**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-QSB**

**Commission      file number 000-27507**

**AUXILIO,      INC.**

**                  Nevada                                                          88-0350448**

**27401      Los Altos, Suite 100**

**Mission      Viejo, California  92691**

**(949)      614-0700**

----

**AUXILIO,      INC.**

**FORM      10-QSB**

**TABLE      OF CONTENTS**

**PART      I - FINANCIAL INFORMATION**

|   |                                          Condensed Consolidated Statements of Cash                Flows |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**PART      II - OTHER INFORMATION**

----

| **AUXILIO,                  INC. AND SUBSIDIARIES**                                                   |
|-------------------------------------------------------------------------------------------------------|
| **CONDENSED                  CONSOLIDATED BALANCE SHEET**                                             |
| **SEPTEMBER                  30, 2007**                                                               |
| **(UNAUDITED)**                                                                                       |
|                                                                                                  |
| **ASSETS**                                                                                            |
| **Current                  assets:**                                                                  |   |   |
|                                                                                                  | Cash                  and cash equivalents |   | $                                                               439,730 |
|                                                                                                  | Accounts                  receivable, net |   | 3,137,811 |
|                                                                                                  | Prepaid                  and other current assets |   | 14,519 |
|                                                                                                  | Supplies |   | 640,878 |
|                                                                                                  | **Total                  current assets** |   | 4,232,938 |
|                                                                                                  |   |   |
| **Property                  and equipment, net**                                                      |   | 228,350 |
| **Deposits**                                                                                          |   | 28,790 |
| **Loan                  acquisition costs, net**                                                      |   | 250,558 |
| **Intangible                  assets, net**                                                           |   | 250,514 |
| **Goodwill**                                                                                          |   | 1,517,017 |
|                                                                                                  | **Total                  assets** |   | $                                                                             6,508,167 |
|                                                                                                  |   |   |
| **LIABILITIES                  AND STOCKHOLDERS' EQUITY**                                             |
|                                                                                                  |   |   |
| **Current                  liabilities:**                                                             |   |   |
|                                                                                                  | Accounts                  payable and accrued expenses |   | $                                                                             1,665,005 |
|                                                                                                  | Accrued                  compensation and benefits |   | 565,018 |
|                                                                                                  | Deferred                  revenue |   | 464,702 |
|                                                                                                  | Current                  portion of long-term debt |   | 600,000 |
|                                                                                                  | Current                  portion of capital lease obligations |   | 31,971 |
|                                                                                                  | Loan                  payable, net of unaccreted costs of $344,896 |   | 400,104 |
|                                                                                                  | **Total                  current liabilities** |   | 3,726,800 |
|                                                                                                  |   |   |
| **Note                  payable, less current portion, net of discount of                  $132,030** |   | 1,517,970 |
|                                                                                                  |   |   |
| **Commitments                  and contingencies**                                                    |   | **-** |
|                                                                                                  |   |   |
| **Stockholders'                  equity:**                                                            |   |   |
|                                                                                                  | Common                  stock, par value at $0.001, 33,333,333 shares |   |   |
|                                                                                                  | authorized,                  16,135,309 shares issued and outstanding |   | 16,137 |
|                                                                                                  | Additional                  paid-in capital |   | 16,971,583 |
|                                                                                                  | Accumulated                  deficit |   | (15,724,323) |
|                                                                                                  | **Total                  stockholders' equity** |   | 1,263,397 |
|                                                                                                  | **Total                  liabilities and stockholders’ equity** |   | $                                                                             6,508,167 |

----

| **AUXILIO,                INC. AND                SUBSIDIARIES**   |                                                                                                                                                                                                               |
|--------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **CONDENSED                CONSOLIDATED STATEMENTS OF OPERATIONS** |                                                                                                                                                                                                               |
| **(UNAUDITED)**                                                    |                                                                                                                                                                                                               |
|                                                               |                                                                                                                                                                                                               |
|                                                               | **Three                Months**                                                                                                                                                                                    |   | **Nine                Months** |
|                                                               | **Ended                September 30,**                                                                                                                                                                             |   | **Ended                September 30,** |
|                                                               | **2007**                                                                                                                                                                                                           |   | **2006** |   | **2007** |   | **2006** |
| **Revenues**                                                       | $                                            5,003,721                 |   | $                                            2,858,092 |   | $                           15,888,744 |   | $                         7,374,424 |
| **Cost                of revenues**                                |                            3,830,689                                        |   |                               2,378,936 |   |                                             12,101,759 |   |                            6,713,305 |
|                                                               |                                                                                                                                                                                                               |   |   |   |   |   |   |
| **Gross                profit**                                    |                                               1,173,032      |   |                              479,156 |   |                                               3,786,985 |   |                             661,119 |
|                                                               |                                                                                                                                                                                                               |   |   |   |   |   |   |
| **Operating                expenses:**                             |                                                                                                                                                                                                               |   |   |   |   |   |   |
|                                                               | Sales                and marketing                                                                                                                                                                                 |                                                308,379 |   |                                               510,181 |   |                                                896,763 |   |                            1,512,065 |
|                                                               | General                & administrative expenses                                                                                                                                                               |                                                549,902 |   |                                               542,663 |   |                                               1,795,628 |   |                                           1,736,535 |
|                                                               | Intangible                asset amortization                                                                                                                                                                       |                               59,541 |   |                                             63,802 |   |                                                178,624 |   |                                            191,405 |
|                                                               | **Total                operating expenses**                                                                                                                                                                        |                                 917,822 |   |                                               1,116,646 |   |                                2,871,015 |   |                            3,440,005 |
|                                                               |  **Income                (loss) from operations**                                                                                                                                                             |                                                255,210 |   |                                (637,490) |   |                                                915,970 |   |                                         (2,778,886) |
|                                                               |                                                                                                                                                                                                               |   |   |   |   |   |   |
| **Other                income (expense):**                         |                                                                                                                                                                                                               |   |   |   |   |   |   |
|                                                               | Interest                expense                                                                                                                                                                                    |                                (294,755) |   |                                (141,788) |   |                                (701,351) |   |                                            (360,793) |
|                                                               | Interest                income                                                                                                                                                                                     |                                            7,219 |   |                                           8,750 |   |                               14,188 |   |                           27,494 |
|                                                               | Gain                on extinguishment of debt                                                                                                                                                                      |                                                199,951 |   |                                    - |   |                                                199,951 |   |                  - |
|                                                               | Gain                on sale of marketable securities                                                                                                                                                               |                                      - |   |                                    - |   |                                     - |   |                                          10,448 |
|                                                               |                                                                                                                                                                                                               |   |   |   |   |   |   |
|                                                               | **Total                other income (expense)**                                                                                                                                                                    |                                 (87,585) |   |                                (133,038) |   |                                (487,212) |   |                             (322,851) |
|                                                               |                                                                                                                                                                                                               |   |   |   |   |   |   |
|                                                               | **Income                (loss) before provision for income taxes**                                                                                                                                                 |                                                167,625 |   |                                               (770,528) |   |                                                428,758 |   |                          (3,101,737) |
|                                                               |                                                                                                                                                                                                               |   |   |   |   |   |   |
| **Income                tax expense**                              |                                               (5,600)        |   |                                    - |   |                                 (16,800) |   |                                           (2,400) |
|                                                               |                                                                                                                                                                                                               |   |   |   |   |   |   |
| **Net                income (loss)**                               | $                                               162,025 |   | $                             (770,528) |   | $                                               411,958 |   | $                       (3,104,137) |
|                                                               |                                                                                                                                                                                                               |   |   |   |   |   |   |
| **Net                income (loss) per share:**                    |                                                                                                                                                                                                               |   |   |   |   |   |   |
|                                                               | **Basic**                                                                                                                                                                                                          | $                                                                      .01 |   | $                                                    (.05) |   | $                                                       .03 |   | $                                               (0.19) |
|                                                               | **Diluted**                                                                                                                                                                                                        | $                                                    (.02) |   | $                                                    (.07) |   | $                                     (.01) |   | $                                               (0.20) |
|                                                               |                                                                                                                                                                                                               |   |   |   |   |   |   |
| **Number                of weighted average shares:**              |                                                                                                                                                                                                               |   |   |   |   |   |   |
|                                                               | **Basic**                                                                                                                                                                                                          |                             16,135,309 |   |                             16,122,809 |   |                             16,130,043 |   |                                          16,060,040 |
|                                                               | **Diluted**                                                                                                                                                                                                        |                             20,774,453 |   |                             17,800,678 |   |                             20,947,758 |   |                           17,738,509 |
|                                                               |                                                                                                                                                                                                               |   |   |   |   |   |   |

----

| **AUXILIO,                INC. AND SUBSIDIARIES**                           |
|-----------------------------------------------------------------------------|
| **CONDENSED                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY** |
| **NINE                MONTHS ENDED SEPTEMBER 30, 2007**                     |
| **(UNAUDITED)**                                                             |
|                                                                        |
|                                                                        |   |   |   |   |   |   |   |   |   |   |   |
|                                                                        |   |   |   |   |   | **Additional** |   |   |   | **Total** |   |
|                                                                        |   | **Common                Stock** |   | **Paid-in** |   | **Accumulated** |   | **Stockholders'** |   |
|                                                                        |   | **Shares** |   | **Amount** |   | **Capital** |   | **Deficit** |   | **Equity** |   |
|                                                                        | Balance                at December 31, 2006 |                    16,122,809 |   | $                                         16,124 |   | $                                  16,430,094 |   | $                               (16,136,281) |   | $                                          309,937 |   |
|                                                                        | Stock                compensation expense for options and warrants granted to employees                and                consultants | - |   |                                - |   |                           327,295 |   |                                - |   |                                             327,295 |   |
|                                                                        | Warrants                vesting in connection with debt restructuring | - |   |                                - |   |                                          128,124 |   |                                      - |   |                                             128,124 |   |
|                                                                        | Incremental                fair value of conversion feature on loan payable | - |   |                                - |   |                                        80,208 |   |                                - |   |                                             80,208 |   |
|                                                                        | Stock                options exercised | 12,500 |   |                                  13 |   |                       5,862 |   |                                - |   |                            5,875 |   |
|                                                                        | Net                income | - |   |                 - |   |                                - |   |                                          411,958 |   |                                             411,958 |   |
|                                                                        | Balance                at September 30, 2007 |               16,135,309 |   | $                                         16,137 |   | $                                  16,971,583 |   | $                (15,724,323) |   | $                        1,263,397 |   |

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

----

| **AUXILIO,                INC. AND SUBSIDIARIES**                                         |
|-------------------------------------------------------------------------------------------|
| **CONDENSED                CONSOLIDATED STATEMENTS OF CASH FLOWS**                        |
| **(UNAUDITED)**                                                                           |
|                                                                                      |   |   |   |   |   |
|                                                                                      |   |   |   |   | **Nine                Months Ended September 30,** |
|                                                                                      |   |   |   |   | **2007** |   | **2006** |
| **Cash                flows provided by (used for) operating                activities:** |   |   |   |   |
|                                                                                      | Net                income (loss) |   | $                              411,958 |   | $                                (3,104,137) |
| **Adjustments                to reconcile net income (loss) to net cash**                 |   |   |   |   |
| **provided                by (used for) operating activities:**                           |   |   |   |   |
|                                                                                      | Depreciation |   | 100,662 |   | 89,690 |
|                                                                                      | Amortization                of intangible assets |   | 178,624 |   | 191,405 |
|                                                                                      | Gain                on extinguishment of debt |   | (199,951) |   | - |
|                                                                                      | Stock                compensation expense for warrants and options issued to employees                and                consultants |   | 327,295 |   | 450,624 |
|                                                                                      | Stock                issued for services |   | - |   | 4,953 |
|                                                                                      | Gain                on sale of marketable securities |   | - |   | (10,448) |
|                                                                                      | Interest                expense related to amortization of warrants issued for                loans |   | 105,286 |   | 126,836 |
|                                                                                      | Interest                expense related to amortization of loan acquisition costs |   | 184,955 |   | 79,244 |
|                                                                                      | Interest                expense related to accretion of loan |   | 147,812 |   | - |
| **Changes                in operating assets and liabilities:**                           |   |   |   |   |
|                                                                                      | Accounts                receivable, net |   | (1,413,553) |   | (1,174,321) |
|                                                                                      | Supplies |   | 49,600 |   | (6,956) |
|                                                                                      | Prepaid                and other current assets |   | 16,154 |   | 70,760 |
|                                                                                      | Deposits |   | - |   | 12,565 |
|                                                                                      | Accounts                payable and accrued expenses |   | 344,902 |   | 867,845 |
|                                                                                      | Accrued                compensation and benefits |   | 198,223 |   | 2,565 |
|                                                                                      | Deferred                revenue |   | 175,388 |   | 7,196 |
|                                                                                      |   | Net                cash provided by (used for) operating activities |   | 627,355 |   | (2,392,179) |
| **Cash                flows used by investing activities:**                               |   |   |   |   |
|                                                                                      | Purchases                of property and equipment |   | (25,243) |   | (150,577) |
|                                                                                      | Net                proceeds from sale of marketable securities |   | - |   | 26,698 |
|                                                                                      |   | Net                cash (used for) investing activities |   | (25,243) |   | (123,879) |
| **Cash                flows provided by financing activities:**                           |   |   |   |   |
|                                                                                      | Proceeds                from line of credit |   | - |   | 250,000 |
|                                                                                      | Repayments                on line of credit |   | - |   | (250,000) |
|                                                                                      | Proceeds                from convertible note payable |   | - |   | 3,000,000 |
|                                                                                      | Payments                on convertible notes payable and long-term debt |   | (450,000) |   | (150,000) |
|                                                                                      | Acquisition                fees paid for loans |   | (22,350) |   | (345,195) |
|                                                                                      | Payments                on capital leases |   | (15,344) |   | (11,084) |
|                                                                                      | Proceeds                from exercise of options |   | 5,875 |   | - |
|                                                                                      |   | Net                cash (used for) provided by financing activities |   | (481,819) |   | 2,493,721 |
| **Net                increase (decrease) in cash and cash equivalents**                   |   | 120,293 |   | (22,337) |
| **Cash                and cash equivalents, beginning of period**                         |   | 319,437 |   | 664,941 |
| **Cash                and cash equivalents, end of period**                               |   | $                              439,730 |   | $                                      642,604 |

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

----

|  **AUXILIO,                INC. AND SUBSIDIARIES**                                                  |
|----------------------------------------------------------------------------------------------------------|
| **CONDENSED                CONSOLIDATED STATEMENTS OF CASH                FLOWS  (CONTINUED)** |
| **(UNAUDITED)**                                                                                          |
|                                                                                                     |   |   |   |   |   |   |   |
|                                                                                                     |   |   |   |   | **Nine                Months Ended September 30,** |
|                                                                                                     |   |   |   |   | **2007** |   | **2006** |
| **Supplemental                disclosure of cash flow information:**                                     |   |   |   |   |
|                                                                                                     |   |   |   |   |   |   |   |
|                                                                                                     | Interest                paid |   | $                               263,298 |   | $                                                154,713 |
|                                                                                                     |   |   |   |   |   |   |   |
|                                                                                                     | Income                tax paid |   | $                                                  2,400 |   | $                                                    2,400 |
|                                                                                                     |   |   |   |   |   |   |   |
| **Non-cash                investing and financing activities:**                                          |   |   |   |   |
|                                                                                                     |   |   |   |   |   |   |   |
|                                                                                                     | Relative                fair value of warrants issued related to issuance of note                payable |   | $                                          - |   | $                                                425,267 |
|                                                                                                     |   |   |   |   |   |
|                                                                                                     | Property                and equipment acquired by capital lease |   | $                                                         - |   | $                                   26,391 |
|                                                                                                     |   |   |   |   |   |
|                                                                                                     | Stocks                issued for acquisition fees for convertible note payable |   | $                                                         - |   | $                                                  70,000 |

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

----

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

|   | **NINE                MONTHS ENDED SEPTEMBER 30, 2007 and                2006** |
|--------|---------------------------------------------------------------------------------|

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

**1.           BASIS      OF PRESENTATION**

----

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

----

**3.           OPTIONS      AND WARRANTS.**

| **Options**                                      | **Shares** |      | **Weighted                Average Exercise Price**                                                                                                                                                                                                                                        |                                                                                                                         | **Weighted                Average Remaining Term in Years** |   | **Aggregate****Intrinsic                Value**                                                                                                                                                              |
|--------------------------------------------------|------------|-----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Outstanding                at December 31, 2006  | 2,182,648  |      | $                                              1.39 |                                                                                                                         |                                                        |   |                                                                                                                                                                                                         |   |
|                                             | Granted    | 1,133,000 |                                                                                                                                                                                                                                                                                      |                                 .55          |                                                        |   |                                                                                                                                                                                                         |   |   |
|                                             | Exercised  | (12,500)  |                                                                                                                                                                                                                                                                                      |                                 .47          |                                                        |   |                                                                                                                                                                                                         |   |   |
|                                             | Cancelled  | (191,500) |                                                                                                                                                                                                                                                                                      |                     1.54 |                                                        |   |                                                                                                                                                                                                         |   |   |
| Outstanding                at September 30, 2007 | 3,111,648  |      | $                                              1.08 |                                                                                                                         | 7.83                                                        |   | $                               769,773           |   |
| Exercisable                at September 30, 2007 | 1,463,009  |      | $                                              1.30 |                                                                                                                         | 6.69                                                        |   | $                                              190,643 |   |

| **Warrants**                                     | **Shares** |     | **Weighted                Average Exercise Price**                                                                                                                                                                                                                                                  |                                                                                                                                                        | **Weighted                Average Remaining Term in Years** |   | **Aggregate****Intrinsic                Value**                                                                                                                                                              |
|--------------------------------------------------|------------|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Outstanding                at December 31, 2006  | 2,467,076  |     | $                                              1.34           |                                                                                                                                                        |                                                        |   |                                                                                                                                                                                                         |
|                                             | Granted    | 717,500  |                                                                                                                                                                                                                                                                                                |                                .60                                               |                                                        |   |                                                                                                                                                                                                         |   |   |
|                                             | Exercised  | -        |                                                                                                                                                                                                                                                                                                |                                        - |                                                        |   |                                                                                                                                                                                                         |   |   |
|                                             | Cancelled  | (90,917) |                                                                                                                                                                                                                                                                                                |                    1.16                                      |                                                        |   |                                                                                                                                                                                                         |   |   |
| Outstanding                at September 30, 2007 | 3,093,660  |     | $                                              1.17           |                                                                                                                                                        | 4.42                                                        |   | $                            1,031,011                           |   |
| Exercisable                at September 30, 2007 | 2,716,160  |     | $                                                             1.23 |                                                                                                                                                        | 4.17                                                        |   | $                                              902,661 |   |

|                                                                    | **Three                Months**                                                                                                                                                                                                 |   | **Nine                Months**                                                                                                                                                                                                      |
|-------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                    | **Ended                September 30,**                                                                                                                                                                                          |   | **Ended                September 30,**                                                                                                                                                                                              |
|                                                                    | **2007**                                                                                                                                                                                                                        |   | **2006**                                                                                                                                                                                                                            |   | **2007** |   | **2006** |
| Cost                of revenues                                         | $                                   25,432       |   | $                                                  36,403 |   | $                                                  79,224 |   | $                                                108,337 |
| Sales                and marketing                                      |                                15,941                                |   |                                              58,693                                |   |                                                74,813 |   |                                  120,209 |
| General                and administrative expense                       |                                34,542                                |   |                                67,043                                    |   |                                  173,258 |   |                                  222,078 |
|    Total                stock based compensation expense |  $                                   75,915 |   | $                                                162,139            |   | $                                                327,295 |   | $                                                450,624 |

**4.           NET      INCOME (LOSS) PER SHARE**

|                                                                       |                                                                                                                                                                 | **Three Months                Ended September 30**                                                                                                                                                                |                                                                                                                                     | **Nine Months                Ended****September                30**                                                                                                                                                        |
|----------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                       |                                                                                                                                                                 | **2007**                                                                                                                                                                                                               |                                                                                                                                     | **2006**                                                                                                                                                                                                                        |   | **2007** |   | **2006** |
| Numerator:                                                                 |                                                                                                                                                                 |                                                                                                                                                                                                                   |                                                                                                                                     |                                                                                                                                                                                                                            |   |   |   |
|                                                                       | Net                income (loss)                                                                                                                                     | $                                          162,025                                   |                                                                                                                                     | $                                    (770,528)                                                                                   |   | $                                          411,958 |   | $                                     (3,104,137) |
| Effects                of dilutive securities:                             |                                                                                                                                                                 |                                                                                                                                                                                                                   |                                                                                                                                     |                                                                                                                                                                                                                            |   |   |   |
|                                                                       | Convertible                notes payable                                                                                                                             |                           (646,049)                                                  |                                                                                                                                     |                                       (558,190)                                                                        |   |                   (533,122) |   |                                           (490,440) |
| (Loss)                after effects of conversion of notes payable         | $                                       (484,024) |                                                                                                                                                                                                                   | $                                 (1,328,718)       |                                                                                                                                                                                                                            | $                        (121,164) |   | $                      (3,594,577) |
|                                                                       |                                                                                                                                                                 |                                                                                                                                                                                                                   |                                                                                                                                     |                                                                                                                                                                                                                            |   |   |   |   |
| Denominator:                                                               |                                                                                                                                                                 |                                                                                                                                                                                                                   |                                                                                                                                     |                                                                                                                                                                                                                            |   |   |   |
|                                                                       | Denominator                for basic calculation weighted average shares                                                                                             |                                        16,135,309                                                   |                                                                                                                                     |                                     16,122,809                                                                                   |   |                                        16,130,043 |   |                         16,060,640 |
|                                                                       |                                                                                                                                                                 |                                                                                                                                                                                                                   |                                                                                                                                     |                                                                                                                                                                                                                            |   |   |   |   |
| Dilutive                common stock equivalents:                          |                                                                                                                                                                 |                                                                                                                                                                                                                   |                                                                                                                                     |                                                                                                                                                                                                                            |   |   |   |
|                                                                       | Secured                convertible notes                                                                                                                             |                                          2,940,292                                        |                                                                                                                                     |                                       1,677,869                                                                   |   |                                          3,118,863 |   |                           1,677,869 |
|                                                                       | Options                and warrants                                                                                                                                  |                                          1,698,852                                        |                                                                                                                                     |                                      - |   |                                          1,698,852 |   |                                                        - |
|                                                                       |                                                                                                                                                                 |                                                                                                                                                                                                                   |                                                                                                                                     |                                                                                                                                                                                                                            |   |   |   |   |
| Denominator                for diluted calculation weighted average shares |                         20,774,453           |                                                                                                                                                                                                                   |                      17,800,678 |                                                                                                                                                                                                                            |                                        20,947,758 |   |                         17,738,509 |
|                                                                       |                                                                                                                                                                 |                                                                                                                                                                                                                   |                                                                                                                                     |                                                                                                                                                                                                                            |   |   |   |
| Net                income (loss) per share:                                |                                                                                                                                                                 |                                                                                                                                                                                                                   |                                                                                                                                     |                                                                                                                                                                                                                            |   |   |   |
|                                                                       | Basic                net income (loss) per share                                                                                                                     | $                                   .01 |                                                                                                                                     | $                                            (.05)                                  |   | $                                                  .03 |   | $                                                (.19) |
|                                                                       |                                                                                                                                                                 |                                                                                                                                                                                                                   |                                                                                                                                     |                                                                                                                                                                                                                            |   |   |   |
|                                                                       | Diluted                net (loss) per share                                                                                                                          | $                                (.02)                 |                                                                                                                                     | $                                            (.07)                                  |   | $                                (.01) |   | $                                              (0.20) |

**5.           ACCOUNTS      RECEIVABLE**

| Trade                receivable                     | $                                                                      3,166,321                       |
|-----------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Allowance for                doubtful accounts |                                                                           (28,510) |
|                            | Total                accounts receivable                                                                                                                                                                                                                                                                                                                                             | $                                                       3,137,811 |

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**6.                      LOAN      PAYABLE**

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| **7.  ** | **NOTE                PAYABLE** |
|--------------------|---------------------------------|

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| **8.** | **EMPLOYMENT                AGREEMENTS** |
|--------|------------------------------------------|

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**9.           CONCENTRATIONS**

**Cash      Concentrations**

**.**

**Major      Customers**

**10.          SEGMENT      REPORTING**

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

**OVERVIEW**

**APPLICATION      OF CRITICAL ACCOUNTING POLICIES**

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

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

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

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

| ·   | financial                instruments, including debt, warrant and option                valuation |
|--------------------|---------------------------------------------------------------------------------------------------|

**RESULTS      OF OPERATIONS**

**For      the Nine Months Ended September 30, 2007 Compared to the Nine Months Ended      September 30, 2006**

**Revenue**

**Cost      of Revenue**

**Sales      and Marketing**

**General      and Administrative**

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**Intangible      Asset Amortization**

**Other      Income (Expense)**

**Income      Tax Expense**

**For      the Three Months Ended September 30, 2007 Compared to the Three Months Ended      September 30, 2006**

**Revenue**

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**Cost      of Revenue**

**Sales      and Marketing**

**General      and Administrative**

**Intangible      Asset Amortization**

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**Other      Income (Expense)**

**Income      Tax Expense**

**LIQUIDITY      AND CAPITAL RESOURCES**

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**FACTORS      THAT MAY AFFECT FUTURE RESULTS**

**WE      HAVE A LIMITED OPERATING HISTORY WITH RESPECT TO OUR CORE BUSINESS      STRATEGY.**

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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**ITEM      3.                      CONTROLS      AND PROCEDURES.**

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**PART      II - OTHER INFORMATION**

**ITEM      1.                      LEGAL      PROCEEDINGS.**

**ITEM      2.                      UNREGISTERED      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.**

**ITEM      3.                      DEFAULTS      UPON SENIOR SECURITIES.**

**ITEM      4.                      SUBMISSION      OF MATTERS TO A VOTE OF SECURITY HOLDERS.**

**ITEM      5.                       OTHER      INFORMATION.**

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**ITEM      6.                      EXHIBITS.**

| **No.** | **Item**                                                                                                                                                                                                                                                                                                   |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1    | Executive                Employment Agreement between Registrant and Etienne Weidemann, President                and Chief Executive Officer dated November 13, 2007.                                                                                                                                      |
| 10.2    | Executive                Employment Agreement between Registrant and Paul T. Anthony, Chief                Financial Officer and Corporate Secretary dated November 13,                2007.                                                                                                               |
| 10.3    | Executive                Employment Agreement between Registrant and Jacques Terblanche, Chief                Operating Officer dated November 13, 2007.                                                                                                                                                   |
| 10.4    | Executive                Employment Agreement between Registrant and Etienne Weidemann, President                and Chief Operating Officer dated March 15, 2006 (filed as Exhibit                10.2 to                the Registrant’s Form 8-K filed on March 22, 2006).                        |
| 10.5    | Executive                Employment Agreement between Registrant and Paul T. Anthony, Chief                Financial Officer and Corporate Secretary dated March 15, 2006 (filed                as                Exhibit 10.3 to the Registrant’s Form 8-K filed on March 22,                2006). |
| 31.1    | Certification                of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule                15d-14(a) of the Securities Exchange Act of 1934, as                amended.                                                                                                                |
| 31.2    | Certification  of                the Chief Financial Officer  pursuant to Rule 13a-14(a) and Rule                15d-14(a) of the Securities Exchange Act of 1934, as                amended.                                                                                          |
| 32.1    | Certification                of the CEO and CFO pursuant to Rule 13a-14(b) and Rule 15d-14(b)                of the                Securities Exchange Act of 1934 and 18 U.S.C. Section                1350.                                                                                              |

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**SIGNATURES**

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