##### 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 December 31, 2005
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 0-28351
 KOLORFUSION INTERNATIONAL, INC.
  COLORADO
    
    84-1317836(State or other jurisdiction of
incorporation or organization)
    
    (IRS Employer Identification Number)
 (Address and zip code of principal executive offices)
 (Registrants telephone number, including area code)
 
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
 24,117,544




---



##### 



PagePART I
    
    FINANCIAL INFORMATIONItem 1.
    
    
    
    Financial Statements (Unaudited)Condensed Balance Sheets December 31,
2005 (Unaudited) and
June 30, 2005
    
    
    1Statements of Operations Three
and six month periods ended December 31, 2005 and 2004 (Unaudited)
    
    
    2Condensed Statements of Cash Flows
 Six month periods ended December 31, 2005 and 2004 (Unaudited)
    
    
    3Selected Notes to Condensed Financial Statements (Unaudited)
    
    
    4-5Item 2.
    
    
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    6Item 3
    
    
    
    Controls & Procedures
    
    
    7PART II
    
    OTHER INFORMATION
    
    
    8Certification pursuant to Section 302Certification pursuant to Section 906




---



##### Table of Contents



FINANCIAL INFORMATION
 
 FINANCIAL STATEMENTS
  
  December 31,
    
    
    June 30,2005
    
    
    2005(Unaudited)
    
    
    (Audited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    7,676
    
    
    $
    152,093Trade accounts receivable, allowance for
doubtful accounts of $8,500 and $20,000, respectively
    
    
    219,919
    
    
    
    193,351Inventories
    
    
    230,969
    
    
    
    209,558Total current assets
    
    
    458,564
    
    
    
    555,002LEASEHOLD IMPROVEMENTS AND EQUIPMENT, NET
    
    
    115,687
    
    
    
    115,589OTHER ASSETS:Patents, less accumulated amortization of
$3,077,121 and $2,954,036, respectively
    
    
    615,409
    
    
    
    738,494Other
    
    
    156,100
    
    
    
    193,000771,509
    
    
    
    931,494$
    1,345,760
    
    
    $
    1,602,085LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)CURRENT LIABILITIES:Accounts payable
    
    $
    411,758
    
    
    $
    280,830Deferred revenue
    
    
    174,052
    
    
    
    448,843Current portion of long-term debt
    
    
    715,582
    
    
    
    792,752Accrued expenses
    
    
    19,502
    
    
    
    20,415Accrued expenses due stockholders
    
    
    683,373
    
    
    
    683,373Total current liabilities
    
    
    2,004,267
    
    
    
    2,226,213LONG-TERM DEBT, net of current portion
    
    
    439,130
    
    
    
    364,364DEFERRED REVENUE
    
    
    190,559
    
    
    
    253,939STOCKHOLDERS EQUITY (DEFICIT):Preferred stock, $.001 par value, 10,000,000 shares authorized,
none issued or outstandingCommon stock, $.001 par value, 100,000,000 shares authorized,24,117,544 shares issued and outstanding
    
    
    24,118
    
    
    
    24,118Additional paid-in capital
    
    
    10,218,163
    
    
    
    10,218,163Accumulated deficit
    
    
    (11,530,477
    )
    
    
    (11,484,712
    )(1,288,196
    )
    
    
    (1,242,431
    )$
    1,345,760
    
    
    $
    1,602,085
  1




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedDecember 31
    
    
    December 312005
    
    
    2004
    
    
    2005
    
    
    2004Revenues
    
    $
    540,259
    
    
    $
    423,921
    
    
    $
    1,030,048
    
    
    $
    1,321,037Cost of sales
    
    
    252,006
    
    
    
    238,346
    
    
    
    481,031
    
    
    
    825,683Gross Profit
    
    
    288,253
    
    
    
    185,575
    
    
    
    549,017
    
    
    
    495,354Selling, general and
administrative expenses
    
    
    268,898
    
    
    
    327,536
    
    
    
    569,601
    
    
    
    763,041Operating income (loss)
    
    
    19,355
    
    
    
    (141,961
    )
    
    
    (20,584
    )
    
    
    (267,687
    )Other income
    
    
    114
    
    
    
    2,126
    
    
    
    114
    
    
    
    4,606Interest Expense
    
    
    (11,717
    )
    
    
    (10,106
    )
    
    
    (25,295
    )
    
    
    (24,665
    )Total Other Expense
    
    
    (11,603
    )
    
    
    (7,980
    )
    
    
    (25,181
    )
    
    
    (20,059
    )Income/ (loss ) before income
taxes
    
    $
    7,752
    
    
    $
    (149,941
    )
    
    $
    (45,765
    )
    
    $
    (287,746
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    7,752
    
    
    $
    (149,941
    )
    
    $
    (45,765
    )
    
    $
    (287,746
    )Net (loss) per common share 
basic and diluted
    
    $
    0.00
    
    
    $
    (0.01
    )
    
    $
    0.00
    
    
    $
    (0.01
    )Weighted average outstanding
shares  basic and diluted
    
    
    24,117,544
    
    
    
    23,809,544
    
    
    
    24,117,544
    
    
    
    23,809,544
  2




---



##### Table of Contents



2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss)
    
    $
    (45,765
    )
    
    $
    (287,746
    )Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Common stock issued to employee for compensation
    
    
    
    
    
    
    15,000Depreciation and amortization
    
    
    141,513
    
    
    
    139,552Change in Operating Assets and Liabilities(Increase) decrease in trade accounts receivable
    
    
    (26,568
    )
    
    
    195,320(Increase) decrease inventories
    
    
    (21,411
    )
    
    
    138,188Decrease in other assets
    
    
    36,900
    
    
    
    56,000Increase (decrease) in accounts payable
    
    
    130,928
    
    
    
    (67,418
    )Decrease in deferred revenue
    
    
    (338,171
    )
    
    
    (97,147
    )Decrease in accrued expenses
    
    
    (913
    )
    
    
    (32,800
    )Increase in accrued expenses due stockholders
    
    
    
    
    
    
    46,500Net cash provided by (used in) operating activities
    
    
    (123,487
    )
    
    
    105,449CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of leasehold improvements and equipment
    
    
    (18,526
    )
    
    
    (5,829
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from short term debt
    
    
    13,378Payments on long-term debt
    
    
    (15,782
    )
    
    
    (178,257
    )Net cash (used in) financing activities
    
    
    (2,404
    )
    
    
    (178,257
    )Decrease in cash and cash equivalents
    
    
    (144,417
    )
    
    
    (78,637
    )Cash and cash equivalents:Beginning of period
    
    
    152,093
    
    
    
    138,940End of period
    
    $
    7,676
    
    
    $
    60,303SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash payments for interest
    
    $
    25,295
    
    
    $
    24,665
  3




---



##### Table of Contents



4




---



##### Table of Contents



5




---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
            6




---



##### Table of Contents



7




---



##### Table of Contents



7




---



##### Table of Contents



PART II OTHER INFORMATION
            (a)
    
Exhibits
 31
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*32
    
    Certification 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, 2005.
 
 *
    
    Filed herewith.


8



---



##### Table of Contents



KOLORFUSION INTERNATIONAL, INC.Date: February 21, 2006
    
    By:
    
    /s/ Stephen NagelDirector, President




---



##### Table of Contents



Exhibit No.
    
    Description31
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*32
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
 
 *
    
    Filed herewith.