**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-QSB**





**x**  **QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF**


**THE
      SECURITIES EXCHANGE ACT OF 1934**





FOR
      THE
      QUARTERLY PERIOD ENDED SEPEMBER 30, 2006





** ̈**  **TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF**


**THE
      SECURITIES EXCHANGE ACT OF 1934**





FOR
      THE
      TRANSITION PERIOD FROM _____ TO_____





**Commission
      File Number:** 333-112754




**OSTEOLOGIX,
      INC.**


(Exact
      name of small business issuer in its charter)





**Delaware**
              (State
                or Other Jurisdiction of Incorporation or Organization)
            **32-0104570**
              (I.R.S.
                Employer Identification No.)**425
                Market Street**
              **Suite
                2230**
              **San
                Francisco, CA 94105**
              (Address
                of Principal Executive Offices)
              
              **(415)
                955-2726**
              (Issuer’s
                Telephone Number)
              
              (Former
                Name and Address and Former Fiscal Year, if Changed Since Last
                Report)




Check
      whether the issuer (1) has filed all reports required to be filed by Section
      13
      or 15(d) of the Securities 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  ̈




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). YES  ̈ NO x




There
      were 21,020,688 shares outstanding of the issuer’s common stock outstanding on
      October 31, 2006.




Transitional
      Small Business Disclosure Format (check one): YES  ̈ NO x










**TABLE
      OF CONTENTS**




**Page**


**PART
                I - FINANCIAL INFORMATION**
            3ITEM
                1.
            FINANCIAL
                STATEMENTS
            3ITEM
                2.
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
            13ITEM
                3.
            CONTROLS
                AND PROCEDURES
            18**PART
                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.
            18ITEM
                6.
            EXHIBITS.
            20




Page
          2





**PART
      I - FINANCIAL INFORMATION**





**ITEM
      1.****FINANCIAL
      STATEMENTS**




**Osteologix,
        Inc. and Subsidiary**


**(a
        development stage company)**


**Condensed
        Consolidated Balance Sheets**


**(in
      thousands, except per share amounts)**




**September
                30,**
            
            **December
                31,****2006**
            
            **2005****(Unaudited)**AssetsCurrent
                assets:Cash
                and cash equivalents
            
            $
            1,860
            
            $
            571Short-term
                investments
            
            
            5,647
            
            
            —Accounts
                receivable
            
            
            —
            
            
            750Prepaid
                expenses and other assets
            
            
            189
            
            
            296Total
                current assets
            
            
            7,696
            
            
            1,617Equipment,
                net
            
            
            10
            
            
            7Total
                assets
            
            $
            7,706
            
            $
            1,624Liabilities
                and Stockholders' EquityCurrent
                liabilities:Accounts
                payable
            
            $
            270
            
            $
            481Other
                accrued liabilities
            
            
            106
            
            
            200Total
                current liabilities
            
            
            376
            
            
            681Commitments
                and ContingenciesStockholders'
                EquityCommon
                stock, $0.001 par value, 100,000 shares authorized, 21,021 shares
                issued
                and outstanding as of September 30, 2006, 10,505 shares authorized,
                issued
                and outstanding as of December 31, 2005
            
            
            2
            
            
            1Additional
                paid-in-capital
            
            
            15,443
            
            
            5,859Accumulated
                other comprehensive loss
            
            
            (26
            )
            
            (4
            )Deficit
                accumulated during development stage
            
            
            (8,089
            )
            
            (4,913
            )Total
                stockholders' equity
            
            
            7,330
            
            
            943Total
                liabilities and stockholders' equity
            
            $
            7,706
            
            $
            1,624




*See
      accompanying notes to the condensed consolidated financial
      statements.*





Page
          3




**Osteologix,
        Inc. and Subsidiary**


**(a
        development stage company)**


**Condensed
        Consolidated Statements of Operations**


**(in
        thousands, except per share amounts)**


**(Unaudited)**




**Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,**
            
            **For
                the Period from June 16, 2003 (Inception) to****2006**
            
            **2005**
            
            **2006**
            
            **2005**
            
            **September
                30, 2006**Revenues
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            750Operating
                expenses:Research
                and development
            
            
            648
            
            
            710
            
            
            1,257
            
            
            1,583
            
            
            4,181General
                and administrative
            
            
            835
            
            
            502
            
            
            2,052
            
            
            1,194
            
            
            4,821Total
                operating expenses
            
            
            1,483
            
            
            1,212
            
            
            3,309
            
            
            2,777
            
            
            9,002Loss
                from operations
            
            
            (1,483
            )
            
            (1,212
            )
            
            (3,309
            )
            
            (2,777
            )
            
            (8,252
            )Interest
                income, net
            
            
            95
            
            
            —
            
            
            133
            
            
            —
            
            
            163Net
                loss
            
            $
            (1,388
            )
            $
            (1,212
            )
            $
            (3,176
            )
            $
            (2,777
            )
            $
            (8,089
            )Net
                loss per share, basic and diluted
            
            $
            (0.07
            )
            $
            (0.12
            )
            $
            (0.21
            )
            $
            (0.31
            )Weighted
                average number of shares outstanding basic and diluted
            
            
            21,021
            
            
            10,505
            
            
            15,474
            
            
            9,048




*See
      accompanying notes to the condensed consolidated financial
      statements.*





Page
          4


**Osteologix,
        Inc. and Subsidiary**


**(a
        development stage company)**


**Condensed
        Consolidated Statement of Stockholders' Equity and Comprehensive
        Loss**


**For
      the Period From June 16, 2003 (Inception) to September 30,
      2006**


**(in
      thousands, except per share amounts)**




**Common
                Stock**
            
            **Additional**
              **Paid-In**
            
            **Accumulated
                Other Comprehensive**
            
            **Deficit
                Accumulated During the Development**
            
            **Total
                Stockholders'****Shares**
            
            **Amount**
            
            **Capital**
            
            **Income
                (Loss)**
            
            **Stage**
            
            **Equity**Issuance
                of common stock to founders for cash of $0.02 per share in June
                2003
            
            
            4,897
            
            $
            1
            
            $
            84
            
            $
            —
            
            $
            —
            
            $
            85Issuance
                of common stock for cash of $0.95 per share in October
                2003
            
            
            979
            
            
            —
            
            
            930
            
            
            —
            
            
            —
            
            
            930Comprehensive
                loss:Net
                loss for the period
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (246
            )
            
            (246
            )Foreign
                currency translations
            
            
            —
            
            
            —
            
            
            —
            
            
            (21
            )
            
            —
            
            
            (21
            )Total
                comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (267
            )**Balance
                at December 31, 2003**
            
            
            **5,876**
            
            
            **1**
            
            
            **1,014**
            
            
            (21
            )
            
            (246
            )
            
            **748**Issuance
                of common stock for cash of $1.01 per share in May 2004
            
            
            979
            
            
            —
            
            
            988
            
            
            —
            
            
            —
            
            
            988Comprehensive
                loss:Net
                loss for the period
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (1,471
            )
            
            (1,471
            )Foreign
                currency translations
            
            
            —
            
            
            —
            
            
            —
            
            
            (148
            )
            
            —
            
            
            (148
            )Total
                comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,619
            )**Balance
                at December 31, 2004**
            
            
            **6,855**
            
            
            **1**
            
            
            **2,002**
            
            
            (169
            )
            
            (1,717
            )
            
            **117**Issuance
                of common stock for cash of $0.83 per share in January 2005, net
                of
                issuance costs
            
            
            1,430
            
            
            —
            
            
            1,158
            
            
            —
            
            
            —
            
            
            1,158Issuance
                of common stock for cash of $1.24 per share in June 2005, net of
                issuance
                costs
            
            
            2,220
            
            
            —
            
            
            2,699
            
            
            —
            
            
            —
            
            
            2,699Comprehensive
                loss:Net
                loss for the period
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (3,196
            )
            
            (3,196
            )Foreign
                currency translations
            
            
            —
            
            
            —
            
            
            —
            
            
            165
            
            
            —
            
            
            165Total
                comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,031
            )**Balance
                at December 31, 2005**
            
            
            **10,505**
            
            
            **1**
            
            
            **5,859**
            
            
            (4
            )
            
            (4,913
            )
            
            **943**Common
                shares transferred in merger with Castle & Morgan Holdings,
                Inc.
            
            
            2,860
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Common
                shares issued for $1.31 per share in private placement, net of issuance
                costs
            
            
            7,656
            
            
            1
            
            
            9,255
            
            
            —
            
            
            —
            
            
            9,256Stock
                based compensation expense
            
            
            —
            
            
            —
            
            
            329
            
            
            —
            
            
            —
            
            
            329Comprehensive
                loss:Net
                loss for the period
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (3,176
            )
            
            (3,176
            )Unrealized
                gain on short-term investments
            
            
            
            
            
            
            
            
            
            
            
            5
            
            
            
            
            
            5Foreign
                currency translations
            
            
            —
            
            
            —
            
            
            —
            
            
            (27
            )
            
            —
            
            
            (27
            )Total
                comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,198
            )**Balance
                at September 30, 2006 (Unaudited)**
            
            
            **21,021**
            
            **$**
            **2**
            
            **$**
            **15,443**
            
            **$**
            (26
            )
            **$**
            (8,089
            )
            **$**
            **7,330**




*See
      accompanying notes to the condensed consolidated financial
      statements.*





Page
          5
 
  **Osteologix,
          Inc. and Subsidiary**
 **(a
          development stage company)**
 **Condensed
          Consolidated Statements of Cash Flow**


**(in
        thousands, except per share amounts)**


**(Unaudited)**




**Nine
                Months Ended**
              **September
                30,**
            
            **For
                the Period from June 16, 2003 (Inception) to****2006**
            
            **2005**
            
            **September
                30, 2006****Operating
                activities**Net
                loss
            
            $
            (3,176
            )
            $
            (2,777
            )
            $
            (8,089
            )Adjustments
                to reconcile net loss to net cashused
                in operating activities:Depreciation
            
            
            4
            
            
            3
            
            
            10Stock
                based compensation
            
            
            329
            
            
            —
            
            
            329Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            750
            
            
            —
            
            
            —Prepaid
                expenses and other current assets
            
            
            107
            
            
            (106
            )
            
            (189
            )Accounts
                payable
            
            
            (211
            )
            
            59
            
            
            270Accrued
                liabilities
            
            
            (94
            )
            
            (38
            )
            
            106Net
                cash used in operating activities
            
            
            (2,291
            )
            
            (2,859
            )
            
            (7,563
            )**Investing
                activities**Purchase
                of short-term investments
            
            
            (5,642
            )
            
            —
            
            
            (5,642
            )Purchase
                of equipment
            
            
            (7
            )
            
            —
            
            
            (20
            )Net
                cash used in investing activities
            
            
            (5,649
            )
            
            —
            
            
            (5,662
            )**Financing
                activities -**Net
                proceeds from issuance of common stock
            
            
            9,256
            
            
            3,858
            
            
            15,116Effect
                of exchange rates on cash and cash equivalents
            
            
            (27
            )
            
            229
            
            
            (31
            )Net
                increase in cash and cash equivalents
            
            
            1,289
            
            
            1,228
            
            
            1,860Cash
                and cash equivalents at beginning of period
            
            
            571
            
            
            249
            
            
            —Cash
                and cash equivalents at end of period
            
            $
            1,860
            
            $
            1,477
            
            $
            1,860




*See
      accompanying notes to the condensed consolidated financial
      statements.*





Page
          6


**Osteologix,
      Inc. and Subsidiary**


**(a
      development stage company)**


**Notes
      to Condensed Consolidated Financial Statements**


**September
      30, 2006 (Unaudited)**


**(Tabular
      amounts in thousands, except per share amounts)**




**1.**
            **Basis
                of Presentation and Summary of Significant Accounting
                Policies**




*Business
      Description*





Osteologix,
      Inc. (“Osteologix” or the “Company”) is in the business of developing innovative
      pharmaceuticals for the treatment and prevention of diseases of bone and joint
      tissues. The Company’s lead product candidate, NB S101, is in clinical
      development for treatment of osteoporosis. Osteologix has not yet generated
      substantial revenues from its operations and, accordingly, the Company is in
      the
      development stage.




*Basis
      of Presentation*





The
      unaudited condensed consolidated financial statements include the accounts
      of
      the Company and its wholly owned subsidiary, Osteologix A/S. All intercompany
      accounts and transactions have been eliminated. Osteologix operates in one
      business segment, the development of pharmaceutical products.





The
      preparation of financial statements in conformity with U.S. generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the amounts reported in the financial statements and accompanying notes.
      Actual amounts may differ from those estimates. These financial statements
      have
      been prepared in accordance with U.S. generally accepted accounting principles
      (“GAAP”) for interim financial information and with the instructions to Form
      10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include
      all
      of the information and footnotes required by GAAP for complete financial
      statements. The condensed consolidated financial statements for the interim
      periods ended September 30, 2006 and the notes thereto are unaudited. In the
      opinion of management, all adjustments (consisting of normal recurring
      adjustments) considered necessary for a fair presentation have been included.
      Operating results for the three and nine month periods ended September 30,
      2006
      are not necessarily indicative of results that may be expected for the year
      ending December 31, 2006. The condensed consolidated balance sheet at December
      31, 2005 has been derived from the audited balance sheet at that
      date.





These
      condensed consolidated financial statements are meant to be read in conjunction
      with the audited consolidated financial statements of Osteologix A/S (see below
      description of the merger between Osteologix A/S and Castle & Morgan
      Holdings, Inc.). The audited consolidated financial statements of Osteologix
      A/S
      as of and for the year ended December 31, 2005 are included in the Company’s
      Form SB-2/A filed with the Securities and Exchange Commission on August 9,
      2006
      and Form 8-K filed with the Securities and Exchange Commission on May 31, 2006.
      These audited financial statements included a “going concern” audit opinion
      qualification from the Company’s independent registered public accounting firm.
      Osteologix has experienced net losses from its inception through September
      30,
      2006, and Osteologix expects losses to continue as the Company furthers its
      research and development programs. The condensed consolidated financial
      statements have been prepared assuming the Company will continue as a going
      concern, which management believes is appropriate because Osteologix plans
      to
      raise additional capital in order to fund is operations. Therefore, the
      condensed consolidated financial statements do not contain any adjustments
      that
      may be required if it is unable to continue as a going concern.





Certain
      prior period amounts have been reclassified to conform to the current
      presentation, including rounding of dollar amounts to the nearest thousand.
      The
      Company has been in the development stage since its formation. All losses
      accumulated since the inception of Osteologix have been considered as part
      of
      the Company’s development stage activities.




*Background
      of Company Organization and Description of Merger Transaction*





Osteologix
      A/S was formed in Denmark on June 16, 2003 under the name Nordic Bone A/S,
      which
      changed to Osteologix A/S on November 18, 2004. Prior to May 24, 2006, Nordic
      Biotech A/S, a Danish venture capital fund, owned 100% of the issued and
      outstanding stock of Osteologix A/S. On May 24, 2006, Osteologix A/S completed
      a
“reverse merger” transaction with Castle & Morgan Holdings, Inc., a U.S.
      public company incorporated in Delaware traded on the Over-the-Counter Bulletin
      Board. In the merger, Castle and Morgan Holdings, Inc. issued new shares of
      common stock in exchange for 100% of the issued common stock of Osteologix
      A/S
      held by Nordic Biotech A/S. Also on May 24, 2006, a subsidiary of Osteologix
      A/S
      completed a private placement transaction, raising $10 million in gross
      proceeds, also by issuing new shares of common stock. Immediately following
      the
      merger, Castle & Morgan Holdings, Inc. changed its name to Osteologix, Inc.
      and the newly issued shares in the subsidiary of Osteologix A/S converted into
      Osteologix Inc. shares. Following these transactions, Nordic Biotech A/S’s
      previous ownership of 100% of the outstanding stock of Osteologix A/S converted
      into 50.0% ownership of Osteologix, Inc., the investors purchasing stock in
      the
      private placement owned 36.4% of Osteologix, Inc., and the previous stockholders
      of Castle & Morgan Holdings, Inc. owned 13.6% of Osteologix, Inc. Because
      Nordic Biotech A/S participated in the private placement financing, following
      the transactions of May 24, 2006 they own 60.1% of Osteologix, Inc.





Page
          7


Although
      Osteologix A/S became a wholly owned subsidiary of Castle & Morgan Holdings
      Inc. (subsequently renamed Osteologix, Inc.) in the merger, for financial
      reporting purposes Osteologix A/S is treated as the acquirer because it’s
      previous shareholder continued to own a majority of the surviving company.
      Accordingly, the historical consolidated financial statements prior to the
      date
      of the merger that are included in these condensed consolidated financial
      statements for comparative purposes are the consolidated financial statements
      of
      Osteologix A/S and its subsidiary. The number of shares of common stock, the
      par
      value and additional paid-in capital reported prior to May 24, 2006 in the
      condensed consolidated financial statements have been amended to reflect the
      impact of the merger with Castle & Morgan Holdings, Inc. Following the
      merger, the functional currency of the Company became the United States Dollar
      whereas it was previously the Danish Krone.





*Fair
      Value of Financial Instruments*





For
      financial instruments consisting of cash and cash equivalents, short-term
      investments, accounts receivable, prepaid expenses and other assets, accounts
      payable and other accrued liabilities included in the condensed consolidated
      financial statements, the carrying amounts are reasonable estimates of the
      fair
      value due to their short maturities. The fair value of other short-term and
      long-term obligations is estimated based on current interest rates available
      for
      debt instruments with similar terms, degrees of risk and remaining maturities.
      The carrying values of these obligations approximate their fair
      values.





**2.**
            **Short-Term
                Investments**




The
      Company invests funds that are not required for immediate operating needs
      primarily in a diversified portfolio of debt securities which are classified
      as
      short-term investments on the balance sheet. Management determines the
      appropriate classification of these marketable debt securities at the time
      of
      purchase and reevaluates such designation as of each balance sheet date. As
      of
      September 30, 2006, all marketable securities are classified as
      available-for-sale. These securities are stated at their estimated fair value
      based upon market quotes. Unrealized gains and losses are included in
      accumulated other comprehensive income or loss. Amortization of premiums and
      discounts and realized gains and losses are included in interest income. The
      cost of securities sold is based on the specific identification method. The
      Company has not experienced any significant losses on its
      investments.





As
      of
      September 30, 2006, all of the Company’s short-term investments had maturity
      dates of less than one year. The fair value of U.S. government securities was
      $846,000, including unrealized gains of $1,000; the fair value of corporate
      securities was $3,672,000, including unrealized gains of $4,000; the fair value
      of municipal securities was $250,000; and the fair value of asset-backed
      securities was $879,000. As of September 30, 2006 there were no unrealized
      losses in the Company’s short-term investments.





**3.**
            **Stock-Based
                Compensation**




*Issuance
      and Adoption of New Accounting Standard*





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based
      Payment” (“SFAS 123R”), which changes the accounting for stock-based
      compensation. SFAS 123R requires stock-based awards to employees to be accounted
      for using a fair-value based method, with the fair value of the awards estimated
      based on various assumptions, explained in more detail below. Previously,
      Osteologix accounted for stock-based awards to employees using the intrinsic
      value method. To date, all employee stock-based compensation at Osteologix
      (prior to and since the date of adoption of SFAS 123R) has been in the form
      of
      warrants or options to purchase stock. Under SFAS 123R, stock-based compensation
      expense is measured on the date stock options are granted, based on the
      estimated fair value of the stock options, and is recognized in the statement
      of
      operations on a straight line basis over the vesting period of the stock
      options.





Page
          8


The
      Company adopted the requirements of SFAS 123R effective January 1, 2006,
      utilizing the prospective transition method. Under the prospective application,
      prior periods are not restated to reflect the impact of SFAS 123R for
      comparative purposes. The valuation provisions of SFAS 123R apply to new awards
      and to awards that are outstanding on the effective date and subsequently
      modified. Estimated compensation expense for existing awards that were
      outstanding on the effective date is now recognized in the statement of
      operations over the remaining vesting periods using the expense as calculated
      for pro forma disclosure purposes under the previous stock-based compensation
      requirements.





*Osteologix’s
      Stock-based Compensation Plans*





In
      2003,
      the Osteologix A/S board of directors adopted the 2003 Equity Incentive Plan
      (the “2003 Equity Plan”) which provided for the issuance of warrants to purchase
      common stock at fair market value on the date of the grant. A total of 100,000
      warrants to purchase shares of Osteologix A/S common stock were issued under
      the
      plan prior to the merger transaction. As a part of this transaction, the
      warrants to purchase shares of Osteologix A/S were cancelled and new warrants
      to
      purchase Osteologix, Inc. common stock were issued at a conversion ratio of
      9.79307 per share, resulting in warrants to purchase approximately 979,000
      shares of Osteologix, Inc. common stock. The 2003 Equity Plan has been cancelled
      and there are no additional warrants available to issue.





In
      2006,
      the Castle & Morgan Holdings, Inc. board of directors adopted the 2006
      Equity Incentive Plan (the “2006 Stock Option Plan”) which provides for the
      issuance of stock options at or above the fair market value on the date of
      grant. The 2006 Stock Option Plan has not been approved by the Company’s
      stockholders, which the Company plans to seek in 2007. A total of 1,221,000
      shares were reserved for issuance under the 2006 Stock Option Plan, and as
      of
      September 30, 2006, options to purchase up to 400,000 shares had been issued,
      with 821,000 shares available for future issuance under the 2006 Stock Option
      Plan.





*Stock-based
      Compensation under SFAS 123R*





Under
      the
      provisions of SFAS 123R, the Company has elected to use the Black-Scholes
      option-pricing model (the “Black-Scholes model”) as its method of valuation for
      stock-based compensation. From the date of adoption of SFAS 123R through
      September 30, 2006, there have been options granted to purchase up to 400,000
      shares of common stock of Osteologix. The options were granted with an exercise
      price of $1.50 per share at a time when the stock price was $1.30, have a
      vesting period of four years and expire in ten years. The estimated per share
      fair value of the options granted was $0.83 with the following assumptions:
      expected volatility of 70%; expected term of 6.1 years; annualized risk-free
      interest rate of 4.7%; and dividend yield of zero.





In
      addition to the above stock options granted in the three months ended September
      30, 2006, when the merger transaction occurred, Osteologix exchanged warrants
      to
      purchase stock of Osteologix A/S for warrants to purchase stock of Osteologix,
      Inc. at the same exercise price and exchange ratio as received by the
      shareholder of Osteologix A/S. In accordance with SFAS 123R, the Company
      recorded an expense for the modification to the stock awards based on the excess
      of the fair value of the replacement warrant over the fair value of the
      cancelled warrant. The incremental stock-based compensation expense on the
      date
      of the merger for the increased fair value of the modified warrants aggregated
      $372,000, of which $275,000 was immediately recognized in the statement of
      operations for the warrants that were vested. The remaining $97,000 will be
      recognized over the remaining vesting period of the warrants ending in 2008.
      During the nine months ended September 30, 2006, $29,000 of the remaining
      $97,000 was recognized as stock-based compensation expense. The estimated per
      share fair value of the modified warrants was $0.73 with the following
      assumptions: expected volatility of 70%; expected term of 3.0 years; annualized
      risk-free interest rate of 5.0%; and dividend yield of zero.


The
      expected volatility was determined by the Company based on the historical
      volatility of comparable companies, the expected term was determined by the
      Company based upon the safe harbor calculation established in Staff Accounting
      Bulletin 107. The risk-fee interest rate assumption is based upon the U.S.
      Treasury yield for expected life of the Company’s stock options. The dividend
      rate was based on the Company’s projections that show it will not be able to pay
      dividends for the foreseeable future.




All
      of
      the stock-based compensation recognized to date for the Company’s stock award
      plans was included in general and administrative expenses. Stock-based
      compensation expense for the nine months ended September 30, 2006 includes
      $300,000 related to stock options modified or granted during the nine months
      ended September 30, 2006. As of September 30, 2006, the total unrecognized
      expense for unvested stock warrants and options is $405,000, which will be
      expensed over the remaining vesting period of 3.9 years. The Company recorded
      no
      income tax benefits for share-based compensation arrangements for the three
      or
      nine months ended September 30, 2006 because the Company has cumulative
      operating losses for which a valuation allowance has been
      established.




Page
          9


The
      following table summarizes information about stock options and warrants
      outstanding and exercisable as of September 30, 2006:





**Weighted
                Average****Remaining****Number**
            
            **Contractual
                Life**
            
            **Number****Exercise
                Price**
            
            **Outstanding**
            
            **(Years)**
            
            **Exercisable**$1.03
            
            
            979
            
            
            7.2
            
            
            758$1.50
            
            
            400
            
            
            9.9
            
            
            -




The
      aggregate intrinsic value of the options and warrants outstanding as of
      September 30, 2006 was $264,000, and the aggregate intrinsic value of the
      options and warrants that were exercisable was $205,000.





*Pro-Forma
      Information under SFAS 123 (for periods prior to January 1,
      2006)*





Prior
      to
      adopting the provisions of SFAS 123R, the Company applied APB Opinion No. 25
      “Accounting for Stock Issued to Employees” in accounting for its stock-based
      compensation. Because the Company granted warrants to purchase its common stock
      with an exercise price that was equal to the fair market value of the stock
      on
      the date of grant, Osteologix accordingly recognized no compensation expense
      for
      the warrants. The Company followed the disclosure-only provisions of SFAS 123,
      as amended by SFAS No. 148, and for purposes of pro forma disclosures, the
      estimated fair value of the warrants was amortized to expense over the vesting
      period of the warrants using the straight-line method. The following table
      presents information showing the effects to the reported net loss and net loss
      per share as if Osteologix had accounted for stock-based compensation using
      the
      fair-value method:





**Three
                Months Ended**
            
            **Nine
                Months Ended****September
                30, 2005**
            
            **September
                30, 2005**Net
                loss applicable to common stockholders, as reported
            
            $
            (1,212
            )
            $
            (2,777
            )Less:
                total stock-based employee compensation determined under fair value
                based
                method for all awards
            
            
            (29
            )
            
            (91
            )Net
                loss applicable to common stockholders, pro forma
            
            $
            (1,241
            )
            $
            (2,868
            )Net
                loss per common share, basic and diluted:As
                reported
            
            $
            (0.12
            )
            $
            (0.31
            )


Pro
                forma
            
            $
            (0.12
            )
            $
            (0.32
            )




All
      warrants were granted with exercise price of $1.03 per share .
      The
      terms of the warrants do not provide for immediate exercisability and, in
      addition to requiring that the exercise follow certain significant corporate
      events or the publication of the Company’s annual financial statements
      subsequent to the admission of the common stock for sale on a regulated market,
      the warrants vest over several years (the terms of which vary from holder to
      holder).





The
      fair
      value of employee warrants granted prior to the adoption of SFAS 123R was
      estimated on the date of grant using the Black-Scholes option valuation model
      under the minimum value method, which assumes a volatility of 0%, expected
      term
      of five years for employee grants and ten years for non-employee director
      grants, expected dividend of zero, and a risk free rate for periods related
      to
      the expected life of the warrants based on the U.S. Treasury yield curve in
      effect at the time of grant.





*General
      Stock Option Accounting Information*





The
      Company believes it is important for investors to be aware that there is a
      high
      degree of subjectivity involved in estimating the value of stock-based
      compensation, including under the requirements of SFAS 123R, and that changes
      in
      input assumptions, particularly the estimated volatility and estimated term,
      can
      materially affect the resulting estimates of the fair values of the options
      and
      warrants granted. The expenses recorded for stock-based compensation in the
      Company’s financial statements may differ significantly from the actual value
      realized by the recipients of the stock awards. The stock awards may expire
      worthless or otherwise result in zero intrinsic value to the recipient, or
      value
      may be realized from these instruments that are significantly in excess of
      the
      fair values reported in financial statements. Under SFAS 123R, the expenses
      recorded in the financial statements are not adjusted to the actual amounts
      realized by the stock option recipients. The expenses recognized under SFAS123R
      will not result in any payment of cash by the Company.




Page
          10


Stock-based
      compensation arrangements to non-employees are accounted for using a fair value
      approach, and the compensation costs of such arrangements are subject to
      re-measurement over their vesting terms, as earned.





**4.**
            **Income
                Taxes**





The
      Company files tax returns in the United States and in Denmark based on its
      operations in each country. The Company accounts for income taxes under the
      liability method, whereby deferred tax assets and liabilities are determined
      for
      the expected future tax consequences of events that are included in the
      financial statements and tax returns in different periods, using enacted tax
      rates in effect for the year in which the differences are expected to affect
      taxable income.





Deferred
      tax assets relate primarily to net operating loss carryforwards. A valuation
      allowance has been established for all of the Company’s deferred tax assets
      because more likely than not they will remain unrealized. Under provisions
      of
      the Internal Revenue Code of 1986, as amended, the availability of the Company’s
      U.S. net operating loss may be subject to limitations based on ownership changes
      as determined by the Internal Revenue Code. These limitations could prevent
      the
      Company from realizing some or all of its net operating loss
      carryforwards.





**5.**
            **Net
                Loss Per Share**





The
      net
      loss per share has been computed using the weighted-average number common shares
      outstanding during the period. As of September 30, 2006 and 2005, respectively,
      there were a total of 1,379,000 and 979,000 potentially dilutive securities
      in
      the form of options and warrants outstanding which were not considered in the
      computation of diluted net loss per share because such shares would be
      anti-dilutive.








**6.**
            **Stockholders’
                Equity**





In
      May
      2006, Osteologix completed the sale of 7,656,000 shares of its common stock
      to a
      group of investors, including Nordic Biotech A/S, at a price of $1.31 per share,
      for gross proceeds of $10,000,000. Net proceeds were $9,256,000 after issuance
      costs.





In
      June
      2005, Osteologix completed the sale of 2,220,000 shares of its common stock
      to
      Nordic Biotech A/S at a price of $1.24 per share, for gross proceeds of
      $2,747,000. Net proceeds were $2,699,000 after issuance costs.





In
      January 2005, Osteologix completed the sale of 1,430,000 shares of its common
      stock to Nordic Biotech A/S at a price of $0.83 per share, for gross proceeds
      of
      $1,180,000. Net proceeds were $1,158,000 after issuance costs.





In
      May
      2004, Osteologix completed the sale of 979,000 shares of its common stock to
      Nordic Biotech A/S at a price of $1.01 per share, for gross and net proceeds
      of
      $988,000.





In
      October 2003, Osteologix completed the sale of 979,000 shares of its common
      stock to Nordic Biotech A/S at a price of $0.95 per share for gross and net
      proceeds of $930,000.





In
      June
      2003, Osteologix completed the sale of 4,897,000 shares of its common stock
      to
      its founder, Nordic Biotech A/S, at a price of $0.02 per share, for gross and
      net proceeds of $85,000.








**7.**
            **Recent
                Accounting Pronouncements**





In
      May
      2005, the Financial Accounting Standards Board issued Statement of Financial
      Accounting Standards No. 154, “ *Accounting
      Changes and Error Corrections* ”
(“SFAS
      154”), which replaces Accounting Principles Board Opinion No. 20, “ *Accounting
      Changes* ,”
and
      Statement of Financial Accounting Standards No. 3, “ *Reporting
      Accounting Changes in Interim Financial Statements”* SFAS 154
      requires retrospective application, unless impracticable, for changes in
      accounting principles in the absence of transition requirements specific to
      newly adopted accounting principles. The provisions of SFAS No. 154 were
      effective for Osteologix beginning on September 1, 2006 and there was no impact
      upon the Company’s adoption of SFAS 154.





Page
          11


In
      September 2006, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards No. 157, “ *Fair
      Value Measurements* ”
(“SFAS
      157”), which clarifies and prioritizes methods for measuring fair value under
      generally accepted accounting principles. SFAS 157 generally increases the
      level
      of disclosure required for fair value measurements, although it does not impact
      the valuations or disclosures required under SFAS 123R. For Osteologix,
      implementation of SFAS 157 will be required on January 1, 2008. Osteologix
      has
      not yet evaluated the impact of SFAS 157 on its financial statements or
      disclosures.


Page
          12





**ITEM
      2.****MANAGEMENT’S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**




THE
      FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH:




1.
            THE
                INFORMATION CONTAINED IN THE FINANCIAL STATEMENTS OF THE COMPANY
                APPEARING
                ELSEWHERE IN THIS QUARTERLY REPORT ON FORM
                10-QSB;


2.
            RISK
                FACTORS AND MANAGEMENT’S DISCUSSION AND ANALYSIS CONTAINED IN THE
                COMPANY’S REGISTRATION STATEMENT ON FORM SB-2/A FILED ON AUGUST 9, 2006
                AND CURRENT REPORT ON FORM 8-K FILED ON MAY 31, 2006;
                AND


3.
            THE
                PREDECESSOR COMPANY’S (CASTLE & MORGAN HOLDINGS, INC.) ANNUAL REPORT
                ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31,
                2005.




**PRELIMINARY
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**




The
      statements contained in this Form 10-QSB that are not purely historical are
      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. These include statements about the Company’s expectations, beliefs,
      intentions or strategies for the future, which are indicated by words or phrases
      such as “anticipate,” “expect,” “intend,” “plan,” “will,” “the Company
      believes,” “management believes” and similar words or phrases. The
      forward-looking statements are based on the Company’s current expectations and
      are subject to certain risks, uncertainties and assumptions. The Company’s
      actual results could differ materially from results anticipated in these
      forward-looking statements. All forward-looking statements included in this
      document are based on information available to the Company on the date hereof,
      and the Company assumes no obligation to update any such forward-looking
      statements. References in this filing to the “Company”, “we”, “us”, and “our”
refer to Osteologix, Inc. and its subsidiaries.  References
      to the current company, Osteologix, Inc. and its predecessor company Osteologix
      A/S prior to the merger are shortened in this Quarterly Report on Form 10-QSB
      to
“we,” “our” or “Osteologix.”




Except
      for the historical information contained herein, the matters discussed in this
      “Management’s Discussion and Analysis of Financial Condition and Results of
      Operations,” and elsewhere in this report are forward-looking statements that
      involve risks and uncertainties. The factors listed in the section captioned
      “Risk Factors” and all cautionary language in this report provide examples of
      risks, uncertainties and events that may cause our actual results to differ
      materially from those projected. Except as may be required by law, we undertake
      no obligation to update any forward-looking statement to reflect events after
      the date of this report.





Company
      Information and Background




Osteologix
      is in the business of developing innovative pharmaceuticals for the treatment
      and prevention of diseases of bone and joint tissues. The lead product
      candidate, NB S101, is in clinical development for treatment of
      osteoporosis.





Osteologix
      was initially formed on June 16, 2003 in Denmark as Nordic Bone A/S, based
      on
      intellectual property rights for a product to treat osteoporosis. Nordic Bone
      A/S changed its name to Osteologix A/S on November 18, 2004. On May 24, 2006,
      Osteologix A/S completed a “reverse merger” transaction with Castle & Morgan
      Holdings, Inc., a U.S. public company incorporated in Delaware traded on the
      Over-the-Counter Bulletin Board. In the merger, Castle and Morgan Holdings,
      Inc.
      issued new shares of common stock in exchange for 100% of the issued common
      stock of Osteologix A/S. Also on May 24, 2006, a subsidiary of Osteologix A/S
      completed a private placement transaction, raising $10 million in gross
      proceeds, also by issuing new shares of common stock. Immediately following
      the
      merger, Castle & Morgan Holdings, Inc. changed its name to Osteologix, Inc.
      and the newly issued shares in the subsidiary of Osteologix A/S were exchanged
      with Osteologix, Inc. shares. Following these transactions, the stock in
      Osteologix A/S held by the previous sole shareholder, Nordic Biotech A/S, was
      exchanged into a 50.0% ownership of Osteologix, Inc., the investors purchasing
      stock in the private placement then owned 36.4% of Osteologix, Inc., and the
      previous stockholders of Castle & Morgan Holdings, Inc. then owned 13.6% of
      Osteologix, Inc. Because Nordic Biotech A/S participated in the private
      placement financing, following the transactions of May 24, 2006 they own 60.1%
      of Osteologix, Inc.





After
      our
      initial formation in 2003, Osteologix began operating activities in early 2004
      with chemistry and in vitro studies for the selection and development of NB
      S101, our lead product candidate for the treatment of osteoporosis. Later in
      2004 we established a United States subsidiary and opened an office in San
      Francisco. In 2005 we expanded our operational capabilities to enter human
      clinical studies and completed our first phase I clinical trial.





Page
          13


Currently,
      our primary long-term goal is to obtain FDA and European approval for NB S101
      for the treatment of osteoporosis. NB S101 contains strontium malonate as its
      active ingredient and is a once-daily oral tablet. Studies carried out by a
      European company with another form of strontium have shown that it has an
      ability to increase formation of new bone while simultaneously decreasing
      resorption (loss) of existing bone. In clinical and preclinical studies with
      our
      lead candidate we have also demonstrated this positive impact on bone activity.
      No product currently approved (or, to our knowledge, under investigation) for
      the treatment of osteoporosis in the U.S. has the ability to increase formation
      and decrease resorption. Our recently completed phase I studies of the
      pharmacokinetic (PK) properties of NB S101 revealed that a one gram tablet
      dose
      of NB S101 resulted in the same level of strontium in human serum as the
      European company’s approved product containing over two grams of strontium
      ranelate in sachet formula (which must be mixed with water before ingestion).
      Thus, at a significantly lower dose our tablet formulation of strontium is
      bioequivalent to a marketed sachet product that has been proven safe and
      efficacious in osteoporotic patients in Europe. These data, combined with the
      results of our recent phase I study, form the basis for our phase II program
      and
      the pursuit of approval for NB S101 for the treatment of osteoporosis in the
      U.S
      and in Europe. We have filed patent applications for NB S101 and have received
      our first notice of allowance for the patents.





Our
      clinical development program builds on others’ previous experience with
      different strontium salts, which, in large well-controlled clinical trials
      of
      patients with osteoporosis, have demonstrated a significant reduction in
      vertebral and non-vertebral fractures and increased bone mineral density.
      Studies performed in animals, as well as histological and biomarker assessments
      of samples from human volunteers treated with strontium ranelate, show that
      they
      maintain or increase the formation of new bone while reducing bone resorption.
      These studies support strontium’s unique mechanism of action on bone metabolism,
      resulting in a systemic improvement in bone strength and quality. At the
      inception of Osteologix, Nordic Biotech A/S assigned several patent applications
      relating to strontium and pharmaceutical uses of strontium salts to Osteologix.
      We believe that the proven benefits of strontium and the volume of clinical
      data
      on other strontium salts that has been generated results in a lower drug
      development risk for NB S101 as compared to other programs based on
      unprecedented chemical classes.





**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**





Osteologix
      is in the business of developing innovative pharmaceuticals for the treatment
      and prevention of diseases of bone and joint tissues. Our lead product
      candidate, NB S101, is in clinical development for treatment of osteoporosis
      and
      currently our primary long-term goal is to obtain U.S. and European approval
      for
      NB S101 for the treatment of osteoporosis. Because we have not generated
      significant revenues from operations, we are considered in the development
      stage
      and all costs related to the development of NB S101 are expensed as incurred.
      Statements within this Management’s Discussion and Analysis of Financial
      Condition and Results of Operations are meant to be read in conjunction with
      our
      condensed consolidated financial statements appearing in Part I, Item 1 of
      this
      Quarterly Report on Form 10-QSB.





**Critical
      Accounting Policies and Use of Estimates**





The
      preparation of these financial statements requires us to make certain estimates
      and assumptions that affect the reported amounts of assets and liabilities,
      the
      disclosure of contingent assets and liabilities at the date of the consolidated
      financial statements, and the reported amounts of revenue and expense during
      the
      reported periods. These items are regularly monitored and analyzed by management
      for changes in facts and circumstances, and material changes in these estimates
      could occur in the future. Changes in estimates are recorded in the period
      in
      which they become known. We base our estimates on historical experience and
      various other assumptions that we believe to be reasonable under the
      circumstances. Actual results may differ from our estimates if past experience
      or other assumptions do not turn out to be substantially accurate.





On
      January 1, 2006 we adopted the requirements of Statement of Financial Accounting
      Standards No. 123 (revised 2004), “Share-Based Payment,” or SFAS 123R, which
      requires the expensing of the estimated fair value of stock options issued
      to
      employees. We adopted this standard utilizing the prospective transition method,
      under which prior periods are not restated to reflect the impact of SFAS 123R
      for comparative purposes. The valuation provisions of SFAS 123R apply to new
      awards and to awards that are outstanding on the effective date and subsequently
      modified. Estimated compensation expense for existing awards that were
      outstanding on the effective date is now recognized in the statement of
      operations over the remaining vesting periods using the expense as calculated
      for pro forma disclosure purposes under the previous stock-based compensation
      requirements. For the nine months ended September 30, 2006, our expenses under
      SFAS 123R aggregated $329,000.





Page
          14


**Recent
      Accounting Pronouncements**





In
      May
      2005, the Financial Accounting Standards Board issued Statement of Financial
      Accounting Standards No. 154, “ *Accounting
      Changes and Error Corrections* ”
(“SFAS
      154”), which replaces Accounting Principles Board Opinion No. 20, “ *Accounting
      Changes* ,”
and
      Statement of Financial Accounting Standards No. 3, “ *Reporting
      Accounting Changes in Interim Financial Statements”* SFAS 154
      requires retrospective application, unless impracticable, for changes in
      accounting principles in the absence of transition requirements specific to
      newly adopted accounting principles. The provisions of SFAS No. 154 were
      effective for us beginning on September 1, 2006 and there was no impact upon
      our
      adoption of SFAS 154.





In
      September 2006, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards No. 157, “ *Fair
      Value Measurements* ”
(“SFAS
      157”), which clarifies and prioritizes methods for measuring fair value under
      generally accepted accounting principles. SFAS 157 generally increases the
      level
      of disclosure required for fair value measurements, although it does not impact
      the valuations or disclosures required under SFAS 123R. We will be required
      to
      implement SFAS 157 on January 1, 2008, and have not yet evaluated the impact
      of
      SFAS 157 on our financial statements or disclosures.





**Revenues**




Osteologix’s
      products are currently in various stages of research and development, and there
      were no revenues recorded in the three or nine month periods ended September
      30,
      2006 and 2005.




**Research
      and Development Expenses**





Expenditures
      relating to research and development are expensed as incurred. Research and
      development expenses include costs associated with compensation and other
      expenses for research and development personnel, clinical and preclinical
      studies, manufacturing costs for investigational drugs, supplies and development
      materials, costs for consultants and related contract research and costs to
      academic research institution or contract research organizations performing
      research or development activities on the company’s behalf.








Development
      costs would be capitalized only if there were sufficient certainty that future
      earnings from the product would cover the development and production costs.
      However, because of the risk and uncertainty in the development of
      pharmaceutical products, including the Company’s lead product NB S101, the
      Company has expensed all development costs in the periods incurred.





Research
      and development expenses, and the changes from the periods in 2006 compared
      to
      2005, were as follows (amounts in thousands):




**Decrease**
            
            
            
            **Decrease****From
                Period**
            
            
            
            **From
                Period****Three
                Months Ended September 30,**
            
            **in
                Prior**
            
            **Nine
                Months Ended September 30,**
            
            **in
                Prior****2006**
            
            **2005**
            
            **Year**
            
            **2006**
            
            **2005**
            
            **Year**$
            648
            
            $
            710
            
            $
            (62
            )
            $
            1,257
            
            $
            1,583
            
            $
            (326
            )





The
      decrease in research and development expenses in the 2006 periods compared
      to
      the same periods in 2005 was primarily due to the completion in 2005 of
      pre-clinical activities to support initiation of human clinical trials of NB
      S101 followed by completion of our phase I human clinical trial of NB S101
      later
      in 2005. In addition to costs for animal and human clinical trials in 2005,
      our
      2006 research and development costs include costs for chemistry, manufacturing
      and controls regarding the NB S101 product formulation and costs for additional
      animal studies that are required by the U.S. and European regulatory agencies
      prior to approval of new drugs. In the 2006 period we have also incurred costs
      in preparation for initiation of the phase II clinical trial planned for the
      fourth quarter of 2006. We anticipate that research and development expenses
      will increase in the future as we begin to enroll patients in the clinical
      phase
      II trials.




**General
      and Administrative Expenses**





General
      and administrative expenses include expenses for administrative staff including
      compensation and benefits, external legal and accounting costs, travel, board
      of
      directors expenses, administrative office expenses and administrative
      consulting.





Page
          15


General
      and administrative expenses, and the changes from the periods in 2006 compared
      to 2005, were as follows (amounts in thousands):




**Increase**
            
            
            
            **Increase****From
                Period**
            
            
            
            **From
                Period****Three
                Months Ended September 30,**
            
            **in
                Prior**
            
            **Nine
                Months Ended September 30,**
            
            **in
                Prior****2006**
            
            **2005**
            
            **Year**
            
            **2006**
            
            **2005**
            
            **Year**$
            835
            
            $
            502
            
            $
            333
            
            $
            2,052
            
            $
            1,194
            
            $
            858





General
      and administrative expenses increased during both the three month and nine
      month
      periods in 2006 compared to 2005 primarily as a result of increased expenses,
      including legal and accounting costs, of operating as a public company since
      the
      merger completed in May 2006. Osteologix also hired a chief financial officer
      in
      September 2006, increasing costs for the 2006 periods compared to 2005 when
      the
      position was vacant. In addition, during the three and nine months ended
      September 30, 2006, we recorded stock-based compensation expenses of $26,000
      and
      $329,000, respectively, based on the implementation of SFAS 123R on January
      1,
      2006.





**LIQUIDITY
      AND CAPITAL RESOURCES**




Osteologix
      measures its liquidity primarily by the cash, cash equivalents and short-term
      investments, as well as the working capital available to fund its operations.
      Since we were founded in 2003, we have applied the majority of our resources
      to
      research and development programs and the administrative expenses to support
      the
      operations of the Company. We have operated at a loss since inception and expect
      to continue to incur losses in the future as a result of our ongoing research
      and development efforts.





The
      following table summarizes our cash, cash equivalents and short-term
      investments, and our working capital available to fund our
      operations:




**September
                30,**
              **2006**
            
            **December
                31,**
              **2005**Cash,
                cash equivalents and short-term investments
            
            $
            7,507
            
            $
            571Working
                capital
            
            
            7,320
            
            
            936




The
      increase in our cash, cash equivalents and short-term investments of $6,936,000
      during the first nine months of 2006 occurred as a result of the $9,256,000
      net
      capital from the private placement financing that occurred simultaneously with
      our merger in May 2006. This increase in cash, cash equivalents and short-term
      investments was partially offset by $2,291,000 used in operations, which funded
      our continuing development of NB S101 for osteoporosis and the administrative
      expenses of operating a public company. We have experienced net losses from
      our
      inception through September 30, 2006, and we expect losses to continue as we
      further our research and development programs. We have prepared our financial
      statements assuming that we will continue as a going concern, which we believe
      is appropriate because we plan to raise additional funds through one or more
      of
      the various alternatives we are considering. However, we may not be able to
      raise additional funds on acceptable terms or at all. We believe that our
      current cash, cash equivalents and short-term investments of as of September
      30,
      2006 will provide liquidity to fund our operations, including the initiation
      of
      the phase IIa human clinical trial of NB S101, for approximately the next twelve
      months.





**PLAN
      OF OPERATION**





Our
      business strategy is to develop drug candidates that target major medical needs
      and can be rapidly commercialized. We are currently focusing on the treatment
      and prevention of diseases of bone and joint tissues. NB S101, which is entering
      phase II clinical development for treatment of osteoporosis, fits this strategy
      because the osteoporosis market is large, with over $10 billion in annual
      product sales, and preclinical studies and phase I human clinical studies have
      been completed. In addition, a different drug which also contains a strontium
      compound as its active ingredient (as does NB S101) has been proven safe and
      effective and is approved for treatment of osteoporosis in Europe, which we
      believe reduces the development risk for NB S101 as compared to other
      investigational drugs in completely unproven chemical classes. In executing our
      business strategy, our management oversees the human clinical trials necessary
      to establish preliminary evidence of efficacy, and we are seeking to establish
      collaborative agreements with pharmaceutical and biotechnology companies for
      their late-stage development and marketing of our product candidates and/or
      our
      obtaining rights to develop and market certain of their product candidates.
      We
      plan to continue to acquire and develop products, and plan to either develop
      the
      resources to market these products in selected world regions or out-license
      marketing rights to larger pharmaceutical companies.





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          16


We
      believe that our currently available existing resources will provide liquidity
      to fund our planned operations for approximately the next twelve months. Because
      we are in the business of developing pharmaceutical products, which is
      time-consuming and expensive, and NB S101, our most advanced investigational
      drug, is entering phase II clinical trials, we will require additional financial
      resources to carry out our business strategy. Our first phase II clinical trial
      is expected to take approximately one year to complete, and we plan to follow
      this phase II clinical trial with a larger phase II clinical trial that we
      estimate to take approximately two years to complete. After this second phase
      II
      clinical trial, either one or two still larger phase III trials will be
      required. We may license the rights to NB S101 to a larger company before any
      of
      the clinical trials are complete, or we may choose to retain all rights
      ourselves without entering into a license or collaborative agreement. If the
      results of the clinical trials are positive, we plan to seek approval for NB
      S101 throughout the world, either on our own or in collaboration with a larger
      pharmaceutical company that has more financial resources than we
      do.





Because
      we are developing NB S101 and are also seeking to expand our line of
      investigational drugs by acquiring rights to additional drugs in development,
      we
      will likely require additional financial resources to carry out our plans.
      We
      may choose to wait for results from our phase IIa clinical trial before we
      seek
      to obtain additional funding or we may seek to secure additional funds prior
      to
      obtaining the results from this clinical trail. We are exploring various options
      to obtain additional capital, including the licensing of certain rights to
      NB
      S101, the sale of equity or debt securities and additional other alternatives.
      Our ability to successfully raise additional funds for our operations will
      be
      based, in part, on overall market conditions, conditions in the biotechnology
      and pharmaceutical industries, the status and results of our clinical trials,
      and other parties’ opinions about NB S101 and the osteoporosis market, among
      other factors. Additional funding may not be available on acceptable terms,
      if
      at all. The actual amounts we needed for our future capital requirements will
      vary depending on a number of other factors, including but not limited
      to:




·
            the
                progress we make in our clinical development
                programs;




·
            our
                ability to establish collaborative relationships and the terms of
                these
                relationships;




·
            the
                cost of filing, prosecuting, defending, and enforcing patent claims
                and
                other intellectual property rights;




·
            our
                acquisition or licensing of new drug
                candidates;




·
            competing
                technological and market
                developments;




·
            the
                requirements of regulatory
                agencies;




·
            the
                time and cost involved in obtaining regulatory approvals;
                and





·
            the
                development of commercialization activities and
                arrangements.





**OFF-BALANCE
      SHEET ARRANGEMENTS**





We
      do not
      have any off-balance sheet arrangements as defined by rules recently enacted
      by
      the Financial Accounting Standards Board, and accordingly, no such arrangements
      are likely to have an effect on our financial position, or results of
      operations.





**COMMITMENTS**




Under
      the
      terms of the Registration Rights Agreements we entered into in connection with
      the May 2006 private placement, if our registration statement does not remain
      effective as specified in the agreements, we will be required to pay liquidated
      damages of up to 2% of the original purchase price of the shares and may also
      be
      required in certain circumstances to continue to pay this amount on each monthly
      anniversary of the failure of the registration statement to be effective.





Page
          17
 
  **ITEM
        3.****CONTROLS
        AND PROCEDURES******





Under
      the
      supervision and with the participation of the Company’s management, including
      our principal executive officer and principal accounting officer, the Company
      conducted an evaluation of the effectiveness of the design and operation of
      its
      disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
      under the Securities Exchange Act of 1934, as of the end of the period covered
      by this report (the “Evaluation Date”). Based on this evaluation, the Company’s
      principal executive officer and principal accounting officer concluded as of
      the
      Evaluation Date that the Company’s disclosure controls and procedures were
      effective such that the material information required to be included in our
      Securities and Exchange Commission (“SEC”) reports is recorded, processed,
      summarized and reported within the time periods specified in SEC rules and
      forms
      relating to the Company, including our consolidating subsidiaries, and was
      made
      known to them by others within those entities, particularly during the period
      when this report was being prepared.




Additionally,
      there were no changes in the Company’s internal controls or in other factors
      that could significantly affect these controls subsequent to the Evaluation
      Date. We have not identified any significant deficiencies or material weaknesses
      in our internal controls, and therefore there were no corrective actions
      taken.





**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
      .





**ITEM
      5.**  **OTHER
      INFORMATION.**




*Amendment
      to Bylaws*





On
      November 9, 2006, the Board of Directors voted to amend and restate the Bylaws
      of the Company. The Amended and Restated Bylaws, among other things provides
      for
      (subject to the provisions of the General Corporation Law of the State of
      Delaware):




·
            A
                board of directors comprised of not less than five and not more than
                eleven people, as may be fixed, increased and decreased by the
                stockholders or the directors from time to time provided that if
                no number
                is specified, the number shall be
                seven;




·
            Terms
                for directors continuing until their successors are elected and qualified
                or until their resignation or
                removal;




·
            Election
                of directors by a plurality vote of the votes cast by stockholders
                eligible to vote;




·
            Quorum
                for a meeting of stockholders constituting one-third of the voting
                power
                of stockholders eligible to vote present in person or by proxy at
                a
                meeting of stockholders;




·
            Approval
                of stockholder actions by a greater number of votes cast for than
                against
                the action at a meeting of
                stockholders;




·
            Stockholder
                action without a meeting by stockholders eligible to vote holding
                at least
                a majority of the voting power;




·
            Quorum
                for a meeting of the board of directors constituting a majority of
                the
                directors then in office;




Page
          18


·
            Approval
                or actions by the directors by a majority of the voting power of
                the
                directors present at a meeting at which quorum is
                present;




·
            Written
                action of the board of directors or any committee if signed by all
                the
                members of the board of directors or committee;
                and




·
            Amendment,
                alternation and repeal of the bylaws by the board of
                directors.





A
      copy of
      the Amended and Restated Bylaws of the Company is filed as Exhibit 3.1
      hereto.





*Appointment
      of Director*




On
      November 9, 2006, the Board of Directors voted to fix the number of directors
      of
      the Company at seven (7) and appointed Mr. Jeremy Curnock Cook to fill the
      vacancy in directorship created following the amendment to the
      Bylaws.





Pursuant
      to the Company’s Equity Incentive Plan, the Company granted Mr. Cook options to
      purchase up to 25,000 shares of Common Stock; 3,125 are to vest on May 9, 2007
      and the remaining 21,875 are to vest in 42 equal monthly installments commencing
      June 9, 2007. The options granted to Mr. Curnock Cook have an exercise term
      of
      up to 10 years and an exercise price per share of $1.00. Mr. Cook will also
      receive cash compensation of $10,000 per year beginning with his appointment
      and
      an additional payment of $3,000 for each board meeting.





There
      is
      no understanding or arrangement between Mr. Cook and any other director and
      any
      other person pursuant to which such person was appointed as a
      director.





Mr.
      Cook
      has not in the last two years engaged in any related party transaction with
      the
      Company of the kind required to be disclosed pursuant to Item 404(a) of
      Regulation S-B.





Mr.
      Cook
      founded Bioscience Managers Limited (“BML”) in February 2001, following his time
      at Rothschild Asset Management (“Rothschild”). During his thirteen years at
      Rothschild, Mr. Cook created and led the Rothschild Bioscience Unit - the
      international and multidisciplinary team responsible for the investment advisory
      and management of a number of funds, including the early stage focused
      Biotechnology Investments Limited and the mid stage focused International
      Biotechnology Trust plc. At Rothschild, Mr. Cook was also responsible for the
      launch of the first dedicated biotechnology fund for the Australian market
      and
      the launch of a joint venture with Johnson & Johnson Development Corporation
      for the creation of Healthcare Ventures, an investment vehicle dedicated to
      seed
      stage investments in Europe.





Prior
      to
      joining Rothschild, Mr. Cook founded the International Biochemicals Group
      (“IBG”) in 1975, and built an 80-person company focused on the development and
      commercialization of products containing tailored microbial strains for
      application in industrial pollution control and agriculture. IBG’s clients
      included multinationals McDonalds and Royal Dutch Shell. Following the
      successful sale of IBG to Royal Dutch Shell in 1985, Mr. Cook managed the
      integration process into Shell operations prior to being invited to join
      Rothschild in 1987.





Mr.
      Cook has served on more than 30
      boards of directors in the life science sector in Europe, United States, Canada,
      Japan and Australia. He is currently Chairman of Targeted Genetics Inc. (US)
      and
      Inflazyme Pharmaceuticals (Canada) and a Board member of Sirna Therapeutics
      (US); Biocompatibles International (UK); SR Pharma plc (UK); BML Canada; and
      Intersuisse Bioscience Managers (Australia).





Mr.
      Cook
      received his MA in Natural Sciences from Trinity College in Dublin in 1971,
      and
      was a research scientist at the Institute of Cancer Research from 1972 to
      1973.





Page
          19


**ITEM
      6.**  **EXHIBITS.**  ****




**(a)**
            **EXHIBITS**




The
      following exhibits are filed as part of this report:




**Exhibit
                Number**
            **Description**3.1
            Amended
                and Restated Bylaws of Osteologix, Inc.31.1
            Certification
                of Chief Executive Officer pursuant to Rules 13A-14(A) and 15D-14(A)
                of
                the Securities Exchange Act of 1934, as adopted pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 2002.31.2
            Certification
                of Chief Financial Officer pursuant to Rules 13A-14(A) and 15D-14(A)
                of
                the Securities Exchange Act of 1934, as adopted pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 2002.32.1
            Certifications
                of Chief Executive Officer and Chief Financial Officer Pursuant to
                18
                U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of
                2002).





Page
          20


**SIGNATURES**




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


**OSTEOLOGIX,
                INC.**Date:
                November 10, 2006
            By:
            /s/
              Charles J. CasamentoName:
              Charles J. CasamentoTitle:
              Chief Executive Officer and President


Date:
                November 10, 2006
            By:
            /s/
              Matthew M. LoarName:
              Matthew M. LoarTitle:
                Chief Financial Officer




Page
          21


**EXHIBIT
      INDEX**





**Exhibit
                Number**
            **Description**3.1
            Amended
                and Restated Bylaws of Osteologix, Inc.31.1
            Certification
                of Chief Executive Officer pursuant to Rules 13A-14(A) and 15D-14(A)
                of
                the Securities Exchange Act of 1934, as adopted pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 2002.31.2
            Certification
                of Chief Financial Officer pursuant to Rules 13A-14(A) and 15D-14(A)
                of
                the Securities Exchange Act of 1934, as adopted pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 2002.32.1
            Certifications
                of Chief Executive Officer and Chief Financial Officer Pursuant to
                18
                U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of
                2002).







Page
          22