|UNITED
      STATESSECURITIES AND EXCHANGE
      COMMISSIONWashington, 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
      March 31, 2006
|---------------------------------------------------



|OR
|--

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



|Commission file number:
      0-23391
|-------------------------------------

XFORMITY TECHNOLOGIES, INC.

(Formerly known as XML-Global
Technologies, Inc.)

(Exact name of small business issuer as
specified in its charter)

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

14333 Proton 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 preceding 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
]

The number of shares of the registrants common
stock, $0.0001 par value, outstanding at May 22, 2006: 35,911,672

Transitional Small Business Disclosure Format
(Check one): Yes [ ]; No [X] __



|
|

---

|PART
      I.  |        | FINANCIAL
      INFORMATION |                                                                                  | PAGE
|-------------- | ------ | --------------------------- | -------------------------------------------------------------------------------- | ----
|Item           | 1.     |                             | Financial
      statements                                                       |     
|               |        |                             | Consolidated Balance Sheets  March
      31, 2006 (unaudited) and June 30, 2005 |     
|               |        |                             | Unaudited Consolidated Statements of
      Operations  Nine Months and Three    |     
|               |        |                             | Months Ended March 31, 2006 and
      2005                                       |     
|               |        |                             | Unaudited Consolidated Statements of
      Cash Flows - Nine Months Ended March  |     
|               |        |                             | 31, 2006 and 2005                                                                |     
|               |        |                             | Notes to Unaudited Consolidated
      Financial Statements                       |     
|Item           | 2.     |                             | Management's
      Discussion and Analysis or Plan of Operations                 |     
|Item           | 3.     |                             | Controls and
      Procedures                                                    |     
|PART
      II. |        | OTHER
      INFORMATION     |                                                                                  |     
|Item           | 1.     |                             | Legal
      Proceedings                                                          |     
|Item           | **2.** |                             | Unregistered Sales of
      Securities and Use of Proceeds                       |     
|Item           | **3.** |                             | Defaults upon Senior
      Securities                                            |     
|Item           | 4.     |                             | Submission of Matters
      to a Vote of Security Holders                        |     
|Item           | 5.     |                             | Other
      Information                                                          |     
|Item           | **7.** |                             | Exhibits and Reports
      on Form 8-K                                           |     



|2
|-

---

|PART I.FINANCIAL INFORMATION                                                                  |  |             |           |             |   |           |          
|--------------------------------------------------------------------------------------------- |  | ----------- | --------- | ----------- | - | --------- | ---------
|                                                                                             
|                                                                                             
|ITEM 1. FINANCIAL
      STATEMENTS                                                            |  |             |           |             |   |           |          
|                                                                                             
|XFormity Technologies, Inc. and
      Subsidiary                                              |  |             |           |             |   |           |          
|Consolidated Balance Sheets                                                                   |  |             |           |             |   |           |          
|                                                                                              |  | (Unaudited) |           |             |   |          
|                                                                                              |  | March 31,   |           | June 30,   
|                                                                                              |  | 2006        |           | 2005       
|Assets                                                                                        |  |             |           |             |   |           |          
|Current Assets                                                                                |  |             |           |             |   |           |          
|Cash and cash
      equivalents                                                               |  | $           | 51,589    |             | $ |           | 120,767  
|Accounts receivable                                                                           |  |             | 82,609    |             |   |           | 54,746   
|Prepaid expenses                                                                              |  |             | 21,656    |             |   |           | 13,265   
|Other current assets                                                                          |  |             | 315       |             |   |           | 1,069    
|                                                                                              |  |             |           |             |   |           |          
|Total current assets                                                                          |  |             | 156,169   |             |   |           | 189,847  
|Property and equipment, net                                                                   |  |             | 58,326    |             |   |           | 59,908   
|Other assets                                                                                  |  |             | 3,800     |             |   |           | 3,800    
|Total Assets                                                                                  |  | $           | 218,295   |             | $ |           | 253,555  
|                                                                                             
|Liabilities and Stockholders' Equity
      (Deficit)                                          |  |             |           |             |   |           |          
|Current Liabilities                                                                           |  |             |           |             |   |           |          
|Accounts payable                                                                              |  | $           | 1,308,616 |             | $ |           | 749,270  
|Accrued expenses                                                                              |  |             | 80,408    |             |   |           | 32,923   
|Deferred revenue                                                                              |  |             | 19,490    |             |   |           | 28,298   
|Accrued customer retention
      expense                                                      |  |             | 725,000   |             |   |           | -        
|Convertible
      debentures                                                                  |  |             | 975,000   |             |   |           | 100,000  
|Total Current Liabilities                                                                     |  |             | 3,108,514 |             |   |           | 910,491  
|Deferred credits                                                                              |  | 110,261     |           | 100,000    
|Total Liabilities                                                                             |  | 3,218,775   |           |             |   | 1,010,491
|                                                                                             
|Stockholders' Equity
      (Deficit)                                                          |  |             |           |             |   |           |          
|Preferred stock, $0.01 par value, 100,000,000 shares
      authorized, none                   |  |             |           |             |   |           |          
|issued and outstanding at March 31, 2006 and June 30,
      2005                              |  |             | -         |             |   |           | -        
|Common stock, $0.0001 par value, 125,000,000 shares
      authorized,                         |  |             |           |             |   |           |          
|35,911,672 shares issued and outstanding at March 31,
      2006 and June 30,                 |  |             |           |             |   |           |          
|2005                                                                                          |  |             | 3,591     |             |   |           | 3,591    
|Additional paid-in capital                                                                    |  |             | 2,991,752 |             |   |           | 2,991,752
|Accumulated deficit                                                                           |  | (5,995,823) |           | (3,752,279)
|Total Stockholders' Equity (Deficit)                                                          |  | (3,000,480) |           | (756,936)  
|Total Liabilities and Stockholders' Equity
      (Deficit)                                    |  | $           | 218,295   |             | $ |           | 253,555  
|                                                                                             
|The accompanying notes are an integral part of these
      consolidated financial statements. |  |             |           |            

3

---



| | XFormity Technologies, Inc. and
      SubsidiaryConsolidated Statements of
      Operations
| | -------------------------------------------------------------------------------------------

|                                                                                                    |  |            | (Unaudited)        |            |   |           | (Unaudited)      
|--------------------------------------------------------------------------------------------------- |  | ---------- | ------------------ | ---------- | - | --------- | -----------------
|                                                                                                    |  |            | Three Months Ended |            |   |           | Nine Months Ended
|                                                                                                    |  |            | March 31,          |            |   |           | March 31,        
|                                                                                                    |  |            | 2006               |            |   | 2005      |                  
|                                                                                                   
|                                                                                                    |  |            |                    |            |   |           |                  
|Revenue                                                                                             |  | $          | 165,178            |            | $ | 112,701   |                  
|                                                                                                   
|Cost of revenue                                                                                     |  |            | 83,102             |            |   | 120,202   |                  
|                                                                                                   
|Research and development                                                                            |  |            | 135,513            |            |   | 141,957   |                  
|Marketing and selling                                                                               |  |            | 739,221            |            |   | 26,982    |                  
|General and administrative                                                                          |  |            | 250,582            |            |   | 405,395   |                  
|Total operating expenses                                                                            |  |            | 1 208,418          |            |   | 694,536   |                  
|Loss from operations                                                                                |  |            | (1,043,240)        |            |   | (581,835) |                  
|Interest income (expense), net                                                                      |  |            | (12,747)           |            |   | 1,748     |                  
|                                                                                                    |  |            |                    |            |   |           |                  
|Loss before provision for income taxes                                                              |  |            | (1,055,987)        |            |   | (580,087) |                  
|Provision for income taxes                                                                          |  |            | -                  |            |   | -         |                  
|Net loss                                                                                            |  | $          | (1,055,987)        |            | $ | (580,087) |                  
|                                                                                                   
|Net loss per share - basic                                                                          |  | $          | (0.03)             |            | $ | (0.02)    |                  
|                                                                                                   
|Weighted average number of shares - basic                                                           |  | 35,911,672 |                    | 35,910,601 |   |           | 35,911,672       
|                                                                                                   
|The
      accompanying notes are an integral part of these consolidated financial
      statements. |  |            |                    |           

4

---

|XFormity Technologies, Inc. and
      Subsidiary                  |  |                              |                                            |  |                          
|----------------------------------------------------------------- |  | ---------------------------- | ------------------------------------------ |  | -------------------------
|Consolidated Statements of Cash
      Flows                       |  |                              |                                            |  |                          
|                                                                 
|                                                                  |  |                              | (Unaudited)                                |  |                          
|                                                                  |  |                              | Nine Months
      Ended                    |  |                          
|                                                                  |  |                              | March 31,                                  |  |                          
|                                                                 
|                                                                  |  | 2006                         |                                            |  |                          
|Operating activities:                                             |  |                              |                                            |  |                          
|Net loss                                                          |  | $   
            (2,243,544) |                                            |  | $      
      (1,426,227)
|Depreciation                                                      |  |                              | 20,882                                     |  |                          
|Changes in:                                                       |  |                              |                                            |  |                          
|Accounts receivable                                               |  |                              | (27,863)                                   |  |                          
|Prepaid expenses                                                  |  |                              | (8,391)                                    |  |                          
|Other
      assets                                                |  |                              | 754                                        |  |                          
|Accounts payable                                                  |  |                              | 559,346                                    |  |                          
|Accrued expenses                                                  |  |                              | 47,485                                     |  |                          
|Deferred revenue                                                  |  |                              | (8,808)                                    |  |                          
|Accrued customer retention expense                                |  |                              | 725,000                                    |  |                          
|Deferred credits                                                  |  |                              | 10,261                                     |  |                          
|Net cash used in operating
      activities                       |  | (924,878)                    |                                            |  | (1,309,578)              
|                                                                 
|Investing activities:                                             |  |                              |                                            |  |                          
|Cash
      proceeds received upon acquisition of XML-             |  |                              |                                            |  |                          
|Global
      Technologies, Inc.                                   |  |                              | -                                          |  |                          
|Purchases of property and equipment                               |  |                              | (19,300)                                   |  |                          
|Net cash provided by (used in) investing
      activities         |  |                              | (19,300)                                   |  |                          
|                                                                 
|Financing activities:                                             |  |                              |                                            |  |                          
|Issuance of convertible debentures                                |  |                              | 875,000                                    |  |                          
|Retirement of stockholders loans                                 |  |                              | -                                          |  |                          
|Deposits                                                          |  |                              | -                                          |  |                          
|Collection of subscriptions receivable for common stock           |  |                              | -                                          |  |                          
|Advances from XML-Global Technologies, Inc.                       |  |                              | -                                          |  |                          
|Net cash provided by financing
      activities                   |  |                              | 875,000                                    |  |                          
|Increase (decrease) in cash and cash
      equivalents            |  |                              | (69,178)                                   |  |                          
|Cash and cash equivalents, beginning of
      period              |  |                              | 120,767                                    |  |                          
|Cash and cash equivalents, end of
      period                    |  |                              | $       51,589                             |  |                          
|                                                                 
|Supplemental disclosure of cash flow
      information:           |  |                              |                                            |  |                          
|Interest paid                                                     |  |                              | $       
      658                         |  |                          
|Supplemental disclosure of non-cash financing
      and investing |  |                              |                                            |  |                          
|activities                                                        |  |                              |                                            |  |                          
|Acquisition legal
      fees payable, charged to additional paid  |  |                              |                                            |  |                          
|in
      capital                                                  |  |                              | $      
      -                            |  |                          
|Net assets received
      (liabilities assumed) upon acquisition  |  |                              |                                            |  |                          
|of XML-Global
      Technologies, Inc.:                           |  |                              |                                            |  |                          
|Other accounts
      receivable                                   |  |                              | $      
                          
      - |  |                          
|Advances due from XFormity,
      Inc.                            |  |                              | -                                          |  |                          
|Prepaid
      expenses                                            |  |                              | -                                          |  |                          
|Accounts
      payable                                            |  |                              | -                                          |  |                          
|Accrued
      expenses                                            |  |                              | -                                          |  |                          
|                                                                  |  |                              | $       
      -                           |  |                          

5

---



|Part
I
|------



|XFormity Technologies, Inc. and
      SubsidiaryNotes to Consolidated
      Financial StatementsMarch 31, 2006(Unaudited)
|-------------------------------------------------------------------------------------------------------------------------

Note 1. Organization and Nature of
Business.

The reporting entity in these financial
statements is XFormity Technologies, Inc. (a Colorado Corporation) (the Company)
formerly known as XML-Global Technologies, Inc. (XML). In June 2004, XML signed
a letter of intent and then in August 2004 entered into an agreement and plan of
merger with XFormity, Inc. (a Texas Corporation) (XFM). Under the merger
agreement, completed on September 27, 2004, XFM became a wholly-owned subsidiary
of XML and stockholders of XFM received 17,947,984 shares of common stock and
5,869,500 warrants exercisable at $0.26 per share representing 50 percent of the
issued and outstanding shares and warrants of XML.All of those warrants and any pre-existing warrants
expired unexercised on December 31, 2005.In conjunction with the merger, XML, the surviving
legal entity, changed its name to XFormity Technologies, Inc. ("XFormity" or the
"Company") and effected a reverse one-for-four stock split, which has been
reflected retroactively in the financial statements presented. All share and per
share information contained in this report has been adjusted to give effect to
the reverse split.

XFM, based in Dallas, Texas and incorporated as a
private enterprise in June 2002, designs and implements business intelligence
software for large and mid-size companies, with a focus in the quick service
restaurant industry. The quick service restaurant industry may be defined as
restaurants that serve "fast food" ordered and delivered reasonably quickly
either at walk-in counters or drive-through facilities. XFM, along with a
strategic partner, is able to rapidly roll out flexible, extensible solutions to
help their clients streamline the flow of business information. XFM currently
provides its QSRx business intelligence and BPx financial software products to
an existing customer base approximating over 1,000 individual franchisee stores.
A strategic partner provides primary technical support for all of these
customers along with billing and collection services. The Company continues to
pursue business opportunities that if successful would, in the opinion of
management, render the Company viable. There can be no assurance that these
opportunities will result in agreements or profits.

All of the Company's operations during the
reporting periods were conducted within the quick service restaurant industry
and the Company expects to continue to primarily focus its operations in that
industry segment.

The Company has incurred significant losses
resulting in a stockholders' deficit exceeding $3,000,000 at March 31, 2006. The
Company has addressed resulting liquidity issues through the issuance of
convertible debentures that has raised a total of $975,000 in working capital
through

6

---

March 31, 2006. The Company has met with various
institutional and individual investors for the purpose of raising additional
capital. The Company will 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 materially adverse effect on the Company's financial
condition and results of operations.

Note 2. Basis of Financial Statement
Presentation.

The accompanying unaudited condensed 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 financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted in accordance with such rules and
regulations. The information furnished in the interim condensed financial
statements includes normal recurring adjustments and reflects all adjustments
which, in the opinion of management, are necessary for a fair presentation of
such financial statements. Although management believes the disclosures and
information presented are adequate to not make the information misleading, it is
suggested that these interim condensed financial statements be read in
conjunction with the Company's most recent audited financial statements and
notes thereto included in its June 30, 2005 Annual Report on Form 10-KSB.
Operating results for the nine months and three months ended March 31, 2006 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 obtaining
adequate capital to fund operating losses until it becomes profitable. The
accompanying financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.

In order to continue as a going concern and
achieve a profitable level of operations, the Company will need, among other
things, additional capital resources. Managements plans to obtain these capital
resources include raising additional capital through sales of common stock and
convertible debentures, $975,000 of which was raised as of March 31, 2006, and
continuing to develop and market its business intelligence software. However,
management cannot provide any assurances that the Company will be successful in
accomplishing any of its plans.

Note 3. Summary of Significant Accounting
Policies.

Principles of
Consolidation

The consolidated financial statements include the
accounts of XFormity Technologies, Inc. and its wholly-owned operating
subsidiary, XFM. All material inter-company accounts and transactions have been
eliminated in consolidation.



|
|

7

---

**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, as well as the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.

Cash and Cash
Equivalents

All highly liquid investments with a maturity of
three months or less at the time of purchase are considered to be cash
equivalents. Cash equivalents include cash on deposit with banks and money
market funds.

Credit Risk

All trade accounts receivable are deemed
collectible and as such, the Company is not exposed to any significant credit
risk.

Fair Value of Financial
Instruments

The carrying amounts of cash and cash
equivalents, accounts receivable, prepaid expenses, accounts payable, accrued
expenses, convertible debentures and deferred credits reported on the balance
sheet are estimated by management to approximate fair value.

Revenue Recognition

The Company contracts with clients for
development and sale of business intelligence software products. Revenue derived
from the sales of these products, that is billed on a monthly usage basis, is
recognized in accordance with Statement of Position 97-2 (as amended),Software Revenue Recognition, over the term of the agreement or at specific acceptance points.
The Company, in many instances, receives payments from some of its customers in
advance of the month of actual usage of the software product. These funds are
reflected as deferred revenue until the month of usage, or specific acceptance
points, when they are recognized as earned revenue.

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 5 year estimated useful life of the
assets.

Software Development
Costs

The Company capitalizes internally generated
software development costs in accordance with Statement of Financial Accounting
Standards ("SFAS") No.86,Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed. Capitalization of software development costs begins when a
product's technological feasibility is established. Costs incurred for research
and development of products where technological feasibility has not yet been
established are expensed as incurred.

Amortization of capitalized software development
costs begins when the product is available for sale, and is amortized on a
product-by-product basis. The annual amortization amount is the greater of (a)
the straight line method over the remaining estimated economic life of the
product or (b) the ratio of the product's current gross revenue to its total
current and anticipated future gross revenue. Costs eligible for capitalization
have been immaterial for the periods presented.

8

---

In fiscal year 2004, the Company entered into
agreements with seven of its customers("consortium
members") whereby the Company was to develop a "Back-of-the-House" software
program (Everest). The terms of the related agreements also included the
issuance of common stock for cash totaling $700,000 ($100,000 each), certain
consulting services to be provided through 2008 by the consortium members, and
potential credits against future billings of the Everest software program of
$150,000 for each member over a three-year period (a total of $350,000 per year
combined) commencing when and if the program was successfully developed. If the
software program is not completed, only one of the consortium members would be
entitled to apply its credit against the Company's QSRx business intelligence
billings over a four year period (the one consortium member). The agreements
for the other six members did not provide for any form of repayment if
development is not successful. Development of the program was halted in December
2004.

The Company considered the one agreement to
represent a funded software development arrangement underStatement of Position 97-2. Pursuant to
Statement of Financial Accounting Standards No. 68 (As Amended),Research and Development Arrangements,
the Company had recorded a deferred credit liability of $100,000 to reflect the
present value of its obligation to repay the one customer, and paid in capital
of $600,000 representing the estimated fair market value of common stock issued
to the other six members.

In January 2006, the Board of Directors, to
maintain the Companys goodwill with its customers and to raise additional
capital, agreed to offer all of the consortium members, the following options in
exchange for any previous billing credits: (1) a right to receive $150,000 in
QSRx billing credits applied against their monthly QSRx billings at a rate of
25% of the billings commencing July 1, 2006 (or earlier),; or (2) a right to
receive an additional 833,333 shares of XFormity'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 (totaling
$700,000) in 2003.

The one consortium member has elected option (1),
commencing January 1, 2006, effectively changing the terms of his original
agreement described above.  Due to the change in the terms of the
agreement, the Company has adjusted the deferred credits to the present value as
of January 1, 2006 in the additional amount of $10,261 and charged customer
retention expense for the increase and the related interest cost.

One of the remaining six consortium members has also elected
option (1) commencing July 1, 2006, (but has informed the Company he may
reconsider).  The five remaining consortium members have election option
(2).  The shares under this agreement have not been issued as of March 31,
2006 but the charge for these five members plus the other consortium member have
been recognized as customer retention expense (included in marketing and selling
expense) in the amount of $725,000 with a corresponding liability until such
shares are issued.  The determination of the amount was based on the fair
value at the commitment date under SFAS No. 123, *Accounting for Stock-Based
Compensation (Revised 2004)*, 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 Services.



|Note 4.   Income
      Taxes.
|-----------------------------

At March 31, 2006, the Company had net operating
loss carry-forwards totaling approximately $4,400,000 that begin to expire in
2022. No tax benefit has been reported in the March 31, 2006 financial
statements because it is not certain as to whether the Company will be able to
utilize the carry-forwards before they expire. Accordingly, the $1,445,000 tax
benefit of the loss carry-forward has been offset by a valuation allowance of
the same amount. The following are the

9

---



|components of the income tax
      provision:
|---------------------------------------------

|Statement of
      Operations                                           |  |                           |  | Three Months
    Ended |  | Nine
      Months Ended    
|----------------------------------------------------------------------- |  | ------------------------- |  | ---------------------- |  | ---------------------------
|                                                                        |  |                           |  | March
31,              |  |                            
|                                                                        |  |                           |  | 2006                   |  |                            
|                                                                       
|Federal income tax provision
    (benefit)                              |  | $                         |  | (342,000)              |  | $           
      (76,000)
|                                                                       
|Total provision (benefit) for income
      taxes                        |  |                           |  | (342,000)              |  |                            
|                                                                       
|Valuation allowance                                                     |  |                           |  | 342,000                |  |                            
|                                                                        |  |                           |  |                        |  |                            
|Provision for income tax                                                |  | $                         |  | -                      |  | $                          
|                                                                        |  |                           |  |                        |  |                            
|                                                                       
|Balance Sheet at March 31,
      2006                                   |  |                           |  |                        |  |                            
|Deferred tax asset
      arising from net operating loss carry-forwards |  | $               1,445,000 |  |                        |  |                            
|Valuation allowance                                                     |  |                           |  |                        |  |                            
|Net deferred tax asset                                                  |  |                           |  |                        |  |                            
|                                                                        |  |                           |  |                        |  |                            

Note 5.    Accounts
Payable.

Accounts payable represents balances due to trade
creditors and fees for professional services incurred for legal and accounting
issues. Approximately $1,218,000 and $659,000, respectively, are included in the
March 31, 2006 and June 30, 2005 balances that are for legal fees incurred in
the defense of a patent infringement suit filed by a competitor in the QSR
industry (See Note 12.).



|Note 6.    Convertible
      Debentures.
|----------------------------------------

In January 2006, in order to raise additional
capital, the Board of Directors approved a revised term sheet for its
convertible debentures providing (a) an increase in the amount to be raised in
the private placement from $1 million to $2 million; (b) a reduction in the
conversion terms from the lesser of (i) 80% 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 $2,000,000 in cumulative
gross proceeds, or (ii) $0.28 to now 70% or $0.12, respectively; and lastly (c)
the securitization of the debentures with the assets of the Companys wholly
owned subsidiary, XFM. If the investor elects to receive cash in lieu of stock,
that will be payable only at maturity. The term of these debentures, and their
maturity dates, remain one year from date of issuance. The principal amount of
the debentures accrues interest at the rate of 7% per annum. The interest will
be payable at maturity.

The holders of the previous convertible
debentures have exchanged those notes for the new convertible debentures issued
under the revised term-sheet above.

As of March 31, 2006, the Company has issued in
exchange for cash $975,000 of the debentures. Under paragraph 12 of Statement of
Financial Accounting Standards (SFAS) No. 133, none of these issuances to date
have any embedded beneficial conversion features on their respective commitment
dates. The Company has no assurance as to how much in additional
subscriptions

10

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will be received in the private offering. Of the
total issued through the filing date, $750,000 of these convertible debentures
were issued to stockholders who are also customers of the Company and were part
of the original investment group of XFM, $125,000 of the balance was issued to
the Companys then Chief Executive Officer and $100,000 was issued to individual
stockholders, one of whom was also part of the original investment group.
Accrued interest on these debentures was $26,063 at March 31, 2006. There were
no discounts or commissions incurred on the sale of the debentures.



|Note 7.   Loss Per
      Share.
|-------------------------------

Basic loss per share is calculated based on the
weighted-average number of outstanding common shares. Diluted loss per share is
calculated based on the weighted-average number of outstanding common shares
plus the effect of dilutive potential common shares. The Company's calculation
of net loss per share excludes potential common shares as the effect would be
anti-dilutive.



|Note 8.   Stock
      Compensation.
|-----------------------------------

The Company has elected to adopt SFAS No.123Rs
fair-value based method of accounting for share-based payment transactions with
employees. There were no such transaction during the reporting period and thus
no disclosures are required. However, see Note 3 above for stock compensation to
other than employees in conjunction with goods or services.



|Note 9.   1999 Equity
      Incentive Plan.
|-------------------------------------------

On October 19, 1999, the Company adopted the 1999
Equity Incentive Plan (the Plan) to provide incentives to employees, directors
and consultants. Under the Plan, the Company has reserved a total of 1,500,000
shares of common stock for issuance with the maximum term of options being ten
years. On November 13, 2003, the Company's stockholders approved an increase in
the number of shares issuable under the Plan, but the increase has not yet been
implemented. The Board of Directors has the exclusive power over the granting of
options and their vesting provisions. All options granted to date have a
seven-year term.

|                                                           | Nine Months ended March 31,
|---------------------------------------------------------- | ---------------------------
|                                                           | 2006                       
|                                                          
|                                                           |                            
|                                                           | Number                     
|                                                           | of                         
|                                                           | Options                    
|Options outstanding and exercisable at June
      30, 2005 | 25,000                     
|Granted                                                    | -                          
|Exercised                                                  | -                          
|Forfeited                                                  | -                          
|Options outstanding and exercisable March 31,
      2006   | 25,000                     
|                                                           |                            

11

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|Note 10.     Related
      Party Transactions.
|----------------------------------------------

Customers, who are also stockholders in the
Company, generated revenues approximating $82,000 and $246,500 for the three
month and nine month periods ended March 31, 2006 and $73,700 and $191,600 for
those same periods in 2005, respectively. Owners from two of those respective
customers serve as members of the Board of Directors and the Audit Committee. A
senior executive of SEI Information Technology, Inc., the company that provides
the Company's customers with primary technical support and that received
payments approximating $32,200 and $98,400 for the three month and the nine
month periods ended March 31, 2006 and $27,100 and $76,400 for those same
periods in 2005, respectively, also serves as a member of the Board of
Directors.

In the three months and nine months ended March
31, 2006, the Company paid or accrued rent of $3,000 and $9,000, respectively,
to a company controlled by a major stockholder of the Company. The rent included
space and administrative services provided to the Company.



|Note 11.     Lease
      Commitments.
|-------------------------------------

The Company is on a month-to-month lease for
$1,835 at its Dallas location after its lease expired on September 30, 2005.
There were no significant renewal or purchase options and the Company currently
intends to relocate its offices in the Dallas area to provide for expansion when
necessary. The Company also has a month-to-month lease for $1,000 per month at
its Northbrook, Illinois office, which includes administrative
services.



|Note 12.    
      Contingencies.
|---------------------------------

XFormity, Inc., the Companys wholly owned
subsidiary, is the defendant in a civil patent infringement suit filed March 15,
2004. The Plaintiff is seeking royalty damages and an injunction against
XFormity, Inc. The Company believes the litigation is not well founded and is
vigorously defending this position for several reasons: (1) there was no
infringement of the patent by XFormity Inc.; (2) the patent issued to the
plaintiff is invalid; and (3) the patent issued to the plaintiff is
unenforceable. Of the common stock issued to XFormity, Inc. stockholders,
1,470,000 shares having a market value of $500,000 at the date of the merger
have been placed in escrow to cover XFormity, Inc.s potential litigation
liabilities. Both parties have filed motions for summary judgments and the court
has referred these motions back to the Special Master who has previously ruled
in favor of the Companys position.

Under agreements entered into with seven of its
customers (see Software Development Costs under Note 3), the Company agreed to
issue future licensing credits in the aggregate amount of $350,000 per year
($50,000 per consortium member) over a three year period toward future billings
of a software program when and if the project is completed. Development of the
program was halted in December 2004.

In January 2006, the Board of Directors, to
maintain the Companys goodwill with its customers and to raise additional
capital, agreed to offer all of the consortium members, the following options in
exchange for any previous billing credits: (1) a right to receive $150,000 in
QSRx billing credits applied against their monthly QSRx billings at a rate of
25% of the billings commencing July 1, 2006 (or earlier),; or (2) a right
to receive an additional 833,333 shares of

12

---

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 (totaling
$700,000)in 2003.

The one consortium member has elected option (1),
commencing January 1, 2006 effectively changing the terms of his original
agreement described above.   Due to the change in the terms of the
agreement, the Company has adjusted the deferred credits to the present value as
of January 1, 2006 in the additional amount of $10,261 and charged customer
retention expense for the increase and the related interest cost.

One of the remaining six consortium members has
also elected option (1) commencing July 1, 2006 (but has informed the Company he
may reconsider). The five remaining consortium members have elected option
(2).  The shares under this agreement have not been issued as of March 31,
2006 but the charge has been recognized as customer retention
expense (included in marketing and selling expense) in the amount of
$725,000 with a corresponding liability until such shares are issued. The
determination of the amount was based on the fair value at the commitment date
under SFAS No. 123, *Accounting for Equity Instruments That Are Issued*and Emerging Task Force  96-18, *Accounting for Equity
Instruments That Are Issued.*To Other Than Employees for Acquiring,
or in Conjunction with Selling, Goods or Services.

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

The Company believes its critical accounting
policies for the period July 1, 2005 to March 31, 2006 are revenue recognition,
software development costs and accounting for research and development expenses
under accounting principles generally accepted in the United States and that
they are adhered to in the accompanying consolidated financial
statements.



|FORWARD LOOKING
  STATEMENTS
|----------------------------

When used in this Quarterly Report on Form
10-QSB, 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-QSB. 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.

13

---

RESULTS OF OPERATIONS

REVENUE. The
Company contracts with its clients for development and sale of business
intelligence software, primarily its QSRx software product that is billed on a
monthly basis to its customers respective franchise locations. For the nine
months ended March 31, 2006, the Company generated $516,939 in revenue compared
to $284,076 in the comparative period in the prior year. In the current quarter,
the Company generated $165,178 in revenue compared to $112,701 in the
comparative period of the prior year. The increase in revenue in the current
quarter and year to date is attributable to an increased number of customers and
professional consulting services billed to a customer and an outside
party.

COST OF REVENUE.
The cost of revenue for the nine months and three months ended March 31, 2006
consists primarily of personnel, related payroll costs and technical support
costs to our customers. During the current quarter, we added additional
franchisees to our customer base that increased the technical support costs
proportionately. Other costs include travel, data hosting services,
telecommunication costs and depreciation of computer equipment used in the
maintenance and processing of customers' data. The costs for the nine month
period ended March 31, 2006 were $319,407 compared to $311,906 in the
comparative period of the prior year. The minimal increase is attributed to
reduced salaries and fewer personnel, reduced outside contract services offset
by increased data hosting and polling expenses for our Dominos customers. The
costs in the three month period ended March 31, 2006 were $83,102 compared to
$120,202 in the comparative period of the prior year. The primary reasons for
the decrease over the prior years quarter were decreased payroll and related
costs and the reduction of outside contract services.

RESEARCH AND DEVELOPMENT. Research and development costs are charged to operations as
incurred and consist primarily of personnel and related benefit costs. The costs
for the nine month period ended March 31, 2006 were $401,593 compared to
$429,971 in the comparative period of the prior year and primarily decreased due
to reduced salaries and fewer personnel. The costs for the three month period
ended March 31, 2006 were $135,513 compared to $141,957 in the comparative
period of the prior year. This decrease was also primarily due to less
personnel. 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 quick service restaurant market.

MARKETING AND SELLING. The marketing and selling expenses incurred by the Company consist
of marketing services provided by SEI Customer Care, Inc. and direct selling
expenses related to business development. The costs for the nine month period
ended March 31, 2006 were $764,235 compared to $97,071 in the comparative period
of the prior year and included $737,410 for customer retention as part of the
adjustment of the deferred credits and the agreement with the consortium
members. The costs for the three month period ended March 31, 2006 were $739,221
compared to $26,982 in the comparative period of the prior year and included the
adjustment of the deferred credits and the agreement with the consortium
members. In the prior years periods, the Company incurred sales and marketing
costs from an outside vendor that were discontinued in the last half of fiscal
year ended June 30, 2005. For the current fiscal year, the Company

14

---

continues to rely on its relationship with
existing clients to expand its market share, and did not incur any significant
direct sales costs for this period.

GENERAL AND ADMINISTRATIVE. Our general and administrative costs consist primarily of executive
salaries and related benefits, professional fees for attorneys, patent
litigation and our independent auditor, rent, expenses related to being a public
company and other operating costs. The costs for the nine month period ended
March 31, 2006 were $1,249,973 compared to $875,155 in the comparative period of
the prior year. The costs for the three month period ended March 31, 2006 were
$250,582 compared to $405,395 in the comparative period of the prior year. The
increase for the nine month period was primarily attributable to the patent
litigation and legal fees of approximately $429,000, and insurance costs of
approximately $12,000, offset by reduced executive compensation of $66,000. The
decrease for the three month period was attributable to the lower legal fees
paid in conjunction with our defence of the patent litigation
lawsuit.

NET LOSS.The net
loss for the nine month and three month periods ended March 31, 2006 were
$2,243,544 and $1,055,987 respectively, compared with a net loss of $1,426,227
and $580,087 for the comparative periods in 2005. The increases in the net
losses were primarily the result of customer retention expenses, higher
insurance costs, increased data hosting and polling expenses for our Dominos
customers offset by lower legal fees attributable to the patent infringement
litigation, reductions in executive compensation, development personnel and
salesand marketing costs.

The net loss applicable to common stockholders
for the nine months and three months ended March 31, 2006 was $2,243,544 and
$1,055,987 respectively, or $0.06 and $0.03 per common share, on 35,911,672
weighted average common shares outstanding for both periods. This compares with
the net loss available to common stockholders for the nine month and three month
periods ended March 31, 2005 of $1,426,227 and $580,087, respectively, or $0.05
and $0.02 per share, on 30,070,955 and 35,910,601 weighted average common shares
outstanding.

LIQUIDITY AND CAPITAL
RESOURCES

The Company has incurred operating losses and
negative cash flows from operations in each quarter since it commenced
operations. As of March 31, 2006, there was an accumulated deficit of $5,995,823
and our cash position is $51,589. The Company does not expect to generate
operating earnings in the current fiscal year and not until it achieves a
substantial customer base and related revenues necessary to cover its
operational costs.

In January 2006, to raise additional capital, the
Board of Directors approved a revised term sheet for its convertible debentures
providing (a) an increase in the amount to be raised in the private placement
from $1 million to $2 million; (b) a reduction in the conversion terms from the
lesser of (i) 80% 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 $2,000,000 in cumulative gross proceeds, or
(ii) $0.28 to now 70% or $0.12, respectively; and lastly (c) the securitization
of the debentures with the assets of the Companys wholly owned subsidiary XFM.
If the investor elects to receive cash in lieu of stock, that will be payable
only at maturity. The term of these debentures, and their maturity dates, remain
one year from date of issuance. The principal amount of the debentures accrues
interest at the rate of 7% per annum. The interest

15

---

will be payable at maturity. There can be no
assurance how much in subscriptions will ultimately be received in this private
offering.

The Company will 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, stockholders may experience dilution of their ownership
interest 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 materially adverse effect on the Company's financial
condition and results of operations.



|SUBSEQUENT
  EVENTS
|-------------------

In April 2006, the Company entered into an
agreement with a major franchisor in the quick service restaurant industry to
provide its QSRx business solution to all of the franchisors corporate stores.
Terms of the agreement, among others, include consulting fees for the
development of the interface between the customers stores and our QSRx software
with completion scheduled by June 30, 2006. Thereafter, approximately 875 stores
will be brought on line and billed on a monthly basis commencing in our first
quarter of fiscal year 2007. The revenue from this customer will increase
monthly cash flow by approximately $43,000 per month.

In April 2006, Mark Haugejorde resigned from the
Company as a Director and Chief Executive Officer and Christopher Ball, the
Chief Operating Officer of the Company, upon election by the Board of Directors,
has assumed the title and responsibilities of both positions. The Company
entered into an agreement with Mr. Haugejorde that includes payment of one half
years salary and continuation of health care benefits payable over nine months.
This expense will be charged to operations in April 2006.

ITEM 3. CONTROLS AND
PROCEDURES

The Company's Principal Executive Officer,
Christopher Ball, and Principal Financial Officer, Jack Rabin, have established
and are currently maintaining disclosure controls and procedures for the
Company. The disclosure controls and procedures have been designed to give
reasonable assurance that the information required to be disclosed by the
Company in reports that it files under the Exchange Act is recorded, processed,
summarized and reported within the time periodsspecified in the rules and forms of the SEC.

The Principal Executive Officer and Principal
Financial Officer conducted a review and evaluation of the effectiveness of the
Company's disclosure controls and procedures and have concluded with a
reasonable assurance level, based on their evaluation as at the end of the
period covered by this Report, that the Companys disclosure controls and
procedures are effective to ensure that information required to be disclosed in
the reports that we file or submit under the Exchange Act is accumulated and
communicated to management, including our Principal Executive Officer and our
Principal Financial Officer, to allow timely decisions regarding required
disclosure and we refer you to Exchange Act Rule 13a-15(e). There have been no
significant changes in our internal controls or in other factors that could
materially affect these controls over our financial reporting subsequent to the
date of the previously mentionedevaluation.

16

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|PART II - OTHER INFORMATIONITEM 1. LEGAL
      PROCEEDINGS
|----------------------------------------------------------

Our wholly-owned subsidiary, XFormity, Inc., is a
defendant in a civil action brought by a competitor, as Plaintiff, in the United
States District Court for the Northern District of Texas, Dallas Division, Civil
Action No. 304CV-542-D (the "Litigation"). In the Litigation, the Plaintiff
claims that XFormity has infringed upon a patent owned by the plaintiff.
XFormity denies liability and continues to vigorously defend the matter. Of the
common stock issued toXFormity, Inc. stockholders,
1,470,000 shares having a market value of $500,000 at the date of the merger
have been placed in escrow to cover XFormity, Inc.s potential litigation
liabilities.

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

ITEM 2. UNREGISTERED SALES OF SECURITIES AND
USE OF PROCEEDS

In connection with the acquisition of XML by
XFormity that was consummated on September 27, 2004, we issued to the former
shareholders of XFormity an aggregate of 17,947,984 shares of common stock and
warrants exercisable to purchase an additional 5,869,500 shares of common stock
at an exercise price of $0.26 per share. The securities were issued to a total
of 25 former XFormity shareholders, 20 of which 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"), and the other five of
whom possessed the knowledge and experience in financial and business matters
required under Rule 506(b)(2)(ii) of Regulation D. The securities were issued
without registration under the Securities Act in reliance upon the exemption
from the registration requirements thereof contained in Section 4(2) and
Regulation D, Rule 506 thereunder. The securities were all taken for investment
and were subject to appropriate restrictions on transfer.

Under an initial offering in May 2005, the
Company authorized the sale and issuance of up to $1,000,000 in convertible
debentures. Those securities were issued to five current shareholders of
XFormity Technologies, Inc. in the amount of $450,000. In January 2006, the
Company increased the authorized amount to $2,000,000 and has sold additional
debentures in the aggregate amount of $525,000. (See Note 6 Convertible
Debentures for the terms) The Securities were sold to eight (8) 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 an aggregate of eight accredited investors who have participated in
the offering. The sale 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.

17

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ITEM 3. DEFAULT UPON SENIOR
SECURITIES

Not applicable.

ITEM 4. SUBMISSION 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 March 31, 2006.

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON Form
8-K

Exhibits

|31. | Certification                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------
|   
|32. | Certification pursuant to USC Section
      1350                                                                                
|   
|    | Reports on 8-K                                                                                                                  
|   
|1.  | Current Report on Form 8-K, Item 3.02,
      dated January 12, 2006, as filed with the Commission on January 27,
      2006     
|   
|2.  | Current Report on Form 8-K, Item 7.01
      and 9.01, dated March 3, 2006, as filed with the Commission on March 6,
      2006  
|   
|3.  | Current Report on Form 8-K, Item 5.02
      and 9.01, dated April 25, 2006, as filed with the Commission on April 27,
      2006
|   
|4.  | Current Report on Form 8-K, Item 5.02,
      dated May 4, 2006, as filed with the Commission on May 10, 2006                    
|   

18

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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.

|      |  |                    |  | XFormity
      Technologies, Inc.
|----- |  | ------------------ |  | ---------------------------------
|     
|Date: |  | May 22,
      2006 |  | /s/
      Christopher Ball       
|      |  |                    |  | Christopher
      Ball           
|      |  |                    |  | Chief Executive
      Officer    
|     
|Date: |  | May 22,
      2006 |  | /s/
      Jack
      Rabin       
|      |  |                    |  | Jack
      Rabin                 
|      |  |                    |  | Chief Financial
      Officer    

19

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