UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
    ACT OF 1934
                                    For the quarterly period ended June 30, 2006
                                       OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                                               Commission File Number: 333-11625

       CAPITAL ALLIANCE INCOME TRUST LTD., A REAL ESTATE INVESTMENT TRUST
       ------------------------------------------------------------------

              (Exact name of small business issuer in its charter)

           Delaware                                             94-3240473
----------------------------------------                  ----------------------
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                            Identification Number)

 100 Pine Street
 Suite 2450
 San Francisco, California                                        94111
----------------------------------------                  ----------------------
 (Address of principal executive office)                       (zip code)

                                 (415) 288-9575
--------------------------------------------------------------------------------
                           (Issuer's telephone number)

Securities registered pursuant to Section 12(b) of the Act:

 Title of each class            Name of each exchange on which registered Common
 -------------------            ------------------------------------------------
Stock $0.01 par value                      American Stock Exchange

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes  X          No
   -----          -----

As of July 28, 2006, the issuer's common shares closed at $7.45 and the
aggregate market value of the issuer's shares of Common Stock, $.01 par value,
held by non-affiliates of the issuer was approximately $2,086,000. At that date
approximately 381,000 common shares were outstanding and 280,000 common shares
were held by non-affiliates.

Transitional Small Business Disclosure Format.    Yes           No  X
                                                     -----        -----
<PAGE>

                                TABLE OF CONTENTS



PART I

     ITEM 1    CONSOLIDATED FINANCIAL STATEMENTS                             3-5

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                   6-10

     ITEM 2    MANAGEMENT'S DISCUSSION AND ANALYSIS                        11-15

     ITEM 3    CONTROLS AND PROCEDURES                                        16

PART II

     OTHER INFORMATION                                                     17-18

     SIGNATURES                                                               19

     CERTIFICATION PURSUANT TO THE SARBANES-OXLEY ACT                         20

     CERTIFICATION OF FORM 10-QSB                                             21






                                     PART I
                                     ITEM 1.


                              FINANCIAL STATEMENTS

                                   [Pages 3-5]




                                       2
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST
                           Consolidated Balance Sheets
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                         June 30,      December 31,
                                                                           2006            2005
                                                                           ----            ----
                                                                       (Unaudited)      (Audited)
<S>                                                                   <C>             <C>
ASSETS
    Cash and cash equivalents                                         $  1,076,017    $  1,626,247
    Restricted cash                                                        405,637         280,923
    Marketable securities                                                   23,151          19,577
    Accounts receivable                                                    820,505         715,742
    Other assets, net                                                       25,967          91,267
    Due from related party                                                      --           2,244
    Notes receivable:
       Mortgage notes receivable                                        21,505,260      26,443,616
       Allowance for loan losses                                          (305,000)       (390,000)
                                                                      ------------    ------------
          Net notes receivable                                          21,200,260      26,053,616
    Real estate owned                                                    1,738,500       1,978,350
    Investments in related party                                             5,000           5,000
    Origination costs, net                                                 143,427         183,900
                                                                      ------------    ------------
    Total assets                                                      $ 25,438,464    $ 30,956,866
                                                                      ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY

    Liabilities
         Mortgage note holdbacks                                      $    405,637    $    280,923
         Bank loans payable                                              7,466,330      10,474,997
         Warehousing facilities                                          3,933,746       4,842,646
         Warehousing facilities from related party                              --         950,000
         Mortgage payable                                                  962,127         962,127
         Due to related party                                               16,466         343,326
         Accrued interest                                                  146,761              --
         Other liabilities                                                  86,496         169,854
                                                                      ------------    ------------
    Total liabilities                                                   13,017,563      18,023,873

    Commitments and contingent liabilities

    Stockholders' equity
       Preferred stock, $.01 par value;1,600,000 shares authorized;          2,138           2,138
           213,820 shares issued and outstanding at June 30, 2006
           and December 31, 2005
       Additional paid in capital - preferred stock                      5,509,728       5,509,728
    Less treasury stock: 12,659 and 4,139 preferred shares at
           June 30, 2006 and December 31, 2005 at cost                    (186,579)       (101,389)

       Common stock, $.01 par value; 2,000,000 shares authorized;            5,001           5,001
           500,032 shares issued and outstanding at June 30, 2006
           and December 31, 2005
       Additional paid in capital - common stock                         9,370,911       9,370,911
    Less treasury stock: 119,500 and 110,000 common shares at
           June 30, 2006 and December 31, 2005 at cost                  (1,699,771)     (1,630,734)
       Accumulated other comprehensive income                               (9,519)        (25,686)
       Accumulated deficit                                                (571,008)       (196,976)
                                                                      ------------    ------------
    Total stockholders' equity                                          12,420,901      12,932,993
                                                                      ------------    ------------
    Total liabilities and stockholders' equity                        $ 25,438,464    $ 30,956,866
                                                                      ============    ============
</TABLE>

                                       3
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST
                      Consolidated Statements of Operations
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                 Three Months Ended             Six Months Ended
                                                                       June 30                       June 30
                                                                 2006           2005           2006           2005
                                                                 ----           ----           ----           ----
<S>                                                          <C>            <C>            <C>            <C>
REVENUES
       Interest income                                       $   596,403    $   702,898    $ 1,232,677    $ 1,311,172
       Loan origination income                                    58,796        167,882        190,474        348,543
       Service release premium                                       653        123,093         85,797        163,644
       Other income                                                  702         54,246          8,013         71,599
                                                             -----------    -----------    -----------    -----------
           Total revenues                                        656,554      1,048,119      1,516,961      1,894,958

EXPENSES
       Loan servicing fees to related parties                    101,288        151,456        240,790        273,439
       Management fees to related parties                         51,114         98,854        132,470        185,307
       Interest expense on loans                                 267,655        317,907        567,038        528,329
       Interest expense on loans from related parties              8,001           --           38,403           --
       Loan origination costs                                      7,823         47,562         70,754         86,701
       Provision for loan losses                                  12,373         36,109         32,373         54,000
       Wages and salaries                                           --          152,966        152,643        296,008
       Taxes                                                       5,427         11,491         10,402         22,364
       Amortization                                                 --           12,175          5,550         20,416
       General and administrative                                171,667        184,797        328,360        344,892
                                                             -----------    -----------    -----------    -----------
             Total expenses                                      625,348      1,013,317      1,578,783      1,811,456
                                                             -----------    -----------    -----------    -----------

INCOME (LOSS) FROM CONTINUING OPERATIONS                          31,206         34,802        (61,822)        83,502

       Operating expenses of real estate owned                   (27,746)       (12,115)       (72,360)       (23,900)
       Gain (loss) on real estate owned                             --          (62,084)      (239,850)       (82,084)
       Loss from asset held for disposal                            --             (440)          --             --
                                                             -----------    -----------    -----------    -----------
          Total income (loss) from asset held for disposal
          and real estate owmned                                 (27,746)       (74,639)      (312,210)      (105,984)
                                                             -----------    -----------    -----------    -----------

NET INCOME (LOSS)                                            $     3,460    $   (39,837)   $  (374,032)   $   (22,482)
                                                             ===========    ===========    ===========    ===========

PREFERRED DIVIDENDS                                                 --           66,318           --          159,395
                                                             -----------    -----------    -----------    -----------

NET INCOME  (LOSS) AVAILABLE TO COMMON                       $     3,460    $  (106,155)   $  (374,032)   $  (181,877)
                                                             ===========    ===========    ===========    ===========

BASIC EARNINGS PER COMMON SHARE                              $      0.01    $     (0.25)   $     (0.98)   $     (0.42)
                                                             ===========    ===========    ===========    ===========

DILUTED EARNINGS PER COMMON SHARE                            $      0.01    $     (0.25)   $     (0.98)   $     (0.42)
                                                             ===========    ===========    ===========    ===========

DIVIDENDS PAID PER PREFERRED SHARE                           $      --      $      0.31    $      --      $      0.76
                                                             ===========    ===========    ===========    ===========

DIVIDENDS PAID PER COMMON SHARE                              $      --      $      --      $      --      $      0.10
                                                             ===========    ===========    ===========    ===========
</TABLE>

                                       4
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST
                      Consolidated Statements of Cash Flows
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                               Six Months Ended
                                                                                    June 30
                                                                              2006           2005
                                                                              ----           ----
<S>                                                                      <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
      Net income (loss)                                                  $  (374,032)   $   (22,482)
      Adjustments to reconcile net income (loss) to net cash (used in)
        provided by operating activities:
        Provision for loan losses (net)                                      (85,000)        50,000
        Amortization                                                            --           20,416
        Loss on real estate owned                                            239,850         82,084
        (Increase) decrease in accounts receivable                          (104,763)      (485,448)
        (Increase) in other assets                                            81,467        (62,333)
        Change in due to / due from related party                           (324,616)      (231,095)
        Increase (decrease) in other liabilities                              63,403       (205,884)
                                                                         -----------    -----------
          Net cash (used in) provided by operating activities               (503,691)      (854,742)

CASH FLOWS FROM INVESTING ACTIVITIES
      Sale of (investment in) marketable securities                           (3,574)       (18,620)
      (Increase) decrease in origination costs                                40,473         28,353
      (Increase) decrease in warehousing facilities                         (908,900)          --
      (Increase) decrease in warehousing facilities to related party        (950,000)        83,012
      Decrease in real estate owned                                             --          680,000
      Payment of mortgage payable                                               --         (551,922)
      (Loss) from asset held for sale                                           --          (11,860)
      (Increase) decrease in net mortgage notes receivable                 4,938,356     (3,335,122)
                                                                         -----------    -----------
        Net cash (used in) provided by investing activities                3,116,355     (3,126,159)

CASH FLOWS FROM FINANCING ACTIVITIES
      Net proceeds from bank loans                                              --        5,531,018
      Payments of bank loans                                              (3,008,667)          --
      Purchase of treasury stock                                            (154,227)      (390,167)
      Preferred dividends paid                                                  --         (159,395)
      Common dividends paid                                                     --          (43,774)
                                                                         -----------    -----------
        Net cash provided by (used in) by financing activities            (3,162,894)     4,937,682
                                                                         -----------    -----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                        (550,230)       956,781

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                           1,626,247        155,462
                                                                         -----------    -----------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                               $ 1,076,017    $ 1,112,243
                                                                         ===========    ===========

SUPPLEMENTAL CASH FLOW INFORMATION:
      Cash paid for interest                                             $   278,623    $         6
                                                                         ===========    ===========
      Cash paid for taxes                                                $    78,125    $    19,842
                                                                         ===========    ===========
</TABLE>

                                       5
<PAGE>


                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                   Notes to Consolidated Financial Statements
                                   (Unaudited)

1.   Organization
     ------------

     References to the "Company" refer to Capital Alliance Income Trust Ltd., A
     Real Estate Investment Trust (the "Trust"), a Delaware corporation, and
     Capital Alliance Funding Corporation ("CAFC"), collectively. The Trust was
     formed December 12, 1995 as a mortgage investment trust, which invests
     primarily in loans secured by deeds of trust on one-to-four unit
     residential properties as the loan's primary collateral. On April 11, 1997
     the Trust formed a non-qualified REIT subsidiary, CAFC, to conduct a
     mortgage banking business.

     Capital Alliance Advisors, Inc. (the "Manager") originates, services, and
     sells the Company's loans.

2.  Summary of significant accounting policies and nature of operations
    -------------------------------------------------------------------

     These financial statements should be read in conjunction with the financial
     statements and notes thereto for the year ended December 31, 2005 filed
     pursuant to 15d-2 on Form 10-KSB with the Securities and Exchange
     Commission.

     Basis of presentation. The financial information herein is unaudited;
     however, such information reflects all adjustments (consisting of normal,
     recurring adjustments) which are, in the opinion of management, necessary
     for a fair statement of results for the interim period. The results of
     operations for the three and six months ended June 30, 2006, are not
     necessarily indicative of the results to be expected for the full year.
     These financial statements should be read in conjunction with the Company's
     audited financial statements and the notes thereto included in the
     Company's Form 10-KSB filed for the year ending December 31, 2005.

     Income taxes. The Trust intends at all times to qualify as a real estate
     investment trust ("REIT") for federal income tax purposes, under Sections
     856 through 860 of the Internal Revenue Code of 1986, as amended and
     applicable Treasury Regulations. Therefore, the Trust generally will not be
     subject to federal corporate income taxes if the Trust distributes at least
     90% of its taxable income to its stockholders. To qualify as a REIT, the
     Trust must elect to be so treated and must meet on a continuing basis
     certain requirements relating to the Trust's organization, sources of
     income, nature of assets, and distribution of income to stockholders. The
     Trust must maintain certain records and request certain information from
     its stockholders designed to disclose actual ownership of its stock.

     In addition the Trust must satisfy certain gross income requirements
     annually and certain asset tests at the close of each quarter of its
     taxable year. If the Trust fails to qualify for taxation as a REIT in any
     taxable year, and the relief provisions do not apply, the Trust will be
     subject to tax on its taxable income at regular corporate rates.
     Distributions to stockholders in any year in which the Trust fails to
     qualify will not be deductible by the Trust nor will they be required to be
     made. Unless entitled to relief under specific statutory provisions, the
     Trust will also be disqualified from taxation as a REIT for the four
     taxable years following the year during which qualification was lost. Based
     on the Trust's belief that it has operated in a manner so as to allow it to
     be taxed as a REIT since inception, no provision for federal income taxes
     has been made in the financial statements.

     Revenue recognition. Interest income is recorded on the accrual basis of
     accounting in accordance with the terms of the loans. When the payment of
     principal or interest is 90 or more days past due, management reviews the
     likelihood that the loan will be repaid. For these delinquent loans,
     management continues to record interest income and establishes a loan loss
     reserve as necessary to protect against losses in the loan portfolio
     including accrued interest. However, if the mortgage's collateral is
     considered insufficient to satisfy the outstanding balance, after estimated
     foreclosure and selling costs, interest is not accrued. The Trust's loan
     origination income is deferred and recognized over the life of the loan.
     The Trust's loan origination income is recognized at origination. The
     Trust's service release premium is recognized at the time of the mortgage's
     sale into the secondary market.

     Stock options. During the six months ended June 30, 2006 and the twelve
     months ended December 31, 2005 no awards were issued to the Manager or its
     employees. Therefore, there was no disclosure necessary pursuant to FASB
     Statement No. 123 (revised 2004) ("FAS 123(R)"), "Share-Based Payment,"
     which is a revision of FASB Statement No. 123 ("FAS 123"), "Accounting for
     Stock-Based Compensation."

     Reclassifications. Certain 2005 amounts may have been reclassified to
     conform to the 2006 presentation. Such reclassifications had no effect on
     previously reported net income or earnings per share.

                                       6
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                   Notes to Consolidated Financial Statements
                                   (Unaudited)

2.   Summary of significant accounting policies and nature of operations
     -------------------------------------------------------------------
     (continued)
     -----------

     Recent accounting pronouncements. In March 2005, the FASB issued FASB
     Interpretation No.47, "Accounting for Conditional Asset Retirement
     Obligations" ("FIN 47"). FIN 47 clarifies the term conditional asset
     retirement obligations as used in FASB Statement No. 143, "Accounting for
     Asset Retirement Obligations". The Company's adoption of FIN 47 did not
     have a material impact on the consolidated financial statements.

     In May 2005, the FASB issued FASB No.154, "Accounting Changes and Error
     Corrections" ("FAS154"), which replaces APB Opinion No.20, "Accounting
     Changes" and FASB No.3 "Reporting Accounting Changes in Interim Financials
     Statements". This Standard retained accounting guidance related to changes
     in estimates, changes in reporting entity and error corrections. However,
     changes in accounting principles must be accounted for retrospectively by
     modifying the financial statements of prior periods unless it is
     impracticable to do so. FAS 154 is effective for accounting changes made in
     fiscal years beginning after December 15, 2005. The Company does not
     believe adoption of FAS 154 will have a material impact on its financial
     condition or results of operations.

3.   Mortgage notes receivable
     -------------------------

     Reconciliation of the mortgage notes receivable balances follows:

                                             (Unaudited)
                                          Six months ended   Twelve months ended
                                            June 30, 2006     December 31, 2005
                                            -------------     -----------------
     Balance, beginning of period           $ 26,443,616        $ 19,053,474
     Additions during period:
         Originations                         21,401,692          65,213,362
         CAFC adjustment                              --           4,674,462
     Deductions during period:
         Collections of principal                (87,708)        (14,207,241)
         Repayments                           (8,364,272)         (3,302,412)
         Sales                               (17,863,068)        (44,253,688)
         Foreclosures, net of reserve                 --            (734,341)
         Write off of uncollectible loans             --                  --
                                            ------------        ------------
     Balance, end of period                 $ 21,505,260        $ 26,443,616
                                            ============        ============

     Mortgage notes receivable are stated at the principal outstanding. Interest
     on the mortgages is due monthly and principal is usually due as a balloon
     payment at loan maturity.

4.   Allowance for loan losses
     -------------------------

     The allowance for loan losses is based on the fair value of the related
     collateral, since all loans subject to this measurement are collateral
     dependent. Management believes a $305,000 and $390,000 allowance for loan
     losses are adequate to protect against potential losses inherent in all
     receivables as of June 30, 2006 and December 31, 2005, respectively. Actual
     losses may differ from the estimate.

     A reconciliation of the allowance for loan losses follows:

                                         (Unaudited)
                                      Six months ended     Twelve months ended
                                        June 30, 2006       December 31, 2005
                                        -------------       -----------------
     Balance, beginning of period         $ 390,000            $ 175,000
     CAFC adjustment                             --               40,000
     Provision for loan loss                 32,373              469,483
     Write off of uncollectible loans        (5,000)            (294,483)
     Writedown of sellable loans            112,373                   --
                                          ---------            ---------
     Balance, end of period               $ 305,000            $ 390,000
                                          =========            =========


                                       7
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                   Notes to Consolidated Financial Statements
                                   (Unaudited)

5.   Real estate owned
     -----------------

     As of December 31, 2005, the Company owned one property. During the six
     months ended June 30, 2006, the company neither foreclosed on nor sold any
     property. As of June 30, 2006, the Trust had one property.

     A reconciliation of the real estate owned account shows its cash and
     non-cash activities follows:

<TABLE>
<CAPTION>
                                                             (Unaudited)
                                                          Six months ended      Twelve months ended
                                                            June 30, 2006        December 31, 2005
                                                            -------------        -----------------
<S>                                                         <C>                    <C>
     Balance, beginning of period                           $ 1,978,350            $   680,000
     Additions                                                       --                     --
     Foreclosed mortgage notes, net of reserve (non-cash)            --                988,758
     Assumption of senior debt                                       --                962,127
     Repayment of senior debt                                        --               (551,992)
     Accrued interest capitalized (non-cash)                         --                     --
     Gain (loss) on sale or writedown (non-cash)               (239,850)               (54,669)
                                                            -----------            -----------
                                                              1,738,500              2,024,294
     Less: Proceeds from sale of real estate owned
     (net of closing costs )                                    (45,944)
                                                            -----------            -----------
     Balance, end of period                                 $ 1,738,500            $ 1,978,350
                                                            ===========            ===========
</TABLE>

6.   Related party transactions
     --------------------------

     The Manager, which is owned by several directors, contracts with the Trust
     to provide management and advisory services and receives fees for these
     services from the Trust. The Manager is also entitled to reimbursement by
     the Trust for direct expenses and administrative services at cost and for
     clerical and administrative services based on relative utilization of
     facilities and personnel. The Manager is also reimbursed by the Trust for
     direct expenses and administrative services.

     Since the discontinuance of loan originations by CAFC for the Company, the
     Manager will originate portfolio loans for the Company, in the name of
     Capital Alliance Income Trust. The Manager, however, has continued to
     originate sellable loans through CAFC, for the Manager's own benefit until
     the Manager secures licenses, permits and warehouse facilities in its name
     to conduct a mortgage banking operation. The Manager has reimbursed CAFC
     for the direct expenses of utilizing CAFC's warehouse facility. The Manager
     will indemnify the Company from any direct or contingent liabilities that
     may arise from its mortgage banking operations conducted through CAFC. From
     April 1, 2006 through June 30, 2006, the Manager originated $2,733,395 in
     sellable loans through CAFC. The Manager obtained its own credit facility
     in July 2006 and satisfied its obligation on CAFC's warehouse facility.

     The Manager receives a management fee equal to one-twelfth (1/12) of 1%
     annually of the book value of mortgages, mortgage-related investments and
     real property ("Gross Mortgage Assets") of the Trust plus one-twelfth
     (1/12) of one-half percent (1/2%) of the book value of the non-mortgage
     assets of the Trust computed at the end of each month. The management fee
     also includes reimbursement for the direct costs of overseeing the
     administration and disposition of real estate owned by the Company. The
     Trust paid the Manager $51,114 and $98,854 and $132,470 and $185,307 in
     management fees for the three and six month period ended June 30, 2006 and
     2005, respectively. Within the financial statements, the management fees
     are included in the Management fees to related parties.

     The Manager also earns a REO management fee for managing and servicing the
     properties that the Company has obtained through foreclosure of mortgage
     notes held. The fee for these services is $500 per month for each property.
     The Trust paid the Manager $1,500 and $1,000 and $3,000 and $2,500 in REO
     management fees for the three and six month period ended June 30, 2006 and
     2005, respectively. Within the financial statements, REO management fees
     are included in the Management fees to related parties.


                                       8
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                   Notes to Consolidated Financial Statements
                                   (Unaudited)

6.   Related party transactions (continued)
     --------------------------------------

     The Manager earns an administrative fee up to 25 basis points on mortgages
     funded for the benefit of the Trust. The Trust expensed $0 and $32,576 and
     $28,220 and $59,349 for the three and six month period ended June 30, 2006
     and 2005, respectively. These fees are reported as part of the management
     fees.

     The Manager's incentive compensation for each fiscal quarter, equals 25% of
     the net income of the Trust in excess of an annualized return on common
     equity for such quarter equal to the ten year U.S. Treasury Rate plus
     2.00%, provided that the payment of such incentive compensation does not
     reduce the Trust's annualized return on common equity for such quarter to
     less than the ten year U.S. Treasury Rate after the preferred dividend has
     been paid. The incentive compensation for the three and six month period
     ended June 30, 2006 and 2005 was $0 and $0 and $0 and $0, respectively.
     Within the financial statements, incentive compensation awards are included
     in the Management fees to related parties.

     The Manager receives a loan origination and servicing fee equal to
     one-twelfth (1/12) of 2% annually of the Gross Mortgage Assets of the Trust
     computed at the end of each month. During 2005, the Trust capitalized 32.5%
     of this fee as loan origination costs and amortized them over the average
     life of the portfolio. The remaining 67.5% of the fee is expensed as the
     portion attributed for servicing. As of June 30, 2006, the Trust
     capitalized 32.5% of this fee as origination costs and amortized them over
     the average life of the portfolio. The remaining 67.5% of the fee was
     expensed as the portion attributed for servicing. For the three and six
     month period ended June 30, 2006 and 2005, the Trust expensed loan
     origination and servicing fees of $101,288 and $151,456 and $240,790 and
     $273,439, respectively.

     On occasion, the Company and its affiliates had related receivables and
     payables arising from ordinary business transactions. As of June 30, 2006,
     the Company had a payable of $20,342 to the Manager. As of December 31,
     2005, the company had a payable of $6,859 to the Manager and $336,465 to
     Calliance Realty Fund. No interest is charged on these inter-company
     accounts.


7.   Preferred, common and treasury stock
     ------------------------------------

     The Preferred Shareholders are entitled to a dividend preference in an
     amount equal to an annualized return on the adjusted net capital
     contribution of Preferred Shares at each dividend record date during such
     year (or, if the Directors do not set a record date, as of the first day of
     the month). The annualized return is the lesser of: (a) 10.25%, (b) 1.50 %
     over the Prime Rate (determined on a not less than quarterly basis) or (c)
     the rate set by the Board of Directors. The preferred dividend preference
     is non-cumulative. After declaring dividends for a given year to the
     Preferred Shareholders in the amount of the dividend preference, no further
     dividends may be declared on the Preferred Shares for the subject year,
     until the dividends declared on each Common Share for that year equals the
     dividend preference for each Preferred Share for such year. Any additional
     dividends generally will be allocated such that the amounts of dividends
     per share to the Preferred Shareholders and Common Shareholders for the
     subject year are equal. The Preferred Shareholder's additional dividends,
     if any, are non-cumulative.

     Preferred Shareholders are entitled to receive all liquidating
     distributions until they have received an amount equal to their aggregate
     adjusted net capital contribution. Thereafter, Common Shareholders are
     entitled to all liquidation distributions until the aggregate adjusted net
     capital contributions of all Common Shares has been reduced to zero. Any
     subsequent liquidating distributions will be allocated among Common
     Shareholders and Preferred Shareholders pro rata.

     The Preferred Shares are redeemable by a shareholder, subject to the
     consent of the Board of Directors, annually on June 30 ("Redemption Date")
     for written redemption requests received by May 15 of such year. Preferred
     Shares requesting redemption shall cease to be entitled to distribution,
     voting rights and other benefits as of May 30 prior to the Redemption Date.
     However, if the Board of Directors postpones or delays action on Preferred
     Shares redemption

                                       9
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                   Notes to Consolidated Financial Statements
                                   (Unaudited)

7.   Preferred, common and treasury stock (continued)
     ------------------------------------------------

     request beyond June 30, the date for the suspension of such shareholders
     rights and benefits shall be delayed proportionately. The Board of
     Directors may in its sole discretion deny, delay, postpone or consent to
     any or all requests for redemption. The redemption amount to be paid for
     redemption of such Preferred Shares is the adjusted net capital
     contribution plus unpaid declared and accrued dividends, divided by the
     aggregate net capital contributions plus declared and accrued but unpaid
     dividends attributable to all Preferred Shares outstanding, multiplied by
     the net asset value of the Trust attributable to the Preferred Shares which
     shall be that percentage of the Trust's net asset value that the aggregate
     adjusted net capital contributions of all Preferred Shares bears to the
     adjusted net capital contributions of all Shares outstanding.

     The Trust has the power to redeem or prohibit the transfer of a sufficient
     number of Common and/or Preferred Shares or the exercise of warrants and/or
     options and to prohibit the transfer of shares to persons that would result
     in a violation of the Trust's shareholding requirements. The Bylaws provide
     that only with the explicit approval of the Trust's Board of Directors may
     a shareholder own more than 9.8% of the total outstanding shares.


8.   Earnings per share
     ------------------

     The following table represents a reconciliation of the numerators and
     denominators of the basic and diluted earnings per common share for the
     three and six months ended June 30, 2006 and 2005:

<TABLE>
<CAPTION>
                                                      Three months ended        Six months ended
                                                            June 30                   June 30
                                                        2006        2005         2006         2005
                                                        ----        ----         ----         ----
<S>                                                 <C>         <C>          <C>          <C>
     Numerator:
     Net income (loss)                              $   3,460   $ (39,837)   $(374,032)   $ (22,482)

     Preferred dividends                                   --     (66,318)          --     (159,395)
                                                    ---------   ---------    ---------    ---------
     Numerator for basic and diluted earnings per
     share income (loss) available to common        $   3,460   $(106,155)   $(374,032)   $(181,877)
                                                    =========   =========    =========    =========
     Denominator:
         Basic weighted average shares                380,532     419,915      382,374      429,129

         Dilutive effect of options                        --          --           --           --
                                                    ---------   ---------    ---------    ---------
         Diluted weighted average shares              380,532     419,915      382,374      429,129
                                                    =========   =========    =========    =========
     Basic earnings per common share                $    0.01   $   (0.25)   $   (0.98)   $   (0.42)
                                                    =========   =========    =========    =========
     Diluted earnings per common share              $    0.01   $   (0.25)   $   (0.98)   $   (0.42)
                                                    =========   =========    =========    =========
</TABLE>

9.   Subsequent event
     ----------------

     On July 11, 2006 the Trust sold real estate owned (see note 5) with a
     carrying cost of $1,738,500 for a profit of approximately $105,000 to
     $115,000. The transaction's gain will be reported in the Company's
     financial statements for the period ending September 30, 2006.

                                       10
<PAGE>
                                     PART I
                                     ITEM 2.

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OR
                                PLAN OF OPERATION

Certain statements contained herein are not based on historical information and
certain statements contained in future filings by the Trust with the SEC, in the
Trust's press releases or in the Trust's public and stockholder communications
may not be based on historical facts and are "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements may be identified by reference to a future period or
periods, or by the use of forward-looking terms such as "may", "will", "expect",
"anticipate", or similar terms. Actual results could materially differ from
those in the forward-looking statements due to a variety of factors.

Preparation of the Company's consolidated financial statements is based upon the
operating results of the Trust and CAFC. Management's discussion and analysis of
the results of operations for the six months ended June 30, 2006 and 2005
follows:

OVERVIEW

In May of 1997, the Trust registered its common shares with the Securities and
Exchange Commission under the Securities Act of 1933. On September 30, 1998, the
initial public offering of Common Shares was completed. Since October 1, 1998,
the common shares have been listed on the American Stock Exchange with the
exchange symbol of "CAA".

Prior to year end 2004, Management identified CAFC as an asset held for sale
within the meaning of Financial Accounting Standard No.144 ("FAS 144"). On
November 11, 2004, CAFC's common shareholder notified the Trust of its intention
to retire 100% of CAFC's preferred stock. Subsequently, the offer to purchase
CAFC's preferred shares was withdrawn and CAFC's common shares were acquired by
the Trust on December 30, 2005. During the first quarter of 2006, the Trust
announced its intent to cease mortgage loan originations by CAFC, to monetize
CAFC's loan inventory, and to eliminate all employee expenses. Any loans not
sold will into the secondary mortgage market will be transferred to the Trust or
sold to an affiliated company at their estimated fair market value.

Management believes that discontinuing CAFC's operations will provide numerous
benefits. These benefits include: restoring the Trust to its original intent as
an investor in non-conforming mortgages; reducing a source of volatility in the
Trust's reported net income; reducing the cost of annual audits and quarterly
reviews; reducing the costs of Sarbanes Oxley compliance; reducing the number of
related party transactions; simplifying the process of cost allocation; and
accelerating the compilation and reporting of operating results. The costs of
disposing of the Trust's investment in CAFC include: the loss of CAFC's
potential profitability; less control over the mortgage investment supply chain;
and potential restrictions on the Trust's access to CAFC's funding agreement.

The 2006 second quarter revenues and expenses were significantly reduced by
discontinuing CAFC's operations. Revenues from loan originations and the service
release premiums from loan sales declined $109,086 and $122,440, respectively
from 2005's second quarter. Expenses for wages and salaries were eliminated,
providing a $152,966 cost reduction, and loan origination costs declined $39,739
from 2005's second quarter. The Company believes that these revenue and expense
item changes are permanent and indicative of future operating results without
the resumption of CAFC's activities or a change in the Company's management and
advisory agreements. As of June 30, 2006 CAFC's seven sellable loans had an
outstanding principal balance of $2,552,510 and a carrying value of $2,527,510.

The recent interest rate environment has reduced the profitability of CAIT. The
rise in short term rates has continued to increase the cost of carrying a
mortgage portfolio. Additionally, the non-conforming residential mortgage market
has continued to attract better financed competitors willing to offer higher LTV
(loan-to-value) loans or more competitive pricing. These developments have
exerted downward pressure on CAIT's investment yield and investment spread.
Management is addressing this deterioration in yield and spread by emphasizing
our ability to promptly fund transactions in order to deflect price competition,
by continuing to seek more competitive portfolio financing and exploring
alternative investment opportunities available to real estate investment trusts.

                                       11
<PAGE>
The Company's preliminary 14A ("Proxy") filing with the Securities and Exchange
Commission provides shareholders with a referendum on the Company's future.
Shareholders can vote their proxy to provide the Board of Directors their
preference(s) on three proposals. The Company's proposals address: (a)
Liquidation; (b) Self-management; and (c) Affirmation of the existing outside
management agreement. The Board of Directors neither recommends nor opposes
these proposals.

CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of the Company are in accordance with
accounting principles generally accepted in the United States of America. The
Company's significant accounting policies are described in the notes to the
consolidated financial statements. Certain accounting policies require
management to make significant estimates and assumptions, which have a material
impact on the carrying value of certain assets and liabilities, and the Company
considers these to be critical accounting policies. The estimates and
assumptions used are based on historical experience and other factors, which
management believes to be reasonable under the circumstances. Actual results
could differ significantly from these estimates and assumptions, which could
have a material impact on the carrying value of assets and liabilities at the
balance sheet dates and results of operations for the reporting periods.

The following are critical accounting policies that require the most significant
estimates and assumptions that are particularly susceptible to a significant
change in the preparation of the financial statements and are not presented in
their relative order of importance.

Revenue recognition. Interest income accrues as it is earned. Loans may be
placed on a nonaccrual status when any portion of the principal or interest is
three scheduled payments past due or earlier when concern exists as to the
ultimate collectibility of principal or interest. Nonaccrual status loans are
returned to an accrual status when principal and interest become current and are
anticipated to be fully collectible.

Allowance for loan losses. A provision for loan losses in based on management's
evaluation of an amount that is adequate to absorb losses inherent in the
existing loan portfolio. The evaluation, which includes a review of all loans on
which full collection may not be reasonably assumed, considers among other
matters, general economic conditions, the fair market value or the estimated net
realizable value of the underlying collateral, past loan loss experience, trends
in loan delinquency and other factors that warrant recognition in providing for
an adequate loan loss allowance.

Real estate owned. Real estate owned represents property acquired in foreclosure
of mortgage notes receivable. The real estate is carried at the lower of the
value of the mortgage note receivable less selling costs on the real estate or
fair market value. Certain estimates and assumptions are required in determining
the cost to sell or in estimating the fair market value of the real estate.

Stock option. The Trust has issued stock options to certain employees of the
Manager and to its Directors. The stock options issued are accounted for using
the intrinsic-value method. Because the options were issued with exercise prices
no less than the market price of the Trust's common stock on the dates of grant
and because other key terms are fixed, use of the intrinsic-value method results
in the Trust not recognizing compensation expense for these options. If the
terms of these options were changed, variable accounting might need to be used,
and the Trust might then need to begin recognizing compensation expense for the
options.

Assets held for disposal. CAFC is identified as an asset held for disposal.
Disposal of CAFC's non-portfolio assets is expected during the third quarter of
2006. CAFC's non-portfolio assets, primarily mortgage notes receivable, are to
be sold or transferred to the Trust. CAFC's loan sales are expected to occur at
or near their carrying cost.

Operating Strategy.
-------------------

As a portfolio lender the company will primarily invest in California
non-conforming mortgage loans on one-to-four unit residential properties
primarily secured by first and second deeds of trust. Management believes that
this segment of the mortgage market is inadequately served and that there is a
large demand for non-conforming mortgage loans with a complete spectrum of
credit grades. Portfolio loan underwriting guidelines limit the maximum
potential loan-to-value ("LTV") to 75%. The 75% restriction includes the effect
of any potential negative amortization.

CAFC's operations were discontinued in the first quarter of 2006. Disposal of
CAFC's non-portfolio assets is expected in the third quarter of 2006.

                                       12
<PAGE>
Loan Origination and Loan Servicing. Since the discontinuance of loan
originations by CAFC for the Company, the Manager will originate portfolio loans
for the Company, in the name of Capital Alliance Income Trust. The Manager,
however, has continued to originate sellable loans through CAFC, for the
Manager's own benefit until the Manager secures licenses, permits and warehouse
facilities in its name to conduct a mortgage banking operation. The Manager has
reimbursed CAFC for the direct expenses of utilizing CAFC's warehouse facility.
The Manager will indemnify the Company from any direct or contingent liabilities
that may arise from its mortgage banking operations conducted through CAFC. From
April 1, 2006 through June 30, 2006, the Manager originated $2,733,395 in
sellable loans through CAFC. The Manager obtained its own credit facility in
July 2006 and satisfied its obligation on CAFC's warehouse facility.

Mortgage loan servicing consists of collecting payments from borrowers, making
required advances, accounting for principal and interest payments, holding
borrowed proceeds in escrow until fulfillment of mortgage loan requirements,
contacting delinquent borrowers, supervising foreclosures and property
dispositions in the event of unremedied defaults and performing other
administrative duties. The Company does not acquire or maintain a loan's
servicing rights, unless the mortgage loan is owned by the Company. All or a
portion of the aforementioned servicing responsibilities may be subcontracted by
the Manager.

Commitments and Contingencies. As of June 30, 2006, the Company's loan portfolio
included 51 loans totaling $21,505,260 of which 7 loans totaling $3,003,278
representing 14% of the loan portfolio were delinquent over two payments. In
assessing the collectibility of these delinquent mortgage loans, management has
established a loan loss reserve of $305,000, if it is necessary to foreclose
upon the mortgage loans.

As of June 30, 2005, the Company's loan portfolio included 84 loans totaling
$27,990,786 of which 11 loans totaling $3,827,569 representing 13% of the loan
portfolio were delinquent over two payments. In assessing the collectibility of
these delinquent mortgage loans, management has established a loan loss reserve
of $269,000, if it is necessary to foreclose upon the mortgage loans.

In assessing the delinquent mortgage loans, management estimates a net gain will
be recognized, if it is necessary to foreclose on the delinquent mortgage loans.
Estimates are based on an anticipated sales price of the foreclosed property
that includes a discount from the latest appraised value of the property, less
the sum of pre-existing liens, costs of disposition, the face amount of the
mortgage loan and accrued interest receivable.

 The Trust generally issues loan commitments only on a conditional basis and
generally funds such loans promptly upon removal of any conditions. Accordingly,
the Trust did not have any commitments to fund loans as of June 30, 2006
(exclusive of any loan commitments of the Manager made by CAFC) and June 30,
2005.

On December 14, 2005 the Trust unconditionally guaranteed CAFC's sale of
mortgage loans to Lehman Brothers Bank. During the second quarter of 2006, two
loans with a combined note amount balance of $1,204,000 and during the first
quarter of 2006, two loans with a combined note amount balance of $2,500,000
were sold to Lehman Bothers Bank pursuant to this guarantee. During 2005, no
loans were sold to Lehman Brothers Bank pursuant to this guarantee.

As of June 30, 2006, the following table summarizes the Company's outstanding
repayment obligations:

<TABLE>
<CAPTION>
   Maximum Other                                        Amount of Commitment Expiration Per Period
    Commercial                     Total       ---------------------------------------------------------------
   Commitments (a)                Amounts        Less than          1 - 3           4 - 5           After 5
 as of June 30, 2006             Committed        1 year            years           years            years
---------------------------    -------------   ------------   ---------------   --------------   -------------
<S>                             <C>                  <C>         <C>                  <C>              <C>
Lines of Credit (b)             $11,362,746          0           $11,362,746          0                0

Standby Repurchase                 (c)               0                0               0                0
Obligations

Total Commercial
Commitments                     $11,362,746          0           $11,362,746          0                0
</TABLE>


                                       13
<PAGE>
(a)  Commercial commitments are funding commitments that could potentially
     require registrant performance in the event of demands by third parties or
     contingent events, such as under lines of credit extended or under
     guarantees of debt.

(b)  The Mortgage Investment Business outstanding obligations as of June 30,
     2006 due in 1-3 years were $11,362,746

(c)  The Mortgage Conduit Business has an unquantified ongoing liability with
     respect to normal warranties and representations which includes fraud in
     the origination process or early default on loans sold into the secondary
     mortgage market.

RESULTS OF OPERATIONS

The historical information presented herein is not necessarily indicative of
future operations.

Three and six months ended June 30, 2006 and 2005. Revenues for the second
quarter decreased to $656,554 as compared to $1,048,119 for the same period in
the prior year. The decrease in revenue during the second three months of 2006
was due to decreases in service release premium of $122,440, loan origination
income of $109,086 and interest income of $106,495.

Expenses for the second quarter decreased to $625,348 as compared to $1,013,317
for the same period in the prior year. The decrease in expenses during the
second three months of 2006 was primarily due to decreases in wages and salaries
of $152,966, interest expenses of $50,252, loan origination costs of $50,168 and
management fees of $47,740.

Revenues for the six months ended June 30 2006 decreased to $1,516,961 as
compared to $1,894,958 for the same period in the prior year. The decrease in
revenue during the first six months of 2006 was due to decreases in loan
origination income of $158,069, service release premium of $77,847 and interest
income of $78,495

Expenses for the six months ended June 30, 2006 decreased to $1,578,783 as
compared to $1,811,456 for the same period in the prior year. The decrease in
expenses during the first six months of 2006 was primarily due to decreases in
wages and salaries of 143,365, loan origination costs of $32,649 and management
fees of $52,837.

LIQUIDITY AND CAPITAL RESOURCES

The Company has access to a $25,000,000 funding facility. The funding facility
matures on June 30, 2007. The Trust has a $7,000,000 term facility scheduled to
mature November 14, 2007. The term facility has a one year extension option.
Management believes that the cash flow from operations, the payment of mortgage
notes receivable, existing financing facilities, additional lines of credit or
increased lines of credit anticipated to be acquired during 2006, and if
necessary, the limited sale of investment mortgages will be sufficient to meet
the liquidity needs of the Company for the next twelve months.

Six months ended June 30, 2006 and 2005. As of January 1, 2006 and 2005, the
Trust had $1,626,247and $155,462 of cash and cash equivalents, respectively.
During the six month period ended June 30, 2006, cash and cash equivalents
decreased by $550,230. During the six month period ended June 30, 2005, cash and
cash equivalents increased by $956,781, respectively. After taking into effect
the various transactions discussed below, cash and cash equivalents at June 30,
2006 and 2005 were $1,076,017 and $1,112,243.

The following summarizes the changes in net cash provided by operating
activities, net cash used for investing activities, and net cash provided by
financing activities.

Net cash used in operating activities during the six months ended June 30, 2006
and 2005 was $503,691 and $854,742, respectively. During the first six months of
2006, net income used $374,032, an increase in accounts receivable used
$104,763, and related party transactions used $324,616. During the first six
months of 2005, net income used $22,482, an increase in accounts receivable used
$485,448, and related party transactions used $231,095.

Net cash provided by and used in investing activities for the six months ended
June 30, 2006 and 2005 was $3,116,355 and $3,126,159, respectively. During the
first six months of 2006, a net decrease in mortgage notes receivable provided
$4,938,356. During the first six months of 2005, a net increase in mortgage
notes receivable used $3,335,122.

                                       14
<PAGE>
Net cash used in and provided by financing activities during the six months
ended June 30, 2006 and 2005 was $3,162,894 and $4,937,682, respectively. During
the first six months of 2006, net payments of bank loans used cash of $3,008,667
while treasury stock purchases reduced cash by $154,227. During the first six
months of 2005, borrowings provided cash of $5,531,018 while dividends reduced
cash by $203,169 and treasury stock purchases reduced cash by $390,167.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market risk. Market risk is the exposure to loss resulting from changes in
interest rates, credit spreads, foreign exchange rates, commodity prices, and
equity prices. The primary market risks to which the Company is exposed are
interest rate risk and credit risk.

Interest risk. Interest rate risk is highly sensitive to many factors, including
governmental, monetary and tax policies, domestic and international economic and
political considerations and other factors beyond the control of the Company.
Changes in the general level of the U.S. Treasury yield curve can have
significant effects on the market value of the Company's portfolio. The majority
of the Company's assets are fixed-rate loans with a spread to U.S. Treasuries.
The Trust's loans are valued on the June 30, 2006 and December 31, 2005 balance
sheet at the lower of cost or market.

 As U.S. Treasury securities are priced to a lower yield and/or the spread to
U.S. Treasuries used to price the Company's assets are decreased, the market
value of the Company's portfolio may increase. Conversely, as U.S. Treasury
securities are priced to a higher yield and/or the spread to U.S. Treasuries
used to price the Company's assets is increased, the market value of the
Company's portfolio may decline. Changes in the level of the U.S. Treasury yield
curve can also affect, among other things, the prepayment assumptions used to
value certain of the Trust's loans. In addition, changes in the general level of
the United States Prime Rate or one month LIBOR can affect the Trust's net
interest income. The Company's borrowings are floating rate based on a spread
over the daily Prime Rate or one month LIBOR. As these rates increases or
decreases, the Company's interest expense will move in the same direction.

On account of the relatively short adjusted weighted average maturity of the
Company's portfolio loans (26 months), a variety of financial instruments
available to limit the effects of interest rate fluctuations on its operations
have not been utilized. The use of these types of derivatives (such as interest
rate swaps, caps, floors and other interest rate exchange contracts) to hedge
interest-earnings assets and/or interest-bearing liabilities carry risks,
including the risk that the net losses on a hedge position may exceed the amount
invested in such instruments. As the level of variable rate mortgage financing
of the portfolio increases or the weighted average maturity of the portfolio
increases, the Trust may utilize a variety of financial instruments to limit the
effects of interest rate fluctuations.

Credit risk. Credit risk is the exposure to loss from loan defaults and
foreclosures. Default and foreclosure rates are subject to a wide variety of
factors, including, but not limited to, property values, supply/demand factors,
construction trends, consumer behavior, regional economics, interest rates, the
strength of the American economy and other factors beyond the control of the
Company.

All loans are subject to a certain probability of default and foreclosure. An
increase in default rates will reduce the book value of the Company's assets and
the Company's earnings and cash flow available to fund operations and pay
dividends.

The Company manages credit risk through the underwriting process, limiting loans
at the time of funding to 75% of the collateral's appraised value, establishing
loss assumptions and carefully monitoring loan performance. Nevertheless, the
Company assumes that a certain portion of its loans will default and adjusts the
allowance for loan losses based on that assumption.

Asset and liability management. Asset and liability management is concerned with
the timing and magnitude of the maturity of assets and liabilities. In general,
management's strategy is to approximately match the term of the Trust's
liabilities to the portfolio's adjusted weighted average maturity (26 months).

The decreasing percentage of the Company's assets pay a fixed coupon and the
income from such assets are relatively unaffected by interest rate changes. An
increasing percentage of the Company's assets pay a variable interest rate and
the income from such assets tends to increase with higher interest rates and
decrease with lower interest rates.

                                       15
<PAGE>
The Company's borrowings are currently under a variable rate line of credit that
resets monthly. Given this relationship between assets and liabilities, the
Company's interest rate sensitivity gap is highly negative. This implies that a
period of falling short term interest rates will tend to increase the Company's
net interest income, while a period of rising short term rates will tend to
reduce the Trust's net interest income.

CAFC's remaining assets are a fluctuating mix of fixed and variable rate
mortgages. At origination, the disposition of these loans is identified and
their secondary market sales pricing is usually predetermined. Given this
relationship, CAFC's interest rate sensitivity is neutral if the anticipated
secondary market purchase occurs.


                                     PART I
                                     ITEM 3.

                             CONTROLS AND PROCEDURES

(A) Evaluation of Disclosure Controls and Procedures. The Chief Executive
Officer and the Chief Financial Officer of the Trust have, based on their
evaluation of the Company's disclosure controls and procedures within 90 days of
the filing date of this report, evaluated the effectiveness of such controls and
procedures. Based on such evaluations, they have concluded that the Trust's
disclosure controls and procedures have effectively operated to ensure that all
material information relating to the Company and its operations and financial
condition has been made known to them by other officers and employees within the
Company and its Manager on a timely basis.

(B) Changes in Internal Controls. There have been no significant changes in the
Company's internal controls or in other factors that could significantly affect
those controls subsequent to the date of their evaluation. Accordingly, no
corrective actions with regard to such controls or procedures have been
required.




                           (Intentionally Left Blank)







                                       16
<PAGE>
                                     PART II
                                OTHER INFORMATION

ITEM 1     LEGAL PROCEEDINGS

CAFC was named as defendant in a case filed in the Superior Court, Alameda
County, State of California on December 7, 2004. Plaintiff alleged that CAFC
made a fraudulent loan to him by cross collateralizing two separate properties.
The cross collateralization was necessary to grant the borrower the desired
loan, since there was insufficient equity in the primary property used as
collateral for the loan. Two complaints have been filed and dismissed by the
court. The Plaintiff has represented himself. After CAFC was allowed by the
court to foreclose on the primary collateral and the borrowing was paid in full,
Plaintiff, upon the Court's insistence, obtained counsel and has filed an
amended complaint, which is pending.

ITEM 2     CHANGES IN SECURITIES

       No shares were purchased for treasury stock during the three month period
       ended June 30, 2006.

ITEM 3     DEFAULTS UPON SENIOR SECURITIES

       None.

ITEM 4     SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

       None

ITEM 5     OTHER INFORMATION

       None.

ITEM 6     EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits
      --------

      Exhibit No.
      3.1      Charter Certificate of Incorporation and Amendment No. 1(1)
      3.2      Bylaws of the Registrant(1)
      3.3      Certificate of Amendment of Certificate of Incorporation(5)
      4.1      Form of Stock Certificate of Common Shares of the Registrant(2)
      10.1     Form of Management Agreement between the Registrant and Capital
               Alliance Advisors, Inc.(1)
      10.2     Form of Indemnity Agreement between the Registrant and its
               Directors and Officers(1)
      10.3     Form of Loan Origination and Loan Servicing Agreement between the
               Registrant and Capital Alliance Advisors, Inc.(1)
      23.4     Consent of Landels Ripley & Diamond, LLP(4)
      23.6     Consent of Novogradac & Company LLP(4)
      24.1     Power of Attorney of Thomas B. Swartz(1)
      24.2     Power of Attorney of Dennis R. Konczal(1)
      24.4     Power of Attorney of Stanley C. Brooks(1)
      24.5     Power of Attorney of Harvey Blomberg(1)
      24.7     Power of Attorney of Richard J. Wrensen(6)


(1)   These exhibits were previously contained in Registrant's Registration
      Statement filed on Form S-11 with the Commission on September 9, 1996, and
      are incorporated by reference herein.

(2)   These exhibits were previously contained in Amendment No. 1 to the
      Registrant's Registration Statement filed on Form S-11 with the Commission
      on January 15, 1997, and are incorporated by reference herein.

                                       17
<PAGE>
(3)   This exhibit was previously contained in Amendment No. 2 to the
      Registrant's Registration Statement filed on Form S-11 with the Commission
      on February 6, 1997 and is incorporated by reference herein.

(4)   These exhibits were previously contained in Post-Effective Amendment No. 3
      to the Registrant's Registration Statement filed on Form S-11 with the
      Commission on December 10, 1997, and are incorporated by reference herein.

(5)   These exhibits were previously contained in Form 10-Q for the period
      ending June 30, 1997 filed with the Commission on August 14, 1997, and are
      incorporated by reference herein.

(6)   This exhibit was previously contained in Form 10-K for the period ending
      December 31, 1998 filed with the Commission on April 10, 1999, and is
      incorporated by reference herein.


(b)  Reports on Form 8-K.
     --------------------

     Form 8-K was filed on:

     o    April 18, 2006 due to the announcement of earnings for fourth quarter
          and year ended December 31, 2005.
     o    April 27, 2006 due to the notice of non-compliance with the American
          Stock Exchange listing requirement.
     o    June 15, 2006 due to the notice of non-compliance with the American
          Stock Exchange listing requirement.
     o    June 19, 2006 due to the announcement of compliance with the American
          Stock Exchange listing requirement.
     o    June 20, 2006 due to the announcement of earnings for the first
          quarter of 2006.
     o    June 27, 2006 due to the announcement of an independent director's
          resignation from the Board of Directors.
     o    July 14, 2006 due to the notice of non-compliance from the American
          Stock Exchange regarding the number of independent directors on CAIT's
          Board.

                                       18
<PAGE>
                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.


                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A Real Estate Investment Trust


Dated: August 21, 2006

                        /s/ Thomas B. Swartz
                        --------------------
                            Thomas B. Swartz
                            Chairman and Chief Executive Officer

                       /s/ Richard J. Wrensen
                       ----------------------
                           Richard J. Wrensen
                           Chief Financial Officer and Executive Vice President







                                       19
<PAGE>
                                  CERTIFICATION


    CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Capital Alliance Income Trust Ltd.
(the "Company") on Form 10-QSB for the period ending June 30, 2006 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Thomas B. Swartz, Chief Executive Officer of the Company, and I, Richard J.
Wrensen, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002,
that:

          (1)  The Report fully compiles with the requirements of section 13(a)
               or 15(d) of the Securities Exchange Act of 1934; and

          (2)  The information contained in the Report fairly presents, in all
               material respects, the financial condition and result of
               operations of the Company.



Date: August 21, 2006

                        /s/ Thomas B. Swartz
                        --------------------
                            Thomas B. Swartz
                            Chairman and Chief Executive Officer

                        /s/ Richard J. Wrensen
                        ----------------------
                            Richard J. Wrensen
                            Chief Financial Officer and Executive Vice President



                                       20
<PAGE>
                                  CERTIFICATION
               OF FORM 10Q OF CAPITAL ALLIANCE INCOME TRUST LTD.,
                     A REAL ESTATE INVESTMENT TRUST FOR THE
                           PERIOD ENDING JUNE 30, 2006

Under Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934

The undersigned each individually certifies that:

1.   I have reviewed this Form 10-QSB, dated August 21, 2006 of Capital Alliance
     Income Trust, Ltd., A Real Estate Investment Trust:

2.   Based on my knowledge, this quarterly report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flow of the registrant as of, and for, the periods presented in this
     quarterly report;

4.   The registrant's other certifying officers are responsible for establishing
     and maintaining disclosure controls and procedures (as defined in Exchange
     Act Rules 13a-14 and 15d-14) for the registrant and we have:

     o    designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, is made known to us
          by others within those entities, particularly during the period in
          which this report in being prepared;
     o    evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date); and
     o    presented in this report our conclusions about the effectiveness of
          the disclosure controls and procedures based on our evaluation as of
          the Evaluation Date;

5.   The registrant's other certifying officers have disclosed, based on our
     most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors:

     o    all significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weaknesses in
          internal controls; and
     o    any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          controls; and

6.   The registrant's other certifying officers have indicated in this quarterly
     report, whether there were significant changes in internal controls or in
     other factors that could significantly affect internal controls subsequent
     to the date of our most recent evaluation, including any corrective actions
     with regard to significant deficiencies and material weaknesses.

Date: August 21, 2006

                      /s/ Thomas B. Swartz
                      --------------------
                          Thomas B. Swartz
                          Chairman and Chief Executive Officer

                      /s/  Richard J. Wrensen
                      -----------------------
                           Richard J. Wrensen
                           Chief Financial Officer and Executive Vice President


                                       21