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

                    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 December 31, 2004
              ----------------------------------------------------

     [ ] 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

                                DECEMBER 31, 2004

                                      INDEX


PART I         FINANCIAL INFORMATION..........................................3

Item 1.        Financial Statements...........................................3

Item 2.        Management's Discussion and Analysis of
               Financial Condition and Results of Operations.................14

Item 3.        Controls and Procedures.......................................15

PART II        OTHER INFORMATION.............................................15

Item 1.        Legal Proceedings.............................................15

Item 2.        Change in Securities..........................................16

Item 3.        Defaults upon Senior Securities...............................16

Item 4.        Submission of Matters to a Vote of Security Holders...........16

Item 5.        Other Information.............................................16

Item 6.        Exhibits and Reports on Form 8-K..............................17

                                      -2-


<page>




PART I     FINANCIAL INFORMATION

Item 1.    Financial Statements




                         Azul Studios International Inc.

                          (A Development Stage Company)

                    INTERIM CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 2004

                             (Stated in US Dollars)

                                   (Unaudited)




                                      -3-

<page>


                         Azul Studios International Inc.
                          (A Development Stage Company)
                       INTERIM CONSOLIDATED BALANCE SHEETS
                      December 31, 2004 and March 31, 2004
                             (Stated in US Dollars)
                                   (Unaudited)
<table>
<caption>
                                                                                      December 31,        March 31,
                                                     ASSETS                               2004               2004
                                                     ------                               ----               ----

                                                                                <c>               <c>
Current
    Cash                                                                            $         5,256   $         5,241
    Prepaid expenses                                                                            594                 -
                                                                                    ---------------   ---------------

                                                                                              5,850             5,241
Equipment - Note 3                                                                            1,963             9,182
                                                                                    ---------------   ---------------

                                                                                    $         7,813   $        14,423
                                                                                    ===============   ===============

                                                   LIABILITIES
                                                   -----------
Current
    Accounts payable and accrued liabilities - Notes 6 and 7                        $       123,254   $       104,648
    Due to related parties - Notes 6 and 7                                                    5,821             1,155
    Loans payable to stockholders - Notes 4 and 5                                                 -           101,995
                                                                                    ---------------   ---------------

                                                                                            129,075           207,798
                                                                                    ---------------   ---------------

                                             STOCKHOLDERS' DEFICIENCY
                                             ------------------------
Preferred Stock, $0.0001 par value
                      shares authorized; none issued                                              -                 -

              20,000,000
Common stock, $0.0002 par value - Notes 4, 5 and 7
                      shares authorized

              50,000,000
                      shares issued (March 31, 2004: 4,950,652)                                 558               495

              5,576,082
Additional paid-in capital                                                                1,093,831           781,179
Deficit accumulated during the prior development stage                                     (151,117)         (151,117)
Deficit accumulated during the development stage                                         (1,064,534)         (823,932)
                                                                                    ---------------   ---------------

                                                                                           (121,262)         (193,375)
                                                                                    ---------------   ---------------

                                                                                    $         7,813   $        14,423
                                                                                    ===============   ===============
</table>

                             SEE ACCOMPANYING NOTES


                                      -4-

<page>


                         Azul Studios International Inc.
                          (A Development Stage Company)
                  INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
                  for the three and nine months ended December
           31, 2004 and 2003 and for the period April 1, 2000 (Date of
             Commencement of Development Stage) to December 31, 2004
                             (Stated in US Dollars)
                                   (Unaudited)
<table>
<caption>
                                                                                                              April 1, 2000
                                                                                                               (Date of
                                                                                                              Commencement
                                                                                                             of Development
                                                Three months ended              Nine months ended              Stage) to
                                                   December 31,                    December 31,               December 31,
                                               2004             2003         2004              2003              2004
                                               ----             ----         ----              ----              ----

                                        <c>            <c>          <c>               <c>              <c>
Expenses
  Advertising and promotion                 $     5,540   $      894   $       11,604    $        6,185   $         38,970
  Amortization                                      478          737            1,608             2,403             20,172
  Audit and accounting fees - Note 6              7,321        9,616           23,394            22,738             77,797
  Bank charges and interest                         277        8,317              891             8,393             83,650
  Consulting fees - Note 6                       24,700       18,750           73,200            68,750            426,981
  Investor relations and marketing fees
  - Note 6                                       12,365       12,000           42,590            12,000             67,090
  Legal fees - Note 6                             6,000        6,208           22,306            16,275             62,323
  Office, telephone and miscellaneous
  - Note 6                                       16,988       11,098           43,940            28,488            130,077
  Software research and development                   -            -                -                 -             66,410
  Transfer agent fees                                 -          205            2,430               880              5,425
  Travel                                          1,607          972           14,119             6,182             77,850
                                           -------------- ------------   --------------    --------------   ----------------

Loss before other items                          75,276       68,797          236,082           172,294          1,056,745
                                            ------------- ------------   --------------    --------------   ----------------

Other items:
  Write-off of equipment - Note 3                (2,686)           -           (2,686)                -             (4,011)
  Loss on disposal of equipment
   - Note 3                                           -            -           (2,217)                -             (2,217)
   Loss on foreign exchange                         383            -              383                 -             (1,561)
                                            ------------- ------------   --------------    --------------   ----------------

                                                 (2,303)           -           (4,520)                -             (7,789)
                                            ------------- ------------   --------------    --------------   ----------------

Net loss for the period                     $   (77,579)  $  (68,797)  $     (240,602)   $     (172,294)  $     (1,064,534)
                                            ============= ============   ==============    ==============   ================

Basic and diluted loss per share            $     (0.01)  $    (0.01)  $        (0.05)   $        (0.04)
                                            ============= ============   ==============    ==============

Weighted average number of shares
outstanding for the period                    5,576,082     4,880544        5,162,161         4,744,380
                                            ============= ============   ==============    ==============
</table>

                             SEE ACCOMPANYING NOTES

                                      -5-

<page>

                         Azul Studios International Inc.
                          (A Development Stage Company)
                  INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
                     for the nine months ended December 31,
                 2004 and 2003, and for the period April 1, 2000
                   (Date of Commencement of Development Stage)
                              to December 31, 2004
                             (Stated in US Dollars)
                                   (Unaudited)
<table>
<caption>
                                                                                                 April 1, 2000
                                                                                                   (Date of
                                                                                                  Commencement
                                                                                                 of Development
                                                                   Nine months ended                Stage) to
                                                                      December 31,                December 31,
                                                                  2004              2003              2004
                                                                  ----              ----              ----

                                                        <c>              <c>               <c>
Cash flows used in Operating Activities
 Net loss for the period                                   $      (240,602) $       (172,294) $      (1,064,534)
 Add items not involving cash:
  Amortization                                                       1,608             2,403             20,172
  Write-off of equipment                                             2,686                 -              4,011
  Loss on disposal of equipment                                      2,217                 -              2,217
Changes in non-cash working capital items related to
operations:
  Prepaid expenses                                                    (594)                -               (594)
  Accounts payable and accrued liabilities                          19,314            79,656            299,001
                                                           ----------------  ----------------  -----------------

                                                                  (215,371)          (90,235)          (739,727)
                                                           ----------------  ----------------  -----------------

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

Cash Flows provided by Financing Activities
  Increase in amounts due to related parties                         4,666                 -              4,666
  Increase in loans payable to stockholders                        210,720            57,620            363,496
  Increase in convertible debenture                                      -                 -            278,114
  Proceeds from common stock subscriptions                               -            35,000             35,000
                                                           ----------------  ----------------  -----------------

                                                                   215,386            92,620            681,276
                                                           ----------------  ----------------  -----------------

Increase (decrease) in cash during the period                           15             2,385            (74,898)

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

Cash, end of the period                                    $         5,256  $          2,385  $           5,256
                                                           ================  ================  =================

Supplementary disclosure of cash flow information
  Cash paid for:
   Interest                                                $             -  $            620  $            620
                                                           ================  ================  =================

Non-cash transactions - Notes 3, 4 and 5
</table>


                             SEE ACCOMPANYING NOTES

                                      -6-

<page>

                         Azul Studios International Inc.
                          (A Development Stage Company)
                            CONSOLIDATED STATEMENT OF
                STOCKHOLDERS' DEFICIENCY for the period September
                23, 1996 (Date of Inception) to December 31, 2004
                             (Stated in US Dollars)
                                   (Unaudited)
<table>
<caption>
                                                                                          Deficit
                                                                                         Accumulated     Deficit
                                                                                         During prior  Accumulated
                                                              Note 5          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

                                      -7-

                         AZUL STUDIOS INTERNATIONAL INC.
                          (A Development Stage Company)
                            CONSOLIDATED STATEMENT OF
                STOCKHOLDERS' DEFICIENCY for the period September
                23, 1996 (Date of Inception) to December 31, 2004
                             (Stated in US Dollars)
                                   (Unaudited)
<table>
<caption>
                                                                                        Deficit
                                                                                       Accumulated       Deficit
                                                                                       During prior    Accumulated
                                                           Note 5           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 5      - at $0.50 per share                    625,430          63      312,652          -               -       312,715
Net loss for the three months ended
December 31, 2004                                           -           -            -          -        (240,602)     (240,602)
                                                 -------------- ----------- ----------- ----------   ------------- --------------

Balance, December 31, 2004                          5,576,082   $     558  $ 1,093,831 $ (151,117)  $  (1,064,534)  $  (121,262)
                                                 ============== =========== =========== ==========   ============= ==============
</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

                                      -8-



                         Azul Studios International Inc.
                          (A Development Stage Company)
             NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2004
                             (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  December  31,  2004.  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,  which  assumes that the Company will be able to meet its
              obligations  and continue its operations for its next fiscal year.
              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.  At December 31, 2004, the
              Company  had  not  yet   achieved   profitable   operations,   has
              accumulated  losses  of  $1,215,651  since  its  inception,  has a
              working  capital  deficiency  of  $123,225  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.

                                      -9-

<page>

Azul Studios International Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 2004
(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
              subsidiary,   Azul   Studios   Property   S.L.   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, 2005.  These  interim  financial  statements
              should  be  read  in  conjunction   with  the  audited   financial
              statements for the years ended March 31, 2004 and 2003 included in
              the  Company's  Form  10-KSB  as  filed  with the  Securities  and
              Exchange Commission on August 12, 2004.

Note 3        Equipment
<table>
<caption>
                                                                               December 31, 2004
                                                               --------------------------------------------------
                                                                                  Accumulated
                                                                    Cost          Depreciation         Net
           
                                                <c>              <c>               <c>
            Computer equipment                                 $        17,167  $        17,167   $           -
            Computer software                                              544              489              55
            Office equipment                                             2,778            2,232             546
            Office furniture                                             3,772            2,410           1,362
                                                               ---------------  ---------------   -------------

                                                               $        24,261  $        22,298   $       1,963
                                                               ===============  ===============   =============

                                                                                March 31, 2004
                                                               --------------------------------------------------
                                                                                  Accumulated
                                                                    Cost          Depreciation         Net

            Computer equipment                                 $        17,167  $        13,664   $       3,503
            Computer software                                              544              465              79
            Office equipment                                             3,078            2,279             799
            Office furniture                                             9,700            4,899           4,801
                                                               ---------------  ---------------   -------------

                                                               $        30,489  $        21,307   $       9,182
                                                               ===============  ===============   =============
</table>

                                      -10-

Azul Studios International Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 2004
(Stated in US Dollars)
(Unaudited) - Page 3
 ---------


Note 3        Equipment - (cont'd)
              ---------

              During the nine  months  ended  December  31,  2004,  the  Company
              disposed of office  furniture for $708 of trade debt  outstanding,
              resulting in a loss of $2,217. During the same period, the Company
              also wrote off  computer  equipment  that was  impaired and had no
              market value, resulting in a loss of $2,686.

Note 4        Loans Payable to Stockholders  - Note 5
              -----------------------------

              During the nine  months  ended  December  31,  2004,  the  Company
              settled stockholder loans aggregating  $312,715 by the issuance of
              625,430  units at $0.50 per unit.  Each unit is  comprised  of one
              share of common  stock of the Company and one half  warrant.  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        Capital Stock
              -------------
              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.

              Changes in Securities
              ---------------------
              During the nine months ended December 31, 2004, the Company agreed
              to issue  625,430  shares of common stock and 312,715  warrants to
              settle  stockholder  loans  aggregating  $312,715  (Note 4).  Each
              warrant  entitles  the holder to purchase  one  additional  common
              share of the Company at $0.50 per share until  September 30, 2007.
              In connection with the issuance,  the Company  allocated $8,736 of
              the proceeds to the warrants based on the fair value of $0.028 per
              warrant.  The fair value of the warrant was  determined  using the
              Black-Scholes option pricing model,  assuming a 0% volatility,  0%
              dividend yield, 2.92% risk free rate,  resulting in measurement at
              minimal value and the underlying stock valued at $0.243 per share.

                                      -11-

<page>

Azul Studios International Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 2004
(Stated in US Dollars)
(Unaudited) - Page 4
 ---------


Note 5        Capital Stock - (cont'd)
              -------------

              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 December 31, 2004,  46,875 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%

              During the nine  months  ended  December  31,  2004,  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 a price of
              $0.50 per share.  The vesting  period on the options  commences on
              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 December  31,
              2004, no such meeting has been held, and the options have not been
              valued.

                                      -12-

<page>

Azul Studios International Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 2004
(Stated in US Dollars)
(Unaudited) - Page 5
 ---------


Note 6            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>
                                                                                       Nine Months Ended
                                                                                          December 31,
                                                                                     2004              2003
                                                                                     ----              ----
                
                                                           <c>               <c>
                  Accounting fees                                              $       14,944    $       15,263
                  Consulting fees                                                      60,700            68,750
                  Investor relation fees                                               36,000            12,000
                  Legal fees                                                           18,000            16,275
                  Office, telephone and miscellaneous                                  19,300            18,158
                                                                               --------------    --------------

                                                                               $      148,944    $      130,446
                                                                               ==============    ==============
</table>
              b)  Included in accounts  payable  and accrued  liabilities  as at
                  December 31, 2004 is $110,249 (March 31, 2004: $86,550) due to
                  a director  of the  Company,  a company in which a director of
                  the Company is an  associate  and  companies  controlled  by a
                  former director of the Company.

              c)  Amounts  due to  related  parties of $5,821  (March 31,  2004:
                  $1,155) are owing to stockholders and a former director of the
                  Company and are  non-interest  bearing,  unsecured and have no
                  specific terms of repayment.

Note 7            Subsequent Events - Note 5
                   -----------------

              a)  On March 8, 2005,  the  Company  incorporated  a  wholly-owned
                  corporation, Azul Media Inc., in the State of Washington.

              b)  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  $110,149  was included in accounts  payable
                  and accrued liabilities and $2,246  was  included  in  due  to
                  related parties, at December 31, 2004.

              c)  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.

                                      -13-

<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  December 31, 2004 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.

In July 2004 the Company  incorporated Azul Studios Properties SL, 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.

In addition 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 a price of $0.50 per share.  Since the formation of the Advisory
Board,  the Company has engaged a  professional  architect  in Ibiza Spain and a
professional  photographer  for the Board.  The  vesting  period on the  options
commences  the date of the initial  meeting of the advisory  Board.  The initial
meeting has not taken place at the date of this report.

                                      -14-

<page>

FINANCIAL  RESULTS

During the nine months ended  December  31, 2004 the Company  incurred a loss of
$240,602,  compared with a loss of $172,294 for the corresponding  period of the
prior fiscal year.  This increase in the net loss  reflects  primarily the costs
associated with the Company's growing efforts in seeking  investment capital and
in developing  the Azul business  initiative.  The Company's  expenses  incurred
during this period include the  incorporation  and  administrative  costs of its
wholly-owned  subsidiary  Azul  Studios  Property,  S.L.  The  increase  in  the
Company's  expenses  is also  associated  with 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 funding of  operations  during the nine months ended  December 31, 2004 were
comprised  of loans  provided  to the Company by  existing  shareholders  in the
amount of $215,386.

LIQUIDITY  AND  CAPITAL  RESOURCES

As at December 31, 2004, the Company had $5,256 in cash, as compared with $5,241
in cash at March 31,  2004.  At  December  31,  2004,  the Company had a working
capital deficiency of $123,225.  Of the company's current liabilities,  $116,070
is due to  stockholders,  officers and affiliates and  accordingly,  the working
capital  deficiency for trade  creditors is $7,155.  The Company is currently in
the process of  structuring  a  financing  package  for the  development  of its
initial  project  comprised  of a  combination  of debt and equity,  to commence
operations in Ibiza 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.

                                      -15-

<page>

Item 2.    Change in Securities

In September,  2004, the Company settled Stockholder loans aggregating  $312,715
by the  issuance of 625,430  units at $0.50 per unit.  Each unit is comprised of
one share of common  stock of the Company  and one half  warrant.  Each  warrant
entitles the holder to purchase one share of the Company's Common Stock at $0.50
per share.  The warrants expire in three years.  The issuances were exempt under
Regulation S of the Securities Act of 1933.

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 December 31, 2004,  46,875 of these options
were exercisable.

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

           1 for 2 Reverse Split of Authorized Capital  & Unregistered  Sales of
           Equity Securities

                                      -16-

<page>

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


                                   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

                                      -17-