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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, 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
    
    (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
 24,209,540 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 December 31, 2007 (Unaudited) and June 30, 2007
    
    
    1Statements of Operations for the three and six month periods ended December 31, 2007 and 2006 (Unaudited)
    
    
    2Condensed Statements of Cash Flows for the six month periods ended December 31, 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
 December 31,
    
    
    June 30,2007
    
    
    2007(Unaudited)
    
    
    (Audited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    94,812
    
    
    $
    1,617Trade accounts receivable, less allowance for
doubtful accounts of $2,950 and $18,900,respectively
    
    
    142,245
    
    
    
    208,987Inventories, net
    
    
    159,385
    
    
    
    150,763Prepaid rent
    
    
    12,711
    
    
    
    12,711Total current assets
    
    
    409,153
    
    
    
    374,078LEASEHOLD IMPROVEMENTS AND EQUIPMENT, NET
    
    
    325,067
    
    
    
    359,955OTHER ASSETS:Patents, less accumulated amortization of
$3,507,913 and $3,446,373, respectively
    
    
    123,078
    
    
    
    246,157Other
    
    
    27,600
    
    
    
    27,600Total Other Assets
    
    
    150,678
    
    
    
    273,757TOTAL ASSETS
    
    $
    884,898
    
    
    $
    1,007,790LIABILITIES AND STOCKHOLDERS DEFICITCURRENT LIABILITIES:Accounts payable
    
    $
    207,930
    
    
    $
    240,117Deferred revenue
    
    
    55,278
    
    
    
    69,042Line of credit
    
    
    2,194
    
    
    
    2,400Short-term note payable
    
    
    200,000
    
    
    
    200,000Current portion of long-term debt
    
    
    154,488
    
    
    
    150,293Current portion of capital lease
    
    
    54,372
    
    
    
    52,543Accrued expenses
    
    
    30,348
    
    
    
    13,433Advances from stockholder
    
    
    33,452
    
    
    
    32,233Accrued expenses due officer/stockholders
    
    
    333,373
    
    
    
    333,373Total current liabilities
    
    
    1,071,435
    
    
    
    1,093,434LONG-TERM DEBT, net of current portion
    
    
    27,366
    
    
    
    13,627Capital leases, net of current portion
    
    
    164,810
    
    
    
    190,687DEFERRED REVENUE
    
    
    9,306
    
    
    
    21,667Total Liabilities
    
    
    1,272,917
    
    
    
    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, 24,209,540 and 23,709,540 shares
issued and outstanding
    
    
    24,210
    
    
    
    23,710Additional paid-in capital
    
    
    11,072,283
    
    
    
    10,968,349Accumulated deficit
    
    
    (11,485,589
    )
    
    
    (11,304,761
    )Total Stockholders deficit
    
    
    (388,019
    )
    
    
    (311,625
    )TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT
    
    $
    884,898
    
    
    $
    1,007,790
   1




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KOLORFUSION INTERNATIONAL, INC.
 
 CONDENSED STATEMENTS OF OPERATIONS
   Three Months Ended
    
    
    Six Months EndedDecember 31
    
    
    December 312007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Sales
    
    $
    208,573
    
    
    $
    319,352
    
    
    $
    715,934
    
    
    $
    699,273Royalties
    
    
    27,916
    
    
    
    99,381
    
    
    
    61,291
    
    
    
    175,428Total Revenues
    
    
    236,489
    
    
    
    418,733
    
    
    
    777,225
    
    
    
    874,701Cost of sales
    
    
    194,147
    
    
    
    238,533
    
    
    
    457,026
    
    
    
    467,299Gross Profit
    
    
    42,342
    
    
    
    180,200
    
    
    
    320,199
    
    
    
    407,402Selling, general and administrative expenses
    
    
    220,542
    
    
    
    229,466
    
    
    
    465,990
    
    
    
    511,583Operating loss
    
    
    (178,200
    )
    
    
    (49,266
    )
    
    
    (145,791
    )
    
    
    (104,181
    )Other income (expense):Other income
    
    
    
    
    
    
    264
    
    
    
    
    
    
    
    264Interest Expense
    
    
    (19,272
    )
    
    
    (8,017
    )
    
    
    (35,037
    )
    
    
    (11,828
    )Total Other (Expense)
    
    
    (19,272
    )
    
    
    (7,753
    )
    
    
    (35,037
    )
    
    
    (11,564
    )Loss before income taxes
    
    
    (197,472
    )
    
    
    (57,019
    )
    
    
    (180,828
    )
    
    
    (115,745
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (197,472
    )
    
    $
    (57,019
    )
    
    $
    (180,828
    )
    
    $
    (115,745
    )Net loss per common share  basic and diluted
    
    $
    (0.01
    )
    
    $
    0.00
    
    
    $
    (0.01
    )
    
    $
    (0.01
    )Weighted average outstanding shares  basic
and diluted
    
    
    24,725,844
    
    
    
    24,309,540
    
    
    
    23,717,692
    
    
    
    24,309,540
   2




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KOLORFUSION INTERNATIONAL, INC.
 
 CONDENSED STATEMENTS OF CASH FLOWS
   2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net Loss
    
    $
    (180,828
    )
    
    $
    (115,745
    )Adjustments to reconcile net loss to net cash used in operating activities:Stock compensation
    
    
    4,434
    
    
    
    3,660Depreciation and amortization
    
    
    157,967
    
    
    
    129,422Loss on disposal of leasehold improvements & equipment
    
    
    
    
    
    
    45,259Change in Operating Assets and LiabilitiesDecrease in trade accounts receivable
    
    
    66,742
    
    
    
    15,988(Increase) in prepaid rent
    
    
    
    
    
    
    (12,711
    )(Increase) in inventories
    
    
    (8,622
    )
    
    
    (47,277
    )Decrease in other assets
    
    
    
    
    
    
    1,907(Decrease) in accounts payable
    
    
    (32,187
    )
    
    
    (19,630
    )(Decrease) in deferred revenue
    
    
    (26,125
    )
    
    
    (106,849
    )Increase in accrued expenses
    
    
    16,915
    
    
    
    (4,974
    )Net cash used in operating activities
    
    
    (1,704
    )
    
    
    (110,950
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of leasehold improvements and equipment
    
    
    
    
    
    
    (27,857
    )Net cash used in investing activities
    
    
    
    
    
    
    (27,857
    )CASH FLOWS FROM FINANCING ACTIVITIES:Payment on line of credit
    
    
    (206
    )
    
    
    Proceeds from short-term and long-term debt
    
    
    48,434
    
    
    
    50,000Advance from shareholder
    
    
    15,000Payments on long-term and short-term debt
    
    
    (30,500
    )
    
    
    (25,733
    )Payments on capital leases
    
    
    (24,048
    )
    
    
    (6,791
    )Repayment of advances from shareholders
    
    
    (13,781
    )
    
    
    Net proceeds from issuance of stock
    
    
    100,000
    
    
    
    Net cash provided by financing activities
    
    
    94,989
    
    
    
    17,476Increase (decrease) in cash and cash equivalents
    
    
    93,195
    
    
    
    (121,331
    )Cash and cash equivalents:Beginning of period
    
    
    1,617
    
    
    
    139,424End of period
    
    $
    94,812
    
    
    $
    18,093SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Leasehold improvements & equipment financed with debt
    
    $
    
    
    
    $
    45,530Cash payments for interest
    
    $
    30,080
    
    
    $
    11,828Equipment financed with capital lease obligations
    
    $
    
    
    
    $
    81,200
   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 December 31, 2007
    
    
    3,000,000
    
    
    $
    0.71
    
    
    $
    
    
    
    
    4.88Exercisable at December 31, 2007
    
    
    2,700,000
    
    
    $
    0.66
    
    
    $
    
    
    
    
    4.08
  5




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KOLORFUSION INTERNATIONAL, INC.
 NOTES TO CONDENSED FINANCIAL STATEMENTS
   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
    
    
    
    3.63
    
    
    $
    .44
    
    
    
    1,275,000
    
    
    
    3.40
    
    
    $
    .43$
   .75  1.00
    
    
    1,575,000
    
    
    
    5.78
    
    
    $
    .89
    
    
    
    1,425,000
    
    
    
    5.55
    
    
    $
    .88$

1.01  1.50
    
    
    100,000
    
    
    
    7.26
    
    
    $
    1.50
    
    
    
    
    
    
    
    
    
    
    
    $
   .38  1.50
    
    
    3,000,000
    
    
    
    4.88
    
    
    $
    .71
    
    
    
    2,700,000
    
    
    
    4.08
    
    
    $
    .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
 December 31, 2007
    
    
    June 30, 2007Notes payable to related
party, due dates expired and
extended on a month-to-month,
plus interest at 12%
    
    $
    100,897
    
    
    $
    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
    
    
    4,825
    
    
    
    7,848Bank term note at prime
rate plus 2% due in full May
2009 with monthly payments of $4,500
    
    
    76,132
    
    
    
    44,846Equipment purchase note
payable at 9.75% interest
payable monthly and due
October 2007
    
    
    
    
    
    
    12,629Totals
    
    
    181,854
    
    
    
    163,920Less: Current portion
    
    
    (154,488
    )
    
    
    (150,293
    )Long-term debt portion
    
    $
    27,366
    
    
    $
    13,627
  Capital Leases
   December 31, 2007
    
    
    June 30, 2007Equipment
    
    $
    264,806
    
    
    $
    264,806Less: accumulated depreciation
    
    
    (37,836
    )
    
    $
    (11,356
    )$
    226,970
    
    
    $
    253,540
  7




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KOLORFUSION INTERNATIONAL, INC.
 NOTES TO CONDENSED FINANCIAL STATEMENTS
  Future minimum capital lease payments are as follows:
 Years ending December 312008
    
    $
    78,2802009
    
    
    72,4092010
    
    
    43,0562011
    
    
    43,0562012
    
    
    29,574Thereafter
    
    
    8,310Total
    
    
    274,685Less amount representing interest
    
    
    (55,503
    )Net capital lease obligations
    
    
    219,182Less current portion
    
    
    ( 54,372
    )Long-term portion
    
    $
    164,810
    8




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KOLORFUSION INTERNATIONAL, INC.
 NOTES TO CONDENSED FINANCIAL STATEMENTS
       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
          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 December 31, 2007.
 *
    
    Files herewith.
  14




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SIGNATURE
  KOLORFUSION INTERNATIONAL, INC.Date: February 11, 2008
    By:
    /s/ Stephen NagelDirector, President and Chief Financial Officer




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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.