**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**

**                     PART II - OTHER INFORMATION**

----

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

**ITEM      1. FINANCIAL STATEMENTS.**

| **AUXILIO,                INC. AND SUBSIDIARIES**                                                 |
|---------------------------------------------------------------------------------------------------|
| **CONDENSED                CONSOLIDATED BALANCE SHEET**                                           |
| **JUNE                30, 2007**                                                                  |
| **(UNAUDITED)**                                                                                   |
|                                                                                              |
| **ASSETS**                                                                                        |
| **Current                assets:**                                                                |   |   |   |   |
| Cash                and cash equivalents                                                          |   | $ | 790,964 |   |
| Accounts                receivable, net                                                           |   |   | 2,776,995 |   |
| Prepaid                and other current assets                                                   |   |   | 22,904 |   |
| Supplies                                                                                          |   |   | 650,077 |   |
| **                    Total current assets**                                  |   |   | 4,240,940 |   |
|                                                                                              |   |   |   |   |
| **Property                and equipment, net**                                                    |   |   | 257,807 |   |
| **Deposits**                                                                                      |   |   | 28,790 |   |
| **Loan                acquisition costs, net**                                                    |   |   | 328,710 |   |
| **Intangible                assets, net**                                                         |   |   | 310,056 |   |
| **Goodwill**                                                                                      |   |   | 1,517,017 |   |
| **Total                assets**                                                                   |   | $ | 6,683,320 |   |
|                                                                                              |   |   |   |   |
| **LIABILITIES                AND STOCKHOLDERS' EQUITY**                                           |
|                                                                                              |   |   |   |   |
| **Current                liabilities:**                                                           |   |   |   |   |
| Accounts                payable and accrued expenses                                              |   | $ | 1,835,118 |   |
| Accrued                compensation and benefits                                                  |   |   | 520,523 |   |
| Deferred                revenue                                                                   |   |   | 507,090 |   |
| Current                portion of long-term debt                                                  |   |   | 600,000 |   |
| Current                portion of capital lease obligations                                       |   |   | 37,366 |   |
| Revolving                loan payable, net of discount of $30,149                                 |   |   | 719,851 |   |
| **                    Total current liabilities**                             |   |   | 4,219,948 |   |
|                                                                                              |   |   |   |   |
| **Note                payable, less current portion, net of discount of                $153,753** |   |   | 1,646,247 |   |
|                                                                                              |   |   |   |   |
| **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                                                         |   |   | 16,687,336 |   |
| Accumulated                deficit                                                                |   |   | (15,886,348) |   |
| **    Total                stockholders' equity**                             |   |   | 817,125 |   |
| **                   Total liabilities and stockholders’ equity**            |   | $ | 6,683,320 |   |

----

| **AUXILIO,                INC. AND SUBSIDIARIES**                                       |   |
|-----------------------------------------------------------------------------------------|--------|
| **CONDENSED                CONSOLIDATED STATEMENTS OF OPERATIONS**                      |   |
| **(UNAUDITED)**                                                                         |   |
|                                                                                    |   |
|                                                                                    |   | **Three                Months** | **Six                Months** |
|                                                                                    |   | **    Ended                  June 30,** | **Ended                June 30,** |
|                                                                                    |   |   | **2007** |   |   | **2006** |   |   | **2007** |   | **2006** |
| **Revenues**                                                                            |   | $ | 5,022,112 |   | $ | 2,481,139 |   | $ | 10,885,023 |   | $               4,516,332 |
| **Cost                of revenues**                                                     |   |   | 3,971,000 |   |   | 2,362,995 |   |   | 8,271,070 |   | 4,334,369 |
|                                                                                    |   |   |   |   |   |   |   |   |   |   |   |
| **Gross                profit**                                                         |   |   | 1,051,112 |   |   | 118,144 |   |   | 2,613,953 |   | 181,963 |
|                                                                                    |   |   |   |   |   |   |   |   |   |   |   |
| **Operating                expenses:**                                                  |   |   |   |   |   |   |   |   |   |   |   |
| Sales                and marketing                                                      |   |   | 313,909 |   |   | 490,981 |   |   | 588,384 |   | 1,001,884 |
| General                & administrative expenses                                    |   |   | 570,963 |   |   | 536,707 |   |   | 1,245,727 |   | 1,193,872 |
| Intangible                asset amortization                                            |   |   | 59,541 |   |   | 63,802 |   |   | 119,082 |   | 127,603 |
| **                     Total operating expenses**              |   |   | 944,143 |   |   | 1,091,490 |   |   | 1,953,193 |   | 2,323,359 |
| **                     Income (loss) from operations**         |   |   | 106,969 |   |   | (973,346) |   |   | 660,760 |   | (2,141,396) |
|                                                                                    |   |   |   |   |   |   |   |   |   |   |   |
| **Other                income (expense):**                                              |   |   |   |   |   |   |   |   |   |   |   |
| Interest                expense                                                         |   |   | (201,714) |   |   | (209,155) |   |   | (406,596) |   | (219,005) |
| Interest                income                                                          |   |   | 4,580 |   |   | 17,417 |   |   | 6,969 |   | 18,744 |
| Gain                on sale of marketable securities                                    |   |   | - |   |   | - |   |   | - |   | 10,448 |
|                                                                                    |   |   |   |   |   |   |   |   |   |   |   |
|                     **Total other income                (expense)** |   |   |  (197,134) |   |   | (191,738) |   |   | (399,627) |   | (189,813) |
|                                                                                    |   |   |   |   |   |   |   |   |   |   |   |
| **Income                (loss) before provision for income taxes**                      |   |   | (90,165) |   |   | (1,165,084) |   |   | 261,133 |   | (2,331,209) |
|                                                                                    |   |   |   |   |   |   |   |   |   |   |   |
| **Income                tax expense**                                                   |   |   | (5,600) |   |   | - |   |   | (11,200) |   | (2,400) |
|                                                                                    |   |   |   |   |   |   |   |   |   |   |   |
| **Net                income (loss)**                                                    |   | $ | (95,765) |   | $ | (1,165,084) |   | $ | 249,933 |   |                  $              (2,333,609 |
|                                                                                    |   |   |   |   |   |   |   |   |   |   |   |
| **Net                income (loss) per share:**                                         |   |   |   |   |   |   |   |   |   |   |   |
| **Basic**                                                                               |   | $ | (.01) |   | $ | (.07) |   | $ | .02 |   |    $                          (.15) |
| **Diluted**                                                                             |   | $ | (.03) |   | $ | (.10) |   | $ | (.00) |   | $                            (.17) |
|                                                                                    |   |   |   |   |   |   |   |   |   |   |   |
| **Number                of weighted average shares:**                                   |   |   |   |   |   |   |   |   |   |   |   |
| **Basic**                                                                               |   |   | 16,131,875 |   |   | 16,095,615 |   |   | 16,127,367 |   | 16,029,040 |
| **Diluted**                                                                             |   |   | 17,631,173 |   |   | 17,773,484 |   |   | 18,541,538 |   | 17,706,909 |
|                                                                                    |   |   |   |   |   |   |   |   |   |   |   |

----

| **AUXILIO,                INC. AND SUBSIDIARIES**                                                                                     |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|
| **CONDENSED                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY**                                                           |   |
| **SIX                MONTHS ENDED JUNE 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 |   |   | - |   |   | - |   |   | 251,380 |   |   | - |   |   | 251,380 |   |
| Stock                options exercised                                                                                                |   |   | 12,500 |   |   | 13 |   |   | 5,862 |   |   | - |   |   | 5,875 |   |
| Net                income                                                                                                             |   |   | - |   |   | - |   |   | - |   |   | 249,933 |   |   | 249,933 |   |
| Balance                at June 30, 2007                                                                                               |   |   | 16,135,309 |   | $ | 16,137 |   | $ | 16,687,336 |   | $ | (15,886,348) |   | $ | 817,125 |   |

----

| **AUXILIO,                INC. AND SUBSIDIARIES**                                                                                    |   |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|
| **CONDENSED                CONSOLIDATED STATEMENTS OF CASH FLOWS**                                                                   |   |
| **(UNAUDITED)**                                                                                                                      |
|                                                                                                                                 |   |   |
|                                                                                                                                 |   | **Six                Months Ended June 30,** |
|                                                                                                                                 |   |   | **2007** |   |   | **2006** |   |
| **Cash                flows provided by (used for) operating                activities:**                                            |   |   |   |   |   |   |   |
| Net                income (loss)                                                                                                     |   | $ | 249,933 |   | $ | (2,333,609) |   |
| **Adjustments                to reconcile net income (loss) to net cash**                                                            |   |   |   |   |   |   |   |
| **provided                by (used for) operating activities:**                                                                      |   |   |   |   |   |   |   |
| Depreciation                                                                                                                         |   |   | 68,403 |   |   | 56,657 |   |
| Amortization                of intangible assets                                                                                     |   |   | 119,082 |   |   | 127,603 |   |
| Stock                compensation expense for warrants and options issued to employees                and                consultants |   |   | 251,380 |   |   | 288,485 |   |
| Stock                issued for services                                                                                             |   |   | - |   |   | 4,953 |   |
| Gain                on sale of marketable securities                                                                                 |   |   | - |   |   | (10,448) |   |
| Interest                expense related to amortization of warrants issued for                loans                                  |   |   | 83,562 |   |   | 105,113 |   |
| Interest                expense related to amortization of loan acquisition costs                                                    |   |   | 143,730 |   |   | 38,019 |   |
| **Changes                in operating assets and liabilities:**                                                                      |   |   |   |   |   |   |   |
| Accounts                receivable and other receivables                                                                             |   |   | (1,052,737) |   |   | (225,085) |   |
| Supplies                                                                                                                             |   |   | 40,401 |   |   | 70,466 |   |
| Prepaid                and other current assets                                                                                      |   |   | 7,769 |   |   | (13,794) |   |
| Deposits                                                                                                                             |   |   | - |   |   | 12,565 |   |
| Accounts                payable and accrued expenses                                                                                 |   |   | 515,015 |   |   | 337,976 |   |
| Accrued                compensation and benefits                                                                                     |   |   | 153,728 |   |   | (31,995) |   |
| Deferred                revenue                                                                                                      |   |   | 217,776 |   |   | 55,767 |   |
| Net                cash provided by (used for) operating activities                                                                  |   |   | 798,042 |   |   | (1,517,327) |   |
|                                                                                                                                 |   |   |   |   |   |   |   |
| Purchases                of property and equipment                                                                                   |   |   | (22,441) |   |   | (124,536) |   |
| Net                proceeds from sale of marketable securities                                                                       |   |   | - |   |   | 26,698 |   |
| Net                cash (used for) investing activities                                                                              |   |   | (22,441) |   |   | (97,838) |   |
| **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 |   |
| Acquisition                fees paid for convertible note payable                                                                    |   |   | - |   |   | (345,195) |   |
| Payments                on capital leases                                                                                            |   |   | (9,949) |   |   | (6,673) |   |
| Payments                on notes payable and long-term debt                                                                          |   |   | (300,000) |   |   | - |   |
| Proceeds                from exercise of options                                                                                     |   |   | 5,875 |   |   | - |   |
| Net                cash (used for) provided by financing activities                                                                  |   |   | (304,074) |   |   | 2,648,132 |   |
| **Net                increase in cash and cash equivalents**                                                                         |   |   | 471,527 |   |   | 1,032,967 |   |
| **Cash                and cash equivalents, beginning of period**                                                                    |   |   | 319,437 |   |   | 664,941 |   |
| **Cash                and cash equivalents, end of period**                                                                          |   | $ | 790,964 |   | $ | 1,697,908 |   |

----

|  **AUXILIO,                INC. AND SUBSIDIARIES**                                                  |   |
|----------------------------------------------------------------------------------------------------------|--------|
| **CONDENSED                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)**                           |   |
| **(UNAUDITED)**                                                                                          |   |
|                                                                                                     |   |   |   |   |   |
|                                                                                                     |   | **Six                Months Ended June 30,** |   |
|                                                                                                     |   |   | **2007** |   |   | **2006** |   |
| **Supplemental                disclosure of cash flow information:**                                     |   |   |   |   |   |   |   |
|                                                                                                     |   |   |   |   |   |   |   |
| Interest                paid                                                                             |   | $ | 179,304 |   | $ | 66,023 |   |
|                                                                                                     |   |   |   |   |   |   |   |
| 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 |   |

----

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**SIX      MONTHS ENDED JUNE 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   |  896,500   |                                                                                                                  |                                  .50 |                                                        |   |                                                                                                                                                                           |   |
|                                                  |  Exercised |  (12,500)  |                                                                                                                  |                                  .47 |                                                        |   |                                                                                                                                                                           |   |
|                                                  |  Cancelled |  (177,000) |                                                                                                                  |                                1.60            |                                                        |   |                                                                                                                                                                           |   |
|  Outstanding                at June 30, 2007     |  2,889,648 |            |   $               1.10           |                                                                                                                      |  7.97                                                  |   |  $                                        273,237 |
|  Exercisable                at June 30, 2007     |  1,458,509 |            |  $               1.30                 |                                                                                                                      |  6.94                                                  |   |  $                          15,027      |

| **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   |  100,000 |                                                                                                                                                                                                                                                                                                      |                                                               .47      |                                                        |   |                                                                                                                                                                                                                           |   |
|                                                  |  Exercised |  -       |                                                                                                                                                                                                                                                                                                      |                                                               .30 |                                                        |   |                                                                                                                                                                                                                           |   |
|                                                  |  Cancelled |  (500)   |                                                                                                                                                                                                                                                                                                      |                                                             3.00            |                                                        |   |                                                                                                                                                                                                                           |   |
|  Outstanding                at June 30, 2007     |  2,566,576 |          |  $                                                             1.30 |                                                                                                                                                                                                                                                                                                    |  4.05                                                  |   |  $                                                449,513 |
|  Exercisable                at June 30, 2007     |  2,566,576 |          |  $                                                             1.30 |                                                                                                                                                                                                                                                                                                    |  4.05                                                  |   |  $                                 449,513           |

|                                                         |   | **Three                Months**                                                                                                                                                                |                              | **Six                Months** |   |
|--------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------|-------------------------------|--------|
|                                                         |   | **                                         Ended June 30,**  | **Ended                June 30,** |
|                                                         |   |                                                                                                                                                                                           | **2007**                          |                          |   | **2006** |   |   | **2007** |   |   | **2006** |   |
| Cost                of revenues                              |   | $                                                                                                                                                                                              | 26,154                            |                          | $      | 31,672 |   | $ | 53,792 |   | $ | 71,934 |   |
| Sales                and marketing                           |   |                                                                                                                                                                                           | 28,677                            |                          |   | 3,522 |   |   | 58,872 |   |   | 61,516 |   |
| General                and administrative expense            |   |                                                                                                                                                                                           | 53,866                            |                          |   | 73,333 |   |   | 112,753 |   |   | 155,035 |   |
|                  Total stock based compensation expense |   | $                                                                                                                                                                                              | 108,697                           |                          | $      | 108,527 |   | $ | 225,417 |   | $ | 288,485 |   |

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

----

|                                                                       |   | **Three                Months Ended June 30,** | **Six                Months Ended June 30,** |
|----------------------------------------------------------------------------|--------|------------------------------------------------|----------------------------------------------|
|                                                                       |   |                                           | **2007**                                     |   |   | **2006** |   |   | **2007** |   |   | **2006** |   |
| Numerator:                                                                 |   |                                           |                                         |   |   |   |   |   |   |   |   |   |   |
| Net                income (loss)                                           |   | $                                              | (95,765)                                     |   | $ | (1,165,084) |   | $ | 249,933 |   | $ | (2,333,609) |   |
| Effects                of dilutive securities:                             |   |                                           |                                         |   |   |   |   |   |   |   |   |   |   |
| Convertible                note payable                                    |   |                                           | (381,971)                                    |   |   | (629,581) |   |   | (315,234) |   |   | (629,581) |   |
| Income                (loss) after effects of conversion of note payable   |   | $                                              | (477,736)                                    |   | $ | (1,794,665) |   | $ | (65,301) |   | $ | (2,963,190) |   |
|                                                                       |   |                                           |                                         |   |   |   |   |   |   |   |   |   |   |
| Denominator:                                                               |   |                                           |                                         |   |   |   |   |   |   |   |   |   |   |
| Denominator                for basic calculation weighted average shares   |   |                                           | 16,131,875                                   |   |   | 16,095,615 |   |   | 16,127,367 |   |   | 16,029,040 |   |
|                                                                       |   |                                           |                                         |   |   |   |   |   |   |   |   |   |   |
| Dilutive                common stock equivalents:                          |   |                                           |                                         |   |   |   |   |   |   |   |   |   |   |
| Secured                convertible notes                                   |   |                                           | 1,499,298                                    |   |   | 1,677,869 |   |   | 1,499,298 |   |   | 1,677,869 |   |
| Options                and warrants                                        |   |                                           | -                                            |   |   | - |   |   | 914,873 |   |   | - |   |
|                                                                       |   |                                           |                                         |   |   |   |   |   |   |   |   |   |   |
| Denominator                for diluted calculation weighted average shares |   |                                           | 17,631,173                                   |   |   | 17,773,484 |   |   | 18,541,538 |   |   | 17,706,909 |   |
|                                                                       |   |                                           |                                         |   |   |   |   |   |   |   |   |   |   |
| Net                income (loss) per share:                                |   |                                           |                                         |   |   |   |   |   |   |   |   |   |   |
| Basic                net income (loss) per share                           |   | $                                              | (.01)                                        |   | $ | (.07) |   | $ | .02 |   | $ | (.15) |   |
|                                                                       |   |                                           |                                         |   |   |   |   |   |   |   |   |   |   |
| Diluted                net income (loss) per share                         |   | $                                              | (.03)                                        |   | $ | (.10) |   | $ | (.00) |   | $ | (.17) |   |

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

| Trade                receivable                |   | $      | 2,805,505 |   |
|------------------------------------------------|--------|--------|-----------|--------|
| Allowance                for doubtful accounts |   |   | (28,510)  |   |
| Total                accounts receivable       |   | $      | 2,776,995 |   |

**FINANCIAL      INSTRUMENTS**

----

**7.**
**REVOLVING      LOAN PAYABLE**

| **8.  ** | **NOTE                PAYABLE** |
|--------------------|---------------------------------|

----

**9.**
**EMPLOYMENT      AGREEMENTS**

**10.**
**CONCENTRATIONS**

**Cash      Concentrations**

**.**

**Major      Customers**

**11.      SEGMENT REPORTING**

----

**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 |
|--------------------|---------------------------------|

**RESULTS      OF OPERATIONS**

**For      the Six Months Ended June 30, 2007 Compared to the Six Months Ended June 30,      2006**

**Revenue      **

**Cost      of Revenue **

**Sales      and Marketing **

----

**General      and Administrative **

**Intangible      Asset Amortization **

**Other      Income (Expense) **

**Income      Tax Expense **

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

**Revenue      **

**Cost      of Revenue **

----

**Sales      and Marketing **

**General      and Administrative **

**Intangible      Asset Amortization **

**Other      Income (Expense) **

**Income      Tax Expense **

**LIQUIDITY      AND CAPITAL RESOURCES**

----

**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.**

**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.      **

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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**PART      II - OTHER INFORMATION**

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

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

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

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

**Proposal      1**
**                  Election of Directors**

|   | **Name**                                    |   | **Votes                  For** |   | **Votes                  Withheld** |   |
|--------|---------------------------------------------|--------|--------------------------------|--------|-------------------------------------|--------|
|   |  Joseph                  J. Flynn      |   |  9,970,765                |   |  -                             |   |
|   |  Edward                  B. Case       |   |  9,970,765                |   |  -                             |   |
|   |  John                  D. Pace         |   |  9,970,765                |   |  -                             |   |
|   |  Max                  Poll             |   |  9,970,765                |   |  -                             |   |
|   |  Michael                  Vanderhoof   |   |  9,970,765                |   |  3,000                         |   |
|   |  Etienne                  L. Weidemann |   |  9,970,765                |   |  -                             |   |
|   |                                        |   |                           |   |                                |   |

**Proposal      2**
**To      Approve the Adoption of the Auxilio, Inc. 2007 Stock Option      Plan**

**ITEM      5.**
**OTHER      INFORMATION.**

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**ITEM      6.**
**EXHIBITS.**

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

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**SIGNATURES**