<PAGE>

                     U.S. 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 March 31, 2006

[   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         For the transition period from ___________ to _____________

                        Commission file number: 001-16253

                       COMPUTERIZED THERMAL IMAGING, INC.
              -----------------------------------------------------
             (Exact name of Registrant as specified in its charter)

                 NEVADA                                 87-0458721
         -------------------------              -------------------------
       (State or other jurisdiction                   (IRS Employer
      of incorporation or organization)              Identification No.)

           1719 West 2800 South
               Ogden, Utah                                84401
         -------------------------              -------------------------
  (Address of principal executive offices)              (Zip Code)

                                 (801) 776-4700
                            ------------------------
              (Registrant's telephone number, including area code)

         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the 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[ ]

         State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: Common stock, par value
$0.001, of which 114,561,698 shares were issued and outstanding as of April 30,
2006.

   Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]


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                              COMPUTERIZED THERMAL IMAGING, INC.

                                          FORM 10-QSB

                                       QUARTERLY REPORT

                                       TABLE OF CONTENTS


                                PART I - FINANCIAL INFORMATION
<S>     <C>                                                                                 <C>


Item 1. Financial Statements............................................................... 3

        Condensed Consolidated Balance Sheets as of March 31, 2006 and
        June 30, 2005 ......................................................................3

        Condensed Consolidated Statements of Operations for the three and
        nine-months ended March 31, 2006 and 2005...........................................4

        Condensed Consolidated Statements of Cash Flows for the nine-months
        ended March 31, 2006 and 2005.......................................................5

        Notes to Condensed Consolidated Financial
        Statements..........................................................................6

Item 2. Management's Discussion and Analysis or Plan of Operation..........................11

Item 3. Controls and Procedures............................................................19

                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings..................................................................19

Item 2. Exhibits...........................................................................20

SIGNATURES.................................................................................21


                                               2


<PAGE>


PART I - FINANCIAL INFORMATION
ITEM 1.  UNAUDITED FINANCIAL STATEMENTS


                       COMPUTERIZED THERMAL IMAGING, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS

                                                                   MARCH 31,       JUNE 30,
                                                                     2006            2005
                                                                 ------------    ------------
ASSETS                                                            (unaudited)

CURRENT ASSETS:
 Cash and cash equivalents                                       $     23,288    $     51,728
 Inventories                                                           58,022          87,276
 Prepaid expenses                                                      33,809          33,809
                                                                 ------------    ------------
     Total Current Assets                                             115,119         172,813
                                                                 ------------    ------------
 Property, Equipment & Software                                     1,004,560       1,006,504
 Accumulated Depreciation                                            (999,310)       (998,979)
                                                                 ------------    ------------
 NET PROPERTY PLANT & EQUIPMENT (Net)                                   5,250           7,525
                                                                 ------------    ------------
INTANGIBLE ASSETS:
  Intellectual Property Rights, less accumulated
   amortization of $22,109 and $20,107 respectfully                    10,738          12,740
                                                                 ------------    ------------
TOTAL ASSETS                                                     $    131,107    $    193,078
                                                                 ============    ============
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
 Accounts Payable                                                $    243,559    $    558,045
 Accrued Employee Costs                                               281,467         229,498
 Other Accrued Liabilities                                            304,000         325,764
 Short-term Note Payable with Interest                                699,677         333,891
 Deferred Revenue                                                       1,239         669,991
                                                                 ------------    ------------
     Total Current Liabilities                                      1,529,942       2,117,189
                                                                 ------------    ------------
LONG-TERM NOTE PAYABLE                                                117,936         114,181
                                                                 ------------    ------------
TOTAL LIABILITIES                                                   1,647,878       2,231,370
                                                                 ------------    ------------
STOCKHOLDERS' EQUITY (DEFICIT)
 Convertible Preferred Stock, no par value, 3,000,000
  shares authorized; none issued                                           --              --
 Common Stock, $.001 par value, 200,000,000 shares authorized,
  114,561,698 and 114,561,698 issued and outstanding on
 March 31, 2006 and June 30, 2005, respectively                       114,561         114,561
 Additional Paid-in Capital                                        95,462,475      95,462,475
 Deficit Accumulated                                              (97,093,807)    (97,615,328)
                                                                 ------------    ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                               (1,516,771)     (2,038,292)
                                                                 ------------    ------------
TOTAL LIABILITIES & STOCKHOLDERS'  EQUITY (DEFICIT)              $    131,107    $    193,078
                                                                 ============    ============


                     The accompanying notes are an integral part of these
                         condensed consolidated financial statements


                                               3


<PAGE>

                                         COMPUTERIZED THERMAL IMAGING, INC.
                                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                     (Unaudited)

                                                               FOR THE                          FOR THE
                                                          THREE MONTHS ENDED              NINE MONTHS ENDED
                                                               MARCH 31,                       MARCH 31,
                                                   ------------------------------    ------------------------------
                                                        2006             2005             2006            2005
                                                   -------------    -------------    -------------    -------------

REVENUE
PS                                                         5,813           47,425           38,290          168,513
TIP                                                        2,488               --           20,502               --
Turbine                                                       --               --               --               --
Other Services - Nanda                                   660,495           28,325          660,495           39,802
Freight                                                      270               --            1,023               --
                                                   -------------    -------------    -------------    -------------
NET REVENUE                                              669,066           75,750          720,310          208,315
                                                   -------------    -------------    -------------    -------------
COST OF SALES
  Materials                                                1,507           23,211           10,043           39,933
  Impairments                                                 --               --           24,480               --
  Freight                                                  1,753               --           10,735            5,801
                                                   -------------    -------------    -------------    -------------
TOTAL COST OF SALES                                        3,260           23,211           45,258           45,734
                                                   -------------    -------------    -------------    -------------
GROSS MARGIN (DEFICIT)                                   665,806           52,539          675,052          162,581
                                                   -------------    -------------    -------------    -------------
OPERATING EXPENSES
  General & Administration                               161,906           23,450          478,864          277,625
  Depreciation & Amortization                              2,413           10,584            4,277           27,683
  Litigation Settlement                                       --               --            1,000               --
  Marketing                                                   --           (1,685)              --           23,755
  R & D                                                       --           17,118               --          108,024
                                                   -------------    -------------    -------------    -------------
TOTAL OPERATING EXPENSES                                 164,319           49,467          484,141          437,087
                                                   -------------    -------------    -------------    -------------
OPERATING INCOME  (LOSS)                                 501,487           3,072           190,911        (274,506)
                                                   -------------    -------------    -------------    -------------
OTHER INCOME / EXPENSE
  Interest Income                                            308                4            2,468               65
  Interest Expense                                       (10,820)          (4,535)        (30,734)         (13,756)
  Other                                                        1                7             (69)               51
  Gain from Extinguishment of Debt                       358,945               --          358,945               --
TOTAL OTHER INCOME / EXPENSE                             348,434           (4,524)         330,610         (13,640)
                                                   -------------    -------------    -------------    -------------
NET INCOME  (LOSS)                                 $     849,921    $      (1,452)         521,521    $   (288,416)
                                                   =============    =============    =============    =============
WEIGHTED AVERAGE SHARES OUTSTANDING                  114,561,698      114,561,698      114,561,698      114,561,698
                                                   =============    =============    =============    =============
BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE   $        0.01    $      (0.00)    $        0.00    $      (0.00)
                                                   =============    =============    =============    =============


               The accompanying notes are an integral part of these consolidated financial statements.


                                                          4


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                              COMPUTERIZED THERMAL IMAGING, INC.
                        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                          (Unaudited)

                                                                               For the
                                                                          Nine Months Ended
                                                                               March 31,
                                                                       -----------------------
                                                                         2006          2005
                                                                       ---------    ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Income (Loss)                                                    $ 521,521    $(288,146)
  Depreciation and Amortization                                            4,277       27,683
  Gain on Extinguishment of Debt                                        (358,945)          --
  Interest Expense on Convertible Debenture                                   --       26,447
  Changes in Operating Assets and Liabilities:                                --        1,391
    Accounts Receivable - Trade                                               --       26,447
    Accounts Receivable - Other                                               --        1,391
    Inventories                                                           29,254       40,295
    Prepaid Expenses                                                          --       47,665
    Accounts Payable                                                     177,860       37,038
    Accrued Liabilities                                                  (58,655)     (25,337)
    Deferred Revenues                                                   (668,752)     (29,608)
                                                                       ---------    ---------
           Net Cash Used in Operating Activities                        (353,440)    (162,572)
                                                                       ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
           Net Cash Provided by (Used in) Investing Activities               --           --
                                                                       ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from Loan                                                     325,000           --
                                                                       ---------    ---------
           Net Cash Provided by Financing Activities                     325,000           --
                                                                       ---------    ---------

NET INCREASE (DECREASE) IN CASH                                          (28,440)    (162,572)

CASH AT BEGINNING OF PERIOD                                               51,728      168,955
                                                                       ---------    ---------

CASH AT END OF PERIOD                                                  $  23,288    $   6,383
                                                                       =========    =========


                The accompanying notes are an integral part of these condensed
                              consolidated financial statements.


                                       5
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<PAGE>


                       COMPUTERIZED THERMAL IMAGING, INC.
              Notes to Condensed Consolidated Financial Statements
                                 March 31, 2006
                                   (UNAUDITED)


NOTE A. UNAUDITED FINANCIAL STATEMENTS AND BASIS OF PRESENTATION

            The condensed consolidated financial statements of Computerized
Thermal Imaging (the "Company") for the three and nine-month periods ended March
31, 2006 and 2005 are unaudited. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation of the Company's results of operation for the periods presented
have been included. These interim statements should be read in conjunction with
the audited consolidated financial statements and footnotes thereto contained in
the Company's most recent Annual Report on Form 10-KSB for the Year Ended June
30, 2005. The consolidated results of operations for the three and nine-month
periods ended March 31, 2006 are not necessarily indicative of the results to be
expected for the full year.

            Certain amounts from the prior period financial statements have been
reclassified to conform to current period presentation.

            The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions, including, for example, accounts
receivable allowances, inventory obsolescence reserves, deferred tax valuation
allowances, and reserves for pending or threatened litigation. These assumptions
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.

         The accompanying condensed consolidated financial statements have been
prepared assuming the Company will continue as a going concern. In its Annual
Report on Form 10-KSB for the Year Ended June 30, 2005, the Company reported
that its recurring losses from operations, negative cash flows from operations,
need for additional working capital and continuing struggle to obtain FDA
approval for its primary product raised substantial doubt about the Company's
ability to continue as a going concern. The Company's independent auditors have
also expressed their doubts about the Company's ability to continue as a going
concern and have accordingly qualified their report on the Company's financial
statements for the year ended June 30, 2005.

         In order to pursue its existing plan of operations, the Company will
have to secure additional financing through the sale of equity, the incurrence
of debt or the sale of assets, including the Company's intellectual property, or
some other method. There can be no assurance that capital will be available from
any source or, if available, that the terms and conditions associated with such
capital will be acceptable to the Company. If the Company raises equity or debt
capital, the sale of these securities could dilute existing shareholders, and
borrowings from third parties could result in assets being pledged as collateral
and could provide loan terms that could adversely affect the Company's
operations and the price of its capital stock.


                                       6


<PAGE>


         The accompanying condensed consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that
might be necessary if the Company is unable to continue as a going concern.

NOTE B. REVENUE RECOGNITION

         The Company generates revenues from sales of its products and from
services provided to its customers. The Company sells its products to
independent distributors and to end customers. With the exception of sales
transactions in which a customer may return a defective product, the Company
does not provide its customers with other rights to return products.

         The Company recognizes revenue from its product sales to end customers
upon shipment of products when persuasive evidence of an agreement exists,
delivery of the product has occurred, no significant Company obligations remain,
the fee is fixed or determinable, and collectibility is probable. If these
conditions are not met, revenue is deferred until such obligations and
conditions are fulfilled. If the Company retains an ongoing obligation under a
sales arrangement, revenue is deferred until all of the Company's obligations
are fulfilled.

         The Company has adopted the practice of deferring revenue on shipments
to distributors until cash payment from the distributor is received by the
Company, which is generally when the product is sold by the distributor to the
end customer.

         Certain of the Company's products contain software that is not
considered incidental to the product. Sales of those products are subject to the
provisions of AICPA Statement of Position No. 97-2, SOFTWARE REVENUE
RECOGNITION, as amended, which requires the deferral of revenue from certain
multiple-element arrangements. The Company defers revenue from multiple-element
arrangements until all elements have been delivered.

         Service revenue is derived from service of equipment previously sold
but not covered by warranty. Service revenue is recognized upon the completion
of the services provided. The Company offers extended warranties on certain of
its products. Warranty revenue is recognized ratably over the period of the
agreement as services are provided.

NOTE C. DEFERRED REVENUE

Deferred revenues at March 31, 2006 consisted of deferred warranty revenues.

                                    DEFERRED REVENUES

                                      31-MAR      31-DEC      30-SEP     30-JUN
                                       2006        2005        2005       2005
                                    --------------------------------------------
NANDA LICENSING ................           -     660,000     660,000     660,000

WARRANTY REVENUE ...............       1,239       3,727       6,859       9,991
                                    --------------------------------------------
TOTAL DEFERRED REVENUE .........    $  1,239    $663,727    $666,859    $669,991
                                    ============================================


                                       7


<PAGE>


         The Company's Manufacturing License Agreement (the "NanDa Agreement")
with NanDa, Thermal Medical Technology, Inc. ("NanDa") was billed in stages. The
Company billed NanDa $660 thousand to date and received payment of $660
thousand. The NanDa Agreement obligates the Company to provide training services
for NanDa employees in the United States. The Company has provided the training
services for NanDa employees in the United States and according to the Company's
revenue recognition policy the deferred revenue has been recognized. The Company
believes NanDa's failure to perform certain material obligations required
pursuant to the terms of the NanDa Agreement constitutes a valid basis for
termination of the NanDa Agreement. Accordingly, the Company intends to give
notice of termination to NanDa.

NOTE D. INVENTORIES

         Inventories are stated at the lower-of-cost or market with cost
determined using the first-in first-out method of accounting. As of the dates
set forth below, the Company's inventories consisted of the following:


              INVENTORY

                      MARCH 1,    JUNE 30,
                       2006         2005
                    ---------    ---------
Raw Materials       $ 537,708    $ 536,053
Finished Goods        181,980      190,887
Inventory Reserve    (661,666)    (639,664)
                    ---------    ---------
TOTAL                  58,022       87,276


         Inventory at March 31, 2006 consisted of approximately $182 thousand of
finished goods ready for sale and $538 thousand of raw materials. The Company
has impaired its inventory by 92% or $662 thousand due to concerns regarding the
Company's ability to continue as a going concern. The impairment is held in a
reserve account.

         The Company has in the past reserved for excess and obsolete inventory
by comparing inventory on hand to estimated consumption during the next twelve
months. Consumption is estimated by annualizing trailing three or six -month
sales volumes, adjusting those volumes for known activities and trends, then
comparing forecast consumption to quantity on hand. However, the Company
evaluates all inventories to determine if the total impaired book value could be
recovered if liquidation becomes necessary. The Company impaired the BCS
inventory in the amount of $24 thousand for the nine-months ended March 31,
2006.

NOTE E. INCOME TAXES

         The Company accounts for income taxes using the liability method. Under
this method, the Company records deferred income taxes to reflect future year
tax consequences of temporary differences between the tax basis of assets and
liabilities and their financial statement amounts. The Company has reviewed its
net deferred tax assets, together with net operating loss carry-forwards, and


                                       8


<PAGE>


has provided a valuation allowance to reduce its net deferred tax assets to
their net realizable value. Due to the uncertainty regarding the Company's
volatility to continue as a going concern, there are no deferred tax assets.

NOTE F. CONTINGENCIES

SEC INVESTIGATION

         In December 2002, the Company was requested to provide certain
documents to the Securities and Exchange Commission (the "Commission") and the
U.S. Department of Justice in connection with an investigation regarding
possible violations of the insider trading prohibitions found in the federal
securities laws. The Company has responded to the Commission's requests for
copies of documentation, and members of the Company's management have provided
testimony to the Commission. To date, the Company has incurred approximately
$650,000 in legal costs in complying with these requests. The Company also may
be required to indemnify its officers and directors in connection with fees
incurred in connection with these investigations. The Company's efforts to
respond to the Commission's requests have required, and in the future may
require, significant additional legal expenses, may make fund raising more
difficult if not impossible, and will divert attention away from the Company's
day-to-day operations.

INDEMNIFICATION

       Under the Company's bylaws and contractual agreements, the Company may be
required to indemnify its current and former officers and directors who are
parties to litigation or other proceedings by providing legal defense through
the Company's attorneys (or reimbursing the parties for their own attorneys) and
covering all damages the parties may suffer if the plaintiffs are successful.

OTHER LEGAL PROCEEDINGS

         The Company is involved in certain other litigation matters in the
normal course of business which management currently believes are not likely to
result in any material adverse effects on the Company's financial position,
results of operations, or net cash flows.

NOTE G. RECENT DEVELOPMENTS

         Since January 2006, the Company has been engaged in implementing its
re-directed business strategy, which is focused on strengthening new sales of
the Company's products and aftermarket product support pipelines.

         On March 6, 2006 the Company announced the execution of sales and lease
agreements for placement of the Company's medical equipment. One of the
Company's Thermal Imaging Processor ("TIP") suites was placed at Tampa Bay
Orthopaedic Specialists in Tampa Florida ("TBOS"). TBOS is one of the largest
orthopaedic groups in central Florida and is a leading orthopaedic surgical and
physical therapy facility specializing in surgical treatment of hands, upper
extremities, feet and ankles, as well as treatment of repetitive use injuries.


                                       9


<PAGE>


          On March 28, 2006 the Company announced the placement of thermal
imaging medical equipment at the University of New England's Biomechanics
Research Laboratory in Portland, Maine. The system will be implemented as a key
component used for studies on peripheral nerve injuries.

         During March of 2006, the Company also contracted with Covina Wellness
Center in Covina, CA to sell one TIP and two Photonic Stimulators. The Covina
Wellness Center specializes in physical therapy and women's health. The center's
management has indicated that TIP screening for breast cancer will be one of the
new services offered in the clinic.

         On June 30, 2004 the Company filed a "Citizen Petition" with the FDA
contending that consideration of the Company's application for pre-market
approval was severely and improperly prejudiced because of pervasive bias
against the Company by the FDA staff reviewers who improperly undermined the
review of the Company's application and ultimately caused the FDA to reject that
application. The Company is seeking internal documents within the FDA to
determine the basis for the FDA staff's behavior.

NOTE H. STOCK WARRANTS AND OPTIONS

         A summary of warrant and stock option activity for the period from July
1, 2005, through March 31, 2006 is as follows:


                                         2005                      2004
                                -----------------------------------------------
                                             Weighted                  Weighted
                                              Average                   Average
                                             Exercise                  Exercise
                                 Shares        Price       Shares       Price
                                -----------------------------------------------
Outstanding June 30             4,384,958       1.26      3,592,023       1.27
Granted                                --         --        175,000       0.10
Exercised                              --         --             --         --
Forfeited                        (926,026)        --        (77,780)      1.01

Outstanding at end of year      3,458,932       1.26      3,689,243       1.37
Exercisable at March 31, 2006   3,458,932       1.26      3,689,243       1.37


         Periodically, the Company has issued incentive stock options to
employees and officers and non-qualified options to directors and outside
consultants to promote the success of the Company and enhance its ability to
attract and retain the services of qualified persons.

         The Company has 3,458,932 options outstanding and issued under its 1997
Stock Option and Restricted Stock Plan (the "Plan") since its adoption, and
could issue an additional aggregate of 6,541,068 options and shares. The Plan
permits restricted stock grants to employees, officers, directors and
consultants at prices that may be less than 100% of the fair market value of the
Company's common stock on the date of issuance. The Company also has outstanding
150,000 non-statutory stock options issued outside the Plan. Options issued
under the Plan will have variable terms based on the services provided and will
generally vest on the date of grant.

         Modifications to the terms of previously fixed stock options or awards
granted to Company employees are accounted for in accordance with APB Opinion
No. 25 and Interpretation No. 44, ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING


                                       10


<PAGE>


STOCK COMPENSATION--AN INTERPRETATION OF ACCOUNTING PRINCIPLES BOARD (APB)
OPINION NO. 25 ("FIN 44"). During the year ended June 30, 2005 the Company did
not re-price any options. As a result of the Company's significant reduction in
personnel during the year ended June 30, 2005, nearly all those employees
holding options that had been re-priced in prior years are no longer employed by
the Company and their rights to exercise their options have lapsed.

         If compensation cost for options or awards granted to employees had
been determined based on SFAS No. 123, the Company's net loss and basic and
diluted loss per common share would have not changed materially.


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Forward-Looking Statements Concerning the Company's Business

         The statements contained in this Quarterly Report on Form 10-QSB that
are not purely historical are "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All forward-looking statements
involve various risks and uncertainties. Forward-looking statements contained in
this report include statements regarding the Company's business plans, market
opportunities and acceptance, expectations, goals, revenues, financial
performance, strategies, mission and intentions for the future. Such
forward-looking statements are included under this "Management's Discussion and
Analysis or Plan of Operation" and encompass the Company's beliefs,
expectations, hopes or intentions regarding future events. Words such as
"expects," "believes," "anticipates," "intends," "plans," "seeks," "may,"
"should," "likely," and similar expressions also identify forward-looking
statements. All forward-looking statements included in this report are made as
of the date hereof, based on information available to the Company as of such
date, and the Company assumes no obligation to update any forward-looking
statement. It is important to note that such statements may not prove to be
accurate and that our actual results and future events could differ materially
from those anticipated in such statements. Among the factors that could cause
actual results to differ materially from our expectations are those described
under "--Factors that May Affect Future Results." All subsequent written and
oral forward-looking statements attributable the Company or persons acting on
its behalf are expressly qualified in their entirety by this section and other
factors included elsewhere in this report.

Overview

         The Company's mission is to improve the quality of life through the
development and deployment of thermal imaging and associated technologies. While
the Company's infrared technology has a vast array of existing and potential
applications, its primary focus is in medical and industrial application. The
Company markets two FDA-cleared pain management products, a diagnostic Thermal
Imaging Processor (camera) and an infrared light therapy device called the
Photonic Stimulator. The Company designs, manufactures and markets thermal
imaging devices and services used for clinical diagnosis and pain management.


                                       11


<PAGE>


         The Company's current products are the Photonic Stimulator and the
Thermal Image Processor ("TIP"). The Company has historically marketed its
products with an internal sales force and through independent distributors. At
present, however, due to the Company's troubled financial condition, the Company
is not actively marketing its products with the exception of the Company's web
page (www.cti-net.com). To date, the Company's revenues have been generated
principally from sales of the Photonic Stimulator, TIP, and services provided in
connection with the Company's medical and industrial products.

         Given the Company's inability to market its principal product unless
the Company secures FDA pre-market approval, the Company's needs to raise
capital to fund its operations, the Company's history of losses ($97.1 million
since inception), and the risk of pending or future litigation, the Company's
independent auditor's opinion dated May 2006 contains a "going concern
qualification," meaning that the Company's independent auditors have indicated
that there is substantial doubt as to the Company's ability to continue as a
going concern. The Company's efforts to raise additional funds to date have been
only marginally successful. Since the FDA's rejection of the Company's
application for pre-market approval of the BCS 2100 in December 2002, the
Company has raised approximately $500 thousand in advances under an equity line
of credit with Beach Boulevard, $1.32 million through a private issuance of
restricted stock, $660 thousand from its Manufacturing License Agreement (the
"NanDa Agreement") with NanDa Thermal Medical Technology, Inc. ("NanDa") and
$645 thousand from short-term notes. The Company has pursued additional
financing transactions, but, as of the date of this Report, the Company has been
unsuccessful in its efforts to raise additional capital. Regardless of the FDA's
ultimate decision regarding the Company's application for pre-market approval of
the Company's Breast Cancer System 2100 (the "BCS2100"), the Company will
require additional capital to execute the Company's operating plan, which may
include more clinical trials, research and development and marketing and
manufacturing expenses.

         The following discussion and analysis of the Company's consolidated
financial condition and results of operations should be read in conjunction with
the Company's audited condensed consolidated financial statements and notes
thereto contained in the Company's Annual Report on Form 10-KSB for the fiscal
year ended June 30, 2005.

         CRITICAL ACCOUNTING POLICIES

         The preparation of financial statements requires the Company to
estimate the effect of various matters that are inherently uncertain as of the
date of the financial statements. Each of these required estimates varies in
regard to the level of judgment involved and its potential impact on the
Company's reported financial results. Estimates are deemed critical when a
different estimate could have reasonably been used or where changes in the
estimate are reasonably likely to occur from period to period, and would
materially impact the Company's financial condition or results of operations.
The Company's significant accounting policies are discussed in Note A of the
Notes to Condensed Consolidated Financial Statements. Critical estimates
inherent in these accounting policies are discussed in the following paragraphs.
The Company's management has discussed the development and selection of these
critical accounting policies with the Audit Committee of the Company's Board of
Directors.

         CASH AND CASH EQUIVALENTS -- Cash and cash equivalents include cash in
checking accounts and short-term highly liquid investments with an original
maturity of one year or less.


                                       12


<PAGE>


         REVENUE RECOGNITION --Revenue recognition is a significant business
process that requires management to make estimates and assumptions. The Company
recognizes revenue from product sales after shipment when persuasive evidence of
an agreement exists, delivery of the product has occurred, no significant
obligations remain, the price or fee is fixed or determinable, and collection is
probable. If these conditions are not met, revenue is deferred until such
obligations and conditions are fulfilled.

         The Company's standard domestic terms for its medical products sold to
end-user customers are "prepaid," and the Company's standard international terms
for the Company's medical products require payment in cash or placement of a
letter of credit before shipment. On occasion, the Company offers extended
payment terms beyond its normal business practices, usually in connection with
providing an initial order of demonstration equipment to a new domestic
distributor. The Company considers fees on these extended terms agreements not
fixed and collectibility less than probable and defers the revenue until receipt
of payment. The Company sells separate extended warranty contracts for the
Company's TIP and Photonic Stimulator and recognizes revenue from those
arrangements ratably over the contract life. The Company does not offer rights
or return privileges in sales agreements.

         RESEARCH AND DEVELOPMENT EXPENSES -- The Company expenses as incurred
the direct, indirect and purchased research and development costs associated
with the Company's products. The Company believes this method is conservative
given the product and market acceptance risk inherent to the Company's products
and reduces administrative burden and cost.

         IMPAIRMENT OF LONG-LIVED ASSETS -- The Company follows the provisions
of Financial Accounting Standards Board ("FASB") SFAS No. 141, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires that if the sum of the future cash flows expected to result from
the assets, undiscounted and without interest charges, is less than a company's
reported value of the assets, the asset is not recoverable and the company must
recognize an impairment. The amount of impairment to be recognized is the excess
of the reported value of the assets over the fair value of those assets and is
recorded as impairment expense on the Company's statements of operations. In
estimating impairments, management makes assumptions about future cash flows and
fair value that are inherently uncertain, can significantly affect the results
and may differ from actual future results.

         INVENTORY RESERVES -- In the past, the Company reserved for excess and
obsolete inventory by comparing inventory on hand to estimated consumption
during the next twelve months. Consumption is estimated by annualizing trailing
three or six month sales volumes, adjusting those volumes for known activities
and trends, and then compare forecast consumption to quantity on hand. However,
the Company evaluates all inventories to determine if the total impaired book
value could be recovered if liquidation is necessary.

TRENDS/UNCERTAINTIES AFFECTING CONTINUING OPERATIONS

         The Company is exposed to the opportunities and risks usually
associated with marketing and manufacturing novel products, including staff
retention and recruiting, market acceptance of the Company's products, product
warranty, bad debts and inventory obsolescence. The Company expects to earn
revenues from the sale of its products, but there is no guarantee that these
revenues will recover all the costs of marketing, selling and manufacturing of
the products.


                                       13


<PAGE>


         The Company is conducting only Internet marketing efforts at present
due to the Company's current lack of resources. If the Company is able to
acquire additional capital, of which there can be no assurance, the Company
hopes to be able to resume marketing efforts by building relationships with
manufacturers, medical equipment dealers, physicians and clinical investigators;
communicating with target markets by attending trade shows and conferences,
making direct sales calls, and sponsoring clinics in which the Company could
introduce and demonstrate its products. The Company believes marketing medical
products through trade shows, conference presentations, direct mail and inside
sales, augmented with dealers, provides a low-cost, high-leverage approach to
diagnostic imaging and pain management practitioners.

         If resources permit, the Company hopes to be able to organize clinical
studies with institutions and practitioners to obtain user feedback and to
secure technical papers for training and marketing purposes. These strategies
would represent a significant investment of time and resources and in the past
have provided useful information; however, there can be no guarantee that these
strategies will lead to market acceptance of the Company's products.

         To date, the Company has had limited operating revenues from the sale
of its products and services ($4 million in total revenues since inception). The
Company cannot provide any assurance that it will achieve profitability in the
future. The Company's immediate priority is to produce revenue by selling TIP
and Photonic Stimulator inventory, then, to expand the Company's market in
Canada where the Company has obtained the necessary licenses for current product
offerings, to pursue the U.S. market for the Company's TIP and Photonic
Stimulator; and to reconcile issues regarding the BCS2100 presented to the FDA
in the Company's Citizens Petition. At this time, the Company is unsure how much
time and additional financing will be required to resolve issues with the FDA.
The Company can offer no assurance that the Company will ever be able to resolve
the FDA issues. The Company is also unsure about the ability to raise additional
financing which will be required to continue the Company's business operations.
These uncertainties, among others, raise doubts about the Company's ability to
continue as a going concern.

FACTORS THAT MAY AFFECT FUTURE RESULTS

         The Company's operating results and financial condition are subject to
substantial risks and uncertainties. You should consider carefully the following
risk factors, in addition to other information contained in this Report as you
evaluate the Company and its business. Any one or more of these factors could
cause actual results of the Company's operations to differ materially from
projected results.

         o     The Company and its independent public accountant have determined
               that unless the Company is able to raise additional capital, it
               will not likely continue as a going concern.

         o     The Company expects to continue to incur losses, deficits, and
               deficiencies in liquidity for the foreseeable future, unless the
               Company is able to finalize agreements for additional capital
               investments.

         o     A failure to raise additional capital could cause the Company to
               severely curtail operations, which would likely result in
               immediate and substantial dilution to the Company's shareholders,
               or cease operations entirely, which would likely eliminate any
               value in the Company's common stock.


                                       14


<PAGE>


         o     The volatility in the market price of the Company's common stock
               could continue, which would adversely affect shareholder value.

         o     The Company can issue preferred stock or sell other securities or
               other financing instruments, including convertible debt, which
               would result in significant dilution to existing shareholders.

         o     If the Company is unsuccessful in preventing others from using
               its intellectual property, the Company could lose a competitive
               advantage. If the Company's intellectual property infringes the
               rights of other parties, the Company could incur damages or be
               forced to cease using, marketing or selling those products.

         o     The Company does not have product liability insurance; if the
               Company is made subject to a products liability claim, whether or
               not the claim is meritorious, the Company's results of operation
               and financial condition may be adversely affected.

         The foregoing factors should be read in conjunction with the Company's
audited condensed consolidated financial statements, notes thereto and risk
factors set forth in the Company's Annual Report on Form 10-KSB for the fiscal
year ended June 30, 2005 (the "Form 10-KSB"). Many of the risks identified above
are discussed in greater detail in the Form 10-KSB.

RESULTS OF OPERATIONS

THREE AND NINE-MONTHS ENDED MARCH 31, 2006, COMPARED TO THE THREE AND
NINE-MONTHS ENDED MARCH 31, 2005

         REVENUES

         Total revenues for the three months ended March 31, 2006 increased $593
thousand, from $76 thousand in March of 2005 to $669 thousand in March 2006.
Revenues for the nine-months ending March 31, 2006 increased $512 thousand, from
$208 thousand in March of 2005 to $720 thousand March of 2006. The Company's
revenues reflect a 783% increase in three months and 245% increase in
nine-months. In both the three and nine-month periods of 2006 the increase in
revenues is primarily attributable to the recognition of deferred revenue from
Nanda totaling $660 thousand.

         Six thousand dollars of the Company's revenues resulted from product
sales and $2 thousand from warranty revenue recognized in the period ending
March 31, 2006. The same three-month period in 2005 produced product revenues of
$47 thousand with service revenues of $28 thousand.

         There were no unfilled orders as of March 31, 2006. The Company did not
have any foreign sales in the past nine months ended March 31, 2006.

         COSTS AND EXPENSES

         Gross margins for the three months ended March 31, 2006 were $666
thousand, compared to gross margins of $53 thousand for the same period of the
prior year or up 1167%. For the nine-months ending March 31, 2006, gross margins
increased 315% from $163 thousand to $675 thousand. The increase in gross margin
resulted primarily from the significant increase in the Company's net revenue
consisting almost entirely of recognition of deferred revenues.


                                       15


<PAGE>


         The Company is currently in the process of developing a revised
business structure that the Company believes will enhance revenue through
leasing of the Company's products and providing services to the Company's
customers rather than direct sales.

         General and administrative expenses for the three months ended March
31, 2006 were $162 thousand compared to $23 thousand for the same period last
year, an increase of $139 thousand or 591%. The increase primarily reflects the
accrual of the CEO's salary and full time employment of one person. During the
three months ended march 31, 2005 the Company only had part time employees.
Since July 2005, the Company's CEO has taken a minimal salary and the balance
has been accrued per his contract. This accrual was initiated on April 1, 2005.

         Depreciation and amortization expense for the three-month period ended
March 31, 2006 decreased $8 thousand from $10 thousand to $2 thousand or a 77%
decrease, compared to March 31, 2005. Expenses for the nine-month period ended
March 31, 2006 decreased $24 thousand from $28 thousand to $4 thousand or an 86%
decrease compared to March 31, 2005.

         OPERATING INCOME / LOSS

         The Company recorded an operating income for three-months ending March
31, 2006 of $501 thousand, compared to $3 thousand for the same period in 2005
reflecting a change of $498 thousand. The Company recorded an operating income
for nine-months ending March 31, 2006 of $191 thousand, compared to an operating
loss of $274 thousand for the same period in 2005. The difference of
approximately $465 thousand or 169% increase. Increases for the three and
nine-month periods ended March 31, 2006 was due principally to the Company's
recognition of deferred revenue, increased effort on its reorganization and
restructuring, accrued wages and the impairment of BCS inventory.

         OTHER INCOME / EXPENSE

         Net other income and expense for the three months ended March 31,
2006 reflected a gain of $353 thousand from the same period of 2005, from $5
thousand expense on March 31, 2005 to income of $348 thousand on March 31, 2006.
Net other income and expense increased from $14 thousand expense for the nine
months ended March 31, 2005 to $331 thousand income March 31, 2006. A major
portion of the gain was due to the extinguishment of three debts totaling $359
thousand. Interest expense is primarily an accrual of imputed interest to March
31, 2006 on five loans: $100 thousand with $17,932 accrued interest to March 31,
2006, $200 thousand principal with $21,534 accrued interest to March 31, 2006,
$4,981 interest to date on a $100 thousand note and $325 thousand has accrued
$12,021 in interest to March 31, 2006. There was one $20,000 related party note
which, as of March 31, 2006, has accrued interest of $2,265 from the inception
of the loan. Interest income of less than $1 thousand during the period ending
March 31, 2006 is also shown.


                                       16


<PAGE>


         NET INCOME/(LOSS)

         The Company recognized an extraordinary gain during the three and
nine-month periods ended March 31, 2006. This gain was due to release of $359
thousand dollars of debt. The Company recorded no income taxes or income tax
benefit due to the going concern opinion issued by the Company's auditors.
Because the Company's future as an ongoing business is in question, the
Company's ability to take advantage of a booked tax benefit is also in question.
Therefore, no benefit has been recognized. However, the Company does hope to be
able to, in the future, obtain a profitable operational status at which time the
Company could then take advantage of a net operating loss carry-forward for tax
purposes.

         The net income and loss for the three-month period ended March 31, 2006
resulted in a per share income gain of less than $0.01 and loss of less than
$0.01 ending March 31, 2005. For the nine-month period ended March 31, 2006 the
Company recognized a per share income gain of less than $0.01 and a loss of less
than $0.01 ending March 31, 2005.

 LIQUIDITY AND CAPITAL RESOURCES

         SOURCES AND USES OF LIQUIDITY

         The Company's sources of funds used for operations have historically
come from selling common stock, as well as the issuance and exercise of options
and warrants, revenues generated from operations, sales of marketable
securities, interest earned from marketable securities available for sale and
debt assumption.

         For the three month period ended March 31, 2006 the Company's sole
source of cash was from product sales. The Company is pursuing additional
financial transactions and has received $325 thousand as debt proceeds within
the past nine-months. As of the date of this report none have been finalized.

         The Company's cash requirements include, but are not limited to,
general corporate expenses, including employee salaries and benefits, lease
payments on office space, legal and accounting fees for litigation and public
reporting requirements, procurement of inventory and supply expenses associated
with the Company's efforts to manufacture and market its medical and industrial
applications. The Company has reduced many of these costs in an effort to
preserve cash; however, most of these costs are attributable to activities that
are necessary to continue the Company's operations.

         Net cash used in operating activities for the nine-months ended March
31, 2006 was $353 thousand, compared to $163 thousand of cash for the
nine-months ended March 31, 2005. The increase in cash used in operating
activities was primarily a result of the Company's fluctuations in accounts
payable, accrued expense balances and deferred revenues.

         As of April 1, 2006, the Company's current monthly expense rate
averaged $57 thousand during the prior nine-months; the Company's monthly
expense rate at its former full operational level was approximately $1.1 million
per month.

         The Company has no contractual obligations or commitments as of March
31, 2006. All rentals and leases are on a month-to-month basis.


                                       17


<PAGE>


CAPITAL REQUIREMENTS/PLAN OF OPERATION

         The Company's capital requirements have varied significantly from the
Company's estimates and will likely continue to vary from those estimates. The
Company's capital requirements depend upon numerous factors including, but not
limited to: a) FDA approval process; b) results of pre-clinical and clinical
testing; c) costs of technology; d) time and costs involved in obtaining other
regulatory approvals; e) costs of filing, defending and enforcing any patent
claims and other intellectual property rights; f) the economic impact of
developments in competing technology and the Company's markets; g) competing
technological and market developments; h) the terms of any new collaborative,
licensing and other arrangements that the Company may establish; i) litigation
costs; and j) costs the Company incurs in responding to inquiries and
investigations conducted by the SEC and other governmental entities.

         Since inception, the Company has generated significant losses from
operations ($97.1 million), but only limited revenues ($4 million). The Company
has taken actions to reduce its expenses and cash consumption; however, the
Company expects to incur additional operating losses for the indefinite future.
The Company's working capital requirements in the foreseeable future will depend
on a variety of factors and assumptions. In particular, the Company will need to
obtain additional financing through additional equity and/or debt financings or
through the sale of assets (including its intellectual property) during fiscal
year 2006. If the Company raises additional funds through the issuance of equity
securities or other financing instruments which are convertible for equity
securities, the Company's shareholders may experience significant dilution that
would aversely affect the price of the Company's common stock. Furthermore,
there can be no assurance that additional financing will be available when
needed or at all, or that if available, such financing will be on terms
favorable to the Company or its shareholders. If financing is not available when
required or is not available on acceptable terms, the Company may be required to
curtail the operating plan and will likely not be able to continue operations as
a going concern.

         The Company does not have sufficient capital to cover: 1) the expected
costs of additional clinical studies currently required by the FDA; or 2) the
anticipated expense of funding the Company's business plan over the next year.
The Company will not be able to continue its business operations unless the
Company obtains additional capital immediately. This capital, if obtained, could
be generated through issuance of securities, assumption of loans, and sale of
assets (including intellectual property); however, the Company has only limited
commitments for any capital infusion, and can give no assurance that the Company
will be able to raise any such capital. Furthermore, the Company's troubled
financial condition, as well as the lack of FDA pre-market approval of the
BCS2100, has made it difficult if not impossible to raise capital needed to
continue the Company's operations. If the Company is not successful in quickly
raising additional capital, the Company will have to further scale back its
business plan or discontinue operations.

         As of March 31, 2006, the Company believed that the Company had
sufficient liquidity to sustain the current level of limited operations for the
next two months. The Company's monthly expense rate at that time averaged $57
thousand. The Company had cash, marketable securities and pre-paid expenses of
approximately $115 thousand and current liabilities (excluding the debenture and
deferred revenue) of approximately $1.6 million. On a short-term basis, the
Company believes it will be able to fund the current level of limited operations


                                       18


<PAGE>


with cash on hand and the proceeds of its receivables and current sales
activities; however, to fund the Company's operations over the long term (more
than 2 months) the Company believes additional capital or curtailing the
operation will be required.

         Overall, the Company has reduced the monthly cash consumption to under
$55 thousand, which the Company currently believes will be adequate to sustain
its curtailed operations only through May 2006. The Company has systematically
reduced expenses by eliminating all expenditures except for those necessary to
fill orders, file regulatory reports, and seek funding. If the Company is unable
to secure additional capital, the Company will likely be forced to discontinue
operations entirely.

ITEM 3. CONTROLS AND PROCEDURES

         (a) Based on the evaluation of the Company's "disclosure controls and
procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e)
or 15d-15(e)) required by paragraph (b) of Rules 13a-15 or 15d-15, the Company's
President and the Acting Chief Financial Officer have concluded that, as of
March 31, 2006, the Company's disclosure controls and procedures were effective
in ensuring that information required to be disclosed in our reports filed or
submitted under the Exchange Act is recorded, processed, summarized and reported
as specified in the SEC's rules and forms.

         (b) The Company is not presently required to conduct quarterly
evaluations of its internal control over financial reporting pursuant to
paragraph (d) of Rules 13a-15 or 15d-15 promulgated under the Exchange Act. The
Company is, however, in the process of designing, evaluating and implementing
internal controls in anticipation of the date when it may become subject to such
evaluation requirements.

PART II -- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

SEC INVESTIGATION

         In December 2002, the Company was requested to provide certain
documents to the Securities and Exchange Commission (the "Commission") and the
U.S. Department of Justice in connection with an investigation regarding
possible violations of the insider trading prohibitions found in the federal
securities laws. The Company has responded to the Commission's requests for
copies of documentation, and members of the Company's management have provided
testimony to the Commission. To date, the Company has incurred approximately
$650,000 in legal costs in complying with these requests. The Company may also
be required to indemnify its officers and directors in connection with fees
incurred in connection with these investigations. The Company's efforts to
respond to the Commission's requests have required, and in the future may
require, significant additional legal expenses, may make fund raising more
difficult if not impossible, and will distract the Company's management from
day-to-day operations.


                                       19


<PAGE>


INDEMNIFICATION

         Under the Company's bylaws and contractual agreements, the Company may
be required to indemnify its current and former officers and directors who are
parties to litigation or other proceedings by providing legal defense through
the Company's attorneys (or reimbursing the parties for their own attorneys) and
covering all damages the parties may suffer if the plaintiffs are successful.

OTHER LEGAL PROCEEDINGS

       The Company is involved in certain other litigation matters in the normal
course of business which the Company's management currently believes is not
likely to result in any material adverse effects on the Company's financial
position, results of operations, or net cash flows.


ITEM 2.  EXHIBITS

         31.1     Certification of Chief Executive Officer
         31.2     Certification of Chief Financial Officer
         32.1     Certification of Chief Executive Officer
         32.2     Certification of Chief Financial Officer


                                       20


<PAGE>


                                   SIGNATURES


In accordance with 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 thereunto duly authorized.

COMPUTERIZED THERMAL IMAGING, INC.


Dated May 15, 2006                           /s/ Richard V. Secord
                                             -----------------------------------
                                             Richard V. Secord
                                             Chairman of the Board and
                                             Chief Executive Officer


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