UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


___________________________________




FORM
10-Q




(Mark
One)




[X]     Quarterly
report under Section 13 or 15(d) of the Securities Exchange Act of
1934




For
the quarterly period ended December 31, 2008




OR




[   ]    Transition
report under Section 13 or 15(d) of the Securities Exchange Act of
1934




Commission
file number: 0-23391





XFORMITY TECHNOLOGIES,
INC.


(Exact
name of registrant as specified in its charter)





Colorado
            84-1434313(State
      or other jurisdiction of
              incorporation
      or organization)
            (I.R.S.
      Employer
              Identification
      No.)





4100
Spring Valley Road Dallas, Texas 75244


(Address
of principal executive offices, including zip code)


Issuer's
Telephone No., including area code: (972)
661-1200





Indicate
by check mark whether Registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act  during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.   YesX       No





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.





Smaller
reporting company   X




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes 
NoX




The
number of shares outstanding of the Issuer’s Common stock, $0.0001 par value, at
February 6, 2009 is 51,931,553.










1















PART
      I.
            FINANCIAL
      INFORMATION
            PAGEItem
      1.
            Financial
      statementsConsolidated Balance Sheets – December 31, 2008 (Unaudited) and
      June 30, 2008
            3Unaudited Consolidated Statements of Operations – Three Months
      and Six Months Ended December 31, 2008 and 2007
            4Unaudited Consolidated Statements of Cash Flows –
      Six Months Ended December 31, 2008 and 2007
            5Notes
      to Unaudited Consolidated Financial Statements
            6-8Item
      2.
            Management's Discussion and Analysis and Results of
      Operations
            9-10Item
      3.
            Quantitative
      and Qualitative Disclosures About Market Risk
            11Item
      4.
            Controls and Procedures
            11PART
      II.
            OTHER
      INFORMATIONItem
      1.
            Legal Proceedings
            11Item
      2.
            Unregistered Sales of Securities and Use of
      Proceeds
            11Item
      3.
            Defaults
      upon Senior Securities
            11Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            11Item
      5.
            Other
      Information
            11Item
      6.
            Exhibits
      and Reports on Form 8-K
            11












2







XFormity
Technologies, Inc. and Subsidiary


Consolidated
Balance Sheets





(Unaudited)December
      31,
            
            
            June
      302008
            
            
            2008ASSETSCurrent
      AssetsCash
      and cash equivalents
            
            $
            200,655
            
            
            $
            87,117Accounts
      receivable
            
            
            26,877
            
            
            
            10,812Deferred
      commission expense
            
            
            36,762
            
            
            
            36,762Prepaid
      expenses
            
            
            25,410
            
            
            
            27,609Total
      current assets
            
            
            289,704
            
            
            
            162,300Property
      and equipment, net of accumulated depreciation
            
            
            39,431
            
            
            
            37,055Other
      assetsSecurity
      deposit
            
            
            26,120
            
            
            
            26,120Deferred
      commission
            
            
            55,143
            
            
            
            73,524Total
      Assets
            
            $
            410,398
            
            
            $
            298,999LIABILITIES
      AND STOCKHOLDERS’ DEFICITCurrent
      LiabilitiesObligation
      under debt reduction agreement – current portion
            
            $
            120,000
            
            
            $
            -Accounts
      payable
            
            
            77,555
            
            
            
            1,637,327Loan
      payable
            
            
            100,000
            
            
            
            100,000Accrued
      expenses
            
            
            169,796
            
            
            
            97,812Current
      portion - deferred revenue
            
            
            139,742
            
            
            
            130,423Current
      portion – deferred credits
            
            
            14,105
            
            
            
            13,758Convertible
      debentures - net of unamortized discount of beneficial conversion
      featureRelated
      parties
            
            
            573,544
            
            
            
            563,544All
      other debenture holders
            
            
            158,186
            
            
            
            160,091Total
      Current Liabilities
            
            
            1,352,928
            
            
            
            2,702,955Obligation
      under debt reduction agreement – net of current portion
            
            
            590,000
            
            
            
            -Deferred
      revenues – net of current portion
            
            
            113,778
            
            
            
            168,667Deferred
      credits – net of current portion
            
            
            169,185
            
            
            
            176,326Total
      liabilities
            
            
            2,225,891
            
            
            
            3,047,948Stockholders'
      DeficitPreferred
      stock, $0.01 par value, 100,000,000 shares authorized, none issued and
      outstanding at December 31, 2008 and June 30, 2008
            
            
            -
            
            
            
            -Common
      stock, $0.0001 par value, 125,000,000 shares authorized, 51,931,553 and
      50,931,553 shares issued and outstanding at December 31, 2008 and June 30,
      2008, respectively
            
            
            5,193
            
            
            
            5,093Additional
      paid-in capital
            
            
            6,915,627
            
            
            
            6,773,227Accumulated
      deficit
            
            
            (8,736,313
            )
            
            
            (9,527,269
            )Total
      Stockholders' Deficit
            
            
            (1,815,493
            )
            
            
            (2,748,949
            )Total
      Liabilities and Stockholders' Deficit
            
            $
            410,398
            
            
            $
            298,999





The
accompanying notes are an integral part of these consolidated financial
statements.










3








XFormity
Technologies, Inc. and Subsidiary


Consolidated
Statements of Operations





(Unaudited)
            
            
            (Unaudited)Three
      Months Ended December 31,
            
            
            Six
      Months Ended December 31,2008
            
            
            2007
            
            
            2008
            
            
            2007Revenue
            
            $
            510,345
            
            
            $
            352,011
            
            
            $
            1,077,866
            
            
            $
            676,958Cost
      of revenue
            
            
            135,046
            
            
            
            138,354
            
            
            
            275,667
            
            
            
            264,677Research
      and development
            
            
            132,576
            
            
            
            212,587
            
            
            
            270,470
            
            
            
            296,645Marketing
      and selling
            
            
            86,876
            
            
            
            139,126
            
            
            
            158,537
            
            
            
            196,611General
      and administrative
            
            
            108,758
            
            
            
            205,169
            
            
            
            240,568
            
            
            
            356,897Total
      operating expenses
            
            
            463,256
            
            
            
            695,236
            
            
            
            945,242
            
            
            
            1,114,830Income
      (loss) from operations
            
            
            47,089
            
            
            
            (343,225
            )
            
            
            132,624
            
            
            
            (437,872
            )Interest
      expense, net
            
            
            (20,578
            )
            
            
            (38,513
            )
            
            
            (40,437
            )
            
            
            (75,625
            )Income
      (loss) before other income and provision for income taxes
            
            
            26,511
            
            
            
            (381,738
            )
            
            
            92,187
            
            
            
            (513,497
            )Other
      income – Gain on debt reduction
            
            
            698,769
            
            
            
            -
            
            
            
            698,769
            
            
            
            -Income
      (loss) before provision for income taxes
            
            
            725,280
            
            
            
            (381,738
            )
            
            
            790,956
            
            
            
            (513,497
            )Provision
      for income taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
      Income (loss)
            
            $
            725,280
            
            
            $
            (381,738
            )
            
            $
            790,956
            
            
            $
            (513,497
            )Net
      Income (loss) per share – basic
            
            $
            0.01
            
            
            $
            (0.01
            )
            
            $
            0.02
            
            
            $
            (0.01
            )Weighted
      average number of shares – basic and diluted
            
            
            51,681,553
            
            
            
            50,931,553
            
            
            
            51,306,553
            
            
            
            50,531,814





The
accompanying notes are an integral part of these consolidated financial
statements.




4








XFormity
Technologies, Inc. and Subsidiary


Consolidated
Statements of Cash Flows





(Unaudited)Six Months Ended December
    30,2008
            
            
            2007Operating
      activities:Net
      income (loss)
            
            $
            790,956
            
            
            $
            (513,497
            )Depreciation
            
            
            10,587
            
            
            
            10,537Amortization
      of deferred commission
            
            
            18,381
            
            
            
            -Non-cash
      transactions for:Compensation
      from share-based payment arrangements
            
            
            -
            
            
            
            305,064Gain
      on debt reduction agreement
            
            
            (698,769
            )
            
            
            -Interest
      charge for beneficial conversion feature in convertible
      debentures
            
            
            595
            
            
            
            38,124Issuance
      of common stock in payment of license fees
            
            
            -
            
            
            
            15,659Changes
      in:Accounts
      receivable
            
            
            (16,065
            )
            
            
            (
      3,945
            )Prepaid
      expenses and other assets
            
            
            2,199
            
            
            
            14,919Accounts
      payable
            
            
            18,997
            
            
            
            (57,875
            )Accrued
      expenses
            
            
            71,984
            
            
            
            40,072Deferred
      revenue
            
            
            (45,571
            )
            
            
            42,233Deferred
      credits
            
            
            (6,793
            )
            
            
            (6,463
            )Net
      cash provided (used) in operating activities
            
            
            146,501
            
            
            
            (115,172
            )Investing
      activities:Purchases
      of property and equipment
            
            
            (12,963
            )
            
            
            (13,832
            )Net
      cash used in investing activities
            
            
            (12,963
            )
            
            
            (13,832
            )Financing
      activities:Payment
      under debt reduction agreement
            
            
            (30,000
            )
            
            
            -Proceeds
      from issuance of convertible debentures
            
            
            10,000
            
            
            
            -Net
      cash (used) provided by financing activities
            
            
            (20,000
            )
            
            
            -Increase
      (decrease) in cash and cash equivalents
            
            
            113,538
            
            
            
            (129,004
            )Cash
      and cash equivalents, beginning of period
            
            
            87,117
            
            
            
            216,834Cash
      and cash equivalents, end of period
            
            $
            200,655
            
            
            $
            87,830Supplemental
      disclosure of non-cash financing and investing activitiesInterest
      paid
            
            $
            81
            
            
            $
            193Additional
      paid-in capital from beneficial conversion feature in convertible
      debenture
            
            $
            2,500
            
            
            $
            -Gain
      on debt reduction agreement
            
            $
            698,769
            
            
            $
            -Decrease
      in accounts payable due to debt reduction agreement
            
            $
            (1,578,769
            )
            
            $
            -Increase
      in short term and long term debt
            
            $
            740,000
            
            
            $
            -Issuance
      of common stock in payment of debt reduction agreement
            
            $
            140,000
            
            
            $
            -Issuance
      of common stock in payment of deferred commission
            
            $
            -
            
            
            $
            147,048





The
accompanying notes are an integral part of these consolidated financial
statements.




5





XFormity
Technologies, Inc. and Subsidiary


Notes
to Consolidated Financial Statements


December
31, 2008


(Unaudited)





Note
1   Organization and Nature of Business.





The
reporting entity in this form 10-Q is XFormity Technologies, Inc. (a Colorado
Corporation) ("XFormity" or the "Company") and includes the operations of
XFormity, Inc. (a Texas Corporation) (“XFM”), the wholly owned subsidiary of the
Company.  XFormity provides technology and services to multi-unit
business operators.  The Company’s core products are hosted Business
Intelligence (BI) and Balanced Scorecard solutions.  These solutions
help customers with operational data analysis, trend reporting, issue
identification and tracking.  The Company provides data integration
and management services which feed the BI and Scorecard solution with data from
many key data sources.  The Company’s solutions are provided to
customers as a hosted (software-as-a-service) model, which allows the Company to
rapidly configure and implement solutions for new customers in an affordable,
cost-effective manner.




The
Company identified a significant need for data integration and analytical tools
within the quick-service restaurant (QSR) segment of the food service industry
and has deployed BI solutions for multi-unit QSR owners and operators across
many brands and of all sizes.  Customers utilizing these solutions
range from single-unit owners to large multi-national franchisors. The Company
has a balanced customer portfolio with both franchisees and franchisors that
license its products and services, and includes restaurants from Taco Bell,
Pizza Hut, KFC, Burger King, Arby’s, Cosi’s, Domino’s, Long John Silver’s and
A&W.  The Company provides Burger King Corporate (BKC) with its BI
solution for all corporate owned and operated restaurants in the United States
and Canada.




Note
2    Basis of Financial Statement
Presentation.




The
accompanying unaudited consolidated financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
consolidated or omitted in accordance with such rules and regulations. The
information furnished in the interim consolidated financial statements includes
normal recurring adjustments and reflects all adjustments which, in the opinion
of management, are necessary for a fair presentation of such consolidated
financial statements.




Although
management believes the disclosures and information presented are adequate to
not make the information misleading, it is suggested that these interim
consolidated financial statements be read in conjunction with the Company's most
recent audited financial statements and notes thereto included in its June 30,
2008 Annual Report on Form 10-K/A-1. Operating results for the three months and
six months ended December 31, 2008 are not necessarily indicative of the results
that may be expected for the entire year or any other period.




The
Company's financial statements are prepared using accounting principles
generally accepted in the United States of America applicable to a going
concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The ability of the Company to
continue as a going concern is dependent on the Company; (1) to obtain adequate
capital from outside sources, or (2) to fund itself through profitable
operations. The accompanying financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going
concern.






Note
3   Going Concern




As shown
in the accompanying consolidated financial statements, the Company has incurred
an operating deficit of $8,736,313 through the fiscal quarter ended
December 31, 2008. The Company is continually reviewing its operations and
attempting to improve operating results and its balance sheet.  The
Company's ability to continue as a going concern is dependent on its ability to
improve operating results and increase its financing cash flows, if any. 
The consolidated financial statements do not include any adjustments that might
be necessary if the Company is unable to continue as a going concern.




Note
4   Property and Equipment




Property
and equipment are stated at cost.  Depreciation of property and
equipment is computed for financial statement purposes using accelerated methods
over a five year estimated useful life of the assets.


Accumulated
depreciation at December 31, 2008 was $135,626 and $125,038 at June 30,
2008.






6






Note
5   Deferred Commission




In August
2007, the Company renegotiated a previous commission agreement that now provides
for monthly payments of $3,000 for four years commencing July 1, 2007 and the
issuance of 1 million shares of the Company’s common stock.  The
determination of the amount was based on the fair value of the issued common
stock at the commitment date under SFAS No. 123R, Share-Based Payment, and
Emerging Issues Task Force 96-18, Accounting for Equity Instruments
That Are Issued To
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Servicesand is amortized over the life of the contract.





Three Months Ended December 31,
      2008
            
            
            Six Months Ended December 31,
      2008Long
      term portion of deferred commission in other assets
            
            
            
            
            $
            55143Current
      portion of deferred commission in prepaid expenses
            
            
            
            
            $
            36,762Amount
      of commission expensed
            
            $
            9,191
            
            
            $
            18,381







Note
6    Deferred Credits




In
January 2006, the Board of Directors, agreed to offer then seven major
customers, (“consortium members”) the following options in exchange for any
further billing credits: (1) a right to receive $150,000 in billing credits
applied against their monthly business intelligence software billings at a rate
of 25% of the billings commencing July 1, 2006, or (2) a right to receive an
additional 833,333 shares of the Company’s common stock per consortium member.
These shares would be in addition to the shares issued to consortium members in
exchange for their original $100,000 investment in fiscal 2004.





Two
consortium members elected option (1), one commencing January 1, 2006, and the
other commencing July 1, 2006.  The five remaining consortium members
elected option (2) and in May 2006, the Company issued 4,166,665 shares under
this agreement. The deferred credits at December 31, 2008 in the respective
amounts of $92,997 and $90,297, net of amortization, are expected to be utilized
over a 12 to 13 year period based on their current billing rates using a 5%
discount rate that approximated the risk-free rate in effect during the offered
option period.




Note
7    Debt Reduction Obligation




In
October 2008, the Company signed an agreement with its patent counsel to issue
1,000,000 shares of XFMY’s common stock issued on October 24, 2008 at the
closing price of $0.14 per share for a total value of $140,000, to pay cash
payments of $10,000 that extend over 48 months for a total of $480,000 and four
additional debt reduction payments of $65,000 each contingent upon the Company
achieving certain revenue targets for a total of $260,000. This represents a
maximum payout value of $880,000 in full settlement of the Company’s obligation
of $1,578,769 resulting in a gain of $698,769 according to SFAS 5, Accounting for Contingencies,
and SFAS 15, Accounting by
Debtors and Creditors for Troubled Debt Restructurings.




Note
8   Accounts Payable





Accounts
payable represents balances due to trade creditors and fees for professional
services incurred for legal, and audit services.  Of the approximate
$1,582,000 reflected in the June 30, 2008 balance, $1,578,769, the legal fees
incurred in the defense of a patent infringement suit, was settled in October
2008 for a combination of cash payments and the issuance of one million shares
of the Company’s common stock.  The Company recorded the difference
between the previously accrued obligation and the maximum settlement amount as
non-operating income of $698,769 (See Note 7 above).






7






Note
9   Accrued Expenses





December 31,
            
            
            June 30,2008
            
            
            2008401
      (K) obligation
            
            $
            33,624
            
            
            $
            21,584Accrued
      interest on convertible debentures and note payable
            
            
            92,267
            
            
            
            55,719Other
            
            
            43,905
            
            
            
            20,509Totals
            
            $
            169,796
            
            
            $
            97,812





Note
10   Convertible Debentures





As of
December 31, 2008 and June 30, 2008, the Company has outstanding an aggregate of
$733,635 and $723,635, respectively, of the 9% convertible debentures that
mature between January 31 and October 31, 2009. In October 2008, the Company
sold an additional $10,000 to one of its employees.  Of that amount,
$573,554 is held by stockholders who are also customers of the Company and
employees of the Company. Accrued interest on the debentures was
$77,100.  The Company is in discussions with the debenture holders and
expects all of them to extend their notes for one year.  There were no
discounts or commissions incurred on the sale The Company has no assurance as to
how much in additional subscriptions will be received in the private
offering.




Note
11    Earnings per Share





Basic
earnings per share is calculated based on the weighted-average number of
outstanding common shares.  As of December 31, 2008, the Company
had 51,931,553shares outstanding, with
no shares payable outstanding.  The Company uses the treasury stock
method to determine whether any convertible debentures, outstanding options or
warrants are to be included in the diluted earnings per share calculation.
 As of December 31, 2008, the Company had convertible debentures of 733,635
convertible at a conversion price of the lesser of (i) 70% of the price per
share of common stock or common stock equivalent paid by investors in the
Company’s next round of equity or debt financing consisting of at least
$1,000,000 in cumulative gross proceeds, or (ii) $0.12, warrants outstanding of
4,802,642 consisting of 2,401,321 with an exercise price of $0.14 and 2,401,321
with an exercise price of $0.18, and options outstanding of
6,775,000.  For the three months and six months ended December
31, 2008, the conversion of all of the above would result in a possible dilution
of 17,582,934 shares.  However, as the convertible
debentures, options, and warrants have a strike price in excess of the market
price, $0.07 at December 31, 2008, and are considered not “in the money”, they
are excluded from the calculation of diluted earnings per share due to their
anti-dilutive effect.





Note
12    Related Party Transactions





Seven of
our customers who are also stockholders in the Company, generated revenues
approximating $83,100 and $167,600 in the three months and six months ended
December 31, 2008.  In the same periods in the prior year, revenues
approximated $82,700 and $165,600. A former customer and one current customer
had served as members of the Board of Directors and the Audit Committee in
2007.




Of the
total 9% convertible debentures issued through December 31, 2008, $478,554 is
held by stockholders who are also customers of the Company and $20,000 is held
by senior management of the Company.  Interest expense accrued to
related parties was $11,310 and $43,612 for the three months and six months
ended December 31, 2008.




In the
respective three months and six months ended December 31, 2008 and 2007, the
Company paid rent of $3,000 and $6,000 respectively during each period, to a
company controlled by a major stockholder of the Company. The rent included
space and administrative services provided to the Company.




Note
13    Commitmentsand
Contingencies




The
Company entered into a 65 month net lease at its Dallas, Texas office,
commencing June 1, 2008, approximating $4,300 per month and a month-to-month
lease for $1,000 per month at its Northbrook, Illinois office, which includes
administrative services.  Total rent expense for the three months and
six months ended December 31, 2008 was $15,986 and $31,971
respectively.  In the same periods in 2007, rent expense was $20,996,
and $36,755, respectively. The Company accounts for these leases as operating
leases in accordance with FAS 13, Accounting for Leases.






8








ITEM 2.
            MANAGEMENT'S
      DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS





Safe Harbour - Forward
Looking Statements




When used
in this Quarterly Report on Form 10-Q, in documents incorporated herein and
elsewhere by us from time to time, the words "believes," "anticipates,"
"expects" and similar expressions are intended to identify forward-looking
statements concerning our business operations, economic performance and
financial condition, including in particular, our business strategy and means to
implement the strategy, our objectives, the amount of future capital
expenditures required, the likelihood of our success in developing and
introducing new products and expanding the business, and the timing of the
introduction of new and modified products or services. These forward looking
statements are based on a number of assumptions and estimates which are
inherently subject to significant risks and uncertainties, many of which are
beyond our control and reflect future business decisions which are subject to
change.




A variety
of factors could cause actual results to differ materially from those expected
in our forward-looking statements, including those set forth from time to time
in our press releases and reports and other filings made with the Securities and
Exchange Commission. We caution that such factors are not exclusive.
Consequently, all of the forward-looking statements made in this document are
qualified by these cautionary statements and readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date of this Quarterly Report on Form 10-Q. We undertake no obligation to
publicly release the results of any revisions of such forward-looking statements
that may be made to reflect events or circumstances after the date hereof, or
thereof, as the case may be, or to reflect the occurrence of unanticipated
events.




RESULTS OF
OPERATIONS





REVENUE   The
Company’s primary revenue is derived by delivering software as a service, or
hosted solutions for its clients billed on a monthly basis for each location
serviced.  For the three months and six months ended December 31,
2008, the Company generated $510,345 and $1,077,866, respectively, in revenues
compared to $352,011 and $676,958, respectively, in the comparable prior year’s
periods.  This increase in revenues is primarily attributable to the
licensing of the Company’s solutions by additional customers and professional
service fees.  In 2008 and 2007, the Company received payments under
contracts for the development of various solutions, subject to multi-year
licensing agreements. The revenue under these contracts is recognized, under
Statement of Position 97-2 (as amended), Software Revenue
Recognition,over a 3 year period to
coincide with the terms of the related licensing fees. The Company recognized
$21,000 and $42,000, respectively, in the three months and six months ended
December 31, 2008 for the development work and $75,000 and $150,000 under the
license agreements.  In 2007, in the comparable periods, the Company
recognized $9,000 and $18,000 for the development work and $75,000 and $37,500
under the license agreement.   As of December 31, 2008, the
Company included $170,000 from the development fees in deferred revenues on its
balance sheet.




COST OF
REVENUE   The cost of revenue for the three months and six
months ended December 31, 2008, consist primarily of personnel, related payroll
costs and support service costs in the respective amounts of $135,046 and
$275,666.  Other costs include travel, data hosting services,
telecommunication costs and depreciation of computer equipment used in the
maintenance and processing of customers' data.  The three months and
six months periods ended December 31, 2008 include higher costs for new
personnel and increased time allocated to operations of $16,112 and $12,546,
respectively, and increased license fees and travel due to increased revenues of
$6,734 and $10,859, respectively.  The costs for the three month and
six month periods in the comparative periods of the prior year were $138,354 and
$264,677 including a non-cash compensation expense under SFAS 123R, Share-Based Payments of
$15,818 resulting from option grants in the quarter ended December 31,
2007.




RESEARCH AND
DEVELOPMENT   Research and development costs are charged
to operations as incurred and consist primarily of personnel, related benefit
costs and outside contracted services. The costs for the three months and six
months ended December 31, 2008 were $132,576 and $270,470, respectively. In the
current year’s periods, the Company allocated additional time to development,
increased the executive’s salary, and incurred higher payroll and related costs
of $16,246 and $32,389, respectively; increased outside contractor use in the
amounts of $21,300 and $57,900, respectively, to assist in the integration of
various systems with our business intelligence solution for new franchise
operations; and incurred increased travel expenses of $3,510 and $6,120
respectively. The costs for the three month and six month periods in the
comparative periods of the prior year were $212,587 and $296,645 including a
non-cash compensation expense under SFAS 123R, Share-Based Payments of
$119,766 resulting from option grants in the quarter ended December 31, 2007.
The Company’s research and development is part of its strategic plan to provide
enhancements and integration into new and existing franchise operations in the
retail market.




MARKETING AND
SELLING   The costs for the three month and six month
periods ended December 31, 2008 were $86,876 and $158,537, respectively,
compared to $139,126 and $196,611 in the comparative periods of the prior year.
In the quarter ended December 31, 2007, the Company recorded a non-cash
compensation expense of $56,493 under SFAS 123R, Share-Based Payments
resulting from option grants. The Company’s decrease in marketing and selling
expenses in the current periods reflects increased compensation for its
executives and outside consultant and a greater allocation of time, personnel
and related costs of $4,923 and $11,953, respectively, offset by the stock based
compensation expense
in the comparison periods. Also in the current quarter ended December 31, 2008,
the Company incurred higher costs for marketing, trade shows and related travel
of $6,466 as compared to the same period of the prior year.  For the
current fiscal year, the Company continues to expand its customer base through
direct sales, trade shows and referrals from its relationship with existing
clients.






9






GENERAL AND
ADMINISTRATIVE   The Company’s general and administrative
costs consist primarily of executive salaries and related benefits, professional
fees for attorneys, our independent auditor, rent, expenses related to being a
public company and other operating costs.    The costs for
the three month and six month periods ended December 31, 2008 were $108,758 and
$240,568, respectively, compared to $205,169 and $356,897 in the comparative
periods of the prior year. In the quarter ended December 31, 2007, the Company
recorded a non-cash compensation expense under SFAS 123R, Share-Based Payments of
$112,987 resulting from option grants. The Company’s decrease in the current
periods reflects increased compensation for its executives and related costs of
$5,879 and $13,838, respectively, offset by the stock based compensation expense
in the comparison periods. Further reduction was primarily due to reduced
professional fees of $35,623 and reduced insurance costs approximating $4,100 in
the current quarter. The Company incurred increased costs of $4,638 to report as
a public company, and increased costs for travel and administrative expenses of
$14,768




INTEREST
EXPENSE   Interest expense consists of the
following:




Interest
      expense
            
            
            
            Three
      Months Ended
              December 31,
            Six
      Months Ended
              December 31,2008
            2007
            2008
            2007Accrued
      interest on convertible debentures
            $                 
      16,633
            $             
      16,415
            $            
      33,048
            $           
      32,831Amortization
      of the discount of the beneficial conversion feature in the convertible
      debentures
            
            
            
            595
            19,062
            595
            38,124Accrued
      interest on loan payable
            1,750
            1,750
            3,500
            3,500Interest
      incurred from the deferred credits issued to consortium
      members
            
            
            
            2,357
            2,486
            4,731
            4,987Interest
      income earned on cash and cash equivalents
            
            
            
            (7,57)
            (1,200)
            (1,437)
            (3,817)Net
      interest expense
            
            
            
            $                
      20,578
            $             
      38,513
            $             40,437
            $          
      75,625







NET INCOME
(LOSS)The net income for the three months and six
months ended December 31, 2008 was $725,280 and 790,953, respectively, compared
to a net loss of $381,738 and $513,497 for the comparative periods in
2007.  The increase in the net income for the three months and six
months ended December 31, 2008 was primarily the result of increased revenue
resulting from the licensing of the Company’s solutions by additional customers
and professional service fees and the non-operating income resulting from the
debt forgiveness obligation settled in October 2008 offset by the non-cash
compensation expense under SFAS 123R, Share-Based Payments
resulting from option grants in the quarter ended December 31,
2007.  The Company was able to reduce its professional fees and other
expenses but incurred increased costs in the use of outside consultants for
development work, increased compensation for executives, employees and sales
consultants, and increased marketing and sales costs.




The net
income per share for the three months and six months ended December 31, 2008 was
$0.01 and $0.02 per share in the respective periods on 51,681,553 and 51,306,553
weighted average common shares outstanding. This compares with net losses per
share for the three month and six month periods ended December 31, 2007 of
$(0.01) and $(0.01) per share, on 50,931,553 and 50,531,814 weighted average
common shares outstanding, respectively.




LIQUIDITY
AND CAPITAL RESOURCES




The Company continued to achieve another profitable quarter since it
commenced operations.  The Company had incurred operating losses and
negative cash flows from operations in each quarter since it commenced
operations through June 30, 2008.  As of December 31, 2008, there was
an accumulated deficit of $8,736,316 and the Company’s cash position is
$200,655.  While there can be no assurances that the Company will
continue to increase its customer base and related revenues necessary to cover
its operating costs; the Company’s management believes the opportunities
identified in its pipeline are achievable to continue generating operating
profitability and positive cash flow in the near future.




The
Company may need additional financing and there is no assurance that such
financing will be available, if at all, at terms acceptable to the
Company.  If additional funds are raised by the issuance of equity
securities, existing stockholders may experience dilution of their ownership
interests and these securities may have rights senior to those of holders of the
common stock.  If adequate funds are not available or not available on
acceptable terms, it could have a material adverse effect on the Company's
financial condition and results of operations.




Item
3.    Quantitative and Qualitative Disclosures about Market
Risk




Not
applicable






10






Item
4.    Controls and Procedures




Evaluation of Disclosure
Controls and Procedures




We  carried
out an evaluation, under the supervision and with the
participation   of  our  management,  including   our   principal
executive  officer  and  principal  financial  officer,  of   the
effectiveness  of our  disclosure
controls  and  procedures  (as
defined  in  Rules  13a-15(e) and 15d-15(e) of
the  Exchange  Act
(defined  below)).   Based  upon that
evaluation,  our  principal executive officer and principal
financial officer concluded that,
as  of  the  end  of  the  period
covered  in  this  report,  our
disclosure controls and procedures were effective to ensure  that
information required to be disclosed in reports
filed  under  the Securities Exchange Act of 1934, as
amended (the "Exchange  Act")
is  recorded,  processed,  summarized  and  reported  within  the
required time periods and is accumulated and communicated to  our
management,   including  our  principal  executive  officer   and
principal  financial  officer,
as  appropriate  to  allow  timely
decisions regarding required disclosure.




Our
management, including our principal executive officer and principal financial
officer, does not expect that our disclosure controls and procedures or our
internal controls will prevent all error or fraud.  A control system,
no matter how well conceived
and   operated,  can  provide  only  reasonable,  not   absolute,
assurance   that  the  objectives  of  the  control  system   are
met.   Further, the design of a control system must reflect the
fact that there are resource constraints and the benefits of controls must be
considered relative to their costs.  Due to the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, have been detected.
Accordingly, management believes that the financial statements included in this
report fairly present in all material respects our financial condition, results
of operations and cash flows for the periods presented.




Changes
in Internal Control over Financial Reporting




In
addition, our management with the participation of our Principal Executive
Officer and Principal Financial Officer have determined that no change in our
internal control over financial reporting occurred during or subsequent to the
quarter ended December 31, 2008 that has materially affected, or is (as that
term is defined in Rules 13(a)-15(f) and 15(d)-15(f) of the Securities Exchange
Act of 1934) reasonably likely to materially affect, our internal control over
financial reporting.






PART
II - OTHER INFORMATION




ITEM
1       LEGAL
PROCEEDINGS




As of the
date of this report, there are no pending legal proceedings in which the Company
or any of its officers, directors or affiliates is a party, and the Company is
not aware of any threatened legal proceedings.





ITEM
2      UNREGISTERED SALES OF
SECURITIES AND USE OF PROCEEDS




The
Company has authorized the issuance of up to $2,000,000 and through the filing
date has sold debentures in the aggregate amount of $1,757,000. The Securities
were sold to twenty-two (22) persons, each of whom qualified as "accredited
investors" within the meaning of Rule 501(a) of Regulation D under the
Securities Act of 1933 as amended (the "Securities Act").  There are
currently an aggregate of 12 accredited investors who have participated in the
offering.  In October 2008, the sold an additional $10,000.
The sale of each of the Securities was undertaken without registration under the
Securities Act in reliance upon an exemption from the registration requirements
of the Securities Act set forth in Rule 506 of Regulation D
thereunder.  Each of the investors in the offering qualified as an
"accredited investor".  The Securities were all taken for investment
purposes, not for resale, and were subject to appropriate restrictions on
transfer.  All proceeds of the offering have been used for general
working capital purposes.




ITEM
3    DEFAULTS UPON SENIOR SECURITIES




None




ITEM
4   SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY
HOLDERS




The
Company did not submit any matters to a vote of security holders during the
three months ended December 31, 2008.




ITEM
5     OTHER INFORMATION




None




ITEM
6      EXHIBITS AND REPORTS ON Form
8-K




Exhibits31.
            Certification32.
            Certification
      pursuant to USC Section 1350Reports on 8-KNone


SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.




XFormity
      Technologies, Inc.Date:February 10, 2009
            /s/ Christopher
      Ball
              Christopher
      Ball
              Chief
      Executive OfficerDate:February 10, 2009
            /s/ Jack
      Rabin
              Jack
      Rabin
              Chief
      Financial Officer












11