SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
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|X| QUARTERLY REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarter Ended March 31, 2005
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
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Commission File Number 000-27113
AZUR INTERNATIONAL, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 50-0015673
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State or other jurisdiction of (I.R.S. Employer
corporation or organization) Identification Number)
101 NE 3rd Avenue, Fort Lauderdale, Florida 33301
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (954) 763-1515
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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.
YES |_| NO |X|
As of the close of business on July 20, 2005, there were 48,614,369 shares of
the Registrant's $.0001 par value per share Common Stock outstanding.
AZUR INTERNATIONAL, INC.
TABLE OF CONTENTS
PART I Financial Information Page
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis or
Plan of Operation 16
Item 3. Controls and Procedures 21
PART II Other Information
Items 1 through 6 21-23
Signature Page
FORWARD-LOOKING STATEMENTS
The statements contained in this Quarterly Report on Form 10-QSB that are
not historical facts are forward-looking statements under the federal securities
laws. These forward-looking statements, are not guarantees of future performance
and involve certain risks, uncertainties and assumptions that are difficult to
predict. Actual outcomes and results may differ materially from what is
expressed in, or implied by, such forward-looking statements. We undertake no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise. Among the important
factors that could cause actual results to differ materially from those
expressed in, or implied by, the forward-looking statements are changes in
general economic conditions, increased or unexpected competition, costs related
to a proposed share exchange between the holders of our common stock and New
Harvest Capital Corporation, failure to obtain required stockholder or
regulatory approvals or the share exchange not closing for any other reason,
failure of the combined company to retain and hire key employees, difficulties
in successfully integrating the parties' businesses, the effects of incurring
and servicing substantial debt and other matters disclosed in our filings with
the Securities and Exchange Commission.
2
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 2005
2005
------------
(Unaudited)
ASSETS
Current Assets
Cash and Cash Equivalents $ 324,662
Accounts Receivable 2,695,858
Inventory 422,201
Prepaid Expenses 485,043
Other Receivables 890,259
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Total Current Assets 4,818,023
Property, Plant & Equipment (net of accumulated depreciation 19,157,873
of $ 1,812,822)
Other Assets
Loan Acquisition Costs (net of amortization of $72,825) 242,145
Investments in Real Estate 240,000
Construction Deposits 2,020,000
Deposits - Land Purchase 1,250,309
Security Deposits 11,416
Goodwill 9,322,845
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Total Other Assets 13,086,715
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TOTAL ASSETS $ 37,062,612
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LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable & Accrued Expenses $ 2,563,764
Current Portion-Notes/Mortgages Payable 17,292,687
Current Portion-Capital Lease Obligation 265,436
Other Current Liabilities 97,284
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Total Current Liabilities 20,219,171
Long-Term Debt
Notes/Mortgages Payable 11,012,270
Capital Lease Obligation 660,302
Liabilities Subject to Compromise from Bankruptcy 752,971
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Total Long-Term Debt 12,425,543
Other Liabilities
Deposits Held 2,020,000
Deferred Tax 236,880
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Total Other Liabilities 2,256,880
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Total Liabilities 34,901,594
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Stockholders' Equity
Common Stock - $.01 par value, 200,000,000 shares
authorized; shares issued and outstanding 41,972,266 419,723
Non Controlling Interest in Subsidiaries 2,672,904
Additional Paid in Capital 2,211,964
Accumulated Deficit (3,097,499)
Accumulated Other Comprehensive Loss (46,074)
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Total Stockholders' Equity 2,161,018
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 37,062,612
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The accompanying notes are an integral part of the financial statements.
3
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months
Ended March 31, 2005 and 2004
2005 2004
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(Unaudited) (Unaudited)
Revenues
Sales $ 1,533,073 $ --
Rents 2,248,898 22,791
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Total Revenue 3,781,971 22,791
Cost of Sales 1,537,480 --
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Gross Income 2,244,490 22,791
Operating Expenses
General & Administrative Expenses 2,333,647 219,559
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Total Operating Expenses 2,333,647 219,559
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Net Income (Loss) Before
Other Income/(Expense) (89,156) (196,768)
Other Income and (Expense)
Interest Income 1,747 2
Other Income 219 --
Interest Expense (140,391) (15,373)
Other Expense (37,210) --
------------ ------------
Total Other Income and (Expense) (175,636) (15,371)
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Net Income (Loss) from Continuing Operations (264,792) (212,139)
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Net Income (Loss) before adjustments for minority interest (264,792) (212,139)
Non Controlling Interest in Subsidiary (48,737) 5,121
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Income (Loss) before Provision for Income Taxes (313,529) (207,018)
Provision for Income Taxes (75,313) --
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Net Income (Loss) $ (388,842) $ (207,018)
============ ============
Net Loss per Weighted Average Number of
Common Shares $ (0.01) $ (0.03)
============ ============
Weighted Average Number of Common
Shares Outstanding 29,881,291 6,421,941
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
4
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months
Ended March 31, 2005 and 2004
2005 2004
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(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (388,842) $ (207,018)
Adjustments to Reconcile Income (Loss) to Net Cash
Provided (Used) for Operating Activities:
Depreciation and Amortization 319,527 7,388
Services and Interest paid by Isuance of Common Stock 6,000 139,998
Changes in Assets and Liabilities:
Increase in Accounts Receivable (224,018) --
Increase in Inventory (31,696) --
Increase in Prepaid Expenses (118,283) --
Increase in Security Deposits (11,416) --
Decrease in Loans Receivable 603,994 --
Increse in Other Receivables (667,832)
Increase in Other Current Liabilities 97,284 --
Decrease in Accounts Payable & Accruals (32,750) --
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Net Cash Used In Operations (448,032) (59,632)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in Building in Progress (611,421) (5,020)
Increase in Real Estate Holdings (10,876)
Increase in Real Estate Deposits (1,250,309) (50,000)
Purchase of Fixed Assets (278,270) --
Cash acquired on Acquisitions 24,128 3,206
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Net Cash Used in Investing Activities: (2,115,872) (62,690)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Customer Deposit Escrows 1,177,500 --
Increase in Customer Deposits Held (1,177,500) --
Proceeds from Sale of Common Stock -- 200,000
Proceeds From Stock Subscriptions -- 320,000
Proceeds From Notes and LoansPayable 3,278,940 6,297
Minority Shareholder Contributions 136,731 --
Payments on Capital Leases (37,487) --
Payment of Notes and Loans Payable (1,101,381) (97,708)
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Net Cash Provided (Used) in Financing Activities: 2,276,803 428,589
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Net Increae (Decrease) in Cash (287,101) 306,267
Beginning Cash 611,763 --
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Ending Cash $ 324,662 $ 306,267
============ ============
SCHEDULE OF NONCASH ACTIVITIES:
Common Stock Issued for Services and Interest $ 6,000 139,998
Common Stock Issued for Acquisitions 21,467 98,800
Property and equipment valued at $ 11,224,000 were
acquired through the issuance of an obligation payable 11,224,000
SUPPLEMENTAL CASH FLOW INFORMATION
Interest Expense Paid 53,977 $ 15,371
Income Taxes Paid -- --
The accompanying notes are an integral part of the consolidated financial
statements.
5
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
A. BACKGROUND
The Company was originally incorporated in the State of Nevada in June 1997
under the name of Union Chemical Corporation in order to be a partner in a joint
venture that was never consummated. In June 1999, the Company changed its name
to Hotyellow98.com, Inc. as it acquired an Arizona corporation, Hotyellow98.com.
The Company subsequently changed its name to the current name of Azur
International, Inc.
In November of 2001 the Company entered bankruptcy under chapter 7 of the
bankruptcy laws in the United States Bankruptcy Court for the district of
Arizona. It emerged from bankruptcy in July 2003.
On February 9, 2004 Azur International, Inc. acquired Azur Development Corp.
(formally known as Mingo Bay Development Corp) in a stock for stock transaction.
In November of 2004, the company acquired The Grand Shell Landing, Inc., which
operates an 18-hole golf course, pro shop and restaurant in Mississippi. At the
present time, The Grand Shell Landing, Inc. generates golf-related revenues
only; there is no real estate activity
On February 24, 2005 the Company purchased Airtek Safety Limited, a British
company which derives income from the rental of cranes and equipment and
services to the construction industry. The purchase, which was effective January
1, 2005, was a cash transaction whereby the sellers have the option of taking
stock in lieu of cash.
Azur International, Inc. is in the business of developing and marketing luxury
residential and resort properties.
B. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include accounts of Azur International,
Inc. and its wholly-owned subsidiaries its wholly owned subsidiaries. All
material inter-company transactions have been eliminated. The following is a
list of subsidiaries and their respective controlling interests:
Rio Vista, LLC - 53%
48 Hendricks. LLC - 63%
Azur Development Corp. - 100%
The Grand Shell Landing - 100%
Airtek Safety Limited - 100%
Azur Shell Landing LLC - 100%
C. REAL ESTATE HOLDINGS
Real estate investments are stated at the lower of cost or market. Acquisition
costs are allocated to respective properties based on appraisals of the various
properties acquired in the acquisition.
6
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004
D. REVENUE RECOGNITION
Real Property: Revenue is recognized under the full accrual method of accounting
upon the completed sale of real property held for development and sale. All
costs incurred directly or indirectly in acquiring and developing the real
property are capitalized. Revenues for sales and rentals generated from The
Grand Shell Landing, Inc. are also recognized under the full accrual method of
accounting. Airtek Safety Limited reports under the historical cost convention
and in accordance with the Financial Reporting for Smaller Entities (effective
June 2002).
7
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004
E. USE OF ESTIMATES
The preparation of financial statements in conformity with 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 and
the reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates.
F. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand; cash in banks, and any highly
liquid investments with maturity of three months or less at the time of
purchase. The Company and its subsidiaries maintain cash and cash equivalent
balances at several financial institutions, which are insured by the Federal
Deposit Insurance Corporation up to $100,000. At times, the cash balances may
exceed federally insured limits. We have not experienced any losses in such
accounts and we believe the risk related to these deposits is minimal.
G. PROPERTY AND EQUIPMENT
Property and equipment are carried at cost and are being depreciated over their
useful lives using straight line depreciation methods. The estimated useful
lives of significant assets are as follows:
Equipment 5 years
Land Improvements 20 years
Buildings 40 years
Hire Equipment 12 years
H. LEASES
Leases that transfer substantially all of the risks and benefits of ownership
are accounted for as capital leases. Other leases are operating leases that are
expensed over the terms of the lease using the straight line method. Capital
leases are included in property and equipment and are amortized using the same
methods as used for depreciation of property and equipment
I. CONSTRUCTION DEPOSITS
Construction deposits amounting to $2,020,000 for the purchase of units in the
48 Hendricks project have been collected and deposited in an escrow account with
the escrow agent, Adorno & Yoss, P.A., as per our Escrow Agreement dated August
25, 2004. As per said agreement, the first $1,117,500 deposited, which represent
10% of the purchase price due at signing, must remain in the escrow account at
all times. The second 10% deposit, due at the start of construction, may be used
to towards hard construction costs only. At March 31, 2005, the balance in the
escrow account is $2,020,000.
J. ALLOWANCE FOR DOUBTFUL ACCOUNTS
An allowance for doubtful accounts is estimated and recorded based on the
Company's historical bad debt experience. Management believes that all accounts
receivable will be collected within one year; therefore, an allowance for
doubtful accounts is not necessary.
8
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004
K. INVENTORY
Inventory is stated at the lower of cost or market with cost determined using
the first-in, first-out method.
L. EARNINGS/LOSS PER SHARE
Primary earnings per common share are computed by dividing the net income (loss)
by the weighted average number of shares of common stock and common stock
equivalents outstanding during the quarter and year-to-date. The number of
shares used for the three months ended March 31, 2005 was 42,693,500 and the
resulting loss per share was $0.009 per share.
M. INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement on
Financial Accounting Standards 109 of "Accounting for Income Taxes." Under
Statement 109, deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. The Company has net operating losses (NOL's) of
approximately $ 3,097,499.
Statutory federal income taxes 34%
Valuation allowance (34)
Effective tax rate -0%
The provision for British income taxes for Airtek Safety Limited, the British
subsidiary, is equal to $231,840.
NOTE 2 - RELATED PARTY TRANSACTIONS
Rio Vista LLC, a subsidiary of Azur Development Corp. has mortgages with banks
on property owned that were financed in the individual name of a principal of
the company. There are also bank accounts that are titled in the name of the
same principal that belong to Rio Vista, LLC.
A major shareholder of Azur International is also a minority owner in both Rio
Vista, LLC and 48 Hendricks, LLC.
An officer of the company is currently using a property owned by the corporation
personally.
NOTE 3 - EMPLOYMENT/CONSULTING AGREEMENTS
The following employment and consulting agreements are in effect as of March 31,
2005:
A. The Chief Executive Officer, who also serves as the chairman of the Board
of Directors of the Company, has a consulting agreement with a 36 month
term, commencing on February 1, 2004. His compensation for the duration of
the agreement is as follows: Year 1 - 500,000 restricted shares of Azur
International common stock at $.01. Year 2 - $360,000 per year, plus
500,000 restricted shares of Azur International common stock at $.01. Year
3 - $480,000 per year, plus 500,000 restricted shares of Azur
International common stock at $.01. Under this Consulting Agreement, the
Company provides said executive with an automobile.
9
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004
B. The President of the Company, who also serves on the Board of Directors,
has an employment agreement with a term of 3 years, commencing on
September 1, 2004. His compensation, beginning on January 1, 2005, is
$240,000 per annum. He also received a signing bonus in the form of
166,666 restricted shares of the Company's common stock valued at $3.00
per share. The signing bonus was paid sixty days from the effective date
of the contract, which was September 1, 2004.
C. The Vice President of Operations of the Company's has an employment
agreement with a term of 3 years, commencing on September 1, 2004. His
compensation, beginning on January 1st, 2005, is $120,000 per annum. He
also received a signing bonus in the form of 50,000 restricted shares of
the Company's common stock at $3.00 per share. The Signing Bonus was paid
sixty days from the effective date of the contract, which was September 1,
2004.
NOTE 3 - EMPLOYMENT/CONSULTING AGREEMENTS (continued)
D. The General Counsel & Corporate Secretary has an employment agreement with
a term of one year, commencing on April 15, 2004. After the initial term,
the agreement shall renew automatically for additional one year periods,
unless terminated by either party. His compensation is $180,000 per annum,
to be increased at a rate of no less than 10% per annum.
E. The Vice President of Development, who is also the President of the Azur
Development subsidiary, has a Consulting Agreement with a term of twelve
months, commencing on November 1, 2004. After the initial term, the
agreement shall renew automatically for additional twelve month term,
unless terminated by either party. His compensation is 10% of the net
profits of any developments that he initiates. He shall be paid 50% in
cash payment, and 50% in restricted common shares at $.01.
F. The CEO of Azur Development UK, who has been engaged to develop home
building and commercial development projects, as well as oversee any
European projects, has a Consulting agreement with a term of three years,
commencing on October 5, 2004. His compensation is a base fee of 3,000,000
of shares of common stock at $.01.
G. An international consulting company has a consulting agreement focusing on
developing business in the European market, commencing on March 10, 2004,
for a term of twelve months. Compensation is composed of a listing fee of
$12,500 for listing application at a German Stock Exchange, and an
engagement fee of 400,000 shares of stock at $.01, paid on March 10, 2004.
10
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004
H. An advisory agreement is in effect between the Company and another
consulting firm for services related to the acquisition of new companies
and the listing of shares on the American Stock Exchange and other foreign
exchanges. The agreement commences on August 1st, 2004, for a term of 2
years, ending on August 1st, 2006. The compensation is 2,000,000 shares of
common stock at $.01, plus 10% of the acquisition price of new companies
identified by the consulting company. The 10% shall be paid in shares of
common stock valued at the previous day's bid price.
NOTE 4 - CAPITAL TRANSACTIONS
In February 2004 the Company issued 9,050,000 shares of its common stock for the
acquisition of Azur Development Corp. Also as part of the overall transaction
the Company issued 4,330,000 shares of its common stock pursuant to a
"Membership Interest Agreement" in 48 Hendricks, LLC and 10,197,649 shares of
common stock to various individuals for their efforts, cooperation and/or
services performed on behalf of the Company. All shares were valued at $.01.
In February 2004 the Company sold 4,000,000 common shares for $200,000 in an
exempt transaction.
In April 2004 the Company cancelled two certificates for an aggregate of
3,500,000 common shares at $.01 per share.
In April 2004 the Company issued 230,769 shares of common stock at $.01 in
consideration of the acquisition of a 100% interest in a Commercial Agreement
relating to a property in Ft. Lauderdale, Florida.
In April 2004 the Company issued 606,250 shares of common stock for fees, at
$.01 per share.
In April 2004 the Company issued 1,791,250 shares of common stock for stock
subscriptions for a value of $975,000.
In June 2004, the Company entered into an agreement with a European company to
exchange stock for the Company, at which time 6,050,000 shares were issued at
$.01. The agreement was rescinded on September 30, 2004 and the Company is to
receive and cancel all shares issued in the transaction.
In July 2004 the Company issued 761,101 shares of common stock for services
rendered at $.01 per share.
In August 2004 the Company issued 20,000 shares of common stock as additional
consideration for loans at $.01 per share.
In September 2004 the Company issued 5,000,000 shares of common stock, at .01
per share, for services rendered, at $.01 per share.
11
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004
NOTE 4 - CAPITAL TRANSACTIONS (continued)
In October 2004 the Company issued 1,216,666 shares of common stock as
additional compensation for executives signing employment contracts, at $.01 per
share.
In November 2004, 3,393,939 shares of common stock were issued for a value of
$2,000,000 in consideration of the acquisition of The Grand Shell Landing.;
1,447,010 of these shares are outstanding. The remaining 1,946,929 shares were
issued in escrow towards payment of the balance of $1,070,811 on the purchase of
the Grand Shell Landing, at the discretion of the seller.
In November 2004 and Januray 2005, the Company issued 1,443,734 and 2,146,666
shares of common stock respectively, in consideration of the acquisition of
Airtek Safety Ltd, (a United Kingdom company). This stock of Azur International
is being held in escrow pending consummation of the terms of the acquisition.
The consideration is due on August 21, 2005.
In November 2004, 24,000 shares of common stock were issued in consideration of
an extension on an existing agreement, valued at $.01 per share, 50,000 shares
at $.01 were issued in consideration of a loan agreement, 25,000 shares were
issued at $.01 per share for services, 10,000 shares valued at $.01 per share,
as a bonus to a corporate officer.
In December 2004, the Company cancelled 4,350,000 of the subscriptions, valued
at $.01 per share, as part of the cancellation of the agreement entered into in
June 2004, with the European company.
In January 2005 the Company issued 50,000 shares to attorney in consideration of
an employment contract.
In January 2005 the Company issued 50,000 shares to a director in consideration
of directors fees.
In February 2005, the Company issued 500,000 shares to a lender in consideration
of loan fees.
NOTE 5 - ACCOUNTS RECEIVABLE
Accounts receivable consist of the following amount as of March 31, 2005:
Golf Membership & Events $ 369,161
Trade Receivables 2,277,193
----------
$2,646,354
==========
12
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of March 31, 2005:
Land and Improvements $ 12,133,653
Less accumulated depreciation (132,128)
-------------
Net Land and Improvements $ 12,001,525
Buildings $ 2,295,616
Less accumulated depreciation (19,399)
-------------
Net buildings $ 2,276,216
Equipment & Fixtures $ 6,550,424
Less accumulated depreciation (1,670,295)
-------------
Net Equipment & Fixtures $ 4,880,132
Total Property & Equipment $ 19,157,873
============
* Total Depreciation Expense for the three months ended March 31, 2005 was
$190,850.
NOTE 7 - CAPITAL LEASES
Property held under capital Leases, included with property and equipment at
March 31, 2005 consists of the following:
Equipment $ 256,027
Less: Accumulated depreciation (25,312)
---------
Equipment capital lease-net $ 230,715
Capital lease obligations consist of the following at March 31, 2005:
Non-cancelable leases, through 2008, $ 114,354
Secured by equipment
Less: current portion of lease obligations (49,422)
---------
Long-term capital lease obligations $ 64,932
The following is a schedule of future lease payments under capital leases for
years ending December 31:
2005 $ 38,571
2006 43,757
2007 42,813
2008 1,830
Thereafter 0
---------
Total minimum lease payment 126,971
Less: Interest imputed at various rates (12,617)
---------
Present value of minimum lease payments $ 114,354
13
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004
NOTE 8- LONG TERM DEBT
Long term debt consists of the following:
Equity Line of credit -Loan is in the name of a partner
Interest rate is variable (currently at 6.375 %). Loan
secured by Rio Vista property 151,360
Mortgage Payable - First Mortgage in name of a partner
Interest is at a variable rate, currently 3.250 %. Interest
only is due monthly until November 1, 2012, and the borrower
has the right to prepay with no penalty. Maturity date of
the mortgage is October 1, 2027 1,034,822
Mortgage Payable - First mortgage secured by 48 Hendricks
property. Bank has a Secured interest in rents, leases,
fixed asset and profits. Interest is variable but can never
be less than 5 %. Current rate is 5.5 %. Payments are
interest only 3,750,828
Note Payable to finance company, monthly payments are
variable, including interest of 6.75%, collateralized by
Grand Shell Landing golf course property, due November 2009 6,374,767
Note Payable to finance company, monthly payments of $278,
including imputed interest of 7%, collateralized by
equipment, due October 2006 5,650
Note Payable to finance company, monthly payments of $277,
including imputed interest of 6.49% collateralized by
equipment, due May 2007 6,671
Note payable to a finance company, monthly payments of $
814, including imputed interest of 6.75%, collectivized by
equipment, due October 2006 13,845
Note Payable to private investor, due January 1, 2006 with
interest payable at 12%, and unsecured 3,000,000
Notes Payable to private investor with maturity date of
August 14, 2005 700,000
Notes Payable - various installment obligations for crane
and safety equipment 972,204
Note Payable bearing interest at 6% on acquisition of The
Grand Shell Landing Golf course to former owner. Owner has
an option to purchase the Company's stock, currently held in
escrow, in lieu of payment of the note, due on November 16,
2005 1,070,811
Obligation payable for acquisition of Airtek Safety Ltd,
non-interest-bearing, secured by common stock held in
escrow, due on August 21, 2005. The shareholders of Airtek
can choose to accept common stock in lieu of cash payment 11,224,000
------------
Total obligations $ 28,304,957
Less: short-term portion (17,292,687)
------------
Long-term maturities $ 11,012,270
------------
14
Maturities on the long-term obligations:
2005 $17,292,687
2006 3,553,487
2007 191,500
2008 202,761
Thereafter 7,064,522
NOTE 9 - LOAN ACQUISITION COSTS Loan acquisition costs consist of the following:
The Grand Shell Landing $ 180,038
Rio Vista, LLC mortgage 10,350
48 Hendricks, LLC 124,582
---------
314,970
Less Accumulated Amortization (72,825)
---------
Total Loan Acquisition Costs $ 242,145
=========
Loan costs are amortized as follows:
The Grand Shell Landing 60 months
Rio Vista, LLC 120 months
48 Hendricks, LLC 35 months
Amortization Expense for the three months ended March 31, 2005 totaled $ 78,825
NOTE 10 - COMMITMENTS & SUBSEQUENT EVENTS
A. The construction loan agreement secured by property held by 48 Hendricks,
LLC has a credit line of $10,685,000. The current balance on the loan is
$3,361,125.
B. The company entered into an agreement to acquire up to 80% of the entity
which owns 100% of the land surrounding the Grand Shell Landing Golf
Course in Mississippi.
NOTE 11 - ACQUISITION OF AIRTEK SAFETY LTD.
On February 24, 2005, the Company acquired 100% for the outstanding shares of
Airtek Safety Limited (a United Kingdom corporation). Pursuant to the purchase
agreement with the shareholders of Airtek, Azur International has agreed to pay
6.1 million pounds (approximately $11,224,000) on August 24, 2005. The
shareholders have the option to acquire an aggregate of 3,741,333 shares of
common stock in lieu of cash payment due. The shares of Airtek are being held in
escrow pending payment of the purchase consideration. In the event that the
Company defaults on its obligation, the agreement will be rescinded and the
escrowed shares will be returned to the Airtek shareholders.
On August 9, 2005, the Company and the shareholders of Airtek Safety Limited
signed the First Addendum to the Agreement for the Sale and Purchase of the
Entire Issued Share Capital of Airtek Safety Limited. The addendum extended the
"Deferred Payment Date" in the initial agreement to six months from August 24,
2005, making the new due date February 24, 2006. As part of the addendum, the
Company shall pay the following "Installment Payments": $250,000 on September
24, 2005, and $75,000 each subsequent month on October 24, 2005, November 24,
2005, December 24, 2005 and January 24, 2005. The Installment Payments shall be
distributed to the Sellers in their respective percentages (as listed on
Schedule A to the agreement). The Installment Payments shall reduce the total
purchase price accordingly, and the Consideration Shares held by the escrow
agent shall be reduced and returned to the Company as follows: 83,000 shares on
September 24, 2005, and 25,000 shares upon each subsequent installment payment.
15
ITEM 2. Management's Discussion and Analysis or Plan of Operation
Introduction
Azur is a diversified real estate development company with operations in
the United States and the United Kingdom. Our lines of business include real
estate development and operation, and the sale and rental of capital equipment
to the construction industry. The year 2004 was effectively Azur's initial year
of significant operations, much of which was spent on organizational and
administrative matters.
In 2004 we made initial acquisitions of interests in real estate
properties and development projects that now comprise our real estate
activities. These acquisitions, included among other things, interests in the
Place des Arts and Meritage condominium development projects, and the Grand
Shell Landing Golf Course.
In February, 2005, we acquired Airtek Safety Limited, which provides us
with diversified revenue streams related to construction, and provides us with a
U.K. - based management team to lead planned efforts to expand our real estate
development activities to the United Kingdom and Europe.
In the first quarter of 2005 we commenced development activity on the
Meritage condominium project in Ft. Lauderdale, Florida.
During the quarter ended March 31, 2004, Azur had minimal operations.
Accordingly, the analysis below addresses only Azur's financial results for the
quarter ended March 31, 2005.
Quarter Ended March 31, 2005
Results of Operations
Revenue and Gross Profit
For the quarter ended March 31, 2005, total revenue was $3,781,971 which
included approximately $1,502,000 in crane rentals and related income,
approximately $1,375,000 from the sale and rental of safety equipment and
related consulting services, and approximately $925,000 in sales from golf
course operations.
Crane rentals are priced on a weekly basis. Additional revenues come from
transportation and set up charges, training, hire of ancillary equipment and
operators. During the quarter ended March 31, 2005 we had 74 cranes available
for rental of which 53 cranes (71.6%) were deployed. Of the 74 cranes available,
37 were owned by Airtek and 37 were owned by its joint venture partner, Arcomet
of Belgium.
Safety equipment is offered for outright sale as well as rent. Safety
equipment rentals are priced on a day-rate basis. During the quarter ended March
31, 2005 approximately $334,000 was derived from the sale of equipment, while
approximately $1,041,000 was from rentals and other charges.
Golf course revenues are primarily derived from daily greens fees at The
Grand Shell Landing Golf Club. There were 9,546 paid rounds were played during
the quarter ended March 31, 2005, yielding revenue of approximately $638,000.
Additional revenues of approximately $277,000 were derived from sales of
clothing, equipment, food, and beverages at the retail facilities in the Shell
Landing clubhouse.
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Cost of Sales
Cost of sales for the quarter ended March 31, 2005 were $1,537,480 and
were comprised of approximately $779,185 in costs relating to crane rentals,
approximately $691,681 in safety equipment-related production costs, and
approximately $94,000 in the cost of inventory for retail items sold at the golf
course club house.
In crane rentals, the cost of sales are comprised primarily of rental
payments to Arcomet and direct labor costs. In safety equipment the cost of
sales include the cost of actual equipment sold, in the case of sales, and in
the case of the rental business the costs are largely direct labor.
The cost of sales for the golf course business is comprised entirely of
inventory costs for equipment, clothing, food, and beverages.
General and Administrative
General and administrative expenses were $2,333,647 in the quarter ended
March 31, 2005 and were comprised primarily of: crane and safety equipment
rental and sales expenses of approximately $847,157, golf-related expenses of
approximately $558,000, and corporate overhead and real estate-related expenses
of $723,000.
Interest Expense
Interest expense for the quarter ended March 31, 2005 totaled $140,391.
Net Loss
The net loss for the quarter ended March 31, 2005 of $388,842 reflects the
early stage of our business operations as costs are being incurred in connection
with acquisition activities and to create management infrastructure, and as
pre-development expenses are paid in connection with new real estate development
projects.
Liquidity and Capital Resources
At March 31, 2005 we had a net working capital deficit of $15,401,148.
Included in liabilities are notes payable totaling in excess of $17,000,000
which come due on or before January 1, 2006, including notes payable of
$11,224,000 to former Airtek shareholders in connection with Azur's acquisition
of Airtek which come due in August, 2005. According to the terms of our purchase
agreement, we are not allowed to transfer any cash from the Airtek operation to
the parent company or to any affiliates prior to the complete satisfaction of
these notes payable. Please refer to the schedule of maturities shown below for
additional details regarding the maturities of our long-term debt.
Management is currently pursuing multiple financing alternatives with
respect to satisfying these obligations, including (a) raising additional equity
capital (b) restructuring the terms of these existing debt obligations, and (c)
issuing additional debt securities. There can be no assurance, however, that
such additional funds will be available, or, if available, available on
commercially acceptable terms. If we are unable to raise capital and renegotiate
terms of existing debt we may be forced into a substantial liquidation of
assets, which may occur on terms unfavorable to Azur and may foreclose future
growth opportunities. Please refer to the more detailed schedule of our
maturities and debt obligations shown below for information regarding
obligations outstanding and security interests that have been granted in
connection with those obligations.
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There are other factors and risks that could impair our ability to meet
current obligations in the future. A significant portion of our expected future
cash inflows are dependent upon successfully completing and closing sales on the
various condominium development projects that are now planned or underway. These
expected cash inflows will not occur until construction is complete and we have
closed on the sales of the individual units to the purchasers. As such, our
revenues are collected at very irregular intervals and we are required to fund
substantial receivables during the construction period. Please refer to the Risk
Factors section of this document for a more complete description of the risks
attendant to our real estate development and other business activities.
We have identified numerous real estate development opportunities, which,
in our opinion offer attractive growth and profit potential, based on the risks
involved. However, our expectations for growth in the real estate development
business are entirely dependent on our ability to raise additional capital. We
are currently seeking a total of approximately $60 million in additional capital
from potential equity partners and from conventional construction lenders to
finance the construction of The Islands at Shell Landing, a 200 unit condominium
project located adjacent to the club house at The Grand Shell Landing Golf
Course. We are also seeking to raise approximately $12 million in a form yet to
be determined in order to provide necessary working capital for operations and
to finance, among other things, the purchase of additional land adjacent to The
Grand Shell Landing Golf Course. Currently, there remains significant interest
in gulf coast real estate among the investment community. However, our ability
to raise the funds we need in order to pursue these opportunities is not assured
and may become more difficult if interest rates continue to rise, if a major
natural disaster were to hit the area, or if investors begin to perceive real
estate prices to have risen beyond the point where attractive future returns are
possible. Please refer to the Risk Factors section of this document for other
factors that could inhibit our ability to raise the capital necessary to create
growth and sustain existing operations.
In a related party transaction, subsequent to March 31, 2005 we acquired
from the Crawford Family Limited Partnership ("CFLP") and from the Naranjo
Family Limited Partnership ("NFLP") up to an 80% interest in approximately 1,200
acres of land that adjoins the Grand Shell Landing Golf Course, on which we have
the opportunity to pursue significant real estate development projects well into
the future. The purchase agreement between Azur and the sellers contains several
conditions that require future performance on the part of Azur. In the event
that we are unable to meet these conditions on a timely basis, the sellers have
remedies available by contract that may cause our ownership interest in the land
to revert back to the sellers, which will significantly reduce our future cash
flow and profit potential.
In connection with the above transaction we also acquired from Carl
Crawford an option to purchase for $7.5 million up to an 80% interest in an
additional 568 acres adjacent to the Grand Shell Landing Golf Course. If
acquired, we believe this land will create significant opportunity for growth
and profit for our real estate development operations. However, as noted above,
there are no assurances that we will be successful in raising the capital
necessary to exercise this option.
Our interests in these two land parcels represent substantially all of our
existing future opportunity for growth and profit as it relates to our ownership
of The Grand Shell Landing resort property.
Discussion of Certain Current Assets and Liabilities
Accounts receivable
Our accounts receivable at March 31, 2005 amounted to $2,695,858 which was
comprised primarily of trade receivables in the safety equipment (approximately
$1,106,000) and crane rental (approximately $1,219,000) businesses. These
accounts are generally due on the 28th day after invoice date.
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Inventory
At March 31, 2005, our inventory was $422,201 which consisted primarily of
parts and components related to the rental of cranes and safety equipment, and
apparel and equipment held in stock in our golf course occupations.
Prepaid expense
At March 31, 2005 our prepaid expenses totaled $485,043, which included
approximately $94,000 in escrow for property taxes associated with the golf
course, $42,000 of prepaid insurance related to the golf course and
approximately $297,000 of prepaid expenses related to the Airtek cranes and
safety equipment business.
Other receivables
At March 31, 2005 other receivables totaled $890,259, which consisted
primarily of loans and other miscellaneous receivables in the crane and safety
equipment business.
Accounts Payable
Accounts payable and accrued expenses at March 31, 2005 were $2,563,764
and consisted primarily of $1,585,000 of trade payables and $982,000 of accrued
general and administrative expenses.
Analysis of Cash Flow
Cash flow used in operations
Cash used in operations totaled $448,032, comprised primarily of our net
loss of approximately $388,000, plus an increase in accounts receivable of
approximately $224,000, and in increase in prepaid expenses of approximately
$118,000. The increase in accounts receivable is primarily attributable
beginning of year membership billings for the golf course and growth in our
Airtek operations. The increase in prepaid expenses is primarily attributable to
the prepayment of interest expense on the Meritage condominium debt, and general
business growth in our Airtek operations.
Cash flow used in investing activities
Cash used in investing activities totaled $2,115,872. As described
previously, we are in the beginning phases of our real estate development
operations and as such we currently require significant amounts of cash to fund
acquisitions of property for development. In connection with these efforts we
entered a purchase contract for undeveloped land that adjoins the Grand Shell
Landing Golf Course which required a cash deposit of approximately $1,250,000.
Other uses of cash in investing activities included construction costs of
approximately $611,400, and the acquisition of additional fixed assets,
primarily equipment in our Airtek subsidiary, of approximately $300,000.
Cash flow from financing activities
Our financing activities provided net cash of $2,276,803. This cash was
raised principally in the form of net new debt of approximately, $3,278,940 and
from deposits received in connection with the pre-sale of condominiums. As of
March 31, 2005 we have received total condominium deposits of $2,020,000. The
total amount of deposits reflected as a source of cash of approximately $345,000
is limited to the amount by which total deposits received exceed the
legally-stipulated amount to be held in escrow. Below are additional details
with respect to our debt financing at March 31, 2005.
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DUE IN LESS DUE DUE
THAN 1 IN 1-3 AFTER 4
OBLIGATION YEAR YEARS YEARS
----------- ----------- -----------
Notes Payable $17,120,642 $ 6,200,422
Mortgages 151,360 3,750,828 1,061,020
----------- ----------- -----------
Total cash obligations $17,272,002 $ 3,750,828 $ 7,261,442
Equity Line of credit -Loan is in the name of a partner
Interest rate is variable (currently at 6.375 %). Loan
secured by Rio Vista property. 151,360
Mortgage Payable - First Mortgage in name of a partner
Interest is at a variable rate, currently 3.250 %. Interest
only is due monthly until November 1, 2012, and the borrower
has the right to prepay with no penalty. Maturity date of
the mortgage is October 1, 2027 1,034,822
Mortgage Payable - First mortgage secured by 48 Hendricks
property. Bank has a Secured interest in rents, leases,
fixed asset and profits. Interest is variable but can never
be less than 5 %. Current rate is 5.5 %. Payments are
interest only 3,750,828
Note Payable to finance company, monthly payments are
variable, including interest of 6.75%, collateralized by
Grand Shell Landing Golf Course and its assets, due November
2009 6,374,767
Note Payable to finance company, monthly payments of $278,
including imputed interest of 7%, collateralized by
equipment, due October 2006 5,650
Note Payable to finance company, monthly payments of $277,
including imputed interest of 6.49% collateralized by
equipment, due May 2007 6,671
Note payable to a finance company, monthly payments of $
814, including imputed interest of 6.75%, collectivized by
equipment, due October 2006 13,845
Note Payable to private investor, due January 1, 2006 with
interest payable at 12% 3,000,000
Note Payable to a limited liability company which is 33.3%
owned by a related party, with maturity date of August 14,
2005. 700,000
Notes Payable - various installment obligations for cranes
and safety equipment. 951,519
Note Payable on acquisition of The Grand Shell Landing Golf
Course to former owner. Owner has an option to purchase the
Company's stock, currently held in escrow, in lieu of
payment of the note. 1,070,811
Obligation Payable for acquisition of Airtek Safety Ltd. -
Non-interest bearing, secured by common stock held in
escrow, due on August 21, 2005. At the option Airtek
shareholders, common stock of Azur International may be
accepted in lieu of cash payment. 11,224,000
-----------
Total $28,284,272
Less: short-term portion (17,292,687)
-----------
Long-term maturities 11,012,270
-----------
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ITEM 3 - CONTROLS AND PROCEDURES
EVALUATION OF CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our reports under the Securities
Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission, and that such information is accumulated and
communicated to our management to allow timely decisions regarding required
disclosure. Management necessarily applied its judgment in assessing the costs
and benefits of such controls and procedures, which, by their nature, can
provide only reasonable assurance regarding management's control objectives.
At the conclusion of the period ended March 31, 2005, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chairman and Chief Executive Officer and General Counsel, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based upon that evaluation, the Chairman and Chief Executive Officer
and General Counsel concluded that our disclosure controls and procedures were
effective in alerting them in a timely manner to information relating to the
Company required to be disclosed in this report but adopted additional
disclosure controls and procedures to improve the quality and timeliness of
disclosure during our transition from a private to a public company.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In January 2005 the Company issued 50,000 shares of common stock to a
corporate attorney in consideration of an employment contract. The issuance was
made in a private placement transaction under an exemption from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act")
afforded by Section 4(2) of the Securities Act.
In January 2005 the Company issued 50,000 shares to a director as a
director's fee. The issuance was made in a private placement transaction under
an exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
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Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
On February 24, 2005 Azur purchased from 8 persons 133,000 shares,
constituting all of the outstanding shares, of Airtek Safety Limited, a United
Kingdom corporation which designs and manufactures safety systems for the
construction industry, including air bag safety systems, staircase safety
systems, leading edge protection, vertical side netting, stairwell platforms and
ladder safety devices. Airtek also owns 50% of Airtek Cranes, Ltd., a United
Kingdom joint venture which distributes a line of remote-controlled,
self-erecting tower cranes manufactured by Arcomet of Belgium, the holder of the
other 50% interest in the joint venture.
Pursuant to the purchase agreement with the sellers, Azur has agreed to
pay the sellers an aggregate of (pound)6.1 million (approximately $11,224,000)
on August 24, 2005. The due date of such obligation has been extended to
February 24, 2006. The sellers have the option to acquire an aggregate of
3,741,333 shares of Azur common stock in lieu of the cash consideration. The
shares of Airtek purchased by Azur are being held in escrow pending payment of
the purchase consideration.
Airtek's AirMat Safety System is comprised of a series of interlinked
modular air mattresses designed to provide "soft fall" arrest to reduce and
minimize injuries and fatalities due to falls from height on construction, civil
engineering, maintenance and refurbishment projects. The modules are
manufactured in a range of standard sizes, which with simple planning, allows
for configuration to accommodate any project. The system is patented in the
European Union and marketed throughout Europe and the United States. Airtek also
manufactures and markets related safety systems, including a stairsafe system
designed to give workers protection while working around open stairwells, and a
laddersafe system which is designed to prevent unauthorized access to elevated
work areas Airtek also has installed a safety barrier system at the British
Speedway. Airtek Cranes, Ltd. markets in the United Kingdom the Arcomet line of
pedestrian-operated remote controlled self-erecting tower cranes. Unlike
conventional cranes the Arcomet cranes arrive at the worksite as self-contained
units and can be operable within four hours.
22
Airtek also has a division which provides training services for managers
and workers in the construction and allied industries.
One of the sellers of the shares of Airtek is a trust of which John Duggan
and certain members of his family are beneficiaries. The trust sold 33,000 of
the 133,000 shares sold in the transaction. Mr. Duggan is a director of the
Company.
Item 6. Exhibits
(a) Exhibits
31.1- Certification of Chief Executive Officer pursuant to Rules 13a-14(a)
as adopted, pursuant to Section 302 of the Sarbanes-Oxley Act of
2202.
31.2- Certification of the Chief Financial Officer pursuant to Rules
13a-14(a) as adopted, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32.1- Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350 as adopted, pursuant to Section 906 of the Sarbanes-
OxleyAct of 2002.
32.2- Certification of the Principal Accounting Officer pursuant to 18
U.S.C. Section 1350 as adopted, pursuant to Section 906 of the
Sarbanes- OxleyAct of 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Azur International, Inc.
(Registrant)
Date: August 16, 2005 /s/ Donald Winfrey
----------------------------------
Donald Winfrey
President
24