U.S. Securities and Exchange Commission
                             Washington, D.C. 20549
--------------------------------------------------------------------------------
                                   FORM 10-KSB

[X]   Annual report under Section 13 or 14(d) of the Securities  Exchange Act of
      1934 for the fiscal year ended December 31, 2004.

[ ]   Transition  report under Section 13 or 15(d) of the Securities  Exchange
      Act of 1934 for the transition period from to

                        Commission File Number: 000-27507
--------------------------------------------------------------------------------

                                  AUXILIO, INC.
                 (Name of Small Business Issuer in its Charter)

                  Nevada                                 88-0350448
      (State or other jurisdiction of                 (I.R.S. Employer
      incorporation or organization)                 Identification No.)


           27401 Los Altos, Suite 100, Mission Viejo, California 92691
                    (Address of principal executive offices)

                                 (949) 614-0700
                           (Issuer's telephone number)

           Securities registered under Section 12(b) of the Act: None
             Securities registered under Section 12(g) of the Act:

                          Common Stock, $.001 par value
                                (Title of Class)

      Check  whether  the issuer (1) filed all  reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing  requirements for the past 90 days:
Yes [X] No [ ]

      Check if there is no disclosure  of delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

      Issuer's revenues for the year ended December 31, 2004 were $7,281,809.

      The  aggregate  market  value  for  the  Issuer's  voting  stock  held  by
non-affiliates  of the Issuer based upon the $2.27 per share  closing sale price
of the  Common  Stock on March  30,  2005 as  reported  on the  Over-the-Counter
Bulletin Board, was  approximately  $28,952,189.  Shares of Common Stock held by
each  officer  and  director  and by  each  person  who  owns  5% or more of the
outstanding  common stock have been  excluded in that such persons may be deemed
to be affiliates.  This  determination  of affiliate status is not necessarily a
conclusive determination for other purposes.

      As of March 30, 2005,  Registrant  had  15,424,662  shares of Common Stock
outstanding.


                                       1
<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Definitive  Proxy Statement for the 2005 Annual Meeting of
Stockholders are incorporated by reference in Part III hereof.

      Transitional Small Business Disclosure Format (check one):
         Yes  [  ]   No  [X]


                                       2
<PAGE>

                                  AUXILIO, INC.
                            FORM 10-KSB ANNUAL REPORT

                                TABLE OF CONTENTS

                                                                            Page

                                     PART I

ITEM 1       Description of Business..........................................4

ITEM 2       Description of Properties........................................7

ITEM 3       Legal Proceedings................................................7

ITEM 4       Submission of Matters to a Vote of Security Holders..............7

                                     PART II

ITEM 5       Market for Common Equity and Related Stockholder Matters.........7

ITEM 6       Management's Discussion and Analysis and Plan of Operations......9

ITEM 7       Consolidated Financial Statements........................F-2--F-25

ITEM 8       Changes in and Disagreements with Accountants
             on Accounting and Financial Disclosure..........................17

ITEM 8A      Controls and Procedures.........................................17

ITEM 8B      Other Information...............................................18

                                    PART III

ITEM 9       Directors, Executive Officers, Promoters and Control Persons:
             Compliance with Section 16(a) of the Exchange Act ..............18

ITEM 10      Executive Compensation..........................................19

ITEM 11      Security Ownership of Certain Beneficial Owners and Management
             and Related Stockholder Matters.................................19

ITEM 12      Certain Relationships and Related Party Transactions............19

ITEM 13      Exhibits........................................................19

ITEM 14      Principal Accountant Fees and Services..........................20


                                       3
<PAGE>

                                     PART I

Statements  contained  in this  Report  that  are not  historical  facts or that
discuss our  expectations or beliefs  regarding our future  operations or future
financial performance, or financial or other trends in our business,  constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933,  as amended  (the "1933  Act") and  Section  21E of the  Securities
Exchange Act of 1934,  as amended (the "1934 Act").  Forward-looking  statements
can be identified by the fact that they do not relate  strictly to historical or
current facts. Often, they include the words "believe," "expect,"  "anticipate,"
"intend," "plan," "estimate,"  "project," or words of similar meaning, or future
or conditional verbs such as "will," "would,"  "should,"  "could," or "may." The
achievement  or  realization  of  the  expectations  or  beliefs  set  forth  in
forward-looking  statements  are subject to a number of risks and  uncertainties
that could cause our financial  condition or operating  results in the future to
differ  significantly  from those expected at the current time.  Those risks and
uncertainties  are  described in Part II of this Report in the Section  entitled
"MANAGEMENT'S  DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS--Factors  That May
Affect  Our Future  Results"  and  readers of this  Report are urged to read the
cautionary  statements  contained in that  Section of this Report.  Due to these
uncertainties  and risks,  readers are cautioned not to place undue  reliance on
forward-looking  statements  contained in the Report, which speak only as of the
date of this Annual  Report.  We undertake no obligation to update or revise any
forward-looking  statements,  whether  as a result  of new  information,  future
events or otherwise.

Item 1. Description of Business

Introduction

      Auxilio,  Inc. (the "Company" or "Auxilio")  was  originally  incorporated
under  the laws of the State of Nevada  on  August  29th,  1995,  under the name
Corporate  Development  Centers,  Inc. As a result of a series of  transactions,
which are more fully described in the section entitled  "Background"  below, the
Company,  in April  2004,  changed  its name to  Auxilio,  Inc.  The  Company is
currently  headquartered  in  Orange  County,  California,  with  its  principal
executive offices located at 27401 Los Altos,  Suite 100, Mission Viejo,  92691.
The Company is engaged in the business of providing  fully  outsourced  document
image management  services to the healthcare  industry.  For more information on
the Company and its products and  services see the section  entitled  "Principal
Products or Services" below or visit our website at www.auxilioinc.com.

      Where appropriate,  references to "Auxilio",  the "Company," "we" or "our"
include Auxilio, Inc., Auxilio Solutions, Inc., e-Perception Technologies,  Inc.
and PeopleView, Inc.

Background

      Auxilio,  Inc. was incorporated in the State of Nevada on August 29, 1995.
From its  incorporation  in August 1995 until January  2002,  the Company had no
significant   operations.   In  January  of  2002,  the  Company's   predecessor
e-Perception  Technologies,  Inc.  ("e-Perception"),  a Human Resources software
concern,  completed a tender  offer with  Corporate  Development  Centers,  Inc.
("CDC"). CDC's common stock traded on the OTC Bulletin Board. In connection with
the tender offer, the stockholders of e-Perception received one (1) share of CDC
for each four (4) shares of  e-Perception  common  stock they owned prior to the
tender offer. As a result, e-Perception became a wholly owned subsidiary of CDC.
CDC subsequently changed its name to e-Perception,  Inc.  Approximately eighteen
months later e-Perception  changed its name to PeopleView,  Inc.  ("PeopleView")
and traded under the symbol PPVW.

      For the fiscal year ended December 31, 2003, and including the period from
January 1, to March 31, 2004, PeopleView  developed,  marketed and supported web
based  assessment  and  reporting  tools and provided  consulting  services that
enabled  companies  to manage  their  Human  Capital  Management  (HCM) needs in
real-time.  Companies  ranging  in size  from 50  person  firms to  Fortune  500
companies  implemented  our  solutions  in order to have deep insight into their
human capital assets.


                                       4
<PAGE>

      In March of  2004,  PeopleView  entered  into an asset  purchase  and sale
agreement with Workstream,  Inc. (NASDQ:WSTM) ("Workstream") whereby the Company
sold  to  Workstream  essentially  all of its  assets,  including  its  software
products and related intellectual  property,  its accounts  receivable,  certain
computer equipment, customer lists, and the PeopleView name, among other things.
Pursuant to an addendum to the original  agreement,  the final consideration the
Company received was cash equal to $250,000, 246,900 shares of Workstream common
stock,  and a warrant to purchase  an  additional  50,000  shares at an exercise
price  of  $3.00  per  share.   The  business   operations  of  PeopleView  were
discontinued in March 2004.

      On April, 1, 2004,  PeopleView  completed the acquisition of Alan Mayo and
Associates,  Inc.  dba The Mayo Group  (and  referred  to herein as "TMG").  TMG
offered outsourced image management services to healthcare facilities throughout
California,   and  this  acquisition  forms  the  basis  for  Auxilio's  current
operations. Subsequent to the acquisition of TMG, PeopleView changed its name to
Auxilio,  Inc. and changed TMG's subsidiary name to Auxilio Solutions,  Inc. Our
stock  now  trades on the  Over-the  Counter  Bulletin  Board  under the  symbol
AUXO.OB.

Principal Products or Services

      Auxilio is a services and technology  firm that provides fully  outsourced
document  image  management  services  ("Image  Management")  to the  healthcare
industry.  Auxilio  provides  full-time  on-site  management  teams to perform a
customized Image Management program that includes the following services:

      o     Vendor monitoring, management and contract negotiation
      o     Change management and end-user training programs
      o     Utilization management
      o     Financial reporting
      o     Workflow efficiency management
      o     Information  systems  integration,  connectivity and image migration
            strategies
      o     Strategy  execution working with the customer to execute a long-term
            Image Management strategy

      Auxilio's  products and services also include the sales,  integration  and
services of automated  office  equipment  including  digital and color  copiers,
printers, facsimile machines and multi-function equipment.

Competition

      We operate in a highly competitive market. The majority of the competition
in the healthcare  industry market for Image Management services comes primarily
from the large  photocopy/multi-functional  digital device manufacturers such as
Xerox, Canon, Konica Minolta,  Ricoh and Sharp. In addition to the manufacturers
the competitive landscape contains large equipment  dealer/distributors  such as
Ikon,  Lanier,  and Global  Imaging  Systems as well as a number of regional and
local equipment dealers and distributors that exist in the communities which the
hospitals serve.  Our analysis of the competitive  landscape shows a very strong
opportunity for fully  outsourced  Image  Management  services to the healthcare
industry.

      While this  competition  does present a  significant  competitive  threat,
Auxilio feels that it has a strong  competitive  position in the marketplace due
to a number of important reasons:


                                       5
<PAGE>

      o     Auxilio  is  unique  in its  100%  focus  on  healthcare.  No  other
            vendor/service provider has its entire business dedicated to solving
            issues  inside of healthcare  with the expertise and knowledge  base
            unmatched  in  the  market.   This  fact  provides  Auxilio  with  a
            competitive advantage by being focused experts on the document image
            production  issues related to healthcare and not distracted by other
            markets causing focus and service to suffer.

      o     Auxilio is unique in its  approach  to  providing  fully  outsourced
            Image   Management   programs.   Auxilio's   program  is  completely
            outsourced and hospitals need only pay a single invoice. None of the
            competition  attempts to run the image production as a department in
            the hospital with a full-time staff on-site. The vendors and dealers
            in the vast  majority of  instances  have  multiple  small and large
            customers in a geographic  area to whom they are providing  services
            and  this  causes  major  delays  in  service  and  supplies  to the
            hospitals.  In addition,  by focusing  solely on the hospital campus
            Auxilio enjoys much lower turn-around times for service,  greater up
            sell  opportunities and a much deeper service  relationship with the
            customer.

      o     Auxilio is not restricted to any single equipment vendor. Auxilio is
            committed  to  bringing  the best of  breed  hardware  and  software
            solutions  to  our  customers.  Our  approach  is to  use  the  best
            technology to solve the solution in the best manner possible without
            any prejudice as to equipment.

      o     Auxilio  maintains a daily connection with the hospital  providing a
            detailed  strategy  and plan on  equipment  acquisition  saving  the
            hospitals a great deal of time,  effort and money in this cumbersome
            and confusing process.

Customers

      Most of the  Company's  customers  are  hospitals  and  Integrated  Health
Delivery  Networks  (IDN).  The loss of any key  customer  could have a material
adverse effect upon the Company's financial condition,  business,  prospects and
results of operation.  The Company's largest customer  represents  approximately
65% of the Company's revenues for the year ended December 31, 2004.

Intellectual Property

      The Company has not applied for or been  granted any patents  with respect
to its technology, or processes, as related to document and image management, in
addition to document and image processing.

Government Regulation

      We are  subject to federal,  state and local  regulations  concerning  the
environment,  occupational safety and health standards.  We have not experienced
significant difficulty in complying with such regulations and compliance has not
had a material effect on our business or our financial results.

Research and Development

      Commencing April 1, 2004, with the focus on document and image management,
in addition to document and image  processing,  we incurred minimal research and
development  expenses  for  2004.  Prior to  April 1,  2004,  the  research  and
development   organization  was  responsible  for  product  architecture,   core
technology, product testing and quality assurance and ensuring the compatibility
of the products with leading hardware platforms,  operating systems and database
systems  for  the  Company's  Human  Resources  software.   In  addition,   that
organization  supported some pre-sale and customer support  activities.  For the
first quarter of 2004 we incurred research and development  expenses of $46,249.
In 2003, we incurred research and development expenses of $659,910. The majority
of the research and development  organization was outsourced to Prosys,  Inc., a
New Dehli based software  development firm. In addition the product  development
was outsourced to J. Joseph Inc., a Nevada based technology consulting firm. For
the year ended  December  31, 2003 and the first  quarter of 2004,  research and
development expenses are included in discontinued operations.


                                       6
<PAGE>

Employees

      As of December 31, 2004, we had forty-six  full-time  employees.  Of these
employees,  twenty-nine were engaged in providing services, nine were engaged in
sales and marketing, and eight were engaged in general and administrative.  None
of our employees  are  represented  by a labor union or a collective  bargaining
agreement. We have not experienced any work stoppages and consider our relations
with our employees to be good.

Item 2. Description of Properties

      We currently lease  approximately 6,672 square feet of office space in one
building located in Mission Viejo,  California.  The lease terminates on January
31, 2010. We lease  approximately  12,000 square feet of warehouse  space in Los
Angeles,  California, which serves as storage for excess equipment and supplies.
The lease terminates July 31, 2006. We sublease  approximately 8,836 square feet
of office space in Glendale, California. The Company has vacated this space. The
sublease terminates July 30, 2005.

      The Company  expects that the current leased premises will be satisfactory
until the future growth of its business  operations  necessitates an increase in
office space. There is an ample supply of office space in the Orange County area
and we do not anticipate any problem in securing  additional space if, and when,
necessary.

Item 3. Legal Proceedings

      From time to time, we may become involved in litigation relating to claims
arising  from our  ordinary  course  of  business.  We are aware of no claims or
actions  pending or  threatened  against us, the ultimate  disposition  of which
would have a material adverse effect on us.

Item 4. Submission of Matters to a Vote of Security Holders

      No matters were  submitted  to a vote of the  Company's  security  holders
during the fourth quarter of its fiscal year ended December 31, 2004.

                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

      The  Company's  common  stock  currently  trades  on the  Over-the-Counter
Bulletin Board, under the trading symbol of "AUXO.OB".  The Company had lost its
trading  symbol in or about  September  1999.  The Company was  re-listed on the
Over-the-Counter  Bulletin  Board on November 29,  2001.  In January  2002,  the
Company changed its stock symbol to "EPER.OB". In June 2003, the Company changed
its stock symbol to "PPVW.OB".  On June 21, 2004, the Company  changed its stock
symbol to  "AUXO.OB".  Because  we are listed on the  Over-the-Counter  Bulletin
Board,  our  securities  may be less liquid,  receive less  coverage by security
analysts  and news media,  and  generate  lower  prices than might  otherwise be
obtained if they were listed on a NASDAQ market or other exchange.


                                       7
<PAGE>

      The following  table sets forth for each quarter  during fiscal years 2004
and 2003 the high and low bid  quotations  for the Common  Stock as  reported by
NASDAQ.

         Quarter                                        Low           High
         -------                                        ---           ----
         January 1, 2003--March 31, 2003.             $  0.99       $  7.65
         April 1, 2003--June 30, 2003.                $  0.99       $  3.03
         July 1, 2003--September 30, 2003.            $  0.75       $  2.40
         October 1, 2003--December 31, 2003.          $  1.35       $  1.95
         January 1, 2004--March 31, 2004.             $  0.75       $  2.70
         April 1, 2004--June 30, 2004.                $  0.75       $  1.20
         July 1, 2004--September 30, 2004.            $  0.65       $  1.75
         October 1, 2004--December 31, 2004.          $  1.50       $  3.00

      On March 30,  2005,  the Company had  approximately  336  stockholders  of
record.

      The Company has not paid any  dividends  on its Common  Stock and does not
expect to do so in the  foreseeable  future.  The  Company  intends to apply its
earnings,  if any, in  expanding  its  operations  and related  activities.  The
payment of cash  dividends in the future will be at the  discretion of the Board
of  Directors  and will depend upon such  factors as  earnings  levels,  capital
requirements,  the  Company's  financial  condition  and  other  factors  deemed
relevant by the Board of Directors.  In addition,  the Company's  ability to pay
dividends  may be limited  under  future loan  agreements  of the Company  which
restrict or prohibit the payment of dividends.

Equity Compensation Plan Information

      The following table provides  certain  information as of December 31, 2004
with  respect to the  Company's  equity  compensation  plans under which  equity
securities of the Company are authorized for issuance.

<TABLE>
<CAPTION>
                                                               Number of Securities                             Number of
                                                                 to be Issued Upon      Weighted Average       Securities
                                                                    Exercise of         Exercise Price of       Remaining
                                                               Outstanding Options,        Outstanding        Available for
                                                                     Warrants          Options, Warrants    Future Issuances
                            Plan                                    and Rights             and Rights          Under Plan
                            ----                                    ----------             ----------          ----------
<S>                                                                  <C>                      <C>               <C>
Equity compensation plans approved by security holders (1):          1,361,580                $1.07             2,105,087
Equity compensation plans not approved by security holders (2):      1,236,955                $1.04                    --
                                                                     ---------                                  ---------
    Total                                                            2,598,535                                  2,105,087
                                                                     =========                                  =========
</TABLE>
(1)   These plans consist of the 2000 Stock Option Plan, 2001 Stock Option Plan,
      the 2003 Stock Option Plan and the 2004 Stock Option Plan.

(2)   Warrants and rights.  From time to time and at the discretion of the Board
      of Directors the Company may issue warrants to key individuals or officers
      of the Company as performance based compensation.

      On December 28, 2004,  Auxilio  entered into a Revolving Loan and Security
Agreement with Mr. Michael D.  Vanderhoof.  Mr.  Vanderhoof is a director of the
Company.  Under the  agreement,  the  Company  can  borrow up to  $500,007  (the
"Revolving  Loan").  Money will be advanced to Auxilio by Mr. Vanderhoof against
the $500,000 limit upon six business days advance written notice by the Company.
Interest  will  accrue  daily upon any unpaid  principal  balance at the rate of
eight percent (8%) per annum.  Accrued interest is payable in full monthly.  All
outstanding  principal  is due and payable in full on  December  10,  2005.  The
Revolving  Loan  is  secured  by  all  of  the  Company's  inventory,   accounts
receivable,   equipment,  cash,  deposit  accounts,   securities,   intellectual
property,  chattel paper,  general intangibles and instruments,  now existing or
hereafter arising,  and all proceeds thereof. In consideration for the making of
the Revolving  Loan, Mr.  Vanderhoof  also received a warrant to purchase common
shares  of  the  Company  in a  number  equal  to  10%  of  the  highest  amount
outstanding. For example, if the full amount of $500,000 is borrowed, the holder
will have the right to purchase  50,000 shares of stock.  The exercise  price is
equal to $2.00 per share. As of March 30, 2005 the Company borrowed $500,000 and
issued 50,000 warrants in connection with the Revolving Loan.


                                       8
<PAGE>

      On April 1, 2004, the Company  completed the  acquisition of Alan Mayo and
Associates,  Inc.  (doing business as "The Mayo Group" and referred to herein as
"TMG").  The purchase price for the  acquisition of TMG was equal to $255,000 in
cash and 1,700,030  shares of the Company's  common stock,  all payable upon the
closing.  In  addition,  upon  closing the Company  deposited  (a) $45,000 in an
indemnity  escrow  account,  (b) 300,005  shares of common stock in an indemnity
escrow  account,  (c) 2,000,035  shares of common stock in an escrow  account as
contingency for certain  performance goals, and (d) a note payable in the amount
of $315,000 due April 15, 2005, which note is also subject to certain contingent
performance  goals.  All  contingent  amounts from the original  agreement  have
subsequently  been paid (both cash and stock).  Therefore the foregoing  amounts
are included in the purchase price as is required  under  Statement of Financial
Accounting  Standards No. 141 (SFAS 141). In addition to the above amounts,  the
Company has included  severance  payments totaling  $465,500.  Other acquisition
costs  totaling  $264,174 were incurred  during the twelve months ended December
31,  2004 and has been  included in the  purchase  price.  All of the  Company's
operations after April 1, 2004 are the operations of TMG. The Company obtained a
formal  valuation  determining  that of the $3,013,929  excess purchase price of
assets  acquired  and  liabilities  assumed,  $1,500,000  could be  allocated to
non-compete  agreements,  customer  relationships and backlog.  These intangible
assets are being amortized on a straight-line basis over 3-5 years.

      In March 2004,  the Company  initiated a private  placement  of its common
stock at a  purchase  price of $0.30 per share.  On May 15,  2004,  the  Company
closed the offering,  selling 1,733,833  shares,  with net proceeds of $520,150.
The  offering  was  made in  reliance  on Rule  506 of  Regulation  D under  the
Securities Act of 1933.

      In March 2003,  the Company  initiated a private  placement  of its common
stock,  which  opened at $0.75 per share.  The  offering was made in reliance on
Rule 506 of Regulation D under the  Securities  Act of 1933.  The Company closed
the offering on September 30, 2003, selling 3,660,597 shares,  with net proceeds
of $2,470,903.  Total costs related to the placement were $546,764.  Included in
this  amount is  $272,219  of expense  related to the fair  market  value of the
366,023 warrants issued to the selling group.

      The Company  completed a private  placement of its common stock on January
15, 2003.  The Company sold 342,721 shares of common stock in this offering at a
purchase price of $3.00 per share.  In March 2003, the Board of Directors of the
Company  voted  to  reprice  the  shares  sold in the  offering  because  of the
Company's  inability to meet the revenue  projections  described to investors in
the  offering.  The Company  repriced  the common  stock sold in the offering to
$0.75 per share (the "Repricing").  The Company gave each purchaser the election
to either rescind his investment, or accept four shares of common stock for each
share  purchased  in the  offering.  Four  investors  elected to  rescind  their
investment,  totaling 22,667 shares, for $68,000. After the Repricing, and after
the  rescission,  $920,163 had been collected in connection  with such offering.
Pursuant to the Repricing,  an additional 920,163 shares were issued for a total
of 1,226,884 shares sold in this offering.  The offering was made in reliance on
Rule 506 of Regulation D under the Securities Act of 1933.

Item 6. Management's Discussion and Analysis and Plan of Operations

INTRODUCTION

      The  following  discussion  presents  information  about our  consolidated
results of operations,  financial condition, liquidity and capital resources and
should be read in conjunction with our consolidated financial statements and the
notes thereto included elsewhere in this Report.


                                       9
<PAGE>

      Forward Looking Statements.  This discussion contains statements regarding
operating trends and our beliefs and expectations regarding our future financial
performance and future  financial  condition  (which are referred to as "forward
looking statements"). The consequences of those operating trends on our business
and  the  realization  of our  expected  future  financial  results,  which  are
discussed  in those  statements,  are  subject  to the  uncertainties  and risks
described  below in this Section of this Report under the caption  "Factors That
May Affect Future Results." Due to those  uncertainties  and risks, the duration
and effects of those operating  trends on our business and our future  financial
performance may differ,  possibly  significantly,  from those that are currently
expected as set forth in the forward looking statements. As a result, you should
not place undue reliance on those forward looking statements.

OVERVIEW

      In May 2004,  the  Company  received  shareholder  approval  to change the
Company name to Auxilio, Inc. ("Auxilio"),  from PeopleView,  Inc. The new stock
symbol is AUXO.OB.

      For the fiscal year ended December 31, 2003, and including the period from
January 1, to March 31, 2004,  Auxilio  developed,  marketed and  supported  web
based  assessment  and  reporting  tools and provided  consulting  services that
enabled  companies  to manage  their  Human  Capital  Management  (HCM) needs in
real-time.  Companies  ranging  in size  from 50  person  firms to  Fortune  500
companies  implemented  our  solutions  in order to have deep insight into their
human capital assets.

      In March,  2004, the Company  entered into an agreement  with  Workstream,
Inc. whereby the Company sold to Workstream the following:  Accounts receivable,
certain computer  equipment,  customer list,  existing customer  contracts,  the
PeopleView name, and the technology and product offerings that had been recently
revised    and    improved,    including    ClimateSight(TM),    SkillSight(TM),
PerformanceSight(TM),  ComplianceSight(TM)  and HCM TOOLS(TM).  Pursuant to this
transaction,  the Company is focusing its efforts in providing  outsourced image
management services to healthcare facilities.

      In  April  2004,  one  of the  Company's  subsidiaries,  PPVW  Acquisition
Company,  completed an acquisition of Alan Mayo & Associates, dba The Mayo Group
("The Mayo Group" or "TMG").  Effective with the  acquisition,  PPVW Acquisition
Company changed its name to The Mayo Group, and subsequently changed the name to
Auxilio  Solutions,   Inc.  ("ASI").  ASI  provides  outsourced  document  image
management  services for healthcare  facilities.  Operations  from April 1, 2004
will include the  operations  of ASI. An 8-K was filed with the  Securities  and
Exchange  Commission  (SEC) on April 16, 2004  reporting this  transaction.  The
audited financial statements of The Mayo Group were filed on September 27, 2004.

      ASI provides  integration  strategies and outsourced services for document
image  management in  healthcare  facilities.  The Company  helps  hospitals and
health systems reduce expenses and create manageable,  dependable document image
management  programs by managing  their  back-office  processes.  The process is
initiated through a detailed proprietary TeqTrak(TM) analysis.  TeqTrak(TM) is a
financial   analysis  that  is  performed  at  the  customer  premises  using  a
combination  of proprietary  processes and  innovative web based  technology for
data collection and report  generation.  After  TeqTrak(TM) and upon engagement,
ASI capitates the cost of the entire document image  management  process for the
customer  and  places a  highly  trained  resident  team on site to  manage  the
process. ASI is focused solely on the healthcare industry.

      As a  result  of the  acquisition  of TMG and  disposal  of the  Company's
previous product offering to Workstream,  the financial  statements for the year
ended December 31, 2004, are not comparable to the financial  statements for the
year ended December 31, 2003.


                                       10
<PAGE>

Application of Critical Accounting Policies

      Our  discussion  and analysis of our  financial  condition  and results of
operations are based upon our financial statements,  which have been prepared in
accordance with accounting principles generally accepted in the United States of
America.  The  preparation  of these  financial  statements  requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues  and  expenses,   and  related  disclosure  of  contingent  assets  and
liabilities. On an on-going basis, we evaluate these estimates,  including those
related  to  customer  programs  and  incentives,  product  returns,  bad debts,
inventories,  investments,  intangible assets,  income taxes,  contingencies and
litigation.  We base our estimates on historical experience and on various other
assumptions  that are believed to be  reasonable  under the  circumstances,  the
results of which form the basis for making  judgments  about the carrying values
of assets and  liabilities  that are not readily  apparent  from other  sources.
Actual results may differ from these estimates  under  different  assumptions or
conditions.

      We  consider  the  following  accounting  policies  to be both  those most
important to the portrayal of our financial condition and those that require the
most subjective  judgment:

      o     Revenue recognition
      o     Accounts receivable valuation and related reserves
      o     Valuation of fixed assets
      o     Accounting for income taxes
      o     Impairment of intangible assets

See  disclosures  in  Note 1 of  the  financial  statements  for  the  Company's
accounting policies and procedures.

RESULTS OF OPERATIONS

For the Fiscal Year Ended December 31, 2004

Net Revenue

      Net revenue  increased  $5,906,868 or 430 percent,  to $7,281,809  for the
year ended  December 31, 2004, as compared to the same period in 2003.  Revenues
for 2003 and the first  quarter of 2004  related to the  disposed  business  are
included in discontinued operations. This increase was due to the acquisition of
The  Mayo  Group.  100%  of  the  Company's  net  revenue  as  presented  on the
consolidated statement of operations, for the year ended 2004, were derived from
the sales and services of  outsourced  image  management  and  document  imaging
equipment,  and 0% was derived from solutions  related to its previous  business
operations.

Cost of Revenue

      Cost of revenue consists of document imaging  equipment,  parts,  supplies
and salaries and expenses of field services personnel. Cost of revenue increased
by $3,233,380 to $4,012,100,  or 55 percent of sales for the year ended December
31, 2004, as compared to $778,720, or 57 percent of sales for the same period in
2003.  Cost of revenues  for 2003 and the first  quarter of 2004  related to the
disposed business are included in discontinued operations.  The increase in cost
of revenues  was due to the increase in revenues  associated  with the change in
business  operations  comprised  of  sales  and  services  of  outsourced  image
management and document imaging equipment.


                                       11
<PAGE>

Research and Development

      Pursuant  to the  Workstream  transaction,  the  Company no longer  incurs
research and development expenses.  For the year ended December 31, 2003 and the
first quarter of 2004, research and development  expenses consisted of personnel
expenses and associated  overhead that are included in discontinued  operations.
The Company's  investment in research and development  decreased $659,910 to $0,
or 0 percent of sales for year ended December 31, 2004, as compared to $659,910,
or 48 percent of sales for the same period in 2003. All costs currently incurred
in 2004 and 2003, in the research and development of new software  products were
expensed as incurred. Auxilio is not involved in research and development as the
Company has changed its business pursuant to the acquisition of The Mayo Group.

Sales and Marketing

      Sales and marketing expenses include salaries, commissions and expenses of
sales and marketing personnel,  travel and entertainment,  and other selling and
marketing  costs.   Sales  and  marketing   expenses  decreased  by  $92,010  to
$1,423,106,  or 20 percent of sales for the year ended  December  31,  2004,  as
compared  to  $1,515,116,  or 110  percent of sales for the same period in 2003.
Sales  and  marketing  for 2003 and the first  quarter  of 2004  related  to the
disposed  business are included in  discontinued  operations.  This decrease was
primarily due to the change in business activity,  as marketing related expenses
for the business  activities in outsourced image management  services are lower.
The  decrease  in the sales and  marketing  expenses  as a percent of sales is a
result of the 430% increase in revenue.

General and Administrative

      General and  administrative  expenses,  which include  personnel costs for
finance, administration, information systems, and general management, as well as
facilities expenses, professional fees, legal expenses, and other administrative
costs,  increased by $44,014 to $1,285,576,  or 18 percent of sales for the year
ended December 31, 2004, as compared to  $1,241,562,  or 90 percent of sales for
same period in 2003.  Certain general and  administrative  expenses for 2003 and
first quarter of 2004 which are related to the disposed business are included in
discontinued operations.  The increase for the current year was primarily due to
the change in the business  activities to outsourced image management  services.
The decrease in the general and administrative expenses as a percent of sales is
a result of the 430% increase in revenue.

Intangible Asset Amortization

      Intangible asset amortization was $333,092 for the year ended December 31,
2004,  compared to $13,736 for the year ended December 31, 2003. The increase in
amortization expense is a result of the acquisition of TMG and the allocation of
part of the  purchase  price to  certain  intangible  assets.  See Note 2 of the
Company's financial  statements.  Intangible asset amortization for 2003 relates
to the disposed business that is included in discontinued operations.

Other Income (Expense)

      Other income and expense includes interest income net of interest expense.
Interest income is primarily derived from short-term interest-bearing securities
and money market  accounts.  Interest expense for the fiscal year ended December
31, 2004 was $13,662  compared to $16,088 for the same period in 2003.  Interest
income for the fiscal year ended December 31, 2004 was $6,148 compared to $3,772
for the same period in 2003, primarily due to an increase in the average balance
of invested cash and short-term investments.

Loss on disposal of fixed assets

      During the year ended December 31, 2003, the Company  recognized a loss on
disposal  of fixed  assets of $442,142  relating  to its non HCM tools  software
solution and related assets.  Due to competitive  forces, the Company determined
to focus  efforts  on the new HCM tools  offering.  The loss is  related  to the
disposed business and included in discontinued operations.


                                       12
<PAGE>

Liquidity and Capital Resources

      At  December  31,  2004,  our  cash  and cash  equivalents  were  equal to
$951,090.  The Company's principal cash requirements are for operating expenses,
including equipment,  supplies, employee costs, capital expenditures and funding
of the operations.  The Company's  primary sources of cash are from revenues and
private placements of the Company's common stock.

      During the year ended 2004, the Company generated  $655,167 from operating
activities, as compared to $2,563,144 used for operating activities for the same
period in 2003. The increase in cash generated was primarily due to the increase
in revenue and related  collections,  as a result of the acquisition of The Mayo
Group.

      On December 28, 2004,  Auxilio  entered into a Revolving Loan and Security
Agreement with Mr. Michael D.  Vanderhoof.  Mr.  Vanderhoof is a director of the
Company.  Under the  agreement,  the  Company  can  borrow up to  $500,000  (the
"Revolving  Loan").  Money will be advanced to Auxilio by Mr. Vanderhoof against
the $500,000 limit upon six business days advance written notice by the Company.
Interest  will  accrue  daily upon any unpaid  principal  balance at the rate of
eight percent (8%) per annum.  Accrued interest is payable in full monthly.  All
outstanding  principal  is due and payable in full on  December  10,  2005.  The
Revolving  Loan  is  secured  by  all  of  the  Company's  inventory,   accounts
receivable,   equipment,  cash,  deposit  accounts,   securities,   Intellectual
Property,  chattel paper,  general intangibles and instruments,  now existing or
hereafter arising,  and all proceeds thereof. In consideration for the making of
the  Revolving  Loan,  Mr.  Vanderhoof  will also  receive a warrant to purchase
common  shares of the  Company in a number  equal to 10% of the  highest  amount
outstanding. For example, if the full amount of $500,000 is borrowed, the holder
will have the right to purchase  50,000 shares of stock.  The exercise  price is
equal to $2.00 per share. The warrant is being accounted for under APB 25. As of
December 31, 2004 the Company had not borrowed  under the Revolving  Loan. As of
March 30, 2005, the Company has borrowed $500,000 and issued 50,000 warrants.

      In February, 2005, the Company initiated a private placement of its common
stock, at $2.00 per share. As of March 30, 2005,  $1,808,720 of net proceeds has
been  collected,  resulting in an additional  983,000  shares being issued.  The
Company is dependent upon the successful  completion of this private  placement.
Our  need  for  such  additional   financing  depends  in  part  on  our  future
performance,  which,  in turn, is subject to general  economic  conditions,  and
business and other factors beyond our control.  The Company anticipates that the
cash from the private  placement and the borrowings  from Michael D.  Vanderhoof
are sufficient to sustain the business operations over the next twelve months.

Contractual Obligations and Contingent Liabilities and Commitments

      The  Company  leases  certain  of  its  facilities  under   non-cancelable
operating  lease  arrangements  that expire at various dates  through 2009.  The
following  table  summarizes  future  minimum  payments  for these  leases as of
December 31, 2004:

<TABLE>
<CAPTION>
                                      Total               2005               2006-2007          2008-2009
                                  --------------- --------------------- --------------------- --------------
<S>                                  <C>                <C>                   <C>               <C>
            Operating Leases         $977,346           $275,207              $357,994          $344,145
</TABLE>

FACTORS THAT MAY AFFECT FUTURE RESULTS

      This  Report,  including  the  discussion  and  analysis of our  financial
condition  and  results  of  operations  set  forth  above,   contains   certain
forward-looking  statements.  Forward-looking statements set forth estimates of,
or our  expectations or beliefs  regarding,  our future  financial  performance.
Those estimates,  expectations and beliefs are based on current  information and
are subject to a number of risks and  uncertainties  that could cause our actual
operating  results and financial  performance in the future to differ,  possibly
significantly,  from those set forth in the forward-looking statements contained
in this  Report and,  for that  reason,  you should not place undue  reliance on
those  forward-looking  statements.   Those  risks  and  uncertainties  include,
although they are not limited to, the following:


                                       13
<PAGE>

WE ARE A NEW COMPANY WITH A LIMITED OPERATING HISTORY.

      Our business  was  incorporated  in March 2000.  During March and April of
2004, we entered into two  transactions  which  changed the  Company's  business
operations  and revenue  model.  In March 2004,  the Company sold its survey and
assessment software to Workstream,  Inc. In April 2004, the Company completed an
acquisition  of TMG and as a  result  of such  acquisition,  entered  the  Image
Management  industry.  The future  revenue  opportunity  is focused on providing
outsourced  financial and business processes for image management in healthcare.
We  have  limited  operating  history  in  this  industry  on  which  to base an
evaluation of our business and prospects,  and any  investment  decision must be
considered in light of the risks and  uncertainties  encountered by companies in
the early stages of  development.  Such risks and  uncertainties  are frequently
more severe for those companies operating in new and rapidly evolving markets.

      Some of the factors  upon which our success  will depend  include (but are
not limited to) the following:

      o     the emergence of competitors  in our target market,  and the quality
            and development of their products and services;
      o     the market's acceptance of our products and services.

      In order to address these risks, we must (among other things) be able to:

      o     successfully complete the development of our products and services;
      o     modify our products and services as necessary to meet the demands of
            our market;
      o     attract and retain highly skilled employees; and
      o     respond to competitive influences.

      On an  ongoing  basis,  we  cannot  be  certain  that  we  will be able to
successfully address any of these risks.

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

      The market for our products and services is  competitive  and is likely to
become even more competitive in the future.  Increased  competition could result
in pricing  pressures,  reduced  sales,  reduced  margins or the  failure of our
products and  services to achieve or maintain  market  acceptance,  any of which
would have a material adverse effect on our business,  results of operations and
financial  condition.  Many  of our  current  and  potential  competitors  enjoy
substantial competitive advantages, such as:

      o     greater name recognition and larger marketing budgets and resources;
      o     established  marketing  relationships  and access to larger customer
            bases;
      o     substantially greater financial, technical and other resources; and
      o     larger technical and support staffs.

      As a result,  our  competitors may be able to respond more quickly than we
can  to new or  changing  opportunities,  technologies,  standards  or  customer
requirements.  For all of the foregoing  reasons,  we may not be able to compete
successfully against our current and future competitors.


                                       14
<PAGE>

THE  COMPANY  HAS 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.

      The Company experienced net operating income of approximately $228,000 for
the fiscal year ended December 31, 2004, a net operating  loss of  approximately
$2.9   million  for  the  fiscal   year  ended   December   31,   2003   (before
reclassification  for  discontinued  operations)  and a net  operating  loss  of
approximately  $1.7 million for the fiscal year ended  December 31, 2002.  There
can be no assurances that the Company will be able to operate  profitably in the
future.  In the event that the Company is not  successful  in  implementing  its
business  plan,  the  Company  will  require  additional  financing  in order to
succeed.  There can be no assurance that additional  financing will be available
now or in the future on terms that are  acceptable  to the Company.  If adequate
funds are not available or are not available on  acceptable  terms,  the Company
may be unable to develop or enhance its products and services, take advantage of
future  opportunities  or respond to competitive  pressures,  all of which could
have a material adverse effect on the Company's business, financial condition or
operating results.

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

      Our access to equipment,  parts,  supplies,  and services depends upon our
relationships with, and our ability to purchase these items on competitive terms
from our principal vendors. We do not enter into long-term supply contracts with
these vendors and we have no current plans to do so in the future. These vendors
are not required to use us to distribute  their equipment and are free to change
the prices and other  terms at which  they sell to us. In  addition,  we compete
with the selling efforts of some of these vendors.  Significant deterioration in
relationships  with, or in the financial condition of, these significant vendors
could have an adverse impact on our ability to sell and lease  equipment as well
as our ability to provide  effective  service and technical  support.  If one of
these vendors terminates or significantly  curtails its relationship with us, or
if one of these  vendors  ceases  operations,  we would be forced to expand  our
relationships  with our  existing  vendors  or seek out new  relationships  with
previously-unused vendors.

WE ARE DEPENDENT UPON OUR LARGEST CUSTOMER.

      The loss of any key customer could have a material adverse effect upon the
Company's financial condition, business, prospects and results of operation. The
Company's   largest   customer,   Huntington   Memorial   Hospital,   represents
approximately  65% of the  Company's  revenues  for the year ended  December 31,
2004.  Although the Company  anticipates  that this customer will represent less
than  15% of  revenue  for 2005 and  less  than 10% for  2006,  the loss of this
customer may  contribute  to our inability to operate as a going concern and may
require us to obtain  additional  equity funding or debt  financing  (beyond the
amounts  described above) to continue our operations.  We cannot be certain that
we will be able to obtain such additional  financing on commercially  reasonable
terms, or at all.

WE ARE  DEPENDENT  ON 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.

      Our future success  depends on the continued  services and  performance of
our  management  team and our key  employees  and their ability to work together
effectively.  If our  management  team fails to work together  effectively,  our
business  could be harmed.  Although we believe we will be able to retain  these
key employees,  and continue hiring qualified personnel,  our inability to do so
could materially  adversely affect our ability to market,  sell, and enhance our
services.  The loss of key  employees or our  inability to hire and retain other
qualified  employees  could  have a  material  adverse  effect on our  business,
prospects, financial condition and results of operations.


                                       15
<PAGE>

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

      Our products and services are targeted to the healthcare  market, a market
in which there are many competing service providers. Accordingly, the demand for
our  products  and  services  is very  uncertain.  The market may not accept our
products  and  services.  Even  if our  products  and  services  achieve  market
acceptance,  our  products  and  services  may  fail  to  address  the  market's
requirements adequately.

IF WE FAIL TO PROVIDE SERVICES, OUR REVENUES AND PROFITABILITY WOULD BE HARMED.

      Our services are integral to the  successful  deployment of our solutions.
If our services  organization  does not  effectively  implement  and support our
customers, our revenues and operating results would be harmed.

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

      We may need additional funds to expand or meet all of our operating needs.
If we need additional financing,  we cannot be certain that it will be available
on  favorable  terms,  if at  all.  Further,  if  we  issue  equity  securities,
stockholders will experience  additional  dilution and the equity securities may
have seniority over our common stock.  If we need funds and cannot raise them on
acceptable terms, we may not be able to:

      o     Develop or enhance our service offerings;
      o     Take advantage of future opportunities; or
      o     Respond to customers and competition.

WE MUST MANAGE GROWTH TO ACHIEVE PROFITABILITY.

      To  be  successful,  we  will  need  to  implement  additional  management
information systems,  develop further our operating,  administrative,  financial
and accounting  systems and controls and maintain close  coordination  among our
executive,  finance, marketing, sales and operations organizations.  Any failure
to manage growth effectively could materially harm our business.

SHAREHOLDERS WILL EXPERIENCE  DILUTION AS A RESULT OF THE COMPANY'S STOCK OPTION
PLANS.

      The Company has granted stock  options to its  employees  and  anticipates
granting   additional  stock  options  to  its  employees  in  order  to  remain
competitive  with the market demand for such qualified  employees.  As a result,
investors could experience dilution.

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

      Some provisions of our Articles of Incorporation,  as amended, and Bylaws,
as well as some provisions of Nevada or California law, may discourage, delay or
prevent third parties from acquiring us, even if doing so would be beneficial to
our shareholders.


                                       16
<PAGE>

WE DO NOT INTEND TO PAY DIVIDENDS.

      We have never declared or paid any cash dividends on our common stock.  We
currently intend to retain any future earnings to fund growth and, therefore, do
not expect to pay any dividends in the foreseeable future.

FUTURE SALES OF RESTRICTED SHARES COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON
STOCK AND LIMIT OUR ABILITY TO COMPLETE ADDITIONAL FINANCING.

      Although our shares are currently  trading on the OTC Bulletin Board,  the
volume of  trading  of our  common  stock and the number of shares in the public
float are small.  Sales of a  substantial  number of shares of our common  stock
into the  public  market in the future  could  materially  adversely  affect the
prevailing market price for our common stock. In connection with our acquisition
of TMG, we issued  4,000,070  shares of common  stock,  all of which will become
eligible  for resale  pursuant to Rule 144 of the  Securities  Act in the second
calendar quarter of 2005. Such a large "over-hang" of stock eligible for sale in
the public  market,  including  shares of common stock offered  pursuant to this
Memorandum  which may become  eligible  for resale in the  future,  may have the
effect of  depressing  the price of our common  stock,  and make it difficult or
impossible for us to obtain additional debt or equity financing.

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

      The market price for our common stock has been,  and is likely to continue
to be, volatile. The following factors may cause significant fluctuations in the
market price of our ordinary shares:

      o     Fluctuations in our quarterly  revenues and earnings or those of our
            competitors;
      o     Shortfalls in our operating  results  compared to levels expected by
            the investment community;
      o     Announcements concerning us or our competitors;
      o     Announcements of technological innovations;
      o     Sale  of  shares  or  short-selling  efforts  by  traders  or  other
            investors;
      o     Market conditions in the industry; and
      o     The conditions of the securities markets.

      The factors  discussed above may depress or cause  volatility of our share
price, regardless of our actual operating results.

Item 7. Consolidated Financial Statements

      See the consolidated  financial  statements attached to and made a part of
this report.

Item 8. Changes  in and  Disagreements  with  Accountants  on  Accounting  and
        Financial Disclosure

      None.

Item 8A. Controls and Procedures

      Disclosure  controls are procedures that are designed with an objective of
ensuring that information required to be disclosed in Auxilio's periodic reports
filed with the SEC,  such as this Annual  Report on Form  10-KSB,  is  recorded,
processed, summarized and reported within the time periods specified by the SEC.
Disclosure  controls are also  designed  with an objective of ensuring that such
information is accumulated and communicated to Auxilio's  management,  including
the CEO and  CFO,  in order to allow  timely  consideration  regarding  required
disclosures.

      The  evaluation  of  Auxilio's  disclosure  controls  by the  CEO  and CFO
included a review of the controls'  objectives and design,  the operation of the
controls,  and the effect of the controls on the  information  presented in this
Annual Report. Auxilio's management,  including the CEO and CFO, does not expect
that disclosure controls can or will prevent or detect all errors and all fraud,
if any. A control system, no matter how well designed and operated,  can provide
only  reasonable,  not absolute,  assurance  that the  objectives of the control
system are met. Also,  projections of any evaluation of the disclosure  controls
and  procedures  to future  periods are subject to the risk that the  disclosure
controls and procedures may become inadequate  because of changes in conditions,
or  that  the  degree  of  compliance   with  the  policies  or  procedures  may
deteriorate.


                                       17
<PAGE>

      Based on their review and evaluation as of the date of this statement, and
subject to the inherent  limitations  all as described  above,  Auxilio's  Chief
Executive  Officer and Chief  Financial  Officer have  concluded  that Auxilio's
disclosure  controls and procedures (as defined in Rules 13a-14 and 15d-14 under
the  Securities  Exchange Act of 1934) are effective  except as discussed in the
next paragraph below.

      In connection with the completion of its audit of, and the issuance of its
report on, our consolidated financial statements for the year ended December 31,
2004, Auxilio identified deficiencies that existed in the design or operation of
our  internal  controls  over  financial  reporting  that  it  considered  to be
"material weaknesses." The Public Company Accounting Oversight Board had defined
a material  weakness as a "significant  deficiency or combination of significant
deficiencies  that  results  in more than a remote  likelihood  that a  material
misstatement  of the  annual  or  interim  financial  will not be  prevented  or
detected."

      The   deficiencies  in  our  internal   controls  relates  to  the  timely
reconciliation  of  income  taxes  required  by SFAS  No.  109.  The  unrecorded
transactions and disclosure  deficiencies were detected in the audit process and
have been  appropriately  recorded and disclosed in this Form 10-KSB.  We are in
the process of improving  our internal  controls in an effort to remediate  this
deficiency through improved supervision and training of our accounting staff.

      This  deficiency  has been  disclosed to our Audit  Committee.  Additional
effort is needed to fully  remedy  this  deficiency  and we are  continuing  our
efforts to improve and  strengthen  our control  processes and  procedures.  Our
management  and Audit  Committee  will  continue to work with our  auditors  and
outside  advisors to ensure that our  controls and  procedures  are adequate and
effective.

      There has been no change in our internal controls over financial reporting
during the fourth quarter ended December 31, 2004 that has materially  affected,
or is  reasonably  likely to  materially  affect,  our  internal  controls  over
financial reporting.

Item 8B. Other Information

      Reports on Form 8-K.

      A report  on Form 8-K was  filed on  December  29,  2004  pursuant  to the
creation of a direct financial obligation of the Company.

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons: Compliance
        With Section 16(a) of the Exchange Act

      Information  with respect to our executive  officers and directors will be
contained in the Definitive Proxy Statement  relating to our 2005 Annual Meeting
of Stockholders; said information is incorporated herein by reference.

      The Company has adopted a code of ethics,  which applies to all members of
management.


                                       18
<PAGE>

Item 10. Executive Compensation

      A  description  of the  compensation  of our  executive  officers  will be
contained in the Definitive Proxy Statement  relating to our 2005 Annual Meeting
of Stockholders; said information is incorporated herein by reference.

Item 11.  Security  Ownership of Certain  Beneficial  Owners and  Management and
          Related Stockholders

      A description of the security  ownership of certain  beneficial owners and
management will be contained in the Definitive  Proxy Statement  relating to our
2005 Annual Meeting of Stockholders;  said information is incorporated herein by
reference.

Item 12. Certain Relationships and Related Transactions

      Alternative  disclosure:  description of certain relationships and related
transactions with management will be contained in the Definitive Proxy Statement
relating  to our 2005  Annual  Meeting  of  Stockholders;  said  information  is
incorporated herein by reference.

Item 13. Exhibits

Exhibits

<TABLE>
<CAPTION>
-------------- ---------------------------------------------------------------------------------------------------------------
No.            Item
-------------- ---------------------------------------------------------------------------------------------------------------
<S>            <C>
2.1            Agreement and Plan of Reorganization dated as of November 20, 2001, by and between the Company and
               e-Perception, Inc. (incorporated by reference to Exhibit 1.1 to the Registrant's Form 8-K filed on January
               24, 2002).
-------------- ---------------------------------------------------------------------------------------------------------------
2.2            Agreement and Plan of Merger, dated April 1, 2004, by and between Auxilio, Inc., PPVW Acquisition
               Corporation, and Alan Mayo & Associates, Inc. (filed as Exhibit 2.1 to the Registrant's Form 8-K filed on
               April 16, 2004).
-------------- ---------------------------------------------------------------------------------------------------------------
3.1            Certificate of Incorporation
-------------- ---------------------------------------------------------------------------------------------------------------
3.2            Bylaws (incorporated by reference to Exhibit 2 to the Registrant's Form 10-SB filed on October 1, 1999).
-------------- ---------------------------------------------------------------------------------------------------------------
4.1            Subscription Agreement, dated as of January 9, 2002, by and among the Company and each of the stockholders of
               e-Perception, Inc. (incorporated by reference to Exhibit 1.1 to the Registrant's Form 8-K filed on January
               24, 2002).
-------------- ---------------------------------------------------------------------------------------------------------------
10.1           2000 Stock Option Plan
-------------- ---------------------------------------------------------------------------------------------------------------
10.2           2001 Stock Option Plan
-------------- ---------------------------------------------------------------------------------------------------------------
10.3           2003 Stock Option Plan
-------------- ---------------------------------------------------------------------------------------------------------------
10.4           2004 Stock Option Plan
-------------- ---------------------------------------------------------------------------------------------------------------
10.5           Standard Office Lease by and between Arden Realty Limited Partnership and e-Perception Technologies, Inc.
               (incorporated by reference to Exhibit 10.1 to the Registrant's Form 10-QSB filed on May 15, 2002).
-------------- ---------------------------------------------------------------------------------------------------------------
10.6           Asset Purchase Agreement between Workstream USA, Inc., Workstream, Inc. and PeopleView, Inc. dated March 8,.
               2004 (incorporated by reference to Exhibit 2.1 to the Registrant's Form 8-K filed on April 2, 2004).
-------------- ---------------------------------------------------------------------------------------------------------------
10.7           Addendum dated as of May 27, 2004 to Asset Purchase Agreement dated March 17th, 2004 between Workstream Inc.
               Workstream USA, Inc. and PeopleView, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant's Form
               8-K/A filed on August 3, 2004).
-------------- ---------------------------------------------------------------------------------------------------------------
10.8           Revolving Loan and Security Agreement between Auxilio, Inc. and Michael D. Vanderhoof (filed as Exhibit 10.1
               to the Registrant's Form 8-K filed on December 29, 2004).
-------------- ---------------------------------------------------------------------------------------------------------------
10.9           Executive Employment Agreement between Registrant and Etienne Weidemann, President and Chief Operating
               Officer dated April 1, 2004.
-------------- ---------------------------------------------------------------------------------------------------------------
10.10          Executive Employment Agreement between Registrant and Joseph J Flynn, Chief Executive Officer and Chairman of
               the Board of Directors dated April 1, 2004.
-------------- ---------------------------------------------------------------------------------------------------------------
10.11          Executive Employment Agreement between Registrant and James Stapleton, Chief Financial Officer and Corporate
               Secretary dated April 1, 2004.
-------------- ---------------------------------------------------------------------------------------------------------------
10.12          Executive Employment Agreement between Registrant and Paul T. Anthony, Chief Financial Officer and Corporate
               Secretary dated December 10, 2004.
-------------- ---------------------------------------------------------------------------------------------------------------
</TABLE>


                                       19
<PAGE>

<TABLE>
<CAPTION>
-------------- ---------------------------------------------------------------------------------------------------------------
No.            Item
-------------- ---------------------------------------------------------------------------------------------------------------
<S>            <C>
10.13          Standard Office Lease agreement by and between Auxilio, Inc and McMorgan Institutional Real Estate Fund I,
               LLC. dated October 13, 2004.
-------------- ---------------------------------------------------------------------------------------------------------------
14             Registrants Code of Ethics (incorporated by reference to Exhibit 14.1 to the Registrant's Form 10-KSB filed
               on April 14, 2004).
-------------- ---------------------------------------------------------------------------------------------------------------
16             Letter regarding change in certifying accountants dated February 14, 2002 (incorporated by reference to
               Exhibit 16 to the Registrant's Form 8-K filed on February 15, 2002).
-------------- ---------------------------------------------------------------------------------------------------------------
21.1           Subsidiaries
-------------- ---------------------------------------------------------------------------------------------------------------
31.1           Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and rule 15d-14(a).
-------------- ---------------------------------------------------------------------------------------------------------------
31.2           Certification  of the Chief Financial  Officer  pursuant to Rule 13a-14(a) and rule 15d-14(a).
-------------- ---------------------------------------------------------------------------------------------------------------
32.1           Certification of the CEO and CFO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of The
               Sarbanes-Oxley Act of 2002.
-------------- ---------------------------------------------------------------------------------------------------------------
</TABLE>

Item 14. Principal Accountant Fees and Services

      A  description  of the  principal  accounting  fees and  services  will be
contained in the Definitive Proxy Statement  relating to our 2005 Annual Meeting
of Stockholders; said information is incorporated herein by reference.


                                       20
<PAGE>

Signatures

      In accordance with section 13 or 15(d) with the Securities Exchange Act of
1934,  the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 18th day of April 2005.

                                                   AUXILIO, Inc.

                                                   By:    /s/ Joseph Flynn
                                                      --------------------------
                                                   Joseph Flynn
                                                   Chief Executive Officer
                                                   Principal Executive Officer

                                                   By:    /s/ Paul T. Anthony
                                                      --------------------------
                                                   Paul T. Anthony
                                                   Chief Financial Officer
                                                   Principal Financial Officer

      In accordance  with the Exchange Act, this report has been signed below by
the following  persons on behalf of the Company and in the capacities and on the
dates indicated.

     Signature                       Title                            Date
     ---------                       -----                            ----


/s/ Joseph Flynn              Chief Executive Officer             April 18, 2005
--------------------------    (Principal Executive Officer
Joseph Flynn                  and Director)

/s/ Paul T. Anthony           Chief Financial Officer             April 18, 2005
--------------------------    (Principal Financial and
Paul T. Anthony               Accounting Officer)


/s/ Michael Vanderhoof        Director                            April 18, 2005
--------------------------
Michael Vanderhoof


/s/ Ray Gerrity               Director                            April 18, 2005
--------------------------
Ray Gerrity


/s/ Robert Miller             Director                            April 18, 2005
--------------------------
Robert Miller


/s/ John D. Pace              Director                            April 18, 2005
--------------------------
John D. Pace


/s/ Robert L. Krakoff         Director                            April 18, 2005
--------------------------
Robert L. Krakoff


                                       21
<PAGE>

                          AUXILIO, INC. AND SUBSIDIARY
                        CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003
                      WITH REPORT OF INDEPENDENT REGISTERED
                             PUBLIC ACCOUNTING FIRM


                                    CONTENTS

                                                                            Page

Report of Independent Registered Public Accounting Firm......................F-1


Financial Statements:

    Consolidated Balance Sheet...............................................F-2

    Consolidated Statements of Operations....................................F-3

    Consolidated Statements of Comprehensive Income..........................F-4

    Consolidated Statements of Stockholders' Equity..........................F-5

    Consolidated Statements of Cash Flows...............................F-6, F-7

    Notes to Consolidated Financial Statements.......................F-8 to F-25



<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Audit Committee and Board of Directors
Auxilio, Inc. and Subsidiaries
Mission Viejo, California


We have audited the accompanying consolidated balance sheet of Auxilio, Inc. and
Subsidiaries as of December 31, 2004, and the related consolidated statements of
operations, comprehensive income, stockholders' equity (deficit), and cash flows
for the years ended  December 31, 2004 and 2003.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility is to express an opinion on the consolidated financial statements
based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting  Oversight Board (United States) Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial  position of Auxilio,  Inc. and
Subsidiaries  as of December 31, 2004, and the results of its operations and its
cash flows for the years ended  December 31, 2004 and 2003, in  conformity  with
accounting principles generally accepted in the United States of America.



/s/Stonefield Josephson, Inc.

CERTIFIED PUBLIC ACCOUNTANTS

Irvine, California
April 1, 2005


                                      F-1
<PAGE>

                         AUXILIO, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                December 31, 2004

                                     ASSETS

Current assets:
 Cash                                                        $    951,090
 Accounts receivable, net                                         241,198
 Prepaid and other current assets                                  76,258
 Supplies                                                         409,786
 Investment in marketable securities                              924,688
                                                             ------------
          Total current assets                                  2,603,020

Property and equipment, net                                       209,794
Deposits                                                           56,395
Intangible assets, net                                          1,166,908
Goodwill                                                        1,547,017
                                                             ------------
          Total assets                                       $  5,583,134
                                                             ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
 Accounts payable and accrued expenses                       $  1,204,905
 Accrued compensation and benefits                                655,518
 Deferred revenue                                                 298,523
 Lease buy-out provision                                           32,196
 Current portion of long-term debt                                 18,467
 Line of credit and note payable, related party                   175,368
                                                             ------------
          Total current liabilities                             2,384,977


Commitments and contingencies                                          --

Stockholders' equity:
 Common stock, par value at $0.001, 33,333,333 shares
   authorized, 14,438,662 shares issued and outstanding
                                                                   14,440
 Additional paid-in capital                                    11,836,242
 Accumulated deficit                                           (8,874,735)
 Accumulated comprehensive income                                 222,210
                                                             ------------
          Total stockholders' equity                            3,198,157
                                                             ------------
          Total liabilities and stockholders' equity         $  5,583,134
                                                             ============


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

                                      F-2
<PAGE>

                         AUXILIO, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                              ----------------------------
                                                                   2004           2003
                                                              ------------    ------------

<S>                                                           <C>             <C>
Net Revenues                                                  $  7,281,809    $         --
Cost of revenues                                                 4,012,100              --
                                                              ------------    ------------
Gross profit                                                     3,269,709              --
Operating expenses:
 Sales and marketing                                             1,423,106              --
 General and administrative expenses                             1,285,576         139,369
 Intangible asset amortization                                     333,092              --
                                                              ------------    ------------
  Total operating expenses                                       3,041,774         139,369
                                                              ------------    ------------
Income (loss) from operations                                      227,935        (139,369)
                                                              ------------    ------------
Other income (expense):
 Interest expense                                                  (13,662)        (16,088)
 Interest income                                                     6,148           3,772
 Other Income                                                        3,250           2,325
 Repricing of private placement                                         --         (30,000)
 Loss on disposal of fixed assets                                       --          (3,518)
                                                              ------------    ------------
  Total other income (expense)                                      (4,264)        (43,509)
                                                              ------------    ------------

Income (loss) before provision for income taxes                    223,671        (182,878)
Income tax expense (benefit)                                      (282,160)            800
                                                              ------------    ------------
Net income (loss) from continuing operations                       505,831        (183,678)
Income (loss) from discontinued operations, (including gain
  on disposal of $674,942) net of tax expense of $14,000           487,895      (3,221,342)
                                                              ------------    ------------
Net income (loss)                                             $    993,726    $ (3,405,020)
                                                              ============    ============

Net income (loss) per share - basic:
  Income (loss) per share - continuing operations             $       0.04    $      (0.03)
  Income (loss) per share - discontinued operations           $       0.04    $      (0.49)
                                                              ------------    ------------
Net income (loss) per share - basic                           $       0.08    $      (0.52)
                                                              ============    ============
Net income (loss) per share - diluted:
  Income (loss) per share - continuing operations             $       0.03    $      (0.03)
  Income (loss) per share - discontinued operations           $       0.04    $      (0.49)
                                                              ------------    ------------
Net income (loss) per share - diluted                         $       0.07    $      (0.52)
                                                              ============    ============

Number of weighted average shares -
 Basic                                                          12,729,311       6,588,234
                                                              ============    ============
 Diluted                                                        14,517,617       6,588,234
                                                              ============    ============
</TABLE>

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


                                      F-3
<PAGE>

                         AUXILIO, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                                              Year Ended December 31,
                                             -------------------------
                                                2004           2003
                                             -----------   -----------
Net income (loss)                            $   993,726   $(3,405,020)


Unrecognized gain on marketable securities       222,210            --
                                             -----------   -----------

Comprehensive income (loss)                  $ 1,215,936   $(3,405,020)
                                             ===========   ===========


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


                                      F-4
<PAGE>

                         AUXILIO, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                     Additional                                  Total
                                      Common Stock                    Paid-in    Accumulated   Comprehensive  Stockholders'
                                         Shares        Amount         Capital      Deficit        Income      Equity (Deficit)
                                      -----------   -----------    -----------   -----------    -----------   -----------
<S>                                    <C>          <C>            <C>           <C>            <C>           <C>
Balance at January 1, 2003 as
  restated for effect of one for
  three reverse stock split on May
  15, 2004                              4,631,835   $    13,895    $ 7,301,591   $(6,463,441)   $        --   $   852,045
Shares issued in private
  placement, net of offering costs
  of $546,764                           3,673,931        11,022      2,497,389            --             --     2,508,411
Expenses related to repricing of
  stock sold in private placement          40,000           120         29,880            --             --        30,000
Fair value of warrants issued in
  relation to private placement                --            --          4,231            --             --         4,231
Net loss                                       --            --             --    (3,405,020)            --    (3,405,020)
                                      -----------   -----------    -----------   -----------    -----------   -----------
Balance at December 31, 2003            8,345,766        25,037      9,833,091    (9,868,461)            --       (10,333)
Shares issued in private
  placement, net of offering costs
  of $0                                 1,733,833         1,733        518,417            --             --       520,150
Shares issued for acquisition                  --
                                                      4,000,070          4,000     1,196,022             --     1,200,022
Shares issued for payables                     --
                                                         40,000            120        29,880             --        30,000
Reclass of par value due to
  reverse stock split                          --       (16,769)        16,769            --             --            --
Fair value of warrants issued for
  services                                     --            --          3,137            --             --         3,137
Common stock issued upon exercise
  of warrants                             318,993           319        238,926            --             --       239,245
Unrecognized gain on marketable
  securities                                   --            --             --            --        222,210       222,210
Net income                                     --            --             --       993,726             --       993,726
                                      -----------   -----------    -----------   -----------    -----------   -----------

Balance at December 31, 2004           14,438,662   $    14,440    $11,836,242   $(8,874,735)   $   222,210   $ 3,198,157
                                      ===========   ===========    ===========   ===========    ===========   ===========
</TABLE>


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

                                      F-5
<PAGE>

                         AUXILIO, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                                                       --------------------------
                                                                           2004          2003
                                                                       -----------    -----------
<S>                                                                    <C>            <C>
Cash flows provided by (used for) operating activities:
         Net income (loss)                                             $   993,726    $(3,405,020)
Adjustments to reconcile net income to net cash provided by
         (used for) operating activities:
         Depreciation                                                       47,264        141,843
         Amortization of intangible assets                                 333,092         13,736
         Bad debt expense                                                   12,755             --
         Deferred tax benefit                                             (300,000)            --
         Loss (gain) on disposal of property and equipment                      --        442,142
         Gain on sale of certain assets                                   (668,441)            --
         Interest expense                                                    3,137         11,313
         Expense related to repricing of stock in private placement             --         30,000
         Impairment of assets                                                   --        101,720
Changes in operating assets and liabilities:
         Accounts receivable                                              (201,852)       248,255
         Supplies                                                         (251,272)            --
         Prepaid and other current assets                                   20,346          9,968
         Deposits                                                          (29,040)            --
         Other assets                                                           --         13,637
         Accounts payable and accrued expenses                             581,671       (118,048)
         Lease buy-out provision                                            32,196             --
         Deferred revenue                                                   81,585        (52,690)
                                                                       -----------    -----------
                Net cash provided by (used for) operating activities       655,167     (2,563,144)
                                                                       -----------    -----------
Cash flows used for investing activities:
         Purchases of property and equipment                              (152,358)       (25,499)
         Payment for purchase of Mayo Group, net of cash acquired         (550,613)            --
         Proceeds from sale of certain assets                              250,000             --
         Proceeds from sale of property and equipment                           --            600
                                                                       -----------    -----------
                 Net cash used for investing activities                   (452,971)       (24,899)
                                                                       -----------    -----------
Cash flows provided by financing activities:
         Payments on notes payable and long-term debt                     (236,899)       (14,334)
         Proceeds from issuance of common stock                            520,150      2,508,411
         Proceeds from exercise of warrants                                239,245             --
                                                                       -----------    -----------
                 Net cash provided by financing activities                 522,496      2,494,077
                                                                       -----------    -----------
Net increase (decrease) in cash and cash equivalents                       724,692        (93,966)
Cash and cash equivalents, beginning of year                               226,398        320,364
                                                                       -----------    -----------
Cash and cash equivalents, end of year                                 $   951,090    $   226,398
                                                                       ===========    ===========
</TABLE>


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

                                      F-6
<PAGE>

                         AUXILIO, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                                                                ----------------------
                                                                                    2004        2003
                                                                                ----------    --------
<S>                                                                             <C>           <C>
Supplemental disclosure of cash flow information:

      Interest paid                                                             $   12,415    $ 1,113
                                                                                ==========    =======
      Income tax paid                                                           $      800    $   800
                                                                                ==========    =======

Non-cash investing and financing activities:

      Receivable issued for sale of equipment                                   $       --    $12,971
                                                                                ==========    =======

      Net assets acquired (liabilities assumed), net of bank overdraft,
          through acquisition of Alan Mayo and Associates, Inc.                 $ (181,254)   $    --
                                                                                ==========    =======

      Stock and note payable issued in conjunction with acquisition             $2,015,150    $    --
                                                                                ==========    =======

      Stock issued for payables                                                 $   30,000    $    --
                                                                                ==========    =======

      Warrants issued for services                                              $    3,137    $    --
                                                                                ==========    =======

      Deferred tax liability incurred related to intangibles from acquisition   $ (300,000)   $    --
                                                                                ==========    =======
</TABLE>


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

                                      F-7
<PAGE>

                         AUXILIO, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

(1)   Summary of Significant Accounting Policies

      Business Activity

      The  origins  of the  Company  date  back to  January  of  2002,  when the
      Company's predecessor e-Perception Technologies, Inc. ("e-Perception"),  a
      Human Resources software concern,  completed a tender offer with Corporate
      Development  Centers,  Inc. ("CDC").  CDC's common stock traded on the OTC
      Bulletin Board. In connection with the tender offer,  the  stockholders of
      e-Perception  received  one (1) share of CDC for each  four (4)  shares of
      e-Perception  common  stock they owned  prior to the  tender  offer.  As a
      result,  e-Perception  became  a  wholly  owned  subsidiary  of  CDC.  CDC
      subsequently changed its name to e-Perception, Inc. Approximately eighteen
      months  later   e-Perception   changed  its  name  to   PeopleView,   Inc.
      ("PeopleView")  and traded under the symbol PPVW.  Subsequent to that name
      change PeopleView, Inc. changed its name to Auxilio, Inc. ("Auxilio"). The
      stock now trades under the symbol AUXO.OB.

      In March of  2004,  PeopleView  entered  into an asset  purchase  and sale
      agreement with Workstream,  Inc. (NASDQ:WSTM)  ("Workstream")  whereby the
      Company sold to Workstream  essentially  all of its assets,  including its
      software  products  and  related  intellectual   property,   its  accounts
      receivable, certain computer equipment, customer lists, and the PeopleView
      name,  among  other  things.  Pursuant  to an  addendum  to  the  original
      agreement,  the final consideration the Company received was cash equal to
      $250,000,  246,900  shares of Workstream  common  stock,  and a warrant to
      purchase an  additional  50,000  shares at an exercise  price of $3.00 per
      share. The business operations of PeopleView were discontinued as of March
      2004.

      On April,  1, 2004,  PPVW  Acquisition  Company  ("PPVW"),  a wholly owned
      subsidiary  of  PeopleView,  completed  the  acquisition  of Alan Mayo and
      Associates, Inc. dba The Mayo Group (and referred to herein as "TMG"). TMG
      offered  outsourced  Image  Management  services to healthcare  facilities
      throughout California,  and this acquisition forms the basis for Auxilio's
      current  operations.  Subsequent  to the  acquisition  of TMG,  PeopleView
      changed  its name to  Auxilio,  Inc.  and  changed  PPVW's name to Auxilio
      Solutions, Inc.

      Basis of Presentation

      The  accompanying  financial  statements  have been prepared in conformity
      with  accounting  principles  generally  accepted in the United  States of
      America, which contemplate continuation of the Company as a going concern.
      Although  the Company  has  reported  net income of $993,726  for the year
      ended  December 31, 2004, it has reported a net loss of $3,405,020 for the
      year ended December 31, 2003, and has an accumulated deficit of $8,874,735
      at December  31, 2004.  The Company has working  capital of $218,043 as of
      December 31, 2004.

      Management  has raised  funds  through  the sale of its stock in a private
      placement  that it believes will be sufficient to provide the Company with
      the  ability  to  continue  in  existence.   The  accompanying   financial
      statements do not include any adjustments  relative to the  recoverability
      and   classification   of  assets  carrying  amounts  or  the  amount  and
      classification  of liabilities  that might result from the outcome of this
      uncertainty.

      The consolidated  financial statements include the accounts of the Company
      and  its  wholly  owned  subsidiaries.   All  intercompany   balances  and
      transactions have been eliminated.

      As a  result  of the  acquisition  of TMG and  disposal  of the  Company's
      previous product offering to Workstream,  the financial statements for the
      year ended December 31, 2004, are not comparable, from a business activity
      viewpoint,  to the financial  statements  for the year ended  December 31,
      2003.


                                      F-8
<PAGE>

      Use of Estimates

      The  preparation  of financial  statements in conformity  with  accounting
      principles  generally  accepted in the United  States of America  requires
      management  to make  estimates  and  assumptions  that affect the reported
      amounts of assets and liabilities and disclosure of contingent  assets and
      liabilities  at the  date of the  financial  statements  and the  reported
      amounts of revenues  and  expenses  during the  reporting  period.  Actual
      results could differ from those estimates.

      Revenue Recognition

      Revenue  is  recognized  pursuant  to  applicable   accounting   standards
      including  Securities  and Exchange  Commission  ("SEC") Staff  Accounting
      Bulletin  ("SAB") No. 101 (SAB 101),  "Revenue  Recognition  in  Financial
      Statements",  and SAB 104, Revenue Recognition. SAB 101 as amended and SAB
      104  summarize  certain  points  of the  SEC  staff's  views  in  applying
      generally  accepted  accounting   principles  to  revenue  recognition  in
      financial  statements and provides guidance on revenue  recognition issues
      in  the  absence  of  authoritative   literature   addressing  a  specific
      arrangement  or a specific  industry.  The Company's  revenue  recognition
      policy  complies with the  requirements  of SAB 101 and SAB 104.  Revenues
      from equipment sales transactions are earned upon equipment being accepted
      by the  customer.  For  equipment  that is to be placed  at the  customers
      location at a future  date  revenue is deferred  until that  equipment  is
      placed.  Monthly  service and supply  revenue is earned monthly during the
      term of the  contract,  as services and  supplies  are  provided  monthly.
      Overages as defined in the contract  are billed to  customers  monthly and
      are  earned  when the number of images in any  period  exceeds  the number
      allowed for in the contract.

      Deferred Revenue

      Deferred  revenue is an estimate  of revenue  expected to be earned in the
      future under the equipment  contracts for additional  equipment  (printers
      and faxes) to be placed at the customer's  location that has been included
      in the original contract amount.  This additional  equipment is identified
      by the Company at the start of a contract.

      Cash and Cash Equivalents

      For purposes of the statement of cash flows, cash equivalents  include all
      highly liquid debt instruments with original maturities of three months or
      less which are not securing any corporate obligations.

      Accounts Receivable

      The Company  provides an  allowance  for  doubtful  accounts  equal to the
      estimated  uncollectible  amounts.  The  Company's  estimate  is  based on
      historical  collection  experience  and a review of the current  status of
      trade accounts  receivable.  It is reasonably  possible that the Company's
      estimate of the  allowance  for doubtful  accounts  will change.  Accounts
      receivable  are  presented  net of an allowance  for doubtful  accounts of
      $10,598 at December 31, 2004.

      Investments In Marketable Securities

      Investments  in  marketable   securities   consist  of  equity  securities
      classified  as  "available   for  sale"  under   Statements  of  Financial
      Accounting Standards No. 115 and reported at fair value and warrants being
      accounted for under APB 18.  Accordingly,  unrealized  gains and losses on
      the equity  securities  are reflected in the  statements of  comprehensive
      income. The warrants are accounted for at cost.

      Supplies

      Supplies consist of parts and supplies for the automated office equipment,
      including copiers, facsimile machines and printers. Supplies are valued at
      the lower of cost or market value on a first-in, first-out basis.


                                      F-9
<PAGE>

      Property and Equipment

      Property and equipment are carried at cost less accumulated  depreciation.
      Depreciation   of  the  property  and  equipment  is  provided  using  the
      straight-line  method over the assets'  estimated  economic  lives,  which
      range from 2 to 7 years.  Expenditures  for  maintenance  and  repairs are
      charged to expense as incurred.

      Intangible Assets

      Under Statement of Financial  Accounting  Standard  ("SFAS") No. 142 (SFAS
      142),  "Goodwill and Other  Intangible  Assets",  goodwill and  intangible
      assets with indefinite  lives are no longer  amortized,  but the remaining
      useful life will be reviewed  each  reporting  period for  impairment.  In
      order to measure any impairment,  the Company evaluates whether there were
      any  events  or  circumstances  that have  occurred  that may  affect  the
      carrying amount of the intangible. This testing includes the determination
      of the fair value of the reporting unit. If the value of the asset exceeds
      the fair value of the reporting  unit, then the Company would estimate the
      undiscounted  cash flows from continuing to use the asset and compare that
      amount to the assets carrying amount.  If the carrying amount of the asset
      is greater than the  expected  future cash flows then an  impairment  loss
      would be recognized.  The result of this testing indicated that a goodwill
      impairment  charge was not necessary.  Separately  identified  intangibles
      that are deemed to have definite  lives will continue to be amortized over
      their useful life, with no maximum life.

      Long-Lived Assets

      In accordance with SFAS Nos. 142 and 144, long-lived assets to be held and
      used  are  analyzed  for   impairment   whenever   events  or  changes  in
      circumstances  indicate  that the  carrying  amount of an asset may not be
      recoverable.  SFAS No.  142  relates  to assets  with an  indefinite  life
      whereas  SFAS 144  relates to assets  that can be  amortized  and the life
      determinable.  The Company  evaluates at each  balance  sheet date whether
      events and circumstances have occurred that indicate possible  impairment.
      If  there  are   indications  of  impairment,   the  Company  uses  future
      undiscounted  cash flows of the related  asset or asset  grouping over the
      remaining  life in measuring  whether the assets are  recoverable.  In the
      event such cash flows are not  expected  to be  sufficient  to recover the
      recorded asset values, the assets are written down to their estimated fair
      value.  Long-lived  assets to be disposed of are  reported at the lower of
      carrying amount or fair value of asset less the cost to sell.

      Lease Buy-Out Provision

      Lease buy-out  provision  consists of amounts expected to be paid to third
      party lessors on equipment currently located at new customer's  locations.
      The  Company  will  buy-out  existing  lease  agreements  at a  customer's
      location  if it is  beneficial  to the  Company to do so.  This  liability
      represents  an  estimate  of the  amounts  that  are to be paid to end the
      current lease agreements that certain customers have.

      Advertising

      The Company expenses  advertising costs when incurred.  For the year ended
      December 31, 2003 and the first quarter of 2004,  advertising expenses are
      included in discontinued  operations.  Advertising  expense totaled $3,152
      and $51,662, respectively, for the years ended December 31, 2004 and 2003.

      Research and Development

      Pursuant  to the  Workstream  transaction,  the  Company no longer  incurs
      research and  development  expenses.  For the year ended December 31, 2003
      and the first quarter of 2004, research and development expenses consisted
      of  personnel  expenses  and  associated  overhead  and  are  included  in
      discontinued operations. Research, development, and engineering costs were
      expensed  in the year  incurred.  These  costs were  $46,249 for the first
      quarter of 2004 and $659,910 for the year ended December 31, 2003. Auxilio
      is not  involved in research and  development  expenses as the Company has
      changed it business pursuant to the acquisition of TMG.


                                      F-10
<PAGE>

      Income Taxes

      Deferred  tax assets and  liabilities  are  recognized  for the future tax
      consequences  attributable to differences  between the financial reporting
      requirements and those imposed under federal and state tax laws.  Deferred
      taxes are provided for timing  differences  in the  recognition of revenue
      and  expenses  for income tax and  financial  reporting  purposes  and are
      measured  using enacted tax rates  expected to apply to taxable  income in
      the  years  in  which  those  temporary  differences  are  expected  to be
      recovered or settled. The effect on deferred tax assets and liabilities of
      a change in tax rates is  recognized in income in the period that includes
      the enactment  date.  Deferred  income tax expense  represents  the change
      during  the  period  in the  deferred  tax  assets  and  liabilities.  The
      components  of the deferred tax assets and  liabilities  are  individually
      classified  as current  and  non-current  based on their  characteristics.
      Realization   of  the  deferred  tax  asset  is  dependent  on  generating
      sufficient taxable income in future years. Deferred tax assets are reduced
      by a valuation  allowance  when, in the opinion of management,  it is more
      likely than not that some  portion or all of the  deferred tax assets will
      not be realized.

      Fair Value of Financial Instruments

      The carrying amount of the Company's cash and cash  equivalents,  accounts
      receivable, notes payable, deferred revenue, accounts payable, and accrued
      expenses, none of which is held for trading,  approximates their estimated
      fair  values  due  to  the  short-term   maturities  of  those   financial
      instruments.

      Comprehensive Income

      SFAS No. 130, "Reporting  Comprehensive Income," establishes standards for
      the reporting and display of  comprehensive  income and its  components in
      the  financial  statements.  As of  December  31,  2004,  the  Company had
      unrecognized gains on marketable securities of $222,210. (See Note 3.)

      Stock-Based Compensation

      The  Company  accounts  for  employee  stock  options in  accordance  with
      Accounting  Principles  Board Opinion No. 25 ("APB 25"),  "Accounting  for
      Stock Issued to  Employees."  Under APB 25, the Company does not recognize
      compensation  expense  related  to  options  issued  under  the  Company's
      employee  stock  options  plans,  unless  the option is granted at a price
      below market price on the date of grant.

      For  non-employees  stock based  compensation,  the Company  recognizes an
      expense in accordance with Statement of Financial Accounting Standards No.
      123 (Accounting for Stock-Based  Compensation) ("SFAS 123") and values the
      equity  securities  based on the fair value of the security on the date of
      grant. For stock-based  awards, the value is based on the market value for
      the stock on the date of grant and if the  stock  has  restrictions  as to
      transferability,  a discount is provided  for lack of  tradability.  Stock
      option awards are valued using the Black-Scholes option-pricing model.

      Since the Company elected to follow APB 25 for its employee stock options,
      no  compensation  expense  is  recognized  in the  accompanying  financial
      statements.  This is due to the exercise  price of the Company's  employee
      stock options equals the market price of the Company's common stock on the
      date of grant. If under SFAS 123 the Company determined compensation costs
      based on the fair  value at the  grant  date for its  stock  options,  net
      income (loss) and income (loss) per share would have been as follows:


                                      F-11
<PAGE>

<TABLE>
<CAPTION>
                                                                             2004             2003
                                                                          ------------  ------------
<S>                                                                       <C>           <C>
           Net income (loss):
              As reported                                                 $   993,726   $ (3,405,020)
              Add: APB 25 Expense                                                  --             --
                                                                          -----------   ------------
              Deduct:  Total stock based employee compensation
              expense determined under SFAS 123 fair value based method       953,802        414,335
                                                                          -----------   ------------
              Pro forma                                                   $    39,924   $ (3,819,355)
                                                                          ===========   ============

           Basic income (loss) per share:
              As reported                                                 $      0.08   $      (0.52)
              Pro forma                                                   $      0.00   $      (0.58)

           Diluted income (loss) per share:
              As reported                                                 $      0.07   $      (0.52)
              Pro forma                                                   $      0.00   $      (0.58)
</TABLE>

      The weighted average  estimated fair value of stock options granted during
      2004 and 2003 was $0.82 and $0.75 per share,  respectively.  These amounts
      were determined using the Black-Scholes option-pricing model, which values
      options  based on the stock price at the grant date,  the expected life of
      the option,  the estimated  volatility of the stock, the expected dividend
      payments,  and the  risk-free  interest rate over the expected life of the
      option.  The assumptions used in the  Black-Scholes  model were as follows
      for stock options granted in 2004 and 2003:

                                                        2004              2003
                                                 ------------------ ------------

           Risk-free interest rate                 1.25% to 2.67%          1.25%
           Expected volatility of common stock   210.13% to 253.54%      234.53%
           Dividend yield                                0%                   0%
           Expected life of options                    1 year             1 year


      The Black-Scholes  option valuation model was developed for estimating the
      fair value of traded  options  that have no vesting  restrictions  and are
      fully  transferable.  Because option  valuation  models require the use of
      subjective assumptions, changes in these assumptions can materially affect
      the fair  value of the  options.  The  Company's  options  do not have the
      characteristics of traded options;  therefore, the option valuation models
      do not  necessarily  provide a  reliable  measure of the fair value of its
      options.

      In  December  2004 the Board of  Directors  approved  and issued a warrant
      agreement to purchase 330,000 shares of the Company's common stock to Paul
      Anthony, the Chief Financial Officer, at a price of $1.95 per share, which
      was the  closing  price  the  Company's  Common  Stock  on the date of the
      agreement.  The warrants granted are restricted from vesting for a minimum
      of one year,  while certain  shares only vest pursuant to certain  earning
      targets being achieved,  and accordingly,  the intrinsic value measurement
      will be made when the earnings  targets are met. The Company  accounts for
      warrants  granted to employees under APB 25. The warrants are earned after
      each year of  service,  therefore  the first  period an  expense  would be
      recognized is the quarter ended  December 31, 2005.  The fair market value
      was determined using the Black Scholes pricing model. The assumptions used
      to calculate the fair market value are as follows: risk-free interest rate
      of 1.25%;  estimated  volatility of 246.28%;  dividend  yield of 0.0%; and
      expected life of the warrants of four years.

      Basic and Diluted Loss Per Share

      In accordance with SFAS No. 128,  "Earnings Per Share," the basic earnings
      per common  share is computed by dividing  net income  available to common
      stockholders by the weighted average number of common shares  outstanding.
      Diluted earnings per common share is computed  similarly to basic earnings
      per common share,  except that the denominator is increased to include the
      number of additional common shares that would have been outstanding if the
      potential  common  shares  had been  issued and if the  additional  common
      shares were anti-dilutive.  At December 31, 2004 and 2003, the Company had
      approximately  2,598,535  and  618,136,   respectively,  of  common  stock
      equivalents,  of which  107,211 and 618,136 have not been  included in the
      computation  of  diluted  earnings  per  share  as their  effect  would be
      anti-dilutive.


                                      F-12
<PAGE>

      Segment Reporting

      Based on the Company's integration and management strategies,  the Company
      operated in a single  business  segment.  For the years ended December 31,
      2004 and 2003, all revenues have been derived from domestic operations.

      New Accounting Pronouncements

      In December 2003, the  Securities and Exchange  Commission  ("SEC") issued
      Staff Accounting Bulletin ("SAB") No. 104, "Revenue  Recognition." SAB 104
      supersedes SAB 101,  "Revenue  Recognition in Financial  Statements."  SAB
      104's primary purpose is to rescind  accounting  guidance contained in SAB
      101 related to multiple  element  revenue  arrangements,  superseded  as a
      result of the issuance of EITF 00-21, "Accounting for Revenue Arrangements
      with  Multiple  Deliverables."  Additionally,  SAB 104  rescinds the SEC's
      Revenue Recognition in Financial Statements Frequently Asked Questions and
      Answers  ("the  FAQ")  issued  with SAB 101 that had been  codified in SEC
      Topic 13,  Revenue  Recognition.  Selected  portions  of the FAQ have been
      incorporated  into SAB 104.  While the  wording of SAB 104 has  changed to
      reflect the issuance of EITF 00-21, the revenue recognition  principles of
      SAB 101 remain  largely  unchanged by the  issuance of SAB 104,  which was
      effective  upon  issuance.  The  adoption  of SAB 104 did not  impact  the
      consolidated financial statements.

      In March 2004,  the FASB  approved the  consensus  reached on the Emerging
      Issues   Task   Force   (EITF)   Issue   No.   03-1,   "The   Meaning   of
      Other-Than-Temporary   Impairment   and   Its   Application   to   Certain
      Investments."  The  objective  of this  Issue is to provide  guidance  for
      identifying impaired  investments.  EITF 03-1 also provides new disclosure
      requirements for investments  that are deemed to be temporarily  impaired.
      In September 2004, the FASB issued a Staff Position (FSP) EITF 03-1-1 that
      delays the effective date of the measurement  and recognition  guidance in
      EITF 03-1 until after further  deliberations  by the FASB.  The disclosure
      requirements  are effective  only for annual periods ending after June 15,
      2004.  The  Company  has  evaluated  the  impact  of the  adoption  of the
      disclosure  requirements of EITF 03-1 and does not believe the impact will
      be significant to the Company's overall results of operations or financial
      position.  Once the FASB reaches a final decision on the  measurement  and
      recognition  provisions,  the  company  will  evaluate  the  impact of the
      adoption of EITF 03-1.

      In November  2004,  the SFAS issued SFAS No.  151,  "Inventory  Costs,  an
      amendment of ARB No. 43, Chapter 4". The amendments  made by Statement 151
      clarify that abnormal amounts of idle facility expense,  freight, handling
      costs,  and wasted  materials  (spoilage)  should be recognized as current
      period charges and require the allocation of fixed production overheads to
      inventory based on the normal capacity of the production  facilities.  The
      guidance is effective for  inventory  costs  incurred  during fiscal years
      beginning  after June 15,  2005.  Earlier  application  is  permitted  for
      inventory  costs incurred during fiscal years beginning after November 23,
      2004.  The Company has  evaluated  the impact of the adoption of SFAS 151,
      and does not  believe  the impact  will be  significant  to the  Company's
      overall results of operations or financial position.

      In December 2004,  the SFAS issued SFAS No.153,  "Exchanges of Nonmonetary
      Assets,  an amendment of APB Opinion No. 29,  Accounting  for  Nonmonetary
      Transactions."  The  amendments  made by  Statement  153 are  based on the
      principle that exchanges of nonmonetary assets should be measured based on
      the fair value of the assets exchanged.  Further, the amendments eliminate
      the narrow  exception  for  nonmonetary  exchanges  of similar  productive
      assets  and  replace  it  with  a  broader   exception  for  exchanges  of
      nonmonetary  assets  that do not have  commercial  substance.  Previously,
      Opinion 29 required  that the  accounting  for an exchange of a productive
      asset for a similar productive asset or an equivalent interest in the same
      or similar  productive asset should be based on the recorded amount of the
      asset  relinquished.  Opinion  29  provided  an  exception  to  its  basic
      measurement  principle  (fair value) for  exchanges of similar  productive
      assets.  The Board believes that exception  required that some nonmonetary
      exchanges,  although commercially substantive,  be recorded on a carryover
      basis.  By  focusing  the  exception  on  exchanges  that lack  commercial
      substance,  the Board believes this Statement produces financial reporting
      that more  faithfully  represents the economics of the  transactions.  The
      Statement is effective for nonmonetary asset exchanges occurring in fiscal
      periods  beginning after June 15, 2005.  Earlier  application is permitted
      for  nonmonetary  asset  exchanges  occurring in fiscal periods  beginning
      after the date of issuance.  The  provisions  of this  Statement  shall be
      applied  prospectively.  The  Company  has  evaluated  the  impact  of the
      adoption of SFAS 152, and does not believe the impact will be  significant
      to the Company's overall results of operations or financial position.


                                      F-13
<PAGE>

      In December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based
      Payment".  Statement  123(R)  will  provide  investors  and other users of
      financial statements with more complete and neutral financial  information
      by requiring that the  compensation  cost relating to share-based  payment
      transactions  be  recognized  in financial  statements.  That cost will be
      measured  based on the fair value of the equity or  liability  instruments
      issued.  Statement 123(R) covers a wide range of share-based  compensation
      arrangements   including   share   options,    restricted   share   plans,
      performance-based  awards,  share appreciation  rights, and employee share
      purchase  plans.   Statement  123(R)  replaces  SFAS  Statement  No.  123,
      Accounting for  Stock-Based  Compensation,  and supersedes APB Opinion No.
      25, Accounting for Stock Issued to Employees. Statement 123, as originally
      issued in 1995,  established  as preferable a  fair-value-based  method of
      accounting for share-based payment  transactions with employees.  However,
      that  Statement  permitted  entities the option of continuing to apply the
      guidance in Opinion 25, as long as the  footnotes to financial  statements
      disclosed   what  net   income   would   have  been  had  the   preferable
      fair-value-based  method  been used.  Public  entities  (other  than those
      filing as small  business  issuers)  will be required  to apply  Statement
      123(R) as of the first  interim or annual  reporting  period  that  begins
      after June 15, 2005.  The Company has evaluated the impact of the adoption
      of SFAS 123(R), and does not believe the impact will be significant to the
      Company's overall results of operations or financial position.

      In March 2005,  the FASB issued  Staff  Accounting  Bulletin No. 107 ("SAB
      107") which provides additional guidance to the new stock option expensing
      provisions  under  SFAS  123(R).  SAB 107  acknowledges  that  fair  value
      estimates cannot predict actual future events and as long as the estimates
      are made in good faith, they will not be subsequently questioned no matter
      what the actual outcome.  Historical  volatility  should be measured on an
      unweighted basis over a period equal to or longer than the expected option
      term or contractual term,  depending on the  option-pricing  model that is
      used.  Implied  volatility  is based on the market  prices of a  company's
      traded options or other financial  instruments with option-like  features,
      and is derived by entering  the market  price of the traded  option into a
      closed-form  model and solving for the volatility  input. SAB 107 provides
      additional  guidance for companies  when  estimating an option's  expected
      term. In general,  companies are not allowed to consider  additional  term
      reduction  and the option term cannot be shorter than the vesting  period.
      Companies are permitted to use historical stock option exercise experience
      to estimate  expected term if it  represents  the best estimate for future
      exercise  patterns.  SAB 107 provides that  companies  should enhance MD&A
      disclosures  related to equity  compensation  subsequent  to  adoption  of
      Statement  123(R).  SAB 107 provided  that  companies  should  provide all
      disclosures  required by  Statement  123 (R) in the first 10-Q filed after
      adoption of the new rules.

      In December 2004 the Financial  Accounting Standards Board issued two FASB
      Staff  Positions--FSP  FAS  109-1,   Application  of  SFAS  Statement  109
      "Accounting for Income Taxes" to the Tax Deduction on Qualified Production
      Activities Provided by the American Jobs Creation Act of 2004, and FSP FAS
      109-2  Accounting  and  Disclosure   Guidance  for  the  Foreign  Earnings
      Repatriation  Provision  within the  American  Jobs  Creation Act of 2004.
      Neither of these  affected the Company as it does not  participate  in the
      related activities.

      Reclassifications

      Certain  prior  year  amounts  have been  reclassified  to  conform to the
      current year presentation.

(2)   Acquisition

      On April 1, 2004, PPVW Acquisition  Company,  a wholly owned subsidiary of
      the Company,  completed an acquisition of Alan Mayo and Associates,  Inc.,
      dba The  Mayo  Group  ("TMG").  TMG  provides  outsourced  document  image
      management services to the healthcare industry.  The purchase price was as
      follows:  $255,000 cash and 1,700,030  shares of common stock (post split)
      upon  closing;  $45,000  placed in an indemnity  escrow  account;  300,005
      shares  of common  stock  (post  split)  placed  in the  indemnity  escrow
      account,  2,000,035  shares of common  stock (post  split) to be put in an
      escrow account as contingency based on certain earn-out and a note payable
      in the  amount of  $315,000  due April 15,  2005 also  subject  to certain
      earnout  provisions.  The value of the common stock issued was  determined
      based on the price of the Company's common stock in the March 2004 private
      placement of $0.30 per share (post split).  This value is more  indicative
      of the fair market value of the stock due to the stock being thinly traded
      and the shares being issued in the acquisition  have trading  restrictions
      that are similar to those on the shares sold in the private placement. All
      contingent amounts from the original agreement have subsequently been paid
      (both cash and stock).  Therefore the amounts are included in the purchase
      price as is required under SFAS 141. In addition to the above amounts, the
      Company  has  included  severance   payments  totaling   $465,500.   Other
      acquisition  costs  totaling  $264,174  have  also  been  included  in the
      purchase price.


                                      F-14
<PAGE>

      Based on a valuation  performed as of the  acquisition  date, the purchase
      price has been allocated as follows:

           Purchase Price:
               Cash:
                   Originally paid                      $   255,000
                   Contingent                                45,000
                   Note payable                             315,000
               Stock at FMV:
                   Originally paid                          510,009
                   Contingent                               690,013
               Expenses related to acquisition:
           Cash
                   Legal and accounting                     264,174
                   Severance                                465,500
                                                        -----------
                   Total fair value of purchase price   $ 2,544,696
                                                        ===========

           Assets Purchased:
               Accounts receivable                      $   158,178
               Supplies                                     158,514
               Prepaids                                      30,788
               Deposits                                      27,355
               Property and equipment                        52,793
               Intangible assets:
                   Non-compete agreements                   300,000
                   Customer relationships                   850,000
                   Backlog                                  350,000
               Goodwill                                   1,547,017
                                                        -----------
                   Total assets purchased               $ 3,474,645
                                                        ===========

           Less Liabilities Assumed:
               Bank overdraft                           $   (21,067)
               Accounts payable                            (391,944)
               Deferred revenue                            (216,938)
               Deferred tax liabilities                    (300,000)
                                                        -----------
                   Total liabilities assumed            $  (929,949)
                                                        ===========

      The  combination  is being  accounted  for as a  purchase  as  defined  by
      Statement   of   Financial   Accounting   Standards   No.  141,   Business
      Combinations.  The final  allocation of the excess purchase price over net
      tangible  assets was determined  based on an independent  appraisal of the
      assets  purchased.  The values assigned to intangible  assets,  aside from
      goodwill, are subject to amortization. The intangible assets were assigned
      the following lives for amortization purposes:

           Intangible Assets                                    Life in Years
           -----------------                                    -------------
           Non-compete agreements                                    2.75
           Customer relationships                                    5.00
           Backlog                                                   5.00


                                      F-15
<PAGE>

      Goodwill  was not  assigned  a life and will be tested for  impairment  as
      defined by Statement of Financial Accounting Standards No. 144, Accounting
      for Impairment of Disposal of Long-Lived Assets.

      The  following  unaudited  pro forma  financial  information  presents the
      consolidated  operations of the Company as if the acquisition had occurred
      as of the beginning of the periods presented. This information is provided
      for the illustrative  purposes only, and is not necessarily  indicative of
      the operating  results that would have occurred had the  acquisition  been
      consummated  at  the  beginning  of  the  periods  presented,  nor  is  it
      necessarily  indicative  of any future  operating  results.  The  weighted
      average  shares  outstanding  have been  calculated  to include the shares
      issued  in  the  acquisition  as if  the  acquisition  took  place  at the
      beginning of the period presented.

<TABLE>
<CAPTION>
                                                               2004           2003
                                                          -------------   -----------
<S>                                                       <C>            <C>
           Revenues                                       $  7,891,691   $ 4,190,247
                                                          ============   ===========

           Net income (loss) from continuing operations   $    223,558   $  (214,409)
                                                          ============   ===========

           Income (loss) per share
                  Basic                                   $       0.02   $     (0.02)
                  Diluted                                 $       0.02   $     (0.02)
</TABLE>

(3)   Discontinued Operations

      In March 2004, the Company entered into an agreement with Workstream, Inc.
      whereby the Company sold to Workstream the following: accounts receivable,
      certain computer  equipment,  customer list,  existing customer contracts,
      the PeopleView  name,  and the  technology and product  offerings that had
      been   recently   revised  and   improved,   including   ClimateSight(TM),
      SkillSight(TM),   PerformanceSight(TM),    ComplianceSight(TM)   and   HCM
      TOOLS(TM), essentially the operations of e-Perception Technologies, Inc.

      The   original   agreement   called  for  the  Company  to  receive   cash
      consideration  of $300,000,  of which $50,000 was subject to certain "hold
      back" conditions.  Additionally, the Company was to receive 350,000 shares
      of Workstream common stock, of which 50,000 shares were subject to certain
      "hold back"  conditions,  and a warrant to purchase an  additional  50,000
      shares at an exercise price of $3.00 per share. Pursuant to an Addendum to
      the original  Agreement,  the final consideration the Company received was
      cash of $250,000, 246,900 shares of Workstream common stock, and a warrant
      to purchase an additional  50,000 shares at an exercise price of $3.00 per
      share.

(4)   Accounts Receivable

      A summary as of December 31, 2004 is as follows:

           Trade                                                  $    251,796
           Allowance for doubtful accounts                             (10,598)
                                                                  ------------
                                                                  $    241,198

(5)      Property and Equipment

      A summary as of December 31, 2004 is as follows:

           Furniture and fixtures                                 $     43,605
           Computers and office equipment                              271,702
                                                                  ------------
                                                                       315,307
              Less accumulated depreciation and amortization           105,513
                                                                  ------------
                                                                  $    209,794
                                                                  ============

      Depreciation  and  amortization  expense  for  property,   equipment,  and
      improvements amounted to $47,264 and $141,843 for the years ended December
      31, 2004 and 2003 respectively.


                                      F-16
<PAGE>

(6)   Intangible Assets and Goodwill

      SFAS No. 142 requires that  amortization  of goodwill and indefinite  life
      intangibles be discontinued and replaced with periodic review and analysis
      of goodwill for possible impairment. Intangible assets with definite lives
      must be amortized over their estimated useful lives.

      During 2004, as a result of the acquisition of TMG,  intangible  assets of
      $3,047,017  were  created.  A valuation was done to determine how much, if
      any, of the excess of purchase price over assets  acquired and liabilities
      assumed  could be  allocated  to  identifiable  intangible  assets  versus
      goodwill.

      The following  intangible  assets with definite lives were  identified and
      are being amortized:

           Non-compete agreements                                   $   300,000
           Customer relationships                                       850,000
           Backlog                                                      350,000
                                                                    -----------
                                                                      1,500,000
                   Less accumulated amortization                        333,092
                                                                    -----------
                                                                    $ 1,166,908
                                                                    ===========

      As of December 31, 2003, pursuant to the Company's focus on developing its
      new HCM Tools product offering,  the Company  determined that all software
      licenses  associated  to "PERL"  programming  language were of no economic
      value, therefore, the Company recorded an impairment expense as follows:

           Intangible assets - software & licenses                  $  148,343
           Software license not amortizable                            100,500
                                                                    ----------
                                                                       248,843
           Less accumulated amortization                              (147,123)
                                                                    ----------
           Net impairment expense                                   $  101,720
                                                                    ==========

         Amortization  expense for  intangible  assets  amounted to $333,092 and
         $13,736 for the years ended  December 31, 2004 and 2003,  respectively.
         The  estimated  aggregate  amortization  expense  for  each of the five
         succeeding years is as follows:

           December 31
               2005                                                 $  373,473
               2006                                                    364,297
               2007                                                    238,165
               2008                                                    190,973
               2009                                                 $       --

      Accumulated  amortization  for the  year  ended  December  31,  2004 is as
      follows:

           Non-compete agreements                                   $    81,818
           Customer relationships                                       170,000
           Backlog                                                       81,274
                                                                    ----------
               Total                                                $   333,092
                                                                    ===========


                                      F-17
<PAGE>

         The weighted average  amortization  periods for each of the years ended
December 31, 2004 and 2003 is as follows:

                                                         December 31,
                                                        2004      2003
                                                       ------    ------
           Non-compete agreements                        2.0          -
           Customer relationships                        4.0          -
           Backlog                                       4.0          -
               Total weighted                            3.6          -

(7)   Line of Credit and Notes Payable

      As part of the  acquisition of TMG, the Company  entered into note payable
      agreements  with the  shareholders  of TMG.  Two of the  notes do not bear
      interest and are due through 2005. The third  agreement  bears interest at
      8% per annum. This note was paid in full in March 2005.

(8)   Revolving Line of Credit

      On December 28, 2004,  Auxilio  entered into a Revolving Loan and Security
      Agreement with Mr. Michael D. Vanderhoof.  Mr. Vanderhoof is a director of
      the Company.  Under the  agreement,  the Company can borrow up to $500,000
      (the  "Revolving  Loan").  Money  will  be  advanced  to  Auxilio  by  Mr.
      Vanderhoof  against the  $500,000  limit upon six  business  days  advance
      written notice by the Company.  Interest will accrue daily upon any unpaid
      principal  balance at the rate of eight  percent  (8%) per annum.  Accrued
      interest is payable in full monthly. All outstanding  principal is due and
      payable in full on December 10, 2005. The Revolving Loan is secured by all
      of the Company's inventory, accounts receivable,  equipment, cash, deposit
      accounts,  securities,   Intellectual  Property,  chattel  paper,  general
      intangibles and instruments,  now existing or hereafter  arising,  and all
      proceeds  thereof.  In consideration for the making of the Revolving Loan,
      Mr.  Vanderhoof  also received a warrant to purchase  common shares of the
      Company in a number equal to 10% of the highest  amount  outstanding.  For
      example, if the full amount of $500,000 is borrowed,  the holder will have
      the right to purchase 50,000 shares of stock.  The exercise price is equal
      to $2.00 per share.  As of December  31, 2004 the Company had not borrowed
      under the Revolving Loan.

(9)   Long-Term Debt

      The Company has an unsecured  note payable to a vendor  payable in monthly
      installments of $2,104 including interest. The loan was due June 2004. The
      outstanding balance at December 31, 2004 was $18,467.

(10)  Equity Transactions

      On May 12, 2004,  shareholders  approved a proposal to amend the Company's
      Articles of Incorporation effecting a one-for-three (1:3) reverse split of
      the  Company's  common  stock  and to  reduce  the  number  of  shares  of
      authorized common stock from 100,000,000  shares to 33,333,333 shares. All
      references to common stock/shares are reflected post split.

      In March 2004,  the Company  initiated a private  placement  of its common
      stock at a purchase  price of $0.30 per  share.  As of May 15,  2004,  the
      Company closed the offering,  selling 1,733,833 shares,  with net proceeds
      of $520,150.

      In March 2003,  the Company  initiated a private  placement  of its common
      stock, which opened at $0.75 per share. The Company closed the offering on
      September  30,  2003,  selling  3,660,597  shares,  with net  proceeds  of
      $2,470,903.  Total costs related to the placement were $546,764.  Included
      in this amount is $272,219 of expense  related to the fair market value of
      the  warrants  issued to the selling  group.  The fair market value of the
      warrants was determined  using the Black Scholes pricing model.  (See Note
      11 for the fair value assumptions used.)


                                      F-18
<PAGE>

      The Company  completed a private  placement of its common stock on January
      15, 2003. The Company sold 342,721 shares of common stock in this offering
      at a  purchase  price of $3.00  per  share.  In March  2003,  the Board of
      Directors of the Company  voted to reprice the shares sold in the offering
      because  of the  Company's  inability  to  meet  the  revenue  projections
      described to investors in the  offering.  The Company  repriced the common
      stock  sold in the  offering  to $0.75 per share  (the  "Repricing").  The
      Company gave each purchaser the election to either rescind his investment,
      or accept  four  shares of common  stock for each share  purchased  in the
      offering.  Four investors  elected to rescind their  investment,  totaling
      22,667 shares, for $68,000. After the Repricing, and after the rescission,
      as of March 31, 2003,  $920,163 had been collected in connection with such
      offering.  Pursuant to the  Repricing,  an additional  920,163 shares were
      issued for a total of 1,226,884 shares sold in this offering.

      In December  2004,  318,993  warrants were exercised for total proceeds of
      $239,245.

(11)  Warrants

      The warrant activities as December 31, 2004 and 2003 follow:

                                                                    Weighted
                                                                    Average
                                                         Number     Exercise
                                                       of Shares     Price
                                                       ---------   ----------

           Outstanding at January 1, 2003                144,888   $   1.65
               Granted in 2003                           366,060       0.75
                                                       ---------   --------
           Outstanding at December 31, 2003              510,948       1.29
               Granted in 2004                         1,045,000       0.82
               Exercised in 2004                         318,993       0.75
                                                       ---------   --------
           Outstanding at December 31, 2004            1,236,955   $   1.04
                                                       =========   ========

           Warrants exercisable at December 31, 2003     510,948   $   1.29
                                                       =========   ========

           Warrants exercisable at December 31, 2004     196,955   $   2.18
                                                       =========   ========

      The following tables summarize  information about warrants outstanding and
      exercisable at December 31, 2004:

<TABLE>
<CAPTION>
                                                Weighted Average          Outstanding                            Exercisable
                                  Number of       Remaining in         Warrants Weighted        Number of          Warrants
            Range of Exercise       Shares      Contractual Life       Average Exercise          Warrants      Weighted Average
                  Prices         Outstanding        in Year                  Price             Exercisable      Exercise Price
           ------------------ --------------- ----------------------- ---------------------- --------------- -------------------
<S>        <C>                       <C>              <C>                    <C>                     <C>           <C>
           $0.30 to $0.75            762,066          9.22                   $ 0.33                  52,066        $ 0.71
           $1.20 to $1.95            415,417          9.38                   $ 1.80                  85,417        $ 1.20
           $3.00 to $12.00            59,472          7.96                   $ 4.87                  59,472        $ 4.87
           ------------------ --------------- ----------------------- ---------------------- --------------- -------------------
           $0.30 to $12.00         1,236,955          9.21                   $ 1.04                 196,955        $ 2.18
           ================== =============== ======================= ====================== =============== ===================
</TABLE>

      On December  10, 2004 the Company  issued a warrant  agreement  to Paul T.
      Anthony,  Chief  Financial  Officer,  to  purchase  330,000  shares of the
      Company's common stock at an exercise price of $1.95 per share,  which was
      equal to the fair market value of the  Company's  common stock on the date
      of issuance.  The warrants do not begin vesting for a minimum of one year,
      while certain shares only vest pursuant to certain  earnings targets being
      achieved,  and accordingly,  the intrinsic value  measurement will be made
      when the earnings targets are met.

      During 2004 the Board of Directors  approved and issued warrant agreements
      to purchase 715,000 shares of the Company's common stock to three officers
      at an exercise  price of $0.30 per share,  which is equal to the price the
      Company  sold  shares in a private  placement.  The  warrants  granted are
      restricted  from vesting for a minimum of one year,  while certain  shares
      only  vest  pursuant  to  certain  earning  targets  being  achieved,  and
      accordingly,  the  intrinsic  value  measurement  will  be made  when  the
      earnings  targets are met. The Company  accounts  for warrants  granted to
      employees  under APB 25. If the Company  accounted for the warrants  under
      SFAS 123 expense totaling $204,668 would be recognized  annually for three
      years.  The warrants are earned after each year of service,  therefore the
      first period an expense  would be recognized is the quarter ended June 30,
      2005. The fair market value was determined using the Black Scholes pricing
      model.  The  assumptions  used to  calculate  the fair market value are as
      follows:  risk-free  interest  rate  of  1.21%;  estimated  volatility  of
      205.30%; dividend yield of 0.0%; and expected life of the warrants of four
      years.


                                      F-19
<PAGE>

      The Company granted a warrant  agreement to purchase 5,000 shares in April
      2004 to a "finder" whom  introduced  the Company to  Workstream.  The fair
      market  value of the  warrants  was  calculated  using the  Black  Scholes
      pricing model with the following  assumptions:  risk-free interest rate of
      1.21%;  estimated  volatility  of  205.30%;  dividend  yield of 0.0%;  and
      expected  life of the options of one year.  The expense  recorded  equaled
      $3,137.

      During 2003, the Board of Directors  approved and issued 366,060  warrants
      related to the Private  Placement at an exercise price of $0.75 per share,
      with a fair market value of  $272,219.  The fair value of the warrants was
      determined  using  the  Black-Scholes   option-pricing   model,  with  the
      following  assumptions:  (i) no  expected  dividends,  (ii)  a  risk  free
      interest rate of 1.45%, (iii) expected volatility of 288.36%,  and (iv) an
      expected life of three years.

(12)  Stock Option Plans:

      Effective  June 15, 2000,  the Company  adopted the 2000 Stock Option Plan
      under which all employees may be granted options to purchase shares of the
      Company's  authorized  but unissued  common stock.  The maximum  number of
      shares of the Company's common stock available for issuance under the Plan
      was 183,333 shares.  As of December 31, 2002, the maximum number of shares
      available for future grants under the Plan is 104,583. Under the Plan, the
      option  exercise price was equal to the fair market value of the Company's
      common stock at the date of grant.  Options  expire no later than 10 years
      from the grant date and  generally  vest within five years.  In 2001,  the
      Company elected to fully vest all outstanding options.

      In October  2001,  the Company  approved  the 2001 Stock Option Plan under
      which all  employees  may be  granted  options to  purchase  shares of the
      Company's  authorized  but unissued  common stock.  The maximum  number of
      shares of the Company's common stock available for issuance under the Plan
      was 450,000  shares.  As of December 31,  2002,  the  remaining  number of
      shares available for future grants under the Plan was 16,583 shares. Under
      the Plan, the option  exercise price was equal to the fair market value of
      the Company's  common stock at the date of grant.  Options expire no later
      than 10 years from the grant date and generally vest within five years.

      In May 2003, the  shareholders  approved the  PeopleView,  Inc. 2003 Stock
      Option  Plan (the "2003  Plan").  The 2003 Plan was the  successor  to the
      Company's  existing  2000 Stock  Option  Plan and 2001 Stock  Option  Plan
      (together,  the  "Predecessor  Plans").  The 2003  Plan  became  effective
      immediately  upon  stockholder  approval at the Annual  Meeting on May 15,
      2003,  and all  outstanding  options  under  the  Predecessor  Plans  were
      incorporated  into the 2003 Plan at that time.  On May 15,  2003,  567,167
      shares had been granted  pursuant to the  Predecessor  Plans,  with 66,166
      shares available to grant. On May 15, 2003,  shareholders approved 833,333
      shares for the 2003 plan.  Together with the  Predecessor  Plans,  899,500
      shares  were  available  to  grant,  and  567,167  had been  granted.  The
      Predecessor  Plans  terminated,  and no further option grants will be made
      under the Predecessor Plans.  However,  all outstanding  options under the
      Predecessor  Plans  continue to be governed by the terms and conditions of
      the existing  option  agreements for those grants except to the extent the
      Board or Compensation  Committee  elects to extend one or more features of
      the 2003 Plan to those  options.  As of December 31, 2003,  the  remaining
      number of  shares  available  for  future  grants  under the 2003 Plan was
      751,916 shares. Under the Plan, the option exercise price was equal to the
      fair  market  value of the  Company's  common  stock at the date of grant.
      Options  expire no later than 10 years  from the grant date and  generally
      vest within five years.


                                      F-20
<PAGE>

      In May 2004,  the  shareholders  approved  the  Auxilio,  Inc.  2004 Stock
      Incentive  Plan (the "2004  Plan").  The 2004 Plan is the successor to the
      Company's existing 2000 Stock Option Plan, 2001 Stock Option Plan, and the
      2003 Stock Option Plan (together,  the "Predecessor Plans"). The 2004 Plan
      became  effective  immediately  upon  stockholder  approval  at the Annual
      Meeting on May 12, 2004, and all outstanding options under the Predecessor
      Plans were  incorporated into the 2004 Plan at that time. On May 12, 2004,
      714,750 shares had been granted  pursuant to the Predecessor  Plans,  with
      751,987 shares available to grant. On May 12, 2004,  shareholders approved
      2,000,000 shares for the 2004 plan.  Together with the Predecessor  Plans,
      3,466,667  shares were  available to grant,  and 714,750 had been granted.
      The  Predecessor  Plans  terminated,  and no further option grants will be
      made under the Predecessor Plans.  However,  all outstanding options under
      the Predecessor  Plans continue to be governed by the terms and conditions
      of the existing  option  agreements  for those grants except to the extent
      the Board or Compensation  Committee elects to extend one or more features
      of the 2004 Plan to those options.  As of December 31, 2004, the remaining
      number of  shares  available  for  future  grants  under the 2004 Plan was
      2,105,087  shares.  Under the Plan, the option  exercise price is equal to
      the fair market value of the Company's  common stock at the date of grant.
      Options  expire no later than 10 years  from the grant date and  generally
      vest within five years.

      Additional  information with respect to these Plans' stock option activity
      is as follows:

                                                    Number      Weighed Average
                                                   of Shares    Exercise Price
                                                  -----------    -----------
         Outstanding at January 1, 2003               512,166     $    3.09
             Granted                                  557,167          0.75
             Cancelled                               (354,583)         1.91
                                                  -----------     ---------
         Outstanding at December 31, 2003             714,750          1.23
             Granted                                  971,663          0.99
             Cancelled                               (324,833)         1.38
                                                  -----------     ---------

         Outstanding at December 31, 2004           1,361,580     $    1.07
                                                  ===========     =========

         Options exercisable at December 31, 2003     188,688     $    3.81
                                                  ===========     =========

         Options exercisable at December 31, 2004     152,739     $    1.29
                                                  ===========     =========

      The following table summarizes information about stock options outstanding
      and exercisable at December 31, 2004:

<TABLE>
<CAPTION>
                                           Weighted Average                                              Exercisable
                              Number of      Remaining in          Outstanding         Number of          Options
          Range of Exercise     Shares     Contractual Life     Options Weighted        Options       Weighted Average
                Prices       Outstanding       in Year       Average Exercise Price   Exercisable      Exercise Price
         ------------------ ------------ ------------------ ----------------------- --------------- -------------------
<S>      <C>                    <C>            <C>                    <C>                 <C>            <C>
         $0.75 to $0.90         973,830        9.61                   $ 0.84              109,906        $ 0.75
         $1.02 to $1.84         340,000        9.82                   $ 1.53               18,750        $ 1.20
         $3.00 to $6.75          47,750        7.97                   $ 4.43               24,083        $ 3.82
         ------------------ ------------ ------------------ ----------------------- --------------- -------------------
         $0.75 to $6.75       1,361,580        9.56                   $ 1.10              152,739        $ 1.29
         ================== ============ ================== ======================= =============== ===================
</TABLE>

(13)  Income Taxes

      For the years ended  December 31, 2004 and 2003,  the components of income
      tax expense (benefit) from continuing operations are as follows:

                                                  2004        2003
                                              ---------    ---------

           Current provision:
               Federal                        $  13,100    $      --
               State                              5,240          800
                                              ---------    ---------
                                                 18,340          800
                                              ---------    ---------
           Deferred benefit:
               Federal                         (234,395)          --
               State                            (66,105)          --
                                              ---------    ---------
                                               (300,500)          --
                                              ---------    ---------
               Income tax expense (benefit)   $(282,160)   $     800
                                              =========    =========


                                      F-21
<PAGE>

      Realization  of deferred tax assets is dependent  on future  earnings,  if
      any, the timing and amount of which is uncertain. Accordingly, a valuation
      allowance, in an amount equal to the net deferred tax asset as of December
      31, 2004 and 2003 has been established to reflect these uncertainties.  As
      of December  31, 2004 and 2003 the  deferred  tax asset  before  valuation
      allowances is approximately $2,446,600 and $2,994,100,  respectively,  for
      federal income tax purposes,  and $162,500 and $447,000,  respectively for
      state income tax purposes.

      Total  income  tax  benefit  in  2004,  including  taxes  associated  with
      discontinued  operations,  was $268,160  with $14,000  being  allocated to
      discontinued  operations  and a tax benefit of $282,160  allocated  to the
      income from continuing operations in 2004.

      Income tax  provision  amounted to a benefit of $268,160 and an expense of
      $800 for the years  ending  December 31, 2004 and 2003,  respectfully  (an
      effective  rate of (120%) for 2004 and 0% for 2003). A  reconciliation  of
      the  provision  (benefit)  for income  taxes with  amounts  determined  by
      applying  the  statutory  U.S.  federal  income tax rate to income  before
      income taxes is as follows:

                                                            2004       2003
                                                        ---------  ------------
       Computed tax at federal statutory rate of 34%  $  246,700   $ (1,173,300)
       State taxes, net of federal benefit               (38,500)           500
       Non deductible items                                8,300          3,500
       Cost of repricing                                      --          3,500
       Other                                              61,600         54,800
       Change in valuation allowance                    (547,500)     1,111,800
                                                        ---------  ------------
                                                      $ (269,400)  $        800
                                                      ===========  ============

      This  deferred  tax benefit  arises  principally  from the revision of the
      purchase  accounting for the  acquisition of The Mayo Group related to the
      allocation of $1,500,000 of the purchase price to intangible  assets other
      than  goodwill.  In  applying  the  guidance  of  SFAS  109,  the  Company
      established a deferred tax liability of approximately $300,000, related to
      the  revision of the purchase  accounting  price  allocation.  The Company
      anticipates that it will elect consolidated filing for tax purposes,  thus
      allowing for the  realization  of  approximately  $300,000 of deferred tax
      benefit.

      Deferred income taxes reflect the net tax effects of temporary differences
      between  the  carrying  amounts of assets and  liabilities  for  financial
      reporting   purposes  and  the  amounts  used  for  income  tax  purposes.
      Significant   components  of  the   Company's   deferred  tax  assets  and
      liabilities are as follows:

<TABLE>
<CAPTION>
                                                               2004           2003
                                                            -----------    -----------
<S>                                                         <C>            <C>
           Deferred tax assets:
               Allowance for doubtful accounts              $     4,500    $    10,700
               Accrued salaries/vacation                         71,700          8,800
               Accrued equipment pool                           141,700             --
               State taxes                                        2,600            300
               Net operating loss carryforwards               2,634,100      3,421,300
                                                            -----------    -----------
                   Total deferred tax assets                  2,854,600      3,441,100
                                                            -----------    -----------

           Deferred tax liabilities:
               Depreciation                                      12,100             --
               Amortization of intangibles                      233,400             --
                                                            -----------    -----------
                   Total deferred tax liabilities               245,500             --
                                                            -----------    -----------

           Net deferred assets before valuation allowance     2,609,100      3,441,100
               Valuation allowance                           (2,609,100)    (3,441,100)
                                                            -----------    -----------
           Net deferred tax assets                          $        --    $        --
                                                            ===========    ===========
</TABLE>


                                      F-22
<PAGE>

      At December 31, 2004, the Company has available  unused net operating loss
      carryforwards of  approximately  $7,230,000 for federal and $2,008,000 for
      state that may be  applied  against  future  taxable  income and that,  if
      unused, expire beginning in 2015 through 2024.

      Utilization  of the net operating loss  carryforwards  may be subject to a
      substantial annual limitation due to ownership change limitations provided
      by the Internal Revenue Code of 1986. The annual  limitation may result in
      the expiration of net operating loss carryforwards before utilization.

(14)  Retirement Plan

      The  Company  sponsors a 401(k)  plan (the  "Plan")  for the  benefits  of
      employees  who are at  least 21 years  of age.  The  Company's  management
      determines, at its discretion,  the annual and matching contribution.  The
      Company elected not to contribute to the Plan for the years ended December
      31, 2004 and 2003.

(15)  Commitments

      Leases

      On January 28, 2004, and on October 31, 2003,  the Company  executed early
      termination  agreements  for the two lease  agreements  related  to office
      space previously  occupied in Temecula,  California.  The Company provided
      the deposit to the landlord as its payment for early termination.

      The  Company  leases its Mission  Viejo  facility  under a  noncancellable
      operating  lease.  The lease expires in January 2010. Rent expense for the
      years ended  December  31, 2004 and 2003 totaled  $154,004  and  $226,957,
      respectively. Future minimum lease payments under non-cancelable operating
      leases during subsequent years are as follows:

                    December 31                                Payments
                    -----------                              -------------
                        2005                                 $     275,207
                        2006                                       199,157
                        2007                                       158,837
                        2008                                       158,837
                        2009                                       185,308
                                                             -------------
                        Total                                $     977,346
                                                             =============

      Employment Agreements

      On December 10, 2004,  the Company  entered into an  employment  agreement
      with Paul T. Anthony,  to serve as Chief  Financial  Officer and Corporate
      Secretary,  effective January 3, 2005. Mr. Anthony's  agreement has a term
      of two years,  and  provides  for a base annual  salary of  $155,000.  Mr.
      Anthony  received  warrants  and may  receive  an annual  bonus if certain
      earnings and revenue targets are accomplished.

      On September  14, 2004,  the Company  presented to the two other  original
      founders  (owners)  of The Mayo  Group,  Mr.  Nickell  and Mr.  Davis,  an
      Amendment to Employment  Agreement and  Modification of Merger  Agreement,
      whereby  the  Contingent  Securities   representing  461,009  shares,  and
      Contingent Cash  Consideration of $82,979 due and payable to both would be
      released and paid.

      In July 2004,  the Company  entered into a Severance  Agreement and Mutual
      Release of All Claims with Alan Mayo, one of the three  original  founders
      of The Mayo Group.  Pursuant to the agreement,  the Company arranged for a
      private  sale of all the common  stock Mr.  Mayo  received in the April 1,
      2004 transaction with the Company including the contingent shares released
      to him as part of this agreement. The Company agreed to pay salary, bonus,
      and contingent  consideration amounts pursuant to an employment agreement,
      in  increments.  Such amounts  have been  accounted  for in the  financial
      statements.   The  Company  has  made  an  accrual  of  $465,000  for  the
      compensation due to Mr. Mayo pursuant to the employment  agreement and has
      included this amount as part of the cost of the  acquisition.  Included in
      the acquisition  was total cash  contingency of $45,000 and a note payable
      in the amount of  $315,000  that was also being  held in  contingency.  Of
      these contingency amounts, Mr. Mayo was owed $277,020 or 76.95%, which was
      equivalent to his ownership percentage of The Mayo Group. As consideration
      for Mr. Mayo entering into the Severance  Agreement and Mutual  Release of
      All Claims,  the Company and Mr. Mayo agreed that all contingent  payments
      (cash,  stock and note) due and  payable to Mr.  Mayo would be released to
      Mr.  Mayo.  In doing so, the Company  agreed to pay Mr.  Mayo  $138,510 at
      execution  of the  agreement,  and pay the balance of $138,510 on April 1,
      2005. The Company  pledged a portion of the  Workstream  shares it owns as
      collateral security for the performance of the note.


                                      F-23
<PAGE>

      In May 2004,  the Company  entered  into  employment  agreements  with key
      management.  The  agreements  called for the  issuing of  warrants  to the
      individuals  pursuant  to  certain  earnings  and  revenue  targets  being
      accomplished. The Company entered into an employment agreement with Joseph
      Flynn to serve as its Chief  Executive  Officer,  effective April 1, 2004.
      Mr.  Flynn's  agreement  has a term of two years and  provides  for a base
      annual  salary of  $165,000.  Mr.  Flynn may  receive  an annual  bonus if
      certain earnings and revenue targets are accomplished.  Effective April 1,
      2004,  the Company  entered  into an  employment  agreement  with  Etienne
      Weidemann,  to  serve  as  President  and  Chief  Operating  Officer.  Mr.
      Weidemann's  agreement  has a term of two years,  and  provides for a base
      annual  salary of $160,000.  Mr.  Weidemann may receive an annual bonus if
      certain earnings and revenue targets are accomplished.  Effective April 1,
      2004,  the Company  entered  into an  employment  agreement  with James P.
      Stapleton,  to serve as Chief Operating Officer. Mr. Stapleton's agreement
      has a  term  of two  years,  and  provides  for a base  annual  salary  of
      $145,000.  Mr.  Stapleton may receive an annual bonus if certain  earnings
      and revenue targets are accomplished.  Mr. Stapleton resigned his position
      in December 2004.

      On December 16, 2002,  the Company  entered into an  employment  agreement
      with  Joseph  Flynn to serve as its  Chief  Executive  Officer,  effective
      January 1, 2003. Mr. Flynn's agreement had a term of one year and provided
      for a base annual  salary of $120,000.  On April 1, 2003,  the base annual
      salary was increased to $160,000.  After the 90th day of  employment,  Mr.
      Flynn received a payroll wage bonus, which allowed him to purchase $15,000
      shares of  restricted  common  stock sold in the 2003  private  placement.
      Compensation  expense  equal  to the  market  value  on the  90th  day was
      recorded.  Mr. Flynn may receive annual bonuses,  at the discretion of the
      Board of Directors.

(16)  Major Customers

      For the year ended December 31, 2004, one customer  represented a total of
      65% of revenues. No amounts were due from this customer as of December 31,
      2004.

      For the year ended December 31, 2003, three customers  represented a total
      of 50% of revenues. Total accounts receivable balance due from these three
      customers amounted to approximately $57,000 as of December 31, 2003.

(17)  Related Party Transactions

      On December 28, 2004,  Auxilio  entered into a Revolving Loan and Security
      Agreement with Mr. Michael D. Vanderhoof.  Mr. Vanderhoof is a director of
      the Company.  Under the agreement,  the Company can borrow up to $500,000.
      As of  December  31,  2004  the  Company  had  no  borrowings  under  this
      agreement. The Company accounted for the warrants granted under APB 25.

      In June of 2004 the Company entered in to a consulting agreement with John
      D. Pace, a director,  to provide  support in the  Company's  sales efforts
      with major healthcare facilities as well as consulting services related to
      the Company's operations.  The agreement terminates June 1, 2005. Mr. Pace
      receives  $1,000  per day for his  services  not to exceed  three days per
      month and $1,500  per day for each  additional  day worked  during a given
      month.  In addition,  Mr. Pace receives  commission at a rate of 5% of the
      gross profit for any business  closed  through  introductions  made by Mr.
      Pace.  The  commission  will be paid 25% in the form of  Auxilio's  common
      stock (priced at prevailing market values) and 75% in cash.


                                      F-24
<PAGE>

(18)  Subsequent Events

      In February  2005,  the Company  commenced  a private  placement  of up to
      2,500,000  shares of its common stock at a price of $2.00 per share.  Each
      share will be  restricted  from  re-sale  for a period of one year.  As of
      March 30,  2005,  the  Company  had sold  983,000  shares,  receiving  net
      proceeds of $1,808,720.

      In February 2005, a board member exercised warrants for 3,000 shares at an
      exercise price of $0.75.

      In March  2005,  the  Company  sold  196,900  Workstream  shares it owned,
      receiving  proceeds of $896,044,  recognizing  a gain of  $403,795.  As of
      April 1, 2005, the Company owns 50,000 Workstream shares.


                                      F-25