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**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 JUNE 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 ofIncorporation
                or Organization)
            **32-0104570**
              (I.R.S.
                EmployerIdentification
                No.)**425
                Market Street**
              **Suite
                2230**
              **San
                Francisco, CA 94105**
              (Address
                of Principal Executive Offices)
              
              **(415)
                955-2726**
              (Issuer’s
                Telephone Number)
              
              **Castle
                & Morgan Holdings, Inc.**
              **180
                Varick Street, 13th Floor**
              **New
                York, New York 10014**
              (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 21,094,688 shares outstanding of the issuer’s common stock outstanding on
      July 31, 2006.




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







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**TABLE
      OF CONTENTS**


**Page**


**PART
                I - FINANCIAL INFORMATION**
            3ITEM
                1.
            FINANCIAL
                STATEMENTS
            3ITEM
                2.
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OR PLAN OF
                OPERATION
            17ITEM
                3.
            CONTROLS
                AND PROCEDURES
            24**PART
                II - OTHER INFORMATION**
            25ITEM
                1.
            LEGAL
                PROCEEDINGS.
            25ITEM
                2.
            UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF
                PROCEEDS.
            25ITEM
                3.
            DEFAULTS
                UPON SENIOR SECURITIES.
            25ITEM
                4.
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERS.
            26ITEM
                5.
            OTHER
                INFORMATION.
            26ITEM
                6.
            EXHIBITS.
            26




Page
          2
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**PART
      I - FINANCIAL INFORMATION**




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


**Osteologix,
                    Inc. and Subsidiary****(a
                    development stage company)****Condensed
                    Consolidated Balance
                    Sheets**
  **June
                      30,**
                  
                  **December
                      31,****2006**
                  
                  **2005****(unaudited)**AssetsCurrent
                      assets:Cash
                      and cash equivalents
                  
                  $
                  8,797,100
                  
                  $
                  571,169Accounts
                      receivable
                  
                  
                  —
                  
                  
                  750,000Prepaid
                      expenses and other assets
                  
                  
                  253,484
                  
                  
                  296,121Total
                      current assets
                  
                  
                  9,050,584
                  
                  
                  1,617,290Equipment,
                      net
                  
                  
                  4,752
                  
                  
                  6,555Total
                      assets
                  
                  $
                  9,055,336
                  
                  $
                  1,623,845Liabilities
                      and Stockholders' EquityCurrent
                      liabilities:Accounts
                      payable
                  
                  $
                  238,778
                  
                  $
                  481,268Other
                      accrued liabilities
                  
                  
                  126,148
                  
                  
                  199,754Total
                      current liabilities
                  
                  
                  364,926
                  
                  
                  681,022Stockholders'
                      EquityCommon
                      stock, $0.001 par value at June 30, 2006 and December 31, 2005,
                      100,000,000 shares authorized and 21,020,688 shares issued
                      and outstanding
                      as of June 30, 2006, 10,504,693 shares authorized, issued and
                      outstanding
                      as of December 31, 2005
                  
                  
                  2,102
                  
                  
                  1,050Additional
                      paid-in-capital
                  
                  
                  15,416,513
                  
                  
                  5,859,190Accumulated
                      other comprehensive loss
                  
                  
                  (27,043
                  )
                  
                  (4,454
                  )Deficit
                      accumulated during development stage
                  
                  
                  (6,701,162
                  )
                  
                  (4,912,963
                  )Total
                      stockholders' equity
                  
                  
                  8,690,410
                  
                  
                  942,823Total
                      liabilities and stockholders' equity
                  
                  $
                  9,055,336
                  
                  $
                  1,623,845
 *See
          accompanying notes to the condensed consolidated financial
          statements.*


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          3
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**Osteologix,
                  Inc. and Subsidiary****(a
                  development stage company)****Condensed
                  Consolidated Statements of Operations****(Unaudited)**




**Three
                    Months Ended**
                  **June
                    30,**
                
                **Six
                    Months Ended**
                  **June
                    30,**
                
                **For
                    the Period from**
                  **June
                    16, 2003**
                  **(Inception)
                    to****2005**
                
                **2006**
                
                **2005**
                
                **2006**
                
                **June
                    30, 2006**Revenues
                
                $
                —
                
                $
                —
                
                $
                —
                
                $
                —
                
                $
                750,000Operating
                    expenses:Research
                    and development
                
                
                611,957
                
                
                433,499
                
                
                950,781
                
                
                693,498
                
                
                4,184,181General
                    and administrative
                
                
                326,621
                
                
                771,561
                
                
                614,695
                
                
                1,132,380
                
                
                3,334,602Total
                    operating expenses
                
                
                938,578
                
                
                1,205,060
                
                
                1,565,476
                
                
                1,825,878
                
                
                7,518,783Loss
                    from operations
                
                
                (938,578
                )
                
                (1,205,060
                )
                
                (1,565,476
                )
                
                (1,825,878
                )
                
                (6,768,783
                )Interest
                    income (expense), net
                
                
                (18
                )
                
                37,678
                
                
                (13
                )
                
                37,678
                
                
                67,621Net
                    loss
                
                $
                (938,596
                )
                $
                (1,167,382
                )
                $
                (1,565,488
                )
                $
                (1,788,200
                )
                $
                (6,701,162
                )Net
                    loss per share, basic and diluted
                
                $
                (0.11
                )
                $
                (0.08
                )
                $
                (0.19
                )
                $
                (0.14
                )Weighted
                    average number of shares outstanding basic and diluted
                
                
                8,330,136
                
                
                14,780,427
                
                
                8,307,661
                
                
                12,654,372
 *See
        accompanying notes to the condensed consolidated financial
        statements.*


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            4
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**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 June 30,
                  2006**




**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 in June 2003
              
              
              4,896,535
              
              $
              490
              
              $
              84,041
              
              $
              —
              
              $
              —
              
              $
              84,531Issuance
                  of common stock for cash in October 2003
              
              
              979,307
              
              
              98
              
              
              929,743
              
              
              —
              
              
              —
              
              
              929,841Comprehensive
                  loss:Net
                  loss for the period
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (246,418
              )
              
              (246,418
              )Foreign
                  currency translations
              
              
              —
              
              
              —
              
              
              —
              
              
              (20,607
              )
              
              —
              
              
              (20,607
              )Total
                  comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (267,025
              )**Balance
                  at December 31, 2003**
              
              
              **5,875,842**
              
              
              **588**
              
              
              **1,013,784**
              
              
              **(20,607**
              **)**
              
              **(246,418**
              **)**
              
              **747,347**Issuance
                  of common stock for cash in May 2004
              
              
              979,307
              
              
              98
              
              
              987,717
              
              
              —
              
              
              —
              
              
              987,815Comprehensive
                  loss:Net
                  loss for the period
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (1,470,999
              )
              
              (1,470,999
              )Foreign
                  currency translations
              
              
              —
              
              
              —
              
              
              —
              
              
              (147,541
              )
              
              —
              
              
              (147,541
              )Total
                  comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,618,540
              )**Balance
                  at December 31, 2004**
              
              
              **6,855,149**
              
              
              **686**
              
              
              **2,001,501**
              
              
              **(168,148**
              **)**
              
              **(1,717,417**
              **)**
              
              **116,622**Issuance
                  of common stock for cash in January 2005
              
              
              1,429,788
              
              
              143
              
              
              1,158,863
              
              
              —
              
              
              —
              
              
              1,159,006Issuance
                  of common stock for cash in June 2005
              
              
              2,219,756
              
              
              222
              
              
              2,698,825
              
              
              —
              
              
              —
              
              
              2,699,047Comprehensive
                  loss:Net
                  loss for the period
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (3,195,546
              )
              
              (3,195,546
              )Foreign
                  currency translations
              
              
              —
              
              
              —
              
              
              —
              
              
              163,694
              
              
              —
              
              
              163,694Total
                  comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (3,031,851
              )**Balance
                  at December 31, 2005**
              
              
              **10,504,693**
              
              
              **1,050**
              
              
              **5,859,190**
              
              
              **(4,454**
              **)**
              
              **(4,912,963**
              **)**
              
              **942,823**Common
                  shares transferred in reverse merger with Castle & Morgan Holdings,
                  Inc.
              
              
              2,859,994
              
              
              286
              
              
              (286
              )
              
              —
              
              
              —
              
              
              —Common
                  shares issued in private placement, net
              
              
              7,656,001
              
              
              766
              
              
              9,254,509
              
              
              —
              
              
              —
              
              
              9,255,275Stock
                  based compensation expense
              
              
              —
              
              
              —
              
              
              303,100
              
              
              —
              
              
              —
              
              
              303,100Comprehensive
                  loss:Net
                  loss for the period
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (1,788,200
              )
              
              (1,788,200
              )Foreign
                  currency translations
              
              
              —
              
              
              —
              
              
              —
              
              
              (22,589
              )
              
              —
              
              
              (22,589
              )Total
                  comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,810,789
              )**Balance
                  at June 30, 2006 (Unaudited)**
              
              
              **21,020,688**
              
              **$**
              **2,102**
              
              **$**
              **15,416,513**
              
              **$**
              **(27,043**
              **)**
              **$**
              **(6,701,162**
              **)**
              **$**
              **8,690,410**


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


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            5
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            Contents**


**Osteologix,
                    Inc. and Subsidiary****(a
                    development stage company)**


**Condensed
                  Consolidated Statements of Cash Flow****(Unaudited)**




**Six
                  Months Ended**
                **June
                  30,**
              
              **For
                  the Period from June 16, 2003 (Inception) to****2005**
              
              **2006**
              
              **June
                  30, 2006****Operating
                  activities**Net
                  loss
              
              $
              (1,565,488
              )
              $
              (1,788,200
              )
              $
              (6,701,162
              )Adjustments
                  to reconcile net loss to net cashused
                  in operating activities:Depreciation
              
              
              1,572
              
              
              2,644
              
              
              8,395Stock
                  based compensation
              
              
              —
              
              
              303,100
              
              
              303,100Changes
                  in operating assets and liabilities:
              
              
              
              
              
              
              
              
              —Accounts
                  receivable
              
              
              —
              
              
              750,000
              
              
              —Prepaid
                  expenses and other current assets
              
              
              (171,542
              )
              
              42,640
              
              
              (253,484
              )Accounts
                  payable
              
              
              88,649
              
              
              (242,490
              )
              
              238,778Accrued
                  liabilities
              
              
              (49,622
              )
              
              (73,605
              )
              
              126,148Net
                  cash used in operating activities
              
              
              (1,696,431
              )
              
              (1,005,911
              )
              
              (6,278,226
              )**Investing
                  activities**(Acquisition
                  of) reduction of equipment
              
              
              1,260
              
              
              (842
              )
              
              (13,144
              )Net
                  cash (used in) provided by investing activities
              
              
              1,260
              
              
              (842
              )
              
              (13,144
              )**Financing
                  activities**Net
                  proceeds from issuance of common stock
              
              
              1,183,324
              
              
              9,255,274
              
              
              15,115,513Net
                  cash provided by financing activities
              
              
              1,183,324
              
              
              9,255,274
              
              
              15,115,513Effect
                  of exchange rates on cash and cash equivalents
              
              
              327,331
              
              
              (22,590
              )
              
              (27,043
              )Net
                  (decrease) increase in cash and cash equivalents
              
              
              (184,515
              )
              
              8,225,931
              
              
              8,797,100Cash
                  and cash equivalents at beginning of period
              
              
              248,996
              
              
              571,169
              
              
              -Cash
                  and cash equivalents at end of period
              
              $
              64,481
              
              $
              8,797,100
              
              $
              8,797,100


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


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          6
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**Osteologix,
        Inc. and Subsidiary**


**(a
        development stage company)**
  Notes
        to Condensed Consolidated Financial
        Statements
 June
        30, 2006
        (Unaudited)


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




Osteologix,
      Inc. was established as a United States subsidiary of Osteologix A/S in October
      2004. Osteologix A/S was formed in Denmark on June 16, 2003 as Nordic Bone
      A/S.
      On November 18, 2004 Nordic Bone changed its name to Osteologix A/S. On May
      24,
      2006, Osteologix A/S became a subsidiary of the United States company
      Osteologix, Inc. (the “Company”).





The
      principal activity of the Company is the development of 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. The Company has not yet generated
      substantial revenues from its operations. Accordingly, through the date of
      these
      condensed consolidated financial statements, the Company is considered to be
      in
      the development stage.




*Basis
      of Presentation*





On
      May
      24, 2006, privately owned Osteologix A/S completed a reverse merger transaction
      with Castle & Morgan Holdings, Inc., a Delaware company listed on the Over
      the Counter Bulletin Board market. In connection with this transaction, Castle
      & Morgan Holdings, Inc. changed its name to Osteologix, Inc. and its symbol
      to OLGX.BB. The accounting acquirer in the business combination was Osteologix
      A/S, and the historical consolidated financial statements prior to the merger
      included in these condensed consolidated financial statements reflect those
      of
      Osteologix A/S and its United States subsidiary Osteologix, Inc. The audited
      consolidated financial statements of Osteologix A/S as of December 31, 2005
      and
      for each of the two years in the period ended December 31, 2005 are included
      in
      the Company’s Form SB-2 filed with the Securities and Exchange Commission on
      July 10, 2006.





Prior
      to
      the completion of the reverse merger, Osteologix, Inc. was the United States
      subsidiary of the Danish company Osteologix A/S. In October 2004 Osteologix,
      Inc
      was incorporated in Georgia, United States. The subsidiary company in the United
      States was established with the sole purpose of enabling Osteologix A/S to
      operate, pay salaries and enter into an office lease and other required
      agreements in the United States.. From October 1, 2004, the date of
      establishment of Osteologix, Inc. through May 24, 2006, the results of
      operations of the subsidiary Osteologix, Inc. have been included in the
      condensed consolidated financial statements of operations of Osteologix A/S
      and
      Subsidiary.





As
      a
      result of the merger transaction, Osteologix A/S became a wholly owned
      subsidiary of the Delaware company Osteologix, Inc. The principles of
      consolidation used in preparing the financial statements regarding the Company
      have changed as a result of the transaction. In prior periods, the functional
      currency of the Company was considered to be the Danish Kroner, whereas after
      the completion of the merger, the functional currency of the Company is the
      United States Dollar. Since the date of the transaction of May 24, 2006, the
      results of operations of the subsidiary Osteologix A/S have been consolidated
      into the condensed consolidated financial statements of operations of
      Osteologix, Inc. and Subsidiary.





All
      intercompany balances at December 31, 2005 and June 30, 2006 have been
      eliminated in consolidation. Capital is transferred between the United States
      company and its Danish subsidiary on an as needed basis, to cover all expenses,
      salaries and other costs incurred by the Danish company.





The
      Company has been in the development stage since its formation. All losses
      accumulated since the inception of the Company have been considered as part
      of
      the Company’s development stage activities.





The
      notes
      and accompanying condensed consolidated financial statements for interim periods
      ended June 30 are unaudited and reflect all adjustments, which, in the opinion
      of management, are necessary for a fair presentation of results for the interim
      periods presented. Such adjustments consist only of normally recurring items.
      Operating results for the quarter and six month period ended June 30, 2006
      are
      not necessarily indicative of the results that may be expected for the year
      ending December 31, 2006, or any future period. The preparation of these
      condensed consolidated financial statements in conformity with accounting
      principles generally accepted for reporting on interim periods in the United
      States requires management to make estimates and assumptions that affect the
      reported amounts of assets and liabilities and disclosures of contingent assets
      and liabilities at the date of the financial


Page
            7
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            Contents**


**Osteologix,
          Inc. and Subsidiary**
 **(a
          development stage company)**
  Notes
          to Condensed Consolidated Financial
          Statements
 June
          30, 2006
          (Unaudited)





statements
      and the reported amounts of revenues and expenses during the reported periods.
      Actual results could differ from these estimates.





The
      condensed consolidated balance sheet at December 31, 2005 has been derived
      from
      the audited financial statements prepared in conformity with the generally
      accepted accounting principles.




The
      accompanying condensed consolidated financial statements have been prepared
      assuming the Company will continue as a going concern. The Company has
      experienced net losses since its inception through June 30, 2006 and expects
      such losses to continue as it furthers its research and development programs.
      As
      of December 31, 2005 and June 30, 2006 the Company’s cash and cash equivalents
      were $571,000 and $8,797,000, respectively. To fund its continuing operations,
      the Company completed a private placement of equity securities raising gross
      proceeds of $10,000,000 on May 24, 2006 (See Note 5). With the receipt of this
      funding, the Company believes that it is appropriate for the condensed
      consolidated financial statements to be prepared on a going concern basis.
      The
      condensed consolidated financial statements do not include any adjustments
      that
      might result from the outcome of this uncertainty.





*Merger*





The
      number of shares of common stock, the par value and additional paid in capital
      reported in prior periods in the Company’s Condensed Consolidated financial
      statements, including the Condensed Consolidated Balance Sheets and Condensed
      Consolidated Statement of Stockholders’ Equity since the Company's inception
      have been amended to reflect the impact of the reverse merger with Castle &
Morgan Holdings, Inc. that occurred on May 24, 2006.





*Use
      of Estimates*




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and
      disclosures of contingent assets and liabilities at the date of the financial
      statements and the reported amounts of expenses during the reporting period.
      Actual results could differ from those estimates.




*Concentration
      of Credit Risk and Other Risks and Uncertainties*




Financial
      instruments which potentially subject the Company to concentrations of risk
      consist principally of cash and cash equivalents. The Company’s cash and cash
      equivalents are invested in deposits with two major banks. Deposits in one
      of
      these banks exceeded the amount of insurance provided on such deposits. The
      Company has not experienced any losses on its deposits of cash and cash
      equivalents.





The
      Company’s lead product candidate, NB S101, is in clinical development for
      treatment of osteoporosis, and is the only pharmaceutical product being tested
      and may never be successfully marketed or manufactured. This product candidate
      is in the early stages of clinical testing on a limited number of subjects.
      For
      some medical uses for which the Company hopes to market the product, to date
      there have been few or no studies to determine efficacy. For other uses of
      the
      product NB S101, such as osteoporosis, the clinical trials required by the
      Unites States Food and Drug Administration (“FDA”) are long and complex, and the
      Company cannot predict with any certainty when or if NB S101 might be approved
      for sale by the FDA or any other regulatory agency.




*Foreign
      Currency and Currency Translation*




Monetary
      transactions in foreign currencies are translated into United States Dollars,
      the functional currency at the rate of exchange at the date of transaction.
      Transaction gains and losses are recognized in operating expenses within the
      statement of operations at the average exchange rate during the
      period.




Monetary
      assets and liabilities denominated in foreign currencies are translated into
      United States Dollar (functional currency) at the rate of exchange at the
      balance sheet date.


Page
            8
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            Contents**


**Osteologix,
          Inc. and Subsidiary**
 **(a
          development stage company)**
  Notes
          to Condensed Consolidated Financial
          Statements
 June
          30, 2006
          (Unaudited)





These
      financial statements are presented in U.S. dollars. Translation of balance
      sheet
      data from the Company’s Danish Subsidiary Osteologix A/S in Danish Kroner to
      U.S. dollars is made at the exchange rate on the balance sheet date. Translation
      of operating statement and cash flow amounts is made at the average exchange
      rate for the period. Translation gains and losses are recognized within “Other
      Comprehensive Loss.”





*Revenues*





In
      accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition,”
revenue received under strategic license agreements is recognized as the
      services are provided when there is persuasive evidence that an arrangement
      exists, there are no unfulfilled obligations, the price is fixed or
      determinable, and collectibility is reasonably assured.




*Cash
      and Cash Equivalents*





The
      Company considers all highly liquid investments with an original maturity of
      three months or less at the time of initial deposit to be cash
      equivalents.





The
      Company invests its surplus cash in bank term deposits, having a maturity period
      of between one day and one year. These deposits can be terminated early without
      any penalty. Accordingly, all cash resources with original maturity of three
      months or less have been classified as cash equivalents.





*Fair
      Value of Financial Instruments*





For
      financial instruments consisting of cash and cash equivalents, accounts
      receivable, prepaid and other assets, accounts payable and accrued liabilities
      included in the Company’s condensed consolidated financial statements, the
      carrying amounts are reasonable estimates of 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 to us for debt instruments
      with similar terms, degrees of risk and remaining maturities. The carrying
      values of these obligations approximate their fair values.





*Equipment*




Equipment
      is stated at cost and depreciated on a straight-line basis over the estimated
      useful lives of the related assets, which are three years for computer
      equipment. Upon sale or retirement of assets, the costs and related accumulated
      depreciation are removed from the balance sheet and the resulting gain or loss
      is reflected in operations. Maintenance and repairs are charged to operations
      as
      incurred





*Impairment
      of Long-lived Assets*




In
      accordance with the provisions of Financial Accounting Standards Board (“FASB”)
      Statement No. 144, Accounting for the Impairment or Disposal of Long-lived
      Assets, the Company reviews long-lived assets, including equipment, for
      impairment whenever events or changes in business circumstances indicate that
      the carrying amount of the assets may not be fully recoverable. Under Statement
      No. 144, an impairment loss would be recognized when estimated undiscounted
      future cash flows expected to result from the use of the asset and its eventual
      disposition is less than its carrying amount. Impairment, if any, is measured
      as
      the amount by which the carrying amount of a long-lived asset exceeds its fair
      value. At June 30, 2006 and December 31, 2005, there have been no such
      impairments.





*Research
      and Development Expenses*




Research
      and development expenses consist primarily of costs associated with compensation
      and other expenses for research and development personnel, supplies and
      development materials, costs for consultants and related contract research,
      costs to academic research institution or contract research organizations
      performing research on the company’s behalf, patent expenses including fees to
      patent attorneys, and depreciation and amortization. Expenditures relating
      to
      research and development are expensed as incurred.  Page
            9
 **Back
            to Table of
            Contents**


**Osteologix,
          Inc. and Subsidiary**
 **(a
          development stage company)**
  Notes
          to Condensed Consolidated Financial
          Statements
 June
          30, 2006
          (Unaudited)




Development
      costs are capitalized if there is sufficient certainty that future earnings
      from
      the product will cover not only the production costs and sales and
      administrative expenses, but also the development costs themselves. However,
      in
      view of the general risk involved in the development of pharmaceutical products,
      and the fact that the company’s lead product, NB S101 is in early stage clinical
      development, the Company assesses that sufficient certainty cannot be obtained
      at present and therefore all development costs have been expensed in the year
      incurred.




*General
      and Administrative Expenses*




Administrative
      expenses comprise expenses for administrative staff including compensation
      and
      benefits, management, board of directors expenses, office premises, office
      expenses, administrative consulting, and depreciation and impairment
      losses.




*Income
      Taxes*




The
      Company accounts for income taxes under the liability method. Under this method,
      deferred tax assets and liabilities are determined based on the difference
      between the financial statement and tax basis of assets and liabilities using
      enacted tax rates in effect for the year in which the differences are expected
      to affect taxable income. The Company files tax returns in both Denmark and
      the
      United States based on its operations in those countries.




Valuation
      allowances are established when necessary to reduce deferred tax assets to
      the
      amounts expected to be realized.








*Net
      Loss Per Share and Anti-dilutive Securities*





Basic
      and
      diluted net loss per share have been computed using the weighted-average number
      common shares outstanding during the period. The following potentially dilutive
      outstanding securities were issued to employees and board members for services
      provided to the Company and were not considered in the computation of diluted
      net loss per share because such shares would be anti-dilutive:




**December
                31,**
              **2005**
            
            **June
                30,**
              **2006**Total
                warrants to purchase common shares
            
            
            979,307
            
            
            979,307





On
      May
      24, 2006, Osteologix entered into a reverse merger transaction with Castle
&
Morgan Holdings, Inc. As a part of this transaction, the 100,000 outstanding
      warrants of Osteologix A/S prior to the merger were cancelled and 979,307 new
      warrants were issued for Osteologix, Inc. stock at a conversion ratio of 9.79307
      per share.





*Accounting
      for Stock-Based Compensation*




The
      Company adopted the requirements of SFAS 123(R) effective January 1, 2006,
      utilizing the Prospective Transition method, by which the Company has recognized
      the cost of share-based payments based on their grant date fair value from
      the
      beginning of the fiscal period in which the provisions of SFAS 123(R) were
      first
      adopted. Measuring and assigning of compensation cost for share-based grants
      made prior to, but not vested as of, the date of adopting SFAS 123(R) have
      been
      based upon the same estimate of grant-date fair value previously disclosed
      under
      SFAS 123 in a pro forma manner under the minimum-value method.





Prior
      to
      the completion of the merger with Castle & Morgan Holdings, Inc., Osteologix
      A/S had one share based compensation plan. In 2003, the Board of Directors
      adopted the 2003 Equity Incentive Plan (the “2003 Equity Plan”). The 2003 Equity
      Plan provided for the issuance of options, warrants and stock awards and
      reserved up to 200,000 shares of common stock for issuance under the plan.
      Warrants granted at fair market value on the date of the grant had a term of
      10
      years and became exercisable over the vesting period of three years.  Page
            10
 **Back
            to Table of
            Contents**


**Osteologix,
          Inc. and Subsidiary**
 **(a
          development stage company)**
  Notes
          to Condensed Consolidated Financial
          Statements
 June
          30, 2006
          (Unaudited)




The
      amount of compensation expense recognized during the three months ended March
      31, 2006 under the 2003 plan was $28,543. The Company recorded no income tax
      benefits for share-based compensation arrangements for the three months ended
      March 31, 2006, as the Company has cumulative operating losses, for which a
      valuation allowance has been established. As of March 31, 2006, there was
      $127,402 of total unrecognized compensation cost related to non-vested share
      based compensation arrangements granted under the 2003 Equity Plan, which was
      expected to be recognized through 2008 as warrants vest.




On
      May
      24, 2006, Osteologix, Inc. entered into a reverse merger transaction. As a
      part
      of this transaction, the outstanding warrants of Osteologix A/S prior to the
      merger were cancelled and new warrants were issued for Osteologix, Inc. stock
      at
      a conversion ratio of 9.79307 per share. In accordance with Fas123(R),
      cancellation of an award accompanied by the concurrent grant of a replacement
      award is accounted for as a modification of the terms of the cancelled award.
      Incremental compensation cost is measured as the excess of the fair value of
      the
      replacement award over the fair value of the cancelled award at the cancellation
      date. The total compensation cost measured at the date of a cancellation and
      replacement is the portion of the grant-date fair value of the original award
      for which the requisite service has already been rendered at that date plus
      the
      incremental cost resulting from the cancellation and replacement.




The
      Company recorded additional compensation expense in the quarter ended June
      30,
      2006 for the excess of the fair value of the modified share warrants issued
      over
      the fair value of the original share warrants at the date of the exchange.
      For
      the vested portion of the grants, the Company recognized the $275,000
      accumulated difference in fair value. For the unvested portion, the Company
      will
      recognize the remaining difference in fair value of $97,000 over the remaining
      vesting periods.





The
      fair
      value of employee warrant awards is estimated on the date of grant using the
      Black-Scholes option valuation model which uses the following assumptions.
      The warrants granted prior to January 1, 2006 were valued under the minimum
      value method, which assumes a volatility of zero, expected term of 5 years
      for
      employee grants and 10 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.
      For grants made after the January 1, 2006 adoption of FAS123 (R), the expected
      volatility is based on the historical volatilities of comparable companies.
      The
      expected term of warrants is determined utilizing the safe harbor calculation
      established in Staff Accounting Bulletin 107. The risk free rate for periods
      related to the expected life of the warrants is based on the U.S. Treasury
      yield
      curve in effect at the time of grant. The Company grants warrants to both
      employees and non-employee directors, for whom the vesting period of the grants
      is three years. A summary of warrant activity:




**Shares**
            
            **Weighted-Average**
              **Exercise
                Price**
            
            **Aggregate**
              **Intrinsic**
              **Value**Outstanding
                at June 30, 2006
            
            
            979,307
            
            
            $1.03
            
            $
            360,000Exercisable
                at June 30, 2006
            
            
            709,645
            
            
            $1.03
            
            $
            261,000




If
      factors change and the Company employs different assumptions in the application
      of SFAS 123(R) in future periods, the compensation expense that is recorded
      under SFAS 123(R) may differ significantly from what was recorded in the current
      period. Therefore, the Company believes it is important for investors to be
      aware of the high degree of subjectivity involved when using option pricing
      models to estimate share-based compensation under SFAS 123(R). Option-pricing
      models were developed for use in estimating the value of traded options, which
      are listed on organized exchange markets, that have no vesting or hedging
      restrictions, are fully transferable and do not cause dilution. Because
      share-based payments have characteristics significantly different from those
      of
      freely traded, listed options, and because changes in the subjective input
      assumptions can materially affect estimates of fair values, in the Company’s’
opinion, existing valuation models, including the Black-Scholes and lattice
      binomial models, may not provide reliable measures of the fair values of
      share-based compensation. Consequently, there is a risk that estimates of the
      fair values of share-based compensation awards on the grant dates may bear
      little resemblance to the actual values realized upon the exercise, expiration,
      early termination or forfeiture of those share-based payments in the future.
      Employee stock warrants may expire worthless or otherwise result in zero
      intrinsic value as compared to the fair values originally estimated on the
      grant
      date and reported in financial statements. Alternatively, value may be realized
      from these instruments that are significantly in excess of the fair values
      originally estimated on the grant date and reported in financial statements.
      There is currently no market-based mechanism or other practical


Page
            11
 **Back
            to Table of
            Contents**


**Osteologix,
          Inc. and Subsidiary**
 **(a
          development stage company)**
  Notes
          to Condensed Consolidated Financial
          Statements
 June
          30, 2006
          (Unaudited)





application
      to verify the reliability and accuracy of the estimates stemming from these
      valuation models, nor is there a means to compare and adjust the estimates
      to
      actual values. Although the fair value of employee share-based awards is
      determined in accordance with SFAS 123(R) and SAB 107 using an option-pricing
      model, that value may not be indicative of the fair value observed in a willing
      buyer/willing seller market transaction.




Estimates
      of share-based compensation expenses may be significant to the Company’s
      financial statements but expenses based on the Black-Scholes option valuation
      model are estimates and will never result in the payment of cash by the Company.




The
      guidance in SFAS 123(R) and SAB 107 is relatively new, and best practices are
      not well established. The application of these principles may be subject to
      further interpretation and refinement over time. There are significant
      differences among option valuation models, and this may result in a lack of
      comparability with other companies that use different models, methods and
      assumptions.




Prior
      to
      the adoption of SFAS 123(R), the Company accounted for stock warrant grants
      in
      accordance with APB Opinion No. 25, “ *Accounting
      for Stock Issued to Employees* ”
(“APB
      25”) and related Interpretations. Under APB 25, when the exercise price of
      employee stock warrants equaled the market price of the underlying stock on
      the
      date of the grant, no compensation expense was recognized.




Stock-based
      compensation arrangements to non-employees are accounted for in accordance
      with
      Statement of Financial Accountings Standards (“SFAS 123”), Emerging Issues Task
      Force 96-18 (“EITF 96-18”) *Accounting
      for Equity Instruments that are issued to Other Than Employees for Acquiring,
      or
      in Conjunction with Selling Goods, or Services* ,
      and
      related Interpretations, using a fair value approach, and the compensation
      costs
      of such arrangements are subject to re-measurement over their vesting terms,
      as
      earned.




As
      permitted by SFAS 123, and as amended by Statement of Financial Accounting
      Standards No. 148, “ *Accounting
      for Stock-Based Compensation - Transition and Disclosure* ,”
(“SFAS
      148”), the Company elected to apply the provisions of APB 25 and related
      interpretations in accounting for its employee stock warrant and stock purchase
      plans prior to the adoption SFAS123 (R) on January 1, 2006. The Company was
      not
      required under APB 25 and related interpretations to recognize compensation
      expense in connection with its employee stock warrant and stock purchase plans
      when exercise prices were not less than fair value.




Pro
      forma
      information regarding net loss and net loss per share is required to be reported
      in financial footnotes by SFAS 148 and has been determined as if the Company
      had
      accounted for its employee stock warrants under the fair value method prescribed
      by the SFAS 123. The Company made no issuances of warrants in 2004. The fair
      value for the warrants granted was estimated at the date of grant using the
      Black-Scholes option pricing model with the following weighted average
      assumptions: expected volatility calculations, based on historical data, of
      zero
      in 2005, and 2004 (based on the minimum value method); expected option lives
      of
      five years and no dividend yield for each of 2005 and 2004. Weighted average
      risk free interest rate assumptions were based on U.S. government bonds, with
      maturities equal to the expected option lives, of 3.29% and 3.54% for grants
      in
      2005 and 2003, respectively.




For
      purposes of pro forma disclosures, the estimated fair value of the warrants
      is
      amortized to expense over the vesting period of the options using the
      straight-line method. The Company’s pro forma information follows (in
      thousands):




**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30, 2005**
            
            **June
                30, 2005**Net
                loss applicable to common stockholders, as reported
            
            $
            (939
            )
            $
            (1,565
            )Less:
                total stock-based employee compensation determined under fair value
                based
                method for all awards
            
            
            (51
            )
            
            (63
            )Net
                loss applicable to common stockholders, pro forma
            
            $
            (990
            )
            $
            (1,628
            )Net
                loss per common share, basic and diluted:As
                reported
            
            $
            (0.11
            )
            $
            (0.19
            )


Pro
                  forma
              
              $
              (0.12
              )
              $
              (0.20
              )




Page
          12
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          to Table of Contents**


**Osteologix,
          Inc. and Subsidiary**
 **(a
          development stage company)**
  Notes
          to Condensed Consolidated Financial
          Statements
 June
          30, 2006
          (Unaudited)


The
      weighted average estimated minimum exercise price of warrants granted was $1.03,
      per share.




*Comprehensive
      Income (Loss)*




In
      accordance with FASB Statement No. 130 *,
      Reporting Comprehensive Income* ,
      all
      components of comprehensive income (loss), including net income (loss), are
      reported in the financial statements in the period in which they are recognized.
      Net income (loss) and other comprehensive income (loss), consisting solely
      of
      foreign currency translation adjustments, are reported, net of any related
      tax
      effect, to arrive at comprehensive income (loss).





**2.**
            **Prepaid
                Expenses and Other Current
                Assets**




Prepaid
      expenses and other current assets consisted of the following:


**December
                31,**
              **2005**
            
            **June
                30,**
              **2006**Prepaid
                expenses
            
            $
            22,085
            
            $
            87,171Value
                added tax credit receivable
            
            
            263,089
            
            
            154,461Deposits
            
            
            10,947
            
            
            11,852$
            296,121
            
            $
            253,484




**3.**
              **Selected
                  Balance Sheet
                  Detail**




Equipment
      consisted of the following:


**Useful
                lives**
            
            **December
                31,**
            
            **June
                30,****in
                years**
            
            **2005**
            
            **2006**Computer
                equipment
            
            
            3
            
            $
            12,301
            
            $
            13,144Less
                accumulated depreciation
            
            
            
            
            
            5,746
            
            
            8,392Equipment,
                net
            
            
            
            
            $
            6,555
            
            $
            4,752




Depreciation
      was $3,239 for the year ended December 31, 2005 and $2,646 for the six months
      ended June 30, 2006.




Other
      accrued liabilities consisted of the following:


**December
                31,**
              **2005**
            
            **June
                30,**
              **2006**Employee
                benefits
            
            $
            52,254
            
            $
            47,942Accrued
                professional fees
            
            
            147,500
            
            
            78,206Total
                accrued liabilities
            
            $
            199,754
            
            $
            126,148




Page
              13
 **Back
              to Table of
              Contents**
 **Osteologix,
            Inc. and Subsidiary**
 **(a
            development stage company)**
  Notes
            to Condensed Consolidated Financial
            Statements
 June
            30, 2006
            (Unaudited)


**4.**
              ****Commitments
                  and Contingencies****


***Leases***


In
      December 2003, the Company entered into a lease (the “DK-lease”) for office
      space located at Fruebjergvej 3, DK-2100 Copenhagen Ø, Denmark, with a term from
      December 15, 2003 through December 15, 2006. Minimum rent for the DK-lease
      is at
      the rate of $28,000 per annum, payable in equal quarterly installments of
      $7,000. In addition, upon execution of the DK-lease, the Company prepaid a
      deposit of $7,000. The Company has the right to terminate the DK-lease agreement
      prematurely with a six-month notice. Included in the rent are costs for general
      building maintenance, cleaning and heating of the premises, whereas other costs
      related to the premises (i.e. electricity) are paid separately. The DK-lease
      agreement provides for the annual adjustment of the rent. In 2006 the rent
      is
      expected to be increased by 5.8 % compared to 2005.




In
      December 2004, the Company entered into a lease (the “United States lease”) for
      office space with a term from December 1, 2004 through April 30, 2006. Minimum
      rent for the lease is initially $2,688 per month. In addition, upon execution
      of
      the lease, the Company paid a security deposit of $4,000.




Rent
      expense, which includes lease payments related to the Company’s corporate
      headquarters and research and development facility and other rent related
      expenses, was $15,362 and $54,972 for the periods ended December 31, 2004 and
      2005, respectively.




Annual
      future minimum payments under operating leases at December 31, 2005 are
      $40,375.




**Employment
      Agreements**




On
      October 18, 2004, the Company entered an employment agreement with its president
      and chief executive officer which provides for an annual salary of $400,000
      with
      annual salary reviews by October of each year, which resulted in his salary
      increasing to $420,000 as of October 18, 2005, and four weeks vacation each
      year. The employment agreement requires the Company to pay for all of his
      medical expenses, $1,400,000 of life insurance coverage and disability
      insurance. The agreement also requires the Company to pay $1,275 per month
      toward an auto lease and related maintenance and operations. The president
      was
      granted warrants to purchase 52,000 shares of the Company’s common stock at an
      exercise price of DKK 62.50 ($9.87) per share. As a result of the share and
      exchange agreement in May 2006, these warrants were exchanged for 509,240
      warrants with an exercise price of $1.03.




On
      November 10, 2003, the Company entered an agreement with the chairman of the
      Company’s Board of Directors, which, as amended, provides for an annual
      compensation of DKK 360,000 ($56,872) and warrants to purchase 15,000 shares
      of
      Company’s common stock at an exercise price of DKK 62.50 ($9.87) per share. As a
      result of the share and exchange agreement in May 2006, these warrants were
      exchanged for 146,896 warrants with an exercise price of $1.03.




On
      November 1, 2003, the Company entered an employment agreement with its chief
      operating officer, which, as amended, provides for an annual salary of DKK
      756,000 ($119,432), annual salary reviews by January of each year and five
      weeks
      vacation each year. The COO was granted warrants to purchase 25,000 shares
      of
      the Company’s common stock at an exercise price of DKK 62.50 ($9.87) per share.
      As a result of the share and exchange agreement in May 2006, these warrants
      were
      exchanged for 244,827 warrants with an exercise price of $1.03.




On
      August
      16, 2004, the Company entered an employment agreement with its manager of
      clinical development which, as amended, provides for an annual salary of DKK
      342,000 ($54,028), annual salary reviews by August of each year and five weeks
      vacation each year. Pursuant to her employment agreement, the manager’s working
      schedule is 20 hours per week.




The
      annual compensation expenses for all of these employment agreements are included
      as a component of the Company’s general and administrative expenses in the
      accompanying consolidated statements of operations.  Page
            14
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            to Table of
            Contents**


**Osteologix,
          Inc. and Subsidiary**
 **(a
          development stage company)**
  Notes
          to Condensed Consolidated Financial
          Statements
 June
          30, 2006
          (Unaudited)




Prior
      to
      the completion of the merger transaction with Castle & Morgan, the Company’s
      board of directors, employees, and scientific advisors owned 100,000 warrants
      to
      purchase common stock at an exercise price of 62.5 DKK (US$9.87) with vesting
      periods of up to 3 years. The warrants were exercisable upon vesting until
      July
      1, 2013. As a result of the share and exchange agreement in May 2006, these
      warrants were exchanged for a total of 979,307 warrants with an exercise price
      of $1.03.





**5.**
            **Merger
                and Financing Transactions**





On
      May
      24, 2006, Osteologix A/S, a privately owned company, entered into a share and
      warrant exchange agreement with Castle & Morgan Holdings, Inc. (“Castle
& Morgan”), a Delaware company listed on the Over-the-Counter Bulletin Board
      market. Castle & Morgan acquired all of the issued and outstanding shares of
      stock of Osteologix A/S in exchange for the issuance in the aggregate of
      10,504,693 shares of common stock. In addition, an aggregate of 100,000 warrants
      to purchase common stock of Osteologix A/S were exchanged for options to
      purchase 979,307 shares of common stock of the Company. Concurrent with the
      share and warrant exchanges, a group of investors entered into a series of
      subscription agreements with Osteologix A/S's wholly-owned subsidiary,
      Osteologix, Inc. for the issuance in the aggregate of 7,656,000 shares of common
      stock for aggregate gross proceeds equal to $10,000,000 in a series of
      transactions exempt from registration under the Securities Act. The shares
      of
      common stock acquired by the investors were then exchanged for shares of the
      Company in connection with the share exchange. Following the completion of
      the
      transaction, Castle & Morgan changed its name to Osteologix, Inc. As a
      result of the transactions, the former parent Osteologix A/S has become a
      subsidiary of Osteologix, Inc. (the "Company").




In
      connection with the share and exchange agreement, the
      Company entered into a Registration Rights Agreement and agreed to file, within
      45 days of the Closing Date, a registration statement registering for resale
      the
      shares exchanged. In addition, the Company agreed with certain of its existing
      investors to register all of the shares of common stock they currently hold
      in
      the same registration statement as it will be filing with respect to the shares
      issued in the exchange.




The
      Company’s registration statement on Form SB-2 was
      declared effective by the SEC on August 10, 2006. Pursuant to the terms of
      the
      related Registration Rights Agreements, should the registration statement fail
      to remain effective during the time periods specified in these agreements,
      the
      Company will be required to pay liquidated damages in an amount equal to 2%
      of
      the original purchase price of such shares and may be required, in certain
      circumstances, to continue to pay such amount on each monthly anniversary of
      the
      failure to be so effective.





**6.**
                **Agreement
                    with Aditech
                    AB**





In
      November 2005, the Company entered into a Patent License Agreement with Aditech
      AB (“Aditech”), a Swedish limited liability company owned by Nordic Biotech, who
      owns 50% of Osteologix, Inc., that gives Aditech certain rights to the
      development of pharmaceutical products for some non-osteoporosis indications
      vested in the Company’s patent portfolio, in exchange for a royalty of future
      products revenues obtained by Aditech upon commercialization of any product
      developed as a result of this Agreement. The Company granted Aditech a worldwide
      exclusive license to patent applications pertaining to certain compounds other
      than strontium compounds. These out-licensed IP rights concerning non-strontium
      compounds and their use are outside the core focus of the Company’s business.
      Aditech granted to the Company a worldwide exclusive license under its future
      patent applications/patents as they relate to strontium compounds. For the
      rights granted, Aditech paid the Company a fee of $750,000 in February 2006,
      and
      is further obligated to pay a 2.5% royalty of future net sales of products
      developed by Aditech under the Company’s license. The $750,000 was previously
      recognized as revenue for the year ended December 31, 2005. Osteologix A/S
      shall
      pay Aditech a 1.5% royalty of future net sales of products comprising strontium
      compounds.


**7.**
              **Stockholders’
                  Equity**




***Rights
      of Common Stockholders***




Each
      common share entitles the holder to one vote on all matters submitted to a
      vote
      of the Company’s stockholders. When a dividend is declared by the Board, all
      stockholders are entitled to receive a fixed dividend. To date, no dividends
      have been declared. All shares issued in the company are of the same class,
      and
      have equal liquidation, preference, and adjustment rights.


Page
            15
 **Back
            to Table of
            Contents**


**Osteologix,
          Inc. and Subsidiary**
 **(a
          development stage company)**
  Notes
          to Condensed Consolidated Financial
          Statements
 June
          30, 2006
          (Unaudited)




***Share
      Warrant Plan***




Prior
      to
      the completion of the merger, the Company had established a warrant plan as
      follows:




On
      October 15, 2003, the Company’s board of directors was authorized to issue
      100,000 warrants to the Company's directors, employees and advisors to purchase
      shares. In 2004, the Company further increased the available warrant pool such
      that until July 2013, the Board was authorized to issue an additional 100,000
      warrants on common shares at an exercise price of 62.5 DKK (US$9.87) per share.
      The Company has issued a total of 100,000 warrants under this plan to board
      members, employees, and advisors with an exercise price of 62.50 DKK (US$9.87)
      and vesting terms of 3 years as of December 31, 2005, subject to accelerated
      vesting under certain circumstances including merger or sale of the Company
      and
      registration of Company common stock on a registered exchange. The warrants
      are
      exercisable upon vesting until July 1, 2013. In connection with the share and
      warrant exchange in May 2006, the outstanding warrants as of May 24, 2006 were
      exchanged for a total of 979,307 warrants with an exercise price of $1.03.
      These
      warrants were not issued under a formal option plan, and shareholder approval
      has not been obtained for these warrants.





A
      summary
      of the Company’s share warrant activity and related information is as follows
      (as adjusted for the conversion that resulted from the May 2006 share and
      exchange agreement ):


**Warrants**
              **Outstanding**
            
            **Weighted
                Average Exercise Price**Balance
                at December 31, 2003
            
            
            391,723
            
            $
            1.03Granted
            
            
            —Expired
            
            
            —Balance
                at December 31, 2004
            
            
            391,723
            
            
            1.03Granted
            
            
            587,584
            
            
            1.03Expired
            
            
            **—**Balance
                at December 31, 2005
            
            
            979,307
            
            
            1.03




The
      following table summarizes information about warrants outstanding at December
      31, 2005:




**Weighted
                Average****Remaining****Number**
            
            **Contractual
                Life**
            
            **Number****Exercise
                Price**
            
            **Outstanding**
            
            **(Years)**
            
            **Exercisable**$1.03
            
            
            979,307
            
            
            7.5
            
            
            526,877


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




THE
      FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE INFORMATION
      CONTAINED IN THE FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO
      APPEARING ELSEWHERE HEREIN AND IN CONJUNCTION WITH THE MANAGEMENT’S
      DISCUSSION AND ANALYSIS SET FORTH IN THE COMPANY’S CURRENT REPORT ON FORM 8-K
      FOR THE EVENTS OCCURRING ON MAY 24, 2006 AND 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 Registrant’s expectations,
      beliefs, intentions or strategies for the future, which are indicated by words
      or phrases such as “anticipate,” “expect,” “intend,” “plan,” “will,” “the
      Registrant believes,” “management believes” and similar words or phrases. The
      forward-looking statements are based on the Registrant’s current expectations
      and are subject to certain risks, uncertainties and assumptions. The
      Registrant’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 Registrant on the date
      hereof, and the Registrant 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.




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,” as well as any 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.





Background .




Osteologix
      A/S was formed on June 16, 2003 in Denmark as Nordic Bone A/S, based on
      intellectual property (IP) rights related to its primary aim of developing
      a
      product to treat osteoporosis. Major activities of the Company started in 2004
      with chemistry and in vitro studies for the selection and development of NB
      S101. In October 2004, Osteologix, Inc. was formed as a United States subsidiary
      and established an office in San Francisco when Charles J. Casamento became
      its
      CEO and President. We expanded our operational capabilities to enter clinical
      studies in 2005. As of December 31, 2005, Osteologix A/S was 100% owned by
      the
      venture capital fund Nordic Biotech K/S.




On
      May
      24, 2006, Osteologix A/S, a privately owned Danish company, entered into a
      share
      and warrant exchange agreement (the “Exchange Agreement”) with Castle &
Morgan Holdings, Inc. (“Castle & Morgan”), a Delaware company listed on the
      Over-the-Counter Bulletin Board market. Castle & Morgan acquired all of the
      issued and outstanding shares of stock of Osteologix A/S in exchange for the
      issuance in the aggregate of 10,504,693 shares of common stock. In addition,
      an
      aggregate of 100,000 warrants to purchase common stock of Osteologix A/S were
      exchanged for warrants to purchase 979,307 shares of common stock of the
      Company. Concurrent with the share and warrant exchanges, a group of investors
      entered into a series of subscription agreements with Osteologix A/S's
      wholly-owned subsidiary, Osteologix, Inc. for the issuance in the aggregate
      of
      7,656,000 shares of common stock for aggregate gross proceeds equal to
      $10,000,000 in a series of transactions exempt from registration under the
      Securities Act. The shares of common stock acquired by the investors were then
      exchanged for shares of the Company in connection with the share exchange.
      Concurrent with the transactions, Castle & Morgan changed its name to
      Osteologix, Inc. and Osteologix A/S became a wholly owned subsidiary of
      Osteologix, Inc (the Company).




Osteologix
      exists to develop innovative pharmaceuticals for the treatment and prevention
      of
      diseases of bone and joint tissues. Our development program is currently focused
      on pharmaceutical use of strontium compounds for metabolic diseases, and in
      particular development of our lead candidate, strontium malonate, NB  Page
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S101
      for
      treatment of osteoporosis. This development program builds on the previous
      experience with other strontium salts, which have been demonstrated clinically
      to reduce vertebral as well as non vertebral fracture rate and to increase
      bone
      mineral density. Studies performed in animals, as well as histological and
      biomarker assessments of samples from human subjects treated with strontium
      ranelate, support the theory that strontium salts have a unique mechanism of
      action on bone metabolism in that they reduce bone resorption while maintaining
      or increasing the formation of new bone. This results in a systemic improvement
      in bone strength and quality. At the inception of Osteologix, Nordic Biotech
      assigned several patent applications relating to  strontium
      and pharmaceutical uses of strontium salts to the Company. The toxicological
      properties and bone effects of strontium is well documented in scientific papers
      and recent clinical trials. This leads us to believe our development program
      may
      have lower risk compared to programs based on unprecedented chemical
      classes.




We
      are
      developing our lead candidate, strontium malonate (NB S101), as a new regimen
      for treatment of primary osteoporosis and, eventually, for prophylaxis thereof.
      NB S101 is a once-daily oral tablet delivery formulation. Studies carried out
      with another salt form of strontium known as strontium ranelate as well as
      earlier studies with other strontium salts suggest that ionic strontium has
      an
      ability to decrease resorption of bone while maintaining or increasing formation
      of new bone. This has also been established for our compound strontium malonate,
      NB S101, in preclinical studies. Recently, we completed the first phase I
      studies of the pharmacokinetic (PK) properties of NB S101. The studies revealed
      that strontium is well absorbed from NB S101 formulated in tablets, and also
      demonstrated that a one gram tablet dose of NB S101 results in the same level
      of
      strontium in human serum as the Protelos sachet containing two grams of
      strontium ranelate. Thus, the study reveals that our tablet formulation is
      approximately bioequivalent to the marketed sachet product that already has
      been
      proven safe and efficacious in osteoporetic patients. Accordingly, this study
      forms the basis for our phase II program and the pursuit of the clinical
      development in osteoporosis.




**CRITICAL
      ACCOUNTING POLICIES**




Our
      management’s discussion and analysis of our financial condition and results of
      operations are based on our financial statements, which have been prepared
      in
      accordance with accounting principles generally accepted in the United States.
      The preparation of these financial statements requires us to make estimates
      and
      assumptions that affect the reported amounts of assets and liabilities and
      the
      disclosure of contingent assets and liabilities, if any, at the date of the
      financial statements as well as the reported revenues and expenses during the
      reporting periods. On an ongoing basis, we evaluate our estimates on historical
      experience and on various other factors that we believe are reasonable under
      the
      circumstances, the results of which form the basis for making judgments about
      the carrying value of assets and liabilities that are not readily apparent
      from
      other sources. Actual results may differ from these estimates under different
      assumptions or conditions. We consider our accounting policies related to
      estimates, revenue recognition, and research and development expenses to be
      critical.




*Use
      of Estimates*




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and
      disclosures of contingent assets and liabilities at the date of the financial
      statements and the reported amounts of expenses during the reporting period.
      Actual results could differ from those estimates. The Company does not believe
      that there are any critical or significant accounting estimates included in
      the
      condensed consolidated financial statements.




*Revenues*




In
      accordance with Staff Accounting Bulletin No. 104, “ *Revenue
      Recognition* ,”
      revenue received under strategic license agreements is recognized as the
      services are provided when there is persuasive evidence that an arrangement
      exists, there are no unfulfilled obligations, the price is fixed or
      determinable, and collectibility is reasonably assured.  Page
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*Research
      and Development Expenses*




Research
      and development expenses consist primarily of costs associated with compensation
      and other expenses for research and development personnel, supplies and
      development materials, costs for consultants and related contract research,
      costs to academic research institution or contract research organizations
      performing research on the company’s behalf, patent expenses including fees to
      patent attorneys, and depreciation and amortization. Expenditures relating
      to
      research and development are expensed as incurred.




Development
      costs are capitalized if there is sufficient certainty that future earnings
      from
      the product will cover not only the production costs and sales and
      administrative expenses, but also the development costs themselves. However,
      in
      view of the general risk involved in the development of pharmaceutical products,
      and the fact that the company’s lead product, NB S101 is in early stage clinical
      development, the Company assesses that sufficient certainty cannot be obtained
      at present and therefore all development costs have been expensed in the year
      incurred.




*Stock-based
      compensation expense*




Effective
      January 1, 2006 we adopted SFAS 123(R) using the prospective transition method.
      Under the fair value recognition provisions of SFAS 123(R), we recognize
      stock-based compensation cost for those shares expected to vest over the service
      period of the award. Prior to SFAS 123(R) adoption, we accounted for share-based
      payments under APB 25.




Calculating
      stock-based compensation expense requires the input of highly subjective
      assumptions, including the expected term of the stock-based awards, stock price
      volatility, and pre-vesting option forfeitures. We estimate the expected life
      of
      warrants granted based on the simplified method provided in SAB 107 for “plain
      vanilla” warrants. We estimate the volatility of our common stock at the date of
      grant based on the historical volatility of a set of comparable companies.
      The
      assumptions used in calculating the fair value of stock-based awards represent
      our best estimates, but these estimates involve inherent uncertainties and
      the
      application of management judgment. As a result, if factors change and we use
      different assumptions, our stock-based compensation expense could be materially
      different in the future. In addition, we are required to estimate the expected
      forfeiture rate and only recognize expense for those shares expected to vest.
      We
      estimate the forfeiture rate based on historical experience of our stock-based
      awards that are granted, exercised and cancelled. If our actual forfeiture
      rate
      is materially different from our estimate, the stock-based compensation expense
      could be significantly different from what we have recorded in the current
      period.




If
      factors change and we employ different assumptions in the application of SFAS
      123(R) in future periods, the compensation expense that we record under SFAS
      123(R) may differ significantly from what we have recorded in the current
      period. Therefore, we believe it is important for investors to be aware of
      the
      high degree of subjectivity involved when using option pricing models to
      estimate share-based compensation under SFAS 123(R). Option-pricing models
      were
      developed for use in estimating the value of traded options, which are listed
      on
      organized exchange markets, that have no vesting or hedging restrictions, are
      fully transferable and do not cause dilution. Because our share-based payments
      have characteristics significantly different from those of freely traded, listed
      options, and because changes in the subjective input assumptions can materially
      affect our estimates of fair values, in our opinion, existing valuation models,
      including the Black-Scholes and lattice binomial models, may not provide
      reliable measures of the fair values of our share-based compensation.
      Consequently, there is a risk that our estimates of the fair values of our
      share-based compensation awards on the grant dates may bear little resemblance
      to the actual values realized upon the exercise, expiration, early termination
      or forfeiture of those share-based payments in the future. Employee stock
      options, may expire worthless or otherwise result in zero intrinsic value as
      compared to the fair values originally estimated on the grant date and reported
      in our financial statements. Alternatively, value may be realized from these
      instruments that are significantly in excess of the fair values originally
      estimated on the grant date and reported in our financial statements. There
      is
      currently no market-based mechanism or other practical application to verify
      the
      reliability and accuracy of the estimates stemming from these valuation models,
      nor is there a means to compare and adjust the estimates to actual values.
      Although the fair value of employee share-based  Page
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awards
      is
      determined in accordance with SFAS 123(R) and SAB 107 using an option-pricing
      model, that value may not be indicative of the fair value observed in a willing
      buyer/willing seller market transaction.




Estimates
      of share-based compensation expenses are significant to our financial
      statements, but these expenses are based on the Black-Scholes option valuation
      model and such valuations are not believed to result in the payment of cash
      by
      us.




The
      guidance in SFAS 123(R) and SAB 107 is relatively new, and best practices are
      not well established. The application of these principles may be subject to
      further interpretation and refinement over time. There are significant
      differences among option valuation models, and this may
      result in a lack of comparability with other companies that use different
      models, methods and assumptions.




*Recent* *Accounting* *Pronouncements*




In
      May
      2005, the FASB issued SFAS No. 154, “ *Accounting
      Changes and Error Corrections* ,”
which
      replaces Accounting Principles Board Opinion, or APB, No. 20, “ *Accounting
      Changes* ,”
and
      SFAS No. 3, “ *Reporting
      Accounting Changes in Interim Financial Statements”* (“SFAS
      No. 154”). This statement 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 will be effective for us beginning on September 1, 2006. We are
      currently evaluating the impact, if any, of this statement on our financial
      position and results of operations.




NATURE
      OF
      THE OPERATIONS OF THE COMPANY




The
      principal activity of Osteologix is the development of 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.




Our
      strategy has been to in-license and develop drug candidates that target major
      medical needs and that can be rapidly commercialized. Our experienced management
      team oversees the human clinical trials necessary to establish preliminary
      evidence of efficacy, and we have sought partnerships with pharmaceutical and
      biotechnology companies for late-stage development and marketing of our product
      candidates. We anticipate that we may continue to acquire and develop products
      and will develop the resources to market these products in selected world
      regions.




Our
      general and administrative expenses have increased as a result of our
      establishing U.S. operating entity in October 2004. As a result of this
      activity, we have leased an additional office facility in San Francisco,
      California in order to support the corporate activities in the U.S. Our general
      and administrative expenses have also increased as we have added management
      and
      operating consultants to support these activities. We have incurred significant
      losses each year since our inception.




We
      expect
      to incur additional operating losses through at least fiscal 2009 as we continue
      our drug development efforts. Our development expenses were higher in the year
      ended December 31, 2005 as a result of the preparation for clinical trials
      of NB
      S101 .
      Although we have received funds from the license agreement from Aditech in
      early
      2006 and the private placement of securities in May 2006 that we expect to
      provide sufficient cash to fund our ongoing operations, we may seek to raise
      additional capital as market conditions permit. However, there can be no
      assurance that funding will be available or that, if available, it will be
      on
      acceptable terms.  Page
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**RESULTS
      OF OPERATIONS**




**Revenues**




In
      November 2005, the Company entered into a Patent License Agreement with Aditech
      AB, for which it recognized revenues of $750,000 in the quarter ended December
      31, 2005. There were no revenues recorded in the three or six months ended
      June
      30, 2006 and 2005.




**Research
      and Development Expenses**





**Decrease**
            
            
            
            
            
            **Decrease****From
                Period**
            
            
            
            
            
            **From
                Period****Three
                Months Ended June 30,**
            
            **in
                Prior**
            
            **Six
                Months Ended June 30,**
            
            **in
                Prior****2005**
            
            **2006**
            
            **Year**
            
            **2005**
            
            **2006**
            
            **Year**$612,000
            
            $
            433,000
            
            $
            (179,000
            )
            $
            951,000
            
            $
            693,000
            
            $
            (258,000
            )


Research
      and development expenses of $433,000 in the quarter ended June 30, 2006
      decreased by $179,000 compared to expenses of $612,000 in the same period of
      2005. Research and development expenses of $693,000 in the six months ended
      June
      30, 2006 decreased by $258,000 compared to expenses of $951,000 in the same
      period of 2005. The
      decrease in research and development expenses in the 2006 periods over the
      same
      periods of the prior year was due to the completion in prior periods of
      pre-clinical activities to support clinical trials of NB S101 and completion
      of
      our Phase I clinical trial of NB S101 in 2005.





We
      anticipate that the level of clinical-related expenditures for 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**





**Increase**
            
            
            
            
            
            **Increase****From
                Period**
            
            
            
            
            
            **From
                Period****Three
                Months Ended June 30,**
            
            **in
                Prior**
            
            **Six
                Months Ended June 30,**
            
            **in
                Prior****2005**
            
            **2006**
            
            **Year**
            
            **2005**
            
            **2006**
            
            **Year**$327,000
            
            $
            772,000
            
            $
            445,000
            
            $
            615,000
            
            $
            1,132,000
            
            $
            517,000


General
      and administrative expenses of $772,000 in the quarter ended June 30, 2006
      increased by $445,000 compared to $327,000 for the same period in 2005. General
      and administrative expenses of $1,132,000 in the six months ended June 30,
      2006
      increased by $517,000 compared to $615,000 for the same period in 2005. The
      increase during both periods resulted primarily from additional expenses
      incurred by the U.S. operating entity that was established in October 2004,
      including administrative consultants, salaries and benefits. In addition, during
      the six months ended June 30, 2006, we recorded stock-based compensation
      expenses of $303,100 based on the implementation of FAS123R as of January 1,
      2006, whereas prior to that date, stock based compensation expenses were
      disclosed under FAS123, but not recorded.  Page
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**Liquidity
      and Capital Resources**




**June
                30,**
              **2006**
            
            **December
                31,**
              **2005**Cash
                and cash equivalents
            
            $
            8,797,000
            
            $
            571,000Working
                capital
            
            
            8,686,000
            
            
            936,000





**Six
                Months Ended****June
                30,**
              **2006**
            
            **June
                30,**
              **2005**Cash
                provided by (used in):Operating
                activities
            
            $
            (1,006,000
            )
            $
            (1,696,000
            )Investing
                activities
            
            
            (1,000
            )
            
            1,000Financing
                activities
            
            
            9,255,000
            
            
            1,183,000




Since
      we
      were founded in 2003, we have applied the majority of our resources to research
      and development programs and have generated limited operating revenues and
      we
      expect to continue to incur losses in the future resulting from our ongoing
      research and development efforts.




As
      of
      June 30, 2006, we had cash and cash equivalents of $8,797,000. The balance
      of
      cash and cash equivalents at June 30, 2006 increased by $8,226,000 from cash
      and cash equivalents of $571,000 as of December 31, 2005, resulting from our operating,
      investing and financing activities during the year.




On
      May
      24, 2006, we entered into a series of subscription agreements for the issuance
      in the aggregate of 7,656,000 shares of common stock for aggregate gross
      proceeds equal to $10,000,000 in a series of transactions exempt from
      registration under the Securities Act (the “Share Sale”). Our cash and cash
      equivalents of $8,797,000 as of June 30, 2006 includes the remaining portion
      of
      the $10,000,000 raised in connection with the Share Sale.





The
      accompanying condensed consolidated financial statements have been prepared
      assuming the we will continue as a going concern. We have experienced net losses
      since its inception through June 30, 2006 and expect such losses to continue
      as
      we further our research and development programs. As of December 31, 2005 and
      June 30, 2006 cash and cash equivalents were $571,000 and $8,797,000,
      respectively. To fund our continuing operations, we completed a private
      placement of equity securities raising gross proceeds of $10,000,000 on May
      24,
      2006. With the receipt of this funding, we believe that it is appropriate for
      the condensed consolidated financial statements to be prepared on a going
      concern basis. The condensed consolidated financial statements do not include
      any adjustments that might result from the outcome of this
      uncertainty.




*Cash
      Flows from* *Operating* *Activities*




We
      used
      cash of $1,006,000 during the six months ended June 30, 2006, primarily from
      our
      operating loss of $1,788,000 balanced by our receipt of $750,000 in January
      related to the payment of outstanding accounts receivables.




*Cash
      Flows from Investing Activities*




During
      the six months ended June 30, 2006, we used $1,000 due to changes in the
      valuation of our equipment balances.




*Cash
      Flows from* *Financing* *Activities*




Financing
      activities provided cash of $9,255,000 in the six months ended June 30,
      2006, and consisted of the value of the common stock we sold to
      investors.  Page
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We
      believe that our available cash, cash equivalents of as of June 30, 2006 will
      provide adequate liquidity to fund our operations through at least the next
      twelve months. However, we may seek to raise additional liquidity to fund our
      operations in periods thereafter or to acquire development projects for our
      pipeline. Accordingly, we may seek to raise additional funds when market
      conditions permit. However, there can be no assurance that funding will be
      available or that, if available, will be on acceptable terms.




Our
      future capital requirements will depend on a number of factors, including:




·
            the
                progress of our clinical development programs;




·
            the
                time and cost involved in obtaining regulatory approvals;




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




·
            the
                acquisition or licensing of new drug candidates;




·
            competing
                technological and market developments;




·
            our
                ability to establish collaborative relationships; and




·
            the
                development of commercialization activities and 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 a current or future effect on our financial position, revenues
      or
      expenses, results of operations, liquidity, capital expenditures or capital
      resources.


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**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.


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




**ITEM
      1.****LEGAL
      PROCEEDINGS.******




None.




**ITEM
      2.****UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.**




On
      May
      24, 2006 (the “Closing Date”), the Registrant entered into a Share and Warrant
      Exchange Agreement (the “Exchange Agreement”) with Osteologix A/S, a privately
      owned Danish company (“Osteologix A/S”), the owner of all of Osteologix A/S’s
      shares (the “Shareholder”), certain warrant holders named therein (the
“Warrantholders”) and the attorney-in-fact for certain investors (the
“Investors”), pursuant to which the Registrant acquired all of the issued and
      outstanding shares of stock of Osteologix A/S in exchange for the issuance
      in
      the aggregate of 10,504,693 shares of common stock of the Registrant (the
“Shares”) to the Shareholder (the “Share Exchange”) . In addition, an aggregate
      of 100,000 warrants to purchase common stock of Osteologix A/S were exchanged
      for warrants to purchase 979,307 shares of common stock of the Registrant (the
      “Warrant Exchange”).




Concurrent
      with the Share Exchange, the Investors entered into a series of subscription
      agreements with Osteologix A/S's wholly-owned subsidiary, Osteologix, Inc.
      for
      the issuance in the aggregate of 7,656,000 shares of common stock for aggregate
      gross proceeds equal to $10,000,000 in a series of transactions exempt from
      registration under the Securities Act (the “Share Sale”). The shares of common
      stock acquired by the Investors were then exchanged for shares of the Registrant
      in connection with the Share Exchange. In connection with the Share Sale, the
      Registrant has agreed to provide the Investors rights to register the shares
      of
      common stock pursuant to the terms of a registration rights agreement (the
      “Registration Rights Agreement”).




As
      a
      result of the Share Exchange and the Share Sale, Osteologix A/S became a
      wholly-owned subsidiary of the Registrant and the Shareholder and the Investors
      acquired approximately 87% of the Registrant’s issued and outstanding stock. The
      Registrant currently has a total of 21,094,688 issued and outstanding shares
      of
      Common Stock. The Shareholder has agreed with the Registrant not to sell any
      of
      the Shares it was issued in the Share Exchange in a transaction that would
      require registration under the Securities Act of 1933 until one year after
      the
      Closing Date.




In
      connection with the Share Exchange and Share Sale, the Registrant entered into
      a
      Registration Rights Agreement with the Investors and agreed to file, within
      45
      days of the Closing Date, a registration statement registering for resale the
      shares exchanged by the Registrant for the Investors’ shares. In addition, on
      the Closing Date the Registrant granted piggyback registration rights to certain
      of its existing investors to register all of the shares of Common Stock they
      currently hold in the same registration statement it filed for Shares issued
      to
      the Investors, and in connection with any future registration statements it
      may
      file (under certain circumstances). The registration statement with respect
      to
      the resale of the Shares was filed with the Commission on July 10, 2006 and
      amended on August 2, 2006 and August 9, 2006 and declared effective by the
      Commission on August 10, 2006.




The
      foregoing descriptions of the Subscription Agreement and the Registration Rights
      Agreement are merely summaries, and are not intended to be complete. The
      Subscription Agreement is filed as exhibit 10.2 and the Registration Rights
      Agreement is filed as exhibit 10.3 to Form 8-K dated May 24, 2006, and the
      full
      text of each such exhibit is incorporated herein by reference.




**ITEM
      3.****DEFAULTS
      UPON SENIOR SECURITIES.**




None.  Page
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ITEM
      4.SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS.





None .




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




None.




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




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




The
      following exhibits are filed as part of this report:




**Exhibit
                Number**
            **Description**31.1
            Certification
                of Chief Executive Officer and Principal Financial Officer pursuant
                to
                Rule 13A-14(A)/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
            Certification
                of Chief Executive Officer and the Principal Financial Officer Pursuant
                to
                18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of
                2002).





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**SIGNATURES**




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




Date:
                August 11, 2006
            **OSTEOLOGIX,
                INC.**
              
              By:/s/
                Charles Casamento
              
              Name:
                Charles Casamento
              Title:
                Principal Financial Officer,
              Chief
                Executive Officer and President
              
              By:/s/
                Stephan Christgau
              
              Name:
                Stephan Christgau
              Title:
                Vice President and Chief Operating
                Officer




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