,000
    
    
    $
    .43$.75  1.00
    
    
    1,575,000
    
    
    
    6.03
    
    
    $
    .89
    
    
    
    1,425,000
    
    
    $
    .88$1.01-1.50
    
    
    100,000
    
    
    
    7.51
    
    
    $
    1.50
    
    
    
    
    
    
    
    $.38  1.50
    
    
    3,000,000
    
    
    
    5.13
    
    
    $
    .71
    
    
    
    2,700,000
    
    
    $
    .66
     Revolving Notes Payable to Bank
  Line of Credit  Bank
   6




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KOLORFUSION INTERNATIONAL, INC.
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 Long-term Debt
 September 30, 2007
    
    
    June 30, 2007Notes payable to related
party, due dates expired and
extended on a month-to-month,
plus interest at 12%
    
    $
    98,497
    
    
    $
    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
    
    
    6,356
    
    
    
    7,848Bank note at prime rate plus
2% due in full October 2008
with monthly payments
of $3,244
    
    
    36,946
    
    
    
    44,846Equipment purchase note at
9.75% payable monthly and due
September 2008
    
    
    3,158
    
    
    
    12,629Totals
    
    
    144,957
    
    
    
    163,920Less: Current portion
    
    
    (144,957
    )
    
    
    (150,293
    )Long-term debt portion
    
    $
    
    
    
    $
    13,627
  Capital Leases
   September 30, 2007
    
    
    June 30, 2007Equipment
    
    $
    264,806
    
    
    $
    264,806Less: accumulated depreciation
    
    
    (24,596
    )
    
    $
    (11,356
    )$
    240,210
    
    
    $
    253,540
  7




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KOLORFUSION INTERNATIONAL, INC.
 NOTES TO CONDENSED FINANCIAL STATEMENTS
  Years ending September 302008
    
    $
    78,2802009
    
    
    78,2902010
    
    
    45,9912011
    
    
    43,0562012
    
    
    35,352Thereafter
    
    
    13,296Total
    
    
    294,265Less amount representing interest
    
    
    (62,911
    )Net capital lease obligations
    
    
    231,354Less current portion
    
    
    (52,278
    )Long-term portion
    
    $
    179,076
      8




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KOLORFUSION INTERNATIONAL, INC.
 NOTES TO CONDENSED FINANCIAL STATEMENTS
       9




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KOLORFUSION INTERNATIONAL, INC.
 
 Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
         10




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11




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General
  Inventory Valuation
  Revenue Recognition and Deferred Revenue
  Estimate
  Patent Rights
   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
 (a)
    
    Exhibits:
 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.*
 (b)
    
    No reports on Form 8-K were filed during the three months ended September 30, 2007.
  SIGNATURE
  KOLORFUSION INTERNATIONAL, INC.Date: November 13, 2007
    
    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.
   15