Unassociated Document

10QSB 1 v039007_10qsb.htm Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(MARK ONE)

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 2006

o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ________ to __________.

Commission file number 333- 106637

STRATEGY INTERNATIONAL INSURANCE GROUP, INC.

(Exact name of small business issuer as specified in its charter)

Texas		16-1644353
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

200 Yorkland Blvd., Suite 710 Toronto, Ontario Canada M2J 5C1 (416) 496-9988
(Address and telephone number of principal executive offices)

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 o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 64,327,503 shares of Common Stock, $0.001 par value per share, outstanding as of March 29, 2006.

Transitional Small Business Disclosure Format (check one):

Yes o No x

TABLE OF CONTENTS

Numbers		Page

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statements of Cash Flows	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Controls and Procedures	25

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	27
Item 6.	Exhibits	27

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STRATEGY INTERNATIONAL INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	January 31,		April 30,
	2006		2005
	(Unaudited)		(Audited)

ASSETS
Current Assets:
Cash	$	444,383	$	2,786,961
Accounts receivable		449,032		553,753
Mortgage notes receivable		6,230,807		6,230,807
Loan receivable		900,000		900,000
InInterest receivable (includes $0 and $542,667 from related parties)		2,525,795		784,357
Prepaid expenses and other current assets (includes $707,398 and $0 from related parties)		1,145,489		129,874
Total Current Assets		11,695,506		11,385,752

Cash - restricted		32,603,803		32,046,385
Marketable securities		351,589		-
Secured convertible note receivable		533,134,862		-
Mortgage notes receivable		66,947,049		23,000,000
Mortgage notes receivable - related parties		8,000,000		8,000,000
Interest receivable - related parties		1,341,177		-
Property and equipment - net		509,614		84,920
Other assets		1,954,651		253,571
Goodwill		596,532		-
Due from related parties		509,741		256,049
Total Assets	$	657,644,524	$	75,026,677

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current Liabilities:
Long term debt - current portion	$	5,021,250	$	7,000,000
Preferred dividend payable		387,589		-
Accounts payable and accrued liabilities (includes $109,073 and $6,302 from related parties)		9,331,681		1,745,385
Note and loans payable - related party		2,316,753		275,000
Premium advance		-		100,000
Unearned premiums		6,596,389		1,473,712
Claims reserves		3,239,901		1,547,258
Due to affiliate		6,428,929		206,433
Total Current Liabilities		33,322,492		12,347,788

Long-term liabilities
ReeRedeemable Insured Preferred Stock Series A - net of issuance costs of $1,780,289 and $2,216,279 (Liquidation preference $50,000,000)		43,296,804		40,434,068
Long-term debt - net of current portion - net of issuance costs of $249,294 and $0		73,250,314		23,000,000
Long-term debt - related party		1,250,000		-

Total Long-term Liabilities		117,797,118			63,434,068
Total Liabilities		151,119,610			75,781,856

Contingencies

Stockholders' Equity (Deficiency):
10% Cumulative Class A Preferred stock ($.001 stated value, unlimited shares authorized, 47,670 issued and outstanding)		48			48
10% Cumulative Class B Preferred stock ($.001 stated value, unlimited shares authorized, 56,562 issued and outstanding)		57			57
Series B Preferred stock (no par value, unlimited shares authorized, 5,000 shares issued and outstanding)		1,000,000			1,000,000
Series D Preferred stock (no par value, unlimited shares authorized, 24 shares issued and outstanding) (Redemption value $700,000,000)		517,870,149			-
Common stock ($.001 par value, 100,000,000 shares authorized 64,227,503 and 63,197,503 shares issued and outstanding at January 31, 2006 and April 30, 2005, respectively)		64,227			63,197
Additional paid-in capital		114,055,717			117,595,346
Less: Notes receivable - subscriptions		(104,231,610	)		(104,231,610	)
Deferred compensation		-			(266,022	)
Currency translation adjustment		(153,017	)		(4,173	)
Unrealized gain on marketable securities		(351,589	)		-
Accumulated deficit		(22,432,246	)		(14,912,022	)
Total Stockholders' Equity (Deficiency)		506,524,914			(755,179	)
Total Liabilities and Stockholders' Equity (Deficiency)	$	657,644,524		$	75,026,677

The accompanying notes are an integral part of these financial statements.

STRATEGY INTERNATIONAL INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Three Months ended						For the Nine Months ended
	January 31,						January 31,
	2006			2005			2006			2005
				(Restated)						(Restated)
Revenue:
Gross written premium	$	772,677		$	1,512,087		$	6,770,572		$	1,953,458
Less: Adjustments to unearned premium		(96,354	)		-			5,114,469			-
Net earned written premium		869,031			1,512,087			1,656,103			1,953,458
Interest income (includes $266,170, $225,666, $798,510 and $225,666 from related parties)		6,541,250			963,050			9,512,419			2,492,614
Investment income		279,418			-			772,146			-
Total revenue		7,689,699			2,475,137			11,940,668			4,446,072

Claims and Expenses:
General and administrative expenses		3,155,896			4,300,744			9,363,473			7,036,877
Claims reserve expense		193,170			-			1,692,644			-
Bro Brokerage and acquisition costs (includes $39,300, $3,000,000, $78,600 and $3,000,000 from related parties)		76,545			3,085,949			184,707			3,215,660
Amortization of finance costs		269,628			181,663			689,691			181,663
Depreciation		51,390			8,467			82,401			8,467
Total claims and expenses		3,746,629			7,576,823			12,012,916			10,442,667

Income (loss) from operations		3,943,070			(5,101,686	)		(72,248	)		(5,996,595	)

Other Income (Expense):
Gain on foreign currency transactions		157,279			-			157,279			-
Interest expense (includes $74,146, $2,865, $102,733 and $2,865 from related parties)		(2,836,610	)		(2,099,638	)		(7,659,381	)		(2,099,638	)
Minority interest in loss of subsidiary		-			-			54,126			-
Net income (loss)		1,263,739			(7,201,324	)		(7,520,224	)		(8,096,233	)

Deemed dividend on Redeemable Insured
Preferred Stock Series A		722,917			602,431			2,168,751			602,431
Dividend on Preferred Stock Series D		3,091,699			-			3,091,699			-
Dividend on 10% Cumulative Class A and Class B Preferred Stock		-			2,616,438			-			2,616,438
Net loss attributable to common stockholders	$	(2,550,877	)	$	(10,420,193	)	$	(12,780,674	)	$	(11,315,102	)

Net loss per common share:
Basic and diluted	$	(0.04	)	$	(0.17	)	$	(0.20	)	$	(0.19	)

Basic and diluted weighted average common shares outstanding		63,376,633			63,023,491			63,257,213			59,767,773

The accompanying notes are an integral part of these consolidated financial statements.

STRATEGY INTERNATIONAL INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED JANUARY 31, 2006 AND 2005

(Unaudited)

	January 31,
	2006			2005
				(Restated)

Cash Flows from Operating Activities:
Net loss	$	(7,520,224	)	$	(8,096,233	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of finance costs		689,691			181,663
Amortization of deferred stock based compensation		266,022			14,889
Amortization of discount of secured convertible note receivable		(1,834,862	)		-
Depreciation		82,401			8,467
Minority interest in loss of subsidiary		(54,126	)		-
Common stock issued for services rendered		-			2,804,930
(Increase) decrease in:
Accounts receivable		104,721			-
Interest receivable		(5,774,436	)		(2,410,246	)
Prepaid expenses		(917,536	)		(75,000	)
Other assets		(1,292,080	)		(174,759	)

Increase (decrease) in:
Accounts payable and accrued liabilities		7,068,804			715,532
Due from/to affiliate		(3,777,504	)		-
Premium advance		(100,000	)		-
Unearned premiums		5,122,677			-
Claims reserves		1,692,643			1,476,092
Net cash used in operating activities		(6,243,809	)		(5,554,665	)

Cash Flows from Investing Activities
Cash paid for mortgage notes receivable		(49,659,375	)		(8,000,000	)
Repayments received on mortgage notes receivable		5,857,316			-
Acquisitions of property and equipment		(504,026	)		(35,761	)
Restricted cash - net activity		(557,418	)		(33,121,338	)
Loans to related parties		(253,692	)		(2,109,218	)
Acquisition of subsidiary		(36,096	)		-
Cash received in acquisition		8,113			15,230
Net cash used in investing activities		(45,145,178	)		(43,251,087	)

Cash Flows from Financing Activities:
Proceeds from long-term debt		50,400,000			7,000,000
Proceeds of long-term debt - related party		1,250,000			-
Issuance costs for Series D Preferred stock- net of affiliate consulting fee		(2,017,000	)		-
Finance costs of long-term debt		(245,000	)		(2,615,937	)
Deferred finance costs		(100,000	)		-
Proceeds from note and loans payable - related party		2,618,219			275,000
Repayments of note and loans payable - related party		(576,466	)		-
Payments of long-term debt		(1,977,221	)		-
Proceeds from issuance of series B preferred stock		-			1,000,000
Sale of common stock warrants - net of issuance costs		-			7,125,858
Issuance of redeemable insured Preferred Stock Series A - net of issuance costs		-			41,325,000
Proceeds from bridge loan		-			8,000,000
Repayment of bridge loan		-			(8,000,000	)
Dividends paid		-			(2,616,438	)
Net cash provided by financing activities		49,352,532			51,493,483

Effect of foreign currency translation		(306,123	)		-

Net (decrease) increase in cash		(2,342,578	)		2,687,731

Cash - beginning of period		2,786,961			184,000
Cash - end of period	$	444,383		$	2,871,731

Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	6,014,708		$	616,438
Income taxes	$	-		$	-

Supplemental Disclosures of non cash financing activities:
Acquisition of Forestre (Holdings) Limited	$	607,714		$	-
Note issued for insurance policy	$	98,079		$	-
Deemed dividend on Redeemable Insured Preferred
Stock Series A	$	2,168,751		$	602,431
Series D Preferred stock issued in exchange for secured convertible note receivable	$	531,300,000		$	-
Common stock issued for deferred finance costs	$	309,000		$	-
Unrealized gain on marketable securities	$	351,589		$	-
Warrants issued as compensation in connection with issuance os Seried D Preferred stock	$	1,412,851		$	-
Accrued dividend payable	$	3,091,699		$	-
Common stock issued for services	$	-		$	2,804,930
Warrants issued as compensation in connection with consulting agreement	$	-		$	375,560

The accompanying notes are an integral part of these financial statements.

STRATEGY INTERNATIONAL INSURANCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2006 AND 2005

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Strategy International Insurance Group, Inc.(the "Company" or "Strategy International") is a holding company of wholly-owned subsidiaries in insurance and related financing, real estate and energy areas. Strategy International’s predominant subsidiary is Strategy Insurance Limited ("SIL"), a Barbados company, an integrated, international provider of specialty lines of insurance, reinsurance and structured risk solutions, focusing on credit enhancement, contingency, liability and other specialty insurance and reinsurance. Strategy International has developed and intends to continue its efforts to develop the practice of introducing credit insurance programs in other areas, including construction and real estate development. SIL is a wholly-owned subsidiary of Strategy Holding Company Limited ("Strategy Holding"), a Barbados company, which in turn is a direct wholly-owned subsidiary of Strategy International. SIL received an Exempt Insurance License from the Ministry of Finance, Barbados, West Indies, on March 25, 2004, which authorizes SIL to engage in the following classes of insurance business from within Barbados:

General insurance business;

Credit insurance;

Liability insurance;

Mortgage indemnity insurance;

Rental guarantee insurance; and

Reinsurance.

The license is subject to annual renewal and has been renewed through December 31, 2006.

We have implemented a strategy to design, structure and sell a broad series of structured risk, specialty insurance and reinsurance platforms. The Company conducts its insurance and reinsurance operations principally through its subsidiaries incorporated throughout the world. We have established offices in Wildey, Barbados, West Indies; London, England; and Toronto, Canada. We will consider opening other offices as our business expands into different geographic areas.

On June 24, 2005, the Company entered into a Shareholders Agreement with Forestre (Holdings) Limited (“ForestRe”), a private consulting firm registered in England and Wales, and certain stockholders (the “Stockholders”), pursuant to which the Company and the Stockholders agreed to cooperate in the management and development of an underwriting agency specializing in the provision of insurance for environment related concerns with specific interest in the coverage of standing timber, called ForestRe Limited. The Company provides the underwriting capacity to support the insurance program and the Stockholders provide the expertise in the class of business to make it a successful venture.

As part of this transaction, the Company acquired a 60% ownership interest in ForestRe in consideration for an investment of GBP20,000 ($36,096) and a working capital loan facility. ForestRe owns ForestRe Limited and Agro Forest Risk Management Limited. Together these companies design risk transfers mechanisms for small forest and plantation owners through out the world.

The acquisition of ForestRe has been accounted for as a purchase by the Company. In connection with the acquisition, the purchase price was allocated as follows:

Cash	$	8,113
Property and equipment		3,069
License agreements and proprietary know how		596,532
Accounts payable and other liabilities		(571,618	)
	$	36,096

The Company accounts for goodwill in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS 142), which addresses the financial accounting and reporting standards for goodwill and other intangible assets subsequent to their acquisition. This accounting standard requires that goodwill no longer be amortized, and instead, be tested for impairment on a periodic basis.

Going Concern

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has incurred a net loss of $7,520,224 for the nine months ended January 31, 2006 and $14,958,708 for the year ended April 30, 2005, has a working capital deficit of $20,285,809 and $962,036 as of January 31, 2006 and April 30, 2005, respectively, and has generated negative cash flows from operations. In addition, in September 2005, the Company voluntarily withdrew from writing new business as a result of the unauthorized discharge of certain mortgages resulting in a loss of regulatory capital (see Note 9). The future of the Company is dependent upon its ability to generate sufficient revenues and to obtain debt and/or equity financing to fund its operations and to follow through on its projected business plan. Management has plans to seek additional capital through debt and/or equity financing. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue its existence.

In December 2005, the Company successfully completed a transaction that raised new equity capital of approximately $518 million for its wholly-owned Barbados subsidiary, Strategy Holding Company Limited ("Holding") (see Notes 4 and 9). While this transaction added significant new capital, the investment consisted of non-cash assets not readily convertible to cash. In February 2006, the Company requested approval from the office of the Supervisor of Insurance and Finance of Barbados to have this contributed capital allowed as regulatory capital for its insurance subsidiary, SIL.

The Company believes it will be successful in receiving this approval and recommence its business plan and insurance operation and find additional ways to utilize the non-cash assets for the future benefit of its operations. However, there can be no assurance that we will be successful in doing so. The ability of the Company to utilize or convert the non-cash assets into working capital and/or receive approval of such non-cash assets as regulatory capital, therefore continues to raise substantial doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustments that might arise from such uncertainty.

Interim Presentation

The April 30, 2005 balance sheet data was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. In the opinion of management, the accompanying unaudited financial statements contain all normal and recurring adjustments necessary to present fairly the financial position of the Company as of January 31, 2006, its results of operations for the nine and three months ended January 31, 2006 and 2005 and its cash flows for the nine months ended January 31, 2006 and 2005.

The statements of operations for the nine months ended January 31, 2006 and 2005 are not necessarily indicative of the results for the full year.

While the Company believes that the disclosures presented are adequate to make the information not misleading, these financial statements should be read in conjunction with the financial statements and accompanying notes included in the Company's annual report on Form 10-KSB for the year ended April 30, 2005.

Restatement

During the audit of the financial statements as of and for the year ended April 30, 2005, it was discovered that certain transactions were not properly recorded within the quarters, however were reflected within the year end financial statements. The Company has therefore restated the statements of operations for the nine and three months ended January 31, 2005 and the statement of cash flows for the nine months ended January 31, 2005 to properly reflect transactions within the proper quarters for the following:

To reverse the accrual of unpaid cumulative dividends on the 10% Cumulative Class A and Class B preferred stock. Accrued dividends amounted to $5,200,932 for the nine months ended January 31, 2005.

To record a deemed dividend on Redeemable Insured Preferred Stock Series A in the amount of $602,431 for the nine and three months ended January 31, 2005 and to reclassify interest expense recorded as dividends in the amount of $1,033,055 for the nine and three months ended January 31, 2005.

To record the issuance of 977,503 and 177,504 shares of common stock for consulting services for the nine and three months ended January 31, 2005, respectively. Consulting services amounted to $1,829,930 and $317,932 for the nine and three months ended January 31, 2005, respectively.

To record the issuance of 750,000 shares of common stock for interest in the nine and three months ended January 31, 2005. The shares were valued at $975,000.

To decrease the amortization of finance costs of Redeemable Insured Preferred Stock Series A by $83,073 for the nine and three months ended January 31, 2005.

To reclassify unamortized finance costs to consulting expense in the amount of $938,000 for the nine and three months ended January 31, 2005.

To accrue consulting expenses in the amount of $120,833 for the nine and three months ended January 31, 2005.

To accrue interest on a related party note payable in the amount of $2,865 for the nine and three months ended January 31, 2005.

To record the amortization of deferred stock based compensation of $14,889 for the nine and three months ended January 31, 2005.

The effect of the restatement was to increase net loss by $3,798,444 ($.06 per share) for the nine months ended January 31, 2005, increase net loss by $2,286,446 ($.04 per share) for the three months ended January 31, 2005, decrease net loss attributable to common stockholders by $1,833,163 ($.03 per share) for the nine months ended January 31, 2005 and increase net loss attributable to common stockholders by $1,866,419 ($.03 per share) for the three months ended January 31, 2005.

Earnings (Loss) Per Share

The Company computes earnings or loss per share in accordance with Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (“SFAS 128”). Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings per share reflect the potential dilution that could occur if securities or other agreements to issue common stock were exercised or converted into common stock, only in the periods in which the effect is dilutive. The following securities have been excluded from the calculation of net loss per share, as their effect would be antidilutive.

	2006		2005

Warrants (weighted average)		38,830,663		8,173,606

Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123 (R), “Share-based Payment,” which replaced SFAB No.123, Accounting for Stock-based Compensation” (“SFAS No. 123”), and supersedes Accounting Principles Board Opinion No. 25,“Accounting for Stock Issued to Employees” (“APB No. 25”). SFAS 123 (R) requires companies to recognize in their statement of income the grant-date fair value of stock options and other equity-based compensation issued to employees. This SFAS is effective for most public companies for interim and annual reporting periods beginning after June 15, 2005. Grant-date fair value will be determined using one of two acceptable valuation models. This Standard requires that compensation expense for most equity-based awards be recognized over the requisite service period, usually the vesting period; while compensation expense for liability-based awards (those usually settled in cash rather than stock) be re-measured to fair-value at each balance sheet date until the award is settled. The Standard also provides guidance as to the accounting treatment for income taxes related to such compensation cost, as well as transition issues related to adopting the new Standard. The adoption of SFAS No. 123 (R) had no impact on the Company’s results of operations for the nine months ended January 31, 2006.

In May 2005, the FASB issued FASB Statement No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements” ("SFAS 154"). SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. SFAS 154 also provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. The provisions of SFAS 154 are effective for accounting changes and corrections of errors made in fiscal periods beginning after December 15, 2005. The adoption of the provisions of SFAS 154 is not expected to have a material impact on the Company’s financial position or results of operations.

2. ACCOUNTS RECEIVABLE

At January 31, 2006 and April 30, 2005, three customers and one customer accounted for 100% of the Company’s accounts receivable, respectively.

3. SALES AND MAJOR CUSTOMERS

Net earned written premiums were earned in the following countries for the nine and three months ended January 31, 2006:

	Nine Months		Three Months
	Ended		Ended
	January 31, 2006		January 31, 2006
Australia	$	9,180	$	6,885
Canada		51,278		17,076
United Kingdom		371,448		134,994
United States of America		405,418		208,918
South Korea		134,089		44,698
India		684,690		456,460
	$	1,656,103	$	869,031

Net earned written premiums resulted from policies entered into prior to the Company’s voluntary withdrawal from writing new business in September 2005, due to the unauthorized discharge of certain mortgages, resulting in a loss of regulatory capital (see Note 9).

The Company earned 88% and 91% of its net earned written premiums from three customers for the nine and three months ended January 31, 2006, respectively.

4. SECURED CONVERTIBLE NOTE RECEIVABLE

On December 14, 2005, the Company and Holding concluded a Capital Investment transaction outlined in the binding letter agreement entered into on October 25, 2005 (the “Master Investment Agreement”) with Grupo Lakas S.A., a Panamanian corporation (“Grupo Lakas” or "Investor"), Panama Peat S.A., a Panamanian corporation (“Panama Peat”) and Changuinola Peat S.A., a Panamanian corporation. Pursuant to the Master Investment Agreement, Grupo Lakas made an investment with a face value of $700,000,000 (the “Investment”) in Holding by issuing to Holding, a promissory note in the original principal amount of $700,000,000 (the “Note”). In consideration for making the investment in Holding, Holding has issued to Grupo Lakas, Series D Preferred stock ("Series D Preferred") (see Note 9).

The obligations of Grupo Lakas under the Note are secured by bearer peat certificates (the “Peat Certificates”) representing the right to obtain peat, a pre-coal stage organic material used as energy or for horticultural use, from the Changuinola Peat Deposit of Northwestern Panama. The peat has an estimated value within a range of $760 million to $1.71 billion. The value of the peat was based on a report prepared by independent third party experts. The range represents the fact that there are several viable market channels that are possible to market the peat. The Peat Certificates were issued by Panama Peat and pledged to Holding by Grupo Lakas.

The Note is due and payable on December 15, 2015 and bears a nominal rate of interest of 3% per annum. Holding valued the Note under the provisions of APB No. 21 "Interest on Receivables and Payables", which states in part that the rate of interest of a transaction should approximate the rate which would have resulted if an independent borrower and an independent lender had negotiated a similar transaction under comparable terms and conditions. The Company determined that the appropriate rate of interest should be 5.76%, which approximates LIBOR plus 1% at the date of issuance. As such, the Note was initially valued at $531.3 million. The discount on the Note is being accreted over the term of the Note.

The Note provides that at any time and from time to time, the Company (and its assigns) shall have the right, in the sole discretion thereof, to convert (the “Conversion Right”) the Peat Certificates and/or the underlying peat constituting collateral for the Note to cash proceeds, such cash proceeds to be applied as a deemed prepayment of the outstanding principal balance of, and accrued interest on, the Note (and such amounts shall be applied to either the outstanding interest or principal balance, as determined by the Company in its sole discretion). The Company (or its assigns) may from time to time, at its sole discretion, sell or assign one or more of the Peat Certificates, and/or may mine, or cause to be mined, all or any of the peat evidenced by any such Peat Certificate, in accordance with the terms of the relevant Peat Concession.

The Company has classified the Note received for the issuance of preferred stock as an asset. The classification of the secured note receivable is dependent upon the adequacy of the underlying collateral. The note receivable is classified as an asset in the Company’s balance sheet as the Company has received a security interest in the peat certificates and underlying collateral and the fair value of the peat certificates and/or the underlying fair value of the peat is equal to or greater than the value of the secured Note.

Holding has agreed to contribute the assets underlying the Note to SIL, a subsidiary of Holding, in an effort to increase the statutory and regulatory capital base of SIL. The management of SIL believes that the assets underlying the Note qualify as additional capital for SIL under the Barbados Exempt Insurance Act. The original Master Investment Agreement requires SIL, within sixty (60) days from the execution and delivery of the Letter Agreement, to make an application to the Barbados Supervisor of Insurance and Finance (the "Supervisor") for a ruling confirming the same. Such application was made in February 2006 but the Supervisor has yet to rule on the application. The Agreement called for the Company to pay a facility activation fee of $2,000,000 to Grupo Lakas (or its designees) in the event of the regulatory approval within ninety (90) days of such approval. The Original Master Agreement further provided that in the event the Supervisor does not provide a favorable ruling within ninety (90) days from the submission of the application by SIL, then all transactions contemplated under the Master Investment Agreement will unwind.

On March 23, 2006, the Master Investment Agreement was amended by the Company and Grupo Lakas, waiving the condition of the regulatory approval of the Supervisor. In consideration of the amendment, the parties have agreed to provide that the facility activation fee of $2,000,000 shall be paid, regardless of regulatory approval, as follows - (a) $250,000 within 48 hours of the execution of the amendment and (b) the remaining $1,750,000 to be paid in full within sixty (60) days of the execution of the amendment. As a result, the facility activation fee has been accrued and offset against the value of the Series D Preferred (see Note 9).

As additional consideration for the Investment, the Company issued a warrant to Grupo Lakas (or its assigns) for the purchase of shares of the common stock of the Company pursuant to the terms of a warrant agreement (the "Warrant") (see Note 9).

5. MORTGAGE NOTES RECEIVABLE

Mortgage activity for the nine months ended January 31, 2006 is as follows:

The Company has mortgages with a real estate developer as follows:

A mortgage note (“Mortgage”) for up to a maximum of $23,500,000. Advances taken under the Mortgage bear interest at 3% over prime with a minimum of 8% and are secured by the property. Advances totaling approximately $19,600,000 were taken under the Mortgage. Interest is payable quarterly and the principal is due and payable on August 30, 2008.

A mortgage note in the amount of $9,500,000. The mortgage bears interest at 3% over prime with a minimum of 8% and is secured by the property. Interest is payable quarterly and the principal is due and payable on April 5, 2009.

Second mortgage notes of $8.275 million, $6.625 million and $3.5 million, totaling $18,400,000, issued on January 26, 2006 to three entities (see Note 7). The mortgages bear interest at a rate of 15% per annum and are secured by the respective properties. Interest is payable quarterly and the principal is due and payable in April 2010. The three notes also provide for partial pay downs upon the sale of time share units of each project. There also are exit fees of $4,000,000, $3,375,000 and $1,725,000, respectively, required to be paid to the Company above the principal amounts of the notes. Each note also provides that the Company will receive 45% of any excess profits over and above these amounts on an individual project basis.

The Company has a mortgage with another real estate developer in the amount of C$2,700,000 ($2,352,510 at January 31, 2006). The mortgage bears interest at the rate of 10% per annum and is secured by the property. Principal is due and payable on November 24, 2007.

In February 2006, mortgage notes receivable totaling $6,230,807 were repaid.

6. MORTGAGE NOTES RECEIVABLE - RELATED PARTIES

On October 27, 2004, mortgages were issued to two entities that are controlled by an individual with voting powers for a stockholder. The mortgages total $8,000,000, bear interest at a rate of 13.2% per annum and are secured by the respective properties. Interest is payable monthly and the principal is due on demand. The notes have been classified as long-term as it is management’s intent not to demand payment in the next twelve months.

At January 31, 2006 and April 30, 2005, mortgage notes receivable amounted to $8,000,000. Mortgage interest receivable amounted to $1,341,177 and $542,667 at January 31, 2006 and April 30, 2005, respectively. Interest income earned amounted to $798,510 and $225,666 for the nine months ended January 31, 2006 and 2005, respectively, and $266,170 and $225,666 for the nine and three months ended January 31, 2006 and 2005, respectively.

At April 30, 2005, the entities were in default of the mortgages as they were not making interest payments as required. The Company agreed to defer such receipts at that time. As the Company has not received any interest payments since the issuance of the notes, the Company has classified the interest receivable as long-term at January 31, 2006.

7. LONG-TERM DEBT

The Company has a mortgage note (“Mortgage”) for up to a maximum of $23,500,000. Advances taken under the Mortgage bear interest at 3% over prime with a minimum of 8% and are secured by the property. Advances totaling $22,500,000 were taken under the Mortgage in the nine months ended January 31, 2006. In addition, $1 million of other promissory notes were refinanced under this Mortgage. Interest is payable quarterly and principal is due and payable on August 30, 2008.

During this quarter, the Company entered into a loan agreement ("Agreement") with a private investment company, to obtain financing in the amount of $29,000,000, the proceeds of which were primarily to be utilized to fund $18,400,000 for second mortgage financing for three properties (see Note 5). As of January 31, 2006, the Company received $18,400,000 of the loan proceeds. The Agreement provides that the loans will bear interest at the rate of 10% per annum, payable semi-annually beginning in July 2006 until maturity on or before January 24, 2009. The principal is due on January 24, 2009. The Agreement also calls for the funding of $5,800,000 interest reserve, $2,741,250 for an insurance securitization the Company is obligated to provide and $2,058,750 for fees and working capital to the Company. To date, the Company has received $20,458,750. The Agreement also provides that an affiliate of the private investment company will receive a fee equal to $9,000,000 on a priority basis from the proceeds the Company receives, after the Company receives $31,900,000 from the three projects the Agreement is funding.

In February 2006, mortgage notes totaling $5,000,000 were repaid.

8. RELATED PARTY TRANSACTIONS

Due from Related Parties

1. As part of the Shareholders Agreement with ForestRe (see Note 1), The Company has provided ForestRe with a line of credit up to a maximum of $2,000,000. Advances against the line may be taken from February 1, 2005 through January 31, 2006. The advances bear no interest and are payable based on positive accumulated cash flow of the affiliate as determined by the affiliate’s board of directors but no later than December 31. 2010.

As ForestRe was acquired during the nine months ended January 31, 2006, any monies owed to the Company would eliminate in consolidation. At April 30, 2005, amounts owed to the Company under the line totaled $244,559.

2. The Company has advanced monies to Lux Group, Inc. (“Lux”). Lux is a related entity as two individuals with voting powers for two stockholders own approximately 32% of Lux. At January 31, 2006 and April 30, 2005, Lux owed the Company $362,641 and $11,490, respectively.

3. The Company has received notes from Reliant Warranty Home Corp. (“Reliant”). The notes bear interest at a rate of 10% per annum. Interest and principal are due on demand. At January 31, 2006, Reliant owed the Company $147,100.

4. The Company made cash advances to and received cash advances from RS Group of Companies, Inc. ("RS Group"), a related entity with which the Company has entered into a letter agreement to acquire (see Note 11). In addition, the Company signed a consulting agreement relating to the Grupo Lakas Investment (see Notes 4 and 9), whereby the Company agreed to pay the lesser of 2% of the Investment or $10,000,000. A $10,000,000 fee was recorded as a cost of issuance and charged against the value of the Series D Preferred stock. In 2005, the Company paid a $3,000,000 commission in connection with the placement of financial guarantee insurance for the repayment of dividends and the liquidation preference of Redeemable Insured Series A Preferred of Strategy Real Estate Investments Ltd. At January 31, 2006 and April 30, 2005, the Company owed $6,428,929 and $206,433, respectively.

Note and Loans Payable - Related Party

Note and loans payable - related party consists of the following from an individual with voting powers for one of the Company's stockholders:

1. A 5% promissory note in the amount of $275,000 issued in November 2004. Principal and interest are due on demand.

2. Advances totaling $2,041,753. The advances are due on demand and bear interest at a rate of 5% per annum.

Interest expense amounted to $68,918 and $2,901 for the nine months ended January 31, 2006 and 2005, respectively, and $58,521 and $2,901 for the three months ended January 31, 2006 and 2005, respectively. At January 31, 2006 and April 30, 2005, accrued interest amounted to $75,219 and $6,302, respectively.

Long-term Debt - Related Party

Long-term debt - related party consists of a promissory note issued in July 2005, bearing interest at prime, in the amount of $1,250,000, issued to a corporation controlled by an individual with voting powers for one of the Company's stockholders. Interest is payable quarterly and principal is due and payable on or before July 14, 2008.

For the nine and three months ended January 31, 2006, interest expense amounted to $33,855 and $15,625, respectively. At January 31, 2006, accrued interest amounted to $33,855.

9. STOCKHOLDERS’ EQUITY (DEFICIENCY)

Redeemable Insured Series A Preferred - Strategy Real Estate Investments Ltd. (“SREI”)

The Series A Preferred shares pay dividends at an annual rate of ten percent (10%), which shall be paid quarterly. Upon the occurrence of certain events of default (as set forth in the Articles of Incorporation of SREI), the Series A liquidation preference and all accrued and unpaid dividends thereon shall become immediately payable. The Series A Preferred will be subject to mandatory redemption by SREI in November 2007 at the full liquidation preference, net of all appropriate Canadian withholding and income tax, plus all accrued and unpaid dividends.

Subject to certain exceptions, payments of the liquidation preference and all dividends up to a maximum of $65 million is insured with an insurance company with an "A-" rating by AM Best’s over the three (3) year period they will be outstanding pursuant to a Contingent Guarantee Policy. The insurance company then reinsured its risk to the Company. The insurance company remains primarily liable to the Series A preferred shareholders for payment of the liquidation preference and dividends as per the Contingent Guarantee Policy terms, however the Company would be obligated under the reinsurance contract to repay the insurance company for any claim losses incurred. In addition, the Company, Holding and SIL have guaranteed payment of the dividends and liquidation preference.

In connection with the sale of Series A Preferred, the Company recorded the allocated gross proceeds of $41,325,000 as long-term debt in accordance with SFAS 150 “Accounting for Equity Instruments with Both Debt and Equity Characteristics”. In addition, the Company allocated issuance costs of $3,391,195 against such proceeds. Such costs are being amortized over thirty-six (36) months, the term of the Series A Preferred. Amortization of finance costs amounted to $653,985 and $217,995 for the nine and three months ended January 31, 2006, respectively, and $181,663 and $181,663 for the nine and three months ended January 31, 2005, respectively.

The liquidation preference of the Series A Preferred is $50,000,000. The difference between the liquidation preference and the allocated gross proceeds ($8,675,000) is being amortized over thirty-six (36) months, the term of the Series A Preferred. The accretion amounted to $2,168,751 and $722,917 for the nine and three months ended January 31, 2006, respectively, and $602,431 and $602,431 for the nine and three months ended January 31, 2005, and is recorded as a deemed dividend.

See Note 10 relating to litigation on this matter.

Series B Preferred - SREI

Each share of Series B Preferred of SREI entitles its holder to receive a pro rata share of five percent (5%) of the gross sales (the "Gross Sales Interest") from each of the five (5) SPEs in which SREI invests. Payments of the Gross Sales Interest shall be made from time to time after the sale of each project by the SPEs to a third party for monetary consideration. SREI will receive the Gross Sales Interest (which will be paid out to the holders of shares of Series B Preferred) pursuant to Participation Agreements between SREI and each of the five (5) SPEs. The shares of Series B Preferred of SREI are not redeemable and they will continue to receive the Gross Sales Interest for as long as they are outstanding. No dividends (other than payment of the Gross Sales Interest) will be payable on the shares of Series B Preferred. The Company, Strategy Holding Company Limited and Strategy Insurance Limited have guaranteed payment of the Gross Sales Interest.

See Note 10 relating to litigation on this matter.

Preferred Stock - Strategy Insurance Limited (“SIL”)

In February 2004, SIL issued 47,670 shares of non-voting 10% Cumulative Class A Preference Shares Series 1 having a redemption value of forty-seven million six hundred and seventy thousand and eighty-four dollars ($47,670,084.00) and 56,561.5 shares of non-voting 10% Cumulative Class B Preferred Stock having a redemption value of Fifty-Six Million Five Hundred and Sixty One Thousand Five Hundred and Twenty-Six dollars ($56,561,526.00), and received mortgage notes receivable totaling CAN$139,600,000 in consideration for these issuances.

Notes Receivable - Subscriptions

In February 2004, the Company received, as consideration for its issuance of both the SIL Class A and Class B 10% cumulative preferred stock, 2.5% mortgage notes totaling CAN$139,500,000. Interest is payable quarterly and the principal is due on March 31, 2014.

During August 2005, the Company became aware that the mortgages underlying these notes were discharged in October 2004 without the Company’s knowledge, consent or without receiving consideration. As a result of the discharges, the notes became unsecured. As such, generally accepted accounting principles requires that the notes receivable be reflected as contra-equity rather than as assets. The Company believes it has a cause of action to seek a legal remedy to recover the value of the notes receivable and is currently in the process of considering such an action subject to the availability of funds for legal costs.

At both January 31, 2006 and April 30, 2005, notes receivable - subscriptions amounted to $104,231,610. The Company has not received any interest payments on the 2.5% mortgages through January 31, 2006.

See Note 10 relating to litigation on this matter.

Preferred Stock - Strategy Holding Company Limited (“Holding”)

As described in Note 4, the Company and Holding concluded a Capital Investment transaction with Grupo Lakas et al. Pursuant to the Master Investment Agreement, Grupo Lakas made an investment with a face value of $700,000,000 in Holding by issuing a Note in the original principal amount of US$700,000,000. In consideration for making the Investment, Holding has issued to Grupo Lakas, Series D Preferred.

The Series D Preferred pays (i) a dividend payable out of realized profits or surplus of Holding at an annual rate of 3.43% ($24,000,000) per annum, which will accrue and be payable on the last day of June and December in each year, commencing on June 30, 2006; and (ii) an additional dividend equal to 12% of the gross premium written by Strategy Insurance Limited ("SIL"), a subsidiary of Holding, above $200,000,000, provided that such additional dividend will not exceed $60,000,000 in any year.

The Series D Preferred was valued at the net discounted value of the Note, $531,300,000, net of issuance costs of $13,429,851. Issuance costs include a charge of $10,000,000 under a consulting agreement with a related entity whereby the Company agreed to pay the lesser of 2% of the Investment or $10,000,000 (see Note 8).

Separately, the Letter Agreement provides that, in connection with the Investment, for as long as more than 50% of the Preferred Stock remains outstanding, the holder of the Preferred Stock will be entitled to appoint two directors to the Company’s board of directors.

Common stock

On January 10, 2006 the Company entered into a Letter of Intent with Nexxus One Holding Ltd. ("Nexxus"), a Switzerland based private financial services firm, under which Nexxus agreed to provide $100 million in new equity capital.

Under the terms of the letter, the Company will issue 1,030,000 shares of its common stock in exchange for Nexxus issuing an investment grade NAIC equity admissible bond in the amount of $100 million. This bond will be a five-year 5.5% Global Note issued by Nexxus One Capital Trust of Switzerland, secured by a diversified portfolio of AA/AAA rated municipal bonds. The Company and Nexxus agree to use their best efforts to complete the transaction in a timely manner.

As part of the transaction the Company issued Nexxus 1,030,000 shares of common stock as a commitment fee. The shares were valued at $309,000. In addition, the Company paid Nexxus a fee of $100,000 for costs relating to the proposed transaction. Total costs of $409,000 have been reflected as deferred issuance costs and included in other assets in the balance sheet.

The Letter of Intent was amended on February 23, 2006 to provide that the Companies will use their best efforts to complete the transaction by March 31, 2006.

Warrants

Unit Sale - SREI

Warrants to purchase 29,992,202 shares of common stock were sold as part of the sale of Units. The warrants expire on November 16, 2007. Each warrant allows its holder to exercise the warrant into a number of shares of common stock equal to the quotient obtained by dividing (a) the liquidation preference of the Series A Shares owned by such investor plus any accrued and unpaid dividends thereon by (b) the then applicable set price. The initial set price is $1.6671.

We are obligated to register for resale the shares of common stock issuable upon exercise of the warrants pursuant to a registration rights agreement dated November 16, 2004 between the registrant and the purchasers named therein. Pursuant to the registration rights agreement, we are subject to liquidated damages, payable in cash to each purchaser as follows:

A penalty equal to .75% per month with .25% payable in cash at month end and .50% deferred. The penalty began accruing April 1, 2005. The registration penalty for the months of April 2005 through January 2006 amounted to $3,375,000 and such amount has been accrued. The cash portion of the penalty for the months of April 2005 through August 2005 totaling $625,000 was paid.

The deferred monthly penalty is payable on December 31, 2005 but such payment has not been made.

This agreement expired January 31, 2006.

See Note 10 relating to litigation on this matter.

Grupo Lakas

As described in Note 4, the Company issued to Grupo Lakas or its assigns, a Warrant to acquire 6,944,009 shares of our common stock at an exercise price of $1.75 per share. The Warrant was valued at $1,412,851 using the Black-Scholes model. Grupo Lakas may exercise the Warrant at any time after the date on which the Company shall have effected an increase of its authorized shares of common stock by at least 6,950,000, to provide for an authorized number of shares adequate to issue up to 6,944,009 of voting, fully paid and nonassessed shares of the common stock of the Company, until 5:00 p.m., E.S.T. on the second anniversary of the date of such increase. The Company agreed that the Investor will have a right to demand registration of shares of the common stock underlying the Warrant if such shares are not registered within one (1) year from their issuance date.

Maxim Group, LLC

In connection with a consulting agreement with Maxim Group, LLC effective on January 18, 2005, the Company issued 500,000 warrants exercisable at $2.00. All warrants expire on January 17, 2010. The warrants were valued at $375,560. Such amount was recorded as deferred compensation and is being amortized over the life of the consulting agreement. For the nine and three months ended January 31, 2006, stock-based compensation amounted to $266,022 and $78,242, respectively, and $14,889 and $14,889 for the nine and three months ended January 31, 2005, respectively.

10. CONTINGENCIES

Litigation

During February 2006, the Company, SREI and individual officers of the Company and its subsidiaries were named in a complaint filed by individual investors of SREI (the "Complaint"). The Complaint was filed in the US District Court Southern District of New York and alleges amongst other things, misrepresentation on behalf of the Company and individuals to induce the investors into investing $50,000,000 in Series A Preferred and Series B Preferred shares of SREI during November 2004. The Complaint further charges that the Company filed and reported financial statements that they knew were materially misrepresented, that the Company failed to have effectively registered the shares of common stock underlying the warrants issued as part of their investment and other charges of misrepresentation or failure to disclose information.

The controversy surrounding this matter stems from information obtained by the investors in the Company's Form 10-KSB filed on September 16, 2005 for the year ended April 30, 2005. The Company disclosed in this filing that on or about August 2005, we first became aware that the mortgages underlying the February 2004 capital investment of $104 million were erroneously discharged during October 2004, prior to the SREI investment. The Complaint alleges that the Company knowingly withheld this information.

The Company believes that we have complied with all regulatory reporting requirements, and that we are not in default of any material aspect of the agreement. It is further our understanding and belief that many of the allegations against the individuals as contained in the complaint are either immaterial or factually inaccurate and misleading.

The Company denies these allegations, and disputes the charges relating to the registration statement and other assertions and intends to vigorously defend this matter. The Company has retained council on this matter and intends to file an answer to the Company by its required date of April 30, 2006.

In June 2005, HH Hairspray, LLC (“Hairspray”) filed a lawsuit against us in the Circuit Court of the 15^th Judicial Circuit in and for Palm Beach, Florida, for breach of contract relating to a Loan, Security and Pledge Agreement (the “Loan Agreement”), dated as of March 31, 2005, between Hairspray, LLC and Strategy Resort Financing, Inc. (“Strategy Finance”), one of our subsidiaries. SIL, another one of our subsidiaries, are also named in the lawsuit. The complaint alleges that Strategy Finance breached an implied representation that it had the financial capability to fund $6,900,000 to Hairspray, as called for by the Loan Agreement, and that we allowed Strategy Finance to so represent. In the complaint, Hairspray alleges that the full amount was not received and demands judgment for damages, costs and fees and specific performance. The lawsuit was settled in February 2006, whereby the Company issued 100,000 shares of common stock. The shares were valued at $30,000. Such amount has been accrued and is included in accounts payable and accrued liabilities.

John Lepire and Ludger Limited, LLC (together, the “Plaintiffs”) initially sued a number of defendants, including, one of the brokers we work with namely Aon Corporation, without naming our company as a defendant, in the Superior Court of California, County of Los Angeles, in July 2004. In March 2005 the Plaintiffs filed an amendment to their original complaint identifying our company as a defendant. That complaint includes causes of action for unfair competition, wrongful termination, conversion, fraud, breach of contract, breach of implied covenant of good faith and fair dealing, breach of fiduciary duty, negligent misrepresentation, intentional misrepresentation, misappropriation of trade secrets and injunctive relief. The Plaintiffs allege that they created an insurance product called “SafeLease” and that the defendants infringed the rights of the Plaintiffs in that product through sales and marketing of products that Plaintiffs consider substantially similar or identical to SafeLease. The complaint seeks injunctive relief and unspecified monetary damages. This case is currently in its discovery phase. A trial date has not yet been set for this case. We intend to vigorously defend the allegations made in this complaint. Our management believes that the Plaintiff’s allegations are without merit.

There is no other pending litigation or other material claims or actions that we are aware of.

11. PROPOSED ACQUISITION

On December 31, 2005, the Company entered into a letter agreement (the “Agreement”) with RS Group, pursuant to which the Company confirmed its intent to enter into a merger transaction. In such transaction, RS Group will merge with and into the Company or an affiliate, subsidiary or successor entity thereof (the “Merger Entity”), whereby the Merger Entity would be the surviving entity in the merger (the “Merger”). The Agreement contemplates that each of the holders of issued and outstanding stock of RS Group of any and all classes (“RS Stock”) will receive in the Merger, in exchange for every three shares of RS Stock held thereby, two shares of common stock of the Merger Entity (“Merger Stock”). Any and all issued and outstanding subscriptions, options, warrants, rights, calls, commitments, conversion rights, rights of exchange, plans or other agreements of any character providing for the purchase, issuance, transfer or sale of any stock or other any equity securities (“Equity Rights”) of RS Group will be exchanged for comparable Equity Rights of the Merger Entity, based on the same exchange of three shares (or right to acquire shares) of RS Stock for two shares of Merger Stock. The consummation of the Merger is subject to the negotiation and execution of a definitive merger agreement and other definitive documents provided for in the Agreement, and the satisfaction of the closing conditions specified therein, including receipt of satisfactory fairness opinions.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the information contained in our condensed consolidated financial statements and the notes thereto appearing elsewhere in this quarterly report, and in conjunction with the Management's Discussion and Analysis set forth in (1) our annual report on Form 10-KSB for the year ended April 30, 2005, which we filed with the Commission on September 16, 2005 (which is also being incorporated by reference herein) (such report, the “2005 Annual Report”), and (2) our quarterly report on Form 10-QSB for the quarter ended January 31, 2006. Specific reference is made to the 2005 Annual Report with respect to all information in the 2005 Annual Report which is referred to in this quarterly report.

As used in this quarterly report, the terms “we”, “us”, “our”, “Strategy International”, the “Company” or “our company” refer to Strategy International Insurance Group, Inc., a Texas corporation.

Preliminary Note Regarding Forward-Looking Statements

This quarterly report and the documents incorporated herein by reference contain forward-looking statements within the meaning of the federal securities laws, which generally include the plans and objectives of management for future operations, including plans and objectives relating to our future economic performance and our current beliefs regarding revenues we might earn if we are successful in implementing our business strategies. The forward-looking statements and associated risks may include, relate to or be qualified by other important factors. You can identify forward-looking statements generally by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “intends,” “plans,” “should,” “could,” “seeks,” “pro forma,” “anticipates,” “estimates,” “continues,” or other variations of those terms, including their use in the negative, or by discussions of strategies, opportunities, plans or intentions. You may find these forward-looking statements in this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, as well as throughout this quarterly report. A number of factors could cause results to differ materially from those anticipated by forward-looking statements.

These forward-looking statements necessarily depend upon assumptions and estimates that may prove to be incorrect. Although we believe that the assumptions and estimates reflected in the forward-looking statements are reasonable, we cannot guarantee that we will achieve our plans, intentions or expectations. The forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ in significant ways from any future results expressed or implied by the forward-looking statements.

Any of the factors described in this quarterly report, including in this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, as well as in our 2005 Annual Report, could cause our financial results, including our net income (loss) or growth in net income (loss) to differ materially from prior results, which in turn could, among other things, cause the price of our common stock to fluctuate substantially. We base the forward-looking statements on information currently available to us, and we assume no obligation to update them.

In addition, readers are also advised to refer to the information contained in our filings with the Commission, especially on Forms 10-KSB, 10-QSB and 8-K, in which we discuss in more detail various important factors that could cause actual results to differ from expected or historic results. It is not possible to foresee or identify all such factors. As such, investors should not consider any list of such factors to be an exhaustive statement of all risks and uncertainties or potentially inaccurate assumptions.

Overview

Strategy International is a holding company of wholly-owned subsidiaries in insurance and related financing, real estate and energy areas. Strategy International’s predominant subsidiary is Strategy Insurance Limited ("SIL"), a Barbados company, an integrated, international provider of specialty lines of insurance, reinsurance and structured risk solutions, focusing on credit enhancement, contingency, liability and other specialty insurance and reinsurance. Strategy International has developed and intends to continue its efforts to develop the practice of introducing credit insurance programs in other areas, including construction and real estate development. SIL is a wholly-owned subsidiary of Strategy Holding Company Limited ("Strategy Holding"), a Barbados company, which in turn is a direct wholly-owned subsidiary of Strategy International. SIL received an Exempt Insurance License from the Ministry of Finance, Barbados, West Indies, on March 25, 2004, which authorizes SIL to engage in the following classes of insurance business from within Barbados:

General insurance business;

Credit insurance;

Liability insurance;

Mortgage indemnity insurance;

Rental guarantee insurance; and

Reinsurance.

The license is subject to annual renewal and has been renewed through December 31, 2006.

As we disclosed in our 2005 Annual Report, there was an improper discharge of the mortgages underlying the mortgage notes receivable in the amount of approximately $104 million. Such mortgages were issued in connection with the initial capitalization of Strategy Holding and then transferred to SIL (see Note 9 of the Financial Statements). Until SIL receives regulatory approval for the capital investment transaction which the Company concluded in December 2005, it will not write new insurance business on either an individual or program basis. However, our underwriting business should be unaffected by the above recent developments.

On December 14, 2005, the Company and Strategy Holding concluded a Capital Investment transaction outlined in the binding letter agreement entered into on October 25, 2005 (the “Master Investment Agreement”) with Grupo Lakas S.A., a Panamanian corporation (“Grupo Lakas” or "Investor"), Panama Peat S.A., a Panamanian corporation (“Panama Peat”) and Changuinola Peat S.A., a Panamanian corporation. Pursuant to the Master Investment Agreement, Grupo Lakas made an investment with a face value of $700,000,000 (the “Investment”) in Strategy Holding by issuing to Strategy Holding, a promissory note in the original principal amount of $700,000,000 (the “Note”). In consideration for making the investment in Strategy Holding, Strategy Holding has issued to Grupo Lakas, Series D Preferred stock ("Series D Preferred").

The Series D Preferred pays (i) a dividend payable out of realized profits or surplus of Strategy Holding at an annual rate of 3.43% ($24,000,000) per annum, which will accrue and be payable on the last day of June and December in each year, commencing on June 30, 2006; and (ii) an additional dividend equal to 12% of the gross premium written by SIL above $200,000,000, provided that such additional dividend will not exceed $60,000,000 in any year.

The Note is due and payable on December 15, 2015 and bears interest at a rate of 3% per annum. The Note provides that at any time and from time to time, the Company (and its assigns) shall have the right, in the sole discretion thereof, to convert (the “Conversion Right”) the Peat Certificates and/or the underlying peat constituting collateral for the Note to cash proceeds, such cash proceeds to be applied as a deemed prepayment of the outstanding principal balance of, and accrued interest on, the Note (and such amounts shall be applied to either the outstanding interest or principal balance, as determined by the Company in its sole discretion). The Company (or its assigns) may from time to time, at its sole discretion, sell or assign one or more of the Peat Certificates, and/or may mine, or cause to be mined, all or any of the peat evidenced by any such Peat Certificate, in accordance with the terms of the relevant Peat Concession.

Strategy Holding has agreed to contribute the assets underlying the Note to SIL in an effort to increase the statutory and regulatory capital base of SIL. The management of SIL believes that the assets underlying the Note qualify as additional capital for SIL under the Barbados Exempt Insurance Act. The original Master Investment Agreement requires SIL, within sixty (60) days from the execution and delivery of the Letter Agreement, to make an application to the Barbados Supervisor of Insurance and Finance (the "Supervisor") for a ruling confirming the same. Such application was made in February 2006 but the Supervisor has yet to rule on the application. The Agreement called for the Company to pay a facility activation fee of $2,000,000 to Grupo Lakas (or its designees) in the event of the regulatory approval within ninety (90) days of such approval. The original Master Agreement further provided that in the event the Supervisor does not provide a favorable ruling within ninety (90) days from the submission of the application by SIL, then all transactions contemplated under the Master Investment Agreement will unwind.

As additional consideration for making the Investment, we agreed to issue to Grupo Lakas or its assigns warrants to acquire approximately 7 million shares of our common stock, exercisable for a period of two (2) years from the issue date at an exercise price of $1.75 per share. We agreed that the Investor will have a right to demand registration of shares of our common stock underlying the warrants if such shares are not registered within one (1) year from their issuance date.

SIL operates through its underwriting office in Barbados and through its two wholly-owned subsidiaries which provide marketing and administrative support, Strategy Insurance (Canada) Limited based in Toronto, Canada, and Strategy Underwriting Agency Limited, based in London, England. SIL received its first premium income in September 2004.

On June 24, 2005, through SIL, the Company concluded a Shareholders Agreement with ForestRe (Holdings) Limited, (“ForestRe”), a private consulting firm registered in England and Wales, and certain stockholders of ForestRe (the “Stockholders”), pursuant to which the Company and the Stockholders agreed to cooperate in the management and development of an underwriting agency specializing in the provision of insurance for environment related concerns with specific interest in the coverage of standing timber, called ForestRe Limited. The Company provides the underwriting capacity to support the insurance program and the Stockholders provide the expertise in the class of business. As part of this transaction, we acquired a 60% ownership interest in ForestRe in consideration for GBP20,000 ($36,096) through SIL and a working capital loan facility.

As a result, in addition to its wholly-owned subsidiaries, SIL currently has a majority ownership in ForestRe, which is based in London, England. The ForestRe team has been underwriting in this area for several years and includes some of the world’s authorities in forestry risk assessment, financing and insurance. We expect that the insurance offered by ForestRe will help drive investment into forestry by reducing risk for owners, banks and investors.

Other businesses of the Company include the following:

Strategy Energy Corporation, a corporation incorporated in the Province of Ontario, Canada, is involved in the financing and evaluation of alternative energy projects. Strategy Energy’s primary technology focus is on wind farms, biomass facilities and large-scale solar energy production with a secondary focus on small-scale hydro plants.

Strategy Investments, LLC, a Florida limited liability company, has been established to provide financing to the travel and leisure industries.

Strategy Resort Financing, Inc. is a Florida corporation and our subsidiary, which has provided financing of approximately $67 million to three timeshare projects, two in the United States and one in Canada. See the “Liquidity and Capital Resources” section for a more detailed discussion.

Proposed Acquisition

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. As such, some accounting policies have a significant impact on the amounts reported in these financial statements. A summary of those significant accounting policies can be found under the heading “The Company and Summary of Significant Accounting Policies” in our consolidated audited financial statements included in Item 7 of our 2005 Annual Report.

The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Management periodically evaluates the estimates and judgments made. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions.

We have identified below certain critical accounting policies that affect the more significant judgments and estimates used in the preparation of our consolidated financial statements and are thus most important to the portrayal of our current financial condition and results of operations.

(a)

Revenue Recognition

Income on premiums will be recognized as written upon inception of the policy. For multi-year policies written which are payable in annual installments, due to the ability of the insured/reinsured to commute or cancel coverage within the term of the policy, only the annual premium will be included as written at policy inception. The remaining annual premiums will be included as written at each successive anniversary date within the multi-year term.

Premiums written will be primarily earned on a daily pro-rata basis over the terms of the policies to which they relate. Accordingly, unearned premiums will represent the portion of premiums written which is applicable to the unexpired portion of the policies in force. Reinsurance premiums assumed will be estimated based on information provided by ceding companies. The information used in establishing these estimates is reviewed and subsequent adjustments are recorded in the period in which they are determined. These premiums are earned over the terms of the related reinsurance contracts.

(b)

Policy Acquisition Costs

Policy acquisition costs will consist of commissions, premium taxes, underwriting and other costs that vary with and are primarily related to the production of premiums. Acquisition costs are deferred and amortized over the period in which the related premiums are earned. To the extent that future policy revenues on existing policies are not adequate to cover related costs and expenses, deferred policy acquisition costs will be charged to earnings.

The Company will consider anticipated investment income in determining whether a premium deficiency exists.

(c)

Claims Reserve

Unpaid losses and loss expenses will consist of a provision for outstanding losses and loss expenses and a provision for losses incurred but not reported (IBNR). As with premiums, current year losses will be as reported. Provisions for outstanding losses and loss expenses are valued on claim adjusters’ evaluations, with additional provisions made where the ceding company’s management considers necessary. The IBNR component of the reported losses is established by ceding company management in consultation with its actuaries based on a combination of company and industry data.

A liability will be established for the estimated unpaid losses and loss expenses of the Company under the terms of, and with respect to, its policies and agreements.

The process of establishing reserves is a complex and imprecise process, requiring the use of informed estimates and judgments. Estimates and judgments may be revised as additional experience and other data become available and are reviewed, as new or improved methodologies are developed or as current laws change. Any such revisions could result in future changes in estimates of losses or reinsurance recoverable, and would be reflected in the Company’s results of operations in the period in which the estimates are changed.

Reported losses and loss expenses on direct business will be valued on claim adjusters’ evaluation, with additional provisions made where management considers these necessary. The IBNR provision is primarily established by management in conjunction with the consulting actuaries based on the application of a combination of company and industry data. Any difference between the estimated amounts and the actual settlements will be reflected in the results of the year in which they are determined.

Future developments may result in losses and loss expenses significantly greater or less than the reserve provided.

(d)

Restricted Cash

Restricted cash represents funds to be invested in special purpose residential real estate properties (“SPEs”) in Canada, being developed by the Lux Group Inc. (“Lux”).

(e)

Stock-Based Compensation

(f)

Recent Accounting Pronouncement

In May 2005, the FASB issued FASB Statement No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements” (“SFAS 154”). SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. SFAS 154 also provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. The provisions of SFAS 154 are effective for accounting changes and corrections of errors made in fiscal periods beginning after December 15, 2005. The adoption of the provisions of SFAS 154 is not expected to have a material impact on the Company’s financial position or results of operations.

In March 2005, the Securities and Exchange Commission announced that the compliance date for non-accelerated filers pursuant to Section 404 of the Sarbanes-Oxley Act have been extended. Under the latest extension, a company that is not required to file its annual and quarterly reports on an accelerated basis must begin to comply with the internal control over financial reporting requirements for its first fiscal year ending on or after July 15, 2006. The Commission similarly has extended the compliance date for these companies relating to requirements regarding evaluation of internal control over financial reporting and management certification requirements. The Company will be required to comply with Section 404 of the Sarbanes-Oxley Act beginning on May 1, 2007.

(g)

Interim Presentation

The April 30, 2005 balance sheet data was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. In the opinion of management, the accompanying unaudited financial statements contain all normal and recurring adjustments necessary to present fairly the financial position of the Company as of January 31, 2006, its results of operations for the three and the nine months ended January 31, 2006 and 2005 and its cash flows for the three and the nine months ended January 31, 2006 and 2005.

The statements of operations for the three and the nine months ended January 31, 2006 and 2005 are not necessarily indicative of the results for the full year.

Results of Operations for the Three Months Ended January 31, 2006 and 2005

The following is a discussion and analysis of our results of operations for the above periods:

Revenues

Net Earned Written Premiums

Net earned written premiums for the three months ended January 31, 2006 ("Fiscal 2006") amounted to $869,031 compared to $1,512,087 for the three months ended January 31, 2005 ("Fiscal 2005"), a decrease of $643,056 or 43%. Net premiums decreased in part due to the Company voluntarily withdrawing from writing new business as a result of the unauthorized discharge of certain mortgages resulting in a loss of regulatory capital. Net earned written premiums in 2006 were earned in the following countries:

Australia	$	6,885
Canada		17,076
United Kingdom		134,994
United States of America		208,918
South Korea		44,698
India		456,460
	$	869,031

Interest and Investment Income

For Fiscal 2006, interest and investment income totaled $6,820,668 and included interest and accretion income from the secured convertible note issued by Grupo Lakas on December 14, 2005 of approximately $4.5 million and interest on mortgages of approximately $2 million. The Company also earned approximately $280,000 from short term investments as it invests its cash in short-term bank overnight notes. For Fiscal 2005, the interest and investment income amounted to $963,050, and it consisted primarily of interest earned on mortgages.

Claims and Expenses

Claims and expenses totaled $3,746,629 in Fiscal 2006 and $7,576,823 in Fiscal 2005 and included the following:

General and Administrative Expenses

In Fiscal 2006, general and administrative expenses amounted to $3,155,896 and included payroll and payroll taxes, office and occupancy expenses, professional, legal and accounting fees and consulting fees and services. In addition, general and administrative expenses included a charge of $1,125,000 for liquidated damages relating to registration penalties as further discussed in Note 9 of the Financial Statements.

Consulting fees and services included services provided for specialized expertise in various areas including sales and marketing, actuarial work, technological development as well as for management expertise to assist in designing and launching our various programs.

In Fiscal 2005, general and administrative expenses amounted to $4,300,744 and included payroll and payroll taxes, office and occupancy expenses, professional, legal and accounting fees and consulting fees and services. Consulting services included the issuance of 177,504 shares of common stock for services valued at $317,932 and $938,000 for various finance consulting services relating to loans received in Fiscal 2005.

Claims Reserve Expense

In Fiscal 2006, the Company increased its reserve of 25% of the gross premiums written by $193,170.

Brokerage and Acquisition Costs

In Fiscal 2005, the Company paid a $3,000,000 commission to RS Group, a related entity, in connection with the placement of financial guarantee insurance for the repayment of dividends and the liquidation preference of Redeemable Insured Series A Preferred of Strategy Real Estate Investments Ltd.

Other Income (Expense)

Interest Expense

In Fiscal 2006, interest expense amounted to $2,836,610. Interest on the Redeemable Insured Preferred Stock Series A totaled $1,250,000. Such preferred stock was accounted for as a long-term liability under U.S. generally accepted accounting principles as it has a mandatory redemption feature. As such, all dividends paid are treated as interest expense. Interest incurred on various other short-term notes payable and long-term mortgage notes payable amounted to $1,637,464. Interest incurred on related party notes and loans payable amounted to $74,146.

In Fiscal 2005, interest expense amounted to $2,099,638. Interest on the Redeemable Insured Preferred Stock Series A totaled $1,033,055. In addition, the Company issued 750,000 shares of common stock during the quarter in connection with an $8 million bridge loan. The shares were valued at $975,000. Interest incurred on related party notes and loans payable amounted to $2,865.

Dividends

The deemed dividend on Redeemable Insured Preferred Stock Series A represents the difference between the liquidation preference and the allocated gross proceeds in the amount of $8,675,000, which is being amortized over thirty-six (36) months, the term of the Series A Preferred. The accretion amounted to $722,917 and $602,431 for the three months ended January 31, 2006 and 2005, respectively.

Dividends paid and/or accrued for other preferred stock issuances amounted to $3,091,699 and $2,626,438 for the three months ended January 31, 2006.

Net Loss Available to Common Stockholders

Net loss available to common stockholders in Fiscal 2006 amounted to $2,550,877 ($.04 per share) and $10,420,193 ($.17 per share) in Fiscal 2005 for the reasons stated above.

Results of Operations for the Nine Months Ended January 31, 2006 and 2005

The following is a discussion and analysis of our results of operations for the above periods:

Revenues

Net Earned Written Premiums

Net earned written premiums for the nine months ended January 31, 2006 ("Fiscal 2006") amounted to $1,656,103 compared to $1,953,458 for the nine months ended January 31, 2005 ("Fiscal 2005"), a decrease of $297,355 or 15%. Net premiums decreased in part due to the Company voluntarily withdrawing from writing new business as a result of the unauthorized discharge of certain mortgages resulting in a loss of regulatory capital. Insurance premiums were earned in the following countries as follows:

Australia	$	9,180
Canada		51,278
United Kingdom		371,448
United States of America		405,418
South Korea		134,089
India		684,690
	$	869,031

Interest and Investment Income

For Fiscal 2006, interest and investment income totaled $10,284,565 and included interest and accretion income from the secured convertible note issued by Grupo Lakas on December 14, 2005 of approximately $4.5 million and interest on mortgages of approximately $4.1 million. The Company also earned approximately $772,000 from short term investments as it invests its cash in short-term bank overnight notes. For Fiscal 2005, the interest and investment income amounted to $2,492,614, and it consisted primarily of interest earned on mortgages.

Claims and Expenses

Claims and expenses totaled $12,012,916 in Fiscal 2006 and $10,442,667 in the Fiscal 2005 and included the following:

General and Administrative Expenses

In Fiscal 2006, general and administrative expenses amounting to $9,363,473 included payroll and payroll taxes, office and occupancy expenses, professional, legal and accounting fees and consulting fees and services. In addition, general and administrative expenses included a charge of $3,375,000 for liquidated damages relating to registration penalties as further discussed in Note 9 of the Financial Statements.

In Fiscal 2005, general and administrative expenses amounted to $7,036,877 and included payroll and payroll taxes, office and occupancy expenses, professional, legal and accounting fees and consulting fees and services. Consulting services, in the amount of approximately $3.9 million, included the issuance of 977,503 shares of common stock for services valued at $1,829,930 and $938,000 for various finance consulting services relating to loans received in Fiscal 2005.

Claims Reserve Expense

In Fiscal 2006, the Company increased its reserve of 25% of the gross premiums written by $1,692,644.

Brokerage and Acquisition Costs

Other Income (Expense)

Interest Expense

In Fiscal 2006, interest expense amounted to $7,659,381. Interest on the Redeemable Insured Preferred Stock Series A totaled $3,750,000. Such preferred stock was accounted for as a long-term liability under U.S. generally accepted accounting principles as it has a mandatory redemption feature. As such, all dividends paid are treated as interest expense. Interest incurred on various other short-term notes payable and long-term mortgage notes payable amounted to $3,806,608. Interest incurred on related party notes and loans payable amounted to $102,733.

In Fiscal 2005, interest expense amounted to $2,099,638. Interest on the Redeemable Insured Preferred Stock Series A totaled $1,033,055. In addition, the Company issued 750,000 shares of common stock in connection with an $8 million bridge loan. The shares were valued at $975,000. Interest incurred on related party notes and loans payable amounted to $2,865.

Dividends

The deemed dividend on Redeemable Insured Preferred Stock Series A represents the difference between the liquidation preference and the allocated gross proceeds in the amount of $8,675,000, which is being amortized over thirty-six (36) months, the term of the Series A Preferred. The accretion amounted to $2,168,751 and $602,431 for Fiscal 2006 and Fiscal 2005, respectively.

Dividends paid and/or accrued for other preferred stock issuances amounted to $3,091,699 and $2,626,438 for Fiscal 2006 and Fiscal 2005, respectively.

Net Loss Available to Common Stockholders

Net loss available to common stockholders in Fiscal 2006 amounted to $12,780,674 ($.20 per share) and $11,315,102 ($.19 per share) in Fiscal 2005 for the reasons stated above.

Liquidity and Capital Resources

At January 31, 2006, we had cash of $444,383, a decrease of $2,342,578 from our balance at April 30, 2005 of $2,786,961.

Cash used in operating activities amounted to $6,243,809. The primary reason for the decrease was to fund the loss for the period.

Cash used in investing activities amounted to $45,145,178. The Company provided mortgage loans of $50 million to three companies at interest rates up to 15%. Such mortgages provided capital in connection with such companies’ real estate development activities. The mortgages are due at various dates through April 2010 and are secured by the respective properties. Payments totaling $5.9 million were received during Fiscal 2006 and an additional $6.2 million was received in February 2006. In addition, the Company loaned various related parties $254,000 and purchased property and equipment totaling $504,000.

Cash provided by financing activities amounted to $49,352,532. The Company issued mortgage loans of $50 million at interest rates up to 10.25%. These mortgages were issued to facilitate our investment in the mortgage notes receivable issued. The mortgages are due at various dates through January 2009 and are secured by the respective properties. The Company received a loan from a related party in the amount of $1,250,000. The proceeds of the loan were used to pay a quarterly dividend payment due to the holders of the Redeemable Insured Series A Preferred Stock of Holdings. The loan bears interest at prime and is payable on or before July 2008. We also received loans from another related party in the amount of $2 million. The loans are due on demand and bear interest at 5% per annum. During Fiscal 2006, total payments of debt amounted to $2 million. In addition, payments totaling $5 million were made in February 2006.

In connection with the issuance of Series D Preferred as part of the Grupo Lakas Investment, the Company incurred issuance costs totaling $12,017,000. The Company signed a consulting agreement with RS Group, a related party, whereby the Company agreed to pay the lesser of 2% of the Investment or $10,000,000. A $10,000,000 fee was recorded as a cost of issuance and charged against the value of the Series D Preferred stock.

The Company had restricted cash amounting to $32.6 million at January 31, 2006. Such cash represents funds to be invested, through the placement of mortgages in special purpose residential real estate properties in Canada. The properties are being developed by the Lux Group, Inc., a related party (see Note 8 of the financial statements). At January 31, 2006, mortgages issued amounted to $8,000,000.

As disclosed in our 2005 Annual Report, our auditors have issued a “going concern” qualification as part of their opinion in the audit report relating to our audited financial statements. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has incurred a net loss of $7,520,224 for the nine months ended January 31, 2006 and $14,958,708 for the year ended April 30, 2005, has a working capital deficit of $20,285,809 and $962,036 as of January 31, 2006 and April 30, 2005, respectively, and has generated negative cash flows from operations. In addition, in September 2005, the Company voluntarily withdrew from writing new business as a result of the unauthorized discharge of certain mortgages resulting in a loss of regulatory capital. The future of the Company is dependent upon its ability to generate sufficient revenues and to obtain debt and/or equity financing to fund its operations and to follow through on its projected business plan. Management has plans to seek additional capital through debt and/or equity financing. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue its existence.

In December 2005, the Company successfully completed a transaction that raised new equity capital of approximately $518 million for its wholly-owned Barbados subsidiary, Strategy Holding. While this transaction added significant new capital, the investment consisted of non-cash assets not readily convertible to cash. In February 2006, the Company requested approval from the office of the Supervisor of Insurance and Finance of Barbados to have this contributed capital allowed as regulatory capital for its insurance subsidiary, SIL.

The Company believes it will be successful in receiving this approval and recommence its business plan and insurance operation and find additional ways to utilize the non-cash assets for the future benefit of its operations. However, there can be no assurance that we will be successful in doing so. The ability of the Company to utilize or convert the non-cash assets into working capital and/or receive approval of such non-cash assets as regulatory capital therefore continues to raise substantial doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustments that might arise from such uncertainty.

On December 14, 2005, the Company and Strategy Holding concluded a Capital Investment transaction outlined in the binding letter agreement entered into on October 25, 2005 with Grupo Lakas S.A., Panama Peat S.A., and Changuinola Peat S.A., a Panamanian corporation. Pursuant to the Master Investment Agreement, Grupo Lakas made an investment with a face value of $700,000,000 in Strategy Holding by issuing to Strategy Holding, a promissory note in the original principal amount of $700,000,000. See the discussion of the transaction above within the Overview section. The increase in stockholders' equity is based on the results of an independent valuation report.

Our operating subsidiary, SIL, has been the source of business income relating to insurance operations. At present, until SIL has received regulatory approval for the new capital, it will not write new insurance business on either an individual or program basis; however, its underwriting business should be unaffected. Premiums have been sporadic through our first full fiscal year ended April 30, 2005 and the nine months period ended January 31, 2006.

With respect to the nature of our business, claims are not likely to impact our liquidity position in the near future. These policies extend over varying lengths of time and claims can be made, in certain cases, only at the end of the policy periods when losses and related claims can be ascertained.

From an investment perspective, this allows us to define more accurately when funds may be required to pay out claims, thus providing an opportunity to match investment periods with anticipated claim dates.

As discussed elsewhere in this quarterly report and in our 2005 Annual Report, it is difficult for us to accurately estimate the loss reserves. In recognition of the need to set aside funds for potential claims, a reserve of $3,239,901, representing 25% of gross premiums written since our inception, has been created. This is effectively our IBNR.

We are a new company providing insurance, through SIL, to niche markets. However, as noted above, SIL will not write any new insurance business until we have been able to provide additional capital to SIL.

Generally, underwriting management ascertains at the inception of each policy what losses might arise on each particular piece of business. Policy pricing (premium) and requisite loss reserves are determined at that point in time. As SIL develops more of an operating history, it will be in a better position to more accurately calculate our loss reserves.

Our operating expenses are currently approximately $550,000 per month. In order to meet the Company’s future cash requirements we will be dependent upon our ability to raise additional capital, achieve profitable operations and/or continue to obtain working capital loans or advances from management and related parties. In addition, in an effort to ensure that we have access to sufficient funds to meet our needs, from time to time we may attempt to raise financing through some combination of commercial bank borrowings or the private or public sale of equity or debt securities. However, future equity or debt financings may not be available to us at all, or, if available, may not be on favorable terms. We cannot assure you that these efforts, together with items described above, will be sufficient to fund our growth, or that external funding will be available to us at favorable interest rates or at all. If we are unable to obtain financing in the future, we will continue to develop our business on a reduced scale based on the capital resources that may be available to us.

SIL began quoting on possible insurance business immediately following the receipt of permission to operate from the Ministry of Finance (Barbados) on March 26, 2004. The nature of the insurance business is such that individual pieces of business can take many months to negotiate and come to fruition. In view of our recent capital infusion for SIL, it will not be quoting insurance until such additional capital is approved as regulatory capital by the Barbados Ministry of Insurance and Finance. SIL will continue to support its existing business. It is difficult to predict at this early stage in our development what proportion of business quoted will generate revenues because we do not have a sufficient history by which to accurately estimate such numbers.

Off Balance Sheet Arrangements

We have no off-balance sheet financing arrangements within the meaning of Item 303(c) of Regulation S-B.

ITEM 3. CONTROL AND PROCEDURES.

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act is accumulated and communicated to management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

(a)

Evaluation of Disclosure Controls and Procedures.

We merged with and into CI Sell Cars, Inc. in June 2004. We are currently developing our business and implementing systems of internal and disclosure controls. As of the end of the quarterly period ended January 31, 2005, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and President, and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of the end of the quarterly period ended January 31, 2005, our disclosure controls and procedures were not effective, under Rule 13a-15, to ensure timely reporting with the Commission and to ensure that our management is timely alerted to material information relating to our company during the period when its periodic reports are being prepared. We believed that these weaknesses were due to a material weakness in our internal control over financial reporting, which is more fully described under subsection (b) below.

As of the end of the period covered by this report, we carried out an evaluation under the supervision and the participation of management including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.

(b)

Changes in Internal Controls over Financial Reporting.

As required by Rule 13a-15(d), our Chief Executive Officer and Chief Financial Officer also conducted an evaluation of our internal controls over financial reporting to determine whether any changes occurred during the third fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

During the preparation of our financial statements as of and for the quarterly period ended January 31, 2005, we concluded that the system of disclosure controls and procedures then in effect was not effective because of our lack of an adequate accounting staff, as more fully described below. As a result of this conclusion, we initiated the changes in our internal controls over financial reporting, also described below.

Lack of Adequate Accounting Staff

During the quarterly period ended January 31, 2005, we had insufficient numbers of internal personnel possessing the appropriate knowledge, experience and training in applying US GAAP and in reporting financial information in accordance with the requirements of the Commission. Insufficient controls over dissemination of information regarding non-routine and complex transactions to our accounting staff by our management, as well as incorrect treatment and lack of proper analysis of such transactions by our accounting staff resulted. This weakness resulted in material adjustments proposed by our independent registered accountants with respect to our financial statements for our quarterly period ended January 31, 2005. Such adjustments have been recorded in our books and are reflected in our financial statements found under “Item 1. Financial Statements.”

Effective February 1, 2005, we hired a new Chief Financial Officer, together with two additional accounting and control staff members, with the appropriate knowledge, experience and training in applying US GAAP and in reporting financial information in accordance with the requirements of the Commission. We are implementing additional control policies and procedures to resolve the above mentioned internal control weakness. We plan to retain one or two independent non-employee directors, who would form a majority of the audit committee to be designated by our board of directors. Such audit committee will have the responsibility to oversee our accounting and financial reporting processes and to communicate with our independent registered accounting firm.

Our management and our board of directors are fully committed to the review and evaluation of our procedures and policies designed to assure effective internal control over financial reporting. We feel that the additions to our accounting and control staff, together with the expected creation of an independent audit committee, will improve the quality of future period financial reporting.

During the quarter ended January 31, 2006, there have been no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect these controls.

PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

Our 2005 Annual Report contains a description of certain lawsuits in which we are currently involved. Other than such lawsuits, the lawsuits mentioned above and other than immaterial claims in the ordinary course, to our knowledge, we are currently not involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of operations.

ITEM 6 - EXHIBITS

The following exhibits are being filed as part of this quarterly report:

Exhibit No.		Description

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	STRATEGY INTERNATIONAL INSURANCE GROUP, INC.

Date: March 31, 2006	By:	/s/ Steven Stonhill
		Name: Steven Stonhill
		Title: Chairman of the Board and Chief Executive Officer



Date: March 31, 2006	By:	/s/ Louis Lettieri
		Name: Louis Lettieri
		Title: Chief Financial Officer

EXHIBIT INDEX

Exhibit No.		Description

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.

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