================================================================================

                    U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

                                   (Mark One)

     [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2005
              ----------------------------------------------------

     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                        For the transition period from to
            --------------------------------------------------------

                        Commission file number 000-50468
            --------------------------------------------------------

                         Azul Studios International Inc.
   --------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

             Washington                                 98-0206033
----------------------------------------    -----------------------------------
    (State or other jurisdiction of                 (IRS Employer
     incorporation or organization)                  Identification No.)

                22344 NE 31st Street, Sammamish, Washington 98074
   ---------------------------------------------------------------------------
                    (Address of principal executive offices)

                                 (206) 910-2687
               --------------------------------------------------
                           (Issuer's telephone number)


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

State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: As of May 31, 2006,  32,423,628 Shares
of common stock, $0.0001 par value, were outstanding.

Transitional small business disclosure format  (check one): Yes [   ]  No [X]


<page>


                         AZUL STUDIOS INTERNATIONAL INC.

                                   FORM 10-QSB

                                  JUNE 30, 2005

                                      INDEX


PART I         FINANCIAL INFORMATION..........................................1
Item 1.        Financial Statements...........................................1
Item 2.        Management's Discussion and Analysis of Financial Condition
                and Results of Operations....................................13
Item 3.        Controls and Procedures.......................................14
PART II        OTHER INFORMATION.............................................14
Item 1.        Legal Proceedings.............................................14
Item 2.        Change in Securities..........................................15
Item 3.        Defaults upon Senior Securities...............................15
Item 4.        Submission of Matters to a Vote of Security Holders...........15
Item 5.        Other Information.............................................15
Item 6.        Exhibits and Reports on Form 8-K..............................15


<page>


PART I          FINANCIAL INFORMATION

Item 1.    Financial Statements

                         Azul Studios International Inc.


                          (A Development Stage Company)

                    INTERIM CONSOLIDATED FINANCIAL STATEMENTS

                                  June 30, 2005

                             (Stated in US Dollars)

                                   (Unaudited)

                                       1
<page>


                         Azul Studios International Inc.
                          (A Development Stage Company)
                       INTERIM CONSOLIDATED BALANCE SHEETS
                        June 30, 2005 and March 31, 2005
                             (Stated in US Dollars)
                                   (Unaudited)


<table>
<caption>
                                                                                     June 30,          March 31,
                                                     ASSETS                            2005               2005
                                                     ------                            ----               ----

                                                                              <c>               <c>
Current
    Cash                                                                         $           681   $         4,721

Equipment - Note 3                                                                         1,499             1,717
                                                                                 ---------------   ---------------

                                                                                 $         2,180   $         6,438
                                                                                 ===============   ===============

                                                     LIABILITIES

Current
    Accounts payable and accrued liabilities - Notes 5 and 6                     $       229,358   $       180,218
    Due to related parties - Notes 5 and 6                                                 6,700             4,969
                                                                                 ---------------   ---------------

                                                                                         236,058           185,187
                                                                                 ---------------   ---------------

                                              STOCKHOLDERS' DEFICIENCY

Preferred Stock, $0.0001 par value
         20,000,000  shares authorized, none issued
Common stock, $0.0001 par value - Notes 4 and 6
         50,000,000  shares authorized
          5,576,082  shares issued (March 31, 2005: 5,576,082)                              558               558
Additional paid-in capital                                                             1,093,831        1,093,831
Deficit accumulated during the prior development stage                                  (151,117)        (151,117)
Deficit accumulated during the development stage                                      (1,177,150)      (1,122,021)
                                                                                 ---------------   --------------

                                                                                        (233,878)        (178,749)
                                                                                 ---------------   --------------

                                                                                 $         2,180   $        6,438
                                                                                 ===============   ==============
</table>



                             SEE ACCOMPANYING NOTES

                                       2
<page>


                         Azul Studios International Inc.
                          (A Development Stage Company)
                  INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
      for the three months ended June 30, 2005 and 2004 and for the period
   April 1, 2000 (Date of Commencement of Development Stage) to June 30, 2005
                             (Stated in US Dollars)
                                   (Unaudited)


<table>
<caption>
                                                                                                              April 1, 2000
                                                                                                                (Date of
                                                                                                              Commencement
                                                                                                             of Development
                                                                               Three months ended               Stage) to
                                                                                    June 30,                    June 30,
                                                                             2005              2004               2005
                                                                             ----              ----               ----

                                                                    <c>               <c>               <c>
Expenses
    Advertising and promotion                                          $         2,382   $        1,557              44,090
    Amortization                                                                   218              625              20,636
    Audit and accounting fees - Note 5                                           7,786            8,277              93,583
    Bank charges and interest                                                      157              306              83,927
    Consulting fees - Note 5                                                    18,000           27,000             462,981
    Investor relations and marketing fees - Note 5                              12,090           18,135              91,270
    Legal fees - Note 5                                                          7,591            8,500              77,433
    Office, telephone and miscellaneous - Note 5                                 5,313           11,766             142,727
    Software research and development                                                -                -              66,410
    Transfer agent fees                                                            148              315               6,073
    Travel                                                                       1,416            8,078              79,956
                                                                       ---------------   --------------    ----------------

Loss before other items                                                        (55,101)         (84,559)         (1,169,086)
                                                                       ---------------   --------------    ----------------

Other items:
    Write-off of equipment                                                           -                -              (4,011)
    Loss on disposal of equipment                                                    -           (2,217)             (2,217)
    Loss on foreign exchange                                                       (28)               -              (1,836)
                                                                       ---------------   --------------    ----------------

                                                                                   (28)          (2,217)             (8,064)
                                                                       ---------------   --------------    ----------------

Net loss for the period                                                $       (55,129)  $      (86,766)   $     (1,177,150)
                                                                       ===============   ==============    ================

Basic and diluted loss per share                                       $         (0.01)  $        (0.02)
                                                                       ===============   ==============

Weighted average number of shares outstanding for the period                 5,576,082        4,950,652
                                                                       ===============   ==============
</table>



                             SEE ACCOMPANYING NOTES

                                       3
<page>


                         Azul Studios International Inc.
                          (A Development Stage Company)
                  INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
                       for the three months ended June 30,
             2005 and 2004 and for the period April 1, 2000 (Date of
               Commencement of Development Stage) to June 30, 2005
                             (Stated in US Dollars)
                                   (Unaudited)


<table>
<caption>
                                                                                                                   April 1, 2000
                                                                                                                     (Date of
                                                                                                                   Commencement
                                                                                                                  of Development
                                                                                     Three months ended              Stage) to
                                                                                          June 30,                   June 30,
                                                                                   2005             2004                2005
                                                                                   ----             ----                ----

                                                                          <c>              <c>               <c>
Cash flows used in Operating Activities
    Net loss for the period                                                  $       (55,129) $       (86,776)  $     (1,177,150)
    Add items not involving cash:
      Amortization                                                                       218              625             20,636
      Write-off of equipment                                                               -                -              4,011
      Loss on disposal of equipment                                                        -            2,217              2,217
    Changes in non-cash working capital items related to operations:
      Prepaid expenses                                                                     -             (270)                 -
      Accounts payables and accrued liabilities                                       49,140           13,022            403,950
                                                                             ---------------  ---------------   -----------------

                                                                                      (5,771)         (71,182)          (746,336)
                                                                             ---------------  ---------------   -----------------

Cash Flows used in Investing Activity
    Acquisition of equipment                                                               -                -            (16,447)
                                                                             ---------------  ---------------   -----------------

Cash Flows provided by Financing Activities
    Increase in amount due to related party                                            1,731                -              6,700
    Increase in loan payable to stockholders                                               -          102,000            363,496
    Increase in convertible debenture                                                      -                -            278,114
    Proceeds from common stock subscriptions                                               -                -             35,000
                                                                             ---------------  ---------------   -----------------

                                                                                       1,731          102,000            683,310
                                                                             ---------------  ---------------   -----------------

Increase (decrease) in cash during the period                                         (4,040)          30,818            (79,473)

Cash, beginning of the period                                                          4,721            5,241             80,154
                                                                             ---------------  ---------------   -----------------

Cash, end of the period                                                      $           681  $        36,059   $            681
                                                                             ===============  ===============   =================

Supplementary disclosure of cash flow information Cash paid for:
      Interest                                                               $             -  $             -   $            620
                                                                             ===============  ===============   =================
</table>


                             SEE ACCOMPANYING NOTES

                                       4
<page>

                         Azul Studios International Inc.
                          (A Development Stage Company)
           INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
     for the period September 23, 1996 (Date of Inception) to June 30, 2005
                             (Stated in US Dollars)
                                   (Unaudited)

<table>
<caption>

                                                                                                 Deficit
                                                                                               Accumulated     Deficit
                                                                                               During prior  Accumulated
                                                                  Note 4           Additional  Development   During the
                                                              Common Shares         Paid-in      Stage       Development
                                                         -----------------------
                                                           Number       Par Value    Capital    (Note 1)       Stage      Total
                                                           ------       ---------   -------     --------       -----      -----

                                                      <c>          <c>         <c>           <c>          <c>        <c>
Stock issued for cash  - at $0.20 per share                    500    $       -   $     100     $     -      $     -    $    100
Cash contributed by a director                                   -            -         100           -            -         100
Additional paid-in capital for organizational expenses
 incurred by a director on behalf of the Company                 -            -         972           -            -         972
Stock issued for "The Source" license at
 fair market value of    - at $0.002 per share             522,750           52         993           -            -       1,045
Net loss for the period                                          -            -           -           -            -           -
                                                       -------------   ---------   ---------   ----------    --------   ---------

Balance, March 31, 1997                                    523,250           52       2,165           -            -       2,217
Cash contributed by a director                                   -            -         100           -            -         100
Stock issued for "Humates" license at a
  fair market value of      - at $0.002 per share           50,000            5          95           -            -         100
Additional paid-in capital for organizational expenses
  incurred by a director on behalf of the Company                -            -         346           -            -         346
Net loss for the year ended March 31, 1998                       -            -           -           -            -           -
                                                       -------------   ---------   ---------   ----------    --------   ---------

Balance, March 31, 1998                                    573,250           57       2,706           -            -       2,763
Additional paid-in capital for organizational expenses
 incurred by a director on behalf of the Company                 -            -         160           -            -         160
Net loss for the year ended March 31, 1999                       -            -           -           -            -           -
                                                       -------------   ---------   ---------   ----------    --------   ---------

Balance, March 31, 1999                                    573,250           57       2,866           -            -       2,923
Capital stock issued for cash at $0.0002 per share       3,000,000          300         300           -            -         600
Cancelled shares                                        (1,000,000)        (100)        100           -            -           -
Net loss for the year ended March 31, 2000                       -            -           -    (151,117)           -    (151,117)
                                                       -------------   ---------   ---------   ----------    --------   ---------

Balance, March 31, 2000                                  2,573,250          257       3,266    (151,117)           -    (147,594)

</table>
                                                                   .../Cont'd.


                             SEE ACCOMPANYING NOTES

                                       5
<page>


                         AZUL STUDIOS INTERNATIONAL INC.              Continued
                          (A Development Stage Company)
                        INTERIM CONSOLIDATED STATEMENT OF
                     STOCKHOLDERS' DEFICIENCY for the period
                 September 23, 1996 (Date of Inception) to June
                                    30, 2005
                             (Stated in US Dollars)
                                   (Unaudited)

<table>
<caption>

                                                                                                 Deficit
                                                                                               Accumulated     Deficit
                                                                                               During prior  Accumulated
                                                                  Note 4           Additional  Development   During the
                                                              Common Shares         Paid-in      Stage       Development
                                                         -----------------------
                                                           Number       Par Value    Capital    (Note 1)       Stage      Total
                                                           ------       ---------   -------     --------       -----      -----

                                                      <c>          <c>         <c>           <c>          <c>        <c>

Balance, March 31, 2000 (forward)                        2,573,250          257       3,266    (151,117)           -    (147,594)
Net loss for the year ended March 31, 2001                       -            -           -           -     (432,637)   (432,637)
                                                       -------------   ---------   ---------   ----------    --------   ---------

Balance, March 31, 2001                                  2,573,250          257       3,266    (151,117)    (432,637)   (580,231)
Net loss for the year ended March 31, 2002                       -            -           -           -     (105,220)   (105,220)
                                                       -------------   ---------   ---------   ----------    --------   ---------

Balance, March 31, 2002                                  2,573,250          257       3,266    (151,117)    (537,857)   (685,451)
Capital stock subscribed pursuant to debt
 settlement agreements                                     229,499           23     114,176           -            -     114,199
Capital stock subscribed pursuant to
 conversion of debentures                                1,222,903          122     611,330           -            -     611,452
Net loss for the year ended March 31, 2003                       -            -           -           -      (54,557)    (54,557)
                                                       -------------   ---------   ---------   ----------    --------   ---------

Balance, March 31, 2003                                  4,025,652          402     728,772    (151,117)    (592,414)    (14,357)
Capital stock subscribed at $0.02 per share pursuant to
debt settlement agreements                                 500,000           50       9,950           -            -      10,000
Capital stock subscribed for cash  - at $0.10 per share    350,000           35      34,965           -            -      35,000
Capital stock subscribed pursuant to debt
settlement agreement, valued   - at $0.10 per share         75,000            8       7,492           -            -       7,500
Net loss for the year ended March 31, 2004                       -            -           -           -     (231,518)   (231,518)
                                                       -------------   ---------   ---------   ----------    --------   ---------

Balance, March 31, 2004                                  4,950,652          495     781,179    (151,117)    (823,932)   (193,375)
Capital  stock and warrants  issued  pursuant
to debt settlement agreement- Note 4 - at $0.50 per share  625,430           63     312,652           -            -     312,715
Net loss for the year ended March 31, 2005                       -            -           -           -     (298,089)   (298,225)
                                                       -------------   ---------   ---------   ----------    --------   ---------

Balance, March 31, 2005                                  5,576,082          558   1,093,831    (151,117)  (1,122,021)   (178,749)

</table>
                                                                    .../Cont'd.

                             SEE ACCOMPANYING NOTES


                                       6
<page>

                        AZUL STUDIOS INTERNATIONAL INC.               Continued
                          (A Development Stage Company)
                        INTERIM CONSOLIDATED STATEMENT OF
                     STOCKHOLDERS' DEFICIENCY for the period
                 September 23, 1996 (Date of Inception) to June
                                    30, 2005
                             (Stated in US Dollars)
                                   (Unaudited)

<table>
<caption>

                                                                                                 Deficit
                                                                                               Accumulated     Deficit
                                                                                               During prior  Accumulated
                                                                  Note 4           Additional  Development   During the
                                                              Common Shares         Paid-in      Stage       Development
                                                         -----------------------
                                                           Number       Par Value    Capital    (Note 1)       Stage      Total
                                                           ------       ---------   -------     --------       -----      -----

                                                      <c>          <c>         <c>           <c>       <c>         <c>
Balance, March 31, 2005 (forward)                        5,576,082          558   1,093,831    (151,117)  (1,122,021)   (178,749)
Net loss for the six months ended June 30, 2005                  -            -           -           -      (55,129)    (55,120)
                                                       -------------   ---------   ---------   ----------    --------   ---------

Balance, June 30, 2005                                   5,576,082    $     558 $ 1,093,831   $(151,117) $(1,177,150) $ (233,878)
                                                       =============  ========= ===========   =========  ===========  ===========
</table>

Par value and additional  paid-in capital have been  retroactively  adjusted for
changes in par value due to the merger (Note 1).

                             SEE ACCOMPANYING NOTES


                                       7

<page>



                         Azul Studios International Inc.
                          (A Development Stage Company)
             NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                             (Stated in US Dollars)
                                   (Unaudited)

Note 1        Nature and Continuance of Operations

              Azul Studios  International  Inc. (the "Company") was incorporated
              on  September  23,  1996  under  the laws of the State of Texas as
              Alvin  Consulting  Inc. On July 15, 1999, the  stockholders of the
              Company approved a merger with a newly incorporated company in the
              State of Washington and the surviving company, Realty Technologies
              Inc.,  operates  under  the laws of the  State of  Washington.  On
              August 12, 1999  stockholders of the Company approved an amendment
              to the articles of the Company  changing its name to Equinta Corp.
              On April 10,  2000,  the  stockholders  of the Company  approved a
              change to the articles of the Company changing its name to Courier
              Corps Inc. On May 16, 2000, the  stockholders the Company approved
              a change in the name of the Company to eCourierCorps Inc. On March
              12,   2004,   the  Company   changed  its  name  to  Azul  Studios
              International  Inc. and adopted a business plan to develop a group
              of boutique hotels catering to the professional  photographers and
              film artists. In July, 2004 the Company  incorporated Azul Studios
              Properties S.L., in Barcelona, Spain, a wholly-owned subsidiary to
              hold the property that the Company intends to acquire in Spain and
              to operate  the Azul  Studios  facility  to be  developed  in that
              country. The Company also incorporated a wholly-owned corporation,
              Azul Media Inc., in the State of Washington on March 8, 2005.  The
              Company  intends to develop a group of  professional  photographic
              studios in select locales around the world. Currently, the Company
              has no revenue.

              The Company is currently a  development  stage  company as defined
              under Statement of Financial  Accounting  Standards ("FAS") No. 7.
              As required for development stage  enterprises,  the statements of
              operations and cash flows include a total of all expenditures from
              the Date of Commencement of the Development  Stage (April 1, 2000)
              to June 30, 2005.  Prior to April 1, 2000,  the Company  developed
              and sold the  rights to a web based  internet  application  in the
              real estate industry.

              These  financial  statements have been prepared in accordance with
              generally  accepted  accounting  principles  applicable to a going
              concern prepared on a going concern basis,  which assumes that the
              Company  will be able to meet its  obligations  and  continue  its
              operations for its next twelve months.  Realization  values may be
              substantially  different  from carrying  values as shown and these
              financial  statements do not give effect to adjustments that would
              be necessary to the carrying values and  classification  of assets
              and  liabilities  should the  Company be unable to  continue  as a
              going  concern.  The  Company's  ability  to  continue  as a going
              concern  is  dependent   upon  its  ability  to  generate   future
              profitable  operations and/or to obtain the necessary financing to
              meet its obligations and repay its liabilities arising from normal
              business  operations  when they come due.  At June 30,  2005,  the
              Company  had  not  yet   achieved   profitable   operations,   has
              accumulated  losses  of  $1,328,267  since  its  inception,  has a
              working  capital  deficiency  of  $235,377  and  expects  to incur
              further losses in the  development  of its business,  all of which
              casts substantial doubt about the Company's ability to continue as
              a going  concern.  The  Company's  ability to  continue as a going
              concern  is  dependent   upon  its  ability  to  generate   future
              profitable  operations and/or to obtain the necessary financing to
              meet its obligations and repay its liabilities arising from normal
              business  operations when they come due.  Management has no formal
              plan in place to  address  this  concern  but  considers  that the
              Company  will  be  able  to  obtain  additional  funds  by  equity
              financing  and/or  related  party  advances,  however  there is no
              assurance of additional funding being available.

                                       8
<page>


Azul Studios International Inc.
(A Development Stage Company)
Notes to the Interim Consolidated Financial Statements
June 30, 2005
(Stated in US Dollars)
(Unaudited) - Page 2


Note 2        Basis of Presentation

              The  accompanying  consolidated  financial  statements  include
              the accounts of Azul Studios International Inc. and its
              wholly-owned  subsidiaries,  Azul Studios  Property S.L. and
              Azul Media Inc. All  significant  intercompany  balances and
              transactions have been eliminated.

              The  accompanying   unaudited   interim   consolidated   financial
              statements  have been prepared by the Company in  conformity  with
              generally accepted  accounting  principles of the United States of
              America.  Certain  information and footnote  disclosures  normally
              included  in  financial  statements  prepared in  accordance  with
              generally  accepted  accounting  principles,  however,  have  been
              condensed or omitted  pursuant to the rules and regulations of the
              Securities and Exchange Commission.  In the opinion of management,
              all  adjustments  (consisting  of  normal  recurring  adjustments)
              considered  necessary for a fair  presentation have been included.
              The results of operations for interim  periods are not necessarily
              indicative  of the  results to be expected  for the entire  fiscal
              year ending March 31, 2006.  These  interim  financial  statements
              should  be  read  in  conjunction   with  the  audited   financial
              statements for the years ended March 31, 2005 and 2004 included in
              the  Company's  Form  10-KSB  as  filed  with the  Securities  and
              Exchange Commission.

Note 3        Equipment

<table>
<caption>
                                                                                   June 30, 2005
                                                                 --------------------------------------------------
                                                                                    Accumulated
                                                                      Cost         Depreciation          Net
            
                                                  <c>              <c>              <c>
            Computer equipment                                   $           -    $           -    $           -
            Computer software                                              544              503               41
            Office equipment                                             2,778            2,318              460
            Office furniture                                             3,772            2,774              998
                                                                 -------------    -------------    -------------

                                                                 $       7,094    $       5,595    $       1,499
                                                                 =============    =============    =============


                                                                                  March 31, 2005
                                                                 --------------------------------------------------
                                                                                    Accumulated
                                                                      Cost         Depreciation          Net

            Computer equipment                                   $      17,167    $      17,167    $           -
            Computer software                                              544              497               47
            Office equipment                                             2,778            2,282              496
            Office furniture                                             3,772            2,598            1,174
                                                                 -------------    -------------    -------------

                                                                 $      24,261    $      22,544    $       1,717
                                                                 =============    =============    =============
</table>

                                       9
<page>


Azul Studios International Inc.
(A Development Stage Company)
Notes to the Interim Consolidated Financial Statements
June 30, 2005
(Stated in US Dollars)
(Unaudited) - Page 3


Note 4        Capital Stock - Note 6

              Effective  December 30, 2005, the Company reverse split its issued
              common stock on the basis of one new share for two old shares. The
              number of shares  referred to in these  financial  statements  has
              been restated  wherever  applicable to give retroactive  effect to
              the reverse stock splits.  Accordingly  the issued and outstanding
              shares of common stock of the Company was reduced from  11,152,164
              to 5,576,082, and the Articles of Incorporation of the Company was
              amended to reduce  the  authorized  shares of common  stock of the
              Company from 100,000,000 to 50,000,000.

              The  retroactive  restatement  of  the  issued  common  shares  is
              required  by  the  Securities  and  Exchange   Commission's  Staff
              Accounting Bulletin, Topic 4c.

              Stock Option Plan and Stock-based Compensation

              In June 2003, the Board of Directors  approved a stock option plan
              for the  Company  which  provides  for  allocation  of  options to
              purchase up to 375,000 common shares of the Company.  The Board of
              Directors  also  approved the issuance of options to a director to
              acquire up to 125,000  common  shares of the  Company at $0.50 per
              share. The options have a term of ten years expiring in June 2013.
              The option plan is subject to approval by the  stockholders of the
              Company.

              In March 2004,  the Board of  Directors  approved  the issuance of
              options  to a  director  of the  Company  to acquire up to 125,000
              shares of common stock at $0.50 per share. The options vest over a
              period  of two  years  evenly  every 3  months  from  the  date of
              issuance  and once vested may be  exercised  at any time up to ten
              years expiring in March,  2014. At June 30, 2005,  78,125 of these
              options were exercisable.

              The Company does not record  compensation  expense on the granting
              of stock  options to  employees.  In  accordance  with FAS No. 123
              "Accounting for Stock-based  Compensation" disclosure of pro forma
              net loss and net loss per share is  required  by  determining  the
              fair value of the options using fair value option pricing  models.
              The Company has determined the fair value of vested employee stock
              options  using the minimum  value  method  which does not consider
              volatility of the Company's share price. Had compensation expenses
              for the Company's stock option plan been  determined  based on the
              minimum value method at the date the stock  purchase  options were
              granted there would be no effect on pro forma loss.

              The fair value for these stock  options was estimated at the grant
              date using the following weighted average assumptions:

                  Expected volatility                                        0%
                  Dividend yield                                             0%
                  Weighted average expected life of stock options         10 yrs
                  Risk-free interest rate                                  4.04%

                                       10
<page>


Azul Studios International Inc.
(A Development Stage Company)
Notes to the Interim Consolidated Financial Statements
June 30, 2005
(Stated in US Dollars)
(Unaudited) - Page 4


Note 4        Capital Stock - Note 6 - (cont'd)

              Stock Option Plan and Stock-based Compensation - (cont'd)

              During the year ended March 31,  2005,  the Board of  Directors of
              the Company  approved the  formation of an advisory  Board for the
              Company comprised of individuals with backgrounds complimentary to
              the business  plans of the Company.  Each member of that  advisory
              Board  will be  compensated  with  stock  options to acquire up to
              50,000  shares  in  the  common  stock  of  the  Company,  vesting
              quarterly over two years and  exercisable at $0.50 per share.  The
              vesting  period on the options  commences  the date of the initial
              meeting  of  the  Advisory   Board.   The  Company   considers  it
              appropriate  to measure  the fair value of the  options  using the
              stock  price  and  other  measure  assumptions  on the date of the
              initial  meeting of the Advisory  Board.  As of June 30, 2005,  no
              such meeting has been held, and the options have not been valued.

              Share Purchase Warrants

              At June 30, 2005, 312,715 share purchase warrants are outstanding.
              Each warrant entitles the holder to purchase one additional common
              share of the company at $0.50 per share until September 30, 2007.

Note 5        Related Party Transactions

              a)  Amounts paid or accrued to  directors  of the Company,  former
                  directors  of the  Company and  related  companies  in which a
                  director is a partner or associate are as follows:

<table>
<caption>
                                                                                       Three months ended
                                                                                            June 30,
                                                                                     2005              2004
                                                                                     ----              ----
                  
                                                          <c>               <c>
                  Accounting fees                                              $         2,450   $         4,577
                  Consulting fees                                                       18,000            18,000
                  Investor relation fees                                                12,000            12,000
                  Legal fees                                                             6,000             6,000
                  Office, telephone and miscellaneous                                    2,050             7,544
                                                                               ---------------   ---------------

                                                                               $        40,500   $        48,121
                                                                               ===============   ===============
</table>

              b)  Included in accounts  payable  and accrued  liabilities  as at
                  June 30, 2005 is $202,442 (March 31, 2005:  $160,079) due to a
                  director of the  Company,  a company in which a director is an
                  associate and companies controlled by a former director of the
                  Company.

             c)   Amounts due to related  parties of $6,700  (March 31, 2005:
                  $4,969) are owing to stockholders and a former director of the
                  Company and are non-interest bearing, unsecured and have no
                  specific terms of repayment.

                                       11
<page>

Azul Studios International Inc.
(A Development Stage Company)
Notes to the Interim Consolidated Financial Statements
June 30, 2005
(Stated in US Dollars)
(Unaudited) - Page 5


Note 6        Subsequent Events

              On December  31, 2005,  the Company  issued  26,847,546  shares at
              $0.01  per share to  settle  debts  with  related  parties  of the
              Company,  of which  $202,342 was included in accounts  payable and
              accrued liabilities and $2,295 in due to related parties,  both at
              June 30, 2005.

              On January 23, 2006 the Company borrowed $5,875 from a shareholder
              of the  Company.  The  Company  has  agreed  that when the loan is
              repaid that an interest  amount equal to 100% of the loan proceeds
              will be paid. The repayment term is not fixed. The loan is secured
              by other  shareholders of the Company to be paid from any proceeds
              that they may receive upon the sale of their shares.


                                       12
<page>


Item 2.    Management's Discussion and Analysis of Financial Condition and
           Results of Operations

Certain statements contained in this Quarterly Report on Form 10-QSB, including,
without limitation,  statements containing the words "believes, " "anticipates,"
"estimates," "expects," and words of similar import, constitute "forward looking
statements."  You should not place  undue  reliance  on these  forward-  looking
statements. Our actual results could differ materially from those anticipated in
these forward- looking statements for many reasons, including the risks faced by
us described in this  Quarterly  Report and in other  documents we file with the
Securities and Exchange Commission.

BUSINESS  DEVELOPMENT

During the quarter and to date the Company has  continued  to devote its efforts
into  establishing  a new business  comprised of developing  boutique  hotels in
select locations in the world catering to the professional  photographer or film
artist. The company has been focused upon securing equity and debt financing and
has  viewed a number  of  properties  in Ibiza,  Spain.  To date,  no  operating
revenues have been  generated.  The  Company's  operations to date have consumed
substantial  and increasing  amounts of cash.  The Company's  negative cash flow
from  operations is expected to continue and to  accelerate  in the  foreseeable
future as the Company secures and redevelops it's initial  property.  Cash flows
generated  from  financing  activities  are the current  focus of the  Company's
efforts.

During  the  quarter  ended June 30,  2005 and to date,  the  primary  source of
capital has been loans from existing shareholders.  It is management's intention
to  secure   additional  debt  and  equity  financings  by  way  of  securing  a
conventional  mortgage on the  property it is planning on  acquiring,  debt from
shareholders and through private placements of the Company's common stock.

The Company's  continued  existence as a going  concern is ultimately  dependent
upon its  ability to secure  funding on an ongoing  basis.  The Company has been
seeking  investment  capital for the  acquisition and development of its initial
property,   acquisition  of  equipment,   the  marketing  of  its  business  and
development  of  successful   operations.   The  funding  will  be  required  at
accelerating  rates once the Company becomes  committed to its initial property.
There can be no  assurance  that such  additional  funding  will be available on
acceptable terms, if at all.


FINANCIAL  RESULTS

During the three  months  ended  June 30,  2005 the  Company  incurred a loss of
$55,129,  compared  with a loss of $86,766 for the  corresponding  period of the
prior fiscal year. This decrease in the net loss reflects  primarily the limited
ability of the Company to raise  capital and thus limits the  Company's  growing
efforts  in  developing  the Azul  business  initiative.  Much of the  Company's
expenses are  associated  with  administrative  costs and the cost of filing its
quarterly  report and other filings in compliance  with the  requirements of the
Securities and Exchange Commission of the United States after the Company became
a reporting enterprise with the SEC. The Company's expenses incurred during this
period include administrative costs of its wholly-owned  subsidiary Azul Studios
Property, S.L.


                                       13
<page>


The  funding of  operations  during the three  months  ended June 30,  2005 were
provided by creditors  of the  Company,  providing  services  unpaid  during the
period aggregating $49,140. In addition,  related party loans of $1,731 assisted
with the Company's expenditures.

LIQUIDITY  AND  CAPITAL  RESOURCES

As at June 30, 2005,  the Company had $681 in cash,  as compared  with $4,721 in
cash at March 31,  2005.  At June 30,  2005,  the Company had a working  capital
deficiency of $235,377. Of the company's current liabilities, $209,142 is due to
stockholders,  officers and  affiliates  and  accordingly,  the working  capital
deficiency for trade creditors is $26,235.  Of that working capital  deficiency,
$5,690 relates to the Company's subsidiary in Barcelona, Spain.

Item 3.    Controls and Procedures

Management, including the Company's President, Chief Executive Officer and Chief
Financial  Officer,  has evaluated,  as of the end of the period covered by this
report,  the  effectiveness  of  the  design  and  operation  of  the  Company's
disclosure controls and procedures with respect to the information generated for
use in this report.  Based upon that evaluation,  the management  concluded that
the  disclosure  controls and procedures  were  effective to provide  reasonable
assurances  that  information  required to be disclosed in the reports  filed or
submitted  under the Securities  Exchange Act of 1934, as amended,  is recorded,
processed,  summarized  and reported  within the time  periods  specified in the
rules and forms of the Securities and Exchange Commission.

There have been no changes in the  Company's  internal  control  over  financial
reporting  that  occurred  during the  Company's  last fiscal  quarter that have
materially  affected,  or  are  reasonably  likely  to  materially  affect,  the
Company's internal control over financial reporting.


PART II         OTHER INFORMATION

Item 1.    Legal Proceedings

The  Company  is not a  party  to any  pending  legal  proceedings,  and no such
proceedings are known to be contemplated.  No director,  officer or affiliate of
the Company, and no owner of record or beneficial owner of more than 5.0% of the
securities  of the Company,  or any associate of any such  director,  officer or
security  holder is a party  adverse to the  Company or has a material  interest
adverse to the Company in reference to pending litigation.


Item 2.    Change in Securities


In March 2004,  the Board of  Directors  approved  the  issuance of options to a
director of the Company to acquire up to 125,000 shares of common stock at $0.50
per share.  The options  vest over a period of two years  evenly  every 3 months
from the date of issuance and once vested may be exercised at any time up to ten
years expiring in March 2014. As of June 30, 2005,  78,125 of these options were
exercisable.

                                       14
<page>

Effective  December 30, 2005, the Company  reverse split its issued common stock
on the basis of one new for two old and the  Articles  of  Incorporation  of the
Company  was  amended to reduce  the  authorized  shares of common  stock of the
Company  from  100,000,000  to  50,000,000.  The  number of shares and the share
prices referred to in this report have been restated wherever applicable to give
retroactive effect on the reverse stock splits.

On December 31, 2005, the Company issued 26,847,546 shares at $0.01 per share to
settle debts with related parties of the Company.



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 and Reports on Form 8-K

A. Exhibits

Exhibit No.       Descriptions

31.1 Certification of Chief Executive officer pursuant to Section 302 of the
     Sarbanes-Oxley Act of 2002

31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the
     Sarbanes-Oxley Act of 2002

32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
     1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section
     1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


B. Reports on Form 8-K


                                       15
<page>

                                   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.


                                         Azul Studios International Inc.

Date: June 21, 2006                      By: James Vandeberg
                                             -----------------------------
                                             Name: James Vandeberg
                                             Title: President and Director


Date: June 21, 2006                      By: Michael Lorenz
                                             -----------------------------
                                             Name: Michael Lorenz
                                             Title: Director

                                       16