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 September 30, 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 small business issuer 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 November 18, 2005, there were 70,888,536 shares
of the small business issuer's $.0001 par value per share Common Stock
outstanding.
AZUR INTERNATIONAL, INC.
TABLE OF CONTENTS
Page
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PART I Financial Information 3
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis or
Plan of Operation 27
Item 3. Controls and Procedures 36
PART II Other Information 36
Items 1 through 6 36-37
Signature Page 38
2
PART I Financial Information
Item 1. Financial Statements
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 2005
2005
------------
(Unaudited)
ASSETS
Current Assets
Cash and Cash Equivalents $ 176,806
Accounts Receivable (net of allowance for doubtful
accounts of $97,775) 2,859,171
Inventory 515,851
Prepaid Expenses 291,076
Other Receivables 233,050
Costs and Estimated Earnings in Excess of Billings
on Uncompleted Contracts 9,996,913
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Total Current Assets 14,072,867
Property, Plant & Equipment (net of accumulated depreciation
of $2,133,555) 14,405,259
Other Assets
Loan Acquisition Costs (net of amortization of $111,171) 266,290
Investments in Real Estate 1,674,374
Construction Deposits 1,497,055
Deposits - Land Purchase 1,300,309
Loans Receivable 250,000
Security Deposits 13,016
Other Deposits 43,829
Goodwill 9,872,793
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Total Other Assets 14,917,666
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TOTAL ASSETS $ 43,395,792
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3
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 2005
2005
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(Unaudited)
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable & Accrued Expenses $ 3,778,369
Current Portion-Notes/Mortgages Payable 19,341,128
Current Portion-Capital Lease Obligation 328,903
Other Current Liabilities 128,750
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Total Current Liabilities 23,577,151
Long-Term Debt
Notes/Mortgages Payable 12,719,204
Capital Lease Obligation 1,272,666
Liabilities Subject to Compromise from Bankruptcy 752,971
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Total Long-Term Debt 14,744,841
Other Liabilities
Deposits Held 2,741,055
Deferred Tax 222,113
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Total Other Liabilities 2,963,168
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Total Liabilities 41,285,160
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CONTINGENCY (FOOTNOTE 20)
Stockholders' Equity
Common Stock - $.01 par value, 200,000,000 shares
authorized; shares issued and outstanding 48,380,712 483,808
Stock Subscriptions Receivable (551,668)
Non Controlling Interest in Subsidiaries 3,243,794
Additional Paid in Capital 3,653,421
Accumulated Deficit (4,716,992)
Accumulated Other Comprehensive Loss (1,732)
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Total Stockholders' Equity 2,110,632
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 43,395,792
The accompanying notes are an integral part of the financial statements.
4
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2005 and 2004
2005 2004
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(Unaudited) (Unaudited)
Revenues
Sales $ 4,424,104 $ --
Rents 7,225,977 124,394
Revenue from Construction Contracts 6,084,521 --
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Total Revenue 17,734,602 124,394
Cost of Sales 5,057,613 --
Construction Operating Expenses 4,277,778 --
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Total Cost of Sales and Construction Operating Expenses 9,335,391 --
Gross Profit 8,399,210 124,394
Operating Expenses
General & Administrative Expenses 7,955,723 1,167,152
Amortization Expense 49,427 36,064
Depreciation Expense 858,922
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Total Operating Expenses 8,864,073 1,203,216
Net Income (Loss) Before
Other Income and Expense (464,863) (1,078,822)
Other Income and (Expense)
Interest Income 1,763 99
Other Income 153,454 --
Interest Expense (813,882) (266,779)
Other Expense (11,885) --
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Total Other Income and (Expense) (670,550) (266,680)
Net Income (Loss) before adjustments for minority interest (1,135,412) (1,345,502)
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Non Controlling Interest in Subsidiary (684,127) 68,518
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Income (Loss) before Provision for Income Taxes (1,819,540) (1,276,984)
Provision for Income Taxes (188,795) --
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Net Income (Loss) $ (2,008,335) $ (1,276,984)
============ ============
Net Loss per Weighted Average Number of
Common Shares $ (0.05) $ (0.04)
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Weighted Average Number of Common
Shares Outstanding 44,431,802 29,111,699
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The accompanying notes are an integral part of the financial statements.
5
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the Quarter Ended September 30, 2005 and 2004
2005 2004
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(Unaudited) (Unaudited)
Revenues
Sales $ 1,111,444 $ --
Rents 2,575,356 55,983
Revenue from Construction Contracts 2,433,929
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Total Revenue 6,120,729 55,983
Cost of Sales 1,868,426 --
Construction Operating Expenses 1,711,196 --
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Total Cost of Sales and Construction Operating Expenses 3,579,622 --
Gross Profit 2,541,106 55,983
Operating Expenses
General & Administrative Expenses 2,833,742 417,577
Amortization Expense 27,264 6,772
Depreciation Expense 183,210 --
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Total Operating Expenses 3,044,217 424,349
Net Income (Loss) Before
Other Income and Expense (503,111) (368,366)
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Other Income and (Expense)
Interest Income 5 6
Other Income 153,454 --
Interest Expense (371,224) (111,526)
Other Expense (5,489) --
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Total Other Income and (Expense) (223,254) (111,520)
Net Income (Loss) before adjustments for minority interest (726,364) (479,886)
Non Controlling Interest in Subsidiary (218,822) 5,425
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Income (Loss) before Provision for Income Taxes (945,187) (474,461)
Provision for Income Taxes (51,815) --
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Net Income (Loss) $ (997,001) $ (474,461)
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Net Loss per Weighted Average Number of
Common Shares $ (0.02) $ (0.01)
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Weighted Average Number of Common
Shares Outstanding 47,259,974 35,868,261
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The accompanying notes are an integral part of the financial statements.
6
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2005 and 2004
2005 2004
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(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (2,008,335) $ (1,276,984)
Adjustments to Reconcile Income (Loss) to Net Cash
Provided (Used) for Operating Activities:
Depreciation and Amortization 769,297 36,065
Services and Interest paid by Isuance of Common Stock 191,992 235,241
Earnings in Excess of Billings (6,084,521) --
Forgiveness of Debt 152,423 --
Changes in Assets and Liabilities:
Increase in Accounts Receivable (391,620) --
Decrease in Inventory 552,762 --
Decrease (Increase) in Prepaid Expenses 75,276 (223,155)
Increase in Security Deposits (13,016) (20,000)
Decrease in Other Receivables 53,717 70,713
Increase in Other Assets (312,491) --
Decrease in Deferred Taxes (18,349) --
Increase in Other Current Liabilities 128,750 161,543
Increase in Accounts Payable & Accruals 1,200,873 --
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Net Cash Used In Operations (5,703,242) (1,016,577)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in Real Estate Holdings -- (10,876)
Increase in Real Estate Deposits (1,300,309) (50,000)
Increase in Other Deposits (43,829) --
Purchase of Fixed Assets (1,122,812) (56,715)
Cash acquired on Acquisitions 24,992 3,206
Cash paid for Acquisitions (660,445) --
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Net Cash Used in Investing Activities: (3,102,403) (114,385)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds From Customer Deposit Escrows 1,244,000 --
Minority Shareholder Contributions 155,481 298,722
Capital Leases 863,146 --
Payments on Capital Leases (271,683) --
Proceeds From Notes and Loans Payable 8,158,248 173,900
Payment of Notes and Loans Payable (1,721,641) (651,207)
Proceeds from Related Party Loans 50,000 --
Payment of Related Party Loans (245,918) --
Proceeds from Sale of Common Stock -- 1,335,001
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Net Cash Provided in Financing Activities: 8,231,633 1,156,416
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7
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2005 and 2004
2005 2004
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(Unaudited) (Unaudited)
Effect of Foreign Exchange Rate Changes on Cash 139,055 --
Net Decrease in Cash (434,957) 25,454
Beginning Cash 611,763 --
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Ending Cash $ 176,806 $ 25,454
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SCHEDULE OF NONCASH ACTIVITIES:
Common Stock Issued for Services and Interest $ 191,992 $ 177,431
Common Stock Issued for deposit on Acquisition 1,455,841
Property and equipment valued at $ 11,224,000 were
acquired through the issuance of an obligation payable . 10,974,000 698,800
SUPPLEMENTAL CASH FLOW INFORMATION
Interest Expense Paid 813,882 152,253
Income Taxes Paid -- --
The accompanying notes are an integral part of the financial statements.
8
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
A. BACKGROUND
Azur International, Inc. ("Azur" or the "Company") is in the business of
developing and marketing luxury residential and resort properties. 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 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. ("The
Grand Shell Landing"), which operates an 18-hole golf course, pro shop and
restaurant in Mississippi. At the present time, The Grand Shell Landing
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.
On June 1, 2005, pursuant to a Stock Purchase Agreement dated as of June 1, 2005
between HVST Acquisition Corporation, a Nevada corporation owned and controlled
by James A. Ditanna of King of Prussia, Pennsylvania ("HVST Acquisition"), and
Azur, HVST Acquisition sold to Azur 68,960,000 shares of common stock of New
Harvest Capital Corporation ("New Harvest"), constituting approximately 50.4% of
the outstanding common stock of New Harvest (the "Harvest Shares"). The purchase
price for the New Harvest Shares was $550,000 paid in cash. By virtue of its
acquisition of a majority of the voting securities of New Harvest on such date,
Azur acquired from HVST Acquisition control of New Harvest on June 1, 2005.
Simultaneously with the acquisition of the New Harvest Shares, Azur entered into
a Consulting and Investment Banking Services Agreement with Venture Fund I,
Inc., a Nevada corporation owned by James Ditanna ("Venture") under which
Venture has agreed to provide to Azur certain information, evaluation and
consulting and investment banking services for a consideration of 600,000 shares
of common stock of Azur, which were issued on June 27, 2005.
On September 23, 2005, the Company purchased a 25% interest in Victoria Green,
LLC, a development project for 24 town homes in the Ft. Lauderdale area. The
purchase was executed through a Membership Interest Purchase agreement between
the Company and Darby International, Inc., whereby the Company issued 1,062,499
restricted shares of stock in exchange for the 25% interest. Construction for
this project shall begin during the first quarter of 2006 and is expected to be
completed by the first quarter of 2007.
B. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include accounts of Azur and its
wholly-owned subsidiaries. All material inter-company transactions have been
eliminated. The following is a list of subsidiaries and their respective
controlling interests:
9
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
B. PRINCIPLES OF CONSOLIDATION (Continued)
Rio Vista, LLC - 53%
48 Hendricks. LLC - 63%
New Harvest Capital Corp. - 51%
Azur Development Corp. - 100%
The Grand Shell Landing - 100%
Airtek Safety Limited - 100%
C. FOREIGN CURRENCY TRANSLATION
The Company's subsidiary, Airtek Safety, is located in the United Kingdom along
with its subsidiary operating company Airtek Cranes. The majority of financial
transactions take place in British pounds. Accordingly, Airtek has determined
the British pound as the currency of its primary economic environment and thus
its functional currency.
Non-dollar transactions and balances for Airtek and its subsidiaries have been
re-measured to U.S. dollars in accordance with statement No. 52 of the Financial
Accounting Standards Board ("FASB"). All transaction gains and losses from
re-measurement of monetary balances sheet items denominated in non-dollar
currencies are reflected in the statement of operations as financial income or
expenses, as appropriate.
D. 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.
E. REVENUE RECOGNITION
Revenues for sales and rentals generated from The Grand Shell Landing are
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).
Construction Operations - Azur determines earnings from construction under the
percentage of completion method. Under this method, earnings are recognized in
proportion of the total earnings anticipated from a contract which the cost of
the work completed bears to the estimated total cost of the work covered by the
contract.
At September 30, 2005, the percentage of completion used was 44%, which
accounted for $6,084,521 in revenues and $4,277,778 in costs. The Company's
construction contracts generally extend over more than one year, and revisions
in costs and earnings estimates during the course of the work are reflected in
the year in which the facts which require the revision become known. Due to
uncertainties inherent in the estimation process, it is reasonably possible that
such estimates will be revised over the next years until completion of the job.
When a loss is forecasted for a contract, the full amount of the anticipated
loss is recognized in the period in which it is determined that a loss will
occur. Estimated costs and earnings from construction contracts are reviewed and
necessary adjustments are made based on current evaluations of the indicated
outcome. Cost of construction contracts includes all direct material, labor and
subcontracting costs, and those indirect costs related to contract performance
expenses that are not directly attributable to construction contracts, such as
business development, estimating, purchasing, accounting, cost control, general
office support and similar costs attributed to our construction activities, are
expensed as incurred.
F. 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.
10
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
G. 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.
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 $2,741,055 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 10% of the purchase price of each
unit, 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 towards hard
construction costs only. At September 30, 2005, the balance in the escrow
account is $1,497,055, and a total of $1,244,000 has been used towards hard
construction costs.
J. ALLOWANCE FOR DOUBTFUL ACCOUNTS
An allowance for doubtful accounts is estimated and recorded based on the
Company's historical bad debt experience. The current balance of the allowance
for doubtful accounts is approximately $97,775.
K. INVENTORY
Inventory is stated at the lower of cost or market with cost determined using
the first-in, first-out method. Inventory for Airtek Cranes is comprised
primarily of crane parts and supplies valued at $266,463. Crane inventory
includes motors, gear boxes, wheels, cables, batteries, brakes and other parts
necessary to support the crane rental business. Inventory for Airtek Safety of
$166,909 consists primarily of air mats that are required on construction sites
under English law. The balance is stairsafe inventory utilized on jobsites for
railings around open staircases. Inventory for The Grand Shell Landing Golf
Course totaling $82,479 at September 30, 2005, consists of apparel and equipment
sold at the pro shop, as well as food and beverages items.
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 nine months ended September 30, 2005 was 44,431,802 and the
resulting loss per share was $0.05 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. As of September 30, 2005, the Company had net
operating losses (NOL's) of approximately $4,716,992
Statutory federal income taxes 34%
Valuation allowance (34)
Effective tax rate 0%
11
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
M. INCOME TAXES (Continued)
Airtek Safety Limited, the British subsidiary, had income subject to taxation of
$1,286,192 for the nine months ended September 30, 2005. A provision for income
taxes of $188,795 is included in the September 30, 2005 financials.
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 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 Company
personally. The value of such usage is approximately $4,000 monthly.
NOTE 3 - EMPLOYMENT/CONSULTING AGREEMENTS
The following employment and consulting agreements are in effect as of September
30, 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 common stock at $.01.
Year 2 - $360,000 per year, plus 500,000 restricted shares of Azur
common stock at $.01.
Year 3 - $480,000 per year, plus 500,000 restricted shares of Azur
common stock at $.01.
Under this consulting agreement, the Company provides said executive
with an automobile.
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 employment agreement with the Company's Vice President of
Operations was terminated on July 1, 2005. As per the Termination of
Employment Agreement, whereby both parties mutually agreed to
terminate the executive's employment with the Company, the executive
shall receive the following severance benefits: (1) salary until
August 15, 2005 (2) 20,000 restricted shares of stock (3) health
benefits until August 15, 2005 and (4) stipend of $5,000 for moving
expenses.
D. The Vice President of Development, who was also the President of the
Azur Development subsidiary, and who had a Consulting Agreement with
a term of twelve months, commencing on November 1, 2004, was
appointed Chief Operating Officer on July 12, 2005. At that time,
the consulting agreement was terminated, and the executive signed a
new employment agreement with an effective date of July 1, 2005. The
agreement details the following terms and conditions: (1) The
executive's salary shall be $60,000 per annum, (2) the executive
shall receive a signing bonus of 50,000 restricted shares of the
Company's stock, (3) the executive shall receive $5,000 in
restricted shares of the Company's stock on the first of each month,
for term of the agreement, (4) the executive shall receive 5% of the
net profits derived by the Company from any project, which has been
12
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
NOTE 3 - EMPLOYMENT/CONSULTING AGREEMENTS (Continued)
directly originated by the Executive, such 5% consideration to be
payable 1% in cash payments and 4% in restricted shares of the
Company's stock, (5) the executive shall receive 5% of the net
profits derived by the Company from the leasing of cranes, which has
been directly referred to by the executive, such 5% consideration to
be payable 1% in cash payments and 4% in restricted shares of the
Company's stock and (6) the term of the agreement is one year and
shall renew automatically for additional one year periods, unless
terminated by either party.
E. The General Counsel & Corporate Secretary has an employment
agreement with a term of three years, 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. The Executive received a signing bonus of
50,000 of restricted shares of the Company's stock.
F. A Director of the company, who has been engaged to develop home
building and commercial development projects, as well as oversee any
European projects, has a consulting agreement with the Company 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 advisory agreement is in effect between the Company and a
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 1,
2004, for a term of 2 years, ending on August 1, 2006. The
compensation to the consulting firm under the agreement is 2,000,000
shares of common stock at $.01, plus 10% of the acquisition price of
new companies identified by the consulting firm. The fee shall be
paid in shares of common stock valued at the previous day's bid
price. In a First Addendum to the Advisory Agreement dated June 27,
2005, the Company agreed to afford the consultant an advance payment
of $25,000 against future compensation. The advance shall be against
any subsequent payments due and payable to the Consultant.
H. An IR/PR-Services Agreement is in effect between the Company and an
international consulting company for a period of twelve months,
commencing on June 30, 2005. In connection with this agreement, the
Company shall pay the consultant compensation as follows: (1) a
$15,000 listing fee for listing application at a German stock
exchange, which shall be satisfied by the issuance of 12,000 shares
of the Company's common stock, (2) a $110,000 engagement fee for the
performance of consulting services, which shall be satisfied by the
issuance of 88,000 shares of the Company's common stock valued at
$1.25 per share and (3) a 10% finder's fee in connection with any
acquisitions, projects, or any other findings or transactions
involving products, commodities, services, currencies, additions,
renewals, extensions, rollovers, amendments, new contracts,
re-negotiations, parallel contracts or agreements or third party
assignments thereof.
I. A retainer agreement dated May 31, 2005 is in effect between the
Company and an investor relations firm for implementation of the
Company's financial communications program. The agreement, which has
an effective date of June 1, 2005 carries a term of twelve months
ending on May 31, 2006. During the term, in consideration for the
services, the Company shall pay the investor relations firm a
retainer fee of $60,000 for the initial ninety day start up period,
and $15,000 monthly for each month after the third month. As
additional consideration, the Company has granted the investor
relations firm warrants to purchase an aggregate of 100,000 shares
of common stock over a three year period at the exercise price of
$2.00 per share. (Beginning on November 1, 2005, the investor
relations firm has agreed to receive a reduced retainer of $5,000).
13
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
NOTE 3 - EMPLOYMENT/CONSULTING AGREEMENTS (Continued)
J. The Company has a retention agreement for strategic and business
consultancy services with a consulting firm dated February 1, 2005.
Under the agreement, the Company is required to pay the consulting
firm the following compensation: (1) consulting fees of $25,000 upon
execution of the agreement, and each subsequent month for a period
of one year, (2) warrants to purchase an aggregate number of shares
of the Company's common stock equal to 9.8% of the outstanding
common stock of Azur as of February 1, 2005 or 4,093,708 shares at
the exercise price per share equal to 50% of the average closing
price for the common stock during the ten days immediately preceding
February 1, 2005 ($1.691), and (3) finder's fees as stipulated in
section 4-c of the retention agreement.
K. The Company has a retainer agreement with a land planner dated
February 3, 2005 for land planning and golf course design services
which are to take place in three stages. The fees for said services
total $210,000, with $84,000 to be paid in shares of the Company's
common stock. The remaining $126,000 is to be paid in cash and will
be billed each month, based on the percentage of work completed.
L. A one year consultant agreement dated May 6, 2005 is in effect
between the Company and a consultant to develop programs to achieve
the Company's public relations objectives. The compensation for the
consultant's services shall be paid in 2,000,000 restricted shares
of the Company's stock to be issued upon execution of the agreement
on the date stated above.
M. The Comptroller of Azur signed an employment agreement with the
Company dated August 30, 2005, for a term of one year, which shall
renew automatically in one year periods. As per said agreement, the
executive's salary is $80,000 and shall increase at a rate of no
less than 5% per annum. The Executive shall receive a signing bonus
of 25,000 restricted shares of the Company's stock , and an
additional performance bonus of $10,000 per quarter in restricted
shares of the Corporation, contingent on the Company making timely
quarterly filings with the SEC beginning with the third quarter of
2005.
NOTE 4 - CAPITAL TRANSACTIONS
In January 2005, Azur issued 50,000 restricted shares, valued at $.01 per share,
to an attorney in consideration of an employment contract. The Company also
issued 50,000 restricted shares for the same value to a director in
consideration of directors' fees, and 500,000 restricted shares valued at $5,000
to a lender in consideration of loan fees.
In February 2005, the Company issued 2,146,666 restricted shares valued at $.01
per share in consideration of the acquisition of Airtek Safety Limited, (a
United Kingdom company). This stock, along with the initial 1,443,734 restricted
shares issued in November 2004 as part of the Airtek acquisition, is being held
in escrow pending consummation of the terms of the acquisition.
During the month of April 2005, Azur issued 22,443 restricted shares valued at
$33,665 in consideration of architect fees and creative design services. Also,
the Company issued 420,000 restricted shares valued at $.01 per share to various
investors as payment of loan fees, and 50,000 at $.01 per share for director's
fees.
In May 2005, the Company issued 2,000,000 restricted shares valued at $.01 per
share as payment on a consulting agreement, and another 9,333 restricted shares
valued at $14,000 as payment for architect fees.
In June 2005, the Company issued 1,580,282 restricted shares valued at $.01 per
share in consideration of loan fees. The Company also issued another 13,110
restricted shares for a total value of $19,665, as payment for architect fees
and creative design services. Also, the Company issued 600,000 restricted shares
for services valued at $6,000.
14
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
NOTE 4 - CAPITAL TRANSACTIONS (Continued)
During the month of July 2005, the Company issued 13,111 restricted shares at a
value of $19,668 in consideration of architect fees and creative design
services, and 2,500 restricted shares valued at $.01 per share as a salary bonus
for one of its employees.
During August of 2005, the Company issued another 13,113 restricted shares at a
value of $19,668 in consideration of architect fees and creative design
services, and 20,000 restricted shares valued at $.01 per share as part of the
Termination of Employment Agreement of the Company's Vice President of
Operations. (see Note 3-C).
In September 2005, the Company issued 10,043 restricted shares valued at $10,000
as partial compensation to one of its Officers, for the months of July and
August, 2005, as per the Officer's Employment Agreement. (see Note 3-D). Another
25,000 restricted shares valued at $.01 per share, were issued as a signing
bonus for a new employment agreement executed on August 30, 2005. During this
month, the Company also issued 35,000 restricted shares, at a value of $.01 per
share, in consideration of loan fees, and 2,008 restricted shares valued at
$2,000 for a lease agreement covering the period from July to August of 2005.
During September 2005, the Company issued 30,000 restricted shares valued at
$15,000 as payment of an outstanding accounting services bill, and 500,000
valued at $.01 per share for services from one of its officers, as stated in the
officer's employment agreement (see note 3-A above). Lastly, the Company issued
a total of 1,062,499 restricted shares valued at $423,749 for the acquisition of
25% interest in the Victoria Green development project (see Background Note
1-A).
NOTE 5 - ACCOUNTS RECEIVABLE
Accounts receivable consist of the following amount as of September 30, 2005:
Golf Membership & Events $ 50,074
Trade Receivables 2,809,097
----------
$2,859,171
NOTE 6 - OTHER RECEIVABLES
Other receivables of $233,050 consists of the following:
Miscellaneous accounts receivable* $223,050
Promissory Note receivable** 10,000
--------
Total $233,050
* The miscellaneous accounts receivable consists of:
Advances to employees 1,063
Advances to shareholders 173,509
Deposits 38,036
Other 10,442
--------
Total $223,050
** The remaining $10,000 in other receivables consists of funds from a
promissory note executed on September 30, 2005.
15
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
NOTE 7 - 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
Property and equipment consist of the following as of September 30, 2005:
Land and Improvements $ 6,931,070
Less accumulated depreciation (248,107)
------------
Net Land and Improvements $ 6,682,963
Buildings $ 2,295,616
Less accumulated depreciation (48,193)
------------
Net buildings $ 2,247,423
Equipment & Fixtures $ 7,312,127
Less accumulated depreciation (1,837,255)
------------
Net Equipment & Fixtures $ 5,474,872
Total Property & Equipment $ 14,405,258
============
* Total Depreciation Expense for the nine months ended September 30, 2005 was
$858,922.
** In April 2005 the Property Plant and Equipment account was reduced by
approximately $5,000,000 due to the transfer of assets related to the Meritage
construction project to the Cost and Earnings In Excess of Billings account.
NOTE 8 - CAPITAL LEASES
Property held under capital leases, included with property and equipment at
September 30, 2005 consists of the following:
Equipment $ 256,027
Less: Accumulated depreciation (54,454)
---------
Equipment capital lease-net $ 201,573
Capital lease obligations consist of the following at September 30, 2005:
Non-cancelable leases, through 2008, $ 1,601,569
Secured by equipment
Less: current portion of lease obligations (328,903)
-----------
Long-term capital lease obligations $ 1,272,666
16
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
NOTE 8 - CAPITAL LEASES (Continued)
The Company currently has two capital leases for cranes used in its rental
operations. The first lease, dated February 3, 2004, with a finance company is
for six cranes. The fixed monthly payment is $8,967 with the last payment due
February 20, 2008. This lease is in the name of Airtek Safety. A sub-lease was
executed between Airtek Safety Limited and Airtek Cranes Limited as the cranes
are operated out of the Airtek Crane rental business.
The second lease, dated July 22, 2004 is for eight Acromet cranes. The monthly
payments are $33,649 with the last payment due April 15, 2009.
NOTE 9 - LOANS RECEIVABLE
On June 15, 2005, Azur entered into a loan agreement with one of its
shareholders, whereby it loaned the shareholder $250,000 at 6% interest per
annum. This loan is evidenced by a promissory note. The payment of principal and
accrued interest shall be due and payable in full the earlier of: i) June 15,
2007; or ii)upon the distribution of any proceeds derived from any transaction
concerning the property known as "Shell Landing Development" in Gautier,
Mississippi, which is currently owned by Shell Landing Development II LLC,
including any proceeds derived from the development or any other transaction
regarding the Islands at Shell Landing (Shell Landing Development) or any other
development (through any corporate entity) taking place at the property known as
Shell Landing Development in Mississippi. All payments shall be first applied to
accrued Interest and then the balance to the principal.
As security for the repayment of the loan, the shareholder granted Azur a
security interest on 125,000 shares of Azur common stock held in the
shareholder's name. This security interest is evidenced by a Pledge Agreement
and Escrow Agreement dated June 15, 2005. The security interest shall be held
until all payments of principal and interest have been paid to Azur.
NOTE 10- 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 7.875%). Loan secured
by Rio Vista property. $ 148,260
Mortgage Payable - First Mortgage in name of a partner.
Interest is at a variable rate, currently 5.25%. 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 security 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 5,415,051
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 6,282,826
Note Payable to finance company, monthly payments of $ 278,
including imputed interest of 7%, collateralized by equipment, 4,106
due October 2006
17
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
NOTE 10- LONG TERM DEBT (Continued)
Note Payable to finance company, monthly payments of $ 277,
including imputed interest of 6.49% collateralized by
equipment, due May 2007 5,142
Note payable to a finance company, monthly payments of $ 814,
including imputed interest of 6.75%, collectivized by
equipment, due October 2006 9,251
Note Payable to private investor, due on May 6, 2005 (extended
to January 1, 2006) with interest payable at 12%, and
unsecured. 3,000,000
Notes Payable to private investor with maturity date of August
14th, 2005 (extended to February 14, 2006) 700,000
Notes Payable - various installment obligations for crane and
safety equipment. 761,064
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 (the note was paid in full on November 7, 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 24, 2005 (extended to February 24, 2006). The
shareholders of Airtek can choose to accept common stock in
lieu of cash payment. 10,974,000
Note Payable to private investor, due May 31, 2006 with 18%
interest. 840,000
Note Payable to private investor, due September 30, 2005,
bearing 12% interest (extended to March 8, 2006). 100,000
Convertible Debenture to investment company bearing 12%
interest, due on June 1, 2006 700,000
Convertible Debenture to private investor bearing 12%
interest, due on June 1, 2006 300,000
Note Payable to private investor, due November 30, 2005,
bearing monthly interest at a rate of 1% 300,000
Note Payable to private investor, due November 4, 2005,
bearing monthly interest at a rate of 1.5% (the note was paid
in full on November 7, 2005) 50,000
Note Payable to private investor, executed on September 27,
2005, due the earlier of (a) sale of Rio Vista property or (b)
receipt of potential raise, no interest unless principal is
not repaid within 180 days of execution, in which case the
rate shall be 14% per year (the note was paid in full on
November 7, 2005) 250,000
Note Payable to private investor, executed on August 19, 2005,
with a maturity date of September 1, 2005. (The $55,000
reflects the remaining balance of the $100,000 note) (the note
was paid in full on November 7, 2005) 55,000
18
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
NOTE 10- LONG TERM DEBT (Continued)
Note Payable to a Director of the Company, due on October 28,
2005, non-interest bearing (the note was paid in full on
November 7, 2005) 15,000
Note Payable to a Director of the Company, due on November 4,
2005, non-interest bearing (the note was paid in full on
November 7, 2005) 15,000
Note Payable to a Director of the Company, due on November 15,
2005, non-interest bearing (the note was paid in full on
November 7, 2005). 20,000
Note Payable to private investor, due on February 1, 2006, 1%
monthly interest. 10,000
-------------
Total obligations $ 32,060,333
Less: Short-term portion (19,341,128)
-------------
Long-term maturities $ 12,712,205
=============
A. MATURITIES ON LONG-TERM OBLIGATIONS:
2005 $ 1,706,064
2006 22,039,051
2007 1,481,064
2008 1,903,082
Thereafter 4,931,072
B. EXTENTIONS OF NOTES PAYABLE:
On August 14, 2005 the private investor who loaned the Company $700,000 on
February 14, 2005, executed a First Addendum to the Promissory Note whereby he
agreed to extend the maturity date on the Promissory Note from August 14, 2005
to February 14, 2006.
The private investor who loaned the Company $100,000 on March 8, 2005, signed an
Addendum to the Promissory Note extending the due date of said note for 6 months
from September 30, 2005 to March 8, 2006. The addendum was executed on October
5, 2005 (see Note 18-B).
C . NOTE PAYABLE TO PRIVATE INVESTOR
On August 4, 2005 the Company executed a three-month Promissory Note in the
amount of $50,000 with a private investor. The note has a maturity date of
November 4, 2005 and carries a monthly interest rate of 1.5%. All interest is
due at maturity, along with a brokerage fee of $2,750. This obligation was paid
on November 7, 2005 (see Note 18-H).
D. NOTE PAYABLE TO PRIVATE INVESTOR
On August 30, 2005 the Company executed a convertible note in the amount of
$300,000 with a private investor. The note, which has a maturity date of
November 30, 2005, carries a monthly interest rate of 1%, which must be paid
monthly in arrears. The note carries a financing fee of $30,000, which was paid
from the proceeds of the note. As additional consideration for the loan, the
Company issued 50,000 shares of its common stock to the lender. The lender has
the right to convert the principal amount of the loan into 600,000 shares of the
Company's stock during the term of the note.
19
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
NOTE 10- LONG TERM DEBT (Continued)
E. NOTE PAYABLE TO PRIVATE INVESTOR
On September 27, 2005, the Company executed a Promissory Note with a private
investor, in the amount of $250,000. The note has maturity date equal to the
earlier of: (a) the sale of the Rio Vista property or (b) receipt of pending
money raise. There is a financing fee associated with the note, equal to $25,000
if the principal is paid within 90 days from the execution date, or $50,000 if
the principal is paid after 90 days from the execution date. As consideration
for the note, the Company shall issue 250,000 restricted shares of stock. This
obligation was paid on November 7, 2005 (see Note 18-H).
F. NOTE PAYBLE TO A DIRECTOR
On August 4, 2005, a Director of the Company loaned Azur $15,000, which was
evidenced by a 3 month Promissory Note due on November 4, 2005. As consideration
for the loan, the Company issued 15,000 restricted shares, valued at $.01 per
share, in the name of the Director. This obligation was paid on November 7, 2005
(see Note 18-H).
G. NOTE PAYBLE TO A DIRECTOR
On August 15, 2005, a Director of the Company loaned Azur $20,000, which was
evidenced by a 3 month Promissory Note due on November 15, 2005. As
consideration for the loan, the Company issued 20,000 restricted shares, valued
at $.01 per share, in the name of the Director. This obligation was paid on
November 7, 2005 (see Note 18-H).
H. NOTE PAYABLE TO A PRIVATE INVESTOR
On August 19, 2005, the Company executed a Promissory Note with a private
investor, in the amount of $100,000. The note had a maturity date of September
1, 2005 and carried a $10,000 loan fee. The Company made a $45,000 payment
towards this note in September, 2005, leaving an outstanding balance of $55,000.
This balance on this obligation was paid on November 7, 2005 (see Note 18-H).
I. NOTE PAYABLE TO A DIRECTOR
On September 28, 2005, a Director of the Company loaned Azur $15,000, which was
evidenced by a Promissory Note due on October 28, 2005. This obligation was paid
on November 7, 2005 (see Note 18-H).
J. NOTE PAYABLE TO A PRIVATE INVESTOR
On September 30, 2005, the Company executed a Promissory Note with a private
investor, in the amount of $10,000. The maturity date of the note is the earlier
of (a) the sale of the Rio Vista property or (b) February 1, 2006 if the Rio
Vista property is not under contract for sale by December 31, 2005. The accrued
interest is due, along with the principal, at maturity. As additional
consideration for the note, Azur issued the lender 10,000 restricted shares of
stock.
NOTE 11 - 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
Other 62,491
---------
377,461
Less Accumulated Amortization (111,171)
---------
Total Loan Acquisition Costs $ 266,290
=========
20
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
NOTE 11 - LOAN ACQUISITION COSTS (Continued)
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 nine months ended September 30, 2005 totaled
$49,427
NOTE 12 - INVESTMENT ON LAND PURCHASE
On May 5, 2005, the Company entered into an agreement to acquire up to 80% of
the land surrounding the Grand Shell Landing Golf Course in Mississippi. The
Company has invested a total of $1,300,309 in said land. The acquisition was
consummated on November 3, 2005 (see Note 18-I).
NOTE 13 - ASSIGNMENT OF INTEREST
On May 18, 2005, Azur Development Corp., a wholly owned subsidiary of Azur
assigned its interest in 48 Hendricks LLC to Azur, for business and financing
purposes.
NOTE 14 - ACQUISITION OF AIRTEK SAFETY LTD.
On February 24, 2005, the Company acquired 100% of the outstanding shares of
Airtek Safety Limited (a United Kingdom corporation). Pursuant to the purchase
agreement with the shareholders of Airtek, Azur has agreed to pay 6.1 million
pounds (approximately $11,224,000) on August 24, 2005 (which date was
subsequently extended to February 24, 2006 pursuant to the addendum referred to
in the next paragraph). 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 24th, 2005, November
24th, 2005, December 24, 2005 and January 24, 2006. The first payments of
$250,000 and $75,000 were made on September 29, 2005 and November 7, 2005,
respectively. The Installment Payments shall be distributed to the sellers in
their respective percentages. 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.
21
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
NOTE 15 - GOODWILL
Goodwill was calculated by analyzing the difference between the purchase price
of each of Airtek Safety Limited, Azur Development Corp., and New Harvest and
the consolidated net asset value of each company at acquisition. At September
30, 2005, the Company has recorded on its balance sheet goodwill from these
three acquisitions as follows:
Azur Development Corp. $ 152,172 (Note 1-A)
Airtek Safety Limited 9,170,674 (Note 14)
New Harvest 549,947 (Note 1-A)
-----------
Total $ 9,872,793
-----------
NOTE 16 - BUSINESS SEGMENT INFORMATION
The Company has three operating and reporting segments: Real Estate Development,
Grand Shell Landing Golf Course and Airtek Safety Limited. The Company's
reportable operating segments are strategic business units that offer different
products and services. Segment amounts include all elimination adjustments made
in consolidation. The Company accounts for all inter-segment sales and transfers
as if the sales or transfers were to third parties, that is, at current market
prices.
Real Estate Development consists of the development and sale of a luxury
condominium project located in Ft Lauderdale, Florida. Construction on the
project, which commenced in March of 2005, and has an expected completion date
of May 2006, includes a total of sixteen units, which have been 80% pre-sold as
of September 30, 2005. This segment also includes the Company's 25% investment
in Victoria Green, LLC, a development project consisting of 24 town homes in the
Ft. Lauderdale area.
Grand Shell Landing is an eighteen-hole golf course and club house located in
Gautier, Mississippi. Surrounding the golf course is land designated for
single-family home sites and multi-family condominium projects. The Company owns
the golf course and club house and has entered into a co-ownership agreement for
specific residential and commercial development projects where the Company
previously held an equity interest.
Airtek consists of a crane and a constructions safety equipment rental business.
Airtek is located in Hampshire, England and conducts the majority of its
operations within the United Kingdom.
The following table presents information about reported segment profit or loss
and segment assets for the period ended September 30, 2005:
Real Estate Grand Shell Airtek Safety
Development Landing Ltd. All Other Totals
- ---------------------------------------- ------------------ ---------------- ---------------- -------------- ---------------
Total Revenue 6,091,168 2,139,649 9,503,785 -- 17,734,602
- ---------------------------------------- ------------------ ---------------- ---------------- -------------- ---------------
Depreciation and Amortization 21,645 375,898 505,304 5,503 908,350
- ---------------------------------------- ------------------ ---------------- ---------------- -------------- ---------------
Net income (loss) before other income 1,407,026 222,509 1,004,529 (2,579,531) (464,863)
and expense
- ---------------------------------------- ------------------ ---------------- ---------------- -------------- ---------------
Interest Expense -- 343,842 77,617 392,423 813,882
- ---------------------------------------- ------------------ ---------------- ---------------- -------------- ---------------
Non-controlling interest in subsidiary (520,599) (277,418) 113,890 (684,127)
- ---------------------------------------- ------------------ ---------------- ---------------- -------------- ---------------
Provision for income taxes 188,795 188,795
- ---------------------------------------- ------------------ ---------------- ---------------- -------------- ---------------
22
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
Real Estate Grand Shell Airtek Safety
Development Landing Ltd. All Other Totals
- ---------------------------------------- ------------------ ---------------- ---------------- -------------- ---------------
Net income (loss) 886,426 (120,447) 614,814 (3,389,128) (2,008,335)
- ---------------------------------------- ------------------ ---------------- ---------------- -------------- ---------------
Other significant non-cash items:
- ---------------------------------------- ------------------ ---------------- ---------------- -------------- ---------------
Cost in excess of billings on 9,996,913
long-term contracts
- ---------------------------------------- ------------------ ---------------- ---------------- -------------- ---------------
Forgiveness of debt 152,423
- ---------------------------------------- ------------------ ---------------- ---------------- -------------- ---------------
Segment Assets 12,991,367 8,326,541 8,744,645 13,333,239 43,395,792
- ---------------------------------------- ------------------ ---------------- ---------------- -------------- ---------------
Expenditures for segment assets --
The "Other" category includes the following:
o Expenses associated with Rio Vista, a property which is 53% owned by
the Company
o Expenses associated with Azur Shell Landing Development in
Mississippi
o Corporate overhead
o Expenses associated with New Harvest
The following table details the reportable segment assets included in the
"Other" category as of September 30, 2005, and how they are combined into
consolidated totals presented in the financial statements of the Company.
Rio Vista Azur Development Azur Shell
Property Landing Dev. Azur Int. Totals
- --------------------------------------- ------------------ ----------------- ---------------- -------------- ---------------
Single-family home owned 1,505,701 1,505,701
by the Company
- --------------------------------------- ------------------ ----------------- ---------------- -------------- ---------------
Goodwill -- 9,872,793 9,872,793
- --------------------------------------- ------------------ ----------------- ---------------- -------------- ---------------
Other* 240,000 1,378,549 336,196 1,954,745
- --------------------------------------- ------------------ ----------------- ---------------- -------------- ---------------
Total 1,505,701 240,000 1,378,549 10,208,987 13,333,239
- --------------------------------------- ------------------ ----------------- ---------------- -------------- ---------------
The Rio Vista Property category is a single family home in the Las Olas section
of Ft Lauderdale, which was purchased for resale purposes and is currently
listed with a broker. The Goodwill pertains to the acquisition of three
subsidiaries, as detailed in Note 15. The last category called "other" consists
of:
*Other consists of the following:
o Azur Development - 3% investment in the Place des Arts condominium
project.
o Azur Shell Landing Development - Investment in the purchase of land
in Mississippi
o Azur - Cash balances, office furniture and equipment, loan
receivable (Note 9), security deposits, and other deposits.
23
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
NOTE 17 - HURRICANE KATRINA IN MISSISSIPPI
On the August 29 - 30 of 2005, the state of Mississippi was affected by
Hurricane Katrina. Shell Landing Golf Course which is located in Gautier,
Mississippi was impacted by this hurricane. No significant structural damage has
occurred, mostly due to the high elevation of the land pertaining to the golf
course. There was loss of power to the area, which resumed on September 2, 2005.
Although the golf course resumed operations on September 23, we have experienced
a reduction in revenues from the golf course in the short term as a result of
the hurricane. The insurance company has been contacted and the claims have been
submitted with respect to economic loss and any damage that may have occurred to
the golf course and any related property.
NOTE 18 - COMMITMENTS & SUBSEQUENT EVENTS
A. On October 5, 2005, the Company signed a Promissory Note from a
private investor, in the amount of $10,000, bearing 1% interest
monthly. The maturity date of the note is the earlier of (a) the
sale of the Rio Vista property or (b) February 1, 2006 if the Rio
Vista property is not under contract for sale by December 31, 2005.
The accrued interest is due, along with the principal, at maturity.
As additional consideration for the note, Azur issued the lender
20,000 restricted shares of stock.
B. On October 5, 2005, the Company executed a First Addendum to the
Promissory Note for $100,000 payable to a private investor, which
extended the due date of said note to March 8, 2006. An extension
fee shall be paid equivalent to 40,000 restricted shares of the
Company's stock.
C. On October 5, 2005, the Company signed a Promissory Note to a
private investor, in the amount of $10,000, bearing 1% interest
monthly. The maturity date of the note is the earlier of (a) the
sale of the Rio Vista property or (b) February 1, 2006 if the Rio
Vista property is not under contract for sale by December 31, 2005.
The accrued interest is due, along with the principal, at maturity.
As additional consideration for the note, Azur issued the lender
10,000 restricted shares of stock.
D. On October 6, 2005, the Company signed a Promissory Note from a
private investor, in the amount of $10,000, bearing 1% interest
monthly. The maturity date of the note is the earlier of (a) the
sale of the Rio Vista property or (b) February 1, 2006 if the Rio
Vista property is not under contract for sale by December 31, 2005.
The accrued interest is due, along with the principal, at maturity.
As additional consideration For the note, Azur issued the lender
20,000 restricted shares of stock.
E. On October 7, 2005, the Company signed a Promissory Note from a
private investor, in the amount of $30,000, bearing 1% interest
monthly. The maturity date of the note is the earlier of (a) the
sale of the Rio Vista property or (b) February 1, 2006 if the Rio
Vista property is not under contract for sale by December 31, 2005.
The accrued interest is due, along with the principal, at maturity.
As for consideration for the note, Azur shall issue the lender
30,000 restricted shares of stock.
F. On November 1, 2005, the Company signed a Promissory Note from a
private investor, in the amount of $30,000, bearing 1% interest
monthly. The maturity date of the note is the earlier of (a) the
sale of the Rio Vista property or (b) February 1, 2006 if the Rio
Vista property is not under contract for sale by December 31, 2005.
The accrued interest is due, along with the principal, at maturity.
As additional consideration for the note, Azur issued the lender
30,000 restricted shares of stock.
24
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
NOTE 18 - COMMITMENTS & SUBSEQUENT EVENTS (Continued)
G. On November 4, 2005, the Company signed a Promissory Note from a
private investor, in the amount of $30,000, bearing 1% interest
monthly. The maturity date of the note is the earlier of (a) the
sale of the Rio Vista property or (b) February 1, 2006 if the Rio
Vista property is not under contract for sale by December 31, 2005.
The accrued interest is due, along with the principal, at maturity.
As additional consideration for the note, Azur issued the lender
30,000 restricted shares of stock.
H. On November 7, 2005, the Company made payments on the following
obligations:
1. Note Payable to a private investor, dated August 4, 2005 for
$50,000
2. Note Payable to a private investor, dated September 27, 2005
for $250,000
3. Note Payable to a Director of the Company, dated August 4,
2005, for $15,000.
4. Note Payable to a Director of the Company, dated August 15,
2005, for $20,000.
5. Note Payable to a Director of the Company, dated September 28,
2005 for $15,000.
6. Note Payable to former owner of The Grand Shell Landing Golf
Course, representing final payment on the purchase of the golf
course of $1,070,811.
7. Note Payable to a private investor, dated August 19, 2005 of
$100,000. (the balance of $55,000 was paid in full).
I. On October 31, 2005 Azur International, Inc. (the "Company" or
"Azur") entered in a Co-Ownership Agreement (the "Co-Ownership
Agreement") with Azur-Shell Landing Development II, LLC, a
Mississippi limited liability company ("ASLD II"), and Azur Shell
Landing Resort, Inc., a Mississippi corporation ("ASLR"). ASLD II is
owned 50% by Crawford Family Limited Partnership, a Mississippi
limited partnership ("Crawford") and Naranjo Family Limited
Partnership, a Florida limited partnership ("Naranjo"). The
Co-Ownership Agreement replaced the agreement entered into by the
Company on May 5, 2005 with respect to Shell Landing Development. As
of October 31, 2005 ASLR was a wholly owned subsidiary of the
Company. The Co-Ownership Agreement was consummated on November 3,
2005.
ASLD II owns five (5) parcels of land in Gautier, Mississippi (the
"Property") with an as is undeveloped appraised value of
$19,170,000. The land is contiguous to the Shell Landing Golf Course
owned by The Grand Shell Landing, a wholly owned subsidiary of the
Company. Pursuant to the Co-Ownership Agreement, ASLD II conveyed to
ASLR a 95% undivided tenants-in-common interest in the Property for
the following consideration:
At the closing on November 3, 2005 ASLR paid to Naranjo $1,000,000
in cash, issued to Naranjo a promissory note in the principal amount
of $250,000 and agreed that until Naranjo shall have received
payments in an aggregate amount of $16,000,000 as a result of ASLD
II's 5% undivided tenants-in-common interest the property, Naranjo
shall receive directly and within 5 business days of each closing,
5% of the revenue derived from the sale of developed property, sale
of land, lease or rental of any or all of the Property or any
interest therein before closing costs, commissions or other expenses
paid in connection therewith and certain minimum cumulative payments
whether or not sales or rentals of the Property have been made. In
addition, Azur issued to Naranjo an aggregate of 5,000,000 shares of
Azur common stock.
At the closing ASLR also paid to Crawford $250,000 in cash, issued
to Crawford a promissory note in the principal amount of $1,460,000
(which amount includes unpaid salary to Carl Crawford from February
1, 2005 to September 30, 2005 of $210,000) and agreed that Crawford
shall receive in perpetuity 5% of all gross proceeds received by
ASLR or any of its subsidiaries from sales of land from the
Property. In addition, pursuant to the Co-Ownership Agreement ASLR
paid to Shell Landing Golf, L.L.C. ("Shell Golf"), the entire
outstanding principal balance and accrued interest of the Purchase
Money Promissory Note, dated November 17, 2004 from Grand Shell and
Carl Crawford to the order of Shell Golf, which outstanding
principal amount and accrued interest was $1,136,000 when paid. In
addition, Azur issued to Crawford an aggregate of 5,000,000 shares
of Azur common stock and ASLR issued to Carl Crawford as further
consideration a number of shares of ASLR common stock such that
after the issuance Carl Crawford owns 25% of the outstanding shares
25
AZUR INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
NOTE 18 - COMMITMENTS & SUBSEQUENT EVENTS (continued)
of common stock of ASLR and Azur owns the remaining 75%. Also, Carl
Crawford entered into an employment agreement with the Company under
which he agreed to serve as a director and President of each of ASLR
and Grand Shell for a three year term (subject to extension for
additional one year periods if not terminated by either party) at a
salary of $360,000 per annum plus additional benefits.
Simultaneously with the closing of the Co-Ownership Agreement, the
Company, ASLR, Grand Shell and ASLD II (collectively, the
"Borrowers") entered into and consummated a loan agreement and
certain additional agreements and instruments, including promissory
notes and a deed of trust, with or in favor of Omicron Master Trust
and certain other investors (collectively, the "Investors") pursuant
to which the Investors loaned to the Borrowers an aggregate of
$6,000,000.
The loans are secured by a second lien on the Property in favor of
the Investors and a second lien on a 63% membership interest owned
by the Company in 48 Hendricks, LLC a Florida limited liability
company which owns certain property in Fort Lauderdale, Florida. The
notes issued to the Investors bear interest as follows: until the
aggregate principal amount of the notes has been reduced to $3
million, the Borrowers shall pay to the Investors an aggregate of
$70,000 per month in interest. Thereafter, the outstanding principal
balance of the notes shall bear interest at the rate of 14% per
annum. At closing, the Borrowers deposited $840,000 in a deposit
control account for the benefit of the Investors to secure the
payment (including interest) and performance of the Borrowers'
obligations under notes.
The loans mature on the third anniversary of the closing. Commencing
April 1, 2006 and each month thereafter until the loan is repaid the
Borrowers shall be required to make to the Investors principal
payments in the aggregate amount of $200,400. In addition, the
Borrowers are obligated to make certain prepayments of principal
upon the sales of lots and other portions of the Property and upon
the sale of the property owned by 48 Hendricks, LLC. The notes were
guaranteed by the Company and certain of its subsidiaries.
As additional consideration for the making of the loans, the Company
issued to the Investors an aggregate of 10 million shares of Azur
common stock and five-year warrants to purchase an additional 10
million shares of Azur common stock for a price of $.50 per share.
The Company also granted certain registration rights to the
Investors regarding the Azur common stock issued to the Investors.
NOTE 19 - GOING CONCERN
Although the management of the Company has a reasonable expectation that the
Company has adequate resources to continue in operational existence for the
foreseeable future, the Company adopts the going concern basis in preparing
these financial statements. The Company has accumulated losses amounting to
$4,716,992 and a negative working capital position of $9,504,284. The year to
date loss was $2,008,335 as of September 30, 2005. Notwithstanding the
foregoing, 55% of the Company's debt is convertible into shares of the Company.
The Company's ability to continue as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on a timely
basis, to obtain additional financing as may be required, to receive the
continued support of the Company's shareholders, and ultimately to obtain
successful operations.
NOTE 20 - CONTINGENCIES
The Company is subject to substantial risks due to the following contingencies:
A. As a result of Hurricane Katrina, the Company's golf course
business, has experienced reduced operations, thus resulting in
negative cash flows.
B. The Company in accordance with its business plan, utilizes
substantial highly leveraged debt to finance its current operations
and acquisitions. The Company at this time has not secured permanent
means of financing its cash flow deficits, or achieving positive
cash flow to fund its debt service. The Company is subject to
substantial risk of foreclosure of its real estate holdings and
rescission of business arrangements of acquired assets obtained
through its highly leveraged and aggressive acquisitions.
26
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 Azur's initial year of significant
operations.
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 is a crane and safety
equipment rental company located in the U.K. Airtek provides us with diversified
revenue streams related to construction, and a U.K. - based management team to
lead planned efforts to expand our real estate development activities to the
United Kingdom and Europe.
We commenced development activity on the Meritage condominium project in Ft.
Lauderdale, Florida on March 23, 2005. The project is expected to be completed
during the first quarter of 2006.
In June, 2005, pursuant to a Stock Purchase Agreement between HVST Acquisition
Corporation and Azur International, Inc, we acquired 50.4% of the outstanding
common stock of New Harvest Capital Corporation.
In September, 2005 we purchased a 25% interest in Victoria Green, LLC, a
development project for 24 town homes in Ft. Lauderdale, Florida.
While the analysis below addresses the 2004 financials, the focus of discussion
is the current period results, since they are more representative of the
Company's operations and financial standing.
Results of Operations
Quarter Ended and Nine Months Ended September 30, 2005 versus Quarter Ended and
Nine Months Ended September 30, 2004
Revenue and Gross Profit
For the quarter ended September 30, 2005, the Company achieved revenues of
$6,120,729, versus $55,983 during the same period in 2004. The current period
revenues, which were mostly the result of current acquisitions, included
$1,803,858 in crane rentals and related income, $1,533,144 from the sale and
rental of safety equipment and related consulting services, $2,433,929 in
revenues from construction operations, and $349,789 in sales from golf course
operations. For the quarter ended September 30, 2004, revenues of $55,983 were
comprised solely of rental income from the Meritage and Rio Vista properties.
We determine our earnings from construction using the percentage of completion
method, under which earnings are recognized in proportion to the total earnings
anticipated from a contract which the cost of the work completed bears to the
estimated total cost of the work covered by the contract. For the quarter ended
September 30, 2005, the percentage of completion used was an additional 15% from
the second quarter, which accounted for $2,433,929 in revenues. The percentage
of completion used for the nine months ended September 30, 2005 was 44%, which
accounted for $6,084,521 in revenues. There were no revenues from construction
projects during the quarter ended September 30, 2004.
27
Crane rentals, which are priced on a weekly basis, totaled $1,500,494 for the
quarter ended September 30, 2005, which accounted for 83% of the total revenues
in the cranes business. Additional revenues come from transportation and set up
charges, training, hire of ancillary equipment and operators, and totaled
$303,364 during the third quarter of 2005. Safety equipment is offered for
outright sale as well as rent, with rentals priced on a day-rate basis. During
quarter ended September 30, 2005, rentals accounted for 70% of the safety
equipment business at $1,078,863 while sales of $458,281 made up the remaining
30%. There were no revenues from crane and safety rentals and sales during the
quarter ended September 30, 2004, since the Airtek acquisition took place in
2005.
Golf course revenues are primarily derived from daily green fees at The Grand
Shell Landing Golf Club. During the quarter ended September 30, 2005, $290,163
was derived from green fees. Additional revenues of $59,636 came from sales of
clothing, equipment, food, and beverages at the retail facilities in the Shell
Landing clubhouse. There were no golf course revenues during the same period in
2004 as this acquisition took place during the fourth quarter of 2004.
For the nine months ended September 30, 2005, the Company achieved revenues of
$17,734,602 which included $4,906,312 in crane rentals and related income,
$4,597,473 from the sale and rental of safety equipment and related consulting
services, $2,139,649 in sales from golf course operations, and $6,091,168 in
revenues from construction operations. During the same period in 2004, the
Company had rental income of $124,394.
Cost of Sales
Cost of sales for the quarter ended September 30, 2005 were $1,868,370 and were
comprised $1,011,465 in costs relating to crane rentals, $800,573 in safety
equipment-related production costs and $56,312 in inventory costs for retail
items sold at the golf course club house. Additionally, there were $1,711,196 in
construction operating expenses recognized under the percentage of completion.
For the quarter ended September 30, 2004 there were no costs of sales reported.
In crane rentals, the cost of sales are comprised primarily of rental payments
to Arcomet, from whom we lease cranes, 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.
The construction operating expenses are mostly comprised of payments to the
construction company, A.V.I. Contractors, Inc. for labor and materials expenses,
as well costs for licenses and permits, engineering and architect fees, and
developer fees.
Cost of sales for the nine months ended September 30, 2005 were $5,057,613 and
were comprised of $4,802,800 in costs relating to crane rentals and safety
equipment-related production costs, and $254,813 in inventory costs for retail
items sold at the golf course club house. Also, there were $4,277,778 in
construction operating expenses related to the Meritage construction project.
For the nine months ended September 30, 2004 there were no costs of sales
reported.
General and Administrative
General and administrative expenses were $2,833,742 for the quarter ended
September 30, 2005 and were comprised primarily of: crane and safety equipment
rental and sales expenses of $1,261,798, golf-related expenses of $406,878,
construction related expenses of $139,534 and corporate overhead and real-estate
related expenses of $1,025,532. During the same period in 2004, general and
administrative expenses totaled $417,577, and were mostly comprised of corporate
overhead.
28
During the nine months ended September 30, 2005, general and administrative
expenses totaled $7,955,723 and were comprised of: crane and safety equipment
rental and sales expenses of $3,191,152, golf-related expenses of $1,286,429,
construction related expenses of $384,718 and corporate overhead and real
estate-related expenses of $3,093,424. During the same period in 2004, general
and administrative expenses totaled $1,167,152, and were mostly comprised of
corporate overhead.
Interest Expense
Interest expense for the quarter ended September 30, 2005 totaled $371,224
compared to $111,256 in 2004. The increase is due to various loan instruments
associated with the purchase of real property, leased equipment, as well as
funds borrowed to finance daily operations. For the nine months ended September
30, 2005, interest expense was $813,882, compared to $226,779 during the same
period in 2004.
Net Loss
For the quarter ended September 30, 2005, the Company had net losses of
$997,001, compared to $474,461 for the quarter ended September 30, 2004. For the
nine months ended September 30, 2005, net losses were $2,008,335 compared to
$1,276,984 in 2004. These results reflect 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 September 30, 2005 we had a net working capital deficit of $9,504,284
compared to working capital deficit of $786,396 at September 30, 2004. The
increase in the working capital deficit is primarily attributed to current
portion of notes and mortgages payable which come due on or before September 30,
2006, including notes payable of $10,974,000 to former Airtek shareholders in
connection with our acquisition of Airtek Safety Limited which will come due on
February 24, 2006. 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.
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.
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
29
project located adjacent to the club house at The Grand Shell Landing Golf
Course. We are also seeking to raise approximately $6 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.
Discussion of Certain Current Assets and Liabilities
Accounts receivable
Our accounts receivable at September 30, 2005 amounted to $2,859,171 which was
comprised primarily of trade receivables as follows: $2,809,097 in the safety
equipment and crane rental businesses, and $50,074 from the golf course
business. There were no accounts receivable as of September 30, 2004.
Inventory
At September 30, 2005, our inventory was $515,851 which consisted primarily of
$433,372 in parts and components related to the rental of cranes and safety
equipment, and $82,479 in apparel and equipment held in stock in our golf course
occupations. There was no balance on inventory as of September 30, 2004.
Prepaid expense
At September 30, 2005 our prepaid expenses totaled $291,076, which consisted of
$129,868 of prepaid insurance, prepaid property taxes, and employee advances
related to the golf course business, $126,879 of prepaid expenses from the crane
and safety equipment businesses, and $34,329 in escrow for property taxes on the
Rio Vista property. At September 30, 2004, there was a balance of $3,060 in
prepaid expenses, which was mostly office rent prepaid.
Other receivables
At September 30, 2005, other receivables totaled $233,050 which consisted
primarily of miscellaneous accounts receivables from the crane and safety
equipment businesses, including advances to employees of $1,063, advances to
shareholders of $173,509, deposits of $38,036, miscellaneous receivables of
$10,442 and promissory note receivable of $10,000. In September 30, 2004, there
was $340,978 in other receivables.
Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts
At September 30, 2005, the Company had $9,996,913 in costs and estimated
earnings in excess of billing on uncompleted contracts for the Meritage
construction project. Construction on the project began on March 23, 2005 and is
expected to be completed by May 2006. At September 30, 2004 there were no costs
and estimated earnings in excess of billings on uncompleted contracts.
Accounts Payable
Accounts payable and accrued expenses at September 30, 2005 were $3,778,369 and
consisted primarily of $1,765,055 of trade payables, $1,252,197 of accrued
general and administrative expenses, and $761,117 of bank overdrafts related to
the crane and safety equipment business. At September 30, 2004 there were no
accounts payable and accrued expenses.
30
Analysis of Cash Flow
Cash flow used in operations
Cash used in operations totaled $5,703,242 comprised primarily of our net loss
of approximately $2,088,335 plus an increase in accounts receivable of $391,620,
a decrease in inventory of $552,762, a decrease in prepaid expenses and security
deposits of $62,260 and decrease in other receivables of $53,717, an increase of
other assets of $312,491 a decrease in deferred taxes of $18,349, an increase in
other current liabilities of $128,750, and an increase in accounts payable and
accruals of $1,200,873. The Company also issued a total of $191,992 in stock as
payment for loan fees and services.
Cash flow used in investing activities
Cash used in investing activities totaled $3,102,403. 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 $1,300,309. Other uses of cash in
investing activities included cash paid to acquire Harvest Corporation of
approximately $410,445, installment of $250,000 in the acquisition of Airtek,
and the purchase of additional fixed assets, primarily equipment in our Airtek
subsidiary, of approximately $1,122,812.
Cash flow from financing activities
Our financing activities provided net cash of $8,231,633. This cash was raised
principally in the form of net new debt of approximately, $8,158,248 and from
deposits received in connection with the pre-sale of condominiums. As of
September 30, 2005 we have received total condominium deposits of $2,741,055.
The total amount of deposits reflected as a source of cash of approximately
$1,244,000 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 September 30, 2005.
, DUE IN
LESS DUE DUE
THAN 1 IN 1-3 AFTER 4
OBLIGATION YEAR YEARS YEARS
------------------------------------------------------------------
Notes Payable $ 19,192,868 $ 2,373,082 $ 3,896,250
Mortgages 148,260 5,415,051 1,034,822
------------ ------------ -----------
Total cash obligations $ 19,341,128 $ 7,788,133 $ 4,931,072
Equity Line of credit -Loan is in the name of a partner.
Interest rate is variable (currently at 7.875 %). Loan secured
by Rio Vista property. 148,260
Mortgage Payable - First Mortgage in name of a partner.
Interest is at a variable rate, currently 5.25%. 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 5,415,051
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 6,282,826
31
Note Payable to finance company, monthly payments of $ 278,
including imputed interest of 7%, collateralized by equipment,
due October 2006 4,106
Note Payable to finance company, monthly payments of $ 277,
including imputed interest of 6.49% collateralized by
equipment, due May 2007 5,142
Note payable to a finance company, monthly payments of $ 814,
including imputed interest of 6.75%, collectivized by
equipment, due October 2006 9,251
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 (the maturity date was extended to February 14, 2006) 700,000
Notes Payable - various installment obligations for crane and
safety equipment. 731,064
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 (the note was paid in full on November 7, 2006). 1,070,811
Obligation payable for acquisition of Airtek Safety Ltd,
non-interest-bearing , secured by common stock held in escrow,
due on August 24, 2005 (the due date was extended to February
24, 2006). The shareholders of Airtek can choose to accept
common stock in lieu of cash payment. 10,974,000
Note Payable to private investor, due May 31, 2006 with 18%
interest 840,000
Note Payable to private investor, due September 30, 2005,
bearing 12% interest (the maturity was extended to March 8,
2006). 100,000
Convertible Debenture to Investment Company bearing 12%
interest, due on June 1, 2006 700,000
Convertible Debenture to private investor bearing 12%
interest, due on June 1, 2006 300,000
Note Payable to private investor, due November 30, 2005,
bearing monthly interest at a rate of 1% 300,000
Note Payable to private investor, due November 4, 2005,
bearing monthly interest at a rate of 1.5% (the note was paid
in full on November 7, 2005) 50,000
Note Payable to private investor, executed on September 27,
2005, due the earlier of (a) sale of Rio Vista property or (b)
receipt of potential raise, no interest unless principal is
not repaid within 180 days of execution, in which case the
rate shall be 14% per year (the note was paid in full on
November 7, 2005) 250,000
Note Payable to private investor, executed on August 19, 2005,
with a maturity date of September 1, 2005. (The $55,000
reflects the remaining balance of the $100,000 note) (the note
was paid in full on November 7, 2005) 55,000
Note Payable to a Director of the Company, due on October 28,
2005, non-interest bearing. (the note was paid in full on
November 7, 2005) 15,000
32
Note Payable to a Director of the Company, due on November 4,
2005, non-interest bearing. (the note was paid in full on
November 7, 2005) 15,000
Note Payable to a Director of the Company, due on November 15,
2005, non-interest bearing. (the note was paid in full on
November 7, 2005) 20,000
Note Payable to private investor, due on February 1, 2006, 1%
monthly interest. 10,000
------------
Total $ 32,060,333
------------
Critical Accounting Policies
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.
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.
Construction Operations - Azur International, Inc. determines earnings from
construction under the percentage of completion method. Under this method,
earnings are recognized in proportion of the total earnings anticipated from a
contract which the cost of the work completed bears to the estimated total cost
of the work covered by the contract. The Company's construction contracts
generally extend over more than one year, and revisions in costs and earnings
estimates during the course of the work are reflected in the year in which the
facts which require the revision become known. Due to uncertainties inherent in
the estimation process, it is reasonably possible that such estimates will be
revised over the next years until completion of the job. When a loss is
forecasted for a contract, the full amount of the anticipated loss is recognized
in the period in which it is determined that a loss will occur. Estimated costs
and earnings from construction contracts are reviewed and necessary adjustments
are made based on current evaluations of the indicated outcome. Cost of
construction contracts includes all direct material, labor and subcontracting
costs, and those indirect costs related to contract performance expenses that
are not directly attributable to construction contracts, such as business
development, estimating, purchasing, accounting, cost control, general office
support and similar costs attributed to our construction activities, are
expensed as incurred.
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. Azur 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. Azur has not experienced any losses in such accounts
and believes the risk related to these deposits is minimal.
33
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
Leases
Leases that transfer substantially all of the risks and benefits of ownership
are 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
Construction Deposits
Construction deposits amounting to $2,741,055 for the purchase of units in the
48 Hendricks project have been collected and deposited in escrow with the Escrow
Agent, Adorno & Yoss, P.A., as per an Escrow Agreement dated August 25, 2004.
Allowance for Doubtful Accounts
An allowance for doubtful accounts is estimated and recorded based on the
Company's historical bad debt experience. The current balance of the allowance
for doubtful accounts is approximately $97,775.
Inventory
Inventory is stated at the lower of cost or market with cost determined using
the first-in, first-out method. Inventory is made up of: $433,372 in parts and
components related to the rental of cranes and safety equipment, and $82,749 in
apparel and equipment held in stock in our golf course occupations, as well as
food and beverages items.
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 nine months ended September 30, 2005 was 44,431,802 and the
resulting loss per share was $0.05 per share.
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 $4,716,992.
34
Year ending
--------------------
December December
31, 2004 31, 2003
Statutory federal income tax rate 34% 34%
Valuation allowance (34) (34)
Effective tax rate --% --%
35
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 September 30, 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
During the month of July 2005, the Company issued 13,111 shares of common stock
at a value of $19,668 in consideration of architect fees and creative design
services relating to the planned Shell Landing Development construction projects
and 2,500 shares valued at $.01 per share as a bonus to one of its employees.
During August of 2005, the Company issued another 13,113 shares at a value of
$19,668 in consideration of architect fees and creative design services relating
to the planned Shell Landing Development construction projects and 20,000 shares
valued at $.01 per share as part of a Termination of Employment Agreement of the
Company's Vice President of Operations.
36
In September 2005, the Company issued 10,043 shares valued at $10,000 as partial
compensation to one of its officers, for the months of July and August, 2005, as
per the officer's employment agreement. Another 25,000 shares valued at $.01 per
share were issued as a signing bonus for a new employment agreement executed on
August 30, 2005. During this month the Company also issued 35,000 restricted
shares, at a value of $.01 per share, in consideration of loan fees, and 2,008
restricted shares valued at $2,000 for a lease agreement covering the period
from July to August of 2005.
During September 2005, the Company also issued 30,000 shares valued at $15,000
as payment of an outstanding accounting services bill, and 500,000 valued at
$.01 per share for services from one of its officers, as stated in the officer's
employment agreement. Finally, the Company issued a total of 1,062,499 shares
valued at $423,749 for the acquisition of 25% interest in the Victoria Green
development project
All of the above issuances were made in a private placement transactions under
an exemption from the registration requirements of the Securities Act of 1933,
as amended (the "Securities Acy")afforded by Section 4(2) of the Securities Act.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
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.
37
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: November 18, 2005 /s/ Donald Winfrey
---------------------------------
Donald Winfrey
President
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