----

| [X] | Annual                report under Section 13 or 14(d) of the Securities                Exchange Act of 1934 for the fiscal year ended December 31, 2007. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

|   | AUXILIO,                INC. |
|--------|------------------------------|

|   | (Name                of Small Business Issuer in its Charter) |
|--------|---------------------------------------------------------------|

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

|   | 27401                Los Altos, Suite                100, Mission Viejo,                California  92691 |
|--------|---------------------------------------------------------------------------------------------------------------------|

|   | (Address                of principal executive offices) |
|--------|---------------------------------------------------------|

|   | (949)                614-0700 |
|--------|-------------------------------|

|   | (Issuer’s                telephone number) |
|--------|--------------------------------------------------|

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

|   | Securities                registered under Section 12(g) of the Act: |
|--------|----------------------------------------------------------------------|

|   | Common                Stock, $.001                par value |
|--------|-------------------------------------------------------------|

|   | (Title                of Class) |
|--------|---------------------------------|

----

|   | Item                1. | Description                of Business                             | 4      |
|--------|------------------------|--------------------------------------------------------------------|--------|
|   |                   |                                                               |   |
|   | Item                2. | Description                of Properties                           | 7      |
|   |                   |                                                               |   |
|   | Item                3. | Legal                Proceedings                                   | 7      |
|   |                   |                                                               |   |
|   | Item                4. | Submission                of Matters to a Vote of Security Holders | 7      |

|   | Item                5   | Market                for Registrant’s Common Equity, Related Stockholder Matters and Small                Business Issuer Purchases of Equity Securities | 7                         |
|--------|-------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------|
|   |                    |                                                                                                                                                            |                      |
|   | Item                6.  | Management’s                Discussion and Analysis of Plan of Operations                                                                                 | 10                        |
|   |                    |                                                                                                                                                            |                      |
|   | Item                7.  | Consolidated                Financial Statements                                                                                                                | F-2                - F-24 |
|   |                    |                                                                                                                                                            |                      |
|   | Item                8.  | Changes                in and Disagreements with Accountants                                                                                                    |                      |
|   |                    | on                Accounting and Financial Disclosure                                                                                                           | 18                        |
|   |                    |                                                                                                                                                            |                      |
|   | Item                8A. | Controls                and Procedures                                                                                                                          | 18                        |
|   |                    |                                                                                                                                                            |                      |
|   | Item                8B. | Other                Information                                                                                                                                | 19                        |

|   | Item                9.  | Directors,                Executive Officers, Promoters and Control Persons:      |   |
|--------|-------------------------|-----------------------------------------------------------------------------------|--------|
|   |                    | Compliance                with Section 16(a) of the Exchange Act                  | 19     |
|   |                    |                                                                              |   |
|   | Item                10. | Executive                Compensation                                             | 19     |
|   |                    |                                                                              |   |
|   | Item                11. | Security                Ownership of Certain Beneficial Owners and Management and |   |
|   |                    | Related                Stockholder Matters                                        | 19     |
|   |                    |                                                                              |   |
|   | Item                12. | Certain                Relationships and Related Transactions                     | 19     |
|   |                    |                                                                              |   |
|   | Item                13. | Exhibits                                                                          | 20     |
|   |                    |                                                                              |   |
|   | Item                14. | Principal                Accountant Fees and Services                             | 21     |

----

----

| ·   | Vendor                monitoring, management and contract                negotiation |
|--------------------|--------------------------------------------------------------------------------------|

| ·   | Change                management and end-user training                programs |
|--------------------|--------------------------------------------------------------------------------|

| ·   | Utilization                management |
|--------------------|---------------------------------------|

| ·   | Financial                reporting |
|--------------------|------------------------------------|

| ·   | Workflow                efficiency management |
|--------------------|-----------------------------------------------|

| ·   | Information                systems integration, connectivity and image migration                strategies |
|--------------------|------------------------------------------------------------------------------------------------------------|

| ·   | Strategy                execution working with the customer to execute a long-term Image                Management strategy |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------|

----

| ·   | Auxilio                is unique in its 100% focus on healthcare.  No other                vendor/service provider has its entire business dedicated to solving                issues inside of healthcare with the expertise and knowledge base                unmatched in the market. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Auxilio                is unique in its approach to providing fully outsourced Image Management                programs.  Auxilio’s program is completely outsourced and                hospitals need only pay a single invoice.  Auxilio operates the                Image Management process as a department in the hospital with full-time                staff on-site.  The vendors and dealers in the vast majority of                instances have multiple small and large customers in a geographic                area to                whom they are providing services and this causes major delays in                service                and supplies to the hospitals.  In addition, by focusing solely                on the hospital campus, Auxilio enjoys much lower turn-around times                for                service, greater up sell opportunities and a much deeper service                relationship with the customer. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

----

| Item                5. | Market                for Registrant’s Common Equity, Related Stockholder Matters and Small                Business Issuer Purchases of Equity Securities |
|------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Quarter                                                 |   | Low  |   |   | High |
|---------------------------------------------------------|--------|------|--------|--------|------|
| January                1, 2006—March 31, 2006.    | $      | 1.40 |   | $      | 2.00 |
| April                1, 2006—June 30, 2006.       | $      | 1.00 |   | $      | 1.65 |
| July                1, 2006—September 30, 2006.   | $      | 0.45 |   | $      | 1.10 |
| October                1, 2006—December 31, 2006. | $      | 0.33 |   | $      | 0.57 |
| January                1, 2007—March 31, 2007.    | $      | 0.42 |   | $      | 1.04 |
| April                1, 2007—June 30, 2007.       | $      | 0.71 |   | $      | 0.90 |
| July                1, 2007—September 30, 2007.   | $      | 0.62 |   | $      | 1.15 |
| October                1, 2007—December 31, 2007. | $      | 1.06 |   | $      | 1.95 |

| Plan                                                                           | Number                of Securities to be Issued Upon Exercise of Outstanding Options,                Warrantsand                Rights | Weighted                Average Exercise Price of Outstanding Options, Warrants and                Rights | Number                of Securities Remaining Available for Future Issuances Under                Plan |
|--------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------|
| Equity                compensation plans approved by security holders (1):     | 4,295,148                                                                                                                               | $1.12                                                                                                     | 174,852                                                                                                |
| Equity                compensation plans not approved by security holders (2): | 3,063,021                                                                                                                               | $1.15                                                                                                     |            -                                    |
|     Total                                                  | 7,320,669                                                                                                                               |                                                                                                      | 174,852                                                                                                |

| (1)   | These                plans consist of the 2000 Stock Option Plan, 2001 Stock Option Plan,                the                2003 Stock Option Plan, the 2004 Stock Option Plan and the 2007 Stock                Option Plan. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

----

----

| ·   | Revenue                recognition; |
|--------------------|-------------------------------------|

| ·   | Stock-based                compensation; |
|--------------------|------------------------------------------|

| ·   | Accounting                for income taxes; and |
|--------------------|-------------------------------------------------|

| ·   | Impairment                of intangible assets. |
|--------------------|-------------------------------------------------|

----

----

----

|                            |   | Total  |      |   | 2008   |   |      | 2009   |   |   | 2010      |   |
|---------------------------------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|--------|-----------|--------|
| Loan                payable     |   | $      | 745,000   |   |   | $      | 745,000   |   |   | $      | ---       |   |   | $ | - |   |
| Long-term                debt   |   |   | 1,932,000 |   |   |   | 600,000   |   |   |   | 1,332,000 |   |   |   | - |   |
| Capital                leases   |   |   | 29,359    |   |   |   | 25,315    |   |   |   | 4,044     |   |   |   | - |   |
| Operating                leases |   |   | 367,627   |   |   |   | 167,467   |   |   |   | 171,470   |   |   |   | 28,690 |   |
| Total                           |   | $      | 3,073,986 |   |   | $      | 1,537,782 |   |   | $      | 1,507,514 |   |   | $ | 28,690 |   |

----

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

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

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

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

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

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

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

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

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

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

----

----

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

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

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

----

----

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

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

----

| Item                8B. | Other                Information |
|-------------------------|----------------------------------|

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

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

----

| No.   | Item                                                                                                                                                                                                                                                                                                                                                      |
|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1   | Agreement                and Plan of Reorganization dated as of November 20, 2001, by and                between                the Company and e-Perception, Inc. (incorporated by reference to                Exhibit                1.1 to the Registrant’s Form 8-K filed on January 24,                2002).                                  |
| 2.2   | Agreement                and Plan of Merger, dated April 1, 2004, by and between Auxilio,                Inc.,                PPVW Acquisition Corporation, and Alan Mayo & Associates, Inc. (filed                as Exhibit 2.1 to the Registrant’s Form 8-K filed on April 16,                2004).                                         |
| 3.1   | Certificate                of Incorporation (incorporated by reference to Exhibit 3.1 to the                Registrant’s Form 10-KSB filed on April 19, 2005).                                                                                                                                                                                      |
| 3.2   | Bylaws                (incorporated by reference to Exhibit 2 to the Registrant’s Form 10-SB                filed on October 1, 1999).                                                                                                                                                                                                              |
| 4.1   | Subscription                Agreement, dated as of January 9, 2002, by and among the Company                and each                of the stockholders of e-Perception, Inc. (incorporated by reference                to                Exhibit 1.1 to the Registrant’s Form 8-K filed on January 24,                2002).                       |
| 10.1  | 2000                Stock Option Plan (incorporated by reference to Exhibit 10.1 to the                Registrant’s Form 10-KSB filed on April 19, 2005).                                                                                                                                                                                           |
| 10.2  | 2001                Stock Option Plan (incorporated by reference to Exhibit 10.2 to the                Registrant’s Form 10-KSB filed on April 19, 2005).                                                                                                                                                                                           |
| 10.3  | 2003                Stock Option Plan (incorporated by reference to Exhibit 10.3 to the                Registrant’s Form 10-KSB filed on April 19, 2005).                                                                                                                                                                                           |
| 10.4  | 2004                Stock Option Plan (incorporated by reference to Exhibit 10.4 to the                Registrant’s Form 10-KSB filed on April 19, 2005).                                                                                                                                                                                           |
| 10.5  | 2007                Stock Option Plan.                                                                                                                                                                                                                                                                                                                    |
| 10.6  | Standard                Office Lease by and between Arden Realty Limited Partnership and                e-Perception Technologies, Inc. (incorporated by reference to Exhibit                10.1                to the Registrant’s Form 10-QSB filed on May 15, 2002).                                                                            |
| 10.7  | Asset                Purchase Agreement between Workstream USA, Inc., Workstream, Inc.                and                PeopleView, Inc. dated March 8,.                2004 (incorporated by reference to Exhibit 2.1 to the Registrant’s                Form 8-K filed on April 2, 2004).                                                        |
| 10.8  | Addendum                dated as of May 27, 2004 to Asset Purchase Agreement dated March                17th,                2004 between Workstream Inc. Workstream USA, Inc. and PeopleView,                Inc.                (incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K/A                filed on August 3, 2004). |
| 10.9  | Standard                Office Lease agreement by and between Auxilio, Inc and McMorgan                Institutional Real Estate Fund I, LLC. dated October 13, 2004                (incorporated by reference to Exhibit 10.13 to the Registrant’s Form                10-KSB filed on April 19, 2005)..                                           |
| 10.10 | Loan                and Security Agreement between Auxilio, Inc. and Cambria Investment                Fund,                L.P.  (filed as Exhibit 10.1 to the Registrant’s Form 8-K filed                on November 28, 2005).                                                                                                         |
| 10.11 | Executive                Employment Agreement between Registrant and Joseph J Flynn, Chief                Executive Officer dated March 14, 2006 (filed as Exhibit 10.1 to                the                Registrant’s Form 8-K filed on March 22, 2006).                                                                                        |
| 10.12 | Executive                Employment Agreement between Registrant and Etienne Weidemann, President                and Chief Operating Officer dated March 15, 2006 (filed as Exhibit                10.2 to                the Registrant’s Form 8-K filed on March 22, 2006).                                                                       |
| 10.13 | Executive                Employment Agreement between Registrant and Paul T. Anthony, Chief                Financial Officer and Corporate Secretary dated March 15, 2006 (filed                as                Exhibit 10.3 to the Registrant’s Form 8-K filed on March 22,                2006).                                                |
| 10.14 | Securities                Purchase Agreement dated as of April 7, 2006, between Auxilio, Inc.                and                Laurus Master Fund, Ltd. (filed as Exhibit 10.1 to the Registrant’s Form                8-K filed on April 13, 2006).                                                                                               |
| 10.15 | Secured                Convertible Term Note dated as of April 7, 2006 issued by Auxilio,                Inc. to                Laurus Master Fund, Ltd. (filed as Exhibit 10.2 to the Registrant’s Form                8-K filed on April 13, 2006).                                                                                               |
| 10.16 | Loan                and Security Agreement dated as of October 25, 2006, between Auxilio,                Inc.                and Cambria Investment Fund, L.P. (filed as Exhibit 10.1 to the                Registrant’s Form 8-K filed on October 27,                2006).                                                                        |

----

|      |                                                                                                                                                                                                                                                                                                                                              |
|--------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.17                    | Amended                and Restated Loan and Security Agreement effective as of July 1,                2007 and                dated August 13, 2007, between Auxilio, Inc. and Cambria Investment                Fund,                L.P. (filed as Exhibit 10.1 to the Registrant’s Form 8-K filed on                September 4, 2007). |
| 10.18                    | Executive                Employment Agreement between Registrant and Etienne Weidemann, President                and Chief Executive Officer dated November 13, 2007 (filed as Exhibit                10.1                to the Registrant’s Form 10-Q filed on November 16,                2007).                                         |
| 10.19                    | Executive                Employment Agreement between Registrant and Paul T. Anthony, Chief                Financial Officer and Corporate Secretary dated November 13, 2007                (filed                as Exhibit 10.2 to the Registrant’s Form 10-Q filed on November 16,                2007).                                 |
| 10.20                    | Executive                Employment Agreement between Registrant and Jacques Terblanche, Chief                Operating Officer dated November 13, 2007 (filed as Exhibit 10.3                to the                Registrant’s Form 10-Q filed on November 16, 2007).                                                                     |
| 14                       | Registrants                Code of Ethics (incorporated by reference to Exhibit 14.1 to the                Registrant’s Form 10-KSB filed on April 14, 2004).                                                                                                                                                                               |
| 16.1                     | Letter                regarding change in certifying accountants dated February 14, 2002                (incorporated by reference to Exhibit 16 to the Registrant’s Form 8-K                filed on February 15, 2002).                                                                                                                   |
| 16.2                     | Letter                regarding change in certifying accountants dated December 22, 2005                (incorporated by reference to Exhibit 16.1 to the Registrant’s Form 8-K/A                filed on January 24, 2006).                                                                                                                |
| 21.1                     | Subsidiaries                                                                                                                                                                                                                                                                                                                                      |
| 31.1                     | Certification                of the Chief Executive Officer pursuant to Rule 13a-14(a) and rule                15d-14(a).                                                                                                                                                                                                                         |
| 31.2                     | Certification  of                the Chief Financial  Officer  pursuant to Rule                13a-14(a) and rule 15d-14(a).                                                                                                                                                                                        |
| 32.1                     | Certification                of the CEO and CFO pursuant to 18 U.S.C. Section 1350 as adopted                pursuant                to Section 906 of The Sarbanes-Oxley Act of                2002.                                                                                                                                             |

----

|   | AUXILIO,                Inc.                            |
|--------|---------------------------------------------------------|
|   |                                                    |
|   | By:                /s/ Etienne                Weidemann |
|   | Etienne                Weidemann                        |
|   | Chief                Executive Officer                  |
|   | Principal                Executive Officer              |

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

|  /s/                Etienne                Weidemann                                                                Etienne                Weidemann    | Chief Executive Officer(Principal Executive Officer and Director)                                 |  March 27, 2008              |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------|-----------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                              |                              |
| /s/                Paul T.                AnthonyPaul T. Anthony                                                                                                                                                                                                                                                                                                                                                            | Chief                Financial Officer(Principal Financial and Accounting                Officer) |  March              27, 2008 |
|                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                              |                              |
| /s/Edward CaseEdward Case                                                                                                                                                                                                                                                                                                                                                                                                   | Director                                                                                          |  March              27, 2008 |
|                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                              |                              |
|  /s/Joseph                FlynnJoseph Flynn                                                                                                                                                                                                                                                                                                                                                                            |  Director                                                                                    |  March              27, 2008 |
|                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                              |                              |
|  /s/Michael                JoyceMichael Joyce                                                                                                                                                                                                                                                                                                                                                                          |  Director                                                                                    |  March              27, 2008 |
|                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                              |                              |
|  /s/John                D.                PaceJohn D. Pace                                                                                                                                                                                                                                                                                                                                                             |  Director                                                                                    |  March              27, 2008 |
|                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                              |                              |
|  /s/                Max                PollMax Poll                                                                                                                                                                                                                                                                                                                                                                    |  Director                                                                                    |  March              27, 2008 |
|                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                              |                              |
|  /s/Mark                St. ClareMark St. Clare                                                                                                                                                                                                                                                                                                                                                                        |  Director                                                                                    |  March              27, 2008 |
|                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                              |                              |
|  /s/Michael                VanderhoofMichael Vanderhoof                                                                                                                                                                                                                                                                                                                                                                |  Director                                                                                    |  March              27, 2008 |
|                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                              |                              |

----

|                                                                                                   |   | Page                  |
|--------------------------------------------------------------------------------------------------------|--------|----------------------------|
| Report                of Independent Registered Public Accounting Firm                                 |   | F-1                        |
|                                                                                                   |   |                       |
|                                                                                                   |   |                       |
| Financial                Statements:                                                                   |   |                       |
|     Consolidated                Balance Sheet                                      |   | F-2                        |
|     Consolidated                Statements of Operations                           |   | F-3                        |
|     Consolidated                Statements of Stockholders’ Equity (Deficit) |   | F-4                        |
|     Consolidated                Statements of Cash Flows                           |   | F-5,                F-6    |
|     Notes                to Consolidated Financial Statements                      |   | F-7                to F-24 |

----

----

| AUXILIO,                INC. AND SUBSIDIARIES                                  |   |
|--------------------------------------------------------------------------------|--------|
| CONSOLIDATED                BALANCE SHEET                                      |   |
| DECEMBER                31, 2007                                               |   |
|                                                                           |   |   |   |
| ASSETS                                                                         |   |
| Current                assets:                                                 |   |   |   |
| Cash                and cash equivalents                                       |   | $ | 666,428 |   |
| Accounts                receivable, net                                        |   |   | 2,405,528 |   |
| Prepaid                and other current assets                                |   |   | 46,980 |   |
| Supplies                                                                       |   |   | 729,604 |   |
| Total                current assets                                            |   |   | 3,848,540 |   |
|                                                                           |   |   |   |   |
| Property                and equipment,                net                      |   |   | 208,936 |   |
| Deposits                                                                       |   |   | 28,790 |   |
| Loan                acquisition costs                                          |   |   | 209,332 |   |
| Intangible                assets,                net                           |   |   | 190,973 |   |
| Goodwill                                                                       |   |   | 1,517,017 |   |
| Total                assets                                                    |   | $ | 6,003,588 |   |
|                                                                           |   |   |   |   |
| LIABILITIES                AND STOCKHOLDERS' EQUITY                            |   |
| Current                liabilities:                                            |   |   |   |   |
| Accounts                payable and accrued expenses                           |   | $ | 1,566,260 |   |
| Accrued                compensation and benefits                               |   |   | 486,110 |   |
| Deferred                revenue                                                |   |   | 382,895 |   |
| Loan                payable, net of discount of $197,083                       |   |   | 547,917 |   |
| Current                portion of long-term debt                               |   |   | 600,000 |   |
| Current                portion of capital lease obligations                    |   |   | 26,361 |   |
| Total                current liabilities                                       |   |   | 3,609,543 |   |
|                                                                           |   |   |   |   |
| Note                payable, less current portion, net of discount of $110,306 |   |   | 1,221,694 |   |
|                                                                           |   |   |   |   |
| Commitments                and contingencies                                   |   |   | - |   |
|                                                                           |   |   |   |   |
| Stockholders'                equity:                                           |   |   |   |   |
| Common                stock, par value at $0.001, 33,333,333 shares            |   |   |   |   |
| authorized,                16,235,309 shares issued and outstanding            |   |   | 16,237 |   |
| Additional                paid-in capital                                      |   |   | 17,364,202 |   |
| Accumulated                deficit                                             |   |   | (16,208,088 | ) |
| Total                stockholders' equity                                      |   |   | 1,172,351 |   |
| Total                liabilities and stockholders’ equity                |   | $ | 6,003,588 |   |

----

| AUXILIO,                INC. AND SUBSIDIARIES                        |   |                                   |
|----------------------------------------------------------------------|--------|----------------------------------------|
| CONSOLIDATED                STATEMENTS OF OPERATIONS                 |   |                                   |
|                                                                 |   |                                   |   |   |   |
|                                                                 |   | Year                Ended December 31, |   |   |
|                                                                 |   | 2007                                   |   |   | 2006 |
| Net                revenues                                          |   | $                                      | 19,592,946 |   |   | $ | 10,248,270 |   |
| Cost                of revenues                                      |   |                                   | 15,149,055 |   |   |   | 9,270,539 |   |
| Gross                profit                                          |   |                                   | 4,443,891 |   |   |   | 977,731 |   |
| Operating                expenses:                                   |   |                                   |   |   |   |   |   |   |   |
| Sales                and                marketing                    |   |                                   | 1,215,685 |   |   |   | 1,972,743 |   |
| General                and administrative                expenses    |   |                                   | 2,290,433 |   |   |   | 2,152,400 |   |
| Intangible                asset                amortization          |   |                                   | 238,165 |   |   |   | 255,206 |   |
| Total                operating                expenses               |   |                                   | 3,744,283 |   |   |   | 4,380,349 |   |
| Income                (loss) from operations                         |   |                                   | 699,608 |   |   |   | (3,402,618 | ) |
| Other                income (expense):                               |   |                                   |   |   |   |   |   |   |   |
| Interest                expense                                      |   |                                   | (1,026,592 |  ) |   |   | (537,018 | ) |
| Interest                income                                       |   |                                   | 19,269 |   |   |   | 28,827 |   |
| Gain                on sale of marketable                securities  |   |                                   | - |   |   |   | 10,447 |   |
| Gain                on debt                extinguishment            |   |                                   | 241,305 |   |   |   | - |   |
| Total                other income                (expense)           |   |                                   | (766,018 | ) |   |   | (497,744 | ) |
|                                                                 |   |                                   |   |   |   |   |   |   |   |
| Loss before                provision for income taxes           |   |                                   | (66,410 |  ) |   |   | (3,900,362 | ) |
| Income                tax expense                                    |   |                                   | 5,397 |   |   |   | 2,400 |   |
| Net                Loss                                              |   | $                                      |        (71,807) |   |   | $ | (3,902,762 | ) |
|                                                                 |   |                                   |   |   |   |   |   |   |   |
| Net                Loss per share:                                   |   |                                   |   |   |   |   |   |   |   |
| Basic                                                                |   | $                                      | 0.00 |   |   | $ | (0.24 | ) |
| Diluted                                                              |   | $                                      | (0.01 | ) |   | $ | (0.24 | ) |
|                                                                 |   |                                   |   |   |   |   |   |   |   |
| Number                of weighted average shares outstanding – |   |                                   |   |   |   |   |   |   |   |
| Basic                                                                |   |                                   | 16,142,604 |   |   |   | 16,076,310 |   |
| Diluted                                                              |   |                                   | 21,885,453 |   |   |   | 16,076,310 |   |

----

| AUXILIO,                INC. AND SUBSIDIARIES                                                                                         |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|
| CONSOLIDATED                STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)                                                              |   |
| YEARS                ENDED DECEMBER 31, 2007 AND 2006                                                                                 |   |
|                                                                                                                                  |   |   |   |   |   |   |   | Additional |   |   |   |   |   | Total |   |
|                                                                                                                                  |   | Common                Stock |   |   | Paid-in |   |   | Accumulated |   |   | Stockholders' |   |
|                                                                                                                                  |   | Shares |   |   | Amount |   |   | Capital |   |   | Deficit |   |   | Equity(Deficit) |   |
| Balance                at January 1, 2006                                                                                             |   |   | 15,961,410 |   |   | $ | 15,963 |   |   | $ | 15,190,416 |   |   | $ | (12,233,519 | ) |   | $ | 2,972,860 |   |
| Common                stock issued for services                                                                                       |   |   | 3,538 |   |   |   | 3 |   |   |   | 4,950 |   |   |   | - |   |   |   | 4,953 |   |
| Fair                value of warrants issued related to loan payable                                                                  |   |   | - |   |   |   | - |   |   |   | 92,558 |   |   |   | - |   |   |   | 92,558 |   |
| Relative                fair value of warrants issued related to loan payable                                                         |   |   | - |   |   |   | - |   |   |   | 156,166 |   |   |   | - |   |   |   | 156,166 |   |
| Stock                issued for services rendered in connection with procurement of note                payable                       |   |   | 45,861 |   |   |   | 46 |   |   |   | 69,954 |   |   |   | - |   |   |   | 70,000 |   |
| Relative                fair value of warrants issued related to convertible loan                payable                              |   |   | - |   |   |   | - |   |   |   | 340,188 |   |   |   | - |   |   |   | 340,188 |   |
| Common                stock issued for cashless exercise of warrants                                                                  |   |   | 112,000 |   |   |   | 112 |   |   |   | (112 | ) |   |   | - |   |   |   | - |   |
| Stock                compensation expense for options and warrants granted to employees                and                consultants |   |   | - |   |   |   | - |   |   |   | 575,974 |   |   |   | - |   |   |   | 575,974 |   |
| Net                loss                                                                                                               |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (3,902,762 | ) |   |   | (3,902,762 | ) |
| 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 |   |   | - |   |   |   | - |   |   |   | 452,014 |   |   |   | - |   |   |   | 452,014 |   |
| Beneficial              conversion feature associated with loan payable                                           |   |   | -  |   |   |   |   -  |   |   |   | 100,000  |   |   |   | -  |   |   |   | 100,000  |   |
| Warrants                vesting in connection with restructuring of loan payable                                                      |   |   | - |   |   |   | - |   |   |   | 128,124 |   |   |   | - |   |   |   | 128,124 |   |
| Incremental                fair value of conversion feature on loan payable                                                           |   |   | - |   |   |   | - |   |   |   | 80,208 |   |   |   | - |   |   |   | 80,208 |   |
| Stock                options exercised                                                                                                |   |   | 12,500 |   |   |   | 13 |   |   |   | 5,862 |   |   |   | - |   |   |   | 5,875 |   |
| Common                stock issued for conversion of note payable                                                                     |   |   | 100,000 |   |   |   | 100 |   |   |   | 167,900 |   |   |   | - |   |   |   | 168,000 |   |
| Net                loss                                                                                                               |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (71,807) |   |   |   | (71,807) |   |
| Balance                at December 31, 2007                                                                                           |   |   | 16,235,309 |   |   | $ | 16,237 |   |   | $ | 17,364,202 |   |   | $ | (16,208,088 | ) |   | $ | 1,172,351 |   |

----

| AUXILIO,                INC. AND SUBSIDIARIES                                                                                                                                                                                                                         |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| CONSOLIDATED                STATEMENTS OF CASH FLOWS                                                                                                                                                                                                                  |   |
|                                                                                                                                                                                                                                                                  |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                  |   | Year                Ended December 31, |   |
|                                                                                                                                                                                                                                                                  |   | 2007 |   |   | 2006 |   |
| Cash                flows provided by (used for) operating activities:                                                                                                                                                                                                |   |   |   |   |   |   |
| Net                loss                                                                                                                                                                                                                                               |   | $ | (71,807 |  ) |   | $ | (3,902,762 | ) |
| Adjustments                to reconcile net loss to net cash provided by (used                for)                                                                                                                                                               |   |   |   |   |   |   |   |   |
| operating                activities:                                                                                                                                                                                                                                  |   |   |   |   |   |   |   |   |
| Depreciation                                                                                                                                                                                                                                                          |   |   | 131,317 |   |   |   | 122,806 |   |
| Amortization                of intangible assets                                                                                                                                                                                                                      |   |   | 238,165 |   |   |   | 255,206 |   |
| Bad                debt expense                                                                                                                                                                                                                                       |   |   | - |   |   |   | 26,500 |   |
| Gain                on sale of marketable securities                                                                                                                                                                                                                  |   |   | - |   |   |   | (10,448 | ) |
| Gain                on debt extinguishment                                                                                                                                                                                                                            |   |   | (139,951 | ) |   |   | - |   |
| Gain                on extinguishment of accrued acquisition costs unearned                                                                                                                                                                                           |   |   | (101,354 | ) |   |   | - |   |
| Interest                expense related to amortization of warrants issued with                loans                                                                                                                                                                  |   |   | 127,010 |   |   |   | 154,381 |   |
| Interest                expense related to amortization of loan acquisition costs                                                                                                                                                                                     |   |   | 226,181 |   |   |   | 144,821 |   |
| Interest              expenses related to amortization of beneficial conversion feature                              |   |   | 40,000 |   |   |   | -  |   |
| Stock                compensation expense for options and warrants granted to employees                and                consultants                                                                                                                                 |   |   | 452,014 |   |   |   | 575,974 |   |
| Interest                expense related to accretion of loan                                                                                                                                                                                                          |   |   | 295,625 |   |   |   | - |   |
| Stock                issued for services                                                                                                                                                                                                                              |   |   | - |   |   |   | 4,953 |   |
| Changes                in operating assets and liabilities:                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |
| Accounts                receivable                                                                                                                                                                                                                                    |   |   | (681,270 | ) |   |   | (1,261,934 | ) |
| Prepaid                and other current assets                                                                                                                                                                                                                       |   |   | (16,307 | ) |   |   | 60,692 |   |
| Supplies                                                                                                                                                                                                                                                              |   |   | (39,126 | ) |   |   | (246,900 | ) |
| Deposits                                                                                                                                                                                                                                                              |   |   | - |   |   |   | 12,565 |   |
| Accounts                payable and accrued expenses                                                                                                                                                                                                                  |   |   | 246,157 |   |   |   | 792,873 |   |
| Accrued                compensation and benefits                                                                                                                                                                                                                      |   |   | 220,669 |   |   |   | 43,858 |   |
| Deferred                revenue                                                                                                                                                                                                                                       |   |   | 93,581 |   |   |   | (9,548 | ) |
|        Net                cash provided by (used for) operating activities                                                                                                                                                         |   |   | 1,020,904 |   |   |   | (3,236,963 | ) |
| Cash                flows (used for) investing activities:                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |
| Purchases                of property and equipment                                                                                                                                                                                                                    |   |   | (36,484 | ) |   |   | (189,322 | ) |
| Net                proceeds from sale of marketable securities                                                                                                                                                                                                        |   |   | - |   |   |   | 26,698 |   |
| Net                cash (used for) investing activities                                                                                                                                                                                                               |   |   | (36,484 | ) |   |   | (162,624 | ) |
| Cash                flows provided by financing activities:                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |
| Proceeds                from loan payable                                                                                                                                                                                                                             |   |   | - |   |   |   | 995,000 |   |
| Repayments                on loan payable                                                                                                                                                                                                                             |   |   | - |   |   |   | (250,000 | ) |
| Fees                paid for restructuring  loan payable                                                                                                                                                                                                    |   |   | (22,350 | ) |   |   | - |   |
| Proceeds                from convertible note payable                                                                                                                                                                                                                 |   |   | - |   |   |   | 3,000,000 |   |
| Repayments                on convertible note payable                                                                                                                                                                                                                 |   |   | (600,000 | ) |   |   | (300,000 | ) |
| Acquisition                fees paid for convertible note payable                                                                                                                                                                                                     |   |   | - |   |   |   | (375,195 | ) |
| Payments                on capital leases                                                                                                                                                                                                                             |   |   | (20,954 | ) |   |   | (15,722 | ) |
| Proceeds                from exercise of options                                                                                                                                                                                                                      |   |   | 5,875 |   |   |   | - |   |
| Net                cash (used for) provided by financing activities                                                                                                                                                                                                   |   |   | (637,429 | ) |   |   | 3,054,083 |   |
| Net                increase (decrease) in cash and cash equivalents                                                                                                                                                                                                   |   |   | 346,991 |   |   |   | (345,504 | ) |
| Cash                and cash                equivalents, beginning of year                                                                                                                                                                                            |   |   | 319,437 |   |   |   | 664,941 |   |
| Cash                and cash equivalents,                end of year                                                                                                                                                                                                  |   | $ | 666,428 |   |   | $ | 319,437 |   |

----

| AUXILIO,                INC. AND                SUBSIDIARIES                                                                                |   |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|
| CONSOLIDATED                STATEMENTS OF CASH                FLOWS (CONTINUED)                                                             |   |
|                                                                                                                                        |   |
|                                                                                                                                        |   |   |   |   |   |   |
|                                                                                                                                        |   | Year                Ended December                31, |   |
|                                                                                                                                        |   | 2007 |   |   | 2006 |   |
| Supplemental                disclosure of cash                flow information:                                                             |   |   |   |   |   |   |
|                                                                                                                                        |   |   |   |   |   |   |
| Interest                paid                                                                                                                |   | $ | 337,776 |   |   | $ | 234,075 |   |
|                                                                                                                                        |   |   |   |   |   |   |   |   |
| Income                tax                paid                                                                                               |   | $ | 2,400 |   |   | $ | 2,400 |   |
|                                                                                                                                        |   |   |   |   |   |   |   |   |
| Non-cash                investing and financing                activities:                                                                  |   |   |   |   |   |   |   |   |
|                                                                                                                                        |   |   |   |   |   |   |   |   |
|  Beneficial              conversion feature associated with loans payable                                          |   |  $ | 100,000  |   |   |  $ | -  |   |
|                                                                                                                                        |   |   |   |   |   |   |   |   |
| Relative                fair value of warrants                issued related to restructuring                of loan                payable |   | $ | 128,124 |   |   | $ | - |   |
|                                                                                                                                        |   |   |   |   |   |   |   |   |
| Incremental                fair value of conversion feature on loan payable                                                                 |   | $ | 80,208 |   |   | $ | - |   |
|                                                                                                                                        |   |   |   |   |   |   |   |   |
| Debt                converted to stock                                                                                                      |   | $ | 168,000 |   |   | $ | - |   |
|                                                                                                                                        |   |   |   |   |   |   |   |   |
| Relative                fair value of warrants                issued related to issuance of note payable                                    |   | $ | - |   |   | $ | 588,912 |   |
|                                                                                                                                        |   |   |   |   |   |   |   |   |
| Stocks                issued for acquisition fees                for convertible note payable                                               |   | $ | - |   |   | $ | 70,000 |   |
|                                                                                                                                        |   |   |   |   |   |   |   |   |
| Property                and equipment acquired by                capital lease                                                              |   | $ | - |   |   | $ | 26,391 |   |

----

|   | Basis                of Presentation |
|--------|--------------------------------------|

----

----

|   | Intangible                Assets |
|--------|----------------------------------|

----

|                                                                 |   | YearEndedDecember                31 |          |
|----------------------------------------------------------------------|--------|-------------------------------------|---------------|
|                                                                 |   | 2007                                |          |   | 2006 |   |
| Cost                of revenues                                      |   | $                                   |  119,267 |   |   | $ |   108,099 |   |
| Sales                and marketing                                   |   |                                |  111,527 |   |   |   |  229,057 |   |
| General                and administrative expenses                   |   |                                |  221,220 |   |   |   |  238,818 |   |
| Total                stock based compensation                expense |   | $                                   |  452,014 |   |   | $ |  575,974 |   |

|                                               | 2007                            |   | 2006                            |
|----------------------------------------------------|---------------------------------|--------|---------------------------------|
|                                               |                            |   |                            |
| Risk-free                interest rate             | 4.33%                to 5.31%   |   | 4.51%                to 5.24%   |
| Expected                volatility of common stock | 79.74%                to 82.99% |   | 65.16%                to 92.47% |
| Dividend                yield                      | 0%                              |   | 0%                              |
| Expected                life of options            | 3                years          |   | 3                years          |

----

|                                                                               |   | YearEndedDecember                31 |       |
|------------------------------------------------------------------------------------|--------|-------------------------------------|------------|
|                                                                               |   | 2007                                |       |   |   | 2006 |   |
| Numerator:                                                                         |   |                                |       |   |   |   |   |
| Net                loss                                                            |   | $                                   | (71,807    |  ) |   |   | $ | (3,902,762 | ) |
| Effects                of dilutive                securities:                      |   |                                |       |   |   |   |   |   |   |
| Convertible                notes                payable                            |   |                                | (248,249   | ) |   |   |   | - |   |
| (Loss)                after effects of conversion                of notes payable  |   | $                                   | (320,056   | ) |   |   | $ | (3,902,762 | ) |
|                                                                               |   |                                |       |   |   |   |   |   |   |
| Denominator:                                                                       |   |                                |       |   |   |   |   |   |   |
| Denominator                for basic calculation                weighted averages  |   |                                | 16,142,604 |   |   |   |   | 16,076,310 |   |
|                                                                               |   |                                |       |   |   |   |   |   |   |
| Dilutive                common stock                equivalents:                   |   |                                |       |   |   |   |   |   |   |
| Secured                convertible                notes                            |   |                                | 3,041,184  |   |   |   |   | - |   |
| Options                and                warrants                                 |   |                                | 2,701,665  |   |   |   |   | - |   |
|                                                                               |   |                                |       |   |   |   |   |   |   |
| Denominator                for diluted                calculation weighted average |   |                                | 21,885,453 |   |   |   |   | 16,076,310 |   |
|                                                                               |   |                                |       |   |   |   |   |   |   |
| Net                loss per                share:                                  |   |                                |       |   |   |   |   |   |   |
| Basic                net loss per                share                        |   | $                                   | .00        |   |   |   | $ | (.24 | ) |
|                                                                               |   |                                |       |   |   |   |   |   |   |
| Diluted                net loss per                share                           |   | $                                   | (.01       | ) |   |   | $ | (.24 | ) |

----

| Trade                                          | $                                      2,434,037 |
|------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Allowance                for doubtful accounts |            (28,509)                                                                                     |
|                                           | $                                      2,405,528 |

----

| Furniture                and fixtures                         |   | $      | 53,972   |   |
|---------------------------------------------------------------|--------|--------|----------|--------|
| Computers                and office equipment                 |   |   | 391,464  |   |
| Fleet                equipment                                |   |   | 178,278  |   |
| Leasehold                improvements                         |   |   | 25,202   |   |
|                                                          |   |   | 648,916  |   |
| Less                accumulated depreciation and amortization |   |   | (439,980 | )      |
|                                                          |   | $      | 208,936  |   |

|   | Depreciation                and amortization expense for property, equipment, and improvements                amounted to $131,317 and $122,806 for the years ended December 31,                2007                and 2006, respectively. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Customer                relationships                                |   | $      | 850,000    |   |
|----------------------------------------------------------------------|--------|--------|------------|--------|
| Backlog                                                              |   |   | 350,000    |   |
|                                                                 |   |   | 1,200,000  |   |
|     Less                accumulated amortization |   |   | (1,009,027 | )      |
|                                                                 |   | $      | 190,973    |   |

| Customer                relationships |   | $      | 680,000   |   |
|---------------------------------------|--------|--------|-----------|--------|
| Backlog                               |   |   | 329,027   |   |
| Total                                 |   | $      | 1,009,027 |   |

----

----

----

| (7) | Equity                Transactions |
|-----|------------------------------------|

----

|                                                     |   | Numberof                Shares |      |   | Weighted                AverageExercise                Price |   |   | Weighted                Average Remaining Term in Years |   |   | Aggregate                Intrinsic Value |   |
|----------------------------------------------------------|--------|--------------------------------|-----------|--------|--------------------------------------------------------------|--------|--------|---------------------------------------------------------|--------|--------|------------------------------------------|--------|
| Outstanding                at January 1, 2006            |   |                           | 1,398,535 |   |                                                         | $      | 1.25   |                                                    |   |   | 3.39                                     |   |   | $ | 832,675 |   |
|     Granted                in 2006   |   |                           | 1,208,541 |   |                                                         | $      | 1.32   |                                                    |   |   |                                     |   |   |   |   |   |
|     Exercised                in 2006 |   |                           | (112,000  | )      |                                                         | $      | 0.30   |                                                    |   |   |                                     |   |   |   |   |   |
|     Cancelled                in 2006 |   |                           | (28,000   | )      |                                                         | $      | 0.30   |                                                    |   |   |                                     |   |   |   |   |   |
| Outstanding                at December 31, 2006          |   |                           | 2,467,076 |   |                                                         | $      | 1.34   |                                                    |   |   | 4.44                                     |   |   | $ | 65,650 |   |
|     Granted                in 2007   |   |                           | 717,500   |   |                                                         | $      | 0.60   |                                                    |   |   |                                     |   |   |   |   |   |
|     Exercised                in 2007 |   |                           | -         |   |                                                         |   | -      |                                                    |   |   |                                     |   |   |   |   |   |
|     Cancelled                in 2007 |   |                           | (121,555  | )      |                                                         | $      | 1.62   |                                                    |   |   |                                     |   |   |   |   |   |
| Outstanding                at December 31, 2007          |   |                           | 3,063,021 |   |                                                         | $      | 1.15   |                                                    |   |   |                                     |   |   |   |   |   |
|                                                     |   |                           |      |   |                                                         |   |   |                                                    |   |   |                                     |   |   |   |   |   |
| Warrants                exercisable at December 31, 2006 |   |                           | 2,467,076 |   |                                                         | $      | 1.34   |                                                    |   |   | 4.21                                     |   |   | $ | 1,987,657 |   |
|                                                     |   |                           |      |   |                                                         |   |   |                                                    |   |   |                                     |   |   |   |   |   |
| Warrants                exercisable at December 31, 2007 |   |                           | 2,685,521 |   |                                                         | $      | 1.21   |                                                    |   |   | 3.96                                     |   |   | $ | 1,655,457 |   |

| Range                of ExercisePrices       | Number                of Shares Outstanding   | Weighted                Average Remaining inContractual                Lifein                Years | OutstandingWarrants                Weighted Average Exercise Price | Number                of Warrants Exercisable       | ExercisableWarrantsWeighted                AverageExercise                Price |
|----------------------------------------------|-----------------------------------------------|----------------------------------------------------------------------------------------------------|--------------------------------------------------------------------|-----------------------------------------------------|---------------------------------------------------------------------------------|
| $0.30                to                $0.75 | 1,771,567                                     | 4.48                                                                                               | $  0.40                                                  | 1,394,067                                           | $  0.41                                                               |
| $1.02                to $1.90                |                  162,500                 | 4.13                                                                                               | $  1.78                                                  |                   162,500                 | $  1.78                                                               |
| $1.90                to $2.00                |                  941,041                 | 4.10                                                                                               | $  1.96                                                  |                   941,041                 | $  1.96                                                               |
| $2.00                to $2.75                |                  179,580                 | 2.21                                                                                               | $  2.50                                                  |                   179,580                 | $  2.50                                                               |
| $3.00                to $12.00               |                     8,333 | 2.33                                                                                               | $  4.90                                                  |                      8,333 | $  4.90                                                               |
| $0.30                to $12.00               | 3,063,021                                     | 4.21                                                                                               | $  1.15                                                  | 2,685,521                                           | $  1.21                                                               |

----

----

|                                                     |   | Numberof                Shares |      |   | Weighted                AverageExercise                Price |   |   | Weighted                Average Remaining Term in Years |   |   | Aggregate                Intrinsic Value |   |
|----------------------------------------------------------|--------|--------------------------------|-----------|--------|--------------------------------------------------------------|--------|--------|---------------------------------------------------------|--------|--------|------------------------------------------|--------|
| Outstanding                at January 1, 2006            |   |                           | 2,008,497 |   |                                                         | $      | 1.48   |                                                    |   |   |                                     |   |   |   |
|     Granted                in 2006   |   |                           | 600,500   |   |                                                         | $      | 1.34   |                                                    |   |   |                                     |   |   |   |
|     Exercised                in 2006 |   |                           | -         |   |                                                         | $      | -      |                                                    |   |   |                                     |   |   |   |
|     Cancelled                in 2006 |   |                           | (426,349  | )      |                                                         | $      | 1.77   |                                                    |   |   |                                     |   |   |   |
| Outstanding                at December 31, 2006          |   |                           | 2,182,648 |   |                                                         | $      | 1.39   |                                                    |   |   | 7.88                                     |   |   | $ | - |   |
|     Granted                in 2007   |   |                           | 2,293,000 |   |                                                         | $      | 0.90   |                                                    |   |   |                                     |   |   |   |   |   |
|     Exercised                in 2007 |   |                           | (12,500   | )      |                                                         | $      | 0.47   |                                                    |   |   |                                     |   |   |   |   |   |
|     Cancelled                in 2007 |   |                           | (205,500  | )      |                                                         | $      | 1.49   |                                                    |   |   |                                     |   |   |   |   |   |
| Outstanding                at December 31, 2007          |   |                           | 4,257,648 |   |                                                         | $      | 1.12   |                                                    |   |   | 8.20                                     |   |   | $ | 2,335,007 |   |
|                                                     |   |                           |      |   |                                                         |   |   |                                                    |   |   |                                     |   |   |   |   |   |
| Options                exercisable at December 31, 2006  |   |                           | 1,020,816 |   |                                                         | $      | 1.36   |                                                    |   |   | 7.23                                     |   |   | $ | - |   |
|                                                     |   |                           |      |   |                                                         |   |   |                                                    |   |   |                                     |   |   |   |   |   |
| Options                exercisable at December 31, 2007  |   |                           | 1,518,675 |   |                                                         | $      | 1.32   |                                                    |   |   | 6.48                                     |   |   | $ | 679,922 |   |

| Range                of ExercisePrices       | Number                of Shares Outstanding | Weighted                Average Remaining inContractual                Lifein                Years | OutstandingOptions                Weighted Average Exercise Price                       | Number                of Options Exercisable | ExercisableOptionsWeighted                AverageExercise                Price |
|----------------------------------------------|---------------------------------------------|----------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------|----------------------------------------------|--------------------------------------------------------------------------------|
| $0.30                to                $0.75 | 1,029,000                                   |  8.88                                                                                         | $                           0.52 |                   5,833            | $                      0.61                      |
| $0.75                to $0.90                |                  927,830               |  6.32                                                                                         | $                           0.83 | 825,496                                      | $                      0.83                      |
| $1.02                to $1.84                | 1,819,166                                   |  9.12                                                                                         | $                           1.34 | 312,083                                      | $                      1.56                      |
| $1.90                to $2.00                |  437,318                               |  7.07                                                                                         | $                           2.00 | 331,846                                      | $                      1.99                      |
| $3.00                to$6.75                 |  44,334                                |  4.85                                                                                         | $                           3.85 |                  43,417                 | $                      3.86                      |
| $0.30                to $6.75                | 4,257,648                                   |  8.20                                                                                         | $                           1.12 | 1,518,675                                    | $                      1.32                      |

| (10) | Income                Taxes |
|------|-----------------------------|

|                                             |   | 2007   |   |   | 2006   |   |
|--------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Current                provision:                |   |   |   |   |   |   |
| Federal                                          |   | $      | 2,997  |   |   | $      | - |   |
| State                                            |   |   | 2,400  |   |   |   | 2,400 |   |
|                                             |   |   | 5,397  |   |   |   | 2,400 |   |
| Deferred                benefit:                 |   |   |   |   |   |   |   |   |
| Federal                                          |   |   | -      |   |   |   | - |   |
| State                                            |   |   | -      |   |   |   | - |   |
|                                             |   |   | -      |   |   |   | - |   |
| Income                tax                expense |   | $      | 5,397  |   |   | $      | 2,400 |   |

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|                                                         |   | 2007   |    |   | 2006   |   |
|--------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Computed                tax at federal statutory rate of 34% |   | $      | 11,400  |   |   | $      | (1,326,100 | ) |
| State                taxes, net of federal benefit           |   |   | 1,600   |   |   |   | 1,600 |   |
| Non                deductible items                          |   |   | 50,978  |   |   |   | 21,000 |   |
| Other                                                        |   |   | (79,341 | )      |   |   | (172,400 | ) |
| Change                in valuation allowance                 |   |   | 20,760  |   |   |   | 1,478,300 |   |
|                                                         |   | $      | 5,397   |   |   | $      | 2,400 |   |

|                                                                  |   | 2007   |       |   | 2006   |   |
|-----------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|
| Deferred                tax assets:                                   |   |   |       |   |   |   |
| Allowance                for doubtful                accounts         |   | $      | 12,200     |   |   | $      | 12,200 |   |
| Accrued                salaries/vacation                              |   |   | 38,100     |   |   |   | 113,700 |   |
| Accrued                equipment                pool                  |   |   | 19,400     |   |   |   | 58,200 |   |
| State                taxes                                            |   |   | 1,100      |   |   |   | 1,100 |   |
| Stock                options                                          |   |   | 535,400    |   |   |   | 370,400 |   |
| Net                operating loss                carryforwards        |   |   | 5,003,600  |   |   |   | 5,217,600 |   |
|     Total                deferred tax assets      |   |   | 5,609,800  |   |   |   | 5,773,200 |   |
|                                                                  |   |   |       |   |   |   |   |   |
| Deferred                tax liabilities:                              |   |   |       |   |   |   |   |   |
| Depreciation                                                          |   |   | 33,000     |   |   |   | 41,600 |   |
| Amortization                of                intangibles             |   |   | 83,300     |   |   |   | 185,400 |   |
| Other                                                                 |   |   | 211,000    |   |   |   | 284,400 |   |
|     Total                deferred tax liabilities |   |   | 327,300    |   |   |   | 511,400 |   |
|                                                                  |   |   |       |   |   |   |   |   |
| Net                deferred assets before valuation allowance         |   |   | 5,282,500  |   |   |   | 5,261,800 |   |
| Valuation                allowance                                    |   |   | (5,282,500 | )      |   |   | (5,261,800 | ) |
| Net                deferred tax assets                                |   | $      | -          |   |   | $      | - |   |

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| December                31 | Payments |    |
|----------------------------|----------|---------|
| 2008                       | $        | 167,467 |   |
| 2009                       |     | 171,470 |   |
| Total                      | $        | 338,937 |   |

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