----

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

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| PART I - FINANCIAL INFORMATION  |   Page                                                                                                                           |
|--------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|
| Item 1                          | Financial Statements:                                                                                                            |   |
|                                 | Condensed Consolidated Balance Sheets  as of March 31, 2010 (unaudited) and December 31, 2009                          |  3  |
|                                 | Condensed Consolidated Statements of Operations  for the Three Months Ended March 31, 2010 and 2009 (unaudited)        |  4  |
|                                 | Condensed Consolidated Statement of Stockholders’ Equity  for the Three Months Ended March 31, 2010 (unaudited)  |  5  |
|                                 | Condensed Consolidated Statements of Cash Flows  for the Three Months Ended March 31, 2010 and 2009 (unaudited)        |  6  |
|                                 | Notes to Unaudited Condensed Consolidated Financial Statements                                                                   | 8  |
| Item 2                          | Management's Discussion and Analysis of Financial Condition and Results of Operations                                            | 12  |
| Item 3                          | Quantitative and Qualitative Disclosure About Market Risk                                                                        | 15  |
| Item 4T                         | Controls and Procedures                                                                                                          | 15  |
| PART II - OTHER INFORMATION     |                                                                                                                                  |
| Item 1A                         | Risk Factors                                                                                                                          | 16  |
| Item 6                          | Exhibits                                                                                                                         | 20  |
| Signatures                           |                                                                                                                                  | 21 |

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| AUXILIO, INC. AND SUBSIDIARIES                                                                                                                                                                    |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| CONDENSED CONSOLIDATED BALANCE SHEETS                                                                                                                                                             |   |
|                                                                                                                                                                                              |   |
|                                                                                                                                                                                              |   |
|                                                                                                                                                                                              |   | MARCH 31, 2010 |   |   | DECEMBER 31, 2009 |   |
|                                                                                                                                                                                              |   | (unaudited) |   |   |   |   |
|                                                                                                                                                                                              |   |
| ASSETS                                                                                                                                                                                            |   |
| Current assets:                                                                                                                                                                                   |   |   |   |   |   |   |
| Cash and cash equivalents                                                                                                                                                                         |   | $ | 1,906,974 |   |   | $ | 1,781,586 |   |
| Accounts receivable, net                                                                                                                                                                          |   |   | 1,227,196 |   |   |   | 1,397,598 |   |
| Supplies                                                                                                                                                                                          |   |   | 589,435 |   |   |   | 537,170 |   |
| Prepaid and other current assets                                                                                                                                                                  |   |   | 130,979 |   |   |   | 93,246 |   |
| Total current assets                                                                                                                                                                              |   |   | 3,854,584 |   |   |   | 3,809,600 |   |
|                                                                                                                                                                                              |   |   |   |   |   |   |   |   |
| Property and equipment, net                                                                                                                                                                       |   |   | 237,440 |   |   |   | 277,704 |   |
| Deposits                                                                                                                                                                                          |   |   | 43,792 |   |   |   | 43,792 |   |
| Goodwill                                                                                                                                                                                          |   |   | 1,517,017 |   |   |   | 1,517,017 |   |
|                                                                                                                                                                                              |   | $ | 5,652,833 |   |   | $ | 5,648,113 |   |
|                                                                                                                                                                                              |   |   |   |   |   |   |   |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                                              |   |
|                                                                                                                                                                                              |   |   |   |   |   |   |   |   |
| Current liabilities:                                                                                                                                                                              |   |   |   |   |   |   |   |   |
| Accounts payable and accrued expenses                                                                                                                                                             |   | $ | 1,226,637 |   |   | $ | 1,246,880 |   |
| Accrued compensation and benefits                                                                                                                                                                 |   |   | 490,411 |   |   |   | 554,702 |   |
| Deferred revenue                                                                                                                                                                                  |   |   | 320,663 |   |   |   | 349,271 |   |
| Current portion of capital lease obligations                                                                                                                                                      |   |   | 3,945 |   |   |   | 3,835 |   |
| Total current liabilities                                                                                                                                                                         |   |   | 2,041,656 |   |   |   | 2,154,688 |   |
|                                                                                                                                                                                              |   |   |   |   |   |   |   |   |
| Capital lease obligations, noncurrent                                                                                                                                                             |   |   | 16,492 |   |   |   | 17,537 |   |
|                                                                                                                                                                                              |   |   |   |   |   |   |   |   |
| Commitments and contingencies                                                                                                                                                                     |   |   | - |   |   |   | - |   |
|                                                                                                                                                                                              |   |   |   |   |   |   |   |   |
| Stockholders' equity:                                                                                                                                                                             |   |   |   |   |   |   |   |   |
| Common stock, par value at $0.001, 33,333,333 shares authorized,     19,159,151 and 19,040,401 shares issued and outstanding at March 31, 2010 and December 31, 2009, respectively |   |   | 19,161 |   |   |   | 19,042 |   |
| Additional paid-in capital                                                                                                                                                                        |   |   | 19,915,893 |   |   |   | 19,803,021 |   |
| Accumulated deficit                                                                                                                                                                               |   |   | (16,340,369 | ) |   |   | (16,346,175 | ) |
| Total stockholders' equity                                                                                                                                                                        |   |   | 3,594,685 |   |   |   | 3,475,888 |   |
| Total liabilities and stockholders’ equity                                                                                                                                                  |   | $ | 5,652,833 |   |   | $ | 5,648,113 |   |

----

| AUXILIO, INC. AND SUBSIDIARIES                  |   |
|-------------------------------------------------|--------|
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |   |
| (UNAUDITED)                                     |   |
|                                            |   |   |   |   |   |   |
|                                            |   | Three Months Ended March 31, |   |
|                                            |   | 2010 |   |   | 2009 |   |
| Revenues                                        |   | $ | 3,698,621 |   |   | $ | 3,727,610 |   |
| Cost of revenues                                |   |   | 2,655,830 |   |   |   | 2,864,897 |   |
| Gross profit                                    |   |   | 1,042,791 |   |   |   | 862,713 |   |
| Operating expenses:                             |   |   |   |   |   |   |   |   |
|   Sales and marketing                      |   |   | 320,409 |   |   |   | 261,814 |   |
|   General and administrative expenses      |   |   | 713,734 |   |   |   | 616,693 |   |
|     Total operating expenses     |   |   | 1,034,143 |   |   |   | 878,507 |   |
| Income (loss) from operations                   |   |   | 8,648 |   |   |   | (15,794 | ) |
| Other income (expense):                         |   |   |   |   |   |   |   |   |
|   Interest expense                         |   |   | (456 | ) |   |   | (88,588 | ) |
|   Interest income                          |   |   | 14 |   |   |   | 1,458 |   |
|     Total other income (expense) |   |   | (442 | ) |   |   | (87,130 | ) |
| Income (loss) before provision for income taxes |   |   | 8,206 |   |   |   | (102,924 | ) |
| Income tax expense                              |   |   | 2,400 |   |   |   | 2,400 |   |
| Net income (loss)                               |   | $ | 5,806 |   |   | $ | (105,324 | ) |
|                                            |   |   |   |   |   |   |   |   |
| Net income (loss) per share:                    |   |   |   |
| Basic                                           |   | $ | 0.00 |   |   | $ | (0.01 | ) |
| Diluted                                         |   | $ | 0.00 |   |   | $ | (0.01 | ) |
|                                            |   |   |   |   |   |   |   |   |
| Number of weighted average shares:              |   |   |   |   |   |   |   |   |
| Basic                                           |   |   | 19,049,081 |   |   |   | 17,623,734 |   |
| Diluted                                         |   |   | 20,573,503 |   |   |   | 17,623,734 |   |

----

| AUXILIO, INC. AND SUBSIDIARIES                                                         |
|----------------------------------------------------------------------------------------|
| CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY                               |
| THREE MONTHS ENDED MARCH 31, 2010                                                      |
| (UNAUDITED)                                                                            |
|                                                                                   |
|                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   |   |   |   |   |   |   |   | Additional |   |   |   |   |   | Total |   |
|                                                                                   |   | Common Stock |   |   | Paid-in |   |   | Accumulated |   |   | Stockholders' |   |
|                                                                                   |   | Shares |   |   | Amount |   |   | Capital |   |   | Deficit |   |   | Equity |   |
| Balance at December 31, 2009                                                           |   |   | 19,040,401 |   |   | $ | 19,042 |   |   | $ | 19,803,021 |   |   | $ | (16,346,175 | ) |   | $ | 3,475,888 |   |
| Common stock issued through exercise of warrants                                       |   |   | 118,750 |   |   |   | 119 |   |   |   | 63,506 |   |   |   | - |   |   |   | 63,625 |   |
| Stock compensation expense for options and warrants granted to employees and directors |   |   | - |   |   |   | - |   |   |   | 49,366 |   |   |   | - |   |   |   | 49,366 |   |
| Net income                                                                             |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 5,806 |   |   |   | 5,806 |   |
| Balance at March 31, 2010                                                              |   |   | 19,159,151 |   |   | $ | 19,161 |   |   | $ | 19,915,893 |   |   | $ | (16,340,369 | ) |   | $ | 3,594,685 |   |

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| AUXILIO, INC. AND SUBSIDIARIES                                                        |   |
|---------------------------------------------------------------------------------------|--------|
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                       |   |
| (UNAUDITED)                                                                           |   |
|                                                                                  |   |   |   |
|                                                                                  |   | Three Months Ended March 31, |   |
|                                                                                  |   | 2010 |   |   | 2009 |   |
| Cash flows provided by operating activities:                                          |   |   |   |   |   |   |
| Net income (loss)                                                                     |   | $ | 5,806 |   |   | $ | (105,324 | ) |
| Adjustments to reconcile net income (loss) to net cash                                |   |   |
| provided by operating activities:                                                     |   |   |   |   |   |   |   |   |
| Depreciation                                                                          |   |   | 72,947 |   |   |   | 31,750 |   |
| Stock compensation expense for warrants and options issued to employees and directors |   |   | 49,366 |   |   |   | 76,045 |   |
| Interest expense related to amortization of warrants issued with loans                |   |   | - |   |   |   | 21,723 |   |
| Interest expense related to amortization of loan acquisition costs                    |   |   | - |   |   |   | 41,225 |   |
| Changes in operating assets and liabilities:                                          |   |   |
| Accounts receivable                                                                   |   |   | 170,402 |   |   |   | 2,788,482 |   |
| Supplies                                                                              |   |   | (52,265 | ) |   |   | 103,036 |   |
| Prepaid and other current assets                                                      |   |   | (37,733 | ) |   |   | (8,031 | ) |
| Accounts payable and accrued expenses                                                 |   |   | (20,243 | ) |   |   | (1,691,938 | ) |
| Accrued compensation and benefits                                                     |   |   | (64,291 | ) |   |   | (275,540 | ) |
| Deferred revenue                                                                      |   |   | (28,608 | ) |   |   | (39,038 | ) |
| Net cash provided by operating activities                                             |   |   | 95,381 |   |   |   | 942,390 |   |
| Cash flows (used for) investing activities:                                      |   |   |   |   |   |   |   |   |
| Purchases of property and equipment                                                   |   |   | (32,683 | ) |   |   | (66,396 | ) |
| Net cash (used for) investing activities                                              |   |   | (32,683 | ) |   |   | (66,396 | ) |
| Cash flows provided by (used for) financing activities:                               |   |   |   |   |   |   |   |   |
| Payments on capital leases                                                            |   |   | (935 | ) |   |   | (4,805 | ) |
| Payments on notes payable and long-term debt                                          |   |   | - |   |   |   | (150,000 | ) |
| Net proceeds from issuance of common stock                                            |   |   | 63,625 |   |   |   | - |   |
| Net cash provided by (used for) financing activities                                  |   |   | 62,690 |   |   |   | (154,805 | ) |
| Net increase in cash and cash equivalents                                             |   |   | 125,838 |   |   |   | 721,189 |   |
| Cash and cash equivalents, beginning of period                                        |   |   | 1,781,586 |   |   |   | 1,198,126 |   |
| Cash and cash equivalents, end of period                                              |   | $ | 1,906,974 |   |   | $ | 1,919,315 |   |

----

| AUXILIO, INC. AND SUBSIDIARIES                                   |   |
|------------------------------------------------------------------|--------|
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) |   |
| (UNAUDITED)                                                      |   |
|                                                             |   |   |   |   |   |   |
|                                                             |   | Three Months Ended March 31, |   |
|                                                             |   | 2010 |   |   | 2009 |   |
| Supplemental disclosure of cash flow information:                |   |   |   |   |   |   |
|                                                             |   |   |   |   |   |   |
| Interest paid                                                    |   | $ | 456 |   |   | $ | 25,335 |   |
|                                                             |   |   |   |   |   |   |   |   |
| Income taxes paid                                                |   | $ | - |   |   | $ | 51,900 |   |

----

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| Options                          |   | Shares |      |   | Weighted Average Exercise Price |   |   | Weighted Average Remaining Term in Years |   |   | AggregateIntrinsic Value |   |
|----------------------------------|--------|--------|-----------|--------|---------------------------------|--------|--------|------------------------------------------|--------|--------|--------------------------|--------|
| Outstanding at December 31, 2009 |   |   | 5,226,195 |   |                            | $      | 1.02   |                                     |   |   |                     |   |   |   |
| Granted                          |   |   | 52,000    |   |                            |   | 1.02   |                                     |   |   |                     |   |   |   |
| Exercised                        |   |   | -         |   |                            |   | -      |                                     |   |   |                     |   |   |   |
| Cancelled                        |   |   | (705,666  | )      |                            |   | 0.96   |                                     |   |   |                     |   |   |   |
| Outstanding at March 31, 2010    |   |   | 4,572,529 |   |                            | $      | 1.03   |                                     |   |   | 6.96                     |   |   | $ | 1,155,631 |   |
| Exercisable at March 31, 2010    |   |   | 2,980,069 |   |                            | $      | 1.10   |                                     |   |   | 6.03                     |   |   | $ | 657,311 |   |

| Warrants                         |   | Shares |      |   | Weighted Average Exercise Price |   |   | Weighted Average Remaining Term in Years |   |   | AggregateIntrinsic Value |   |
|----------------------------------|--------|--------|-----------|--------|---------------------------------|--------|--------|------------------------------------------|--------|--------|--------------------------|--------|
| Outstanding at December 31, 2009 |   |   | 3,981,871 |   |                            | $      | 1.39   |                                     |   |   |                     |   |   |   |
| Granted                          |   |   | -         |   |                            |   | -      |                                     |   |   |                     |   |   |   |
| Exercised                        |   |   | (118,750  | )      |                            |   | .54    |                                     |   |   |                     |   |   |   |
| Cancelled                        |   |   | (136,780  | )      |                            |   | 2.32   |                                     |   |   |                     |   |   |   |
| Outstanding at March 31, 2010    |   |   | 3,726,341 |   |                            | $      | 1.39   |                                     |   |   | 2.75                     |   |   | $ | 521,234 |   |
| Exercisable at March 31, 2010    |   |   | 1,876,341 |   |                            | $      | 1.28   |                                     |   |   | 2.75                     |   |   | $ | 521,234 |   |

|                                                     |   | 2010   |    |   | 2009   |   |
|----------------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Cost of revenues                                         |   | $      | 23,105  |   |   | $      | 22,810 |   |
| Sales and marketing                                      |   |   | (13,528 | )      |   |   | 17,146 |   |
| General and administrative expenses                      |   |   | 39,789  |   |   |   | 36,089 |   |
|    Total stock based compensation expense |   | $      | 49,366  |   |   | $      | 76,045 |   |

----

|                                                        |   | Three Months Ended March 31, |       |
|-------------------------------------------------------------|--------|------------------------------|------------|
|                                                        |   | 2010                         |       |   | 2009 |   |
| Numerator:                                                  |   |                         |       |   |   |   |
| Net income (loss)                                           |   | $                            | 5,806      |   |   | $ | (105,324 | ) |
|                                                        |   |                         |       |   |   |   |   |   |
| Denominator:                                                |   |                         |       |   |   |   |   |   |
| Denominator for basic calculation weighted average shares   |   |                         | 19,049,081 |   |   |   | 17,623,734 |   |
|                                                        |   |                         |       |   |   |   |   |   |
| Dilutive common stock equivalents:                          |   |                         |       |   |   |   |   |   |
| Options and warrants                                        |   |                         | 1,524,422  |   |   |   | - |   |
|                                                        |   |                         |       |   |   |   |   |   |
| Denominator for diluted calculation weighted average shares |   |                         | 20,573,503 |   |   |   | 17,623,734 |   |
|                                                        |   |                         |       |   |   |   |   |   |
| Net income (loss) per share:                                |   |                         |       |   |   |   |   |   |
|                                                        |   |                         |       |   |   |   |   |   |
| Basic net income (loss) per share                           |   | $                            | 0.00       |   |   | $ | (0.01 | ) |
|                                                        |   |                         |       |   |   |   |   |   |
| Diluted net income (loss) per share                         |   | $                            | 0.00       |   |   | $ | (0.01 | ) |

| Trade receivable                |   | $      | 1,516,955 |   |
|---------------------------------|--------|--------|-----------|--------|
| Customer advances               |   |   | (289,759  | )      |
| Allowance for doubtful accounts |   |   | -         |   |
| Total accounts receivable       |   | $      | 1,227,196 |   |

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

----

----

----

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

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

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

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

----

----

|             |   | Payments Due by Period |    |
|------------------|--------|------------------------|---------|
|             |   | Total                  |    |   | Less than 1 year |   |   | 1-3 years |   |   | 3-5 years |   |   | More than 5 years |   |
| Capital leases   |   | $                      | 20,437  |   |   | $ | 3,945 |   |   | $ | 16,492 |   |   | $ | - |   |   | $ | - |   |
| Operating leases |   |                   | 730,168 |   |   |   | - |   |   |   | 292,067 |   |   |   | 326,187 |   |   |   | 111,914 |   |
| Total            |   | $                      | 750,605 |   |   | $ | 3,945 |   |   | $ | 308,559 |   |   | $ | 326,187 |   |   | $ | 111,914 |   |

----

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

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

----

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

----

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

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

----

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

----

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

----

----