----

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| [X] | ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|-----|--------------------------------------------------------------------------------|

| [ ] | TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|-----|------------------------------------------------------------------------------------|

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

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|  Large accelerated filer  o    |   |  Accelerated filer  o         |
|--------------------------------------------------------------|--------|----------------------------------------------|
|                                                         |   |                                         |
|                                                         |   |                                         |
|  Non-accelerated filer  o                     |   |  Smaller reporting company  x |

|  Document Description                                                                                                                                                                                                                                                           |    | 10-K Part                                               |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|--------------------------------------------------------------|
| Portions of the Registrant’s notice of annual meeting of stockholders and proxy statement to be filed pursuant to Regulation 14A within 120 days after Registrant’s fiscal year ended December 31, 2009 are incorporated by reference into Part III of this report. |    | III (Items 10, 11, 12, 13, 14) |

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|        |                                                                                                               |  Page |
|-------------|--------------------------------------------------------------------------------------------------------------------|------------|
| PART I      |
|        |                                                                                                               |       |
| Item 1.     | Business                                                                                                           | 5          |
|        |                                                                                                               |       |
| Item 1A.    | Risk Factors                                                                                                       | 8          |
|        |                                                                                                               |       |
| Item 1B.    | Unresolved Staff Comments                                                                                          | 12         |
|        |                                                                                                               |       |
| Item 2.     | Properties                                                                                                         | 13         |
|        |                                                                                                               |       |
| Item 3.     | Legal Proceedings                                                                                                  | 13         |
|        |                                                                                                               |       |
| PART II     |
|        |
| Item 5.     | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 13         |
|        |                                                                                                               |       |
| Item 6.     | Selected Financial Data                                                                                            | 15         |
|        |                                                                                                               |       |
| Item 7      | Management’s Discussion and Analysis of Financial Condition and Results of Operations                        | 15         |
|        |                                                                                                               |       |
| Item 7A.    | Quantitative and Qualitative Disclosures about Market Risk                                                         | 19         |
|        |                                                                                                               |       |
| Item 8.     | Financial Statements and Supplementary Data                                                                        | F - F-22   |
|        |                                                                                                               |       |
| Item 9.     | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                               | 19         |
|        |                                                                                                               |       |
| Item 9A(T). | Controls and Procedures                                                                                            | 19         |
|        |                                                                                                               |       |
| Item 9B.    | Other Information                                                                                                  | 20         |
|        |                                                                                                               |       |
|        |  PART III                                                                                                     |       |
|        |                                                                                                               |       |
| Item 10.    | Directors, Executive Officers, and Corporate Governance                                                            | 20         |
|        |                                                                                                               |       |
| Item 11.    | Executive Compensation                                                                                             | 20         |
|        |                                                                                                               |       |
| Item 12.    | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                     | 20         |
|        |                                                                                                               |       |
| Item 13.    | Certain Relationships and Related Transactions, and Director Independence                                          | 20         |
|        |                                                                                                               |       |
| Item 14.    | Principal Accountant Fees and Service                                                                              | 20         |
|        |                                                                                                               |       |
| Item 15.    | Exhibits and Financial Statement Schedules                                                                         | 21         |

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Item 1.   Business

----

| ·   | 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 print management programs.  Auxilio’s program is completely outsourced and hospitals need only pay a single invoice.  Auxilio operates the print 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 provide a 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 1A.  Risk Factors

----

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

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----

----

| ·   | 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 2.  Properties

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

| Quarter                                 | Low |   | High   |
|-----------------------------------------|-----|--------|--------|
| January 1, 2008—March 31, 2008    | $   | 1.21   |   | $ | 1.86 |
| April 1, 2008—June 30, 2008       | $   | 1.60   |   | $ | 2.05 |
| July 1, 2008—September 30, 2008   | $   | 1.50   |   | $ | 2.34 |
| October 1, 2008—December 31, 2008 | $   | 0.60   |   | $ | 1.76 |
| January 1, 2009—March 31, 2009    | $   | 0.40   |   | $ | 0.90 |
| April 1, 2009—June 30, 2009       | $   | 0.65   |   | $ | 1.15 |
| July 1, 2009—September 30, 2009   | $   | 0.41   |   | $ | 0.75 |
| October 1, 2009—December 31, 2009 | $   | 0.50   |   | $ | 0.90 |

----

| 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 Plans |
|-----------------------------------------------------------------|--------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------|---------------------------------------------------------------------------|
| Equity compensation plans approved by security holders (1):     | 5,244,945                                                                                  | $1.02                                                                       | 725,055                                                                   |
| Equity compensation plans not approved by security holders (2): | 3,981,871                                                                                  | $1.39                                                                       |            -       |
|     Total                                   | 9,226,816                                                                                  |                                                                        | 725,055                                                                   |

| (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. Warrants have also been issued to another Company in connection with a joint marketing agreement. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Item 6.   Selected Financial Data

----

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

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

| ·   | Accounting for financial instruments that possess characteristics of both debt and equity (i.e., warrants and conversion rights); |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------|

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

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

----

----

|             |   | Payments Due by Period |    |
|------------------|--------|------------------------|---------|
|             |   | Total                  |    |   | Within 1 year |   |   | Year 2-3 |   |   | Year 4-5 |   |   | More than 5 years |   |
| Long-term debt   |   | $                      | -       |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
| Capital leases   |   |                   | 22,608  |   |   |   | 5,537 |   |   |   | 11,073 |   |   |   | 5,998 |   |   |   | - |   |
| Operating leases |   |                   | 827,099 |   |   |   | 79,188 |   |   |   | 309,810 |   |   |   | 326,187 |   |   |   | 111,914 |   |
| Total            |   | $                      | 849,707 |   |   | $ | 84,725 |   |   | $ | 320,883 |   |   | $ | 332,185 |   |   | $ | 111,914 |   |

----

Item 7A.   Quantitative and Qualitative Disclosures about Market Risk

| Management’s Report on Internal Control over Financial Reporting |
|------------------------------------------------------------------------|

----

Item 9B.   Other Information

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

----

Item 15.  Exhibits and Financial Statement Schedules

| 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  | 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).                                         |
| 10.7  | 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). |
| 10.8  | 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).                                                                           |
| 10.9  | 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).                                                         |
| 10.10 | 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).         |
| 10.11 | 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).                          |
| 10.12 | Amended and Restated Common Stock Purchase Warrant Agreement between Registrant and Etienne Weidemann, Chief Executive Officer, dated March 19, 2009.                                                                                                           |

----

| 10.13 | Amended and Restated Common Stock Purchase Warrant Agreement between Registrant and Joseph Flynn, former Chief Executive Officer, dated March 19, 2009.                                                                                                    |
|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.14 | Executive Employment Agreement between Registrant and Sasha Gala, Senior Vice President and Chief Operating Officer and Corporate Secretary dated January 10, 2010 (filed as Exhibit 10.1 to the Registrant’s Form 8-K/A filed on January 12, 2010). |
| 10.15 | Standard Office Lease agreement by and between Auxilio, Inc and Realty Associates Fund V L.P. dated November 12, 2009.                                                                                                                                     |
| 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.                                                                                                                  |

----

| Signature                 |   | Title                                           |   | Date           |
|---------------------------|--------|-------------------------------------------------|--------|----------------|
|                      |   |                                            |   |           |
| /s/ Joseph J. Flynn  |   | Chief Executive Officer                    |   | March 18, 2011 |
| Joseph J. Flynn           |   | (Principal Executive Officer and Director) |   |           |
|                      |   |                                            |   |           |
| /s/ Paul T. Anthony       |   | Chief Financial Officer                         |   | March 18, 2011 |
| Paul T. Anthony           |   | (Principal Financial and Accounting Officer)    |   |           |
|                      |   |                                            |   |           |
| /s/ Edward Case           |   | Director                                        |   | March 18, 2011 |
| Edward Case               |   |                                            |   |           |

|              |   |                                  |   |           |
|-------------------|--------|---------------------------------------|--------|----------------|
| /s/ Michael Joyce |   | Director                              |   | March 18, 2011 |
| Michael Joyce     |   |                                  |   |           |
|              |   |                                  |   |           |
| /s/ John D. Pace  |   | Director                              |   | March 18, 2011 |
| John D. Pace      |   | (Non-executive Chairman of the Board) |   |           |
|              |   |                                  |   |           |
| /s/ Max Poll      |   | Director                              |   | March 18, 2011 |
| Max Poll          |   |                                  |   |           |
|              |   |                                  |   |           |

| /s/ Michael Vanderhoof |   | Director |   | March 18, 2011 |
|------------------------|--------|----------|--------|----------------|
| Michael Vanderhoof     |   |     |   |           |

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AUXILIO, INC. AND SUBSIDIARIES

|                                                                          | Page        |
|-------------------------------------------------------------------------------|-------------|
|                                                                          |        |
| Report of Independent Registered Public Accounting Firm                       | F-1         |
|                                                                          |        |
| Financial Statements:                                                         |        |
|                                                                          |        |
|     Consolidated Balance Sheets                           | F-2         |
|                                                                          |        |
|     Consolidated Statements of Operations                 | F-3         |
|                                                                          |        |
|     Consolidated Statements of Stockholders’ Equity | F-4         |
|                                                                          |        |
|     Consolidated Statements of Cash Flows                 | F-5, F-6    |
|                                                                          |        |
|     Notes to Consolidated Financial Statements            | F-7 to F-22 |

----

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| AUXILIO, INC. AND SUBSIDIARIES                                                                                                                                                                   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| CONSOLIDATED BALANCE SHEETS                                                                                                                                                                      |   |
|                                                                                                                                                                                             |   |
|                                                                                                                                                                                             |   | As of December 31, |   |
|                                                                                                                                                                                             |   | 2009 |   |   | 2008 |   |
|                                                                                                                                                                                             |   |
| ASSETS                                                                                                                                                                                           |   |
| Current assets:                                                                                                                                                                                  |   |   |   |   |   |   |
| Cash and cash equivalents                                                                                                                                                                        |   | $ | 1,781,586 |   |   | $ | 1,198,126 |   |
| Accounts receivable, net                                                                                                                                                                         |   |   | 1,397,598 |   |   |   | 4,201,689 |   |
| Prepaid and other current assets                                                                                                                                                                 |   |   | 93,246 |   |   |   | 33,642 |   |
| Supplies                                                                                                                                                                                         |   |   | 537,170 |   |   |   | 745,207 |   |
| Loan acquisition costs, net                                                                                                                                                                      |   |   | - |   |   |   | 44,431 |   |
| Total current assets                                                                                                                                                                             |   |   | 3,809,600 |   |   |   | 6,223,095 |   |
|                                                                                                                                                                                             |   |   |   |   |   |   |   |   |
| Property and equipment, net                                                                                                                                                                      |   |   | 277,704 |   |   |   | 129,614 |   |
| Deposits                                                                                                                                                                                         |   |   | 43,792 |   |   |   | 28,790 |   |
| Goodwill                                                                                                                                                                                         |   |   | 1,517,017 |   |   |   | 1,517,017 |   |
|                                                                                                                                                                                             |   | $ | 5,648,113 |   |   | $ | 7,898,516 |   |
|                                                                                                                                                                                             |   |   |   |   |   |   |   |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                                             |   |
|                                                                                                                                                                                             |   |   |   |   |   |   |   |   |
| Current liabilities:                                                                                                                                                                             |   |   |   |   |   |   |   |   |
| Accounts payable and accrued expenses                                                                                                                                                            |   | $ | 1,246,880 |   |   | $ | 3,236,008 |   |
| Accrued compensation and benefits                                                                                                                                                                |   |   | 554,702 |   |   |   | 662,663 |   |
| Deferred revenue                                                                                                                                                                                 |   |   | 349,271 |   |   |   | 489,563 |   |
| Current portion of note payable, net of discount of $23,413 at December 31, 2008                                                                                                                 |   |   | - |   |   |   | 1,308,587 |   |
| Current portion of capital lease obligations                                                                                                                                                     |   |   | 3,835 |   |   |   | 3,913 |   |
| Total current liabilities                                                                                                                                                                        |   |   | 2,154,688 |   |   |   | 5,700,734 |   |
|                                                                                                                                                                                             |   |   |   |   |   |   |   |   |
| Capital lease obligations less current portion                                                                                                                                                   |   |   | 17,537 |   |   |   | - |   |
|                                                                                                                                                                                             |   |   |   |   |   |   |   |   |
| Commitments and contingencies                                                                                                                                                                    |   |   | - |   |   |   | - |   |
|                                                                                                                                                                                             |   |   |   |   |   |   |   |   |
| Stockholders' equity:                                                                                                                                                                            |   |   |   |   |   |   |   |   |
| Common stock, par value at $0.001, 33,333,333 shares authorized, 19,040,401 shares issued and outstanding at December 31, 2009 and 17,623,734 shares issued and outstanding at December 31, 2008 |   |   | 19,042 |   |   |   | 17,625 |   |
| Additional paid-in capital                                                                                                                                                                       |   |   | 19,803,021 |   |   |   | 18,490,632 |   |
| Accumulated deficit                                                                                                                                                                              |   |   | (16,346,175 | ) |   |   | (16,310,475 | ) |
| Total stockholders' equity                                                                                                                                                                       |   |   | 3,475,888 |   |   |   | 2,197,782 |   |
| Total liabilities and stockholders’ equity                                                                                                                                                 |   | $ | 5,648,113 |   |   | $ | 7,898,516 |   |

----

| AUXILIO, INC. AND SUBSIDIARIES                        |   |                    |
|-------------------------------------------------------|--------|-------------------------|
| CONSOLIDATED STATEMENTS OF OPERATIONS                 |   |                    |
|                                                  |   |                    |   |   |   |
|                                                  |   | Year Ended December 31, |   |   |
|                                                  |   | 2009                    |   |   | 2008 |   |
| Net revenues                                          |   | $                       | 15,982,456 |   |   | $ | 21,016,012 |   |
| Cost of revenues                                      |   |                    | 11,934,706 |   |   |   | 15,907,494 |   |
| Gross profit                                          |   |                    | 4,047,750 |   |   |   | 5,108,518 |   |
| Operating expenses:                                   |   |                    |   |   |   |   |   |   |   |
| Sales and marketing                                   |   |                    | 1,323,399 |   |   |   | 1,476,223 |   |
| General and administrative expenses                   |   |                    | 2,663,827 |   |   |   | 2,868,460 |   |
| Intangible asset amortization                         |   |                    | - |   |   |   | 190,973 |   |
| Total operating expenses                              |   |                    | 3,987,226 |   |   |   | 4,535,656 |   |
| Income from operations                                |   |                    | 60,524 |   |   |   | 572,862 |   |
| Other income (expense):                               |   |                    |   |   |   |   |   |   |   |
| Interest expense                                      |   |                    | (96,747 | ) |   |   | (625,602 | ) |
| Interest income                                       |   |                    | 1,637 |   |   |   | 6,244 |   |
| Gain on sale of property and equipment                |   |                    | 1,860 |   |   |   | - |   |
| Total other income (expense)                          |   |                    | (93,250 | ) |   |   | (619,358 | ) |
|                                                  |   |                    |   |   |   |   |   |   |   |
| Loss before provision for income taxes                |   |                    | (32,726 | ) |   |   | (46,496 | ) |
| Income tax expense                                    |   |                    | 2,974 |   |   |   | 55,891 |   |
| Net loss                                              |   | $                       | (35,700 | ) |   | $ | (102,387 | ) |
|                                                  |   |                    |   |   |   |   |   |   |   |
| Net loss per share:                                   |   |                    |   |   |   |   |   |   |   |
| Basic                                                 |   | $                       | (0.00 | ) |   | $ | (0.01 | ) |
| Diluted                                               |   | $                       | (0.00 | ) |   | $ | (0.01 | ) |
|                                                  |   |                    |   |   |   |   |   |   |   |
| Number of weighted average shares outstanding – |   |                    |   |   |   |   |   |   |   |
| Basic                                                 |   |                    | 18,572,127 |   |   |   | 16,834,408 |   |
| Diluted                                               |   |                    | 18,572,127 |   |   |   | 16,834,408 |   |

----

| AUXILIO, INC. AND SUBSIDIARIES                                                                   |   |
|--------------------------------------------------------------------------------------------------|--------|
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY                                                  |   |
| YEARS ENDED DECEMBER 31, 2009 AND 2008                                                           |   |
|                                                                                             |   |   |   |   |   |   |   | Additional |   |   |   |   |   | Total |   |
|                                                                                             |   | Common Stock |   |   | Paid-in |   |   | Accumulated |   |   | Stockholders' |   |
|                                                                                             |   | Shares |   |   | Amount |   |   | Capital |   |   | Deficit |   |   | Equity |   |
| Balance at January 1, 2008                                                                       |   |   | 16,235,309 |   |   |   | 16,237 |   |   |   | 17,364,202 |   |   |   | (16,208,088 | ) |   |   | 1,172,351 |   |
| Stock compensation expense for options and warrants granted to employees and consultants         |   |   | - |   |   |   | - |   |   |   | 396,643 |   |   |   | - |   |   |   | 396,643 |   |
| Conversion of loan payable and accrued interest to common stock                                  |   |   | 842,175 |   |   |   | 842 |   |   |   | 386,558 |   |   |   | - |   |   |   | 387,400 |   |
| Conversion of note payable to common stock                                                       |   |   | 75,000 |   |   |   | 75 |   |   |   | 125,925 |   |   |   | - |   |   |   | 126,000 |   |
| Warrants exercised                                                                               |   |   | 471,250 |   |   |   | 471 |   |   |   | 217,304 |   |   |   | - |   |   |   | 217,775 |   |
| Net loss                                                                                         |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (102,387 | ) |   |   | (102,387 | ) |
| Balance at December 31, 2008                                                                     |   |   | 17,623,734 |   |   |   | 17,625 |   |   |   | 18,490,632 |   |   |   | (16,310,475 | ) |   |   | 2,197,782 |   |
| Stock compensation expense for options and warrants granted to employees and consultants         |   |   | - |   |   |   | - |   |   |   | 471,998 |   |   |   | - |   |   |   | 471,998 |   |
| Fair value of warrants issued for marketing services                                             |   |   | - |   |   |   | - |   |   |   | 76,807 |   |   |   | - |   |   |   | 76,807 |   |
| Common stock issued in private  placement, net of offering  costs of $85,000 |   |   | 1,416,667 |   |   |   | 1,417 |   |   |   | 763,584 |   |   |   | - |   |   |   | 765,001 |   |
| Net loss                                                                                         |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (35,700 | ) |   |   | (35,700 | ) |
| Balance at December 31, 2009                                                                     |   |   | 19,040,401 |   |   | $ | 19,042 |   |   | $ | 19,803,021 |   |   | $ | (16,346,175 | ) |   | $ | 3,475,888 |   |

----

| AUXILIO, INC. AND SUBSIDIARIES                                                           |   |
|------------------------------------------------------------------------------------------|--------|
| CONSOLIDATED STATEMENTS OF CASH FLOWS                                                    |   |
|                                                                                     |   |   |   |   |   |   |
|                                                                                     |   | Year Ended December 31, |   |
|                                                                                     |   | 2009 |   |   | 2008 |   |
| Cash flows provided by operating activities:                                             |   |   |   |   |   |   |
| Net loss                                                                                 |   | $ | (35,700 | ) |   | $ | (102,387 | ) |
| Adjustments to reconcile net loss to net cash provided by                                |   |   |   |   |   |   |   |   |
| operating activities:                                                                    |   |   |   |   |   |   |   |   |
| Depreciation and amortization                                                            |   |   | 169,822 |   |   |   | 119,267 |   |
| Amortization of intangible assets                                                        |   |   | - |   |   |   | 190,973 |   |
| Bad debt recoveries                                                                      |   |   | - |   |   |   | (28,510 | ) |
| Interest expense related to amortization of warrants issued with loans                   |   |   | 23,412 |   |   |   | 86,893 |   |
| Interest expense related to amortization of loan acquisition costs                       |   |   | 44,431 |   |   |   | 164,901 |   |
| Stock compensation expense for options and warrants granted to employees and consultants |   |   | 471,998 |   |   |   | 396,643 |   |
| Fair value of warrants issued for marketing services                                     |   |   | 76,807 |   |   |   | - |   |
| Interest expense related to accretion of loan                                            |   |   | - |   |   |   | 197,083 |   |
| Changes in operating assets and liabilities:                                             |   |   |   |   |   |   |   |   |
| Accounts receivable                                                                      |   |   | 2,804,091 |   |   |   | (1,767,651 | ) |
| Prepaid and other current assets                                                         |   |   | (59,604 | ) |   |   | 13,338 |   |
| Supplies                                                                                 |   |   | 208,037 |   |   |   | (15,603 | ) |
| Deposits                                                                                 |   |   | (15,002 | ) |   |   | - |   |
| Accounts payable and accrued expenses                                                    |   |   | (1,989,128 | ) |   |   | 1,684,648 |   |
| Accrued compensation and benefits                                                        |   |   | (107,961 | ) |   |   | 176,553 |   |
| Deferred revenue                                                                         |   |   | (140,292 | ) |   |   | 106,668 |   |
|        Net cash provided by operating activities      |   |   | 1,450,911 |   |   |   | 1,222,816 |   |
| Cash flows (used for) investing activities:                                              |   |   |   |   |   |   |   |   |
| Purchases of property and equipment                                                      |   |   | (292,816 | ) |   |   | (39,945 | ) |
| Net cash (used for) investing activities                                                 |   |   | (292,816 | ) |   |   | (39,945 | ) |
| Cash flows (used for) financing activities:                                              |   |   |   |   |   |   |   |   |
| Net proceeds from issuance of common stock                                               |   |   | 765,001 |   |   |   | - |   |
| Repayments on loan payable                                                               |   |   | - |   |   |   | (372,500 | ) |
| Repayments on convertible note payable                                                   |   |   | (1,332,000 | ) |   |   | (474,000 | ) |
| Payments on capital leases                                                               |   |   | (7,636 | ) |   |   | (22,448 | ) |
| Proceeds from exercise of warrants                                                       |   |   | - |   |   |   | 217,775 |   |
| Net cash (used for) financing activities                                                 |   |   | (574,635 | ) |   |   | (651,173 | ) |
| Net increase in cash and cash equivalents                                                |   |   | 583,460 |   |   |   | 531,698 |   |
| Cash and cash equivalents, beginning of year                                             |   |   | 1,198,126 |   |   |   | 666,428 |   |
| Cash and cash equivalents, end of year                                                   |   | $ | 1,781,586 |   |   | $ | 1,198,126 |   |

----

| AUXILIO, INC. AND SUBSIDIARIES                                            |   |
|---------------------------------------------------------------------------|--------|
| CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)                         |   |
|                                                                      |   |
|                                                                      |   |   |   |   |   |   |
|                                                                      |   | Year Ended December 31, |   |
|                                                                      |   | 2009 |   |   | 2008 |   |
| Supplemental disclosure of cash flow information:                         |   |   |   |   |   |   |
|                                                                      |   |   |   |   |   |   |
| Interest paid                                                             |   | $ | 28,571 |   |   | $ | 163,446 |   |
|                                                                      |   |   |   |   |   |   |   |   |
| Income tax paid                                                           |   | $ | 85,050 |   |   | $ | 18,487 |   |
|                                                                      |   |   |   |   |   |   |   |   |
| Non-cash investing and financing activities:                              |   |   |   |   |   |   |   |   |
|                                                                      |   |   |   |   |   |   |   |   |
| Loan payable, note payable and accrued interest converted to common stock |   | $ | - |   |   | $ | 513,400 |   |
|                                                                      |   |   |   |   |   |   |   |   |
| Disposition of fully depreciated property and equipment                   |   | $ | 131,295 |   |   | $ | - |   |
|                                                                      |   |   |   |   |   |   |   |   |

----

----

----

----

----

|                                   | Year Ended December 31, |
|----------------------------------------|-------------------------|
|                                   | 2009                    |   |   | 2008 |
| Cost of revenues                       | $                       | 98,610 |   |   | $ | 121,059 |
| Sales and marketing                    |                    | 68,436 |   |   |   | 80,444 |
| General and administrative expenses    |                    | 304,952 |   |   |   | 195,140 |
| Total stock based compensation expense | $                       | 471,998 |   |   | $ | 396,643 |

|                                |   | 2009              |   |   | 2008             |   |
|-------------------------------------|--------|-------------------|--------|--------|------------------|--------|
|                                |   |              |   |   |             |   |
| Risk-free interest rate             |   | 0.10% to 0.22%    |   |   | 0.23% to 2.18%   |   |
| Expected volatility of common stock |   | 77.92% to 101.65% |   |   | 75.48% to 78.66% |   |
| Dividend yield                      |   |              | 0%     |   |             |   | 0% |   |
| Expected life of options            |   | 3 years           |   |   | 3 years          |   |

----

|                                                 |   |                   |       |
|------------------------------------------------------|--------|------------------------|------------|
|                                                 |   | Year Ended December 31 |       |
|                                                 |   | 2009                   |       |   | 2008 |   |
| Numerator:                                           |   |                   |       |   |   |   |
| Net loss                                             |   | $                      | (35,700    | ) |   | $ | (102,387 | ) |
| Effects of dilutive securities:                      |   |                   |       |   |   |   |   |   |
| Convertible notes payable                            |   |                   | -          |   |   |   | - |   |
| (Loss) after effects of conversion of notes payable  |   | $                      | (35,700    | ) |   | $ | (320,056 | ) |
|                                                 |   |                   |       |   |   |   |   |   |
| Denominator:                                         |   |                   |       |   |   |   |   |   |
| Denominator for basic calculation weighted averages  |   |                   | 18,572,127 |   |   |   | 16,834,408 |   |
|                                                 |   |                   |       |   |   |   |   |   |
| Dilutive common stock equivalents:                   |   |                   |       |   |   |   |   |   |
| Secured convertible notes                            |   |                   | -          |   |   |   | - |   |
| Options and warrants                                 |   |                   | -          |   |   |   | - |   |
|                                                 |   |                   |       |   |   |   |   |   |
| Denominator for diluted calculation weighted average |   |                   | 18,572,127 |   |   |   | 21,885,453 |   |
|                                                 |   |                   |       |   |   |   |   |   |
| Net loss per share:                                  |   |                   |       |   |   |   |   |   |
| Basic net loss per share                             |   | $                      | (.00       | ) |   | $ | (.01 | ) |
|                                                 |   |                   |       |   |   |   |   |   |
| Diluted net loss per share                           |   | $                      | (.00       | ) |   | $ | (.01 | ) |

----

|                            | As of December 31 |
|---------------------------------|-------------------|
|                            | 2009              |   |   | 2008 |
| Trade                           | $                 | 1,397,598 |   |   | $ | 4,201,689 |
| Allowance for doubtful accounts |              | - |   |   |   | - |
|                            | $                 | 1,397,598 |   |   | $ | 4,201,689 |

----

|                                           |   |              |     |
|------------------------------------------------|--------|-------------------|----------|
|                                           |   | As of December 31 |     |
|                                           |   | 2009              |     |   | 2008 |   |
| Furniture and fixtures                         |   | $                 | 48,856   |   |   | $ | 53,972 |   |
| Computers and office equipment                 |   |              | 398,484  |   |   |   | 431,409 |   |
| Fleet equipment                                |   |              | 378,259  |   |   |   | 178,278 |   |
| Leasehold improvements                         |   |              | 25,202   |   |   |   | 25,202 |   |
|                                           |   |              | 850,801  |   |   |   | 688,861 |   |
| Less accumulated depreciation and amortization |   |              | (573,097 | ) |   |   | (559,247 | ) |
|                                           |   | $                 | 277,704  |   |   | $ | 129,614 |   |

|   | Depreciation and amortization expense for property, equipment, and improvements amounted to $169,822 and $119,267 for the years ended December 31, 2009 and 2008, respectively. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                      |   | Numberof Shares |      |   | Weighted AverageExercise Price |   |   | Weighted Average Remaining Term in Years |   |   | Aggregate Intrinsic Value |
|-------------------------------------------|--------|-----------------|-----------|--------|--------------------------------|--------|--------|------------------------------------------|--------|--------|---------------------------|
| Outstanding at January 1, 2008            |   |            | 3,047,687 |   |                           | $      | 1.15   |                                     |   |   |                      |   |   |
|     Granted in 2008   |   |            | -         |   |                           | $      | -      |                                     |   |   |                      |   |   |
|     Exercised in 2008 |   |            | (471,250  | )      |                           | $      | .46    |                                     |   |   |                      |   |   |
|     Cancelled in 2008 |   |            | (406,233  | )      |                           | $      | .72    |                                     |   |   |                      |   |   |
| Outstanding at December 31, 2008          |   |            | 2,170,204 |   |                           | $      | 1.37   |                                     |   |   |                      |   |   |
|     Granted in 2009   |   |            | 2,141,667 |   |                           | $      | 1.50   |                                     |   |   |                      |   |   |
|     Exercised in 2009 |   |            | -         |   |                           | $      | -      |                                     |   |   |                      |   |   |
|     Cancelled in 2009 |   |            | (330,000  | )      |                           | $      | 1.95   |                                     |   |   |                      |   |   |
| Outstanding at December 31, 2009          |   |            | 3,981,871 |   |                           | $      | 1.39   |                                     |   |   | 2.74                      |   |   | $ | 241,292 |
|                                      |   |            |      |   |                           |   |   |                                     |   |   |                      |   |   |   |   |
| Warrants exercisable at December 31, 2008 |   |            | 2,170,204 |   |                           | $      | 1.37   |                                     |   |   | 2.50                      |   |   | $ | 159,088 |
|                                      |   |            |      |   |                           |   |   |                                     |   |   |                      |   |   |   |   |
| Warrants exercisable at December 31, 2009 |   |            | 2,131,871 |   |                           | $      | 1.30   |                                     |   |   | 2.74                      |   |   | $ | 241,292 |

| 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          |   |   |                         | 1,020,417 |   |                                                  |   | 2.93   |                                                |   | $0.52  |                           |   |   | 1,020,417                                         |   |   | $0.52 |
| $.91 to $1.84           |   |   |                         | 2,162,500 |   |                                                  |   | 2.59   |                                                |   | $1.52  |                           |   |   | 312,500                                           |   |   | $1.66 |
| $1.85 to $2.00          |   |   |                         | 611,041   |   |                                                  |   | 3.27   |                                                |   | $1.96  |                           |   |   | 611,041                                           |   |   | $1.96 |
| $2.00 to $2.75          |   |   |                         | 179,580   |   |                                                  |   | 0.18   |                                                |   | $2.36  |                           |   |   | 179,580                                           |   |   | $2.36 |
| $3.00 to $12.00         |   |   |                         | 8,333     |   |                                                  |   | 0.33   |                                                |   | $12.00 |                           |   |   | 8,333                                             |   |   | $12.00 |
| $0.30 to $12.00         |   |   |                         | 3,981,871 |   |                                                  |   | 2.74   |                                                |   | $1.39  |                           |   |   | 2,131,871                                         |   |   | $1.30 |

----

----

|                                      |   | Numberof Shares |      |   | Weighted AverageExercise Price |   |   | Weighted Average Remaining Term in Years |   |   | Aggregate Intrinsic Value |
|-------------------------------------------|--------|-----------------|-----------|--------|--------------------------------|--------|--------|------------------------------------------|--------|--------|---------------------------|
| Outstanding at January 1, 2008            |   |            | 4,257,648 |   |                           | $      | 1.12   |                                     |   |   |                      |   |   |
|     Granted in 2008   |   |            | 238,500   |   |                           | $      | 1.68   |                                     |   |   |                      |   |   |
|     Exercised in 2008 |   |            | -         |   |                           | $      | -      |                                     |   |   |                      |   |   |
|     Cancelled in 2008 |   |            | (110,962  | )      |                           | $      | 1.49   |                                     |   |   |                      |   |   |
| Outstanding at December 31, 2008          |   |            | 4,385,186 |   |                           | $      | 1.15   |                                     |   |   | 7.30                      |   |   | $ | 2,335,007 |
|     Granted in 2009   |   |            | 1,804,500 |   |                           | $      | 0.65   |                                     |   |   |                      |   |   |   |   |
|     Exercised in 2009 |   |            | -         |   |                           | $      | -      |                                     |   |   |                      |   |   |   |   |
|     Cancelled in 2009 |   |            | (963,491  | )      |                           | $      | 0.96   |                                     |   |   |                      |   |   |   |   |
| Outstanding at December 31, 2009          |   |            | 5,226,195 |   |                           | $      | 1.02   |                                     |   |   | 7.24                      |   |   | $ | 389,065 |
|                                      |   |            |      |   |                           |   |   |                                     |   |   |                      |   |   |   |   |
| Options exercisable at December 31, 2008  |   |            | 2,527,326 |   |                           | $      | 1.24   |                                     |   |   | 6.47                      |   |   | $ | 20,960 |
|                                      |   |            |      |   |                           |   |   |                                     |   |   |                      |   |   |   |   |
| Options exercisable at December 31,2009   |   |            | 2,970,568 |   |                           | $      | 1.19   |                                     |   |   | 6.00                      |   |   | $ | 129,030 |

| 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          |   |   |                         | 1,863,500 |   |                                                  |   | 8.26   |                                               |   |   | $ 0.55                        |   |   |                                             | 578,667 |   |   |   | $ 0.54 |
| $0.75 to $0.90          |   |   |                         | 1,185,497 |   |                                                  |   | 6.26   |                                               |   |   | $ 0.82                        |   |   |                                             | 743,719 |   |   |   | $ 0.83 |
| $0.91 to $1.84          |   |   |                         | 1,715,047 |   |                                                  |   | 7.32   |                                               |   |   | $ 1.36                        |   |   |                                             | 1,213,031 |   |   |   | $ 1.39 |
| $1.85 to $2.00          |   |   |                         | 421,151   |   |                                                  |   | 5.15   |                                               |   |   |  $ 1.99                  |   |   |                                             | 414,151 |   |   |   | $ 1.99 |
| $2.00 to $2.75          |   |   |                         | 30,000    |   |                                                  |   | 8.68   |                                               |   |   | $ 2.15                        |   |   |                                             | 10,000 |   |   |   | $ 2.15 |
| $3.00 to $6.75          |   |   |                         | 11,000    |   |                                                  |   | 2.47   |                                               |   |   | $ 6.41                        |   |   |                                             | 11,000 |   |   |   | $ 6.41 |
| $0.30 to $6.75          |   |   |                         | 5,226,195 |   |                                                  |   | 7.24   |                                               |   |   | $ 1.02                        |   |   |                                             | 2,970,568 |   |   |   | $ 1.19 |

|               |   |                   |   |
|--------------------|--------|------------------------|--------|
|               |   | Year Ended December 31 |   |
|               |   | 2009                   |   |   | 2008 |   |
| Current provision: |   |                   |   |   |   |   |
| Federal            |   | $                      | (7,235 | ) |   | $ | 4,238 |   |
| State              |   |                   | 10,209 |   |   |   | 51,653 |   |
|               |   |                   | 2,974  |   |   |   | 55,891 |   |
| Deferred benefit:  |   |                   |   |   |   |   |   |   |
| Federal            |   |                   | -      |   |   |   | - |   |
| State              |   |                   | -      |   |   |   | - |   |
|               |   |                   | -      |   |   |   | - |   |
| Income tax expense |   | $                      | 2,974  |   |   | $ | 55,891 |   |

----

|                                          |   |                   |     |
|-----------------------------------------------|--------|------------------------|----------|
|                                          |   | Year Ended December 31 |     |
|                                          |   | 2009                   |     |   | 2008 |   |
| Computed tax at federal statutory rate of 34% |   | $                      | (11,127  | ) |   | $ | (15,800 | ) |
| State taxes, net of federal benefit           |   |                   | 6,738    |   |   |   | 34,100 |   |
| Non deductible items                          |   |                   | 20,006   |   |   |   | 23,100 |   |
| Other                                         |   |                   | 129,728  |   |   |   | 32,257 |   |
| Change in valuation allowance                 |   |                   | (142,371 | ) |   |   | (17,766 | ) |
|                                          |   | $                      | 2,974    |   |   | $ | 55,891 |   |

|                                                   |   |                   |       |
|--------------------------------------------------------|--------|------------------------|------------|
|                                                   |   | Year Ended December 31 |       |
|                                                   |   | 2009                   |       |   | 2008 |   |
| Deferred tax assets:                                   |   |                   |       |   |   |   |
| Accrued salaries/vacation                              |   | $                      | 106,800    |   |   | $ | 93,200 |   |
| Depreciation                                           |   |                   | 19,100     |   |   |   | - |   |
| Accrued equipment pool                                 |   |                   | 17,400     |   |   |   | 18,500 |   |
| State taxes                                            |   |                   | 7,800      |   |   |   | 16,300 |   |
| Stock options                                          |   |                   | 636,000    |   |   |   | 604,000 |   |
| Net operating loss carryforwards                       |   |                   | 5,100,100  |   |   |   | 4,993,600 |   |
|     Total deferred tax assets      |   |                   | 5,887,200  |   |   |   | 5,725,600 |   |
|                                                   |   |                   |       |   |   |   |   |   |
| Deferred tax liabilities:                              |   |                   |       |   |   |   |   |   |
| Depreciation                                           |   |                   | -          |   |   |   | 20,400 |   |
| Amortization of intangibles                            |   |                   | 9,300      |   |   |   | 1,500 |   |
| Other                                                  |   |                   | 250,900    |   |   |   | 190,700 |   |
|     Total deferred tax liabilities |   |                   | 260,200    |   |   |   | 212,600 |   |
|                                                   |   |                   |       |   |   |   |   |   |
| Net deferred assets before valuation allowance         |   |                   | 5,627,000  |   |   |   | 5,513,000 |   |
| Valuation allowance                                    |   |                   | (5,627,000 | ) |   |   | (5,513,000 | ) |
| Net deferred tax assets                                |   | $                      | -          |   |   | $ | - |   |

----

| December 31, |   | Payments |    |
|--------------|--------|----------|---------|
| 2010         |   | $        | 79,188  |   |
| 2011         |   |     | 152,858 |   |
| 2012         |   |     | 156,952 |   |
| 2013         |   |     | 161,046 |   |
| 2014         |   |     | 165,141 |   |
| Thereafter   |   |     | 111,914 |   |
| Total        |   | $        | 827,099 |   |

----

----

----

----