**UNITED      STATES**

**Washington,      D.C. 20549**

----

----

**FORM      10-QSB**

**Commission      file number 000-27507**

**AUXILIO,      INC.**

**Nevada**
**88-0350448**

**27401      Los Altos, Suite 100**

**Mission      Viejo, California 92691**

**(949)      614-0700**

|         Yes   | X |  No |   |
|-----------------------------------------------------------------|---|----------|--------|

|         Yes   |   |  No | X |
|-----------------------------------------------------------------|--------|----------|---|

|         Yes  |   |  No | X |
|-----------------------------------------------------------|--------|----------|---|

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**AUXILIO,      INC.**

**FORM      10-QSB**

**TABLE      OF CONTENTS**

**PART      I - FINANCIAL INFORMATION**

|                                                  |                                                                                                                                                      |                                                                                                                      |
|--------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------|
|                                             |                                                                                                                                                      |                                                                                                                      |
|                                             |                                                                                                                                                      |                                                                                                                      |
|     Item                  1. | Financial                  Statements (Unaudited):                                                                                                        | Page                                                                                                                      |
|                                             |                                                                                                                                                      |                                                                                                                      |
|                                             | Condensed                  Consolidated Balance Sheet as                  of September 30, 2006                                                           |                                                                                                                      |
|                                             | 3                                                                                                                                                         |
|                                             |                                                                                                                                                      |                                                                                                                      |
|                                             | Condensed                  Consolidated Statements of Operations for the Three                  and Nine Months Ended September 30, 2006 and 2005    |                                    4 |
|                                             |
|                                             |                                                                                                                                                      |                                                                                                                      |
|                                             | Condensed                  Consolidated Statements of Comprehensive Loss for the                  Three and Nine Months Ended September 30, 2006 and 2005 |  5                                                                                                                   |
|                                             |                                                                                                                                                      |
|                                             |                                                                                                                                                      |                                                                                                                      |
|                                             | Condensed                  Consolidated Statement of Stockholders’ Equity for                  the Nine Months Ended September 30, 2006             | 6                                                                                                                         |
|                                             |                                                                                                                                                      |
|                                             |                                                                                                                                                      |                                                                                                                      |
|                                             | Condensed                  Consolidated Statements of Cash Flowsfor                  the Nine Months Ended September 30, 2006 and 2005                    |  7                                                                                                                   |
|                                             |                                                                                                                                                      |
|                                             |                                                                                                                                                      |                                                                                                                      |
|                                             | Notes                  to Condensed Consolidated Financial Statements                                                                                     | 9                                                                                                                         |
|                                             |                                                                                                                                                      |                                                                                                                      |
| Item                  2.                         | Management's                  Discussion and Analysis or Plan of                  Operation                                                               | 14                                                                                                                        |
|                                             |                                                                                                                                                      |                                                                                                                      |
| Item                  3.                         | Controls                  and Procedures.                                                                                                                 | 21                                                                                                                        |
|                                             |                                                                                                                                                      |                                                                                                                      |
| **PART                  II - OTHER INFORMATION** |                                                                                                                                                      |                                                                                                                      |
|                                             |                                                                                                                                                      |                                                                                                                      |
| Item                  1.                         | Legal                  Proceedings.                                                                                                                       | 22                                                                                                                        |
|                                             |                                                                                                                                                      |                                                                                                                      |
| Item                  2.                         | Unregistered                  Sales of Equity Securities and Use of                  Proceeds.                                                            | 22                                                                                                                        |
|                                             |                                                                                                                                                      |                                                                                                                      |
| Item                  3.                         | Defaults                  Upon Senior Securities.                                                                                                         | 22                                                                                                                        |
|                                             |                                                                                                                                                      |                                                                                                                      |
| Item                  4.                         | Submission                  of Matters to a Vote of Security Holders.                                                                                     | 22                                                                                                                        |
|                                             |                                                                                                                                                      |                                                                                                                      |
| Item                  5.                         | Other                  Information.                                                                                                                       | 22                                                                                                                        |
|                                             |                                                                                                                                                      |                                                                                                                      |
| Item                  6.                         | Exhibits.                                                                                                                                                 | 22                                                                                                                        |
|                                             |                                                                                                                                                      |                                                                                                                      |
|                                             |                                                                                                                                                      |                                                                                                                      |
| Signatures.                                      |                                                                                                                                                      | 23                                                                                                                        |

----

** **
**PART      I - FINANCIAL INFORMATION**

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

| **AUXILIO,                INC. AND SUBSIDIARIES**                                                 |                                       |
|---------------------------------------------------------------------------------------------------|--------------------------------------------|
| **CONDENSED                CONSOLIDATED BALANCE SHEET**                                           |                                       |
| **SEPTEMBER                30, 2006**                                                             |                                       |
| **(UNAUDITED)**                                                                                   |
|                                                                                              |
| **ASSETS**                                                                                        |                                       |
| **Current                assets:**                                                                |                                       |   |   |  |
|                  Cash and cash equivalents                                                   |                                       |   |  $ | 642,604 |
|                  Accounts receivable, net                                                    |         |   |   | 1,663,145 |
|                  Prepaid and other current assets                                            |                                       |   |   | 20,605 |
|                  Supplies                                                                    |                                       |   |   | 450,533 |
| **Total                current assets**                                                           |                                       |   |   | 2,776,887 |
|                                                                                              |                                       |   |   |  |
| **Property                and equipment, net**                                                    |                                       |   |   | 298,139 |
| **Deposits**                                                                                      |                                       |   |   | 28,790 |
| **Loan                acquisition costs, net**                                                    |                                       |   |   | 415,459 |
| **Intangible                assets, net**                                                         |                                       |   |   | 492,940 |
| **Goodwill**                                                                                      |                                       |   |   | 1,517,017 |
| **Total                assets**                                                                   |                                       |   |  $ | 5,529,232 |
|                                                                                              |                                       |   |   |  |
| **LIABILITIES                AND STOCKHOLDERS' EQUITY**                                           |
|                                                                                              |                                       |   |   |  |
| **Current                liabilities:**                                                           |                                       |   |   |  |
|                  Accounts payable and accrued expenses                                       |                                       |   |  $ | 1,378,449 |
|                  Accrued compensation and benefits                                           |                                       |   |   | 325,502 |
|                  Deferred revenue                                                            |                                       |   |   | 306,058 |
|                  Current portion of long-term debt                                           |                                       |   |   | 616,626 |
|                  Current portion of capital lease obligations                                |                                       |   |   | 51,953 |
| **                   Total current liabilities**                                   |                                       |   |   | 2,678,588 |
|                                                                                              |                                       |   |   |  |
| **Note                payable, less current portion, net of discount of                $240,646** |                                       |   |   | 2,031,077 |
|                                                                                              |                                       |   |   |  |
| **Commitments                and contingencies**                                                  |                                       |   |   | **-** |
|                                                                                              |                                       |                                                                                                  |   |  |
| **Stockholders'                equity:**                                                          |                                       |   |   |  |
|                  Common stock, par value at $0.001, 33,333,333 shares                        |                                       |   |   |  |
|                   authorized, 16,122,809 shares issued and outstanding                  |                                       |   |   | 16,124 |
|                  Additional paid-in capital                                                  |                                       |   |   |  16,141,099 |
|                Accumulated deficit                                                           |                                       |   |   | (15,537,656) |
| **                   Total stockholders' equity**                                  |                                       |   |   | 819,567 |
| **                   Total liabilities and stockholders' equity**                  |                                       |   |  $ | 5,529,232 |

----

| **AUXILIO,                INC. AND SUBSIDIARIES**                    |
|----------------------------------------------------------------------|
| **CONDENSED                CONSOLIDATED STATEMENTS OF OPERATIONS**   |
| **(UNAUDITED)**                                                      |
|                                                                 |
|                                                                 |   | **Three                Months** |   | **Nine                Months** |
|                                                                 |   | **Ended                September 30,** |   | **Ended                September 30,** |
|                                                                 |   | **2006** |   | **2005** |   | **2006** |   | **2005** |
| **Revenues**                                                         |   $ | 2,858,092 |                $ | 999,005 |                $ | 7,374,424 |                $ | 3,020,932 |
|                                                                 |   |   |   |   |   |   |   |   |
| **Cost                of revenues**                                  |   | 2,378,936 |   | 693,594 |   | 6,713,305 |   | 2,357,233 |
|                                                                 |   |   |   |   |   |   |   |   |
| **Gross                profit**                                      |   | 479,156 |   | 305,411 |   | 661,119 |   | 663,699 |
|                                                                 |   |   |   |   |   |   |   |   |
| **Operating                expenses:**                               |   |   |   |   |   |   |   |   |
|                  Sales and marketing                            |   | 510,181 |   | 452,110 |   | 1,512,065 |   | 1,360,285 |
|                  General and administrative expenses            |   | 542,663 |   | 586,949 |   | 1,736,535 |   | 1,597,041 |
|                  Intangible asset amortization                  |   | 63,802 |   | 93,368 |   | 191,405 |   | 280,105 |
| **                    Total operating expenses** |   | 1,116,646 |   | 1,132,427 |   | 3,440,005 |   | 3,237,431 |
|                                                                 |   |   |   |   |   |   |   |   |
| **Loss                from operations**                              |   | (637,490) |   | (827,016) |   | (2,778,886) |   | (2,573,732) |
| **Other                income (expense):**                           |   |   |   |   |   |   |   |   |
|                  Interest expense                               |   | (141,788) |   | (1,164) |   | (360,793) |   | (73,720) |
|                  Interest income                                |   | 8,750 |   | 11,865 |   | 27,494 |   | 25,376 |
|                  Gain (loss) on sale of marketable securities   |   | - |   | (52,728) |   | 10,448 |   | 309,333 |
|                  Loss on disposal of fixed assets               |   | - |   | (8,225) |   | - |   | (8,225) |
|                    Total other income (expense)       |   | (133,038) |   | (50,252) |   | (322,851) |   | 252,764 |
|                                                                 |   |   |   |   |   |   |   |   |
| **                 Loss before provision for income taxes**     |   | (770,528) |   | (877,268) |   | (3,101,737) |   | (2,320,968) |
|                                                                 |   |   |   |   |   |   |   |   |
| **Income                tax expense**                                |   | - |   | - |   | (2,400) |   | (3,200) |
|                                                                 |   |   |   |   |   |   |   |   |
| **Net                loss**                                          |  $ | (770,528) |  $ | (877,268) |  $ | (3,104,137) | $  | (2,324,168) |
|                                                                 |   |   |   |   |   |   |   |   |
| **Net                loss per share:**                               |   |   |   |   |   |   |   |   |
| **                 Basic**                                      |  $ | (0.05) |  $ | (0.05) |  $ | (0.19) |                   $ | (0.15) |
| **                 Diluted**                                    |   $ | (0.05) |  $ | (0.05) |  $ | (0.19) | $  | (0.15) |
|                                                                 |   |   |   |   |   |   |   |   |
| **Number                of weighted average shares:**                |   |   |   |   |   |   |   |   |
| **                 Basic**                                      |   | 16,122,809 |   | 16,059,010 |   | 16,060,640 |   | 15,498,157 |
| **                 Diluted**                                    |   | 16,122,809 |   | 16,059,010 |   | 16,060,640 |   | 15,498,157 |

----

| **AUXILIO,                INC. AND SUBSIDIARIES**                            |
|------------------------------------------------------------------------------|
| **CONDENSED                CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS**   |
| **(UNAUDITED)**                                                              |
|                                                                         |   |   |   |   |   |   |   |   |
|                                                                         |   | **Three                Months** |   | **Nine                Months** |
|                                                                         |   | **Ended                September 30,** |   | **Ended                September 30,** |
|                                                                         |   | **2006** |   | **2005** |   | **2006** |   | **2005** |
|                                                                         |   |   |   |   |   |   |   |   |
| **Net                loss**                                                  |   $ | (770,528) |   $ | (877,268) |   $ | (3,104,137) |   $ | (2,324,168) |
|                                                                         |   |   |   |   |   |   |   |   |
| **Unrealized                gain on marketable securities**                  |   | - |   | 6,500 |   | - |   | 6,500 |
| **Reclassification                of realized amounts included in net loss** |   | - |   | - |   | - |   |                  (222,210) |
|                                                                         |   |   |   |   |   |   |   |   |
| **Total                other comprehensive income (loss)**                   |   | - |   | 6,500 |   | - |   | (215,710) |
|                                                                         |   |   |   |   |   |   |   |   |
| **Comprehensive                loss**                                        |   $ | (770,528) |                $ | (870,768) |   $ | (3,104,137) |  $ |  (2,539,878) |

----

| **AUXILIO,                INC. AND SUBSIDIARIES**                                                                                     |
|---------------------------------------------------------------------------------------------------------------------------------------|
| **CONDENSED                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY**                                                           |
| **NINE                MONTHS ENDED SEPTEMBER 30, 2006**                                                                               |
| **(UNAUDITED)**                                                                                                                       |
|                                                                                                                                  |
|                                                                                                                                  |   |   |   |   |   |   |   |   |   |
|                                                                                                                                  |   |   |   |   | **Additional** |   |   |   | **Total** |
|                                                                                                                                  | **Common                Stock** |   | **Paid-in** |   | **Accumulated** |   | **Stockholders'** |
|                                                                                                                                  | **Shares** |   | **Amount** |   | **Capital** |   | **Deficit** |   | **Equity** |
| Balance                at December 31, 2005                                                                                           | 15,961,410 |  $ | 15,963 |  $ | 15,190,416 |  $ | (12,233,519) | $  | 2,972,860 |
| Common                stock issued for services                                                                                       | 3,538 |   | 3 |   | 4,950 |   | - |   | 4,953 |
| Relative                fair value of warrants issued related to revolving loan                payable                                | - |   | - |   | 85,079 |   | - |   | 85,079 |
| Stock                issued for services rendered in connection with procurement of note                payable                       | 45,861 |   | 46 |   | 69,954 |   | - |   | 70,000 |
| Relative                fair value of warrants issued related to convertible loan                payable                              | - |   | - |   | 340,188 |   | - |   | 340,188 |
| Cashless                exercise of warrants to stock                                                                                 | 112,000 |   | 112 |   | (112) |   | - |   | - |
| Stock                compensation expense for options and warrants granted to employees                and                consultants | - |   | - |   | 450,624 |   | - |   | 450,624 |
| Net                loss                                                                                                               | - |   | - |   | - |   | (3,104,137) |   |                     (3,104,137) |
| Balance                at September 30, 2006                                                                                          | 16,122,809 |  $ | 16,124 |  $ | 16,141,099 |  $ | (15,337,656) |  $  | 819,567 |

----

| **AUXILIO,                INC. AND SUBSIDIARIES**                                         |
|-------------------------------------------------------------------------------------------|
| **CONDENSED                CONSOLIDATED STATEMENTS OF CASH FLOWS**                        |
| **(UNAUDITED)**                                                                           |
|                                                                                      |   |   |   |   |   |
|                                                                                      |   |   |   |   | **Nine                Months Ended** **September                30,** |
|                                                                                      |   |   |   |   | **2006** |   | **2005** |
| **Cash                flows used for operating activities:**                              |   |   |   |   |
|                                                                                      | Net                loss |  $ | (3,104,137) |   $  | (2,324,168) |   |
| **Adjustments                to reconcile net loss to net cash**                          |   |   |   |   |
| **used                for operating activities:**                                         |   |   |   |   |
|                                                                                      | Depreciation |   | 89,690 |   | 61,255 |
|                                                                                      | Amortization                of intangible assets |   | 191,405 |   | 280,105 |
|                                                                                      | Stock                compensation expense for warrants and options issued to employees                and                consultants |   | 450,624 |   | 18,200 |
|                                                                                      | Stock                issued for services |   | 4,953 |   | - |
|                                                                                      | Gain                on sale of marketable securities |   | (10,448) |   | (309,333) |
|                                                                                      | Loss                on disposition of property and equipment |   | - |   | 8,225 |
|                                                                                      | Interest                expense related to amortization of warrants issued for                loans |   | 126,836 |   | 58,029 |
|                                                                                      | Interest                expense related to amortization of loan acquisition costs |   | 79,244 |   | - |
| **Changes                in operating assets and liabilities:**                           |   |   |   |   |
|                                                                                      | Accounts                receivable and other receivables |   | (1,174,321) |   | (5,812) |
|                                                                                      | Supplies |   | (6,956) |   | 47,866 |
|                                                                                      | Prepaid                and other current assets |   | 70,760 |   | (12,606) |
|                                                                                      | Deposits |   | 12,565 |   | 15,040 |
|                                                                                      | Accounts                payable and accrued expenses |   | 867,845 |   | (449,638) |
|                                                                                      | Accrued                compensation and benefits |   | 2,565 |   | (165,455) |
|                                                                                      | Lease                buyout provision |   | - |   | (32,196) |
|                                                                                      | Deferred                revenue |   | 7,196 |   | 74,421 |
|                                                                                      |   | Net                cash used for operating activities |   | (2,392,179) |   | (2,736,067) |
| **Cash                flows (used for) provided by investing                activities:** |   |   |   |   |
|                                                                                      | Purchases                of property and equipment |   | (150,577) |   | (25,639) |
|                                                                                      | Net                proceeds from sale of marketable securities |   | 26,698 |   | 979,311 |
|                                                                                      |   | Net                cash (used for) provided by investing activities |   | (123,879) |   | 953,672 |
| **Cash                flows provided by financing activities:**                           |   |   |   |   |
|                                                                                      | Proceeds                from line of credit |   | 250,000 |   | 500,000 |
|                                                                                      | Repayments                on line of credit |   | (250,000) |   | (500,000) |
|                                                                                      | Proceeds                from convertible note payable |   | 3,000,000 |   | - |
|                                                                                      | Repayments                on convertible note payable |   | (150,000) |   | - |
|                                                                                      | Acquisition                fees paid for convertible note payable |   | (345,195) |   | - |
|                                                                                      | Payments                on capital leases |   | (11,084) |   | (3,626) |
|                                                                                      | Payments                on notes payable and long-term debt |   | - |   | (159,618) |
|                                                                                      | Net                proceeds from issuance of common stock |   | - |   | 2,967,327 |
|                                                                                      | Proceeds                from exercise of warrants |   | - |   | 2,250 |
|                                                                                      |   | Net                cash provided by financing activities |   | 2,493,721 |   | 2,806,333 |
| **Net                (decrease) increase in cash and cash equivalents**                   |   | (22,337) |   | 1,023,938 |
| **Cash                and cash equivalents, beginning of period**                         |   | 664,941 |   | 951,090 |
| **Cash                and cash equivalents, end of period**                               |  $ | 642,604 | $  | 1,975,028 |

----

|  **AUXILIO,                INC. AND SUBSIDIARIES**                                       |
|-----------------------------------------------------------------------------------------------|
| **CONDENSED                CONSOLIDATED STATEMENTS OF CASH FLOWS                (CONTINUED)** |
| **(UNAUDITED)**                                                                               |
|                                                                                          |   |   |   |   |   |   |   |
|                                                                                          |   |   |   |   | **Nine                Months Ended****September****30,** |
|                                                                                          |   |   |   |   | **2006** |   | **2005** |
| **Supplemental                disclosure of cash flow information:**                          |   |   |   |   |
|                                                                                          |   |   |   |   |   |   |   |
|                                                                                          | Interest                paid | $  | 154,713 | $  | 15,691 |
|                                                                                          |   |   |   |   |   |   |   |
|                                                                                          | Income                tax paid | $  | 2,400 | $  | 3,200 |
|                                                                                          |   |   |   |   |   |   |   |
| **Non-cash                investing and financing activities:**                               |   |   |   |   |
|                                                                                          |   |   |   |   |   |   |   |
|                                                                                          | Warrants                issued for expenses of private placement | $  | - | $  | 159,445 |
|                                                                                          |   |   |   |   |   |   |   |
|                                                                                          | Relative                fair value of warrants issued related to issuance of note                payable | $  | 425,267 | $  | 58,029 |
|                                                                                          |   |   |   |   |   |
|                                                                                          | Relative                fair value of options issued related to professional services                rendered | $  | - | $  | 18,200 |
|                                                                                          |   |   |   |   |   |
|                                                                                          | Property                and equipment acquired by capital lease | $  | 26,391 | $  | 19,097 |
|                                                                                          |   |   |   |   |   |
|                                                                                          | Stocks                issued for acquisition fees for convertible note payable | $  | 70,000 | $  | - |

----

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**NINE      MONTHS ENDED SEPTEMBER 30, 2006 and 2005**

**(UNAUDITED)**

**1.**
**BASIS      OF PRESENTATION **

** **
** **

**2**
**RECENTLY      ISSUED ACCOUNTING PRONOUNCEMENTS**

----

**3.**
**OPTIONS      AND WARRANTS**

| **Options**                                          |                                                                                           |        |                                                                        |                    |                                                                                 |        |                                                                  |
|------------------------------------------------------|-------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------|--------------------|---------------------------------------------------------------------------------|--------|------------------------------------------------------------------|
|                                                      |  **Shares**                                                                          |   |                **Weighted                Average Exercise Price** |               |                **Weighted                Average Remaining Term in Years** |   |                **Aggregate                Intrinsic Value** |
|  Outstanding                at December 31,2005 |                2,008,497                                                             | $      |                  1.48                                             |               |                                                                            |   |                                                             |
|                 Granted                    |                            584,500 |        |  1.36                                                             |               |                                                                            |   |                                                             |
|                 Exercised                  |  -                                                                              |   |  -                                                                |                    |                                                                            |   |                                                             |
|                 Cancelled                  |  (169,000)                                                                           |   | 1.61                                                                   |               |                                                                            |   |                                                             |
| Outstanding              at September 30, 2006       |  2,423,997                                                                           | $      | 1.44                                                                   |               |                     8.18                                    | $      | -                                                                |
|  Exercisable              at September 30, 2006 | 870,554                                                                                   | $      |  1.34                                                             |     |  7.40                                                                      | $      | -                                                                |

| **Warrants**                                     |       |                        |                                               |
|--------------------------------------------------|------------|-----------------------------|----------------------------------------------------|
|                                             | **Shares** |                        | **Weighted                Average Exercise Price** |   | **Weighted                Average Remaining Term in Years** |   | **Aggregate                Intrinsic Value** |
| Outstanding                at December 31, 2005  | 1,398,535  |                 $ | 1.25                                               |   |   |   |   |
|                  Granted                    | 698,541    |              | 1.94                                               |   |   |   |   |
|                  Exercised                  | (112,000)  |                        | .30                                                |   |   |   |   |
|                  Cancelled                  | (28,000)   |                        | .30                                                |   |   |   |   |
| Outstanding                at September 30, 2006 | 1,957,076  |                 $ | 1.56                                               |   | 4.03 |                 $ | 95,950 |
| Exercisable                at September 30, 2006 | 1,899,961  |                 $ | 1.55                                               |   | 4.06 |                 $ | 95,950 |

----

|                                                                     |                  | **Three                Months Ended****September****30, 2006** |    | **Nine                Months Ended****September****30, 2006** |
|--------------------------------------------------------------------------|-----------------------|----------------------------------------------------------------|---------|---------------------------------------------------------------|
| Cost                of revenues                                          |                $ | 36,403                                                         | $  | 108,337                                                       |
| Sales                and marketing                                       |                  | 58,693                                                         |    | 120,209                                                       |
| General                and administrative expenses                       |                  | 67,043                                                         |    | 222,078                                                       |
|                    Total stock based compensation expense |                $ | 162,139                                                        | $  | 450,624                                                       |

|                                                                                                                                                       |    | **Three                Months Ended** |    | **Nine                Months Ended** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|---------------------------------------|---------|--------------------------------------|
|                                                                                                                                                       |    | **September****30, 2005**             |    | **September****30, 2005**            |
| Net                loss:                                                                                                                                   |    |                                  |    |                                 |
|                  As reported                                                                                                                          |  $ | (877,268)                             | $  | $(2,324,168)                         |
|                  Add: APB 25 Expense                                                                                                                  |    |                                  |    |                                 |
|                  Deduct: Total stock based employee compensation                  expense determined under SFAS 123 fair value based method |    |  249,424                         |    |  723,757                        |
|                    Net loss, as adjusted                                                                                                    | $       | (1,126,692)                           | $       | (3,047,925)                          |
|                                                                                                                                                       |    |                                  |    |                                 |
| Basic                loss per share:                                                                                                                       |    |                                  |    |                                 |
|                  As reported                                                                                                                          |    | $(0.05)                               |    | $(0.15)                              |
|                  Pro forma                                                                                                                            |    | $(0.07)                               |    | $(0.20)                              |
|                  Diluted loss per share:                                                                                                              |    |                                  |    |                                 |
|                  As reported                                                                                                                          |    | $(0.05)                               |    | $(0.15)                              |
|                  Pro forma                                                                                                                            |    | $(0.07)                               |    | $(0.20)                              |

**4.**
**NET      LOSS PER SHARE **

**5.**
**ACCOUNTS      RECEIVABLE**

|  Trade              Receivables                            |                          $ |                    1,665,155  |
|-----------------------------------------------------------------|-------------------------------------------------------------------------|---------------------------------------------------|
|                 Allowance for doubtful accounts       |                                                               | (2,010)                                           |
|                   Total Accounts Receivable |                   $                                           |  1,663,145                                   |

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**FINANCIAL      INSTRUMENTS**

**7.**
**EMPLOYMENT      AGREEMENTS**

**8.**
**CONCENTRATIONS**

**9.**
**NOTE      PAYABLE**

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**10.**
**SEGMENT      REPORTING**

**11.**
**      SUBSEQUENT EVENTS**

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

**OVERVIEW**

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**Application      of Critical Accounting Policies**

| ·   | revenue                recognition |
|--------------------|------------------------------------|

| ·   | accounts                receivable valuation and related                reserves |
|--------------------|----------------------------------------------------------------------------------|

| ·   | accounting                for income taxes |
|--------------------|--------------------------------------------|

| ·   | impairment                of intangible assets |
|--------------------|------------------------------------------------|

| ·   | deferred                revenue |
|--------------------|---------------------------------|

**RESULTS      OF OPERATIONS**

**For      the Nine Months Ended September 30, 2006 Compared to the Nine Months Ended      September 30, 2005**

**Revenue      **

**Cost      of Revenue **

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**Sales      and Marketing **

**General      and Administrative **

**Intangible      Asset Amortization **

**Other      Income (Expense) **

**Income      Tax Expense **

**For      the Three Months Ended September 30, 2006 Compared to the Three Months Ended      September 30, 2005**

**Revenue      **

----

**Cost      of Revenue **

**Sales      and Marketing **

**General      and Administrative **

**Intangible      Asset Amortization **

**Other      Income (Expense) **

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**LIQUIDITY      AND CAPITAL RESOURCES**

**FACTORS      THAT MAY AFFECT FUTURE RESULTS **

**WE      ARE A NEW COMPANY WITH A LIMITED OPERATING HISTORY. **

| ·   | the                emergence of competitors in our target market, and the quality and                development of their products and services;                and |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the                market’s acceptance of our products and                services. |
|--------------------|-------------------------------------------------------------------------------------------|

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| ·   | successfully                complete the development of our products and                services; |
|--------------------|---------------------------------------------------------------------------------------------------|

| ·   | modify                our products and services as necessary to meet the demands of our                market; |
|--------------------|----------------------------------------------------------------------------------------------------------------|

| ·   | attract                and retain highly skilled employees;                and |
|--------------------|--------------------------------------------------------------------------------|

| ·   | respond                to competitive influences. |
|--------------------|---------------------------------------------------|

**WE      FACE SUBSTANTIAL COMPETITION FROM BETTER ESTABLISHED COMPANIES THAT MAY HAVE      SIGNIFICANTLY GREATER RESOURCES WHICH COULD LEAD TO REDUCED SALES OF OUR      PRODUCTS. **

| ·   | greater                name recognition and larger marketing budgets and                resources; |
|--------------------|----------------------------------------------------------------------------------------------------|

| ·   | established                marketing relationships and access to larger customer                bases; |
|--------------------|--------------------------------------------------------------------------------------------------------|

| ·   | substantially                greater financial, technical and other resources;                and |
|--------------------|---------------------------------------------------------------------------------------------------|

| ·   | larger                technical and support staffs. |
|--------------------|-----------------------------------------------------|

**WE      HAVE A HISTORY OF LOSSES AND MAY NEED ADDITIONAL FINANCING TO CONTINUE ITS      OPERATIONS AND SUCH FINANCING MAY NOT BE AVAILABLE UPON FAVORABLE TERMS, IF      AT      ALL.**

**WE      ARE DEPENDENT UPON OUR VENDORS TO CONTINUE SUPPLYING US WITH EQUIPMENT, PARTS,      SUPPLIES, AND SERVICES AT COMPARABLE TERMS AND PRICE LEVELS AS OUR BUSINESS      GROWS.**

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**WE      ARE DEPENDENT UPON OUR LARGEST CUSTOMERS.**

**WE      ARE DEPENDENT UPON OUR MANAGEMENT TEAM AND THE UNEXPECTED LOSS OF ANY KEY MEMBER      OF THIS TEAM MAY PREVENT US FROM IMPLEMENTING OUR BUSINESS PLAN IN A TIMELY      MANNER OR AT ALL. **

**THE      MARKET MAY NOT ACCEPT OUR PRODUCTS AND SERVICES AND OUR PRODUCTS AND SERVICES      MAY NOT ADDRESS THE MARKET’S REQUIREMENTS.**

**IF      WE FAIL TO PROVIDE SERVICES TO OUR CUSTOMERS, OUR REVENUES AND PROFITABILITY      MAY      BE HARMED.**

**IF      WE NEED ADDITIONAL FINANCING TO MAINTAIN AND EXPAND OUR BUSINESS, FINANCING      MAY      NOT BE AVAILABLE ON FAVORABLE TERMS, IF AT ALL.**

| ·   | develop                or enhance our service offerings; |
|--------------------|----------------------------------------------------------|

| ·   | take                advantage of future opportunities; or |
|--------------------|-----------------------------------------------------------|

| ·   | respond                to customers and competition. |
|--------------------|------------------------------------------------------|

**WE      MUST MANAGE GROWTH TO ACHIEVE PROFITABILITY.**

**SHAREHOLDERS      WILL EXPERIENCE DILUTION AS A RESULT OF OUR STOCK OPTION      PLANS.**

----

**IT      MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US EVEN IF DOING SO WOULD BE      BENEFICIAL TO OUR SHAREHOLDERS.**

**WE      DO NOT INTEND TO PAY DIVIDENDS.**

**OUR      STOCK PRICE HAS FLUCTUATED AND COULD CONTINUE TO FLUCTUATE      SIGNIFICANTLY.**

**OUR      COMMON STOCK IS LISTED ON THE OTC BULLETIN BOARD, AND AS SUCH, IT MAY BE      DIFFICULT TO RESELL YOUR SHARES OF STOCK AT OR ABOVE THE PRICE YOU PAID FOR      THEM      OR AT ALL. **

| ·   | net                tangible assets of at least $2,000,000, if the issuer has been in                continuous operation for at least three years, or net tangible assets                of                at least $5,000,000, if the issuer has been in continuous operation                for                less than three years; or |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | average                annual revenue of at least $6,000,000 for the last three years. |
|--------------------|----------------------------------------------------------------------------------------|

**ITEM      3.**
**CONTROLS      AND PROCEDURES.**

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**PART      II - OTHER INFORMATION**

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

**ITEM      2.**
**UNREGISTERED      SALES OF EQUITY 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      6.**
**EXHIBITS.**

| **No.** | **Item**                                                                                                                                                                                                                                    |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1    | Certification                of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule                15d-14(a)                of                the Securities Exchange Act of 1934, as amended.                                  |
| 31.2    | Certification                of the Chief Financial Officer pursuant to Rule 13a-14(a) and Rule                15d-14(a)                of                the Securities Exchange Act of 1934, as amended.                                  |
| 32.1    | Certification                of the CEO and CFO pursuant to                Rule 13a-14(b) and Rule 15d-14(b) of the Securities Exchange Act                of 1934                and                18                U.S.C. Section 1350. |

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**SIGNATURES**

| Date:                November 14, 2006 |  By: | /s/                 Etienne Weidemann                           |
|----------------------------------------|-----------|----------------------------------------------------------------------|
|                                   |      |     Etienne                Weidemann             |
|                                   |      |     Chief                Executive Officer       |
|               |      |     (Principal                Executive Officer) |

| Date:                November 14, 2006 |                    /s/    Paul T. Anthony |
|----------------------------------------|------------------------------------------------------------------------------|
|                                   |     Paul                T.                Anthony        |
|                                   |     Chief                Financial Officer               |
|               |     ( Principal                Accounting Officer)  |