**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 July 31, 2005
 
 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
              (I.R.S.
                  Employerincorporation
                  or organization)
              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: 63,197,503 shares of Common Stock, $0.001
        par
        value per share, outstanding as of September 14, 2005.
 
 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
                6Item
                    2.
                Management’s
                    Discussion & Analysis of Financial Condition andResults
                      of Operations.
                16Item
                    3.
                Controls
                    and Procedures
                23**PART
                    II - OTHER INFORMATION**Item
                    1.
                Legal
                    Proceedings
                24Item
                    2.
                Unregistered
                    Sales of Equity securities and Use of Proceeds
                24Item
                    3.
                Defaults
                    Upon Senior Securities
                24Item
                    4.
                Submission
                    of Matters to a Vote of Security Holders
                24Item
                    5
                Other
                    Information
                24Item
                    6.
                Exhibits
                25
  2
 **PART
        I.**  **FINANCIAL
        INFORMATION**
 
 **ITEM
        1.** **FINANCIAL
        STATEMENTS**
  STRATEGY
          INTERNATIONAL INSURANCE GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED
            BALANCE SHEETS
 July
                  31,
              
              April
                  30,2005
              
              2005(Unaudited)
              
              (Audited)ASSETSCurrent
                  Assets:Cash
              
              $
              246,587
              
              $
              2,786,961Accounts
                  receivable
              
              
              142,775
              
              
              553,753Mortgage
                  notes receivable
              
              
              6,230,807
              
              
              6,230,807Loan
                  receivable
              
              
              900,000
              
              
              900,000Interest
                  receivable (includes $808,837 and $542,667 from related
                parties)
              
              
              1,558,380
              
              
              784,357Prepaid
                  expenses
              
              
              231,313
              
              
              129,874Total
                  Current Assets
              
              
              9,309,862
              
              
              11,385,752Cash
                  - restricted
              
              
              32,059,522
              
              
              32,046,385Mortgage
                  notes receivable
              
              
              38,500,000
              
              
              23,000,000Mortgage
                  notes receivable - related parties
              
              
              8,000,000
              
              
              8,000,000Property
                  and equipment - net
              
              
              247,581
              
              
              84,920Other
                  assets
              
              
              360,732
              
              
              253,571Goodwill
              
              
              596,532
              
              
              -Due
                  from affiliate
              
              
              1,267,527
              
              
              -Due
                  from related parties
              
              
              14,539
              
              
              256,049Total
                  Assets
              
              $
              90,356,295
              
              $
              75,026,677LIABILITIES
                  AND STOCKHOLDERS' DEFICIENCYCurrent
                  Liabilities:Long
                  term debt - current portion
              
              $
              6,087,181
              
              $
              7,000,000Accounts
                  payable and accrued liabilities (includes $12,345and
                  $6,302 to related parties)
              
              
              3,715,170
              
              
              1,745,385Note
                  payable - related party
              
              
              250,000
              
              
              275,000Premium
                  advance
              
              
              100,000
              
              
              100,000Unearned
                  premiums
              
              
              1,419,953
              
              
              1,473,712Claims
                  reserves
              
              
              1,577,089
              
              
              1,547,258Due
                  to affiliate
              
              
              -
              
              
              206,433Total
                  Current Liabilities
              
              
              13,149,393
              
              
              12,347,788Long-term
                  liabilitiesRedeemable
                  Insured Preferred Stock Series A - net of issuance
                costs
                  of $1,998,284 and $2,216,279 (Liquidation preference
                  $50,000,000)
              
              
              41,374,980
              
              
              40,434,068Long-term
                  debt - net of current portion
              
              
              39,500,000
              
              
              23,000,000Long-term
                  debt - related party
              
              
              1,250,000
              
              
              -Total
                  Long-term Liabilities
              
              
              82,124,980
              
              
              63,434,068Total
                  Liabilities
              
              
              95,274,373
              
              
              75,781,856Minority
                  Interest
              
              
              33,051
              
              
              -ContingenciesStockholders'
                  Deficiency:10%
                  Cumulative Class A Preferred stock ($.001 stated value,unlimited
                  shares authorized, 47,670 issued and outstanding)
              
              
              48
              
              
              4810%
                  Cumulative Class B Preferred stock ($.001 stated value,unlimited
                  shares authorized, 56,562 issued and outstanding)
              
              
              57
              
              
              57Series
                  B Preferred stock (no par value, unlimited shares
                  authorized5,000
                  shares issued and outstanding)
              
              
              1,000,000
              
              
              1,000,000Common
                  stock ($.001 par value, 100,000,000 shares authorized,63,197,503
                  shares issued and outstanding at July 31, 2005and
                  April 30, 2005)
              
              
              63,197
              
              
              63,197Additional
                  paid-in capital
              
              
              116,872,429
              
              
              117,595,346Less:
                  Notes receivable - subscriptions
              
              
              (104,231,610
              )
              
              (104,231,610
              )Deferred
                  compensation
              
              
              (172,131
              )
              
              (266,022
              )Currency
                  translation adjustment
              
              
              (75,875
              )
              
              (4,173
              )Accumulated
                  deficit
              
              
              (18,407,244
              )
              
              (14,912,022
              )Total
                  Stockholders' Deficiency
              
              
              (4,951,129
              )
              
              (755,179
              )Total
                  Liabilities and Stockholders' Deficiency
              
              $
              90,356,295
              
              $
              75,026,677
 
 The
        accompanying notes are an integral part of these financial
        statements.
  3
  STRATEGY
          INTERNATIONAL INSURANCE GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED
          STATEMENTS OF OPERATIONS
 FOR
          THE
          THREE MONTHS ENDED JULY 31, 2005 AND 2004
 (Unaudited)
 2005
              
              2004
                (Restated)Revenue:Gross
                  written premium
              
              $
              293,197
              
              $
              -Less:
                  unearned premium
              
              
              111,909
              
              
              -Net
                  earned written premium
              
              
              181,288
              
              
              -Interest
                  income (includes $266,170 and $0 from related parties)
              
              
              1,428,596
              
              
              651,448Investment
                  income
              
              
              213,136
              
              
              -Total
                  revenue
              
              
              1,823,020
              
              
              651,448Claims
                  and Expenses:General
                  and administrative expenses
              
              
              2,740,062
              
              
              463,497Claims
                  reserve expense
              
              
              29,830
              
              
              -Brokerage
                  and acquisition costs
              
              
              18,873
              
              
              -Amortization
                  of finance costs
              
              
              217,995
              
              
              -Depreciation
              
              
              10,342
              
              
              -Total
                  claims and expenses
              
              
              3,017,102
              
              
              463,497Income
                  (loss) from operations
              
              
              (1,194,082
              )
              
              187,951Other
                  Income (Expense):Interest
                  expense (includes $6,302 and $0 from related parties)
              
              
              (2,322,215
              )
              
              -Minority
                  interest in loss of subsidiary
              
              
              21,075
              
              
              -Net
                  income (loss)
              
              
              (3,495,222
              )
              
              187,951Deemed
                  dividend on Redeemable InsuredPreferred
                  Stock Series A
              
              
              722,917
              
              
              -Net
                  income (loss) attributable to common shareholders
              
              $
              (4,218,139
              )
              $
              187,951Net
                  income (loss) per common share:Basic
                  and diluted
              
              $
              (0.07
              )
              $
              0.00Basic
                  and diluted weighted average commonshares
                  outstanding
              
              
              63,197,503
              
              
              53,903,200
 The
          accompanying notes are an integral part of these financial
          statements.
  4
  STRATEGY
          INTERNATIONAL INSURANCE GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED
          STATEMENTS OF CASH FLOWS
 FOR
          THE
          THREE MONTHS ENDED JULY 31, 2005 AND 2004
 (Unaudited)
 July
                  31,2005
              
              2004
                (Restated)Cash
                  Flows from Operating Activities:Net
                  income (loss)
              
              $
              (3,495,222
              )
              $
              187,951Adjustments
                  to reconcile net loss to netcash
                  used in operating activities:Amortization
                  of finance costs of Redeemable InsuredPreferred
                  Stock Series A
              
              
              217,995
              
              
              –Amortization
                  of deferred stock based compensation
              
              
              93,891
              
              
              –Depreciation
              
              
              10,342
              
              
              –Minority
                  interest in loss of subsidiary
              
              
              (21,075
              )
              
              –(Increase)
                  decrease in:Accounts
                  receivable
              
              
              410,978
              
              
              (651,448
              )Interest
                  receivable
              
              
              (774,023
              )
              
              –Prepaid
                  expenses
              
              
              (3,360
              )
              
              –Other
                  assets
              
              
              (107,161
              )
              
              (15,000
              )Due
                  from/to related parties
              
              
              241,510
              
              
              –Increase
                  (decrease) in:Accounts
                  payable and accrued liabilities
              
              
              1,452,293
              
              
              –Due
                  to affiliate
              
              
              (1,473,960
              )
              
              –Unearned
                  premiums
              
              
              (53,759
              )
              
              –Claims
                  reserves
              
              
              29,831
              
              
              –Net
                  cash used in operating activities
              
              
              (3,471,720
              )
              
              (478,497
              )Cash
                  Flows from Investing ActivitiesMortgages
                  note receivable
              
              
              (15,500,000
              )
              
              –Acquisitions
                  of property and equipment
              
              
              (169,934
              )
              
              (28,575
              )Restricted
                  cash - net activity
              
              
              (13,137
              )
              
              –Acquisition
                  of subsidiary
              
              
              (36,096
              )
              
              –Cash
                  received in acquisition
              
              
              8,113
              
              
              –Net
                  cash used in investing activities
              
              
              (15,711,054
              )
              
              (28,575
              )Cash
                  Flows from Financing Activities:Proceeds
                  from long-term debt
              
              
              15,500,000
              
              
              –Proceeds
                  of long-term debt - related party
              
              
              1,250,000
              
              
              –Proceeds
                  from loans
              
              
              –
              
              
              369,393Payments
                  of note payable - related party
              
              
              (25,000
              )
              
              –Payments
                  of long-term debt
              
              
              (10,898
              )
              
              –Net
                  cash provided by financing activities
              
              
              16,714,102
              
              
              369,393Effect
                  of foreign currency translation
              
              
              (71,702
              )
              
              –Net
                  decrease in cash
              
              
              (2,540,374
              )
              
              (137,679
              )Cash
                  - beginning of period
              
              
              2,786,961
              
              
              185,989Cash
                  - end of period
              
              $
              246,587
              
              $
              48,310Supplemental
                  Disclosures of Cash Flow Information:Cash
                  paid during the period for:Interest
              
              $
              2,044,572
              
              $
              –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
              
              $
              722,917
              
              $
              –
 
 
 The
        accompanying notes are an integral part of these financial
        statements.
 5
 
 STRATEGY
        INTERNATIONAL INSURANCE GROUP, INC. AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 JULY
        31,
        2005 AND 2004
 
 1.
        THE
        COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 The
        Company
 
 Strategy
        International Insurance Group, Inc. (the “Company”) is a holding company for an
        integrated group of insurance and finance-related businesses. The Company
        is
        organized as a multi-line insurer with a focus on credit and liability insurance
        in the fixed income and real estate industries predominately in North America.
        It also offers insurance related risk management solutions to users and
        providers of capital.
 
 The
        Company is an integrated, international group of providers of specialty lines
        of
        insurance, reinsurance and structured risk solutions, focusing on credit
        enhancement, contingent insurance products, liability and other specialty
        insurance and reinsurance products related directly to the travel and leisure
        industries.  The Company received an Exempt Insurance License from
        the
        Supervisor of Insurance, Barbados, West Indies, on March 25, 2004, which
        authorizes the Company to engage in the following classes of insurance business
        globally from within Barbados: General insurance business; credit insurance;
        liability insurance; mortgage indemnity insurance; rental guarantee insurance;
        and reinsurance.
 
 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
        for GBP20,000 ($36,096) and for the Company’s commitment to extend a working
        capital loan facility and underwriting support.
  6
  STRATEGY
        INTERNATIONAL INSURANCE GROUP, INC. AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 JULY
        31,
        2005 AND 2004
 (Continued)
 
 1.
        THE
        COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 The
        Company (Continued)
 
 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
              
              $
              8,113Property
                    and equipment
              
              
              3,069License
                    agreements and proprietary know how
              
              
              596,532Accounts
                  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 $3,495,222 for the three month ended
        July
        31, 2005 and $14,958,708 for the year ended April 30, 2005, has a working
        capital deficit of $3,839,531 and $982,036 as of July 31, 2005 and April
        30,
        2005, respectively, and has generated negative cash flows from operations.
        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.
 These
        conditions 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 July 31, 2005, its results
          of
          operations for the three months ended July 31, 2005 and 2004 and its cash
          flows
          for the three months ended July 31, 2005 and 2004.
  The
          statements of operations for the three months ended July 31, 2005 and 2004
          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
 
 The
        2004
        statements of operations and cash flows were restated to correct the accrual
        of
        unpaid cumulative dividends on the 10% Cumulative Class A and Class B preferred
        stock. The effect of the restatement was to increase net income attributable
        to
        common stockholders by $2,605,790 ($.04 per share).
 
 7
 
 STRATEGY
        INTERNATIONAL INSURANCE GROUP, INC. AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 JULY
        31,
        2005 AND 2004
 (Continued)
 
 1.
        THE
        COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 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.
 
 2005
              
              2004Warrants
                  (weighted average)
              
              
              37,623,009
              
              
              —
 
 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.
 
 2.
        ACCOUNTS RECEIVABLE
 
 At
        July
        31, 2005 and April 30, 2005, one customer accounted for 100% of the Company’s
        accounts receivable.
  8
 
 STRATEGY
        INTERNATIONAL INSURANCE GROUP, INC. AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 JULY
        31,
        2005 AND 2004
 (Continued)
 
 3.
        SALES
        AND MAJOR CUSTOMERS
 
 Net
        earned written premiums were earned in the following countries for the three
        months ended July 31, 2005:
 
 
 United
                  Kingdom
              
              $
              116,959Canada
              
              
              19,633South
                  Korea
              
              
              44,696$
              181,288
 
 For
        the
        three months ended July 31, 2005, the Company earned 89% of the its net earned
        written premiums from two customers of which one customer accounted for
        65%.
 
 4.
        MORTGAGE NOTES RECEIVABLE
 
 The
        Company has a mortgage note (“Mortgage”) with a real estate developer 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 $15,500,000 were taken under the Mortgage in the quarter ended July
        31,
        2005. Interest is payable quarterly and principal is due and payable on August
        30, 2008.
 
 5.
        MORTGAGE NOTES RECEIVABLE - RELATED PARTIES
 
 Mortgage
        notes receivable - related parties represent mortgages issued in November
        2004
        to two entities that are controlled by a related party. 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
        July
        31, 2005 and April 30, 2005, mortgage notes receivable amounted to $8,000,000.
        Mortgage interest receivable amounted to $808,837 and $542,667 at July 31,
        2005
        and April 30, 2005, respectively. Interest income earned amounted to $266,170
        and $0 for the three months ended July 31, 2005 and 2004,
        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 this
        time.
 
 9
 
 STRATEGY
        INTERNATIONAL INSURANCE GROUP, INC. AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 JULY
        31,
        2005 AND 2004
 (Continued)
 
 6.
        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 $15,500,000 were
        taken
        under the Mortgage in the quarter ended July 31, 2005. 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.
 
 7.
        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 quarter, 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 members of management own approximately 32% of the company. At July
        31,
        2005 and April 30, 2005, Lux owed the Company $14,539 and $11,490,
        respectively.
 
 3.
        The
        Company made cash advances to and received cash advances from a related entity.
        At July 31, 2005 and April 30, 2005, the Company was owed/(owed) $1,267,567
        and
        ($206,433), respectively.
 
 Note
        Payable - Related Party
 
 Note
        payable - related party consists of a 5% promissory note in the amount of
        $275,000 issued to a member of management in November 2004. Principal and
        interest are due on demand.
 
 In
        2005,
        interest expense amounted to $3,438. At July 31, 2005 and April 30, 2005,
        accrued interest amounted to $9,740 and $6,302, respectively.
 
 10
 
 STRATEGY
        INTERNATIONAL INSURANCE GROUP, INC. AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 JULY
        31,
        2005 AND 2004
 (Continued)
 
 7.
        RELATED PARTY TRANSACTIONS (Continued)
 
 Long-term
        Debt - Related Party
 
 Long-term
        debt - related party consists of a promissory note bearing interest at prime
        in
        the amount of $1,250,000 issued to a corporation controlled by a member of
        management in July 2005. Interest is payable quarterly and principal is due
        and
        payable on or before July 14, 2008.
 
 For
        the
        three months ended July 31 ,2005, interest expense amounted to $2,605. At
        July
        31, 2005, accrued interest amounted to $2,605.
 
 8.
        STOCKHOLDERS’ 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, Strategy Holding
        and
        Strategy Insurance Limited 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 $217,995 in for the three months ended July 31, 2005.
 
 11
 
 STRATEGY
        INTERNATIONAL INSURANCE GROUP, INC. AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 JULY
        31,
        2005 AND 2004
 (Continued)
 
 8.
        STOCKHOLDERS’ DEFICIENCY (Continued)
 
 Redeemable
        Insured Series A Preferred - SREI” (Continued)
 
 IThe
        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 $722,917 for the three months ended
        July
        31, 2005 and is recorded as a deemed dividend.
 
 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.
 
 Preferred
        Stock - Strategy Insurance Limited (Barbados) (“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. The preferred stockholders’ agreements call for dividends
        to begin to accrue as of January 1, 2004.
 
 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.
 
 12
 
 STRATEGY
        INTERNATIONAL INSURANCE GROUP, INC. AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 JULY
        31,
        2005 AND 2004
 (Continued)
 
 8.
        STOCKHOLDERS’ DEFICIENCY (Continued)
 
 During
        August 2005, the Company became aware that the mortgages underlying these
        notes
        were discharged without the Company’s knowledge or consent in October 2004. Upon
        becoming aware of this situation, the Company commenced an investigation
        into
        this matter and attempted to cure the erroneous discharge. On September 12,
        2005, the Company determined that it would not be able to resolve the issues
        regarding the discharges of the mortgages. 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. It is the Company’s intention to commence litigation in this matter (See
        Note 9).
 
 At
        both
        July 31, 2005 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 July 31, 2005.
 
 Warrants
 
 As
        described above, 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.
        We
        have filed a related registration statement with the Commission in January
        2005.
        Pursuant to the registration rights agreement, we are subject to liquidated
        damages, payable in cash to each purchaser as follows:
 
 1.
              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 July 2005 amounted
                  to
                  $1,500,000 and such amount has been accrued. The cash portion of
                  the
                  penalty for the months of April 2005 through July 2005 totaling
                  $500,000
                  was paid on August 10, 2005.
 2.
              The
                  deferred monthly penalty is payable on December 31,
                  2005.
 3.
              If
                  the Company files a registration statement and signs an agreement
                  with a
                  major timeshare operator within a certain time period, there will
                  be no
                  registration penalties for the next ninety (90)
                  days.
 4.
              After
                  the ninety day period, if the registration is not effective, the
                  monthly
                  penalty will be .75% and is payable in cash at month
                  end.
 5.
              This
                  agreement expires January 31, 2006.
  13
 STRATEGY
        INTERNATIONAL INSURANCE GROUP, INC. AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 JULY
        31,
        2005 AND 2004
 (Continued)
 
 8 .
        STOCKHOLDERS’ DEFICIENCY (Continued)
 
 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 three months ended July 31, 2005,
        stock-based compensation amounted to $93,891.
 
 9 .
        SUBSEQUENT EVENTS
 
 As
        described in Note 8, in August 2005, the Company became aware that mortgages
        issued in connection with the issuance of SILB Class A and Class B 10%
        cumulative preferred stock were discharged without the Company’s knowledge,
        consent or without receiving consideration in October 2004. Upon
        becoming aware of this situation, the Company commenced an investigation
        into
        this matter and attempted to cure the erroneous discharge. On September 12,
        2005, the Company determined that it would not be able to resolve the issues
        regarding the discharges of the mortgages. The Company has retained counsel
        in
        connection with this matter and it is the Company’s intent to commence an action
        against a number of defendants to recover the value of the notes receivable
        and
        appropriate damages.
 
 On
        September 15, 12005 Strategy International, Strategy Holding and SIL entered
        into a binding letter of intent with Private Equity Management Group, Inc.,
        a
        Nevada corporation (“PEMG”) and Genesis Voyager Equity Corporation, a British
        Virgin Islands corporation (“GVEC”) regarding the transactions described below
        (the “Transactions”).
 
 GVEC
        will
        contribute (the “Investment”) to a subsidiary of SIL (the “SPV”) GVEC’s
        beneficial interest in a portfolio of life settlement insurance policies
        (“Policies”) with a face value U.S. $125,000,000 and an investment grade rating
        (the “Required Rating”), which policies are held for the benefit of GVEC (and
        shareholders) in a series of trusts (the “Trusts”). The SPV will issue to GVEC
        preferred shares (the “Preferred Shares”), which will have cumulative dividends
        (the “Dividend Payments”) from January 16, 2006 to January 15, 2016 of
        $11,250,000 per annum and thereafter of $22,500,000 per annum. The Preferred
        Stock is redeemable six and one half years after issuance, for $125,000,000
        (the
“Redemption Payment”), and if not redeemed by January 15, 2016, management
        control of the SPV reverts to GVEC. Strategy
        International must procure credit default insurance policies (the “Insurance”)
        on the Policies, the Dividend Payments and the Redemption Payment by January
        15,
        2006, or GVC can exercise its rights as pledgee of the common stock of the
        SPV
        and Strategy International must pay GVEC $5,812,500. All agreements relating
        to
        the transactions would then be deemed terminated.
 
 The
        SPV
        will originate the underwriting of senior life settlement policies (“Senior Life
        Settlement Polices”) and impaired annuities to be issued by SIL. GVEC
        or
        its designee will have underwriting approval, such underwriting which will
        also
        be subject to a veto right of John Hamilton, as outside consultant to the
        SPV. PEMG
        will
        be the SPV’s Portfolio manager, for a quarterly management fee of $937,500 (the
“Management Fee”). For arranging the Transactions, Strategy
        International will issue to PEMG (1) three year warrants for up to 13,800,000
        voting common shares of Strategy International, exercisable at $1.69 per
        share,
        and (2) five year warrants for up to 13,800,000 voting common shares of Strategy
        International exercisable for a ratably increasing price of initially $2.25
        per
        share to a maximum of $3.25 per share.
  14
 STRATEGY
        INTERNATIONAL INSURANCE GROUP, INC. AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 JULY
        31,
        2005 AND 2004
 (Continued)
 
 9 .
        SUBSEQUENT EVENTS (Continued)
 
 Strategy
        will pay PEMG, for additional advisory services, 50% of revenue generated
        in
        respect of the Investment after deducting the Dividend Obligation, the
        Management Fee, and taxes on such revenue. Strategy Holding and PEMG have
        also
        agreed to create an entity to be held 50% each, which will write multiline
        insurance and reinsurance, presently contemplated to be capitalized with
        a
        letter of credit of approximately $25,000,000, which may be obtained by SPV
        and
        thereafter loaned to Strategy Holding for contribution to such
        entity.
 
 If
        the
        Investment is not consummated by October 15, 2005 for any reason other than
        (1)
        upon GVEC’s or PEMG’s determination not to proceed, (2) GVEC or PEMG are not
        negotiating in good faith and in a commercially reasonable manner, or (3)
        GVEC
        or PEMG have not satisfied its preconditions, Strategy International must
        pay
        PEMG a break-up fee of $2,000,000.
 
  15
 
 **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 July 31, 2004. 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, to term “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, a Barbados company,
        to
        which we sometimes refer in this quarterly report as SIL, 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, a Barbados company to which
        we
        sometimes refer in this quarterly report as Strategy Holding, 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:
 
 16
 ·
              General
                  insurance business;
 
 ·
              Credit
                  insurance;
 
 ·
              Liability
                  insurance;
 
 ·
              Mortgage
                  indemnity insurance;
 
 ·
              Rental
                  guarantee insurance; and
 
 ·
              Reinsurance.
 
 As
        we
        disclosed in our 2005 Annual Report, following an improper discharge of the
        mortgages underlying the mortgage notes receivable in the amount of
        approximately $104 million, which was put in place in connection with the
        initial capitalization of Strategy Holding and then transferred to SIL, our
        management is now in the process of reassessing our business. Our management
        is
        taking appropriate measures to address the above development, and is, among
        other things, making efforts to recapitalize SIL. Until SIL has been
        recapitalized, it will not write new insurance business on either an individual
        or program basis; however, its underwriting business should be unaffected
        by the
        above recent developments.
 
 Our
        management is currently taking appropriate measures to address the need to
        recapitalize SIL, as well as to protect its existing insurance portfolio.
        As
        disclosed in our 2005 Annual Report, on September 15, 2005, Strategy
        International, Strategy Holding and SIL entered into a binding letter of
        intent
        with a private equity group (collectively, the “Investor Group”) regarding the
        transactions described below (the “Transactions”).
 
 Investor
        Group will contribute (the “Investment”) to a subsidiary of SIL (the “SPV”)
        Investor Group’s beneficial interest in a portfolio of life settlement insurance
        policies (“Policies”) with a face value of U.S. $125,000,000 and an investment
        grade rating (the “Required Rating”), which policies are held for the benefit of
        Investor Group and shareholders in a series of trusts (the “Trusts”). The SPV
        will issue to Investor Group preferred shares (the “Preferred Shares”), which
        will have cumulative dividends (the “Dividend Payments”) from January 16, 2006
        to January 15, 2016 of $11,250,000 per annum and thereafter of $22,500,000
        per
        annum. The Preferred Stock is redeemable six and one half years after issuance,
        for $125,000,000 (the “Redemption Payment”), and if not redeemed by January 15,
        2016, management control of the SPV reverts to Investor Group. Strategy
        International must procure credit default insurance policies (the “Insurance”)
        on the Policies, the Dividend Payments and the Redemption Payment by January
        15,
        2006, or Investor Group can exercise its rights as pledgee of the common
        stock
        of the SPV and Strategy International must pay Investor Group $5,812,500.
        All
        agreements relating to the Transactions would then be deemed terminated.
        We have
        described a number of other terms and conditions of the proposed Transactions
        in
        our 2005 Annual Report. Importantly, if the Investment is not consummated
        by
        October 15, 2005, for any reason other than (1) upon Investor Group’s
        determination not to proceed, (2) Investor Group not negotiating in good
        faith
        and in a commercially reasonable manner, or (3) Investor Group has not satisfied
        its preconditions, Strategy International must pay Investor Group a break-up
        fee
        of $2,000,000.
 
 Significantly,
        to be able to issue to Investor Group warrants convertible into shares of
        our
        common stock for arranging the Transactions, which is part of our implementing
        the Transactions with the Investor Group described above, we will need to
        increase the authorized number of shares of our common stock. Such action
        requires shareholder approval. Therefore, our ability to complete and consummate
        the Transactions is subject to our ability to receive such shareholder
        approval.
 
 17
 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.
 
 Through
        our subsidiary Strategy Senior Life Settlements, Ltd., or SSLI, we underwrite
        insurance policies purchased from seniors in the United States so that these
        seniors may capitalize on their policy ownership earlier and realize more
        cash
        than the current cash value provided by the policy. Certain types of life
        insurance policies have either a savings or investment component that allows
        for
        a build up of the cash value within the policy. This cash value is available
        to
        the policy owner prior to maturity of the policy under certain circumstances
        and
        in some cases can be used as collateral on loans. Typically, the cash value
        is
        very low in relation to the sum insured (face value) of the policy. SSLI
        purchases the policy from the owner at a premium over the cash value and
        holds
        the policy to maturity to capitalize on the face value. Our research indicates
        that the market for this type of product is growing and will continue to
        grow
        for the foreseeable future as the baby-boom generation continues
        to
        age.
 
 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 (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, through SIL, we acquired a 60% ownership interest in ForestRe
        for GBP20,000 ($36,096) and for the Company’s commitment to extend a working
        capital loan facility and underwriting support.
 
 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.
 
 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 to three timeshare projects: two
        in the
        United States and one in Canada.
 
 SIL
        received its first premium income in September 2004.
 
 **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.
 
 18
 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 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.
 
 19
 
 *(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*
 
 The
        Company has elected to follow Accounting Principles Board Opinion No. 25
        “Accounting for Stock Issued to Employees” (“APB 25”) in accounting for options
        and warrants granted to its employees. Under APB 25, when the exercise price
        of
        the Company’s options or warrants equals or is above the market price of the
        underlying stock on the date of grant, no compensation expense is recognized.
        No
        options or warrants have been granted to employees through July 31,
        2005.
 
 Stock
        options and warrants granted to non-employees are recorded at their fair
        value,
        as determined in accordance with Financial Accounting Standards Board Statement
        No. 123 “Accounting for Stock Based Compensation” and Emerging Issues Task Force
        Consensus No. 96-18, and recognized over the related service period.
 
 In
        December 2004, the FASB issued SFAS No. 123 (revised) "Share-Based Payment."
        This statement eliminates the alternative to account for share-based
        compensation transactions using APB 25 and will require that compensation
        expense be measured based on the grant-date fair value of the award and
        recognized over the requisite service period for awards that vest. The Statement
        is effective as of the beginning of the first interim or annual reporting
        period
        beginning after June 15, 2005. The Company does not expect the adoption of
        this
        Statement to have a material impact on its financial statements.
 
 *(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.
 
 *(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 July 31, 2005, its results
        of
        operations for the three months ended July 31, 2005 and 2004 and its cash
        flows
        for the three months ended July  31, 2005 and 2004.
 
 The
        statements of operations for the three months ended July 31, 2005 and 2004
        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.
 
 20
 **Results
        of Operations for the Quarter Ended July 31, 2005 (“2005”) and For The Quarter
        Ended July 31, 2004 (“2004”)**
 
 The
        following is a discussion and analysis of our results of operations for the
        above periods:
 
 **Revenues**
 
 *Net
        Earned Written Premiums*
 
 The
        Company has completed its first full year of operations and didn’t generate any
        premiums until the quarter ended October 31, 2004. Gross premiums written
        in the
        quarter ended July 31, 2005 amounted to $293,197. Unearned premiums amounted
        to
        $111,909 so that net earned written premiums totaled $181,288. Insurance
        premiums were earned in the following countries as follows:
  United
                  Kingdom
              
              $
              116,959Canada
              
              
              19,633South
                  East Asia
              
              
              44,696$
              181,288
  *Interest
        and Investment Income*
 
 In
        the
        quarter ended July 31, 2005, interest and investment income included income
        earned on mortgages, loans and interest on short-term investments. Interest
        on
        mortgages and loans amounted to $1,428,596. The Company invests its cash
        in
        short-term bank overnight notes. Investment income amounted to $213,136.
 
 In
        2004,
        interest income only included amounts earned on mortgages.
 
 **Claims
        and Expenses**
 
 Claims
        and expenses totaled $3,017,102 in the quarter ended July 31, 2005 and $463,497
        in the corresponding period in 2004 and included the following:
 
 **General
        and Administrative Expenses**
 
 In
        the
        quarter ended July 31, 2005, general and administrative expenses amounting
        to
        $2,740,062 included payroll and payroll taxes, office and occupancy expenses,
        professional, legal and accounting fees, consulting fees and services and
        $1,125,000 of liquidated damages relating to registration penalties.
 
 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 the corresponding period in 2004, general
        and
        administrative expenses amounted to $463,497 and consisted primarily of
        consulting and professional fees.
 
 ***Claims
        Reserve Expense***
 
 As
        more
        fully discussed in the liquidity section, no claims have been made on the
        insurance policies issued. In the quarter ended July 31, 2005, the Company
        increased its reserve of 25% of the gross premiums written by
        $29,830.
 
 **Other
        Income (Expense)**
 
 *Interest
        Expense*
 
 In
        the
        first fiscal quarter of 2005, interest expense amounted to
        $2,322,215.
 
 21
 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. The balance of
        the
        interest incurred was on various other short-term notes payable and long-term
        mortgage notes payable.
 
 **Net
        Income (Loss)**
 
 The
        net
        loss in the first fiscal quarter of 2005 amounted to $3,495,222 and the net
        income in the corresponding period in 2004 was $187,951 for the reasons stated
        above.
 
 **Liquidity
        and Capital Resources**
 
 At
        July
        31, 2005 we had cash of $246,587, a decrease of $2,540,374 from our balance
        at
        April 30, 2005 of $2,786,961. Cash used in operating activities amounted
        to
        $3,471,720. The primary reason for the decrease was to fund the net loss
        generated for the quarter. Cash provided from investing and financing activities
        amounted to $1,003,048. The primary reason for the increase was a loan we
        received from a related party in the amount of $1,250,000. The proceeds of
        the
        loan was used to pay the quarterly dividend payment due to the holders of
        the
        Redeemable Insured Series A Preferred stock.
 
 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. As shown in our financial statements included
        as
        part of this quarterly report, for the quarter ended July 31, 2005, we have
        incurred a net loss of $3,495,222, had a working capital deficit of $3,839,531
        as of July 31, 2005 and have generated negative cash flows from operations.
        Our
        ability to continue as a going concern is contingent upon our ability to
        effect
        the contemplated capitalization of SIL, our insurance subsidiary, to general
        sufficient revenues, and to obtain debt and/or equity financing to fund our
        operations and to follow through with our projected business plan. Our
        management has plans to seek additional capital through debt and/or equity
        financing, however, no assurance can be given as to the timing or our ability
        to
        receive such financing. Please see above information about our proposed
        transaction with Investor Group. Our failure to achieve any of the objectives
        mentioned above may lead to our inability to continue our
        existence.
 
 Our
        operating subsidiary, SIL, is the source of business income relating to
        insurance operations. At present, it is the only company in our group of
        companies generating revenues from business operations. Premiums have been
        sporadic due to our company being in a start-up mode through our first full
        fiscal year ended April 30, 2005 and the quarterly period ended July 31,
        2005.
 
 With
        respect to the nature of our business, claims are not likely to impact our
        liquidity position in the near future. This is due to the nature of the type
        of
        policies being written. These policies extend over varying lengths of time,
        and
        a claim can be made, in most cases, only at the end of the policy period
        when a
        loss and related claim 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. To date, no
        claims
        have been reported or made on business written. In recognition of the need
        to
        set aside funds for potential claims, a reserve of $1,577,089, representing
        25%
        of gross written premium, 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 recapitalize 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.
 
 22
 Our
        operating expenses are currently approximately $450,000 per month. Cash is
        expected to be generated from operations and from investments from external
        investors in our equity securities. In the event we are not able to receive
        such
        investments, we have sufficient resources to operate throughout 2005, but
        may be
        hindered with respect to our rate of growth. 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 need
        to
        recapitalize SIL, it will not be quoting insurance until such contemplated
        recapitalization can be effected. 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 period covered by this quarterly report (the “Evaluation Date”), 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 Evaluation Date, 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 believe these weaknesses
        are
        due to a material weakness in our internal control over financial reporting,
        which is more fully described under subsection (b) below.
 
 **(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 fourth 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 July 31,
        2005,
        we have concluded that our current system of disclosure controls and procedures
        was not effective because of our lack of an adequate accounting staff, as
        more
        fully described below. As a result of this conclusion, we have initiated
        the
        changes in our internal controls over financial reporting, also described
        below.
 
 23
 **Lack
        of Adequate Accounting Staff**
 
 During
        the quarterly period ended July 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 July 31, 2005. Such adjustments have been recorded in our books and
        are
        reflected in our financial statements found under “Item 1. Financial
        Statements.” Our analysis of such adjustments indicates that they should not
        require or result in a restatement of any previously reported financial
        statements or any other financial disclosure.
 
 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 this 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.
 
 **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, 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
        2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**
 
 Not
        applicable.
 
 **ITEM
        3 - DEFAULTS UPON SENIOR SECURITIES**
 
 Not
        applicable.
 
 **ITEM
        4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
 
 Not
        applicable.
 
 **ITEM
        5 - OTHER INFORMATION**
 
 (a)
        Not
        applicable.
 
 (b)
        Furnish the information required by Item 401(g) of Regulation S-B.
 
 Not
        applicable.
 
 24
 **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.
  25
  **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.**By:
              /s/
                  Stephen StonhillName:
                  Stephen Stonhill
                Title:
                  Chairman of the Board and Chief Executive OfficerDate:
                  September 23, 2005By:
              /s/
                  Louis LettieriName:
                  Louis Lettieri
                Title:
                  Chief Financial OfficerDate:
                  September 23, 2005
  26
  **EXHIBIT
        INDEX**
 
 Number
                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.






27