**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**

|                                             |                                                                                                                                                                                  |   |   |
|--------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|                                             |                                                                                                                                                                                  |   | Page   |
|     Item                  1. | Financial                  Statements (Unaudited):                                                                                                                                    |   |   |
|                                             |                                                                                                                                                                                  |   |   |
|                                             | Condensed                  Consolidated Balance Sheet     As                  of                  March 31, 2007                                                  |   | 3      |
|                                             |                                                                                                                                                                                  |   |   |
|                                             | Condensed                  Consolidated Statements of Operations     for                  the                  Three Months Ended March 31, 2007 and 2006         |   | 4      |
|                                             |                                                                                                                                                                                  |   |   |
|                                             | Condensed                  Consolidated Statements of Comprehensive Loss     for                  the                  Three Months Ended March 31, 2007 and 2006 |   | 5      |
|                                             |                                                                                                                                                                                  |   |   |
|                                             | Condensed                  Consolidated Statement of Stockholders’ Equity     for                  the                  Three Months Ended March 31, 2007   |   | 6      |
|                                             |                                                                                                                                                                                  |   |   |
|                                             | Condensed                  Consolidated Statements of Cash Flows     for                  the                  Three Months Ended March 31, 2007 and 2006         |   | 7      |
|                                             |                                                                                                                                                                                  |   |   |
|                                             | Notes                  to Condensed Consolidated Financial Statements                                                                                                                 |   | 9      |
|                                             |                                                                                                                                                                                  |   |   |
|     Item                  2. | Management's                  Discussion and Analysis or Plan Of Operation                                                                                                            |   | 15     |
|                                             |                                                                                                                                                                                  |   |   |
|     Item                  3. | Controls                  and Procedures.                                                                                                                                             |   | 21     |
|                                             |                                                                                                                                                                                  |   |   |
| **PART                  II - OTHER INFORMATION** |
|                                             |                                                                                                                                                                                  |   |   |
|     Item                  1. | Legal                  Proceedings.                                                                                                                                                   |   | 22     |
|                                             |                                                                                                                                                                                  |   |   |
|     Item                  2. | Unregistered                  Sales of Equity Securities and Use of Proceeds                                                                                                          |   | 22     |
|                                             |                                                                                                                                                                                  |   |   |
|     Item                  3. | Defaults                  Upon Senior Securities.                                                                                                                                     |   | 22     |
|                                             |                                                                                                                                                                                  |   |   |
|     Item                  4. | Submission                  of Matters to a Vote of Security Holders.                                                                                                                 |   | 22     |
|                                             |                                                                                                                                                                                  |   |   |
|     Item                  5. | Other                  Information.                                                                                                                                                   |   | 22     |
|                                             |                                                                                                                                                                                  |   |   |
|     Item                  6. | Exhibits.                                                                                                                                                                             |   | 22     |
|                                             |                                                                                                                                                                                  |   |   |
|     Signatures               |                                                                                                                                                                                  |   | 23     |

----

**PART      I - FINANCIAL INFORMATION**

**ITEM      1.**
**      FINANCIAL STATEMENTS.**

| **AUXILIO,                INC. AND SUBSIDIARIES**                                                               |   |
|-----------------------------------------------------------------------------------------------------------------|--------|
| **CONDENSED                CONSOLIDATED BALANCE SHEET**                                                         |   |
| **MARCH                31, 2007**                                                                               |   |
| **(UNAUDITED)**                                                                                                 |   |
|                                                                                                            |   |   |   |
| **ASSETS**                                                                                                      |   |
| **Current                assets:**                                                                              |   |   |   |
|     Cash                and cash equivalents                                                |   | $ | 367,598 |   |
|     Accounts                receivable, net                                                 |   |   | 1,984,830 |   |
|     Prepaid                and other current assets                                         |   |   | 167,700 |   |
|     Supplies                                                                                |   |   | 643,200 |   |
|         Total                current assets                             |   |   | 3,163,328 |   |
|                                                                                                            |   |   |   |   |
| **Property                and equipment, net**                                                                  |   |   | 273,886 |   |
| **Deposits**                                                                                                    |   |   | 28,790 |   |
| **Loan                acquisition costs, net**                                                                  |   |   | 400,575 |   |
| **Intangible                assets, net**                                                                       |   |   | 369,597 |   |
| **Goodwill**                                                                                                    |   |   | 1,517,017 |   |
|         Total                assets                                     |   | $ | 5,753,193 |   |
|                                                                                                            |   |   |   |   |
| **LIABILITIES                AND STOCKHOLDERS' EQUITY**                                                         |
|                                                                                                            |   |   |   |   |
| **Current                liabilities:**                                                                         |   |   |   |   |
|     Accounts                payable and accrued expenses                                    |   | $ | 1,217,757 |   |
|     Accrued                compensation and benefits                                        |   |   | 357,034 |   |
|     Deferred                revenue                                                         |   |   | 257,750 |   |
|     Income                taxes payable                                                     |   |   | 5,600 |   |
|     Current                portion of long-term debt                                        |   |   | 600,000 |   |
|     Current                portion of capital lease obligations                             |   |   | 42,418 |   |
|     Revolving                loan                payable, net of discount of $45,207        |   |   | 699,793 |   |
|         Total                current liabilities                        |   |   | 3,180,352 |   |
|                                                                                                            |   |   |   |   |
| **Note                payable, less current portion, net of discount of                $175,476**               |   |   | 1,774,524 |   |
|                                                                                                            |   |   |   |   |
| **Commitments                and contingencies**                                                                |   |   | **-** |   |
|                                                                                                            |   |   |   |   |
| **Stockholders'                equity:**                                                                        |   |   |   |   |
| Common                stock, par value at $0.001, 33,333,333 shares                                             |   |   |   |   |
|     authorized,16,122,809                shares issued and outstanding                      |   |   | 16,124 |   |
| Additional                paid-in capital                                                                       |   |   | 16,572,777 |   |
| Accumulated deficit                                                                                             |   |   | (15,790,584 | ) |
|         Total                stockholders' equity                       |   |   | 798,317 |   |
|         Total                liabilities and stockholders’ equity |   | $ | 5,753,193 |   |

----

| **AUXILIO,                INC. AND SUBSIDIARIES**                         |   |
|---------------------------------------------------------------------------|--------|
| **CONDENSED                CONSOLIDATED STATEMENTS OF OPERATIONS**        |   |
| **(UNAUDITED)**                                                           |   |
|                                                                      |   |   |   |   |   |
|                                                                      |   | **Three                Months Ended March 31,** |   |
|                                                                      |   | **2007** |   | **2006** |   |
| **Revenues**                                                              |   | $ | 5,862,911 |   | $ | 2,035,193 |   |
| **Cost                of revenues**                                       |   |   | 4,300,071 |   |   | 1,971,374 |   |
| **Gross                profit**                                           |   |   | 1,562,840 |   |   | 63,819 |   |
| **Operating                expenses:**                                    |   |   |   |   |   |   |   |
| Sales                and marketing                                        |   |   | 274,476 |   |   | 510,903 |   |
| General                and administrative expenses                        |   |   | 675,033 |   |   | 657,164 |   |
| Intangible                asset amortization                              |   |   | 59,541 |   |   | 63,802 |   |
|      Total                operating expenses     |   |   | 1,009,050 |   |   | 1,231,869 |   |
| **Income                (loss) from operations**                          |   |   | 553,790 |   |   | (1,168,050 | ) |
| **Other                income (expense):**                                |   |   |   |   |   |   |   |
| Interest                expense                                           |   |   | (204,882 | ) |   | (9,850 | ) |
| Interest                income                                            |   |   | 2,389 |   |   | 1,327 |   |
| Gain                on sale of marketable securities                      |   |   | - |   |   | 10,448 |   |
|      Total                other income (expense) |   |   | (202,493 | ) |   | 1,925 |   |
| **Income                (loss) before provision for income taxes**        |   |   | 351,297 |   |   | (1,166,125 | ) |
| **Income                tax expense**                                     |   |   | 5,600 |   |   | 2,400 |   |
| **Net                income (loss)**                                      |   | $ | 345,697 |   | $ | (1,168,525 | ) |
|                                                                      |   |   |   |   |   |   |   |
| **Net                income (loss) per share:**                           |   |   |   |   |   |   |   |
| **Basic**                                                                 |   | $ | 0.02 |   | $ | (0.07 | ) |
| **Diluted**                                                               |   | $ | (0.01 | ) | $ | (0.07 | ) |
|                                                                      |   |   |   |   |   |   |   |
| **Number                of weighted average shares:**                     |   |   |   |   |   |   |   |
| **Basic**                                                                 |   |   | 16,122,809 |   |   | 15,961,724 |   |
| **Diluted**                                                               |   |   | 18,719,135 |   |   | 15,961,724 |   |

----

| **AUXILIO,                INC. AND SUBSIDIARIES**                                                  |   |
|----------------------------------------------------------------------------------------------------|--------|
| **CONDENSED                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME                (LOSS)** |   |
| **(UNAUDITED)**                                                                                    |   |
|                                                                                               |   |   |   |   |   |
|                                                                                               |   | **Three                Months Ended March 31,** |   |
|                                                                                               |   | **2007** |   | **2006** |   |
| **Net                income (loss)**                                                               |   | $ | 345,697 |   | $ | (1,168,525 | ) |
| **Other                comprehensive loss:**                                                       |   |   |   |   |   |   |   |
| **Reclassification                of realized amounts included in net (loss)**                     |   |   | - |   |   | - |   |
|      **Total                other comprehensive (loss)**                  |   |   | - |   |   | - |   |
| **Comprehensive                income (loss)**                                                     |   | $ | 345,697 |   | $ | (1,168,525 | ) |

----

| **AUXILIO,                INC. AND SUBSIDIARIES**                                                                                     |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|
| **CONDENSED                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY**                                                           |   |
| **THREE                MONTHS ENDED MARCH 31, 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 |   |   | - |   |   | - |   |   | 142,683 |   |   | - |   |   | 142,683 |   |
| Net                income                                                                                                             |   |   | - |   |   | - |   |   | - |   |   | 345,697 |   |   | 345,697 |   |
| Balance                at March 31, 2007                                                                                              |   |   | 16,122,809 |   | $ | 16,124 |   | $ | 16,572,777 |   | $ | (15,790,584 | ) | $ | 798,317 |   |

----

| **AUXILIO,                INC. AND SUBSIDIARIES**                                                                                                            |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| **CONDENSED                CONSOLIDATED STATEMENTS OF CASH FLOWS**                                                                                           |   |
| **(UNAUDITED)**                                                                                                                                              |   |
|                                                                                                                                                         |   |   |   |
|                                                                                                                                                         |   | **Three                Months Ended March 31,** |   |
|                                                                                                                                                         |   | **2007** |   | **2006** |   |
| **Cash                flows used for operating activities:**                                                                                                 |   |   |   |   |   |
|     Net                income (loss)                                                                                                     |   | $ | 345,697 |   | $ | (1,168,525 | ) |
| **Adjustments                to reconcile net income (loss) to net cash**                                                                                    |   |   |   |   |   |   |   |
| **    provided                by                (used for) operating activities:**                                                       |   |   |   |   |   |   |   |
|     Depreciation                                                                                                                         |   |   | 33,822 |   |   | 26,387 |   |
|     Amortization                of                intangible assets                                                                      |   |   | 59,541 |   |   | 63,802 |   |
|     Stock                compensation expense for warrants and options issued to employees                and                consultants |   |   | 142,683 |   |   | 207,169 |   |
|     Stock                issued for services                                                                                             |   |   | - |   |   | 4,953 |   |
|     Interest                expense related to amortization of warrants issued with                loans                                 |   |   | 41,781 |   |   | 5,474 |   |
|     Interest                expense related to amortization of loan acquisition costs                                                    |   |   | 71,865 |   |   | - |   |
|     Interest                expense                                                                                                      |   |   | - |   |   | 2,055 |   |
|     Gain                on                sale of marketable securities                                                                  |   |   | - |   |   | (10,448 | ) |
| **Changes                in operating assets and liabilities:**                                                                                              |   |   |   |   |   |   |   |
|     Accounts                receivable                                                                                                   |   |   | (260,572 | ) |   | 119,403 |   |
|     Supplies                                                                                                                             |   |   | 47,278 |   |   | 22,774 |   |
|     Prepaid                and other current assets                                                                                      |   |   | (137,027 | ) |   | (55,963 | ) |
|     Accounts                payable and accrued expenses                                                                                 |   |   | (102,346 | ) |   | 220,905 |   |
|     Accrued                compensation and benefits                                                                                     |   |   | (9,761 | ) |   | (79,063 | ) |
|     Income                taxes payable                                                                                                  |   |   | 5,600 |   |   | - |   |
|     Deferred                revenue                                                                                                      |   |   | (31,564 | ) |   | 91,551 |   |
|     Net                cash provided by (used for) operating activities                                                                  |   |   | 206,997 |   |   | (549,526 | ) |
| **Cash                flows (used for) investing activities:**                                                                                               |   |   |   |   |   |   |   |
|     Purchases                of                property and equipment                                                                    |   |   | (3,939 | ) |   | (97,107 | ) |
|     Net                proceeds from sale of marketable securities                                                                       |   |   | - |   |   | 26,698 |   |
|     Net                cash (used for) investing activities                                                                              |   |   | (3,939 | ) |   | (70,409 | ) |
| **Cash                flows (used for) provided by financing                activities:**                                                                    |   |   |   |   |   |   |   |
|     Proceeds                from                line of credit agreement                                                                 |   |   | - |   |   | 250,000 |   |
|     Payments                on                capital leases                                                                             |   |   | (4,897 | ) |   | (2,435 | ) |
|     Payments                on                notes payable and long-term debt                                                           |   |   | (150,000 | ) |   | - |   |
|     Net                cash (used for) provided by financing activities                                                                  |   |   | (154,897 | ) |   | 247,565 |   |
| **Net                increase (decrease) in cash and cash equivalents**                                                                                      |   |   | 48,161 |   |   | (372,370 | ) |
| **Cash                and cash equivalents,**                beginning of period                                                                             |   |   | 319,437 |   |   | 664,941 |   |
| **Cash                and cash equivalents,**end                of period                                                                                    |   | $ | 367,598 |   | $ | 292,571 |   |

----

|  **AUXILIO,                INC. AND SUBSIDIARIES**                                                                                         |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| **CONDENSED                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)**                                                                  |   |
| **(UNAUDITED)**                                                                                                                                 |   |
|                                                                                                                                            |   |   |   |   |   |
|                                                                                                                                            |   | **Three                Months Ended March 31,** |   |
|                                                                                                                                            |   | **2007** |   | **2006** |   |
| **Supplemental                disclosure of cash flow information:**                                                                            |   |   |   |   |   |   |   |
|                                                                                                                                            |   |   |   |   |   |   |   |
|     Interest                paid                                                                                            |   | $ | 91,237 |   | $ | 2,321 |   |
|                                                                                                                                            |   |   |   |   |   |   |   |
| **Non-cash                investing and financing activities:**                                                                                 |   |   |   |   |   |   |   |
|                                                                                                                                            |   |   |   |   |   |   |   |
|     Relative                fair                value of warrants issued related to issuance of note                payable |   | $ | - |   | $ | 85,079 |   |

----

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**THREE      MONTHS ENDED MARCH 31, 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                          |   |       | 802,000   |                                               | $      | 0.47 |   |   |   |   |   |   |   |
|      Exercised                        |   |       | -         |                                               |   | - |   |   |   |   |   |   |   |
|      Cancelled                        |   |       | (94,500   | )                                                  | $      | 1.54 |   |   |   |   |   |   |   |
| Outstanding                at March 31,                2007    |   |       | 2,890,148 |                                               | $      | 1.13 |   |   | 8.17 |   | $ | 410,315 |   |
| Exercisable                at March                31, 2007    |   |       | 1,219,621 |                                               | $      | 1.40 |   |   | 7.27 |   | $ | 42,775 |   |

| **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   |                                               |   | 0.47 |   |   |   |   |   |   |   |
|      Exercised                        |   |       | -         |                                               |   | - |   |   |   |   |   |   |   |
|      Cancelled                        |   |       | -         |                                               |   | - |   |   |   |   |   |   |   |
| Outstanding                at March 31,                2007    |   |       | 2,567,076 |                                               | $      | 1.30 |   |   | 4.30 |   | $ | 577,010 |   |
| Exercisable                at March                31, 2007    |   |       | 2,567,076 |                                               | $      | 1.30 |   |   | 4.30 |   | $ | 577,010 |   |

|                                                                          |   | **2007** |    | **2006** |   |
|-------------------------------------------------------------------------------|--------|----------|---------|----------|--------|
| Cost                of revenues                                               |   | $        | 27,638  |     | $      | 40,262 |   |
| Sales                and marketing                                            |   |     | 30,196  |     |   | 57,994 |   |
| General                and administrative expenses                            |   |     | 58,887  |     |   | 108,913 |   |
|     Total                stock based compensation expense |   | $        | 116,721 |     | $      | 207,169 |   |

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

----

|                                                                                                            |   | **Three                Months Ended March 31,** |       |
|-----------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------|------------|
|                                                                                                            |   | **2007**                                        |       | **2006** |   |
| Numerator:                                                                                                      |   |                                            |       |   |   |
|     Net                income (loss)                                                        |   | $                                               | 345,697    |   | $ | (1,168,525 | ) |
|     Effects                of dilutive securities:                                          |   |                                            |       |   |   |   |   |
|     Convertible                note payable                                                 |   |                                            | (441,747   | ) |   | - |   |
| (Loss)                after effects of conversion of note payable                                               |   | $                                               | (96,050    | ) | $ | (1,168,525 | ) |
|                                                                                                            |   |                                            |       |   |   |   |   |
| Denominator:                                                                                                    |   |                                            |       |   |   |   |   |
|     Denominator                for                basic calculation weighted average shares |   |                                            | 16,122,809 |   |   | 15,961,724 |   |
|                                                                                                            |   |                                            |       |   |   |   |   |
| Dilutive                common stock equivalents:                                                               |   |                                            |       |   |   |   |   |
|     Secured                convertible notes                                                |   |                                            | 1,499,298  |   |   | - |   |
|     Options                and warrants                                                     |   |                                            | 1,097,028  |   |   | - |   |
|                                                                                                            |   |                                            |       |   |   |   |   |
| Denominator                for diluted calculation weighted average shares                                      |   |                                            | 18,719,135 |   |   | 15,961,724 |   |
|                                                                                                            |   |                                            |       |   |   |   |   |
| Net                income (loss) per share:                                                                     |   |                                            |       |   |   |   |   |
|                                                                                                            |   |                                            |       |   |   |   |   |
| Basic                net income (loss) per share                                                                |   | $                                               | 0.02       |   | $ | (0.07 | ) |
|                                                                                                            |   |                                            |       |   |   |   |   |
| Diluted                net (loss) per share                                                                     |   | $                                               | (0.01      | ) | $ | (0.07 | ) |

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

| Trade                                          |   | $      | 2,013,339 |   |
|------------------------------------------------|--------|--------|-----------|--------|
| Allowance                for doubtful accounts |   |   | (28,509   | )      |
|                                           |   | $      | 1,984,830 |   |

**6**
**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 |
|--------------------|----------------------------------------------------------------------------------|

| ·   | accounting                for income taxes |
|--------------------|--------------------------------------------|

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

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

**RESULTS      OF OPERATIONS**

**For      the Three Months Ended March 31, 2007 Compared to the Three Months Ended March      31, 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 competitiors 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. |
|--------------------|---------------------------------------------------|

----

**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.      **

----

**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.**

----

**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.**

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

**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.  |

----

**SIGNATURES**

| Date:                May 15, 2007 | By:    /s/      Etienne                Weidemann                                           |
|-----------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------|
|                              |                 Etienne                Weidemann             |
|                              |                 Chief                Executive Officer       |
|                              |                 (Principal                Executive Officer) |

| Date:                May 15, 2007 |     /s/                         Paul T. Anthony                Paul                T.                Anthony |
|-----------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                              |                 Chief                Financial Officer                                                                                                                        |
|                              |                 (Principal                Accounting Officer)                                                                                                                 |