UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended January 31, 2005.
[ ] Transition Report under Section 13 or 15(d) of the Exchange Act for the
transition period from _________________ to _________________.
Commission file number 0-27587
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. Employer Identification No.)
incorporation or organization)
200 Yorkland Blvd., Suite 710
Toronto, Ontario M2J5C1, Canada
(Address principal executive offices)
(416) 496-9988
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes _X_ No __
State the number of shares outstanding of each of the issuer's classes
of common equity, as of latest practicable date: As of January 31, 2005 we had
61,470,000 shares of common stock, par value $0.001 per share, issued and
outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
STRATEGY INTERNATIONAL INSURANCE GROUP, INC. AND SUBSIDIARIES
FORMERLY CI SELL CARS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
January 31, April 30,
2005 2004
---- ----
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 3,904,836 $ 184,000
Cash - restricted 33,121,338 -
Mortgage Interest receivable 2,788,621 378,375
Accounts receivable-other 75,000 -
------------- -------------
Total Current Assets 39,889,795 562,375
Mortgage notes receivable - held to maturity 112,231,610 104,231,610
Fixed assets 27,294 -
Other assets 174,759 -
Unamortized finance costs 3,838,344 -
Due from affiliate 2,109,218 -
------------- -------------
Total Assets $ 158,271,020 $ 104,793,985
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accrued preferred dividends payable $ 9,708,425 $ 3,474,387
Accounts payable and accrued liabilities 606,056 14,222
Loan Payable - related party 275,000 -
Notes Payable 7,000,000 -
Claims reserves 1,476,092 -
------------- -------------
Total Current Liabilities 19,065,573 3,488,609
------------- -------------
Long-term debt:
Redeemable insured series (A) and (B) preferred stock 50,000,000 -
------------- -------------
Total Liabilities 69,065,573 3,488,609
------------- -------------
Stockholders' Equity:
Common stock ($.001 par value, 100,000,000 shares authorized 61,470 46,000
61,470,000 and 46,000,000 shares issued and outstanding as of
January 31 2005 and April 30, 2004 respectively)
Additional paid in capital 303,760 304,000
10% Cumulative Class A Preferred stock ($.001 stated value, 47,670,084 47,670,084
unlimited shares authorized, 47,670 issued and outstanding)
10% Cumulative Class B Preferred stock ($.001 stated value, 56,561,526 56,561,526
unlimited shares authorized, 56,562 issued and outstanding)
Accumulated deficit (15,391,393) (3,276,234)
------------- -------------
Total Stockholders' Equity 89,205,447 101,305,376
------------- -------------
Total Liabilities and Stockholders' Equity $ 158,271,020 $ 104,793,985
============= =============
-2-
STRATEGY INTERNATIONAL INSURANCE GROUP, INC. AND SUBSIDIARIES
FORMERLY CI SELL CARS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
For the Three Months Ended For the Nine Months Ended
January 31, January 31,
2005 2004 2005 2004
---- ---- ---- ----
Gross Written Premiums $ 1,512,087 $ - $ 1,953,458 $ -
============== =========== =============== =============
Expenses:
Amortization of finance costs 264,736 - 264,736 -
Brokerage and Acquisition Costs 85,949 - 215,660 -
Fees and commissions 3,000,000 - 3,000,000 -
General and administrative expenses 2,909,090 - 4,117,670 -
Depreciation 8,467 - 8,467 -
-------------- ----------- --------------- -------------
Total expenses 6,268,242 - 7,606,533 -
-------------- ----------- --------------- -------------
Net (loss) from operations (4,756,155) - (5,653,075) -
Other Revenue (Expense):
Investment Income 963,050 - 2,492,614 -
Interest expense (88,668) - (88,668) -
-------------- ----------- --------------- -------------
Net Income (loss) before discontinued operations (3,881,773) - (3,249,129) -
-------------- ----------- --------------- -------------
Discontinued operations - - (15,555) -
-------------- ----------- --------------- -------------
Net Income (loss) before preferred dividend (3,881,773) - (3,264,684) -
-------------- ----------- --------------- -------------
Dividends on preferred stock (3,638,895) - (8,850,475) -
-------------- ----------- --------------- -------------
Net (loss) on common stock $ (7,520,663) $ - $ (12,115,159) $ -
============== =========== =============== =============
Loss per Share:
Basic and diluted loss per share:
Continued Operations $ (0.12) $ - $ (0.21 $ -
============== =========== =============== =============
Discontinued Operations $ (0.00) $ - $ (0.00 $ -
============== =========== =============== =============
Basic and diluted weighted average common shares
outstanding 61,470,000 - 58,891,667 -
============== =========== =============== =============
- ----------
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
STRATEGY INTERNATIONAL INSURANCE GROUP, INC. AND SUBSIDIARIES
FORMERLY CI SELL CARS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended
January 31,
2005 2004
---- ----
Cash Flows (used in) Operating Activities:
Net (loss) on common stock $ (12,115,159) $ -
Adjustments to reconcile net (loss) on common stock
to net cash provided by operations:
Amortization of finance cost 264,736 -
Depreciation expense 8,467 -
increase in dividends payable on preferred stock 8,850,476 -
Changes in operating assets and liabilities:
Increase in accounts receivable-other (75,000) -
Increase in mortgage interest receivable (2,410,246) -
Increase in other assets (174,759) -
Increase in claim reserve 1,476,092 -
Increase in accrued expenses 591,386 -
------------------- --------------
Net cash flows used in operating activities $ (3,584,007) -
------------------- --------------
Cash Flows from Investing Activities:
Increase in restricted cash (33,121,338) -
Increase in mortgage receivable (8,000,000) -
Purchase of property and equipment (35,761) -
Increase in loan receivable - affiliates (2,109,218) -
Cash acquired in reverse merger 15,678 -
------------------- --------------
Net cash (used in) investing activities (43,250,639) -
------------------- --------------
Cash Flows Provided by Financing Activities:
Issuance of notes payable 7,000,000 -
Loan payable - related party 400,000 -
Payment of loan payable - related party (125,000) -
Issuance of redeemable preferred stock 50,000,000 -
Finance cost paid (4,103,080) -
Dividend paid on preferred stock (2,616,438) -
------------------- --------------
Net cash provided by financing activities 50,555,482 -
------------------- --------------
Net increase in Cash and Cash Equivalents 3,720,836 -
------------------- --------------
Cash and Cash Equivalents, beginning of period 184,000 -
Cash and Cash Equivalents, end of period $ 3,904,836 $ -
=================== ==============
Supplemental Disclosure of Noncash Investing and
Financing Activities:
Reverse merger:
Common stock issued $ 15,230 $ -
=================== ==============
Liabilities assumed $ 448 $ -
=================== ==============
Cash acquired $ 15,678 $ -
=================== ==============
- ----------
The accompanying notes are an integral part of these consolidated financial
statements. .
-4-
STRATEGY INTERNATIONAL INSURANCE GROUP, INC. AND SUBSIDIARIES
FORMERLY CI SELL CARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2005
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
- ---------------------
On June 14, 2004, CI Sell Cars,Inc. ("we" or the "Company") completed the
transactions contemplated under an Agreement and Plan of Reorganization (the
"Definitive Stock Exchange Agreement") with Strategy Holding Company Limited
("Strategy"), Frank Ney and Kavrav Ltd. (collectively the "Sellers"). Pursuant
to the Definitive Stock Exchange Agreement, Strategy became a wholly owned
subsidiary of the Company. The Company subsequently changed its name to Strategy
International Insurance Group, Inc. The Definitive Stock Exchange Agreement
provided for the acquisition of Strategy by the Company; the purchase and
retirement of 25,827,000 shares of the Company's common stock by Strategy; the
forward split of the remaining 1,105,000 shares of the Company's common stock
into 15,470,000 shares; the issuance of 45,100,000 shares of the Company's
common stock to the Sellers; and the issuance of 900,000 shares of the Company's
common stock as a finders fee.
The stock exchange transaction is accounted for as a purchase with the Company
deemed the acquiror for accounting and financial reporting purposes. However,
since the sellers owned approximately 74% of our outstanding shares after the
transaction, no step up in basis or goodwill will be recorded. This accounting
treatment is in accordance with the Securities and Exchange Commission Staff
Members position that the acquisition by a public shell of the assets or
business of a private company should be accounted for at historical cost and
accounted for as a reverse merger.
The accompanying unaudited financial statements have been prepared in accordance
with the accounting principles generally accepted in the United States of
America and the rules and regulations of the United States Securities and
Exchange Commission for interim financial information. Accordingly, they do not
include all the information and footnotes necessary for a comprehensive
presentation of financial position and results of operations and should be read
in conjunction with our Annual Report Form 10-KSB for the year ended April 30,
2004 and in conjunction with the financial statements of the company included in
form 8-KA dated August 30, 2004.
The statements of operations for the three and nine months ended January 31,
2005 and 2004 are not necessarily indicative of results for the full year.
-5-
It is management's opinion, however, that all material adjustments (consisting
of normal recurring adjustments) have been made which are necessary for fair
financial statement presentation. The results for the interim period are not
necessarily indicative of the results to be expected for the year.
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 reflects the potential dilution that could occur if
securities or other agreements to issue common stock were exercised or converted
into common stock. Diluted earnings per share is computed based upon the
weighted average number of common shares and dilutive common equivalent shares
outstanding, which include convertible debentures, stock options and warrants.
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America and all
amounts are stated in U.S. dollars.
2. CAPITAL TRANSACTIONS
On November 16, 2004, a group of investors invested an aggregate amount of
US$50,000,000 in Units (the "Units") comprised of securities issued by the
Registrant and its subsidiary, Strategy Real Estate Investments Ltd., a
corporation formed under the laws of the Province of Ontario, Canada ("SREI").
Each Unit is comprised of (i) one share of Series A Insured Redeemable Preferred
Stock of SREI (the "Series A Preferred"), (ii) one share of Series B Preferred
Stock of SREI (the "Series B Preferred") and (iii) a warrant (the "Warrant") to
purchase shares of common stock, $0.01 par value, of the Registrant. The
purchase price was $10,000 per Unit.
The funds will be used to invest, through placements of short-term second
mortgages, in five (5) special purpose residential real estate properties
("SPEs") in Canada, being developed by the Lux Group Inc., a company formed
under the laws of the Province of Ontario, Canada and under common control with
SREI.
The offer and sale of the Units was made to "accredited investors", as that term
is defined under Rule 501 under Regulation D of the Securities Act of 1933, as
amended, pursuant to the exemption from registration requirements under Rule 506
and Section 4(2) of the Securities Act.
Series A Preferred of SREI
- --------------------------
The Series A Preferred shares will pay dividends at an annual rate of ten
percent (10%), which shall be paid quarterly. An insurance company with an "A-"
rating by AM Best's is insuring payment of 100% of the quarterly dividends on
the Series A Preferred over the three (3)
-6-
year period they will be outstanding and the liquidation preference of the
Series A Preferred pursuant to a Contingent Guarantee Policy. 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, three (3) years from
the date of issuance (the "Maturity Date"), at their full liquidation
preference, net of all appropriate Canadian withholding and income tax, plus all
accrued and unpaid dividends.
Series B Preferred of 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.
Warrants to Purchase Common Stock of the Registrant
- ---------------------------------------------------
Each Warrant is exercisable, prior to the Maturity Date, into shares of common
stock, $.001 par value, of the Registrant. Each Warrant will allow 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.
In order to exercise the Warrant, an investor will be required to submit for
cancellation a certificate representing Series A Preferred shares with the
appropriate liquidation preference. The Company was obligated to file a
registration statement to register such number of shares of its common stock
into which the warrants are exercisable in accordance with the terms of a
Registration Rights Agreement, not later than December 31, 2004, and the
registration statement was to be declared effectively by April 1, 2005 or the
Company will incur a 2% monthly penalty. The company is currently negotiating an
extension to this penalty covenant.
In connection with the sale of the SREI units, the Company recorded the proceeds
as long term debt in accordance FASB 150 (Accounting for Equity Instruments with
both Debt and Equity Characteristics). In addition, the Company recorded
$4,103,080 as additional unamortized finance costs for costs incurred in
connection with the sale of the Units. The Company will amortize the additional
finance costs over thirty-six (36) months, the term of the redeemable insured
preferred stock. The Company expensed $264,736 in respect of such amortization
during the period ending January 31, 2005.
-7-
The Company used $8,080,000 from the proceeds of the SREI transaction to acquire
(2) two $4,000,000 mortgages on properties being developed by the Lux Group Inc.
The mortgages yield 13.2% interest and are collateralized by the property. In
addition, the Company extended other loans and advances on behalf of the SPE's
as of January 31, 2005. As of January 31, 2005, SREI retained $33,121,338 of
cash on hand, which it derived from the November 2004 private placement of
Units. As noted above, this cash will be used in the acquisition of certain real
estate properties by SREI. Accordingly, this cash is classified as restricted
cash on the Company's consolidated balance sheet.
3. Planned Acquisition
On December 17, 2004, we announced the we intend to acquire all the outstanding
common stock of RS Group of Companies, Inc. (OTCBB:RSGC) for combination of cash
and stock. Our management, together with RS Group of Companies, Inc., is in the
process of determining the most effective method of achieving this acquisition.
We have engaged a financial services firm to render fairness opinions regarding
the transaction. We currently engaged in diligence and negotiations with RS
Group. We do not anticipate that the transaction will be conditioned upon
obtaining any external financing. A majority of the issued and outstanding
shares of common stock of RS Group of Companies are owned by our affiliates,
executive officers and directors.
4. Notes Payable
During December, 2004 the Company borrowed $7,000,000 through the issuance of
12% promissory notes due June 23, 2005. The proceeds of the notes were to be
used to partially repay amounts outstanding on existing mortgage loans of the
SVC- Napa , L.P, California limited partnership relating to its time share real
property located in Napa, California.
5. Employment and Consulting Agreements
During the quarter ending January 31, 2005, the Company entered into consulting
agreements commencing October 1, 2004 with three (3) individuals serving in
executive capacities to the Company. The consulting contracts are for $500,000
annually each. The expiration dates of these consulting agreements have not yet
been agreed upon.
During February, 2005, the Company retained the services of Louis E. Lettieri
CPA to act as Chief Financial Officer. While the terms of a final contract are
being finalized. Mr. Lettieri is currently being compensated at an annual salary
of $350,000 plus expenses and benefits commensurate with the position. Also
during the quarter ending January 31, 2005, the Company retained the service of
Philip Armstrong to act as the managing director for the London, England
operation. The final terms of his contract are still being negotiated. However
Mr. Armstrong is currently being compensated on the basis of (pound)125,000
(Approximately $240,450) plus benefits and expenses.
6. Related Party Transactions
Strategy has received loans and made advances to entities under common control.
As of January 31, 2005, $2,109,218 was due to the Company. During March 2005 the
amount was collected in full. In addition, the Company paid $3,000,000 to the
R.S. Group in connection with the placement of financial guarantee insurance for
the SREI real estate properties.
-8-
Item 2. Management's Discussion and Analysis or Plan of Operation.
The following contains forward-looking statements based on current
expectations, estimates and projections about our industry, management's
beliefs, and assumptions made by management. All statements, trends, analyses
and other information contained in this report relative to trends in our
financial condition and liquidity, as well as other statements, including, but
not limited to, words such as "anticipate," "believe," "plan," "intend,"
"expect," "predict," and other similar expressions constitute those statements.
These statements are not guarantees of future performance and are subject to
risks and uncertainties that are difficult to predict. Accordingly, actual
results may differ materially from those anticipated or expressed in the
statements. Potential risks and uncertainties include, among others, those set
forth in our Form 10-KSB Report for the year ended April 30, 2004. Particular
attention should be paid to the cautionary statements involving our limited
operating history, the unpredictability of our future revenues, the
unpredictable and evolving nature of our business model, the competitive
financial services industries and the risks associated with capital
requirements, systems development, management of growth and business expansion,
as well as other risk factors.
Results Of Operations
Overview
Strategy International Insurance Group, Inc. ("we" or the "Company") is
the publicly-traded parent company of Strategy Holding Company Limited and its
wholly-owned subsidiary, Strategy Insurance Limited, that were incorporated in
Barbados on December 23, 2003 under the Exempt Insurance Act. Strategy Holding
Company Limited is not engaged in any business other than owning Strategy
Insurance Limited. Strategy Insurance Limited is the operating insurance company
of the group.
In early February 2004, as part of its initial capitalization, Strategy
Holding Company Limited received, as consideration for the issuance of shares of
its Series A Preferred Stock and Series B Preferred Stock, mortgage notes
receivable totaling $104,231,610. The notes mature on April 1, 2014. The notes
are collateralized by real estate having an estimated fair market value
(confirmed by independent appraisals) equal to the carrying amount of the
mortgage notes.
On June 14, 2004, a closing was completed under an Agreement and Plan
of Reorganization (the "Definitive Stock Exchange Agreement") with Strategy,
Frank Ney and Kavrav Ltd. Pursuant to the Definitive Stock Exchange Agreement,
Strategy Holding Company Limited became a wholly owned subsidiary of CI Sell
Cars, Inc. (sometimes referred to as "CI"), the predecessor company. In
connection therewith, Frank Ney exchanged his 60 shares of common stock of
Strategy Holding Company Limited for 26,691,840 shares of the Company and Kavrav
Ltd. exchanged its 40 shares of common stock of Strategy Holding Company Limited
for 18,408,160 shares of the Company. On October 29, 2004, CI changed its name
to Strategy International Insurance Group, Inc.
-9-
Through Strategy Insurance Limited, we are a holding company for an
integrated, international group of providers of specialty lines of insurance,
reinsurance and structured risk solutions, focusing on credit enhancement,
contingent liability and other specialty insurance and reinsurance. We have
developed and are implementing a strategy to design, structure and sell a broad
series of pass-through risk, specialty insurance and reinsurance platform
products. We have offices in Barbados, West Indies; London, England; and
Toronto, Canada. We are in the process of opening an office in Newark, New
Jersey.
Strategy Insurance Limited received an Exempt Insurance License from
the Ministry of Finance, Barbados, West Indies, on March 25, 2004, which
authorizes Strategy Insurance Limited to engage in the following classes of
insurance business from within Barbados:
o General insurance business.
o Credit and liability insurance.
o Mortgage indemnity insurance.
o Rental guarantee insurance.
o Reinsurance.
Through January 31, 2005, we have generated revenues of $1,953,458 from
writing general insurance business policies, credit insurance policies,
liability insurance policies and reinsurance policies.
On November 16, 2004, a wholly-owned subsidiary of Strategy Insurance
Limited, Strategy Real Estate Investments Ltd., a corporation formed under the
laws of the Province of Ontario, Canada, and the Company sold to a group of
institutional and accredited investors in a private placement exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended, an
aggregate amount of $50,000,000 of units, each unit consisting of (a) one share
of Series A Insured Redeemable Preferred Stock of Strategy Real Estate
Investments; (b) one share of Series B Preferred Stock of Strategy Real Estate
Investments; and (c) warrants to purchase shares of our common stock, $.001 par
value per share. The purchase price was $10,000 per unit.
On December 17, 2004, we announced that we intend to acquire all the
outstanding common stock of RS Group of Companies, Inc. (OTCBB:RSGC) for a
combination of cash and stock, which would result in an approximate value to RS
Group common stockholders of $1.75 per common share (approximately 65 million
shares outstanding), representing a 237 percent premium over the closing price
of $0.52 on December 15, 2004. Our management, together with RS Group of
Companies, Inc., is in the process of determining the most effective method of
achieving this acquisition. We have engaged a valuation firm to provide us with
an independent valuation and fairness opinion regarding the transaction. We are
currently engaged in diligence and negotiations with RS Group. We do not
anticipate that the transaction will be conditioned upon obtaining any external
financing. A majority of the issued and outstanding shares of common stock of RS
Group of Companies are owned by our affiliates, executive officers and
directors.
We are a recent "start-up" and we are in our development stage. We have
limited financial and operating history. As of January 31, 2005 we underwrote
insurance policies in the amount of $1,953,458 and we had working capital of
$20,824,222.
-10-
Results of Operations For The Three Months Ended January 31, 2005
Revenues. Revenues for the three months ended January 31, 2005 were
$1,512,087 consisting of insurance premiums generated by business written in
Europe and Asia. Management believes the Registrant will continue to generate
revenues from international sources as a result of its continuing working
relationship with insurance brokers in London.
General and Administrative Expenses. General and Administrative
Expenses for the three months ended January 31, 2005 were $2,909,090, comprised
of claims reserves, payroll, travel, legal and accounting fees, and consulting
fees and office expenses (including rent) and various other immaterial costs. We
anticipate that as the business grows we will likely see increases in virtually
all expense categories, particularly during the course of the next 12 months as
the company moves out of its initial start-up phase into a full operating
status.
Other Revenue (Expense). Other Revenue (Expense) for the three months
ended January 31, 2005 were $874,382, comprised of interest income on
$104,231,610 of Mortgage Notes Receivable at a 2.5% annual interest rate, two
$4,000,000 Mortgage Notes Receivable at 13.2% annual rate, interest earned on
overnight investment, and interest expense paid on $7,000,000 of notes payable.
Dividends on Preferred Stock. Dividends on Preferred Stock for the
three months ended January 31, 2005 were $3,638,895, comprised of a 10% dividend
payable on the Cumulative Preferred A and Cumulative Preferred B shares issued
and outstanding.
Results of Operations For The Nine Months Ended January 31, 2005
Revenues. Revenues for the nine months ended January 31, 2005 were the
$1,953,458.
General and Administrative Expenses. General and Administrative
Expenses for the nine months ended January 31, 2005 were $4,117,670, comprised
of claims reserves, payroll, legal and accounting fees, consulting expense and
office costs (including rent), and other immaterial operating costs.
Other Revenue (Expense). Other Revenue (Expense) for the nine months
ended January 31, 2005 were $2,403,947, comprised of interest income on the
Mortgage Notes Receivable of $104,231,610, two $4,000,000 Mortgage Notes
Receivable at 13.2% annual rate, interest earned on overnight investment, and
interest expense paid on $7,000,000 of notes payable.
Dividends on Preferred Stock. Dividends on Preferred Stock for the nine
months ended January 31, 2005 were $8,850,475, comprised of 10% dividends
payable on the Cumulative Preferred A and Cumulative Preferred B shares issued
and outstanding.
-11-
Liquidity and Capital Resources
As of January 31, 2005 we had cash and cash equivalents of $3,904,836
compared to $415,761 as of October 31, 2004. The increase in cash and cash
equivalents is principally a result of the issuance of $7,000,000 of notes
payable due in June 2005. In addition, as of January 31, 2005, our subsidiary
SREI had $33,121,338 of cash on hand, which it derived from the November 2004
private placement of Units. SREI's cash will be used in the acquisition of
certain real estate properties by SREI. Accordingly, the SREI cash is classified
as restricted cash on the Company's consolidated balance sheet.
As of January 31, 2005 we had cash and cash equivalents of $3,904,836
compared to $415,761 as of October 31, 2004. The increase in cash and cash
equivalents is principally a result of the issuance of $7,000,000 of notes
payable due in June 2005. In addition, as of January 31, 2005, our subsidiary
SREI had $33,121,338 of cash on hand, which it derived from the November 2004
private placement of Units. SREI's cash will be used in the acquisition of
certain real estate properties by SREI. Accordingly, the SREI cash is classified
as restricted cash on the Company's consolidated balance sheet.
The company's operating expenses are currently approximately $350,000
per month. These are anticipated to increase to approximately $450,000 per month
by the end of 2005 as business increases and the costs necessary to generate and
support increased business also increase, beginning with increased staffing.
Cash will be generated from operations and from a planned equity raise. In the
event that the contemplated equity raise is not successful, the Company believes
that it will have sufficient resources from operations and other sources to
operate throughout 2005, but its rate of growth may be limited as a result of
the lack of resources.
The Company 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 reach
fruition. The Company is actively quoting on business. It is difficult to
predict at this early stage in the Company's 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 Financing
The Company has no off-balance sheet financing arrangements within the
meaning of Item 303(c) of Regulation S-B.
Item 3. Controls and Procedures.
Strategy International Insurance Group, Inc. ("we" or the "Company"),
formerly known as CI Sell Cars, Inc., merged on June 14, 2004 with Strategy
Holding Company Limited, a private company. Strategy Holding Company Limited
owns Strategy Insurance Limited, a Barbados corporation through which we operate
in the insurance and reinsurance businesses. We are currently developing a
business and implementing systems of internal and disclosure controls. Within
the ninety-day period preceding the filing of this report, our management
evaluated the effectiveness of the design and operation of its disclosure
controls and procedures (the "Disclosure Controls") as of the end of the period
covered by this Form 10-QSB and any changes in internal controls over financial
reporting that occurred during the last quarter of our fiscal year. This
evaluation ("Controls Evaluation") was done under the supervision and with the
participation of management, including the Chief Executive Officer ("CEO") and
Chief Financial Officer ("CFO").
Limitations on The Effectiveness Of Controls
A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the
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benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, have been detected. Because of the inherent limitations in a cost effective
control system, misstatements due to error or fraud may occur and not be
detected. We will conduct periodic evaluations of our internal controls to
enhance, where necessary, our procedures and controls.
Conclusions
Based upon the Controls Evaluation, the CEO and CFO have concluded that
the Disclosure Controls are effective in reaching a reasonable level of
assurance that management is timely alerted to material information relating to
the Company during the period when its periodic reports are being prepared. In
accord with the U.S. Securities and Exchange Commission's requirements, the CEO
and CFO conducted an evaluation of the Company's internal control over financial
reporting (the "Internal Controls") to determine whether there have been any
changes in Internal Controls that occurred during the quarter which have
materially affected or which are reasonable likely to materially affect Internal
Controls. Based on this evaluation, there have been no such changes in Internal
Controls during the period covered by this report.
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PART II-- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 31.1 Certification of Chief Executive Officer of Periodic Report
pursuant to Rule 13a-14a and Rule 15d-14(a).
Exhibit 31.2 Certification of Chief Financial Officer of Periodic Report
pursuant to Rule 13a-14a and Rule 15d-14(a).
Exhibit 32.1 Certification of Chief Executive Officer of pursuant to
18 U.S.C. - Section 1350.
Exhibit 32.2 Certification of Chief Financial Officer of pursuant to
18 U.S.C. - Section 1350.
(b) Reports on Form 8-K:
(1) Current Report on Form 8-K/A, filed with the Securities and
Exchange Commission on November 11, 2004.
(2) Current Report on Form 8-K, filed with the Securities and Exchange
Commission on December 22, 2004.
(3) Current Report on Form 8-K, filed with the Securities and Exchange
Commission on January 25, 2005.
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SIGNATURES
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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.
March 22, 2005 By: /s/ Stephen Stonhill
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Stephen Stonhill
Chairman of the Board and Chief Executive Officer
March 22, 2005 By: /s/ Louis Lettieri
----------------------------------------
Louis Lettieri
Chief Financial Officer
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