Edgar Filing: FII INTERNATIONAL INC

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-QSB

[X] QUARTERLY REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended June 30, 2006

[ ] TRANSITION REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from _________________to_________________

Commission file number 000-50662

FII INTERNATIONAL INC.
(Exact name of small business issuer as specified in its charter)

Incorporated in the State of Nevada 98-0377768
(State or other jurisdiction of (I.R.S. Employer Id. No.)
incorporation or organization)

1100 Melville Street, 6th Floor, Vancouver, British
Columbia, V6E 4A6, Canada
(Address of principal executive offices)

604-696-1060
(Issuer's telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
[X] Yes [ ] No

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.

Class Outstanding at August 10, 2006
----- ------------------------------
Common Stock - $0.001 par value 9,000,000

Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

FII INTERNATIONAL INC.
(a development stage company)

BALANCE SHEETS

June 30, 2006 December 31, 2005
------------- -----------------
(Audited)

ASSETS

CURRENT ASSETS
Cash $ 456 $ 632
Inventory 1,370 --
-------- --------

$ 1,826 $ 632
======== ========

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 3,129 $ 5,462
Due to related party (Note 5) 12,382 2,675
-------- --------
15,511 8,137
-------- --------

COMMITMENTS AND CONTINGENCIES (Notes 1 and 3)

STOCKHOLDERS' DEFICIT)
Capital stock (Note 4)
Common stock, $0.001 par value, 200,000,000 shares authorized
9,000,000 common shares issued and outstanding (2005 - 9,000,000) 9,000 9,000
Additional paid in capital 20,589 20,589
Deficit accumulated during the development stage (43,274) (37,094)
-------- --------

(13,685) (7,505)
-------- --------

$ 1,826 $ 632
======== ========

The accompanying notes are an integral part of
these interim financial statements

FII INTERNATIONAL INC.
(a development stage company)

INTERIM STATEMENTS OF OPERATIONS
(Unaudited)

Cumulative from
May 3, 2002
Three Months Ended Six Months Ended (inception) to
June 30, June 30, June 30, June 30, June 30,
2006 2005 2006 2006 2006
----------- ----------- ----------- ----------- -----------

GENERAL AND ADMINISTRATIVE EXPENSES
Office and general $ 69 $ 434 $ 69 $ 473 $ 2,785
Professional fees 1,480 1,173 3,368 3,210 26,725
Regulatory and filing fees 180 225 280 1,169 8,301
Travel and trade shows 2,463 -- 2,463 -- 2,463
Website development costs -- -- -- -- 1,000
----------- ----------- ----------- ----------- -----------
NET LOSS $ (4,192) $ (1,832) $ (6,180) $ (4,852) $ (41,274)
=========== =========== =========== =========== ===========

BASIC AND DILUTED NET LOSS PER SHARE $ (0.00) $ (0.00) $ (0.00) $ (0.00)
=========== =========== =========== ===========

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 9,000,000 7,755,556 9,000,000 7,375,691
=========== =========== =========== ===========

The accompanying notes are an integral part of
these interim financial statements

FII INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM MAY 3, 2002 (INCEPTION) TO JUNE 30, 2006

Deficit
Accumulated
Additional During the
Common Shares Paid in Development
Number Amount Capital Stage Total
------ ------ ------- ----- -----

Balance, May 3, 2002 -- $ -- $ -- $ -- $ --

Issued for option agreement - June 10, 2002 2,000,000 2,000 -- (2,000) --

Issued for cash at $0.005 per share - June 18, 2002 5,000,000 5,000 20,000 -- 25,000

Net loss -- -- -- (10,313) (10,313)
--------- ------ ------- -------- --------
Balance, December 31, 2002 7,000,000 7,000 20,000 (12,313) 14,687

Net loss -- -- -- (4,811) (4,811)
--------- ------ ------- -------- --------
Balance, December 31, 2003 7,000,000 7,000 20,000 (17,124) 9,876

Net loss -- -- -- (10,001) (10,001)
--------- ------ ------- -------- --------
Balance, December 31, 2004 7,000,000 7,000 20,000 (27,125) (125)

Issued on settlement of debt and asset acquisition
- May 27, 2005 (Notes 3 and 4) 2,000,000 2,000 589 -- 2,589

Net loss -- -- -- (9,969) (9,969)
--------- ------ ------- -------- --------
Balance, December 31, 2005 (Audited) 9,000,000 9,000 20,589 (37,094) (7,505)

Net loss -- -- -- (6,180) (6,180)
--------- ------ ------- -------- --------

Balance, June 30, 2006 (Unaudited) 9,000,000 $9,000 $20,589 $(43,274) $(13,685)
========= ====== ======= ======== ========

The accompanying notes are an integral part of
these interim financial statements

FII INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)
INTERIM STATEMENTS OF CASH FLOWS
(UNAUDITED)

Cumulative from
May 3, 2002
(inception) to
Six Months Ended June 30, June 30,
2006 2005 2006
-------- -------- --------

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (6,180) $ (4,852) $(41,274)
Adjustments to reconcile net loss to net cash
used in operating activities:
Accrued interest -- 89 89
Changes in prepaid expenses -- 150 --
Changes in accounts payable (2,333) (38) 3,129
Changes in inventory (1,370) -- (1,370)
-------- -------- --------

NET CASH FLOWS USED IN OPERATING ACTIVITIES (9,883) (4,651) (39,426)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on sale of common stock -- -- 25,000
Related party advances 9,707 5,175 14,882
-------- -------- --------

NET CASH FLOWS FROM FINANCING ACTIVITIES 9,707 5,175 39,882
-------- -------- --------

INCREASE (DECREASE) IN CASH (176) 524 456

CASH, BEGINNING OF THE PERIOD 632 1,842 --
-------- -------- --------

CASH, END OF THE PERIOD $ 456 $ 2,366 $ 456
======== ======== ========

Supplemental disclosures:

Cash paid for:
Interest $ -- $ -- $ --
======== ======== ========
Taxes $ -- $ -- $ --
======== ======== ========

OTHER NON-CASH FINANCING AND INVESTING ACTIVITIES: Refer to Notes 3 and 4.

The accompanying notes are an integral part of
these interim financial statements

FII INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO INTERIM FINANCIAL STATEMENTS
(UNAUDITED)

JUNE 30, 2006
--------------------------------------------------------------------------------

NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION

ORGANIZATION
FII International Inc. (the "Company") was incorporated under the laws of the
State of Nevada on May 3, 2002. The Company, by agreement dated June 10, 2002
acquired the option to purchase and develop the domain name
"fashion-international.com" in exchange for 2,000,000 restricted common shares
of capital stock of the Company and $250,000 payable on or before June 9, 2004
(refer to Notes 3 and 4). The Company, through "fashion-international.com",
intends to develop a fashion portal that will enable the Company to provide
fashion related products and services to the global fashion industry.

GOING CONCERN
These financial statements have been prepared on a going concern basis, which
implies that the Company will continue to realize its assets and discharge its
liabilities in the normal course of business. The Company has been in the
initial organization stage since inception and to date has not generated any
operating revenues. The Company's ability to continue as a going concern is
dependent on raising additional capital to fund future operations or generating
net profits from its planned business operations and ultimately to attain
profitable operations. The Company has accumulated losses of $43,274 since
inception. The Company does not expect to satisfy its cash requirements for
business operations for the next 12 months with its current cash in the bank.
The Company must raise additional equity or debt funding in order to continue
its business operations for the next 12 months. There is no certainty that
additional funding will be available when needed. Accordingly, these factors
raise substantial doubt as to the Company's ability to continue as a going
concern. These financial statements do not include any adjustments to the
recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should the Company be unable to continue
as a going concern.

UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles in the United States
for interim financial information and with the instructions to Form 10-QSB of
Regulation S-B. They do not include all information and footnotes required by
generally accepted accounting principles in the United States for complete
financial statements. However, except as disclosed herein, there have been no
material changes in the information disclosed in the notes to the financial
statements for the period ended December 31, 2005 included in the Company's Form
10-KSB with the Securities and Exchange Commission. The interim unaudited
financial statements should be read in conjunction with those financial
statements included in the Form 10-KSB. In the opinion of Management, all
adjustments considered necessary for a fair presentation, consisting solely of
normal recurring adjustments, have been made. Operating results for the six
months ended June 30, 2006 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2006.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION
These financial statements are presented in United States dollars and have been
prepared in accordance with United States generally accepted accounting
principles.

DEVELOPMENT STAGE ENTERPRISE
The Company is a development stage enterprise, as defined in Financial
Accounting Standards Board Statement ("SFAS") No. 7 "Accounting and Reporting by
Development Stage Enterprises". The Company is devoting all of its present
efforts to securing and establishing a new business. Its planned principal
operations have not commenced and accordingly, no revenue has been derived
during the organizational period.

USE OF ESTIMATES AND ASSUMPTIONS
Preparation of the Company's financial statements in conformity with United
States generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements. Actual results could differ from those estimates.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

INVENTORY
Inventory consists of items for resale and is carried at the lower of cost or
net realizable value.

GOODWILL AND INTANGIBLE ASSETS
The Company has adopted the provisions of SFAS No. 142, "Goodwill and Intangible
Assets". Under SFAS 142, goodwill and intangible assets with indefinite lives
will no longer be amortized and will be tested for impairment annually or
whenever events or circumstances indicate that the estimated fair value is less
than the related carrying value as determined on a reporting unit basis. When
impairment is indicated, the carrying value of the asset will be reduced
accordingly.

FINANCIAL INSTRUMENTS
In accordance with the requirements of SFAS No. 107, "Disclosures about Fair
Value of Financial Instruments," the Company has determined the estimated fair
value of financial instruments using available market information and
appropriate valuation methodologies. The carrying values of cash, accounts
payable and accrued liabilities, and amounts due to related party approximate
fair values due to the short-term maturity of these instruments.

WEBSITE DEVELOPMENT COSTS
The Company accounts for website development costs in accordance with Emerging
Issues Task Force (EITF) 00-02 whereby preliminary website development costs are
expensed as incurred. Upon achieving technical and financial viability and
ensuring adequate resources to complete development, the Company capitalizes all
direct costs relating to the website development. Ongoing costs for maintenance
and enhancement are expensed as incurred. Capitalized costs will be amortized
over the estimated useful life commencing upon substantial completion and
commercialization of the website. To date the Company has not capitalized any
web site development costs.

LOSS PER COMMON SHARE
The Company computes loss per share in accordance with SFAS No. 128, "Earnings
per Share" which requires presentation of both basic and diluted earnings per
share on the face of the statement of operations. Basic loss per share is
computed by dividing net loss available to common shareholders by the weighted
average number of outstanding common shares during the period. Diluted loss per
share gives effect to all dilutive potential common shares outstanding during
the period including stock options and warrants, using the treasury method, and
preferred stock, using the if-converted method. Dilutive loss per share excludes
all potential common shares if their effect is anti-dilutive.

INCOME TAXES
The Company has adopted SFAS No. 109 "Accounting for Income Taxes" as of its
inception. Pursuant to SFAS No. 109, the Company is required to compute tax
asset benefits for net operating losses carried forward. Potential benefit of
net operating losses have not been recognized in these financial statements
because the Company cannot be assured it is more likely than not it will utilize
the net operating losses carried forward in future years.

STOCK-BASED COMPENSATION
The Company has not adopted a stock option plan and has not granted any stock
options. Accordingly no stock-based compensation has been recorded to date.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

RECENT ACCOUNTING PRONOUNCEMENTS

In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments-an amendment of FASB Statements No. 133 and 140", to
simplify and make more consistent the accounting for certain financial
instruments. SFAS No. 155 amends SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", to permit fair value remeasurement for any
hybrid financial instrument with an embedded derivative that otherwise would
require bifurcation, provided that the whole instrument is accounted for on a
fair value basis. SFAS No. 155 amends SFAS No. 140, "Accounting for the
Impairment or Disposal of Long-Lived Assets", to allow a qualifying
special-purpose entity to hold a derivative financial instrument that pertains
to a beneficial interest other than another derivative financial instrument.
SFAS No. 155 applies to all financial instruments acquired or issued after the
beginning of an entity's first fiscal year that begins after September 15, 2006,
with earlier application allowed. This standard is not expected to have a
significant effect on the Company's future reported financial position or
results of operations.

In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets, an amendment of FASB Statement No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities".
This statement requires all separately recognized servicing assets and servicing
liabilities be initially measured at fair value, if practicable, and permits for
subsequent measurement using either fair value measurement with changes in fair
value reflected in earnings or the amortization and impairment requirements of
Statement No. 140. The subsequent measurement of separately recognized servicing
assets and servicing liabilities at fair value eliminates the necessity for
entities that manage the risks inherent in servicing assets and servicing
liabilities with derivatives to qualify for hedge accounting treatment and
eliminates the characterization of declines in fair value as impairments or
direct write-downs. SFAS No. 156 is effective for an entity's first fiscal year
beginning after September 15, 2006. This standard is not expected to have a
significant effect on the Company's future reported financial position or
results of operations.

NOTE 3 - OPTION AGREEMENT

By agreement dated June 10, 2002 between the Company and Patrizia Leone-Mitchell
(the "optionee"), the Company acquired the option to purchase and develop the
domain name "fashion-international.com" and other related proprietary
information ("Fashion-International"), in exchange for 2,000,000 restricted
common shares of capital stock of the Company and an additional payment of
$250,000 payable in cash on or before the end of the option term. The term of
the option is for two years ended June 9, 2004. The term may be extended at the
Company's option for a further year through the issuance of an additional
500,000 restricted common shares of capital stock of the Company. The Company
has the right to use and improve Fashion-International, however the assets
remain under control of the optionee until all option payments have been made.
Effective June 7, 2004 the Company and the Optionee agreed to amend the original
option term to June 9, 2005 with the further year extension through the issuance
of 500,000 restricted common shares of capital stock being unchanged. The
optionee is the sole director of the Company.

For accounting purposes the Company has recorded the cost of acquiring the
option to purchase and develop "fashion-international.com" and other related
proprietary information at a $nil value as the related vendor's cost is not
determinable.

Effective May 27, 2005, the Company and the optionee entered into and Asset
Purchase Agreement whereby the Company issued 2,000,000 shares of restricted
common stock in exchange for the domain name "fashion-international.com" and
other related proprietary information as per the original option agreement, and
the settlement of the loan payable and accrued interest totalling $2,589 as
described in Note 5.

NOTE 4 - CAPITAL STOCK

The Company's authorized capitalization is 200,000,000 common shares with a par
value of $0.001 per share.

Since inception, the Company has not granted any stock options or warrants and
has not recorded any stock-based compensation.

During the year ended December 31, 2005, in connection with the Asset Purchase
Agreement described in Note 3, the Company issued 2,000,000 shares of restricted
common stock for the acquisition of certain assets and the settlement of loans
payable and accrued interest totalling $2,589. The shares were recorded at the
carrying value of the debt settled as the acquired assets were recorded at a
$nil value as the related party vendor's cost was not determinable.

NOTE 5 - RELATED PARTY TRANSACTIONS

Effective January 21, 2005, the sole director of the Company loaned $2,500 to
the Company. The loan was payable on demand and was secured by a promissory note
bearing interest at an annual rate of 8% compounding monthly. The Company had
the option, at any time, to convert the balance of the outstanding principal and
accrued interest into restricted shares of the Company's common stock at a price
of $0.10 per share. During the year ended December 31, 2005, the loan and
accrued interest totalling $2,589 was settled as described in Notes 3 and 4.

During the six month period ended June 30, 2006, an officer of the Company
incurred expenses on behalf of the Company totalling $9,707 (June 30, 2005 -
$2,675). At June 30, 2006 an amount of $12,382 (December 31, 2005 - $2,675) was
owing to this officer. Amounts owing are unsecured, non-interest bearing and
without specific terms of repayment.

NOTE 6 - INCOME TAXES

There were no temporary differences between the Company's tax and financial
bases that result in deferred tax assets or liabilities, except for the
Company's net operating loss carry-forwards amounting to approximately $41,000
at June 30, 2006, which may be available to reduce future year's taxable income.
These carry-forwards will expire, if not utilized, commencing in 2022.
Management believes the realization of the benefits from this deferred tax
assets appears uncertain due to the Company's limited operating history and
continuing losses. Accordingly a full, deferred tax asset valuation allowance
has been provided and no deferred tax asset benefit has been recorded.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

THE FOLLOWING PRESENTATION OF MANAGEMENT'S DISCUSSION AND ANALYSIS OF FII
INTERNATIONAL INC. SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS
AND OTHER FINANCIAL INFORMATION INCLUDED HEREIN.

FII is a start-up, development stage company and has not yet generated or
realized any revenues from its business operations. FII raised $25,000 from our
Reg S non-public offering in June 2002. Those funds have been used to pay for
our organizational costs and the costs of its registration statement and its
ongoing operating costs.

On January 21, 2005, FII borrowed $2,500 from its president, Patrizia
Leone-Mitchell. These funds were used for working capital and for accounting and
filing fees.

During the six month period ended June 30, 2006, an officer of the Company
incurred expenses on behalf of the Company totaling $9,707 (June 30, 2005 -
$2,675). At June 30, 2006 an amount of $12,383 (December 31, 2005 - $2,675) was
owing to this officer. Amounts owing are unsecured, non-interest bearing and
without specific terms of repayment.

From inception to June 30, 2006, FII had a loss of $43,274. This represented an
increase of $6,180 in losses since December 31, 2005, which were a result of (a)
an increase of $3,368 in professional fees, (b) an increase of $280 for
regulatory and filing fees, (c) an increase of $2,463 in travel and trade shows,
and (d) an increase of $69 in general office expenses and

Operating expenses increased by $2,360 from $1,832 for the three-month period
ended June 30, 2005 to $4,192 for the three-month period ended June 30, 2006.
The increase in operating expenses was primarily due to (a) an increase of $307
for professional fees, (b) an increase of $2,463 in travel and trade shows, (c)
a decrease of $45 for regulatory and filing fees, and (d) a decrease of $365 in
office and general expenses.

LIMITED OPERATING HISTORY; NEED FOR ADDITIONAL CAPITAL

There is no historical financial information about FII upon which to base an
evaluation of its performance. FII is a development stage company and has not
generated any revenues from operations. FII cannot guarantee it will be
successful in its business operations. FII's business is subject to risks
inherent in the establishment of a new business enterprise, including limited
capital resources, possible delays in the development of its services, and
possible cost overruns due to price and cost increases in services. FII will
continue to allocate the expenditures of its resources in very timely and
measured manner. FII will not continue with expenditures if management thinks
FII will be unable to complete the designated task. FII will require further
equity financing to provide for some of the capital required to implement future
development of the website and operations.

FII has no assurance that future financing will be available to it on acceptable
terms. If financing is not available on satisfactory terms, FII may be unable to
continue, develop or expand its operations. However, if equity financing is
available to FII on acceptable terms, it could result in additional dilution to
existing shareholders.

RESULTS OF OPERATIONS

FROM INCEPTION ON MAY 3, 2002

On May 27, 2005, FII entered into an asset purchase agreement with Patrizia
Leone-Mitchell, the sole director and the president of FII. Pursuant to the
terms and conditions of the asset purchase agreement FII acquired all of Ms.
Leone-Mitchell's right, title and interest in all of the assets related to FII's
business, including the domain name www.fashion-international.com. Also, Ms.
Leone-Mitchell agreed to forgive the loan payable and accrued interest totaling
$2,589 owed to her by FII as a result of the loan Ms. Leone-Mitchell made to FII
on January 21, 2005. As consideration for the assets and the forgiveness of the
debt, FII issued Ms. Leone-Mitchell two million restricted shares of FII's
common stock.

Also, on May 27, 2005, FII and Ms. Leone-Mitchell agreed to cancel the option
agreement dated June 10, 2002 and the amending agreement dated June 7, 2004
pursuant to the terms and conditions of the asset purchase agreement. Pursuant
to the terms of the option agreement, FII had the option to acquire the same
assets from Ms. Leone Mitchell at a cost of two million restricted Common

Capital Shares at a price of $0.005 per share and a lump sum payment of
$250,000. The term of the option agreement was extended for an additional 12
months in accordance with the terms and conditions of the amending agreement.

FII acquired all of Patrizia Leone-Mitchell's right, title and interest in all
of the assets related to FII's business and previously optioned under the option
agreement, including the domain name www.fashion-international.com, pursuant to
the terms and conditions of the asset purchase agreement. FII determined the
purchase price of the assets to be the carrying value of the debt settled as the
acquired assets were recorded at $NIL value as the related party vendor's cost
was not determinable. See Exhibit 10.1 - Option Agreement and Exhibit 10.4 -
Asset Purchase Agreement for more details.

As of June 30, 2006, FII had an accumulated deficit of $43,274.

Since inception, the proceeds raised in FII's June 2002 non-public offering have
paid for the costs of its organization and registration with the SEC and
operating costs; the $2,500 loan from FII's president as well as the $12,382
advanced by an officer of FII have paid for ongoing operating expenses. Those
costs include legal fees for incorporation and organization; fees paid to its
auditors; regulatory and filing fees; and website development costs. The costs
of organization from inception to June 30, 2006 were $41,274. The costs are
based upon FII's out-of-pocket cost, i.e. the amount of money it has to pay for
the services.

LIQUIDITY AND CAPITAL RESOURCES

As of the date of this quarterly report, FII has yet to generate any revenues
from its business operations.

FII issued 2,000,000 shares of common stock at a deemed price of $0.001 per
share through a Section 4(2) offering in June 2002. This was accounted for as a
consideration paid for the right, title and interest FII acquired in the assets
pursuant to the option agreement.

Also, FII issued another 5,000,000 Common Capital Shares through a Reg S
offering in June 2002 at the offering price of $0.005 per share.

As of December 31, 2005, FII's total assets were $632 and its total liabilities
were $8,137. As of June 30, 2006, FII's total assets were $1,826 and its total
liabilities were $15,511. The increase in the assets was a direct result of an
increase of $1,370 in inventory. The increase in total liabilities is a result
of a decrease of $2,333 in accounts payable and accrued liabilities and an
increase of $9,707 in amounts due to a related party.

PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS

FII has not generated any revenues from its business operations since inception.

FII will not be able to satisfy its working capital requirements for the next
twelve months. Accordingly, it will need to raise additional working capital to
continue its operations. FII anticipates funding its working capital needs for
the next twelve months through the equity capital markets and private
financings; however, no assurance can be given that FII will be able to raise
sufficient cash to meet these cash requirements.

Management plans to improve FII's cash flows and operating results by raising
additional capital through private placements of stock and private loans. FII
cannot ensure, however, that these plans will be successful. Management may
decide that FII can no longer pursue its original business plan and may be
required to look at other possible business opportunities. There is no guarantee
that there will be any other possible business opportunities available to FII,
nor any guarantee of what type of industry that the business opportunity might
be involved in, nor the financial resources required by a possible business
opportunity.

FII is not currently conducting any research and development activities other
than the development of its website. It does not anticipate conducting such
activities in the near future.

While financial resources are available, FII will continue to develop a
collection of fashion goods that consumers and retailers can purchase through
the FII website in "The Collection" section. Currently, there are several

manufacturers in the USA that focus on providing fashion collections that are
readily available. FII added further merchandise to "The Collection" in provide
a broader selection of goods for sale. FII anticipates that as "The Collection"
section expands and potential sales of merchandise will generate increased
revenue opportunities for FII. In addition, management anticipates that "The
Collection" section at the www.fashion-international.com website will increase
the number of users to the fashion portal which will assist in the possibility
of increasing revenue opportunities from the existing products and service
available at the website.

However, until FII is able to generate any revenue it will be required to raise
additional working capital. At any point, if FII finds that it does not have
adequate working capital to complete an identified task, FII may have to suspend
its operations and attempt to raise more working capital so it can proceed There
is no guarantee that additional working capital will be available to the
company.

INTERNAL AND EXTERNAL SOURCES OF LIQUIDITY

FII has funded its operations principally from its June 2002 non-public offering
and from the January 21, 2005, $2,500 loan from Patrizia Leone-Mitchell. See
Exhibit 10.3 - Loan Agreement and Promissory Note for more details. Also, during
the three month period ended June 30, 2006, an officer of FII incurred expenses
on behalf of FII totaling $8,382 (June 30, 2005 - $2,675). At June 30, 2006 an
amount of $12,382 (June 30, 2005 - $2,675) was owing to this officer. Amounts
owing are unsecured, non-interest bearing and without specific terms of
repayment.

INFLATION

FII does not believe that inflation will have a material impact on its future
operations.

UNCERTAINTIES RELATING TO FORWARD-LOOKING STATEMENTS

This Form 10-QSB Quarterly Report contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. These
statements may be identified by their use of words like "plans", "expect",
"aim", "believe", "projects", "anticipate", "intend", "estimate", "will",
"should", "could" and other expressions that indicate future events and trends.
All statements that address expectations or projections about the future,
including statements about FII's strategy for growth, product development,
market position, expenditures and financial results are forward-looking
statements.

Forward-looking statements in this Form 10-QSB include statements regarding (1)
expectation that revenue will increase during fiscal 2006; (2) expectation
participant base increasing; (3) expectation of future operating expenses
increasing; (4) expectation that the expansion of participant base will cause
wages, marketing and promotional costs to increase; (5) expectation that working
capital needs for fiscal 2006 will be funded through the equity capital markets
and private financings; (6) expectation that an increase in participants will
lead to hiring of additional employees or independent contractors; (7)
expectation of future developments of content, features, and services to be
provided on the website; (8) uncertainty of utilizing deferred tax assets; and
(9) expectation that inflation will not have a material impact on future
operations. All forward-looking statements are made as of the date of filing of
this Form 10-QSB and FII disclaims any duty to update such statements.

Certain parts of this Form 10-QSB may contain "forward-looking statements"
within the meaning of the Securities Exchange Act of 1934 based on current
managements expectations. Actual results could differ materially from those in
the forward looking statements due to a number of uncertainties including, but
not limited to, those discussed in this section. Factors that could cause future
results to differ from these expectations include general economic conditions,
particularly related to demand the features and services offered on FII's
website; changes in business direction or strategy; competitive factors
(including competitors introducing superior services); pricing pressure
(including competitors offering similar services at lower prices); inability to
attract, develop or retain technical, consulting, managerial, agents, or
independent contractors; and changes in participant's tastes. As a result, the
identification and interpretation of data and other information and their use in
developing and selecting assumptions from and among reasonable alternatives
requires the exercise of judgment. To the extent that the assumed events do not
occur, the outcome may vary substantially from anticipated or projected results,
and accordingly, no opinion is expressed on the achievability of those
forward-looking statements. No assurance can be given that any of the
assumptions relating to the forward-looking statements specified in the
following information are accurate, and FII assumes no obligation to update any
such forward-looking statements.

ITEM 3. CONTROLS AND PROCEDURES.

DISCLOSURE CONTROLS AND PROCEDURES

Patrizia Leone-Mitchell, FII's Chief Executive Officer, and Sean Mitchell, FII's
Chief Financial Officer have evaluated the effectiveness of FII's disclosure
controls and procedures (as such term is defined in Rules 13a-15 and 15d-15
under the Securities Exchange Act of 1934 (the "Exchange Act" )) as of the end
of the period covered by this quarterly report (the "Evaluation Date"). Based on
such evaluation, they have concluded that, as of the Evaluation Date, FII's
disclosure controls and procedures are effective in alerting FII on a timely
basis to material information required to be included in its reports filed or
submitted under the Exchange Act.

CHANGES IN INTERNAL CONTROLS

During the quarter of the fiscal year covered by this report, there were no
changes in FII's internal controls or, to the FII's knowledge, in other factors
that have materially affected, or are reasonably likely to materially affect,
these controls and procedures subsequent to the date FII carried out this
evaluation.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

FII is not a party to any pending legal proceeding and to the best of FII's
knowledge, none of FII's assets is the subject of any pending legal proceedings.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

During the quarter of the fiscal year covered by this report, (i) FII did not
modify the instruments defining the rights of its shareholders, (ii) no rights
of any shareholders were limited or qualified by any other class of securities,
and (iii) FII did not sell any unregistered equity securities.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

During the quarter of the fiscal year covered by this report, no material
default has occurred with respect to any indebtedness of FII. Also, during this
quarter, no material arrearage in the payment of dividends has occurred.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matter was submitted to a vote of security holders through the solicitation
of proxies or otherwise, during the first quarter of the fiscal year covered by
this report.

ITEM 5. OTHER INFORMATION.

During the quarter of the fiscal year covered by this report, FII reported all
information that was required to disclosed in a report on Form 8-K.

ITEM 6. EXHIBITS.

(A) INDEX TO AND DESCRIPTION OF EXHIBITS.

All Exhibits required to be filed with the Form 10-QSB are incorporated by
reference to FII's previously filed Form SB-2 and Form 10-KSB's and Form
10-QSB's.

Exhibit Description
------- -----------
3.1 Corporate Charter filed as an Exhibit to FII's registration
statement on Form SB-2 filed on August 15, 2002, and incorporated
herein by reference.
3.2 Articles of Incorporation filed as an Exhibit to FII's registration
statement on Form SB-2 filed on August 15, 2002, and incorporated
herein by reference.
3.3 Bylaws filed as an Exhibit to FII's registration statement on Form
SB-2 filed on August 15, 2002, and incorporated herein by reference.
10.1 Option Agreement dated June 10, 2002, between FII International Inc.
and Patrizia Leone-Mitchell filed as an attached exhibit to FII's
Form SB-2 filed on October 16, 2002, and incorporated herein by
reference.
10.2 Amending Agreement to the Option Agreement dated June 7, 2004,
between FII International Inc. and Patrizia Leone-Mitchell filed as
an Exhibit to FII's Form 10-QSB filed on August 16, 2004, and
incorporated herein by reference.
10.3 Loan Agreement and Promissory Note dated January 21, 2005 between
FII International Inc. and Patrizia Leone-Mitchell filed as an
Exhibit to FII's Form 10-KSB filed on March 31, 2005, and
incorporated herein by reference.
10.4 Asset Purchase Agreement dated May 27, 2005 between FII
International Inc. and Patrizia Leone-Mitchell filed as an Exhibit
to FII's Form 8-K Current Report filed on May 31, 2005 and
incorporated herein by reference.
31.1 Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.1 Code of Ethics filed as an attached exhibit to FII's Form 10-KSB
filed on March 30, 2004, and incorporated herein by reference.
99.2 Audit Committee Charter filed as an attached exhibit to FII's Form
10-KSB filed on March 30, 2004, and incorporated herein by
reference.
99.3 Disclosure Committee Charter filed as an attached exhibit to FII's
Form 10-KSB filed on March 30, 2004, and incorporated herein by
reference.

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, FII
International Inc. has caused this report to be signed on its behalf by the
undersigned duly authorized person.

FII INTERNATIONAL INC.

By: /s/ Patrizia Leone-Mitchell
----------------------------------
Name: Patrizia Leone-Mitchell
Title: Director and CEO

Dated: August 10, 2006

By: /s/ Sean Mitchell
----------------------------------
Name: Sean Mitchell
Title: CFO

Dated: August 10, 2006