**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: September 30, 2006.


o
            **Transition
                Report Pursuant to Section 13 or 15(d) of the Exchange
                Act**


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)





**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 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
      November 13, 2006.





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





TABLE
      OF
      CONTENTS


PagePART
                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
            14Item
                3.
            Controls
                and Procedures
            18PART
                II
            OTHER
                INFORMATION
            18Item
                1.
            Legal
                Proceedings
            18Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            18Item
                3.
            Defaults
                Upon Senior Securities
            18Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            18Item
                5.
            Other
                Information
            19Item
                6.
            Exhibits
                and Reports on Form 8-K
            19SIGNATURES
            
            22




ii




**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 September
      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.


1


XL
        GENERATION INTERNATIONAL INC.
 (formerly
        CYGNI SYSTEMS CORPORATION) BALANCE
          SHEET September
            30, 2006 (Unaudited)
  September
                    30,
                  2006
              
              December
                    31,
                  2005(Audited)ASSETSCURRENT
                  ASSETS:Cash
              
              
              382,720
              
              
              262,446Inventory
              
              
              372,047
              
              
              54,971Note
                  receivable - Related Party
              
              
              687
              
              
              1,047,643Prepaid
                  expenses and sundry current assets
              
              
              1,050,169
              
              
              157,344TOTAL
                  CURRENT ASSETS
              
              
              1,805,623
              
              
              1,522,404PROPERTY
                  AND EQUIPMENT, AT COST,LESS
                  ACCUMULATED DEPRECIATION
              
              
              55,970
              
              
              46,128TOTAL
                  ASSETS
              
              
              1,861,593
              
              
              1,568,532LIABILITIES
                  AND STOCKHOLDERS’ DEFICIENCYCURRENT
                  LIABILITIES:Note
                  payable-shareholders
              
              
              2,178,394
              
              
              976,873Note
                  payable- supplier
              
              
              3,444,010
              
              
              2,332,037Accrued
                  expenses and sundry current liabilities
              
              
              2,021,279
              
              
              1,020,068TOTAL
                  CURRENT LIABILITIES
              
              
              7,643,683
              
              
              4,328,978TOTAL
                  OTHER LIABILITIESSTOCKHOLDERS'
                  DEFICIENCYCommon
                  stock
              
              
              103,465
              
              
              92,923Additional
                  paid in capital
              
              
              12,796,510
              
              
              4,195,467Accumulated
                  Deficit
              
              
              (19,212,700
              )
              
              (7,311,239
              )Other
                  comprehensive income/(loss)
              
              
              530,635
              
              
              262,403TOTAL
                  STOCKHOLDERS' DEFICIENCY
              
              
              (5,782,090
              )
              
              (2,760,446
              )TOTAL
                  LIABILITIES AND STOCKHOLDERSDEFICIENCY
              
              
              1,861,593
              
              
              1,568,532




2


XL
      GENERATION INTERNATIONAL INC.


(formerly
      CYGNI SYSTEMS CORPORATION)


STATEMENTS
      OF STOCKHOLDERS DEFICIENCY


Year
      ended December 31 2005 and Nine months ended September 2006


(unaudited)





Stockholders
      Deficiency


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
              
              
              -
              
              
              -
              
              
              (5,356,281
              )
              
              
              
              
              (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
              
              
              10,542
              
              
              8,601,043
              
              
              -
              
              
              -
              
              
              8,6117,585Year
                  End Loss
              
              
              -
              
              
              -
              
              
              (11,901,461)
              )
              
              
              
              
              (11,901,461
              )Other
                  comprehensiveLoss
              
              
              
              
              
              
              
              
              
              
              
              268,232
              
              
              268,232September
                  30,2006
              
              
              103,465
              
              
              12,796,510
              
              
              (19,212,700)
              )
              
              530,635
              
              
              (5,782,090
              )




3




XL
      GENERATION INTERNATIONAL INC.


(formerly
      CYGNI SYSTEMS CORPORATION)


STATEMENTS
      OF OPERATIONS





Nine
      months ended September 2006 and 2005, and


three
      months ended September 30, 2006 and 30, 2005


(unaudited)


Nine
                    months ended
                
                Three
                    Months EndedSeptember
                    30
                
                September
                    30
                
                September
                    30
                
                September
                    302006
                
                2005
                
                2006
                
                2005SALES
                
                
                4,218,265
                
                
                1,200,074
                
                
                2,428,600
                
                
                501,929COSTS
                    AND EXPENSES:Cost
                    of sales
                
                
                3,643,840
                
                
                1,356,781
                
                
                2,368,906
                
                
                861,905Selling,
                    general and administrative
                
                
                5,079,150
                
                
                3,189,636
                
                
                848,962
                
                
                835,555Provision
                    for note receivable
                
                
                4,751,526
                
                
                
                
                
                2,430,506Interest
                
                
                183,856
                
                
                3,831
                
                
                95,815
                
                
                1,519Foreign
                    exchange loss
                
                
                (10,590
                )
                
                (348,612
                )
                
                (17,616
                )
                
                (201,141
                )Loss
                    on settlement of debt
                
                
                2,471,944
                
                
                
                
                
                2,471,944TOTAL
                    COSTS AND EXPENSES
                
                
                16,119,726
                
                
                4,201,636
                
                
                8,198,517
                
                
                1,497,838NET
                    LOSS
                
                
                (11,901,461
                )
                
                (3,001,562
                )
                
                (5,769,917
                )
                
                (995,909
                )Net
                    Loss Per Share
                
                $
                (
                    0.34
                )
                $
                (0.12
                )
                $
                (
                    0.17
                )
                $
                (
                    0.04
                )Diluted
                    Net Loss Per Share
                
                $
                (
                    0.34
                )
                $
                (0.12
                )
                $
                (
                    0.16
                )
                $
                (
                    0.04
                )Average
                    weighted Number of Shares
                
                
                34,044,725
                
                
                24,288,800
                
                
                34,044,725
                
                
                24,288,800




4




XL
      GENERATION INTERNATIONAL INC.


(formerly
      CYGNI SYSTEMS CORPORATION)


STATEMENTS
      OF CASH FLOWS


Nine
      months ended September 30, 2006 and 2005


(unaudited)


September
                  30
              
              September
                  302006
              
              2005Net
                  loss
              
              
              (11,901,461
              )
              
              (3,001,562
              )Adjustment
                  to reconcile net income to net cash providedby
                  operating activitiesDepreciation
                  and amortization
              
              
              12,538
              
              
              0Unrealized
                  foreign exchange
              
              
              268,232
              
              
              0Issuance
                  of common stock in exchange for debt
              
              
              2,471,944Changes
                  in operating assets and liabilities:Inventory
              
              
              (317,076
              )
              
              (56,121
              )Accounts
                  receivable
              
              
              
              
              
              (330,244
              )Note
                  receivable
              
              
              1,046,956Prepaid
                  expenses and sundry current assets
              
              
              (
                  892,825
              )
              
              49,355Accrued
                  expenses and sundry current liabilities
              
              
              1,001,211
              
              
              (89,065
              )Net
                  cash used by operating activities
              
              
              (8,310,481
              )
              
              (3,247,637
              )Investing
                  activitiesAcquisitions
                  of property and equipment
              
              
              (22,380
              )
              
              -Net
                  cash used in investing activitiesFinancing
                  activitiesAdvances
                  to related party
              
              
              
              
              
              (2,907
              )Advances
                  to stockholders
              
              
              
              
              
              (489,220
              )Issuance
                  of common stock
              
              
              10,542Premium
                  0n issuance of common stock
              
              
              6,129,099
              
              
              -Note
                  receivable - Related party
              
              
              0Proceeds
                  of loans payable shareholder
              
              
              1,201,521
              
              
              2,216,192Proceeds
                  (repayments) of loans from suppliers
              
              
              1,111,973
              
              
              1,224,218Net
                  cash provide by financing activities
              
              
              8,453,135
              
              
              2,948,283Increase
                  (decrease) in cash
              
              
              120,274
              
              
              (479,354
              )Cash-
                  beginning of period
              
              
              262,446
              
              
              536,967Cash-
                  end of period
              
              
              382,720
              
              
              57,613




5


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").





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 began to
      manufacture, promote and sell XL Turf products (XLG was subsequently granted
      exclusive worldwide rights in connection with the 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 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, 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 this Exclusive Agreement, Polyprod
      manufactured XLG’s products on a cost-plus basis. The Exclusive Agreement has a
      term of ten (10) years.




6





On
      September 5, 2006, Polyprod sent the Company an invoice of $723,848 claiming
      non-accounted costs for the final assembly of the Company's products for the
      period from October 30, 2004 to October 30, 2005. Subsequent to the period
      covered by this Report, Polyprod sent additional invoices to the Company,
      claiming additional charges and unaccounted for costs through September 30,
      2006
      in an amount of $100,634.04. The Company is currently reviewing the validity
      of
      Polyprod's claim. As a result, depending on the outcome of 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.





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.





September
                30,2006Computer
                equipment--3 yrs
            
            $
            2,904Furniture
                & fixtures--5 yrs
            
            
            50,064Leasehold
                improvements
            
            
            19,338$
            72,306Less:
                accumulated depreciation
            
            
            ($16,336
            )Balance
                September 30, 2006
            
            $
            55,970





7




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. The attached financial statements
      do not include the Black-Scholes calculations as required by FASB. This
      information will be presented as soon as it is available.





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. As at
      September 30, 2006 we were due to replace two products in Switzerland and
      Vancouver, Canada. The reserves required to replace these products were
      estimated at approximately $682,000.





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.





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 September 30, 2006, the Company
      has
      incurred losses of $5,769,917. The Company has negative working capital of
      $5,838,060 at September 30, 2006, and a stockholders deficiency of $ 5,782,090
      at September 30, 2006. As at September 30, 2006 current assets less current
      liabilities was a net liability of $5,838,060. These factors among others raise
      substantial doubt about the Company's ability to continue as a going
      concern.




8





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 September 30, 2006:





September
                30, 2006Security
                Deposits
            
            $
            16,697Trade
                Debtors
            
            
            929,220Other
                receivable
            
            
            104,252$
            1,050,169





NOTE
      5 -
      ACCRUED EXPENSES AND SUNDRY CURRENT LIABILITIES





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





September
                30, 2006:Accrued
                interest
            
            $
            244,000Accrued
                operating expenses
            
            
            1,095,279Warranty
            
            
            682,000$
            2,021,279Movement
                in the Warrant ProvisionBalance
                as at January 1, 2006
            
            $
            500,000Release
                of Provision
            
            
            (350,000
            )Additional
                Provision
            
            
            532,000Provision
                as at September 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.




9





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 September 30, 2006 was $694,312. The
      note
      carries an interest of 4.5% and is payable on demand.





On
      December 30, 2005, the Company had received loans from CAPEX Investment Limited,
      a shareholder, in the amount of $835,000. In 2006, the Company received
      additional loans from CAPEX Investment Limited in the amount of $526,000. These
      loans carry an interest of 10% and are payable on demand. As of September 30,
      2006, total loans from CAPEX Investment Limited amounted to $1,484,082.





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 September 30,
      2006. During the first nine months of 2006, the Company issued a total of
      4,578,935 restricted shares of the Company’s Common Stock in connection with
      various 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 $9,429,519 at
      September 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 September 30, 2006 are as
      follows:





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





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





XL
      Generation AG, a wholly owned subsidiary of the Company, is a party to a lease
      for its New York office (the “New York Lease”), at a minimum annual rental of
      approximately $96,000 per year. The New York Lease expires in August 2008.
      In
      August, 2006, the Company decided to close its New York office, and it was
      determined that XL Generation AG would enter into an agreement with a third
      party who would assume XL Generation AG’s obligations under the New York Lease.
      Since that time, a third party has taken over the payment of the rent due under
      the New York Lease, but no formal agreement has been entered into between XL
      Generation AG and the third party.




10





NOTE
      11-
      RELATED PARTY TRANSACTIONS





From
      time
      to time, Mr. Beerli, a significant shareholder, advances payments on behalf
      of
      the Company to cover general overhead items related to the running cost of
      the
      Zug office. As of September 30, 2006, these advances totaled
      $694,312.





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
      September 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). In September 2006, Mr. Courteau resigned as director of the Company.
      As
      of September 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 $4,751,726
      in
      the first nine 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.





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.




11


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
      October 11, 2006, legal proceedings were undertaken by a wholly owned subsidiary
      of the Company, XL Generation AG, and an entity affiliated with the Company,
      XL
      Generation Canada Inc., in the Quebec Superior Court of the City of Montreal,
      Canada, against Polyprod. These entities filed a bankruptcy claim against
      Polyprod, and requested the placement of all of Polyprod Inc.’s assets under
      receivership. A date for the hearing has been set as November 29, 2006 before
      the Quebec Superior Court in Montreal.





As
      a
      result of the bankruptcy proceedings initiated against Polyprod Inc. by XL
      Generation AG, the Company anticipates some disruption in the manufacturing
      and
      delivery of its products. The Company expects that it will implement alternative
      means of production for its products in the near future.





On
      October 23, 2006, legal proceedings were undertaken by FC Interlaken against
      the
      wholly owned subsidiary of the Company, XL Generation AG, in the Court of
      Interlaken, Switzerland. This entity filed a motion against XL Generation AG
      demanding the replacement of 4240 artificial turf panels installed by XL
      Generation AG in August 2005. These materials were produced by Polyprod. XL
      Generation AG intends to claim reimbursement for any damages related to the
      quality of manufacturing from Polyprod, if the Montreal Superior Court does
      not
      grant the motion in Bankruptcy.





On
      October 26, 2006, legal proceedings were undertaken by a wholly owned subsidiary
      of the Company, XL Generation AG, in the Federal Court in the City of Montreal,
      Canada, against WKF/5 Ltd. This entity filed a motion against WKF/5 Ltd.
      contesting the registration of the trademarks in Canada by WKF/5 Ltd., and
      used
      by the Company. In early October, XL Generation AG, a wholly-owned subsidiary
      of
      the Company, received a Notice of Termination of License (“Notice”) from WKF/5
      Ltd., a company from whom the Company has acquired the exclusive right to
      produce and market certain artificial turf products worldwide (the “License”).
      The Notice asserted that WKF/5 Ltd. had the right to terminate the License,
      and
      claimed the alleged insolvency of XL Generation AG as the cause of such right
      of
      termination. As a point of fact, neither the Company nor its subsidiary XL
      Generation AG is subject to insolvency proceedings. WKF/5 Ltd. is controlled
      by
      the Alain Lemieux Trust, a trust controlled by the Company’s former President
      and Chief Executive Officer. The Company is currently exploring all available
      legal remedies in respect of this Notice.





On
      November 10, 2006, legal proceedings were undertaken by the Company and a wholly
      owned subsidiary of the Company, XL Generation AG, in the Quebec Superior Court
      in the City of Montreal, Canada, against Solutions Highmedia Interactif Inc.
      (“Highmedia”), a Montreal based corporation. The claimants filed an injunction
      against Highmedia contesting the fact that Highmedia shut down, for the third
      time, the Company’s Web site and email service without any right to do so.
      Highmedia is claiming that the Company owes money for certain work allegedly
      executed at the request of certain former employees of the Company. The Company
      intends to conduct an inquiry into whether such work was in fact for the benefit
      of the Company.




12





Subsequent
      to the end of the period covered by this Report, the Company has received an
      increased number of complaints concerning products manufactured by Polyprod
      Inc.
      under its Exclusive Manufacturing Agreement with the Company. Currently, the
      Company is addressing issues related to the delivery of four artificial turf
      fields manufactured by Polyprod Inc. that do not correspond to our client’s
      requirements. One involves the delivery of artificial turf to the City of Berne,
      Switzerland and three others to the City of Zurich, Switzerland. The Company
      is
      currently working toward finding a solution to the satisfaction of its clients.
      The Company believes that the costs associated with addressing this issue,
      coupled with forgone revenue, may impact the Company’s results of operations in
      the current fiscal quarter.


13




**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
      September 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).





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.





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." XLG was incorporated in
      1991, and was inactive until March of 2004, when it began to manufacture,
      promote and sell XL Turf products (XLG was subsequently granted exclusive
      worldwide rights in connection with the XL Turf products).





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 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.





On
      August
      16, 2006, Mr. Flemming Munck resigned as the Chief Financial Officer (“CFO”) and
      as a director of the Company. In connection with Mr. Munck’s resignation, the
      Company and Mr. Munck entered into a Mutual Release and Waiver that 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 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, formally Controller of the Company has agreed to serve as Acting
      CFO
      of the Company.




14





On
      August
      18, 2006, Mr. Alain Lemieux also resigned as the Chief Executive Officer (“CEO”)
      and as a director 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. 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.





On
      September 5, 2006, Polyprod sent the Company an invoice of $723,848 claiming
      non-accounted costs for the final assembly of the Company's products for the
      period from October 30, 2004 to October 30, 2005. Subsequent to the period
      covered by this Report, Polyprod sent additional invoices to the Company,
      claiming additional charges and unaccounted for costs through September 30,
      2006
      in an amount of $100,634.04. The Company is currently reviewing the validity
      of
      Polyprod's claim. As a result, depending on the outcome of 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.





**Inquiry
      into Company’s Accounting and Management Procedures**





On
      August
      12, 2006 the Board of directors of the Company authorized the Chairman of the
      Company’s Audit Committee, Mr. Arthur Rawl, to conduct an inquiry into the
      Company’s accounting and management procedures. This inquiry is still in
      progress.





**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.





**Results
      of Operations**





**For
      the Three and Nine Month Periods ended September 30, 2006**





**Overview**




The
      Company posted for the three and nine month periods ended September 30, 2006
      net
      losses of $5,769,917 and $11,901,461, respectively, as compared to $995,909
      and
      $3,001,562 for the comparable periods last year.





**Sales**




For
      the
      three and nine month periods ended September 30, 2006, the Company achieved
      gross revenues of $2,428,600 and $4,218,265, respectively. This compared to
      $501,929 and $1,200,074 for the same periods last year. During the nine month
      period ended September 30, 2006, the company realized 85% of its gross sales
      in
      Europe with the remaining being achieved in North America. During the nine
      months ended September 30, 2006, the Company delivered on 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. In July and August two other
      fields were sold in Norway to the city of Stockholm ($400,000) and to Goteborg
      ($416,000). Two other sales were concluded in Switzerland, Munsingen ($425,000)
      and Bern ($550,000).




15





**Total
      Cost and Expenses**




For
      the
      three and nine month periods ended September 30, 2006, the Company incurred
      total cost and expenses of $8,198,517 and $16,119,726, respectively. This
      compared to $1,497,838 and $4,201,636 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.
      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 nine month periods ended September 30, 2006, the Company realized
      gross margins of 3% and 14%, respectively. These margins reflect substantial
      weakening against what the Company previously achieved in any reported quarter.
      This decline in the Company’s gross margins in the latest period resulted from
      the combination of our introduction of higher quality products costing more
      to
      produce and, at the same time, our clients benefited during the latest period
      in
      a delay encountered in the adjustment of our pricing accordingly. 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 nine month periods ended September 30, 2006, the Company incurred
      selling, general and administration expenses of $848,962 and $5,079,150,
      respectively. This compared to $835,555 and $3,189,636 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 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 to their duties with WSA these individuals were also required to assist
      in sales projects in their geographical area as applicable. 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.





**Warranty**




For
      the
      three and nine month periods ended September 30, 2006, the Company incurred
      warranty expenses of $36,000 and $765,963, 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. In the nine month period ended September 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.





**Other
      Charges**




The
      Company has reviewed the recoverability of a receivable from XL Generation
      Canada Inc., a related party. For the three and nine month periods ended
      September 30, 2006, the Company has taken a charge of $2,430,506 and $4,751,726,
      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.




16





**Depreciation
      and Amortization**




Depreciation
      and amortization for the three and nine month periods ended September 30, 2006
      were $4,367 and $12,538.





**Interest**




The
      Company calculates interest in accordance with the respective note payable.
      For
      the three and nine month periods ended September 30, 2006, the Company a charge
      of $95,815 and $183,856, respectively. This compared to $1,519 and $3,831 for
      the same periods last year. This significant increase mirrors the increase
      liabilities which the Company has assumed to finance its operations.





**Loss
      on settlement of debt**




On
      April
      19, 2006, the Company, in accordance to a Stock Purchase Agreement (the "Stadium
      Stock Purchase Agreement"), issued 1,236,824 restricted shares of the Company’s
      Common Stock at a value of $3,15 per share. The loss results from the difference
      between the indebtedness amount and the value of the stock issued at that
      date.





**Liquidity
      and Capital Resources**





At
      September 30, 2006, the Company had $382,720 in cash, as opposed to $262,446
      in
      cash at December 31, 2005. Total cash requirements for operations for the nine
      month period ended September 30, 2006 was $8,310,481. As a result of certain
      measures implemented to reduce corporate overhead, management estimates that
      cash requirements for the remaining of fiscal 2006 through the end of fiscal
      2007 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 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
      September 30, 2006, the Company had total assets of $1,861,593 compared to
      total
      assets of $1,568,532 at December 31, 2005. The increase is mainly due to
      purchases of raw materials for fields to be delivered in October. The total
      assets are decrease by 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
      September 30, 2006, the Company had total current liabilities of $7,643,683
      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
      $929,220, security deposit for the New York office $16,697 and other receivable
      $104,252 for a total of $1,050,169 at September 30, 2006.





XL
      Generation AG is a party to a lease for its New York office (the “New York
      Lease”), at a minimum annual rental of approximately $96,000 per year. The New
      York Lease expires in August 2008. In August, 2006, the Company decided to
      close
      its New York office, and it was determined that XL Generation AG would enter
      into an agreement with a third party who would assume XL Generation AG’s
      obligations under the New York Lease. Since that time, a third party has taken
      over the payment of the rent due under the New York Lease, but no formal
      agreement has been entered into between XL Generation AG and the 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 September 30, 2006 was equal
      to
      $694,312. This compared to $676,873 as of December 31, 2005.




17





On
      December 30, 2005, the Company had received loans from CAPEX Investment Limited,
      a shareholder, in the amount of $835,000. In the first nine months of 2006,
      the
      Company received loans from CAPEX Investment Limited, a shareholder, in the
      amount of $526,000. These loans carry an interest of 10% and are payable on
      demand. As of September 30, 2006, total loans from CAPEX Investment Limited
      amounted to $1,484,082. This compared to $835,000 as of December 31,
      2005





In
      the
      first nine 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 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**





None.





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





None.





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





None.





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





None.




18





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





During
      the period covered by this Report, the Company issued options to purchase the
      Company’s common stock to certain officers, directors, employees and
      consultants, pursuant to the Company’s 2006 Equity Incentive Plan, as
      follows:


Name
              
              Number
                  of Options
              
              Purchase
                  Price of Shares Pursuant to Option ($)
              
              Date
                  of Grant
              
              Date
                  Shares are ExercisableClaude
                  Pellerin
              
              100,000
              
              1.05
              
              September
                  6, 2006
              
              September
                  6, 2007Arthur
                  Rawl
              
              115,000
              
              1.05
              
              September
                  6, 2006
              
              September
                  6, 2007Albert
                  Beerli
              
              100,000
              
              1.05
              
              September
                  6, 2006
              
              September
                  6, 2007Alexander
                  Gilmour
              
              125,000
              
              1.05
              
              September
                  6, 2006
              
              September
                  6, 2007Flemming
                  Munck
              
              25,000
              
              .01
              
              September
                  15, 2006
              
              September
                  15, 2006Stephane
                  Solis
              
              150,000
              
              .01
              
              September
                  7, 2006
              
              September
                  7, 2006Stephane
                  Solis
              
              150,000
              
              .01
              
              September
                  7, 2006
              
              Upon
                  termination of Consulting Agreement with the CompanyFred
                  Vachon
              
              133,333
              
              .01
              
              September
                  6, 2006
              
              September
                  8, 2006Fred
                  Vachon
              
              133,333
              
              .01
              
              September
                  6, 2006
              
              September
                  8, 2007Fred
                  Vachon
              
              133,333
              
              .01
              
              September
                  6, 2006
              
              September
                  8, 2008Michel
                  St-Pierre
              
              250,000
              
              .01
              
              September
                  6, 2006
              
              September
                  8, 2006Michel
                  St-Pierre
              
              200,000
              
              .01
              
              September
                  6, 2006
              
              September
                  8, 2007Michel
                  St-Pierre
              
              150,000
              
              .01
              
              September
                  6, 2006
              
              September
                  8, 2008Luc
                  Philbert
              
              50,000
              
              .01
              
              September
                  6, 2006
              
              September
                  8, 2006Luc
                  Philbert
              
              50,000
              
              .01
              
              September
                  6, 2006
              
              January
                  1, 2007Luc
                  Philbert
              
              50,000
              
              .01
              
              September
                  6, 2006
              
              July
                  1, 2007Alessandra
                  Marsano
              
              20,000
              
              .01
              
              September
                  6, 2006
              
              September
                  8, 2006Alessandra
                  Marsano
              
              20,000
              
              .01
              
              September
                  6, 2006
              
              September
                  8, 2007Eric
                  Giguere
              
              50,000
              
              .01
              
              September
                  6, 2006
              
              September
                  8, 2006




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





(a)  Reports
      on Form 8-K





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 entered into a Mutual Release and Waiver, pursuant to which Mr. Lemieux
      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
      Company issued a Press Release on August 22, 2006, to announce the resignation
      of Mr. Flemming Munck 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 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.




19





September
      18, 2006





On
      September 18, 2006, the Company filed a Form 8-K to disclose the resignation
      of
      Mr. Daniel Courteau as the Secretary and as a director of the Company. In his
      letter of resignation, Mr. Courteau simply stated that he was resigning as
      an
      officer and from the Company’s Board of Directors (the “Board”) because he did
      not “share the same vision” as the rest of the Board. The Company has no
      knowledge of any disagreements with the resigning director regarding the
      Company’s operations, policies or practices.





October
      17, 2006





On
      October 17, 2006, the Company filed a Form 8-K disclosing the following items.





On
      October 2, 2006, XL Generation AG, a wholly-owned subsidiary of XL Generation
      International Inc., received a Notice of Termination of License (“Notice”) from
      WKF/5 Ltd, a company registered In Malta. The Notice stated that WKF/5 Ltd
      was
      the subject of an acquisition agreement with Consortium Terenvi, whose
      shareholders are said to include Terenvi, the European distributor of XL
      Generation AG, Polyprod Inc., a Canadian company with whom XL Generation AG
      has
      an exclusive manufacturing agreement and WKF/5 Ltd. Under a License Agreement
      dated January 1, 2005, XL Generation AG acquired from WKF/5 Ltd the exclusive
      right to produce and market certain artificial turf products worldwide. The
      Notice further claimed that WKF/5 Ltd had the right to terminate the License,
      and claimed the alleged insolvency of XL Generation AG as the cause of such
      right of termination. The Company believes the Notice lacks legal merit,
      constitutes a breach of contract and tortuous interference with third party
      relations, and is an ineffective attempt by the parties involved to regain
      control of the Company or, in the alternative, to gain control of the exclusive
      right to produce and market certain artificial turf products under a worldwide
      license. As a point of fact, neither the Company nor its subsidiary XL
      Generation AG is subject to insolvency proceedings.





On
      October 11, 2006, legal proceedings were undertaken by a wholly owned subsidiary
      of the Company, XL Generation AG, and an entity affiliated with the Company,
      XL
      Generation Canada Inc., in the Superior Court of the City of Montreal, Canada,
      against Polyprod Inc. These entities filed a bankruptcy claim against Polyprod
      Inc., and requested the placement of all of Polyprod Inc.’s assets under
      receivership. A date for the hearing has now been fixed pro forma to November
      29, 2006 in front of the Quebec Superior Court in the City of Montreal.





(b)  Exhibits





Exhibit
                No.
            
            Description
                of ExhibitsExhibit
                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.




**SUBSEQUENT
      EVENTS**





On
      October 11, 2006, legal proceedings were undertaken by a wholly owned subsidiary
      of the Company, XL Generation AG, and an entity affiliated with the Company,
      XL
      Generation Canada Inc., in the Quebec Superior Court of the City of Montreal,
      Canada, against Polyprod. These entities filed a bankruptcy claim against
      Polyprod, and requested the placement of all of Polyprod Inc.’s assets under
      receivership. A date for the hearing has been set as November 29, 2006 before
      the Quebec Superior Court in Montreal.




20





As
      a
      result of the bankruptcy proceedings initiated against Polyprod Inc. by XL
      Generation AG, the Company anticipates some disruption in the manufacturing
      and
      delivery of its products. The Company expects that it will implement alternative
      means of production for its products in the near future.





On
      October 23, 2006, legal proceedings were undertaken by FC Interlaken against
      the
      wholly owned subsidiary of the Company, XL Generation AG, in the Court of
      Interlaken, Switzerland. This entity filed a motion against XL Generation AG
      demanding the replacement of 4240 artificial turf panels installed by XL
      Generation AG in August 2005. These materials were produced by Polyprod. XL
      Generation AG intends to claim reimbursement for any damages related to the
      quality of manufacturing from Polyprod, if the Montreal Superior Court does
      not
      grant the motion in Bankruptcy.





On
      October 26, 2006, legal proceedings were undertaken by a wholly owned subsidiary
      of the Company, XL Generation AG, in the Federal Court in the City of Montreal,
      Canada, against WKF/5 Ltd. This entity filed a motion against WKF/5 Ltd.
      contesting the registration of the trademarks in Canada by WKF/5 Ltd., and
      used
      by the Company. In early October, XL Generation AG, a wholly-owned subsidiary
      of
      the Company, received a Notice of Termination of License (“Notice”) from WKF/5
      Ltd., a company from whom the Company has acquired the exclusive right to
      produce and market certain artificial turf products worldwide (the “License”).
      The Notice asserted that WKF/5 Ltd. had the right to terminate the License,
      and
      claimed the alleged insolvency of XL Generation AG as the cause of such right
      of
      termination. As a point of fact, neither the Company nor its subsidiary XL
      Generation AG is subject to insolvency proceedings. WKF/5 Ltd. is controlled
      by
      the Alain Lemieux Trust, a trust controlled by the Company’s former President
      and Chief Executive Officer. The Company is currently exploring all available
      legal remedies in respect of this Notice.





On
      November 10, 2006, legal proceedings were undertaken by the Company and a wholly
      owned subsidiary of the Company, XL Generation AG, in the Quebec Superior Court
      in the City of Montreal, Canada, against Solutions Highmedia Interactif Inc.
      (“Highmedia”), a Montreal based corporation. The claimants filed an injunction
      against Highmedia contesting the fact that Highmedia shut down, for the third
      time, the Company’s Web site and email service without any right to do so.
      Highmedia is claiming that the Company owes money for certain work allegedly
      executed at the request of certain former employees of the Company. The Company
      intends to conduct an inquiry into whether such work was in fact for the benefit
      of the Company.




Subsequent
      to the end of the period covered by this Report, the Company has received an
      increased number of complaints concerning products manufactured by Polyprod
      Inc.
      under its Exclusive Manufacturing Agreement with the Company. Currently, the
      Company is addressing issues related to the delivery of four artificial turf
      fields manufactured by Polyprod Inc. that do not correspond to our client’s
      requirements. One involves the delivery of artificial turf to the City of Berne,
      Switzerland and three others to the City of Zurich, Switzerland. The Company
      is
      currently working toward finding a solution to the satisfaction of its clients.
      The Company believes that the costs associated with addressing this issue,
      coupled with forgone revenue, may impact the Company’s results of operations in
      the current fiscal quarter.




21


**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.**November
                20, 2006
            By:
            /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




22