**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-QSB**





x
            **Quarterly
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
                of 1934**
              For
                the quarterly period ended:      June 30,
                2006.







o
            **Transition
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
                of 1934**
              For
                the transition period from ________ to
                _________




Commission
      File Number:    0-51213





**XL
      GENERATION INTERNATIONAL INC.**


(Exact
      Name of Small Business Issuer as Specified in Its Charter)





**NEVADA**
            **20-0909393**(State
                or other jurisdiction of
            (IRS
                Employerincorporation
                or organization)
            Identification
                Number)








**Sumpfstrasse
      32**


**6304
      Zug**


**Switzerland**





(Address
      of principal executive offices)





**4141
      723 1090**





(Issuer’s
      telephone number, including area code)





**460
      Saint-Gabriel, Suite 21**


**Montréal
      Québec H2Y 2Z9**


**Canada**





(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 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:





The
      Issuer had 34,578,268 shares of Common Stock, par value $.001, outstanding
      as of
      September 7, 2006.




Transitional
      Small Business Disclosure format (Check one):  Yes o No x





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        to Table of Contents**


TABLE
      OF CONTENTS





Page


PART
                  I
              FINANCIAL
                  INFORMATION (unaudited)
              1Item
                  1.
              Financial
                  Statements
              1Balance
                  Sheet
              2Statements
                  of Stockholders Deficiency
              3Statements
                  of Operations
              4Statements
                  of Cash Flows
              5Notes
                  to Financial Statements
              6Item
                  2.
              Management’s
                  Discussion and Analysis
              13Item
                  3.
              Controls
                  and Procedures
              16PART
                  II
              OTHER
                  INFORMATION
              17Item
                  1.
              Legal
                  Proceedings
              17Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds
              17Item
                  3.
              Defaults
                  Upon Senior Securities
              18Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              18Item
                  5.
              Other
                  Information
              18Item
                  6.
              Exhibits
                  and Reports on Form 8-K
              18SIGNATURES
              
              21




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**PART
      I****FINANCIAL
      INFORMATION**





**Item
      1.****Financial
      Statements******





The
      accompanying unaudited financial statements have been prepared in accordance
      with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B,
      and, therefore, do not include all information and footnotes necessary for
      a
      complete presentation of financial position, results of operations, cash flows,
      and stockholders’ equity in conformity with generally accepted accounting
      principles. In the opinion of management, all adjustments considered necessary
      for a fair presentation of the results of operations and financial position
      have
      been included and all such adjustments are of a normal recurring nature. It
      is
      suggested that the following consolidated financial statements be read in
      conjunction with the year-end consolidated financial statements and notes
      thereto included in our Annual Report on Form 10-KSB for the year ended
      December 31, 2005. Operating results for the three months ended June 30,
      2006 are not necessarily indicative of the results that can be expected for
      the
      year ending December 31, 2006 or for any other period.


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XL
        GENERATION INTERNATIONAL INC.
 (formerly
        CYGNI SYSTEMS CORPORATION)
 BALANCE
        SHEET
 June
        30,
        2006
 (Unaudited)
 
 June
                  30
              
              December
                  31,2006
              
              2005(Audited)ASSETSCURRENT
                  ASSETS:Cash
              
              
              107,680
              
              
              262,446Inventory
              
              
              58,711
              
              
              54,971Note
                  receivable - Related Party
              
              
              0
              
              
              1,047,643Prepaid
                  expenses and sundry current assets
              
              
              284,333
              
              
              157,344TOTAL
                  CURRENT ASSETS
              
              
              450,724
              
              
              1,522,404PROPERTY
                  AND EQUIPMENT, AT COST, LESS ACCUMULATED DEPRECIATION
              
              
              60,627
              
              
              46,128TOTAL
                  ASSETS
              
              
              511,351
              
              
              1,568,532LIABILITIES
                  AND STOCKHOLDERS’ DEFICIENCYCURRENT
                  LIABILITIES:Note
                  payable-shareholders
              
              
              1,203,547
              
              
              976,873Note
                  payable- supplier
              
              
              1,895,929
              
              
              2,332,037Accrued
                  expenses and sundry current liabilities
              
              
              1,618,738
              
              
              1,020,068TOTAL
                  CURRENT LIABILITIES
              
              
              4,718,214
              
              
              4,328,978TOTAL
                  OTHER LIABILITIESSTOCKHOLDERS'
                  DEFICIENCYCommon
                  stock
              
              
              102,778
              
              
              92,923Additional
                  paid in capital
              
              
              8,743,014
              
              
              4,195,467Accumulated
                  Deficit
              
              
              (13,442,783
              )
              
              (7,311,239
              )Other
                  comprehensive income/(loss)
              
              
              390,128
              
              
              262,403TOTAL
                  STOCKHOLDERS' DEFICIENCY
              
              
              (4,206,863
              )
              
              (2,760,446
              )TOTAL
                  LIABILITIES AND STOCKHOLDERS DEFICIENCY
              
              
              511,351
              
              
              1,568,532




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XL
      GENERATION INTERNATIONAL INC.


(formerly
      CYGNI SYSTEMS CORPORATION)


STATEMENTS
      OF STOCKHOLDERS DEFICIENCY


Year
      ended December 31 2005 and Six months ended June 2006


(unaudited)




StockholdersDeficiency
            
            Common
                stock
            
            Additional
                paid
              in
                Capital
            
            Accumulated
              Deficit
            
            Other
                Comprehensive
              Income
                (Loss)
            
            TotalJanuary
                1, 2005
            
            
            88,390
            
            
            —
            
            
            (1,954,958
            )
            
            (149,897
            )
            
            (2,016,465
            )Proceeds
                fromthe
                issuance ofcommon
                stock
            
            
            4,533
            
            
            4,195,467
            
            
            —
            
            
            —
            
            
            4,200,000Year
                End Loss
            
            
            —
            
            
            —
            
            
            (5,356,280
            )
            
            
            
            
            (5,356,281
            )Other
                comprehensiveLoss
            
            
            
            
            
            
            
            
            
            
            
            412,300
            
            
            412,300December
                31, 2005
            
            
            92,923
            
            
            4,195,467
            
            
            (7,311,239
            )
            
            262,403
            
            
            (2,760,446
            )Proceeds
                fromthe
                issuance ofcommon
                stock
            
            
            9,855
            
            
            4,547,547
            
            
            —
            
            
            —
            
            
            4,557,402Year
                End Loss
            
            
            —
            
            
            —
            
            
            (6,131,544
            )
            
            
            
            
            (6,131,544
            )Other
                comprehensiveLoss
            
            
            
            
            
            
            
            
            
            
            
            127,725
            
            
            127,725June
                30, 2006
            
            
            102,778
            
            
            8,743,014
            
            
            (13,442,783
            )
            
            390,128
            
            
            (4,206,863
            )




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XL
      GENERATION INTERNATIONAL INC.


(formerly
        CYGNI SYSTEMS CORPORATION)
 STATEMENTS
        OF OPERATIONS
 
 Six
        months ended June 30, 2006 and June 30, 2005, and
 three
        months ended June 30, 2006 and June 30, 2005
 (unaudited)
 
 Six
                  months ended
              
              Three
                  Months EndedJune
                  30
              
              June
                  30
              
              June
                  30
              
              June
                  302006
              
              2005
              
              2006
              
              2005SALES
              
              
              1,789,665
              
              
              698,145
              
              
              578,694
              
              
              453,794COSTS
                  AND EXPENSES:Cost
                  of sales
              
              
              1,274,935
              
              
              1,034,063
              
              
              467,655
              
              
              672,141Selling,
                  general and administrative
              
              
              4,229,826
              
              
              1,690,312
              
              
              2,276,129
              
              
              1,098,703Provision
                  for note receivable
              
              
              2,321,020
              
              
              
              
              
              103,413Interest
              
              
              88,041
              
              
              2,312
              
              
              45,889
              
              
              1,502Foreign
                  exchange loss
              
              
              7,386
              
              
              26,995
              
              
              291
              
              
              17,547TOTAL
                  COSTS AND EXPENSES
              
              
              7,921,210
              
              
              2,753,682
              
              
              2,893,377
              
              
              1,789,893NET
                  LOSS
              
              
              (6,131,544
              )
              
              (2,055,537
              )
              
              (2,314,682
              )
              
              (1,336,099
              )Net
                  Loss Per Share
              
              $
              (0.18
              )
              $
              (0.30
              )
              $
              (0.07
              )
              $
              (0.20
              )Average
                  weighted Number of Shares
              
              
              34,044,725
              
              
              6,762,728
              
              
              34,044,725
              
              
              6,762,728


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XL
      GENERATION INTERNATIONAL INC.


(formerly
      CYGNI SYSTEMS CORPORATION)


STATEMENTS
      OF CASH FLOWS


Six
      months ended June 30, 2006 and 2005


(unaudited)





June
                30
            
            June
                302006
            
            2005Net
                loss
            
            
            (6,131,544
            )
            
            (2,055,537
            )Adjustment
                to reconcile net income to net cash provided by operating
                activitiesDepreciation
                and amortization
            
            
            8,539
            
            
            209Unrealized
                foreign exchange
            
            
            127,725Changes
                in operating assets and liabilities:Inventory
            
            
            (3,740
            )Note
                receivable
            
            
            1,047,643Prepaid
                expenses and sundry current assets
            
            
            (126,989
            )
            
            10,334Accrued
                expenses and sundry current liabilities
            
            
            598,670
            
            
            (398,474
            )Net
                cash used by operating activities
            
            
            (4,479,696
            )
            
            (2,443,468
            )Investing
                activitiesAcquisitions
                of property and equipment
            
            
            (23,038
            )
            
            —Net
                cash used in investing activitiesFinancing
                activitiesAdvances
                to related partyAdvances
                to stockholders
            
            
            
            
            
            416,047Issuance
                of common stock
            
            
            9,855Premium
                0n issuance of common stock
            
            
            4,547,547
            
            
            —Note
                receivable - Related party
            
            
            0Proceeds
                of loans payable shareholder
            
            
            226,674
            
            
            —Proceeds
                (repayments) of loans from suppliers
            
            
            (436,108
            )
            
            1,657,864Net
                cash provide by financing activities
            
            
            4,347,968
            
            
            2,073,911Increase
                (decrease) in cash
            
            
            (154,766
            )
            
            (369,557
            )Cash-
                beginning of period
            
            
            262,446
            
            
            434,194Cash-
                end of period
            
            
            107,680
            
            
            64,637




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NOTE
      1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





NATURE
      OF
      BUSINESS





XL
      Generation International Inc. (the "Company") was incorporated in Nevada on
      March 18, 2004 as Cygni Systems Corporation and changed its name to XL
      Generation International Inc. on August 23, 2005. On August 19, 2005, the
      Company entered into a Share Exchange Agreement (“SEA”) with XL Generation AG
      ("XLG") pursuant to which the Company acquired all of the issued and outstanding
      shares of common stock of XLG in exchange for the issuance of fifteen million
      shares of restricted common stock (the "Common Stock").





In
      connection with the SEA, the Company commenced actions to provide for the
      revision of the Company's capital structure. Pursuant to such actions, DT
      Crystal Holdings Ltd., the controlling shareholder of the Company prior to
      entry
      into the SEA, as inducement to the shareholders of XLG to enter into the SEA,
      agreed to cancel four million shares of the Company’s Common Stock and accept in
      consideration thereof an option exercisable for 500,000 shares of the Company.
      In addition, the Company made a stock dividend to shareholders of record of
      the
      Company of nine shares of Common Stock for each one share of Common Stock held
      of record, provided, however, each of DT Crystal Holdings Ltd. and the Alain
      Lemieux Trust, a trust formed in the Jersey Islands, and Mr. Albert Beerli
      waived their respective rights to such stock dividend. The record date for
      such
      dividend was set as August 29, 2005.





The
      Company now serves as the holding company for XLG. The Company has no other
      operations other than XLG.





XLG
      was
      incorporated in 1991, and was inactive until March of 2004, when it was granted
      the exclusive worldwide right to manufacture, promote and sell XL Turf products.
      XL Turf is an artificial pitch used primarily in soccer stadiums and indoor
      recreational facilities. XLG has its operational headquarters in Zug,
      Switzerland. XLG is a provider of artificial turf to international soccer clubs,
      educational institutions and other leisure providers across North America,
      Europe and Asia. XLG has developed new artificial turf systems for sports
      fields. XLG holds the worldwide commercial and manufacturing rights for the
      "XL
      technology." The “XL technology” consists of six patents. Of these six patents,
      one is patented in 38 countries, with patents pending in 6 more countries;
      another is patented in 16 countries, with patents pending in 28 more; two of
      these patents are pending in seven countries; and two of the six patents are
      pending in one country each. XLG produces its owned product lines under the
      "XL
      Generation" trademark, including the "genuine" XLTURF sport systems. XLG also
      distributes its products worldwide through an extensive licensed distribution
      network, designing and manufacturing private labeled products using the "XL
      technology."





XLG
      is
      represented in Canada by XL Generation Canada Inc. (XLG Canada) which was
      incorporated on November 11, 2003 under the name of Symbior Marketing NA Inc.,
      under the Companies Act, part 1A (Quebec). From inception until March 2004,
      XLG
      Canada had no active operations. The head office was, and is still today,
      situated at 1000, de la Gauchetière West, Suite 2900, Montreal, Quebec, H3B 4W5,
      Canada. From the incorporation date to April 5, 2004 the sole shareholder of
      XLG
      Canada was Symbior Marketing AG. On April 5, 2004, Symbior marketing AG
      transferred all the issued and outstanding shares of XLG Canada to XL Generation
      AG for nominal consideration. Subsequently, on September 1, 2004, XL Generation
      AG transferred all the issued and outstanding shares of XLG Canada to Albert
      Beerli. Mr. Beerli is a Director of XLG and a Director of the Company and a
      shareholder of both XLG and the Company. The transfer was made for a nominal
      consideration. In February 2004, XLG entered into a Management Agreement (the
      “Management Agreement”) with XLG Canada. The Management Agreement provided that
      XLG Canada would act as XLG’s representative in Canada. The Management Agreement
      provided that XLG Canada would (i) register with Canadian tax authorities;
      (ii)
      employ the staff required by XLG in Canada; (iii) pay the salary of XLG’s
      Canadian staff; (iv) reimburse employees of XLG, upon the approval of XLG;
      (v)
      pay certain consulting fees on behalf of XLG; (vi) pay certain fees to Polyprod
      Inc. (a related party service provider to the Company); (vii) maintain a
      separate bank account; (viii) represent XLG in transactions with Polyprod Inc.;
      and (ix) serve as the vendor for any sales of XLG products in Canada. The
      Management Agreement further provides that in the event of a change of
      control,


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XLG
      Canada would continue to act on behalf of XLG in Canada, but any profits would
      be paid to XLG. In the event of a change of control, XLG would have the right
      to
      appoint another party to act as its agent in Canada. The Management Agreement
      provides that in the event of a change of control, in consideration for the
      services to be rendered by XLG Canada to XLG, a fee would be negotiated by
      the
      parties which shall represent the fair market value of services rendered. The
      Management Agreement has no set termination date, but may be terminated at
      any
      time by a written notice sent to the other party at least two (2) months prior
      to the termination date. XLG Canada has never charged a fee to XLG for services
      rendered. Mr. Beerli, acting both on his own behalf and on behalf of XLG has
      executed a memorandum (the “Memorandum”) with XLG and the Company, memorializing
      certain oral agreements previously reached between the Company, XLG and XLG
      Canada. Pursuant to the Memorandum, Mr. Beerli is not entitled to receive any
      compensation or equity benefit from XLG Canada or for his ownership of XLG
      Canada. Any profits from the sales of products of XLG in Canada shall
      pass-through XLG Canada to XLG. All advances made to XLG Canada shall be
      allocated solely for the benefit of XLG.




XLG
      products are produced by Polyprod Inc. (“Polyprod”), a Canadian Corporation,
      pursuant to an Exclusive Manufacturing License Agreement (the “Exclusive
      Agreement”) entered into as of January 2, 2005. Polyprod Inc. provides the
      assembly of the final XLG products, using a combination of turf, glue, and
      Expanded Polypropylene (EPP). Pursuant to the Exclusive Agreement, Polyprod
      manufactures XLG’s products on a cost-plus basis. The Exclusive Agreement has a
      term of ten (10) years.





PRINCIPLES
      OF CONSOLIDATION





The
      consolidated financial statements include the accounts of the Company and its
      subsidiary XLG after the elimination of inter-company accounts and transactions
      up to the transaction date. As required by the SEC in Reverse Takeover
      transactions, the operating entity, in this case XLG, is deemed to be the
      acquirer whose results are reported in these financial statements. Any
      additional stock issued after August 19, 2005 will be recorded as additional
      share capital, as if it was XLG issuing the stock. Any inter-company assets,
      liabilities and internal transactions are eliminated, including any profit
      based
      on inter-company trading.





CASH
      AND
      CASH EQUIVALENTS





The
      Company considers all highly liquid debt instruments with original maturities
      not exceeding three months to be cash equivalents.





INVENTORIES





Inventories
      are valued at the lower of cost determined on the first-in, first-out method
      or
      market.





PROPERTY
      & OFFICE EQUIPMENT





Equipment
      is stated at cost. Depreciation is computed using the straight-line method
      over
      3 to 10 years.





June
                30,2006Computer
                equipment--3 yrs
            
            $
            2,904Furniture
                & fixtures--5 yrs
            
            
            50,064Leasehold
                improvements
            
            
            19,338$
            72,306Less:
                accumulated depreciation
            
            
            ($11,679
            )Balance
                June 30, 2006
            
            $
            60,627




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REVENUE
      RECOGNITION





The
      Company recognizes revenue when it is realized or realizable and earned. The
      Company considers revenue realized or realizable and earned when persuasive
      evidence of an arrangement exists, the product has been shipped or the services
      have been provided to the customer, the sales price is fixed or determinable
      and
      collectibles are reasonably assured. The Company reduces revenue for estimated
      customer returns, rotations and sales rebates when such amounts are estimable.
      When not estimable, the Company defers revenue until the product is sold to
      the
      end customer. As part of its product sales price, the Company provides support,
      which is generally utilized by the customer shortly after the sale.




INCOME
      TAXES





The
      asset
      and liability approach is used to account for income taxes by recognizing
      deferred tax assets and liabilities for the expected future tax consequences
      of
      temporary differences between the carrying amounts and the tax bases of assets
      and liabilities. The Company records a valuation allowance to reduce the
      deferred tax assets to the amount that is more likely than not to be
      realized.





LOSS
      PER
      COMMON SHARE





The
      basic
      net loss per common share is computed by dividing the net loss by the weighted
      average number of common shares outstanding.





Diluted
      net loss per common share is computed by dividing the net loss, adjusted on
      an
      "as if converted" basis, by the weighted average number of common shares
      outstanding plus potential dilutive securities.





WARRANTY
      PROVISIONS





The
      Company provides a reserve based upon management experience and assessment
      of
      potential replacement costs. Company management will continue to monitor the
      stability of its products and will adjust the provision accordingly. During
      2005, management undertook a major review of the warranty policies and reserves
      required as a consequence of significant warranty request from customers in
      North America and Europe. In the second half of the year we found that our
      product during warm weather and direct sun did not withstand the expansion
      of
      the product’s sub-base. As a result the Company developed a “roll system” to
      counter the problem and improved the malleability of the product. During the
      second half of 2005 we commenced a replacement process by replacing problematic
      outdoor products with the new roll system. As at December 31, 2005 we were
      due
      to replace two products in Switzerland and Vancouver, Canada. The reserves
      required to replace these products were estimated at approximately $500,000.
      During the first quarter of 2006 we replaced the field in Wohlen, Switzerland
      at
      a cost of approximately $350,000 including transport and installation. In
      addition, we also replaced faulty products in the US for an additional $150,000.
      The product failure in Wohlen was due to problems with the connectivity of
      the
      panels in warm weather. The original product used a Tongue and Groove system
      which we have discontinued. In the US we have replaced different products for
      different reasons some of which were caused due to chemical complications in
      connection with using the surface for paintball sport. In August 2005 the
      Company installed a product in Interlaken, Switzerland. This product was our
      first type using the “click” connection system. As with the tongue and groove
      system the “click” would not sustain a playable surface in the variation of
      temperatures which were experienced in the area. The management therefore took
      the view to make a provision to replace the Interlaken which will be
      approximately $350,000. We therefore made a warranty reserve release provision
      of $682,000 to replace products in the future in the event that any other
      installed products would fail or not sustain the variation of temperatures.





USE
      OF
      ESTIMATES





In
      preparing financial statements, management makes estimates and assumptions
      that
      affect the reported amounts of assets and liabilities in the balance sheet
      and
      revenue and expenses in the income statement. Actual results could differ from
      those estimates.


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RECENT
      ACCOUNTING PRONOUNCEMENTS





The
      Company does not expect the adoption of recently issued accounting
      pronouncements to have a significant impact on its results of operations,
      financial position or cash flow. For further information regarding recent
      accounting pronouncements, please see Note 12.




NOTE
      2 -
      GOING CONCERN





The
      Company's consolidated financial statements have been prepared on a going
      concern basis, which contemplates the realization of assets and settlement
      of
      liabilities and commitments in the normal course of business for the foreseeable
      future. During the three months period ended June 30, 2006, the Company has
      incurred losses of $2,314,682. The Company has negative working capital of
      $4,267,490 at June 30, 2006, and a stockholders deficiency of $4,206,863 at
      June
      30, 2006. As at June 30, 2006 current assets less current liabilities was a
      net
      liability of $4,267,490. These factors among others raise substantial doubt
      about the Company's ability to continue as a going concern.





Management's
      plans for the Company's continued existence include selling additional stock
      and
      borrowing additional funds to pay overhead expenses while current marketing
      efforts continue to raise its sales volume.





The
      Company's future success is dependent upon its ability to achieve profitable
      operations, generate cash from operating activities and obtain additional
      financing. There is no assurance that the Company will be able to generate
      sufficient cash from operations, sell additional shares of Common Stock or
      borrow additional funds.





The
      Company's inability to obtain additional cash could have a material adverse
      effect on its financial position, results of operations and its ability to
      continue in existence. The consolidated financial statements do not include
      any
      adjustments that might result from the outcome of this uncertainty.





NOTE
      3 -
      NOTE RECEIVABLE - Related party





The
      note
      bears interest at a rate based upon a percentage of sales pursuant to a related
      sales agreement.





NOTE
      4 -
      PREPAID EXPENSES & SUNDRY CURRENT ASSETS





Balance
      consisted of the following at June 30, 2006:





June
                30, 2006Security
                Deposits
            
            $
            16,880Trade
                Debtors
            
            
            226,873Other
                receivable
            
            
            40,580$
            284,333





NOTE
      5 -
      ACCRUED EXPENSES AND SUNDRY CURRENT LIABILITIES





Accrued
      expenses consisted of the following at June 30, 2006:





June
                30, 2006:Accrued
                interest
            
            $
            185,000Accrued
                operating expenses
            
            
            751,738Warranty
            
            
            682,000$
            1,618,738




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Movement
                in the Warrant ProvisionBalance
                as at January 1, 2006
            
            $
            500,000Release
                of Provision
            
            
            (350,000
            )Additional
                Provision
            
            
            532,000Provision
                as at June 30, 2006
            
            $
            682,000




NOTE
      6 - NOTE PAYABLE - SUPPLIER





On
      April
      6, 2006, the Company, XL Generation AG and Stadium SA entered into a Stock
      Purchase Agreement (the "Stadium Stock Purchase Agreement") pursuant to which
      Stadium SA agreed to accept 1,236,824 restricted shares of the Company’s Common
      Stock in lieu of repayment of XL Generation AG indebtedness to Stadium SA of
      2,950,000 Euros (approximately $3,584,545). Previously, the Terenvi Society
      had
      loaned XL Generation AG 1,600,000 Euros pursuant to a loan agreement dated
      December 16, 2004 (the “Terenvi Loan”). The Terenvi Society subsequently
      assigned the right to receive re-payment of the Terenvi Loan to Stadium SA.
      XL Generation AG previously entered into a distribution agreement with the
      Soreve Society on April 13, 2004 (the “Soreve Distribution Agreement”). The
      Soreve Society subsequently transferred to Stadium SA its payment rights under
      the Soreve Distribution Agreement. Pursuant to the Stadium Stock Purchase
      Agreement, the Company agreed to intervene and resolve the indebtedness of
      XL
      Generation AG in respect of the Terenvi Loan and Soreve Distribution
      Agreement by issuing shares of restricted Company Common Stock
      in satisfaction of XL Generation AG obligations.





NOTE
      7 -
      PAYABLE - SHARE HOLDERS





Mr.
      Albert Beerli, a significant shareholder, continued to support the Company
      with
      additional shareholder loans through payment of certain Company overhead
      obligations. The total note balance at June 30, 2006 was $717,447. The note
      carries an interest of 4.5% and is payable on demand.





On
      December 30, 2005, the Company received loans from CAPEX Investment Limited,
      a
      shareholder, in the amount of $300,000. This loan was part of the advance on
      Warrants made by CAPEX as part of the Private Placements executed November
      17,
      2005. This advance carried an interest rate of 10% per annum, and all of the
      advances made as of March 30, 2006 were converted into 1,111,111 restricted
      shares of the Company’s Common Stock.





NOTE
      8 -
      CAPITAL STOCK





The
      company is authorized to issue 100,000,000 shares of Common Stock (par value
      $0.001) of which 34,578,268 were issued and outstanding at of June 30, 2006.
      During the first six months of 2006, the Company issued a total of 4,527,935
      restricted shares of the Company’s Common Stock in connection with various
      contracts, private placements and the exercise of warrants.





NOTE
      9 -
      INCOME TAXES





Income
      taxes are not due since the Company has incurred a loss since inception. The
      Company has deductible net operating losses of approximately $7,321,193 at
      June
      30, 2006. These losses expire as follows: in 2023 $626,000 will expire and
      in
      2024 $2,142,000 will expire.





Components
      of deferred tax assets and liabilities at June 30, 2006 are as
      follows:





June
                30, 2006:Deferred
                tax asset
            
            $
            2,768,000Valuation
                allowance
            
            
            (2,768,000
            )Net
                deferred tax asset
            
            $
            0




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The
      Company has recorded a full valuation allowance against its deferred tax asset
      since it believes it is more likely than not that such deferred tax asset will
      not be realized.




NOTE
      10 -
      COMMITMENTS AND CONTINGENCIES





The
      Company was committed under an operating lease for its New York office that
      called for minimum annual rental of approximately $96,000 per year that was
      to
      expire August 2008. Subsequent to June 30, 2006, the Company decided to close
      its New York office and entered into an agreement with at third party who will
      assume the Company’s obligations toward the said lease.





NOTE
      11-
      RELATED PARTY TRANSACTIONS





From
      time
      to time, Mr. Beerli, a significant shareholder, does advance payments on behalf
      of the Company to cover general overhead items related to the running cost
      of
      the Zug office. As of June 30, 2006, these advances totaled
      $717,447.





For
      the
      first six months of 2006, the Company was charged $131,159 for fees and expenses
      by Greendale Consulting Limited (“Greendale”) for the provision of financial and
      commercial consulting and support services to the Company. Greendale, an entity
      formed in the United Kingdom, is controlled by Flemming Munck, who was a
      director of the Company, as well as the Company's CFO and Treasurer until his
      resignation in August 2006. The outstanding amount owed to Greendale as of
      June
      30, 2006 was $0 ($0 for 2005). On August 21, 2006, Mr. Munck and the Company
      entered into a Mutual Release and Waiver, providing that Mr. Munck will receive
      25,000 shares of the Company’s common stock in exchange for the waiver of any
      and all potential claims he may have against the Company, pursuant to his
      employment agreement or otherwise.





In
      September, 2005, the Company signed an agreement with Mr. Daniel Courteau,
      a
      director of the Company, for the transfer of Mr. Courteau’s rights in the
      bankruptcy of Symbior Technology Ltd for an amount of $60,000 Canadian Dollars
      (CAD). As of June 30, 2006, the outstanding amount owed to Mr. Courteau in
      regard to the said agreement was $0 ($50,000 as of December 31,
      2005).





The
      Company has reviewed the recoverability of a receivable from XL Generation
      Canada Inc., a related party. The Company has taken a charge of $2,321,020
      in
      the first six months of 2006 in respect of such receivable. The funds underlying
      the receivable were previously forwarded to XL Generation Canada Inc. for
      Company-related activities in Canada, including building up inventory with
      our
      suppliers to facilitate shorter delivery periods. As XL Generation Canada Inc.
      does not have sufficient cash resources to repay the advance, management
      determined to take a charge for the full amount of such outstanding
      advances.





Note
      12 -
      RECENTLY ISSUED ACCOUNTING STANDARDS





In
      December 2003, the Financial Accounting Standards Board issued FASB
      Interpretation Number 46-R ("FIN 46-R") "Consolidation of Variable Interest
      Entities." FIN 46-R, which modifies certain provisions and effective dates
      of
      FIN 46, sets forth criteria to be used in determining whether an investment
      in a
      variable interest entity should be consolidated. These provisions are based
      on
      the general premise that if a company controls another entity through interests
      other than voting interests, that company should consolidate the controlled
      entity. The Company believes that currently, it does not have any material
      arrangements that meet the definition of a variable interest entity, which
      would
      require consolidation.





In
      November 2004, the FASB issued SFAS No. 151, "Inventory Costs - An Amendment
      of
      ARB No. 43, Chapter 4" (SFAS No. 151). SFAS No. 151 requires all companies
      to
      recognize a current-period charge for abnormal amounts of idle facility expense,
      freight, handling costs and wasted materials. This statement also requires
      that
      the allocation of fixed production overhead to the costs of conversion be based
      on the normal capacity of the production facilities. SFAS No. 151 will be
      effective for fiscal years beginning after June 15, 2005. The Company does
      not
      expect the adoption of this statement to have a material effect on its
      consolidated financial statements.


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In
      December 2004, the FASB issued SFAS No.123(R), "Share-Based Payment" (SFAS
      No.
      123(R). This statement replaces SFAS No. 123 and supersedes APB 25. SFAS 123(R)
      requires all stock-based compensation to be recognized as an expense in the
      financial statements and that such compensation be measured according to the
      grant-date fair value of stock options. SFAS 123 (R) will be effective for
      annual periods beginning after June 15, 2005. The Company currently does not
      provide for any stock-based compensation and it will evaluate the impact this
      statement will have on its consolidated financial statements if such
      compensation were to take place in the future.




In
      December 2004, the FASB issued SFAS No. 153, "Exchanges on Nonmonetary Assets
      An
      Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions" (SFAS
      153). SFAS 153 eliminates the exception from fair value measurement for
      nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB
      Opinion No. 29, "Accounting for Nonmonetary Transactions," and replaces it
      with
      an exception for exchanges that do not have commercial substance. SFAS 153
      specifies that a nonmonetary exchange has commercial substance if the future
      cash flows of the entity are expected to change significantly as a result of
      the
      exchange. SFAS 153 is effective for fiscal periods beginning after June 15,
      2005. The Company does not expect the adoption of this statement to have a
      material effect on its consolidated financial statements.





In
      May
      2005, the FASB issued SFAS No. 154, "ACCOUNTING FOR CHANGES AND ERROR
      CORRECTIONS, A REPLACEMENT OF APB OPINION NO. 20 AND FASB STATEMENT NO. 3"
      SFAS
      154 applies to all voluntary changes in accounting principles and requires
      retrospective application to prior periods' financial statements of changes
      in
      accounting principle. This statement also requires that a change in
      depreciation, amortization, or depletion method for long-lived, nonfinancial
      assets be accounted for as a change in accounting estimate effected by a change
      in accounting principle. SFAS 154 carries forward without change the guidance
      contained in Opinion No. 20 for reporting the correction of an error in
      previously issued financial statements and a change in accounting estimate.
      This
      statement is effective for accounting changes and corrections of errors made
      in
      fiscal years beginning after December 15, 2005. The Company does not expect
      the
      adoption of this standard to have a material impact on its financial condition,
      results of operations, or liquidity.





Note
      13 -
      SUBSEQUENT EVENTS





On
      August
      16, 2006, Mr. Flemming Munck resigned as the Chief Financial Officer (“CFO”) and
      as a director of the Company. In connection with Flemming Munck’s resignation as
      of the Company, on August 21, 2006, Mr. Munck and the Company entered into
      a
      Mutual Release and Waiver, providing that Mr. Munck will receive 25,000 shares
      of the Company’s common stock in exchange for the waiver of any and all
      potential claims he may have against the Company, pursuant to his employment
      agreement or otherwise.


The
      Company expects to conduct a search for a new CFO as soon as reasonably
      possible. In the interim, Mr. Michel St-Pierre has agreed to serve as Acting
      CFO
      of the Company.





On
      August
      18, 2006, Mr. Alain Lemieux resigned as the Chief Executive Officer (“CEO”) and
      as a director of the Company. In connection with Alain Lemieux’s resignation as
      the CEO of the Company, Mr. Lemieux and the Company entered into a Mutual
      Release and Waiver, pursuant to which Mr. Lemieux has granted the complete
      release and waiver of any unpaid salary, wages and termination payments, with
      the exception of the refunding of all expenditures incurred for the benefit
      of
      the Company. In consideration of such release and waiver, the Company has
      granted Mr. Lemieux the full and final release of any claim, demand or cause
      of
      action related directly or indirectly to his employment with the Company, for
      any act done in good faith in connection with his service as an officer of
      the
      Company. The Company expects to conduct a search for a new CEO as soon as
      reasonably possible. The Chairman of the Board, Mr. Alexander C. Gilmour, has
      agreed to serve as Acting CEO in the interim.





On
      September 5, 2005, Polyprod Inc. (“Polyprod”), a Canadian Corporation that
      provides the final assembly of XLG products on cost-plus basis under an
      Exclusive Manufacturing License Agreement with the Company, sent an invoice
      of
      $723,848 to the Company claiming non-accounted costs for the final assembly
      of
      the Company’s products for the period from October 30, 2004 to October 30, 2005.
      The Company is currently reviewing the validity of Polyprod’s claim. As a
      result, depending on the outcome of


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our
      review of Polyprod’s claim, the Company may have to restate its financial
      statements for the period for which Polyprod may not have fully accounted for
      the costs of the final assembly of the Company’s products.





**ITEM
      2.****Management’s
      Discussion and Analysis**





**The
      Company's Operations**





The
      following discussion of the financial condition and results of operations of
      XL
      Generation International Inc. (referred to herein as the "Company") should
      be
      read in conjunction with the financial statements and the related notes thereto
      included elsewhere in this Quarterly Report on Form 10-QSB for the period ended
      June 30, 2006 (this “Report”). This Report contains certain forward-looking
      statements and the Company's future operating results could differ materially
      from those discussed herein. Certain statements contained in this Report,
      including, without limitation, statements containing the words "believes,"
      "anticipates," "expects" and the like, constitute "forward-looking statements"
      within the meaning of Section 27A of the Securities Act of 1933, as amended,
      and
      Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange
      Act”). However, as the Company issues “penny stock,” as such term is defined in
      Rule 3a51-1 promulgated under the Exchange Act, the Company is ineligible to
      rely on these safe harbor provisions. Such forward-looking statements involve
      known and unknown risks, uncertainties and other factors which may cause the
      actual results, performance or achievements of the Company to be materially
      different from any future results, performance or achievements expressed or
      implied by such forward-looking statements. Given these uncertainties, readers
      are cautioned not to place undue reliance on such forward-looking statements.
      The Company disclaims any obligation to update any such factors or to announce
      publicly the results of any revisions of the forward-looking statements
      contained or incorporated by reference herein to reflect future events or
      developments.





The
      Company was incorporated in the State of Nevada on March 18, 2004 as Cygni
      Systems Corporation. On August 19, 2005, the Company entered into the Share
      Exchange Agreement with XL Generation AG ("XLG"). Pursuant to the terms of
      the
      Share Exchange Agreement, the Company acquired all of the issued and outstanding
      shares of Common Stock of XLG in exchange for the issuance at closing of an
      aggregate of fifteen million shares of restricted Common Stock of the Company.





In
      connection with the Share Exchange Agreement, the Company commenced actions
      to
      provide for the revision of the Company's capital structure. Pursuant to such
      actions, DT Crystal Holdings Ltd., the controlling shareholder of the Company
      prior to entry into the Share Exchange Agreement, as inducement to the
      shareholders of XLG to enter into the Share Exchange Agreement, agreed to cancel
      four million shares of the Company’s Common Stock and accept in consideration
      thereof an option exercisable for 500,000 shares of the Company. In addition,
      the Company made a stock dividend to shareholders of record of the Company
      of
      nine shares of Common Stock for each share of Common Stock held, provided,
      however, each of DT Crystal Holdings Ltd. and the Alain Lemieux Trust, a trust
      formed in the Jersey Islands, and Mr. Albert Beerli waived their respective
      rights to such stock dividend (the record date for such dividend was set as
      August 29, 2005).





XLG,
      based in Zug, Switzerland, designs specific flooring products for sports,
      recreational and commercial markets. XLG has developed new artificial turf
      systems for sports fields. XLG holds the worldwide commercial and manufacturing
      rights for the "XL technology." The “XL technology” consists of six patents. XLG
      produces its owned product lines under the "XL Generation" trademark, including
      the "genuine" XLTURF sport systems. XLG also distributes its products worldwide
      through an extensive licensed distribution network, designing and manufacturing
      private labeled products using the "XL technology."





On
      August
      23, 2005, the Company filed a Certificate of Amendment with the State of Nevada,
      changing its name to "XL Generation International Inc." The Company also changed
      its stock symbol to XLGI.





The
      Company now serves as the holding company for XLG. The Company has adopted
      XLG's
      fiscal year end and the following Management's Discussion and Analysis of
      Financial Condition and Results of


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Operations
      describes the financial condition and results of operations for XLG. The Company
      has no other operations other than XLG and has no employees other than those
      employed by XLG.





XLG
      was
      incorporated in 1991 and was inactive until March of 2004, when WKF/5 Ltd
      granted it the exclusive worldwide right to manufacture, promote and sell XL
      Turf products. XL Turf is an artificial pitch used primarily in soccer stadiums
      and indoor recreational facilities.





**Results
      of Operations**





**For
      the Three and Six Month Periods ended June 30, 2006**





**Overview**


The
      Company posted for the three and six month periods ended June 30, 2006 net
      losses of $2,314,682 and $6,131,544, respectively, as compared to $2,055,537
      and
      $1,336,099 for the comparable periods last year.





**Sales**


For
      the
      three and six month periods ended June 30, 2006, t he
      Company achieved gross revenues of $578,694
      and $1,789,665 ,
      respectively. This compared to $698,145 and $453,794 for the same periods last
      year. For the six month period ended June 30, 2006. During the six month period
      ended June 30, 2006, the company realized 47% of its gross sales in Europe
      with
      the remaining being achieved in North America. During the six months ended
      June
      30, 2006, t he
      Company delivered on three significant sales, mostly XL Pro EF products, two
      in
      Switzerland, one for the Municipality of Riehen ($277,000) and the second one
      for the Municipality of Buhrain ($389,000). The third sale closed in Norway
      for
      the Hammar Olympic Properties ($419,000). The latter sale was the first large
      project we have implemented in Norway and extends our coverage in the
      Scandinavian market.





**Total
      Cost and Expenses**


For
      the
      three and six month periods ended June 30, 2006, the Company incurred total
      cost
      and expenses of $2,893,377 and $7,921,210 ,
      respectively. This compared to $2,753,682 and $1,789,893 for the same periods
      last year. The
      increase in total cost and expenses was caused by a significant cost increase
      in
      corporate overhead, expanding expenses related to the sponsoring of major
      events, increasing marketing and merchandising expenses, additional provisions
      for warranty cost and provisions against advances made to a related party.
      Subsequent to June 30, 2006, the Company has undertaken a review of corporate
      overhead and implemented measures to reduce corporate overhead to a level more
      sustainable and in relation to current revenue volume and management’s
      expectations.





**Cost
      of Sales**


For
      the
      three and six month periods ended June 30, 2006, the Company realized gross
      margins of 19% and 28%, respectively. These margins reflect substantial
      improvements against what the Company previously achieved in any reported
      quarter. This improvement in the Company’s gross margins is mostly attributable
      the continuous production of highly similar products over a long period of
      time.
      Management efficiencies obtained in our supply chain facilitated improvement
      in
      the Company’s position to buy in bulk and obtain better prices. We intend to
      continue where possible to plan our production schedule with our suppliers
      of
      raw materials to further improve gross margins.





**Selling,
      General and Administration**


For
      the
      three and six month periods ended June 30, 2006, the Company incurred selling,
      general and administration expenses of $2,276,129 and $4,229,826 ,
      respectively. This compared to $1,690,312 and $1,098,703 for the same periods
      last year. The increase was due to an expanding staff and added goals for all
      with the goal to improve
      the Company’s ability to respond to regulatory and market requirements.
      Additional management positions were created in the sales and marketing as
      well
      as in operational areas in light of the Company’s goals of producing quality
      products, increasing sales, and lowering prices. We also re-organized the sales
      department and took on new sales staff in France and a new Sales Director in
      the
      United States. Further, we continued to work with the United Nations to
      establish the World Sports Alliance (WSA). This has required for the Company
      added resources allocated in Europe and the US for this purpose. The resources
      required were in the areas of sales, promotions, legal and marketing. In
      addition


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to
      their
      duties with WSA these individuals are also required to assist in sales projects
      in their geographical area as applicable. During the six month period ended
      June
      30, 2006, the Company allocated approximately $130,000 to the WSA project,
      whereas there were no expenditures related to WSA in prior periods.





**Warranty**


For
      the
      three and six month periods ended June 30, 2006, the Company incurred warranty
      expenses of $259,673 and $764,075 ,
      respectively. In 2005,
      our
      management undertook a major review of warranty policies and reserves required
      as a consequence of significant warranty request from customers in North America
      and Europe.  The
      Company now takes warranty reserve based upon management experience and
      assessment of potential replacement costs. The Company management will continue
      to monitor the stability of its products and will adjust the provision
      accordingly. At December 31, 2005, the Company had to replace two products
      in
      Switzerland and Vancouver, Canada. The reserves required to replace these
      products were estimated at approximately $500,000. In the six month period
      ended
      June 30, 2006, the Company replaced the field in Wohlen, Switzerland at a cost
      of approximately $350,000 including transport and installation. In addition,
      the
      Company also replaced faulty products in the US for an additional $150,000.
      The
      product failure in Wohlen was due to problems with the connectivity of the
      panels in warm weather. The product used a Tongue and Groove system which we
      have discontinued. In the US we have replaced different products for different
      reasons some of which were caused due to chemical complications in connection
      with using the surface for paintball sport. Further, in August 2005, the Company
      installed a product in Interlaken, Switzerland which proved to be defective.
      This product was our first type using the “click” connection system. As with the
      Tongue and Groove system the “click” did not sustain a playable surface given
      temperature variations experienced in the area. The Company opted to replace
      the
      Interlaken turf at cost of approximately $350,000.





**Other
      Charges**


The
      Company has reviewed the recoverability of a receivable from XL Generation
      Canada Inc., a related party. For the three and six month periods ended June
      30,
      2006, the Company has taken a charge of $103,413 and $2,321,020, respectively
      in
      respect of such receivable. The funds underlying the receivable were previously
      forwarded to XL Generation Canada Inc. for Company-related activities in Canada,
      including the building up of inventory to facilitate shorter delivery periods.
      As XL Generation Canada Inc. does not have sufficient cash resources to repay
      the advance, management determined to take a charge for the full amount of
      such
      outstanding advances.





**Depreciation
      and Amortization**


Depreciation
      and amortization for the three and six month periods ended June 30, 2006 were
      $4,367 and $8,539.





**Interest**


The
      Company calculates interest in accordance with the respective note payable.
      For
      the three and six month periods ended June 30, 2006, the Company a charge of
      $45,889 and $88,041, respectively. This
      compared to $2,312 and $1,502 for the same periods last year. This
      significant increase mirrors the increase liabilities which the Company has
      assumed to finance its operations.





**Liquidity
      and Capital Resources**





At
      June
      30, 2006, the Company had $107,680 in cash, as opposed to $262,446 in cash
      at
      December 31, 2005. Total cash requirements for operations for the six month
      period ended June 30, 2006 was $4,479,696. As of result of certain measures
      implemented to reduce corporate overhead, management estimates that cash
      requirements for the remaining of fiscal 2006 will be between $2.5 million
      to
      $3.5 million. As of the date of this report, the Company does not have available
      resources sufficient to cover the expected cash requirements through the end
      of
      the third quarter 2006 or the balance of the year. As a result, there is
      substantial doubt that we can continue as an ongoing business without obtaining
      additional financing. Management's plans for maintaining
      Company operations and continued existence include selling additional
      equity securities and borrowing additional funds to pay operational
      expenses with enhanced efforts to market and sell Company products.
      There is no assurance that the Company will be able to generate sufficient
      cash
      from operations, sell additional shares of Common Stock or borrow


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additional
      funds. The Company's inability to obtain additional cash could have a material
      adverse effect on our financial position, results of operations
      and the Company's ability to continue its existence. If our losses continue
      and we are unable to secure additional financing, we may ultimately be required
      to seek protection from creditors under applicable bankruptcy laws.





At
      June
      30, 2006, the Company had total assets of $511,351 compared to total assets
      of
      $1,568,532 at December 31, 2005. The decrease is mainly due to provisions made
      against advances to XL Generation Canada Inc., an operational agent based in
      Montreal, providing financial and accounting services for the bureau liaison
      in
      Montreal, Canada.





At
      June
      30, 2006, the Company had total current liabilities of $4,718,214 compared
      to
      total current liabilities of $4,328,978 at December 31, 2005. The liabilities
      are mainly due to (i) accrued operational costs; (ii) loan notes from
      shareholders and suppliers; and (iii) warranty costs.





The
      prepaid expenses and sundry current assets are composed of accounts receivable
      $226,873, security deposit for the New York office $16,880 and subscription
      receivable $40,580 for a total of $284,333 at June 30, 2006. Subsequent to
      June
      30, 2006, the Company closed its New York office and transferred its lease
      obligations toward a third party.





Since
      its
      formation, XL Generation AG has received advances from Mr. Albert Beerli, a
      stockholder and (since March 2006) a director, to cover the general overhead
      and
      running costs of XL Generation AG's offices in Zug, Switzerland. The total
      balance of amounts advanced by Mr. Beerli as of June 30, 2006 was equal to
      $717,447. This compared to $676,873 as of December 31, 2005.





Between
      April 2005 and September 2005, Capex Investments Limited (which is affiliated
      with Capex Investments (Canada) Limited, a stockholder) loaned the Company
      $1,500,000. On September 12, 2005, Capex Investments Limited entered into a
      Loan
      Agreement with the Company, pursuant to which Capex Investments Limited loaned
      the Company an additional $500,000.





In
      the
      first six months of 2006, the Company allocated considerable resources on
      further developing its outdoor turf products. In addition, the Company also
      experienced increased costs for sales and marketing, employee travel and
      operational expenses in connection with entering into new sales agreements.





The
      financial conditions of the Company raise substantial doubt about the Company's
      ability to continue as a going concern. Management's plan for the Company's
      continued existence includes selling additional stock through private placements
      and borrowing additional funds to pay overhead expenses while maintaining
      marketing efforts to raise the Company’s sales volume. The future success of the
      Company is dependent upon its ability to achieve profitable operations, generate
      cash from operating activities and obtain additional financing. There is no
      assurance that the Company will be able to generate sufficient cash from
      operations, sell additional shares of Common Stock or borrow additional funds.
      The inability of the Company to obtain additional cash could have a material
      adverse effect on its financial position, results of operations and its ability
      to continue as a going concern.




**Off-Balance
      Sheet Arrangements**





The
      Company is not a party to any off-balance sheet arrangements.





**ITEM
      3.****Control
      and Procedures**




As
      of the
      end of the period covered by this report, an evaluation was carried out under
      the supervision and with the participation of the Company’s management,
      including the Company’s Chief Executive Officer and Chief Financial Officer, of
      the effectiveness of the Company’s disclosure controls and procedures, as
      defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act
      of
      1934 (the “Exchange Act”). Based on their evaluation, the Company’s Chief
      Executive Officer and Chief Financial Officer have concluded that the Company’s
      disclosure controls and procedures are effective to ensure that information
      required to be disclosed by the Company in reports that it files or submits
      under the Exchange Act is


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accumulated
      and communicated to the Company's management, including the Company's Chief
      Executive Officer and Chief Financial Officer, to allow timely decisions on
      required disclosure and is recorded, processed, summarized and reported
      within the time periods specified in Securities and Exchange Commission rules
      and forms. There have been no changes in the Company’s internal controls over
      financial reporting during the Company’s most recently completed fiscal quarter
      that have materially affected, or are reasonably likely to materially affect,
      our internal controls over financial reporting.




**PART
      II****OTHER
      INFORMATION**





**Item
      1.****Legal
      Proceedings**





The
      Company is not, and has not been during the period covered by this report,
      a
      party to any legal proceedings.





**Item
      2.****Unregistered
      Sales of Equity Securities and Use of Proceeds**





**April
      6, 2006 issuance of Common Stock**




On
      April
      6, 2006, the Company, XL Generation AG and Stadium SA entered into a Stock
      Purchase Agreement (the "Stadium Stock Purchase Agreement") pursuant to which
      Stadium SA agreed to accept 1,236,824 restricted shares of the Company’s Common
      Stock in lieu of repayment of XL Generation AG indebtedness to Stadium SA of
      2,950,000 Euros (approximately $3,584,545). Previously, the Terenvi Society
      had
      loaned XL Generation AG 1,600,000 Euros pursuant to a loan agreement dated
      December 16, 2004 (the “Terenvi Loan”). The Terenvi Society subsequently
      assigned the right to receive re-payment of the Terenvi Loan to Stadium SA.
      XL Generation AG previously entered into a distribution agreement with the
      Soreve Society on April 13, 2004 (the “Soreve Distribution Agreement”). The
      Soreve Society subsequently transferred to Stadium SA its payment rights under
      the Soreve Distribution Agreement. Pursuant to the Stadium Stock Purchase
      Agreement, the Company agreed to intervene and resolve the indebtedness of
      XL
      Generation AG in respect of the Terenvi Loan and Soreve Distribution
      Agreement by issuing shares of restricted Company Common Stock
      in satisfaction of XL Generation AG obligations. The Company entered into
      the aforementioned transaction involving issuance of restricted securities
      in
      reliance upon exemptions from securities registration afforded by Section 4(2)
      of the U.S. Securities Act of 1933, as amended, and the rules and regulations
      promulgated thereunder, including Regulation S. Stadium SA represented in the
      Stadium Stock Purchase Agreement that it is not a "U.S. Person" (as such term
      is
      defined in Regulation S).




**April
      28, 2006 issuance of common stock**




On
      April
      28, 2006, the Company entered into a Common Stock Purchase Agreement with Poma
      Management SA ("Poma"). Pursuant to the Common Stock Purchase Agreement, Poma
      agreed to pay five hundred thousand dollars ($500,000) to purchase 200,000
      shares of restricted Company Common Stock. The aggregate sale price for the
      200,000 shares of the Company's Common Stock was of $500,000. No underwriting
      commissions were paid or discounts granted to underwriters. The Company entered
      into the aforementioned transaction in accordance with and in reliance upon
      the
      exemption from securities registration afforded by Section 4(2) of the U.S.
      Securities Act of 1933, as amended, and the rules and regulations promulgated
      thereunder, including Regulation D and Regulation S promulgated thereunder.
      Poma
      represented in the Common Stock Purchase Agreement that it is an "accredited
      investor" (as defined in Rule 501 of Regulation D) and that it is not a "U.S.
      Person" (as such term is defined in Regulation S).





**June
      7, 2006 issuance of common stock**





On
      June
      7, 2006, the Company entered into a Common Stock Purchase Agreement with Aton
      Select Fund Limited. Pursuant to the Common Stock Purchase Agreement, Aton
      Select Fund Limited agreed to pay five hundred thousand dollars ($500,000)
      to
      purchase from the Company 250,000 shares of the Company's Common Stock.


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The
      offering price for the 250,000 shares of the Company's Common Stock was a total
      of $500,000. No underwriting commissions were paid or discounts granted to
      underwriters.





The
      Company entered into the aforementioned transaction in accordance with and
      in
      reliance upon the exemption from securities registration afforded by Section
      4(2) of the U.S. Securities Act of 1933, as amended, and the rules and
      regulations promulgated thereunder, including Regulation D and Regulation S
      promulgated thereunder. Aton Select Fund Limited represented in the Common
      Stock
      Purchase Agreements that it is an "accredited investor" (as defined in Rule
      501
      of Regulation D) and that it is not a "U.S. Person" (as such term is defined
      in
      Regulation S).





**Item
      3.****Defaults
      Upon Senior Securities**





None.





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





None.





**Item
      5.****Other
      Information**





**Prospective
      Corporate Structure Modification**




In
      order
      to improve the efficiency of the Company and to adapt to new markets, the Board
      of Directors is considering the development of a Company corporate structure
      modification plan (the “Plan”). The actions under consideration for inclusion in
      the Plan include possible merger, acquisition, tender offer, leveraged buyout,
      divestiture, spin-off, equity carve-out, liquidation or reorganization. The
      Plan
      may provide for the acquisition of additional subsidiaries or engagement of
      experts specialized in the fields of Company operations and in the markets
      of Company presence, such as North America and Europe. This may allow the
      Company to developed new clients and improve business relations with a view
      to
      increase sales. The Board of Directors is also assessing how it can
      reasonably reduce expenditures. The Company is currently exploring potential
      efficiencies in production overhead and possible reduction in personnel. The
      outline of the Plan is in a preliminary stage and subject to further review
      and
      revision by the Board of Directors.





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





(a)  Reports
      on Form 8-K





April
      5, 2006





On
      April
      5, 2006, the Company filed a Form 8-K disclosing the following:





1.  On
      March
      30, 2006, XL Generation AG, the sole operating subsidiary of the Company,
      entered into employment agreements with three individuals who are officers
      and
      directors of the Company; and





2.  On
      March
      30, 2006, the Company adopted a 2006 Equity Incentive Plan, effective as of
      March 24, 2006.





On
      April
      21, 2006, the Company filed Amendment No. 1 to the April 5, 2006 Form 8-K,
      to
      correct and clarify certain disclosures in respect of the terms and conditions
      of the agreements described in the Form 8-K filed April 5, 2006.





April
      12, 2006





On
      April
      12, 2006, the Company filed a Form 8-K disclosing that on April 6, 2006, the
      Company, its wholly-owned subsidiary XL Generation AG and Stadium SA entered
      into a Stock Purchase Agreement


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(the
      "Stock Purchase Agreement") pursuant to which the Company agreed to exchange
      a
      debt of 2,950,000 Euros (approximately $3,584,545) owed by XL Generation AG
      to
      Stadium SA in exchange for 1,236,824 restricted shares of the Company’s common
      stock. No underwriting commissions were paid or discounts granted to
      underwriters.





Previously,
      the Terenvi Society had loaned XL Generation AG 1,600,000 euros pursuant to
      a
      loan agreement dated December 16, 2004. The Terenvi Society subsequently
      transferred the right to receive re-payment of this loan to Stadium SA. In
      addition, XL Generation AG had entered into a distribution agreement with the
      Soreve Society on April 13, 2004. The Soreve Society also subsequently
      transferred its rights to paid pursuant to this distribution agreement to
      Stadium SA. Pursuant to the Stock Purchase Agreement, the Company agreed to
      intervene in the debt of its subsidiary, XL Generation AG.





April
      21, 2006





On
      April
      21, 2006, the Company filed Amendment No. 1 to correct and clarify certain
      disclosures in respect of the terms and conditions of the agreements described
      in the Form 8-K filed April 5, 2006. The Form 8-K/A filed April 21, 2006
      disclosed the following:





1.  On
      March
      30, 2006, XL Generation AG, the sole operating subsidiary of the Company,
      entered into employment agreements with three individuals who are officers
      and
      directors of the Company: (a) Mr. Alain Lemieux, the President, Chief Executive
      Officer and a director of the Company; (b) Mr. Daniel Courteau, the Company’s
      Vice President, legal affairs and a director of the Company; (c) Mr. Flemming
      Munck, the Company’s Chief Financial Officer and a director of the
      Company.





2.  On
      March
      30, 2006, the Company adopted a 2006 Equity Incentive Plan (the “Plan”),
      effective as of March 24, 2006. Under the Plan, the Company may issue options,
      stock appreciation rights, restricted shares, deferred shares or performance
      shares. The maximum number of such shares of the Company’s common stock that may
      be issued under the Plan is 2,000,000 shares.





May
      31, 2006





On
      May
      31, 2006, the Company filed a Form 8-K disclosing that as of May 24, 2006,
      Mr.
      Arthur Rawl had been appointed as a director of the Company.





August
      21, 2006





On
      August
      21, 2006, the Company filed a Form 8-K in connection with a press release the
      Company issued on August 18, 2006 (the “Press Release”). The Press Release
      announced that Mr. Alain Lemieux had resigned as Chief Executive Officer and
      director of the Company effective immediately. The Press Release also announced
      that Mr. Alexander C. Gilmour, Chairman of the Company, had agreed to serve
      as
      Acting CEO of the Company until a new CEO had been appointed.





August
      22, 2006





On
      August
      22, 2006, the Company filed a Form 8-K disclosing the following items. First,
      it
      was disclosed that, in connection with Alain Lemieux’s resignation as the Chief
      Executive Officer of the Company, on August 18, 2006, Mr. Lemieux and the
      Company had entered into a Mutual Release and Waiver, pursuant to which Mr.
      Lemieux had granted the complete release and waiver of any unpaid salary, wages
      and termination payments, with the exception of the refunding of all
      expenditures incurred for the benefit of the Company. Second, it was disclosed
      that the had issued a Press Release on August 22,2006, to announce the
      resignation of Mr. Flemming Munk as Chief Financial Officer and director of
      the
      Company effective August 21, 2006. Third, it was disclosed that in connection
      with Flemming Munck’s resignation as Chief Financial Officer of the Company, Mr.
      Munck and the Company had entered into a Mutual Release and Waiver which
      provided Mr. Munck with 25,000 shares of the Company’s common stock in exchange
      for the waiver of any and all potential claims he may have against the
      Company.


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(b)  Exhibits





Exhibit
                No.
            
            Description
                of ExhibitsExhibit
                10.44
            
            Stock
                Purchase Agreement, executed as of April 6, 2006, by and among XL
                Generation International Inc., XL Generation AG and Stadium SA,
                incorporated by reference to Exhibit 10.44 to the Company's Annual
                Report
                on Form 10-KSB filed with the Securities and Exchange Commission
                on April
                13, 2006.Exhibit
                10.45
            
            Common
                Stock Purchase Agreement, executed as of April 28, 2006, by and among
                XL
                Generation International Inc. and Poma Management SA.Exhibit
                10.46
            
            Common
                Stock Purchase Agreement, executed as of June 7, 2006, by and among
                XL
                Generation International Inc. and Aton Select Fund
                Limited.Exhibit
                31.1
            
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.Exhibit
                31.2
            
            Certification
                of Principal Financial Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.Exhibit
                32.1
            
            Certification
                of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
                as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.Exhibit
                32.2
            
            Certification
                of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
                as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.




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**SIGNATURES**




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





**XL
                GENERATION INTERNATIONAL INC.**September
                13, 2006By:
            /s/ Alexander
                C. GilmourName:Alexander
                C. GilmourTitle:Acting
                Principal Executive Officer





By:
            /s/ Michel
                St-PierreName:Michel
                St-PierreTitle:Acting
                Principal Financial Officer andActing
                Principal Accounting Officer




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