----

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| Nevada                                                        | 88-0350448                          |
|---------------------------------------------------------------|-------------------------------------|
| (State or other jurisdiction ofincorporation or organization) | (I.R.S. EmployerIdentification No.) |

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TABLE OF CONTENTS

| PART I FINANCIAL INFORMATION |                                                                                                                 |
|-----------------------------------|----------------------------------------------------------------------------------------------------------------------|
|                              |                                                                                                                 |   |
| Item 1                            | Financial Statements                                                                                                 | 3 |
|                              |                                                                                                                 |   |
|                              | Condensed Consolidated Balance Sheets as of March 31, 2011 (unaudited) and December 31, 2010                         | 3 |
|                              |                                                                                                                 |   |
|                              | Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2010 (unaudited)       | 4 |
|                              |                                                                                                                 |   |
|                              | Condensed Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, 2011 (unaudited) | 5 |
|                              |                                                                                                                 |   |
|                              | Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010 (unaudited)       | 6 |
|                              |                                                                                                                 |   |
|                              | Notes to Unaudited Condensed Consolidated Financial Statements                                                       | 8 |
|                              |                                                                                                                 |   |
| Item 2                            | Management’s Discussion and Analysis of Financial Condition and Results of Operations                          | 12 |
|                              |                                                                                                                 |   |
| Item 3                            | Quantitative and Qualitative Disclosure About Market Risk                                                            | 16 |
|                              |                                                                                                                 |   |
| Item 4                            | Controls and Procedures                                                                                              | 16 |
|                              |                                                                                                                 |   |
| PART II OTHER INFORMATION    |                                                                                                                 |
|                              |                                                                                                                 |   |
| Item 1A                           | Risk Factors                                                                                                         | 17 |
|                              |                                                                                                                 |   |
| Item 6                       | Exhibits                                                                                                             | 21 |
|                              |                                                                                                                 |   |
| Signatures                        | 22                                                                                                                   |

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Table of Contents

PART I – FINANCIAL INFORMATION

| ITEM 1.                 FINANCIAL STATEMENTS. |
|------------------------------------------------------------------------------------------------------------------------------------|

| AUXILIO, INC. AND SUBSIDIARIES                                                                                                                                                 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| CONDENSED CONSOLIDATED BALANCE SHEETS                                                                                                                                          |   |
|                                                                                                                                                                           |   |
|                                                                                                                                                                           |   |
|                                                                                                                                                                           |   | MARCH 31, 2011 |   |   | DECEMBER 31, 2010 |   |
|                                                                                                                                                                           |   | (unaudited) |   |   |   |   |
|                                                                                                                                                                           |   |
| ASSETS                                                                                                                                                                         |   |
| Current assets:                                                                                                                                                                |   |   |   |   |   |   |
| Cash and cash equivalents                                                                                                                                                      |   | $ | 1,418,125 |   |   | $ | 2,249,907 |   |
| Accounts receivable, net                                                                                                                                                       |   |   | 1,358,684 |   |   |   | 1,160,251 |   |
| Supplies                                                                                                                                                                       |   |   | 709,952 |   |   |   | 687,845 |   |
| Prepaid and other current assets                                                                                                                                               |   |   | 199,041 |   |   |   | 331,483 |   |
| Total current assets                                                                                                                                                           |   |   | 3,685,802 |   |   |   | 4,429,486 |   |
|                                                                                                                                                                           |   |   |   |   |   |   |   |   |
| Property and equipment, net                                                                                                                                                    |   |   | 214,045 |   |   |   | 234,975 |   |
| Deposits                                                                                                                                                                       |   |   | 28,013 |   |   |   | 28,013 |   |
| Goodwill                                                                                                                                                                       |   |   | 1,517,017 |   |   |   | 1,517,017 |   |
| Total assets                                                                                                                                                                   |   | $ | 5,444,877 |   |   | $ | 6,209,491 |   |
|                                                                                                                                                                           |   |   |   |   |   |   |   |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                           |   |
|                                                                                                                                                                           |   |   |   |   |   |   |   |   |
| Current liabilities:                                                                                                                                                           |   |   |   |   |   |   |   |   |
| Accounts payable and accrued expenses                                                                                                                                          |   | $ | 2,692,332 |   |   | $ | 2,538,828 |   |
| Accrued compensation and benefits                                                                                                                                              |   |   | 643,570 |   |   |   | 772,532 |   |
| Deferred revenue                                                                                                                                                               |   |   | 243,109 |   |   |   | 255,802 |   |
| Current portion of capital lease obligations                                                                                                                                   |   |   | 46,658 |   |   |   | 41,776 |   |
| Total current liabilities                                                                                                                                                      |   |   | 3,625,669 |   |   |   | 3,608,938 |   |
|                                                                                                                                                                           |   |   |   |   |   |   |   |   |
| Capital lease obligations, noncurrent                                                                                                                                          |   |   | 76,521 |   |   |   | 79,524 |   |
|                                                                                                                                                                           |   |   |   |   |   |   |   |   |
| Commitments and contingencies                                                                                                                                                  |   |   | - |   |   |   | - |   |
|                                                                                                                                                                           |   |   |   |   |   |   |   |   |
| Stockholders' equity:                                                                                                                                                          |   |   |   |   |   |   |   |   |
| Common stock, par value at $0.001, 33,333,333 shares authorized, 19,336,651 and 19,336,651 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively |   |   | 19,338 |   |   |   | 19,338 |   |
| Additional paid-in capital                                                                                                                                                     |   |   | 20,503,363 |   |   |   | 20,417,584 |   |
| Accumulated deficit                                                                                                                                                            |   |   | (18,780,014 | ) |   |   | (17,915,893 | ) |
| Total stockholders' equity                                                                                                                                                     |   |   | 1,742,687 |   |   |   | 2,521,029 |   |
| Total liabilities and stockholders’ equity                                                                                                                               |   | $ | 5,444,877 |   |   | $ | 6,209,491 |   |

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| AUXILIO, INC. AND SUBSIDIARIES                  |   |
|-------------------------------------------------|--------|
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |   |
| (UNAUDITED)                                     |   |
|                                            |   |   |   |   |   |   |
|                                            |   | Three Months Ended March 31, |   |
|                                            |   | 2011 |   |   | 2010 |   |
| Revenues                                        |   | $ | 4,683,101 |   |   | $ | 3,698,621 |   |
| Cost of revenues                                |   |   | 4,339,212 |   |   |   | 2,655,830 |   |
| Gross profit                                    |   |   | 343,889 |   |   |   | 1,042,791 |   |
| Operating expenses:                             |   |   |   |   |   |   |   |   |
| Sales and marketing                             |   |   | 358,140 |   |   |   | 320,409 |   |
| General and administrative expenses             |   |   | 844,640 |   |   |   | 713,734 |   |
| Total operating expenses                        |   |   | 1,202,780 |   |   |   | 1,034,143 |   |
| (Loss) income from operations                   |   |   | (858,891 | ) |   |   | 8,648 |   |
| Other income (expense):                         |   |   |   |   |   |   |   |   |
| Interest expense                                |   |   | (3,236 | ) |   |   | (456 | ) |
| Interest income                                 |   |   | 406 |   |   |   | 14 |   |
| Total other income (expense)                    |   |   | (2,830 | ) |   |   | (442 | ) |
| (Loss) income before provision for income taxes |   |   | (861,721 | ) |   |   | 8,206 |   |
| Income tax expense                              |   |   | 2,400 |   |   |   | 2,400 |   |
| Net (loss) income                               |   | $ | (864,121 | ) |   | $ | 5,806 |   |
|                                            |   |   |   |   |   |   |   |   |
| Net  (loss) income per share:         |   |   |   |   |   |   |   |   |
| Basic                                           |   | $ | (0.04 | ) |   | $ | 0.00 |   |
| Diluted                                         |   | $ | (0.04 | ) |   | $ | 0.00 |   |
|                                            |   |   |   |   |   |   |   |   |
| Number of weighted average shares:              |   |   |   |   |   |   |   |   |
| Basic                                           |   |   | 19,336,651 |   |   |   | 19,049,081 |   |
| Diluted                                         |   |   | 19,336,651 |   |   |   | 20,573,503 |   |

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| AUXILIO, INC. AND SUBSIDIARIES                                                         |
|----------------------------------------------------------------------------------------|
| CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY                               |
| THREE MONTHS ENDED MARCH 31, 2011                                                      |
| (UNAUDITED)                                                                            |
|                                                                                   |
|                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   |   |   |   |   |   |   |   | Additional |   |   |   |   |   | Total |   |
|                                                                                   |   | Common Stock |   |   | Paid-in |   |   | Accumulated |   |   | Stockholders' |   |
|                                                                                   |   | Shares |   |   | Amount |   |   | Capital |   |   | Deficit |   |   | Equity |   |
| Balance at December 31, 2010                                                           |   |   | 19,336,651 |   |   | $ | 19,338 |   |   | $ | 20,417,584 |   |   | $ | (17,915,893 | ) |   | $ | 2,521,029 |   |
| Stock compensation expense for options and warrants granted to employees and directors |   |   | - |   |   |   | - |   |   |   | 85,779 |   |   |   | - |   |   |   | 85,779 |   |
| Net loss                                                                               |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (864,121 | ) |   |   | (864,121 | ) |
| Balance at March 31, 2011                                                              |   |   | 19,336,651 |   |   | $ | 19,338 |   |   | $ | 20,503,363 |   |   | $ | (18,780,014 | ) |   | $ | 1,742,687 |   |

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

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| AUXILIO, INC. AND SUBSIDIARIES                                                        |   |
|---------------------------------------------------------------------------------------|--------|
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                       |   |
| (UNAUDITED)                                                                           |   |
|                                                                                  |   |   |   |
|                                                                                  |   | Three Months Ended March 31, |   |
|                                                                                  |   | 2011 |   |   | 2010 |   |
| Cash flows from operating activities:                                                 |   |   |   |   |   |   |
| Net (loss) income                                                                     |   | $ | (864,121 | ) |   | $ | 5,806 |   |
| Adjustments to reconcile net (loss) income to net cash (used for)                     |   |   |   |   |   |   |   |   |
| provided by operating activities:                                                     |   |   |   |   |   |   |   |   |
| Depreciation                                                                          |   |   | 33,782 |   |   |   | 72,947 |   |
| Stock compensation expense for warrants and options issued to employees and directors |   |   | 85,779 |   |   |   | 49,366 |   |
| Changes in operating assets and liabilities:                                          |   |   |   |   |   |   |   |   |
| Accounts receivable                                                                   |   |   | (198,433 | ) |   |   | 170,402 |   |
| Supplies                                                                              |   |   | (22,107 | ) |   |   | (52,265 | ) |
| Prepaid and other current assets                                                      |   |   | 132,442 |   |   |   | (37,733 | ) |
| Accounts payable and accrued expenses                                                 |   |   | 153,504 |   |   |   | (20,243 | ) |
| Accrued compensation and benefits                                                     |   |   | (128,962 | ) |   |   | (64,291 | ) |
| Deferred revenue                                                                      |   |   | (12,693 | ) |   |   | (28,608 | ) |
| Net cash (used for) provided by operating activities                                  |   |   | (820,809 | ) |   |   | 95,381 |   |
| Cash flows from investing activities:                                                 |   |   |   |   |   |   |   |   |
| Purchases of property and equipment                                                   |   |   | - |   |   |   | (32,683 | ) |
| Net cash (used for) investing activities                                              |   |   | - |   |   |   | (32,683 | ) |
| Cash flows from financing activities:                                                 |   |   |   |   |   |   |   |   |
| Payments on capital leases                                                            |   |   | (10,973 | ) |   |   | (935 | ) |
| Net proceeds from issuance of common stock                                            |   |   | - |   |   |   | 63,625 |   |
| Net cash  (used for) provided by financing activities                       |   |   | (10,973 | ) |   |   | 62,690 |   |
| Net (decrease) increase in cash and cash equivalents                                  |   |   | (831,782 | ) |   |   | 125,388 |   |
| Cash and cash equivalents, beginning of period                                        |   |   | 2,249,907 |   |   |   | 1,781,586 |   |
| Cash and cash equivalents, end of period                                              |   | $ | 1,418,125 |   |   | $ | 1,906,974 |   |

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

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| AUXILIO, INC. AND SUBSIDIARIES                                   |   |
|------------------------------------------------------------------|--------|
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) |   |
| (UNAUDITED)                                                      |   |
|                                                             |   |   |   |   |   |   |
|                                                             |   | Three Months Ended March 31, |   |
|                                                             |   | 2011 |   |   | 2010 |   |
| Supplemental disclosure of cash flow information:                |   |   |   |   |   |   |
|                                                             |   |   |   |   |   |   |
| Interest paid                                                    |   | $ | 3,236 |   |   | $ | 456 |   |
|                                                             |   |   |   |   |   |   |   |   |
| Income taxes paid                                                |   | $ | 1,117 |   |   | $ | - |   |
|                                                             |   |   |   |   |   |   |   |   |
| Non-cash investing and financing activities:                     |   |   |   |   |   |   |   |   |
|                                                             |   |   |   |   |   |   |   |   |
| Property and equipment acquired through capital leases           |   | $ | 12,852 |   |   | $  |  - |   |
|                                                             |   |   |   |   |   |   |   |   |

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

7

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| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
|------------------------------------------------------|

| THREE MONTHS ENDED MARCH 31, 2011 AND 2009 |
|--------------------------------------------|

| (UNAUDITED) |
|-------------|

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| Options                          |   | Shares |      |   | Weighted Average Exercise Price |   |   | Weighted Average Remaining Term in Years |   |   | AggregateIntrinsic Value |   |
|----------------------------------|--------|--------|-----------|--------|---------------------------------|--------|--------|------------------------------------------|--------|--------|--------------------------|--------|
| Outstanding at December 31, 2010 |   |   | 5,218,909 |   |                            | $      | 1.01   |                                     |   |   |                     |   |   |   |
| Granted                          |   |   | 130,000   |   |                            |   | 0.87   |                                     |   |   |                     |   |   |   |
| Exercised                        |   |   | -         |   |                            |   | -      |                                     |   |   |                     |   |   |   |
| Cancelled                        |   |   | (345,007  | )      |                            |   | 0.59   |                                     |   |   |                     |   |   |   |
| Outstanding at March 31, 2011    |   |   | 5,003,902 |   |                            | $      | 1.04   |                                     |   |   | 6.63                     |   |   | $ | 349,095 |   |
| Exercisable at March 31, 2011    |   |   | 3,381,235 |   |                            | $      | 1.07   |                                     |   |   | 5.48                     |   |   | $ | 272,807 |   |

| Warrants                         |   | Shares |      |   | Weighted Average Exercise Price |   |   | Weighted Average Remaining Term in Years |   |   | AggregateIntrinsic Value |   |
|----------------------------------|--------|--------|-----------|--------|---------------------------------|--------|--------|------------------------------------------|--------|--------|--------------------------|--------|
| Outstanding at December 31, 2010 |   |   | 3,362,708 |   |                            | $      | 1.36   |                                     |   |   |                     |   |   |   |
| Granted                          |   |   | -         |   |                            |   | -      |                                     |   |   |                     |   |   |   |
| Exercised                        |   |   | -         |   |                            |   | -      |                                     |   |   |                     |   |   |   |
| Cancelled                        |   |   | -         |   |                            |   | -      |                                     |   |   |                     |   |   |   |
| Outstanding at March 31, 2011    |   |   | 3,362,708 |   |                            | $      | 1.36   |                                     |   |   | 2.32                     |   |   | $ | 235,783 |   |
| Exercisable at March 31, 2011    |   |   | 1,687,708 |   |                            | $      | 1.23   |                                     |   |   | 2.32                     |   |   | $ | 235,783 |   |

|                                                     |   | 2011   |   |   | 2010   |   |
|----------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Cost of revenues                                         |   | $      | 36,124 |   |   | $      | 23,105 |   |
| Sales and marketing                                      |   |   | 4,891  |   |   |   | (13,528 | ) |
| General and administrative expenses                      |   |   | 44,764 |   |   |   | 39,789 |   |
|    Total stock based compensation expense |   | $      | 85,779 |   |   | $      | 49,366 |   |

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|                                                        |   | Three Months Ended March 31, |       |
|-------------------------------------------------------------|--------|------------------------------|------------|
|                                                        |   | 2011                         |       |   | 2010 |   |
| Numerator:                                                  |   |                         |       |   |   |   |
| Net (loss) income                                           |   | $                            | (864,121   | ) |   | $ | 5,806 |   |
|                                                        |   |                         |       |   |   |   |   |   |
| Denominator:                                                |   |                         |       |   |   |   |   |   |
| Denominator for basic calculation weighted average shares   |   |                         | 19,336,651 |   |   |   | 19,049,081 |   |
|                                                        |   |                         |       |   |   |   |   |   |
| Dilutive common stock equivalents:                          |   |                         |       |   |   |   |   |   |
| Options and warrants                                        |   |                         | -          |   |   |   | 1,524,422 |   |
|                                                        |   |                         |       |   |   |   |   |   |
| Denominator for diluted calculation weighted average shares |   |                         | 19,336,651 |   |   |   | 20,573,503 |   |
|                                                        |   |                         |       |   |   |   |   |   |
| Net  (loss) income per share:                     |   |                         |       |   |   |   |   |   |
|                                                        |   |                         |       |   |   |   |   |   |
| Basic net (loss) income per share                           |   | $                            | (0.04      | ) |   | $ | 0.00 |   |
|                                                        |   |                         |       |   |   |   |   |   |
| Diluted net (loss) income per share                         |   | $                            | (0.04      | ) |   | $ | 0.00 |   |

| Trade receivable                |   | $      | 1,554,320 |   |
|---------------------------------|--------|--------|-----------|--------|
| Customer advances               |   |   | (195,636  | )      |
| Allowance for doubtful accounts |   |   | -         |   |
| Total accounts receivable       |   | $      | 1,358,684 |   |

| 6. | EMPLOYMENT AGREEMENTS |
|----|-----------------------|

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ITEM 2.                      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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| ·   | Revenue recognition |
|--------------------|---------------------|

| ·   | Deferred revenue |
|--------------------|------------------|

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

| ·   | New customer implementation costs |
|--------------------|-----------------------------------|

| ·   | Impairment of intangible assets |
|--------------------|---------------------------------|

| ·   | Stock-based compensation |
|--------------------|--------------------------|

| ·   | Income taxes |
|--------------------|--------------|

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|             |   | Payments Due by Period |    |
|------------------|--------|------------------------|---------|
|             |   | Total                  |    |   | Less than 1 year |   |   | 1-3 years |   |   | 3-5 years |   |   | More than 5 years |   |
| Capital leases   |   | $                      | 135,670 |   |   | $ | 56,805 |   |   | $ | 78,866 |   |   | $ | - |   |   | $ | - |   |
| Operating leases |   |                   | 722,662 |   |   |   | 153,540 |   |   |   | 319,363 |   |   |   | 249,758 |   |   |   | - |   |
| Total            |   | $                      | 858,332 |   |   | $ | 210,345 |   |   | $ | 398,229 |   |   | $ | 249,758 |   |   | $ | - |   |

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ITEM 3.                      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4.                      CONTROLS AND PROCEDURES.

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PART II- OTHER INFORMATION

| ·   | 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. |
|--------------------|--------------------------------------|

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

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

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

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| ·   | fluctuations in our quarterly revenues and earnings or those of our competitors; |
|--------------------|----------------------------------------------------------------------------------|

| ·   | variations in our operating results compared to levels expected by the investment community; |
|--------------------|----------------------------------------------------------------------------------------------|

| ·   | announcements concerning us or our competitors; |
|--------------------|-------------------------------------------------|

| ·   | announcements of technological innovations; |
|--------------------|---------------------------------------------|

| ·   | sale of shares or short-selling efforts by traders or other investors; |
|--------------------|------------------------------------------------------------------------|

| ·   | market conditions in the industry; and |
|--------------------|----------------------------------------|

| ·   | the conditions of the securities markets. |
|--------------------|-------------------------------------------|

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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

|                          | AUXILIO, INC. |                          |
|-------------------------------|---------------|-------------------------------|
|                          |          |                          |   |
| Date:  May 16, 2011 | By:           | /s/ Joseph J. Flynn           |   |
|                          |          | Joseph J. Flynn               |   |
|                          |          | Chief Executive Officer       |   |
|                          |          | (Principal Executive Officer) |   |

|                          |   |                           |
|-------------------------------|--------|--------------------------------|
|                          |   |                           |   |
| Date:  May 16, 2011 | By:    | /s/ Paul T. Anthony       |   |
|                          |   | Paul T. Anthony                |   |
|                          |   | Chief Financial Officer        |   |
|                          |   | (Principal Accounting Officer) |   |

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