we are out of state, do we have to go back to Colorado where our trial will be for mediation or can it be done over the phone?

Have you asked the court? Usually, mediation is conducted in person, but I suppose its possible to do it over the phone if nobody objects. If the court has ordered the mediation, however, the court may have other requirements. Do you have an attorney representing you? Your attorney may be able to attend the mediation for you.