Summary of XFORMITY TECHNOLOGIES, INC.

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-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.

RESULTS OF OPERATIONS

REVENUES. 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, 2007, the Company generated $803,884 in revenues compared to $516,939 in the comparative period in the prior year. In the current quarter, the Company generated $287,953 in revenues compared to $165,178 in the comparative period of the prior year. The increase in revenue in the current quarters is primarily attributable to an implementation of 875 new Burger King Corporate stores and selective price increase per the contract.

COST OF REVENUES. The cost of revenue for the nine months and three months ended March 31, 2007 consists primarily of personnel, related payroll costs and technical support costs to our customers. During the current quarters, we added additional franchisees to our customer base that did not increase the technical support costs. Other costs include travel, data hosting services and decreased 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, 2007 were $398,425 compared to $319,407 in the comparative period of the prior year. The costs in the three month period ended March 31, 2007 were $124,617 compared to $83,102 in the comparative period of the prior year. The increase is attributable to the allocation of our personnel and related costs based on their actual time incurred in operations. All of the other operational costs remained fairly constant or decreased except for the additional cost of license fees of $15,124 attributable to the patent infringement suit settled with b-50.com. That amount will be issued in common stock under the terms of the license fee agreement. Effective January 2007, the Company terminated its technical support agreement with SEI and brought technical support and billings and collection in house. As part of the termination of the support agreement, we agreed to pay SEI the sum of $20,000, payable in five equal monthly payments of $4,000 each.

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, 2007 of $255,130 compared to $401,593 in the comparative period of the prior year primarily decreased due to fewer personnel and the reallocation of personnel and their related costs. The costs for the three month period ended March 31, 2007 were $79,246 compared to $135,513 in the comparative period of the prior year. This decrease was also primarily due to less personnel and the allocation of personnel and their related costs. 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 in the current year include the payroll, related costs and expenses of a sales and marketing director, the addition of an outside sales consultant and the allocation of personnel and related costs based on time incurred in this respective category. The Company incurred additional costs for marketing at trade shows and marketing materials. The costs for the nine month period ended March 31, 2007 were $202,219 compared to $764,235 in the comparative period of the prior year. The costs for the three month period ended March 31, 2007 were $56,748 compared to $739,221 in the comparative period of the prior year. The charge for $725,000 in the third quarter fiscal 2006 reflects the customer retention expense incurred under the consortium agreement as stated in Note 3 Consortium Transactions above. For the current fiscal year, the Company expects to expand its customer base through direct sales, referrals from its relationship with existing clients and resellers of related software products in the quick service restaurant industry.

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, 2007 were $605,058 compared to $1,249,973 in the comparative period of the prior year. The costs for the three month period ended March 31, 2007 were $95,936 compared to $250,582 in the comparative period of the prior year. The decrease for the nine months and three month periods was primarily attributable to the elimination of the cost of a former Company executive and his related costs and expenses, the allocation of executive compensation to operations and marketing based on the time incurred in those respective categories, and reduced patent litigation and professional fees.

INTEREST EXPENSE. Interest expense for the nine months and three months ended March 31, 2007 consists primarily of the amortization of the discount of the beneficial conversion feature in the convertible debentures of $452,026 and $111,667, respectively, the accrual on the convertible debentures of $80,520 and $28,449, respectively, the interest incurred on the deferred credits of $7,174 and $2,505, respectively, the accrual for interest on the loan payable of $2,917 and $1,750 offset by interest earned on cash equivalents during the periods. Interest for the nine months and three months ended March 31, 2006 consisted of the amortization of the discount of the beneficial conversion feature in the convertible debentures of $67,843 (all of which was incurred in the current quarter), the accrual on the convertible debentures of $28,312 and $18,857, the interest incurred on the deferred credit of $926 and offset by interest earned on cash equivalents during the periods.

NET LOSS. The net loss for the nine month and three month periods ended March 31, 2007 was $1,197,713 and $212,616 respectively, compared with a net loss of $2,311,386 and $1,123,829 for the comparative periods in 2006. The decrease in the net loss for the nine months ended March 31, 2007 was primarily the result of no customer retention expense, the additional revenue from the Burger King corporate account, reduced executive compensation and the related costs thereof, and reduced litigation and professional fees offset by increased marketing and selling expenses. The decrease in the net loss for the three months ended March 31, 2007 compared to the comparative period in the prior year was due to the items listed above.

The net loss applicable to common stockholders for the nine months and three months ended March 31, 2007 was $1,197,713 and $212,616 respectively, or $0.03 and $0.01 per common share, on 40,078,337 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, 2006 of $2,311,386 and $1,123,829, respectively, or $0.06 and $0.03 per share, on 35,911,672 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, 2007, there was an accumulated deficit of $8,019,542 and our cash position is $64,109. 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, XFormity, Inc. 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. There can be no assurance how much in subscriptions will ultimately be received in this private offering.

As of March 31, 2007, an aggregate of $1,512,000 in principal amount of convertible debentures and $127,689 in accrued and unpaid interest matured and became due and owing. In February 2007, the Board of Directors of the Company approved a plan, amended in April 2007, to offer the convertible debenture holders' a modification of the debentures under the following terms:

· the maturity date of the debentures would be extended to January 31, 2008;

· the effective interest rate becomes 9%

· the accrued interest under the debentures would be added to outstanding and unpaid principal;

· any debenture holder that elects to convert the principal and accrued and unpaid interest of their debenture into shares of common stock would be granted, at the time of conversion, for every four shares received in the conversion: one warrant exercisable until January 31, 2009 to purchase one share of common stock at an exercise price of $0.14 per share and one warrant exercisable until January 31, 2010 to purchase one additional share of common stock at an exercise price of $0.18 per share;

As of the date of this Report, a majority of the debenture holders elected to convert $1,089,500 of the outstanding notes plus the accrued interest on their notes in the amount of $63,132into shares of the Company's common stock resulting in an issuance of 9,605,284 shares. In conjunction with their exercise, these debenture holders received 1 warrant for each 4 shares of common stock received, for a total of 2,401,321, exercisable at $0.14 per share, expiring on January 31, 2009; and 1 warrant for each 4 shares of common stock received, for a total of 2,401,321, exercisable at $0.18 per share, expiring on January 31, 2010. If all of the remaining debenture holders elected to convert their notes into shares of the Company's common stock, the Company would be required to issue an additional 4,446,961 shares.

The Company is obligated to its patent counsel in the amount of $1,579,000. The Company is currently attempting to negotiate a settlement payable over a reasonable period of time within the operating parameters of the Company's projected cash flow. If there is no favourable resolution to this matter, it could have a material effect on the continued operation of the Company.

Under the terms of the 2006 and 2007 Secured Debentures, all of the Company's assets are pledged as security for payment of those outstanding obligations and subject to forfeiture if the Company defaults on them.

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.