COMPUTERIZED THERMAL IMAGING INC, 424B3, 1999-07-16

COMPUTERIZED THERMAL IMAGING INC
424B3, 1999-07-16
SEARCH, DETECTION, NAVAGATION, GUIDANCE, AERONAUTICAL SYS

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<PAGE>

FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-47237

COMPUTERIZED THERMAL IMAGING, INC.

Resale of 36,209,606 Shares of Common Stock

This Prospectus relates to the resale of 36,209,606 shares of the
common stock of Computerized Thermal Imaging, Inc., a Nevada corporation (the
"Company"), which may be sold by the holders thereof (the "Selling
Stockholders") from time to time as market conditions permit in the market, or
otherwise, at prices and terms then prevailing or at prices related to the then
current market price, or in negotiated transactions. The shares of the common
stock of the Company, $0.001 par value per share (the "Common Stock"), to be
resold include: (i) 20,781,250 shares to be purchased by an unrelated investor
(the "Newly Issued Shares"); (ii) 5,337,741 shares currently issued and
outstanding; (iii) 3,840,615 shares underlying outstanding warrants exercisable
at prices ranging from $0.72 to $5.00 per share which expire on various dates
ranging from March 31, 1999 to March 13, 2002 (the "Resale Warrants"); and (i)
6,250,000 shares underlying outstanding options exercisable at prices ranging
from $0.60 per share to $1.25 per share which expire automatically on various
dates ranging from July 21, 2000 to June 12, 2005 (the "Resale Options"). Unless
otherwise specified, the Compensation Warrants and the Resale Warrants are
sometimes collectively referred to herein as the "Warrants", See "Management -
Stock Options and Restricted Stock", "Management - Certain Transactions",
"Description of Securities", and "Plan of Distribution and Selling
Stockholders", As used herein, the term "Offering" includes all shares of the
Common Stock covered by this Prospectus. The registration of the Newly Issued
Shares applies to the resale of such shares by Beach Boulevard L.L.C. Shares
offered by the Selling Stockholders may be sold in unsolicited ordinary
brokerage transactions or privately negotiated transactions between the Selling
Stockholders and purchasers without a broker-dealer. A current prospectus must
be in effect at the time of the sale of the shares of the Common Stock to which
this Prospectus relates. Each Selling Stockholder or dealer effecting a
transaction in the registered securities, whether or not participating in a
distribution, is required to deliver a current prospectus upon such sale. The
Company will not receive any proceeds from the resale of the Common Stock by the
Selling Stockholders. Unless otherwise exempted, the Selling Stockholders and
their agents engaged in the resale of the Common Stock may be deemed
underwriters under the Securities Act of 1933, as amended (the "Securities
Act"). Beach Boulevard L.L.C. is deemed to be an underwriter under the
Securities Act with regard to the resale of the Newly Issued Shares and shares
issued upon exercise of the Compensation Warrants. The Common Stock is quoted on
the OTC Bulletin Board of the Nasdaq Stock Market under the symbol "COII". On
July 14, 1999, the closing bid and ask prices of the Common Stock were $0.73 and
$0.75 per share, respectively. There can be no assurance that an active trading
market will be sustained. See "Price Range of Common Stock and Dividend Policy".

---------------------------

THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE
A HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED BY
ANYONE WHO CANNOT AFFORD THE LOSS OF HIS ENTIRE INVESTMENT.
SEE "RISK FACTORS" BEGINNING ON PAGE 10.

---------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

---------------------------

The date of this Prospectus is July 16, 1999
<PAGE>

CAUTIONARY STATEMENT

INFORMATION CONTAINED IN THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS
MAY,WILL, SHOULD, EXPECT, ANTICIPATE, ESTIMATE OR CONTINUE OR THE NEGATIVES
THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE CAUTIONARY
STATEMENTS SET FORTH UNDER THE CAPTION "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS IDENTIFY IMPORTANT FACTORS WITH RESPECT TO SUCH FORWARD-LOOKING
STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES, THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENTS.

TABLE OF CONTENTS

Page
----

Available Information..................................................... 3
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 10
Price Range of Common Stock And Dividend Policy........................... 22
Capitalization............................................................ 23
Management................................................................ 42
Principal Stockholders.................................................... 55
Description of Securities................................................. 61
Plan of Distribution And Selling Stockholders............................. 68
Legal Matters............................................................. 71
Experts................................................................... 71
Index to Financial Statements............................................. F-1

2
<PAGE>

No person is authorized to give any information or to make any representation
other than those contained in this Prospectus, and if given or made, such
information or representation must not be relied upon as having been authorized
by the Company or any underwriter. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any of the securities offered
hereby to or from any person in any jurisdiction in which such offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication that
there has been no change in the business or affairs of the Company since the
date hereof or that the information in this Prospectus is correct as of any time
subsequent to the date as of which such information is furnished.

AVAILABLE INFORMATION

The Company has not been previously subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
although it will become subject to the reporting requirements of the Exchange
Act following the registration of the securities described herein. In accordance
with the Exchange Act, the Company will file reports, proxy statement, and other
information with the Securities and Exchange Commission (the "Commission"). In
addition, the Company intends to furnish its stockholders with annual reports
containing audited financial statements and such interim reports as it deems
appropriate.

Pursuant to the Securities Act, the Company has filed a Registration
Statement on Form SB-2 with the Commission of which this Prospectus forms a
part. This Prospectus does not contain all of the information contained in the
Registration Statement and the exhibits thereto, certain parts of which have
been omitted in accordance with rules of the Commission. Any statements
contained herein concerning the provisions of any document filed as an exhibit
to the Registration Statement or otherwise filed with the Commission are not
necessarily complete, and, in each instance, reference is made to the copy of
the document so filed for a more complete description of the matter involved,
and each such statement is qualified in its entirety by such reference. The
Registration Statement and the exhibits thereto are on file with, and may be
examined without charge, at the following public reference facilities of the
Commission: 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; 7 World
Trade Center, Suite 1300, New York, New York 10048; and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material may be obtained, at prescribed rates, from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549.
The Commission maintains an Internet web site that contains information,
including registration statements, of issuers who file electronically with the
Commission. The address of that web site is http://www.sec.gov.

3
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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements, including the Notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise indicated herein, the
financial, business activities, management and other pertinent information
herein relate on a consolidated basis to the Company and its 80 percent owned
subsidiary, Computerized Thermal Imaging, Co. Investors are urged to read this
Prospectus in its entirety and carefully consider the information set forth
under the heading "Risk Factors". Additionally, unless otherwise indicated, all
Common Stock share and per share data and information in this Prospectus assume
no exercise of the outstanding Resale Options or Warrants into shares of the
Common Stock, or the issuance of any unvested shares of the Restricted Stock.
Moreover, unless otherwise indicated, all monetary amounts have been expressed
in United States dollars.

The Company

Computerized Thermal Imaging, Inc. (the "Company") was incorporated on June
10, 1987 in the State of Nevada as Business Helpers, Inc. The Company amended
its Articles of Incorporation on August 25, 1989 to effect a name change to DTI
Dorex, Ltd. and again on November 3, 1989 to its current name. In April 1992,
the Company further amended its Articles of Incorporation to provide for a
capital structure of 100,000,000 shares of common stock, par value of $0.001 per
share, and 3,000,000 shares of preferred stock with such designations,
preferences and other features as may be required by the Company's Board of
Directors. On March 16, 1998, the Company further amended its Articles of
Incorporation which described in more detail the authority of the Board of
Directors with respect to any shares of the preferred stock which may be issued
by the Company. In addition, such amendment denied preemptive rights to all
stockholders of the Company from and after such date. In 1988, the Company,
through the issuance of shares of its Common Stock, acquired substantially all
of the assets of Thermal Imaging, Inc., an Oregon corporation (herein sometimes
referred to as "TII"), which assets consisted primarily of certain intellectual
property regarding thermal imaging intellectual property.

The Company is a development stage company that is a medical imaging
systems integrator producing a computerized clinical thermal imaging diagnostic
and patient management system (the "CTI System") that has been trademarked under
the name Computerized Thermal Imaging. The Company plans to license the CTI
System to various health care providers such as hospitals, HMOs and freestanding
image centers through "Use Agreements". Revenues will be generated under the Use
Agreements by charging the health care providers monthly for time usage and for
the disposable supplies purchased in conjunction with the CTI System. The
Company also plans to sell the CTI System to certain countries in Asia, such as
the People's Republic of China (the "PRC"), where use of thermal imaging for
medical use is more prevalent than in the United States. As of the date of this
Prospectus, the PRC's Ministry of Public Health has been unable to obtain
funding for a project for which the Company initially contracted in 1995,
although persons in China working with the Ministry of Public Health maintain
their intention to pursue placement of the CTI System in its hospitals. The
Company does not plan to make material expenditures for this project until
funding is obtained from the PRC.

The CTI System is currently composed of four elements. One element is a
climate-controlled lab (herein referred to as a "QTA Lab"). The second element
is the examination unit, consisting of an infrared camera, imaging monitor,
high-resolution printer, computer and proprietary software and telemedicine
interface. The third element of the CTI System is a digital health card that
encodes a patient's thermal image for subsequent comparison by physicians, or
even the patient's entire medical record, in a digital format on a plastic card
the size of a credit card. The fourth element is a proprietary medical protocol.
The Company's 80 percent owned subsidiary, Computerized Thermal Imaging, Co., a
Nevada corporation (herein sometimes referred to as "CTI, Co.") utilizes the CTI
System specially configured as a breast cancer system which is a non-invasive,
non-contact procedure that does not involve breast compression or exposure to
radiation (the "CTI, Co. System"), and which is comprised of an infra-red
camera, a central processing unit, a display unit, examination equipment, and a
power distribution unit. The CTI, Co. System employs a proprietary patient
positioning system in the data acquisition process for which a patent
application has been filed. In November 1998, CTI, Co. filed a provisional
patent application covering the algorithm process relating to the CTI, Co.
System.

4
<PAGE>

As of the date of this Prospectus, neither the CTI System nor the CTI, Co.
System has been formally approved by the United States Federal Drug
Administration (the "FDA"). Management believes that the CTI System has
clearance to be sold in the United States without obtaining further government
approval from the FDA because its components have been cleared for use for
medical purposes by the FDA at the request of the component manufacturers. As a
practical matter, the market for the CTI System is impeded because specific
insurance and Medicare payment codes are not available for patients to obtain
cost reimbursement for use of a specific medical imaging system without further
FDA approval establishing the efficacy or specific medial claims.

The sale of the CTI, Co. System in the United States for use in the
detection of breast cancer requires FDA approval. Management believes that no
other thermography or thermal imaging procedures currently being used for
medical purposes, even with FDA approval, are equivalent to the CTI, Co. System.
Consequently, the CTI, Co. System is presently undergoing clinical testing by
physicians at four independent hospital sites in accordance with a protocol
which management expects to lead to pre-market approval (hereinafter sometimes
referred to as "PMA") by the FDA. See "Business". While CTI, Co. hopes to
receive PMA within the next 12 months, various factors, including the length of
the time needed to collect sufficient research data, analyze patient images,
submit comparison findings to the FDA, and obtain independent FDA consultant
review, could effect delays, and there is no guarantee that any or all of the
stages will be completed or achieved. In addition, the cost associated with
completing clinical trials of the CTI, Co. System is estimated to be
approximately $3,000,000, but this figure could vary depending on numerous
factors, including the length of the clinical trials, the efficiency of the
prototype CTI, Co. System, the testing methods employed, and the results of the
FDA review. The inability of the Company and/or CTI, Co. to raise sufficient
working capital to fund the clinical trials could adversely affect the ability
of CTI, Co. to complete the PMA process.

Several risk factors exist which should be carefully reviewed by
prospective investors prior to making a decision to invest in the Company. These
factors include, but are not limited to, the effect of the following events or
contingencies on the business of the Company: (i) lack of working capital and
guaranteed sources of financing; (ii) investigations or claims in connection
with prior offerings of shares of the Common Stock, Warrants and Debentures by
stockholders or state or federal securities regulators could delay effective
dates or increased legal fees in defense thereof (see "Risk Factors - Select
Capital Advisors, Inc. Debentures and Warrants" and "Business - Litigation");
(iii) the failure of the Company, before March 16, 1998, to provide stockholders
with an opportunity to exercise preemptive rights; (iv) the unknown but
substantial cost required both to obtain FDA approval to make any medical claims
for efficacy and to obtain insurance payment code authorizations for each
procedure using the CTI System and CTI, Co. System; and (v) dependence on key
employees.

The Company will require an estimated $6,000,000 over the next 12 months
for its research and development programs, preclinical and clinical testing,
development of its sales and distribution efforts, operating expenses,
regulatory processes and manufacturing and marketing programs. The Company's
capital requirements will depend on numerous factors, including the progress of
its research and development programs; results of preclinical and clinical
testing; the time and cost involved in obtaining regulatory approvals; the cost
of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights; the economic impact of competing technological and
market developments; developments and changes in the Company's existing
research, licensing and other relationships; and the terms of any new
collaborative, licensing and other arrangements that the Company may establish.
During the three years prior to the date of this Prospectus, David B. Johnston,
the Chairman of the Board and the Chief Executive Officer of the Company, and
certain affiliates of Mr. Johnston and the Company have contributed
approximately $4,050,000 to the capital of the Company in exchange for shares of
the Common Stock. The Company believes that its current assets and potential
additional contributions from affiliates of the Company and certain accredited
investors, as needed, will be sufficient to meet the Company's short-term
operating expenses and capital expenditures. At the present time, however, there
is no commitment from anyone with respect to any future capital contributions to
the Company, and there is no way to predict when and if any such additional
contributions may be made. Consequently, the bulk of the needed capital over the
next 12 months must come from one or more substantial new investors.

5
<PAGE>

the Company may require Beach to purchase up to $7,000,000 of Common Stock of
the Company in a series of tranches of $500,000 each. At the closing of the
first of these tranches on May 13, 1999 (the "Initial Closing Date"), the
Company issued 757,576 shares to Beach. At the closing of the second of these
tranches on June 15, 1999 (an "Additional Closing Date") the Company issued
862,069 shares to Beach. 57,945 supplemental shares were issued in relation to
the first tranch. Closings for subsequent tranches (each, an "Additional Closing
Date") will be held after the Company gives a notice (each, a "Tranche Notice")
to Beach. Without the consent of Beach, there can not be more than one
Additional Closing Date in any one calendar month.

The purchase price for each share of Common Stock being bought by Beach on
each Additional Closing Date will be based on the lowest sale price of the stock
during the period from the date of the relevant Tranche Notice to and including
the trading day immediately before that Additional Closing Date multiplied by
(i) for the first two Additional Closing Dates, 82.5%, and (ii) for each
Additional Closing Date thereafter, 85%.

Beach's obligations to purchase additional tranches are subject to certain
requirements relating to the effectiveness of the Company's Registration
Statement covering the shares issued or be issued to Beach, the number of shares
authorized and reserved for issuance to Beach, the continued accuracy of
representations and warranties made by the Company in the Investment Agreement,
the absence of material adverse changes in the business, operations or
conditions of the Company, and the absence of any suspension of the trading of
the Company's Common Stock by the SEC or the NASD.

In addition, after Beach has purchased $1,500,000 of the Company's Common
Stock, Beach's obligation to fund subsequent tranches will be subject to the
following conditions: (1) the lowest sale price of the Common Stock during the
period from the date of the Tranche Notice to and including the trading day
before the relevant Additional Closing Date (the "Current Price") must be
seventy-five cents ($0.75) or more and (2) the average daily trading volume for
the twenty consecutive trading days ending the day before the relevant
Additional Closing Date must be 200,000 or more shares.

The Company has also agreed to issue certain additional shares
("Supplemental Shares") to Beach based on the average of the lowest sale price
of a share of Common Stock for any five trading days selected by Beach during
the period beginning on the first trading day after each closing date (whether
the Initial Closing Date or an Additional Closing Date) and continuing through
and including the twentieth trading day after that closing date. If that average
(the "Market Price of the Common Stock") is less than 95% of the Current Price
applicable to the relevant closing date (the "Base Price"), the Company will
issue the number of Supplemental Shares equal to (1) the product of (x) the
number of shares purchased on the relevant closing date, multiplied by (y) the
excess of the Base Price over the Market Price of the Common Stock, divided by
(2) the Market Price of the Common Stock. The Company is obligated to issue the
Supplemental Shares, if any, within 30 days after the relevant closing date. In
connection with the shares issued on the Initial Closing Date, the Company
issued 57,945 Supplemental Shares to Beach.

Other than Beach Boulevard, there are no other known sources of liquidity.
The Company's cash requirements may vary materially from those now forecasted
due to potential future acquisitions, the progress of research and development
programs, results of clinical testing, relationships with strategic partners, if
any, competitive and technological advances, decisions of the FDA and foreign
regulatory processes and other factors. There can be no assurance, however, that
additional capital or financing will be available when needed, or if available,
will be available on acceptable terms. Insufficient funds may prevent the
Company from implementing its business strategy or may require the Company to
delay, scale back or eliminate certain of its research and product development
programs, including the FDA clinical trials currently being conducted by CTI,
Co., or to license third parties the rights to commercialize products or
technologies that the Company would otherwise seek to develop on its own. In
addition, the fact that there will be a large number of shares of the Common
Stock registered for resale by means of this Prospectus might adversely affect
the ability of the Company to raise capital in the future due to the fact that
so many stockholders could sell their shares at any time and thereby drive down
the market value of the shares of the Common Stock, at a time when price
stability would be an important issue for any new investor.

On January 28, 1998, the Company had entered into an investment agreement
with Bristol Asset Management L.L.C. ("Bristol"). Subject to certain conditions,
Bristol had agreed to purchase up to $7,000,000 worth of the

6
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Company's Common Stock. Subsequent to the effective date of the Company's
Registration Statement on Form SB-2 (January 8, 1999), Bristol declined to
participate under its investment agreement with the Company. Beach Boulevard has
stepped in to replace Bristol.

If the Company does not commence generating adequate revenues, or if it
does not attract new capital sufficient to meet its operating needs, the Company
will not be able maintain the existing clinical trials to obtain FDA approval
for the CTI, Co. System or to obtain insurance payment codes for the CTI System.
In such event, the Company would have difficulty selling its products in the
United States. The Company would then be forced to focus on sales to foreign
markets that do not require FDA approval.

The Company's principal executive office is located at 476 Heritage Park
Boulevard, Suite 210, Layton, Utah 84041, and its telephone number is (801) 776-
4700. CTI, Co.'s principal executive office is located at 476 Heritage Park
Boulevard, Suite 210, Layton, Utah 84041, and its telephone number is (801) 776-
4700.

7
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The Offering

Common Stock Outstanding Prior
to the Offering.................................... 48,834,512 shares (1)
Common Stock to be Resold............................ 36,209,606 shares (2).
See "Plan of
Distribution and
Selling Stockholders".
OTC Bulletin Board Symbol............................ COII

(1) Includes shares of the Common Stock issued and outstanding as of October
29, 1998. Does not include (i) 70,781, (ii) 3,840,615 shares underlying the
Resale Warrants; and (iii) 6,250,000 shares underlying the Resale Options.
See "Management - Stock Options and Restricted Stock" and "Description of
Securities".
(2) Includes: (i) 20,781,250 Newly Issued Shares; (ii) 5,337,741 shares issued
and outstanding; (iii) 3,840,615 shares underlying the Resale Warrants; and
(iv) 6,250,000 shares underlying the Resale Options. See "Plan of
Distribution and Selling Stockholders".

8
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Summary Selected Consolidated Financial Information

The following table presents summary historical data of the Company on a
consolidated basis as of March 31, 1999 and 1997 and for the fiscal years ended
June 30, 1998 and 1997, respectively, which present the consolidated results of
continuing operations of the Company and its 80 percent owned subsidiary,
Computerized Thermal Imaging, Co. This historical data as of March 31, 1999 and
1997 and for the fiscal years ended June 30, 1998 and 1997 has been derived from
the Company's audited and unaudited Financial Statements included elsewhere in
this Prospectus. The summary historical consolidated financial information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and the Notes thereto appearing elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
Nine Months Ended Years Ended
March 31, June 30,
-------- -------
1999 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues, net..................................... -0- -0- -0- $ 55,815
Other income...................................... $ 4,853 $ 2,688 $ 3,307 $ 5,762
----------- ----------- ----------- ------------
Total revenues.................................... $ 4,853 $ 2,688 $ 3,307 $ 61,577
Loss from operations.............................. ($3,473,473) ($4,306,021) ($6,009,522) ($3,349,614)
Extraordinary item................................ -0- -0- $ 65,637 -0-
Net loss.......................................... ($3,473,473) ($4,306,021) ($5,943,885) ($3,349,614)
Net loss per weighted-average shares
of common stock outstanding..................... ($0.07) ($0.11) ($0.14) ($0.10)
Weighted average Shares of Common Stock
outstanding....................................... 50,441,705 39,896,549 41,943,867 33,803,045
Balance Sheet Data:
Current assets.................................... $ 474,477 $ 498,376 $ 232,268 $ 196,056
Total assets...................................... $ 601,347 $ 871,788 $ 381,525 $ 528,675
Current liabilities............................... $ 2,293,283 $ 1,998,712 $ 2,861,995 $ 1,671,448
Total liabilities................................. $ 2,293,283 $ 2,516,212 $ 3,168,868 $ 2,346,448
Stockholders' equity (deficit).................... ($1,691,936) ($1,644,424) ($2,787,343) ($1,817,773)
Working capital (deficit)......................... ($1,818,806) ($1,500,336) ($2,629,727) ($1,475,392)
</TABLE>

9
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RISK FACTORS

An investment in the Company involves certain risks. Prospective
investors should carefully review the following factors together with the other
information contained in this Prospectus prior to making an investment decision.

Development Stage Company. Since inception, the Company has been
engaged almost exclusively in organizational and research and development
activities, and has only recently begun product commercialization. Accordingly,
as a development stage company, the Company has a limited operating history upon
which an evaluation of the Company's prospects can be made. Consequently, the
likelihood of success must be considered in view of all of the risks, expenses
and delays inherent in the establishment of a new business, including, but not
limited to, expenses and delays of commencing a new business, slower than
forecasted manufacturing and marketing activities, the uncertainty of market
assimilation of the Company's products and other unforeseen factors.
Furthermore, there can be no assurance that the Company's proposed business as
described herein will prove successful or that the Company will ever be able to
operate profitably.

Limited Operating History; Continuing Operating Losses. The Company was
formed in June 1987 and has not generated significant revenues to date. As of
June 30, 1998, the Company had an accumulated deficit of $20,682,969 funded by
paid in capital. For the fiscal years ended June 30, 1998 and 1997, the Company
had operating losses of $5,943,885 and $3,349,614, respectively, resulting
principally from costs incurred in research and development efforts and other
costs of operations. The Company expects that operating losses will continue
until such time as product sales generate sufficient revenues to fund its
continuing operations, as to which there can be no assurance.

Independent Accountants' Report; Going Concern Qualification. The
report from the Company's independent accountants includes an explanatory
paragraph that describes substantial doubt concerning the ability of the Company
to continue as a going concern, without continuing additional contributions to
capital. The Company may incur losses for the foreseeable future due to the
significant costs associated with manufacturing, marketing and distributing its
CTI System and CTI, Co. System (hereinafter sometimes collectively referred to
as the Systems and individually referred to as a "System") and due to continual
research and development activities which will be necessary to develop
applications for the Company's thermal imaging technology. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations and
"Financial Statements - Report of Independent Accountants."

Uncertainties Concerning Future Profitability. The Company's ability to
achieve profitability will depend, in part, on its ability to successfully
develop clinical applications and obtain regulatory approvals for its products
and to develop the capacity to manufacture and market such products on a wide
scale. There is no assurance that the Company will be able to successfully make
the transition from research and development to manufacturing and selling
commercial thermal imaging products on a broad basis. While attempting to make
this transition, the Company will be subject to all risks inherent in a growing
venture, including the need to produce reliable and effective products, develop
marketing expertise and enlarge its sales force. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations".

Uncertain Ability to Meet Capital Needs. The Company will require an
estimated $6,000,000 over the next 12 months for its research and development
programs, preclinical and clinical testing, development of its sales and
distribution efforts, operating expenses, regulatory processes and manufacturing
and marketing programs. The Company's capital requirements will depend on
numerous factors, including the progress of its research and development
programs; results of preclinical and clinical testing; the time and cost
involved in obtaining regulatory approvals; the cost of filing, prosecuting,
defending and enforcing any patent claims and other intellectual property
rights; the economic impact of competing technological and market developments;
developments and changes in the Company's existing research, licensing and other
relationships; and the terms of any new collaborative, licensing and other
arrangements that the Company may establish. During the three years prior to the
date of this Prospectus, David B. Johnston, the Chairman of the Board and the
Chief Executive Officer of the Company, and certain affiliates of Mr. Johnston
and the Company have contributed approximately $4,050,000 to the capital of the
Company in exchange for shares of the Common Stock. The Company believes that
its current assets and potential additional contributions from affiliates of the
Company and certain accredited investors, as needed, will be sufficient to meet
the

10
<PAGE>

Company's short-term operating expenses and capital expenditures. At the
present time, however, there is no commitment from anyone with respect to any
future capital contributions to the Company, and there is no way to predict when
and if any such additional contributions may be made. Consequently, the bulk of
the needed capital over the next 12 months must come from one or more
substantial new investors.

In order to meet its expected capital needs for the 12 months ending
January 2000, on March 4, 1999, the Company entered into a Securities Purchase
Agreement (as amended in May, the "Investment Agreement") with Beach Boulevard
L.L.C. ("Beach"). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources." Subject
to certain conditions provided in the Investment Agreement, the Company may
require Beach to purchase up to $7,000,000 of Common Stock of the Company in a
series of tranches of $500,000 each. At the closing of the first of these
tranches on May 13, 1999 (the "Initial Closing Date"), the Company issued
757,576 shares to Beach. At the closing of the second of these tranches on June
15, 1999 (an "Additional Closing Date") the Company issued 862,069 shares to
Beach. Closings for subsequent tranches (each, an "Additional Closing Date")
will be held after the Company gives a notice (each, a "Tranche Notice") to
Beach. Without the consent of Beach, there can not be more than one Additional
Closing Date in any one calendar month.

The purchase price for each share of Common Stock being bought by Beach
on each Additional Closing Date will be based on the lowest sale price of the
stock during the period from the date of the relevant Tranche Notice to and
including the trading day immediately before that Additional Closing Date
multiplied by (i) for the first two Additional Closing Dates, 82.5%, and (ii)
for each Additional Closing Date thereafter, 85%.

Beach's obligations to purchase additional tranches are subject to
certain requirements relating to the effectiveness of the Company's Registration
Statement covering the shares issued or be issued to Beach, the number of shares
authorized and reserved for issuance to Beach, the continued accuracy of
representations and warranties made by the Company in the Investment Agreement,
the absence of material adverse changes in the business, operations or
conditions of the Company, and the absence of any suspension of the trading of
the Company's Common Stock by the SEC or the NASD.

In addition, after Beach has purchased $1,500,000 of the Company's
Common Stock, Beach's obligation to fund subsequent tranches will be subject to
the following conditions: (1) the lowest sale price of the Common Stock during
the period from the date of the Tranche Notice to and including the trading day
before the relevant Additional Closing Date (the "Current Price") must be
seventy-five cents ($0.75) or more and (2) the average daily trading volume for
the twenty consecutive trading days ending the day before the relevant
Additional Closing Date must be 200,000 or more shares.

Other than Beach Boulevard L.L.C., there are no other known sources of
liquidity. The Company's cash requirements may vary materially from those now
forecasted due to potential future acquisitions, the progress of research and
development programs, results of clinical testing, relationships with strategic
partners, if any, competitive and technological advances, decisions of the FDA
and foreign regulatory processes and other factors. There can be no assurance,
however, that additional capital or financing will be available when needed, or
if available, will be available on acceptable terms. Insufficient funds may
prevent the Company from implementing its business strategy or may require the
Company to delay, scale back or eliminate certain of its research and product
development programs, including the FDA clinical trials currently being
conducted by CTI, Co., or to license third parties the rights to

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commercialize products or technologies that the Company would otherwise seek to
develop on its own. In addition, the fact that there will be a large number of
shares of the Common Stock registered for resale by means of this Prospectus
might adversely affect the ability of the Company to raise capital in the future
due to the fact that so many stockholders could sell their shares at any time
and thereby drive down the market value of the shares of the Common Stock, at a
time when price stability would be an important issue for any new investor.

Securities Laws Issues. During 1998, certain secondary transactions
involving the transfer of shares of the Common Stock deemed to be "restricted
securities", as that term is defined in Rule 144 of the Securities Act, may have
an adverse effect on the Company's ability to rely on Section 4(2) of the
Securities Act in order to exempt the original issuances of the shares. On
January 22, 1998, the Company issued 1,827,250 shares of the Common Stock to
TII, an affiliate of the Company, in an exempt transaction effected in reliance
upon Section 4(2) of the Securities Act. On April 8, 1998 and May 5, 1998, TII
transferred 100,000 shares and 300,000 shares, respectively, to a total of four
separate purchasers. The transfers by TII were made in reliance upon Section
4(1) of the Securities Act. All of the certificates representing shares of the
Common Stock issued to TII and its transferees had appropriate legends
restricting their sale and transfer, except in compliance with the Securities
Act.

A separate chain of transactions involving Manhattan Financial Group
("MFG") and PDH, Ltd. and P.D. Investments, affiliates of Doug Holt, took place
during the spring of 1998. The Company issued to MFG 2,394,000 shares of the
Common Stock on March 24, 1998 in reliance upon Section 4(2) of the Securities
Act. On April 29, 1998, MFG transferred 74,200 shares of the Common Stock,
originally acquired in the March 24, 1998 transaction, to two separate
purchasers. In a second transaction on May 11, 1998, MFG transferred an
additional 420,800 shares of the Common Stock, originally acquired in the March
24, 1998 transaction, to three purchasers, two of which were PDH, Ltd and P.D.
Investments. On May 19, 1998, PDH, Ltd. transferred 165,000 shares of the Common
Stock, acquired from MFG on May 11, 1998, to six separate purchasers.
Additionally, on June 2, 1998, P.D. Investments transferred 102,000 shares of
the Common Stock, acquired from MFG on May 11, 1998, to three purchasers. All of
the transfers involving MFG, PDH, Ltd., and P.D. Investments were made in
reliance on exemptions from registration under Section 4(1) of the Securities
Act. All of the certificates representing shares of the Common Stock issued to
MFG and its transferees had appropriate legends restricting their sale and
transfer, except in compliance with the Securities Act.

In the event that the subsequent transfers of "restricted", shares of
the Common Stock by TII, MFG, PDH, Ltd., and P.D. Investments are deemed to be
in violation of the Securities Act, the exemptions from registration, relied
upon by the Company for the initial issuance of those shares, could be lost.
Moreover, if an exemption from registration for the issuances is not available,
and the Company is found to have engaged in a public offering of securities, the
Company may face claims by the subsequent purchasers for rescission and/or
administrative sanctions, fines and penalties. However, the Company took the
step of applying legends to the stock certificates in question, and the
Company's transfer agent was well-experienced in the requirement that stock
certificates bearing a legend restricting their sale or transfer should not be
issued in a new name unless there was an available exemption from registration.

There were 14 parties involved in the above-described transactions, all
of who held securities of the Company prior to or at the time the shares of the
Common Stock were purchased. Given the small number of parties involved in the
above-described transactions and the precautions taken by the Company,
management does not believe that there was any public offering of the Company's
shares of the Common Stock, and consequently, the exemption available to the
Company at the time of the issuance of the securities was not forfeited.
However, in order to lessen any problems which may emanate from the transfer of
the above-described shares of the Common Stock, on September 17, 1998, the
Company, TII, MFG, PDH, Ltd., and P.D. Investments offered to rescind the sales
of all such shares, pursuant to the securities laws of the various states where
the transfers took place. The Company made its rescission offer in the form of
an offering exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act, and in conformity with the applicable state
securities laws. All of the stockholders in question elected to reject the
rescission offers. Consequently, management does not believe that the Company
has any material exposure in connection with the issuance of such shares. It
should be pointed out that the rescission offers with respect to state
securities laws do not cure any potential federal securities laws problems, and
any purchaser who elected to reject or accept a rescission offer may still elect
to pursue his remedies under federal law. In connection with the above-described
transactions, management has estimated that the Company is at risk for an amount
not to exceed $306,873, which amount has been reflected in the Consolidated
Financial Statements, including the Notes thereto, appearing elsewhere in this
Prospectus.

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<PAGE>

Preemptive Rights Issues. Pursuant to Title 7, Chapter 79 of the Nevada
Revised Statutes, stockholders of corporations organized before October 1, 1991,
with certain limited exceptions set out in the statute, have preemptive rights
to acquire pro rata unissued shares, treasury shares or securities convertible
into such shares, being offered for sale, except to the extent limited or denied
by the corporation? articles of incorporation. Prior to October 1, 1991, among
other circumstances, preemptive rights did not exist with respect to (i) shares
issued to directors, officers or employees of the Company pursuant to a vote of
the stockholders, or pursuant to a plan authorized by the stockholders, (ii)
shares sold for a consideration other than cash, and (iii) shares issued at the
same time that the stockholder who claims a preemptive right acquired his
shares. The Company was incorporated on June 10, 1987, and prior to March 16,
1998, its Articles of Incorporation did not provide for any limitation with
respect to preemptive rights. In the various offerings of its securities, the
Company did not offer to its existing stockholders preemptive rights to acquire
any of the securities so offered other than to persons in exchange for services
rendered. The applicable remedy, if any, for the failure by the Company to offer
to its stockholders the preemptive rights is not certain after the passage of
time and Common Stock price fluctuations. Under Nevada law, the preemptive right
is only an opportunity to acquire shares upon such terms as the Board of
Directors fixes for the purpose of providing a fair and reasonable opportunity
for the exercise of such right. If a stockholder were to timely demand
preemptive rights for a particular non-excepted prior sale, the Company might be
required in equity to sell additional shares of the Common Stock to the
complaining stockholder at previously offered prices to enable a stockholder
exercising such rights to maintain his ownership percentage for prior sales that
would effect preemptive rights. To the extent that any stockholders were
entitled to the right to purchase shares of the Common Stock upon the exercise
of any such preemptive rights, the Company plans to allow any such requesting
stockholder the right to purchase his pro rata amount of such shares at the same
price per share to which he would have been entitled if such preemptive rights
had been offered in conformity with Nevada law. Any such offering of preemptive
rights will be in conformity with the Securities Act and the various states
where any such stockholders may be located. If any stockholders were to exercise
their preemptive rights within the applicable statute of limitations for any
sale of securities which carried a preemptive right prior to March 16, 1998, the
percentage interests of investors may be diluted by any such sales of additional
securities and the contributions to the Company from such sales, if required to
be offered at the price of previous issuances and if such price is below the
current market value, could result in contributions to the Company at a per
share contribution less than the current market value. The Company cannot
speculate whether any stockholders would elect such preemptive rights, if the
statute of limitations has not barred such rights, or how much additional
capital would be raised or how many shares would be issued or whether other
remedies would be available. Thus, the Company assigns no liability to this
contingency. As of the date of this Prospectus, management is not aware of any
stockholder who intends to make any claim with respect to the failure by the
Company to offer any such preemptive rights. On February 4, 1998, a majority of
the stockholders, by written consent, voted to amend the Articles of
Incorporation of the Company to deny preemptive rights with respect to each new
issuance of shares of the Common Stock. However, the amendment to the Articles
of Incorporation will have no effect with respect to preemptive rights that may
have existed for certain sales of the Common Stock prior to such amendment. See
"Description of Securities - Preemptive Rights".

Select Capital Advisors, Inc. Debentures. On December 9, 1997, the
Company filed suit against Select Capital Advisors, Inc. ("Select"), Ronald G.
Williams ("Williams"), and various other parties in the United States District
Court for the Southern District of Florida for damages and recission with
respect to the fraudulent sale of certain 12% Series A Senior Subordinated
Convertible Debentures issued by the Company. In March 1997, the Company was
introduced to Select and Williams who represented that they had the experience,
reputation and resources to raise the needed capital and to provide needed
equipment and operating financing of approximately $6,000,000. The Company
entered into an agreement with Select to raise the funds and perform certain
financial advisory services. In April 1997, Select negotiated the offering and
issuance of the convertible debentures for approximately $530,000 in proceeds.
Following the attempted conversion of the debentures by the investors, the
Company discovered evidence to indicate that numerous false and misleading
statements were made by unauthorized persons in connection with the sale of the
debentures; various documents were changed without the knowledge of the Company;
unlicensed broker-dealers sold the debentures; and Williams and Select made
material omissions to the Company and to the purchasers. The Company filed suit
but has since reached settlements with all of the investors. The Company plans
to continue with the prosecution of its claims against Select and Williams.
Management believes that it will prevail in the litigation against Select and
Williams. See "Business - Litigation".

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<PAGE>

Claims Involving Stockholders. The Company has initiated a suit in
Nevada to recover shares issued and damages from a former director for failure
of consideration. During the year ended June 30, 1994, the Company issued
1,000,000 shares of the Common Stock to a former director of the Company based
upon the director's representation that he would arrange large-scale financing
and capital from certain proposed contributors. During the year ended June 30,
1997, actions were taken to cancel the shares of the Common Stock because the
Company contended that the issuance was conditional upon performance by the
former director to consummate the financing. In 1997, the Company learned that a
lender to the former director asserted a pledge of 500,000 shares of the Common
Stock as collateral for a loan. The 500,000 pledged shares of the Common Stock
issued to the director are included as issued and outstanding shares in the
accompanying Consolidated Financial Statements at June 30, 1998 and 1997. See
"Business - Litigation".

Past Due Accounts. As of the date of this Prospectus, the Company has
paid its past due liabilities with its primary systems development vendor, TRW,
Inc., an Ohio corporation ("TRW"). The Company has also paid in full the
Promissory Note dated May 1, 1998 executed with the law firm of Looper, Reed,
Mark & McGraw Incorporated.

New Product Development and Integration; Technological Change. Upon
first introduction, many physicians may equate the Systems with the predecessor
technology of "thermography", an analog infra-red camera system without the
Company's computer algorithm analysis using computed thermal data gathered by
high quality digital thermal imaging cameras, and educating physicians that the
Systems are new technology may take more time than anticipated by management.
The market for the Systems is characterized by rapid technological advances,
changes in customer requirements and frequent new product introductions and
enhancements. The Company's future success will depend upon its ability to
enhance and integrate its current product line, to complete products currently
under development, to develop and introduce new products that keep pace with
technological developments, and to respond to evolving customer requirements.
Any failure by the Company to anticipate or respond adequately to technological
developments by its competitors or to changes in customer requirements, or any
significant delays in product integration, development or introduction could
result in a loss of competitiveness or revenues. Timeliness of delivery of
either a System when ordered or services for a System delivered is of critical
importance to certain customers, and the Company's failure to successfully
develop and ship such products in a timely manner could result in cancellation
of customer orders which would have a material adverse effect on the Company's
business and results of operations. CTI, Co has no assurance that it can finance
its development, marketing, or production costs. In an effort to raise the
needed capital, the Company has executed a Securities Purchase Agreement with
Beach Boulevard, L.L.C. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources". At the
date of this Prospectus there is no known financing source for CTI, Co, so the
Company must fund or finance the balance of the clinical trials and any
subsequent development, operating costs, marketing and production costs until
CTI, Co develops its business and either arranges financing or is profitable.
All risk factors set out in this Prospectus for the Company also apply to the
risks of the Company's investment in CTI, Co. There can be no assurance that the
Company will be successful in completing its product integration efforts or in
developing and marketing new products or product enhancements on a timely or
cost-effective basis, and such failure could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business - Products".

Dependence on the CTI System and the CTI, Co System; Uncertainty of
Market Acceptance. The Company's success is dependent on the development and
market acceptance of its CTI System and the CTI, Co System. All of the Company's
revenues will be derived from the placement or sale of the Systems for the
global health care market. The market for the Systems is still relatively
undeveloped and may not experience material expansion in the near future as
planned by management. In the event that the Company's market does not develop
as anticipated, the Company's business, financial condition and results of
operations would be adversely effected. The rate of deploying the CTI, Co System
in the United States will depend upon the degree to which clinics and physicians
accept, due to the worldwide existence of mammography equipment, after PMA
approval, if obtained, the CTI, Co System as complementary to mammography to
detect breast cancer (the only claim authorized for ongoing clinical trials) or
as an independent examination technology. CTI, Co management believes the CTI,
Co System results will be accepted by the medical community.

The commercial success of the Systems will depend upon their acceptance
by the medical community as useful and cost-effective. There can be no assurance
that the Company can market the Systems or that the Company will introduce new
products that achieve significant market acceptance in the future. Moreover,
when the Systems are being

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<PAGE>

marketed for sale or use, new product introductions or enhancements by the
Company's competitors or the use of other technologies could cause a decline in
sales or loss of market acceptance of the Systems. In addition, third-party
payors in the U.S., such as governmental programs and private insurance plans,
can indirectly affect the pricing or the relative attractiveness of the Systems
by regulating the maximum amount of reimbursement that they will provide for the
taking, storing and interpretation of medical images. A decrease in the
reimbursement amounts for imaging procedures may decrease the amount which
physicians, clinics and hospitals are able to charge patients for such services.
In management's view, the acceptability and adaptability of the Systems could be
enhanced by such a decrease because the Systems are less costly to use and
deploy than magnetic resonance imaging ("MRI") or computed tomography ("CAT")
scan. Third-party payors may require FDA approval before authorizing any payment
codes solely for use of either of the Systems, although physicians might still
use the Systems as a diagnostic tool even without separate payment codes. In the
event that the Systems and products under development do not achieve market
acceptance, the Company's business, financial condition and results of
operations could be adversely effected. See "Business - Products" and "Third-
Party Reimbursement".

CTI, Co. Dependence on the Company. CTI, Co. is an 80 percent owned
subsidiary of the Company that has developed the CTI, Co System exclusively
using contributions of capital from the Company. The efficacy of the CTI, Co
System is currently subject to confirmation in FDA clinical trials as a tool
complementary to mammography. CTI, Co will have no source of revenue, other than
contributions to its capital made by the Company, until the clinical trials are
successfully concluded and CTI, Co or the Company then is able to market for
sale or use the CTI, Co System. CTI, Co has no assurance that it can finance its
development, marketing, or production costs. The Company must fund or finance
the balance of the clinical trials and any subsequent development, operating,
marketing and production costs until CTI, Co develops its business and then is
capable of financing its operations. Management believes that the Investment
Agreement should provide the Company with a sufficient amount of capital to fund
the completion of FDA clinical trials on the CTI, Co System after the
Registration Statement becomes effective to which this Prospectus relates, a
prerequisite to the obligations thereunder to make contributions to the Company.
All risk factors set forth in this Prospectus for the Company also apply to the
risk of the Company's investment in CTI, Co.

Risks Applicable to Foreign Sales. Sales of the Company's products to
foreign markets may account for a substantial portion of the Company's
forecasted revenues. Foreign sales expose the Company to certain risks,
including the difficulty and expense of maintaining foreign sales distribution
channels, barriers to trade, potential fluctuations in foreign currency exchange
rates, political and economic instability, availability of suitable export
financing, accounts receivable collections, tariff regulations, quotas, shipping
delays, foreign taxes, export licensing requirements and other United States and
foreign regulations that may apply to the export of medical equipment. The
regulation of medical devices worldwide also continues to develop, and there can
be no assurance that new laws or regulations will not have an adverse effect on
the Company. In addition, the Company may experience additional difficulties in
providing prompt and cost effective service of its thermal imaging systems in
foreign countries. The Company does not carry insurance against such risks. The
occurrence of any one or more of these events may individually or in the
aggregate have a material adverse effect upon the Company's business, financial
condition and results of operations. See "Business Risks of Doing Business in
the PRC and Other Foreign Countries".

Dependence on Contracts with Third Parties. The Company does not
manufacture the hardware and operating software components of the Systems but
rather purchases these components from third parties in accordance with specific
design specifications. Although there is more than one manufacturer capable of
manufacturing these components, the failure of any one manufacturer to deliver
its components in a timely manner could result in a loss of business for the
Company and further result in time delays for installation of the Systems. The
anticipated cost of production could increase if the Company is required to seek
and make arrangements for different manufacturers to produce the components as a
precaution. Moreover, even though the Company may seek a remedy from a
manufacturer, any thermal imaging component manufactured by such third party may
be defective, resulting in a type of claim for damages against the Company for
which the Company may not have the right to claim from the manufacturer.

Need for FDA and Foreign Governmental Approvals; Government Regulation.
The Company's products may be regulated as medical devices by the FDA under the
Federal Food, Drug and Cosmetic Act (the "FDC Act") and the regulations
promulgated thereunder. As such, these devices require compliance with either
FDC Act Section 510(k), or acceptance of a pre-market approval application
(herein referred to as "PMA") by the FDA. Satisfaction of applicable

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<PAGE>

regulatory requirements may take several years and varies substantially based
upon the type, complexity and novelty of such devices, as well as the clinical
procedure. Although filings and governmental approvals may be required in some
foreign countries before the devices can be marketed, other countries may
require no approval. There can be no assurance that further clinical trials of
the Systems or of any future products will be successfully completed or, if they
are completed that any requisite FDA or foreign governmental clearances or
approvals will be obtained.

The CTI System includes a thermal camera, basic software, an
application protocol, and Quantitative Thermal Analysis ("QTA") Lab. The Company
does not have, and has not applied for, specific FDA approval for the basic CTI
System. The Company has concluded that the CTI System, as configured, can be
marketed and sold in the United States without any further FDA approval pursuant
to any exemption under Section 510(k) of the FDC Act. A 510(k) exemption has
been issued by the FDA for the manufacturer of the camera and software currently
used by the Company in the basic CTI System. The Company intends to use thermal
imaging devices that would qualify under such 510(k) exemption. As a result,
management believes no additional FDA approval is required in order for health
care providers or radiologists in the United States to use the CTI System.
However, if the CTI System is marketed under the 510(k) exemption, any health
care provider could only rely upon non-specific payment codes for billing
purposes in connection with third-party reimbursement, which could limit the
incentive for health care providers to use the CTI System. Nevertheless, as long
as the Company uses a thermal imaging collection system that has been cleared
for 510(k) exemption in favor of the third-party manufacturer by the FDA,
management believes that the Company may sell the CTI System in the United
States without any further action by the FDA. The Company could add additional
analytical software to the basic system which may require the Company to apply
for a particular 510(k) exemption, or even for a PMA for a specific medical use
of the CTI System, in which case the 510(k) exemption process may take a few
months. Any PMA application will require substantial cost and many months of
clinical trials and independent examinations to confirm any specific medical
claims under which the CTI System may be sold in the United States. Sales of the
basic CTI System outside the United States may require governmental approvals in
some countries and may require no approvals in others.

The CTI, Co System consists of the same camera and software as the
basic CTI System along with additional image processing and analytical software
and a patient-positioning table. Because of the additional image processing and
analytical software, the CTI, Co System will require FDA approval for its sale
and use. Consequently, CTI, Co is conducting clinical trials, the results of
which will be submitted to the FDA for a PMA to enable the sale of the CTI, Co
System. Management expects that the CTI, Co System, after completion of the
clinical trials and confirmation, will be a unique process which is
complementary to mammography to identify and distinguish malignant from benign
tumors. CTI, Co has been conducting clinical trials for almost one year, after
completion of pre-testing examinations and development of data required to
qualify for the PMA. See "Business - Government Regulation". To make any further
medical efficacy claims for use of the CTI, Co System independent of mammography
or any other imaging modality, CTI, Co would necessarily be required to conduct
other clinical trials further authorized by the FDA, which would require
substantial cost and additional time for development and conduct of pre-test and
clinical trials. The PMA process for the CTI, Co System may not be successfully
completed. If the Company is unable to raise the necessary money to fund the
ongoing clinical trials which are a part of the PMA process for the CTI, Co
System, the Company would be forced to abandon its attempt to obtain a PMA from
the FDA. If the PMA is not successfully completed, it could substantially
restrict the sales of the CTI, Co System in the United States. Sales of the CTI,
Co System outside the U.S. may require governmental approvals in some countries
and may require no approvals in others.

FDA or other governmental clearances or approvals of products developed
by the Company in the future may require substantial filing fees, or costs to
conduct clinical trials, which could limit the number of applications sought by
the Company and may entail limitations on the indicated uses for which such
products may be marketed. In addition, approved or cleared products may be
subject to additional testing and surveillance programs required by the FDA and
other regulatory agencies, and product approvals and clearances could be
withdrawn for failure to comply with regulatory standards or by the occurrence
of unforeseen problems following initial marketing. The Company is also required
to adhere to applicable requirements for current good manufacturing practices
and other health requirements, to engage in extensive record keeping and
reporting, and to comply with the FDA's product labeling, promotional and
advertising requirements. See "Business - Government Regulation".

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<PAGE>

Dependence Upon Key Personnel. Although the Company depends on outside
manufacturing and servicing capabilities, there are and will be acute dependence
upon certain key members of management and technical personnel. Particular
reliance will be made on David A. Packer, the President of the Company and the
President and Chief Operating Officer of CTI, Co, formerly an employee of TRW.
Furthermore, a part of the Company"s current marketing emphasis is based upon
opportunities in the PRC and Thailand. General Richard V. Secord, the Company"s
Chief Operating Officer and Chief Executive Officer of CTI, Co, has been a key
person in negotiating the Company"s inroads into these markets. Certain other
key personnel will be added on an "as needed" basis to complete the tactical
management group. Because of the specialized nature of the Company's business,
the Company's ability to maintain its competitive position will depend, in part,
upon its ability to attract and retain highly qualified people in the areas of
management and technology while maintaining relationships with leading research
institutions. However, if the Company wishes to expand its scope of product and
market coverage, there can be no assurance that the Company will be able to
attract the personnel on a timely basis to accomplish such advancements. The
loss of the services of Mr. Packer, General Secord, or other key individuals may
adversely affect the Company's business and prospects. At this time, the Company
does not carry key man life insurance on any of its employees. See `Business"
and "Management".

Ability to Manage Projected Growth. Should the Company's growth
strategy prove successful, a significant strain may be placed on the Company's
customer service and support operations, sales, administrative personnel and
other resources. The Company's ability to manage future growth, if any,
effectively will require the Company to continue to improve its operational,
management and financial systems and controls and to train, motivate and manage
its employees. In particular, if financing or equity raising efforts are
successful, the Company will be required in the near future to recruit a
significant number of technically qualified personnel to expand its direct sales
force and customer support group. As a result, the Company is subject to certain
growth-related risks, including the risk that it will be unable to retain the
necessary personnel or acquire other resources necessary to service such growth
adequately. There can be no assurance that the Company can expand this resource
as rapidly as necessary or finance the working capital needed for such
expansion. If the Company's management is unable to effectively manage future
growth, if any, the Company's business, financial condition and results of
operations could be adversely effected.

Competition. Competition in some markets for the Systems may be
intense. A large number of companies offer imaging systems which may be offered
as competitive with those of the Company. Many of the Company's competitors are
larger and more established and have substantially more financial, technical,
research and development and marketing resources than the Company. Several large
multi-national corporations offer competitive products, such as X-ray or MRI
equipment. Other large corporations have the technical and financial ability to
design and market competitive products, and some of them have produced and
marketed such products in the past. There can be no assurance that such large
potential competitors will not elect to reenter the market competing with the
Systems, which could have a material adverse effect on the Company's ability to
sell the Systems. There can be no assurance that the Company will be able to
compete successfully in the future, or that future competition for product sales
will not have a material adverse effect on the business, financial condition and
results of operations of the Company. See "Business - Competition".

Uncertain Protection for Intellectual Property; Possible Claims of
Others. The Company generally does not rely solely on patent protection with
respect to its products. However, the Company does rely on a combination of
copyright and trade secret laws, employee and third-party nondisclosure
agreements, and other protective measures to protect intellectual property
rights pertaining to its products and technology. As of the date of this
Prospectus, no patents have been issued to the Company. However, CTI, Co has
filed a formal patent application with respect to its proprietary patient
positioning system and a provisional patent application covering the algorithm
process involved with the CTI, Co System, and expects to file additional patent
applications in the future. In the meantime, there can be no assurance that
applicable copyright or trade secret law or nondisclosure agreements will
provide meaningful protection of the Company's copyrights, trade secrets,
know-how or other proprietary information in the event of any unauthorized use,
misappropriation or disclosure of such copyrights, trade secrets, know-how or
other proprietary information. In addition, the laws of certain foreign
countries do not protect the Company's intellectual property rights to the same
extent as do the laws of the United States. There can be no assurance that `he
Company or CTI, Co will be able to protect its intellectual property
successfully.

17
<PAGE>

The Systems and component technology incorporate subject matter that
the Company believes is in the public domain or that it otherwise has the right
to use. There can be no assurance that third parties will not assert patent,
copyright or other intellectual property infringement claims against the Company
with respect to the Systems or technology or other matters. There may be third
party patents, copyrights and other intellectual property relevant to the
Systems and technology which are not known to the Company. Although no third
party has asserted that the Company is infringing such third party's patent
rights, copyrights or other intellectual property, there can be no assurance
that litigation asserting such claims will not be initiated, that the Company
would prevail in any such litigation, or that the Company would be able to
obtain any necessary licenses on reasonable terms if at all. Any such claims
against the Company, with or without merit, as well as claims initiated by the
Company against third parties, can be time consuming and expensive to defend or
prosecute and to resolve. See "Business - Patents and Intellectual Property".

License with CTI, Co. Upon the formation of CTI, Co, the Company
entered a License Agreement licensing to CTI, Co all of its intellectual
property, medical protocols, CTI System configurations, independent contractor
component trade secrets and similar technology for the purpose of enabling CTI,
Co to proceed to develop its CTI, Co System for the detection of breast cancer
in North America only. Under the terms of the License Agreement, improvements
made to the CTI System were cross-licensed to both parties to use, royalty free,
while ownership of such improvements were retained by the party making the
improvement. The technology that continued to be owned by CTI, Co. after the
expiration of the License Agreement is the refinement made to the technology
originally licensed by CTI to CTI, Co. This includes improvements made to the
patient positioning bed and improvements and automation applied to the system
software. The License Agreement executed on June 8, 1996 has now expired by its
terms, but before such expiration, the Company and CTI, Co. entered into the
Stock Transfer Agreement dated January 28, 1997 by which the Company obtained
controlling interest (over 80 percent) of the outstanding common stock of CTI,
Co. In the Stock Transfer Agreement, CTI, Co. agreed, in consideration for the
Company's contributions for the development of its technology and for clinical
trials, that CTI, Co. and the Company would cross-license each other for all
technology developments with respect to breast cancer imaging. The Company has
not entered a separate written license agreement with CTI, Co., relying at this
time only on the above-referenced agreement requiring a reasonable cross-license
as consideration for such contributions, the terms of which would be further
delineated in the event the Company were to decide to transfer control of CTI,
Co.

Although the Company has voting control over CTI, Co. as of the date of
this Prospectus, certain events could occur, such as an event of bankruptcy or
the possible exercise of rights by any vendor in the event of a collateral or
statutory materialman's lien, that could result in the loss of control by the
Company over CTI, Co. or its technology. In such an event, the absence of a
binding license agreement could result in the loss by the Company of the CTI,
Co. System technology. The Company has granted to the Attorneys a lien on all of
the shares of the common stock of CTI, Co. owned by the Company. In addition,
the Attorneys also have a lien on all of CTI, Co.'s technology in the CTI, Co.
System. Both liens have been granted to the Attorneys to secure a negotiable
promissory note for outstanding and accrued legal fees. See "Business - Patents
and Intellectual Property"; also see "Business Litigation - Past Due Accounts".

Uncertainty in U.S. Health Care Industry. Cost containment measures
instituted by health care providers as a result of regulatory reform or
otherwise could result in greater selectivity in the allocation of capital
funds. Such selectivity could have a material adverse effect on the Company's
ability to sell the Systems and services. See "Business - Third Party
Reimbursement".

Product Liability Risk; Limited Insurance Coverage. The manufacture and
sale of medical image information systems entail significant risk of product
liability claims. The Company believes it needs no product liability insurance
now because the Systems are either in development or operated by CTI, Co., which
carries insurance for its clinical trials. There can be no assurance that the
Company can obtain insurance coverage with limits adequate to protect the
Company from any liabilities it might incur in connection with the sale of the
Systems. The Company anticipates obtaining product liability coverage as
products are commercialized. Such insurance is expensive and in the future may
not be available on acceptable terms, if at all. A successful product liability
claim or series of claims brought against the Company in excess of its insurance
coverage could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company believes thermal
imaging is a completely safe procedure, without the harmful radiation produced
with X-rays, but the Company could still be required to defend claims as a

18
<PAGE>

defendant for a claim for failure to detect a malady. Even though the CTI System
is only a tool and does not diagnose, the Company could be called upon to devote
its capital toward defense costs. In the opinion of management, the Company's
liability should be limited to any foreseeable damages proximately resulting
from improper operation of a CTI System, but lawsuits without insurance
protection could occur.

No Commitment to Purchase Shares. No entity or individual, including
any selling agent, the Company, its officers or its directors, has any
obligation to purchase any of the shares of the Common Stock to be resold or
underlying the Resale Warrants or Resale Options . Any of the shares of the
Common Stock which may be offered for sale by the Selling Stockholders will be
offered through the secondary market, and consequently no assurance can be given
that any such shares will be sold or that the Selling Stockholders or subsequent
purchasers will be able to sell their shares of the Common Stock for the same
price as they were purchased. Pursuant to the terms of the Securities Purchase
Agreement, the Company may require Beach Boulevard L.L.C. ("Beach") to purchase
the Newly Issued Shares. However, the number of the Newly Issued Shares which
the Company may require Bristol to purchase is subject to various monthly and
aggregate limitations. Moreover, Beach is not required to purchase any of the
Newly Issued Shares until the Company has fulfilled certain conditions precedent
set forth in the Securities Purchase Agreement.

Sales of Shares of the Common Stock to Certain Parties. Prior to the
date of this Prospectus, certain officers, directors and related parties engaged
in business transactions with the Company. Primarily, the Company sold shares of
the Common Stock for cash and in exchange for services rendered to the Company
by Thermal Imaging, Inc. (herein sometimes referred to as "TII", a company
controlled by affiliates of David B. Johnston, the Chairman of the Board, to
Daron Dillia doing business as Manhattan Financial Group, a consultant to the
Company, and to PDH, Ltd., a company controlled by Doug Holt, a consultant to
the Company. All shares of the Common Stock issued to those persons were
restricted securities pursuant to Rule 144 promulgated under the Securities Act
("Rule 144"), and were priced at a value of about 50 percent of the then current
trading price of free trading shares. Management believes that the terms of
these transactions were as favorable to the Company as those which could have
been obtained from unaffiliated third parties under similar circumstances. All
future transactions between the Company and its affiliate will be on terms no
less favorable than could be obtained from unaffiliated third parties and will
be approved by a majority of the disinterested members of the Board of Directors
of the Company. See "Management - Certain Transactions".

Possible Conflicts of Interest. Many of the officers and directors of
the Company are also officers and/or directors of other companies, some of which
are affiliates of the Company. David B. Johnston is the Chairman of the Board
and Chief Executive Officer of the Company and also is a director and represents
a controlling stockholder (by attribution among family members) of TII, which
beneficially owed approximately 16.7 percent of the Common Stock as of October
29, 1998. Potential conflicts could arise in the future whenever the Company
prices restricted shares of the Common Stock to be sold to TII or any other
affiliate of the Company. Additionally, some decisions to be made by Mr.
Johnston as a director on behalf of the Company could be in conflict with the
interest of a Selling Stockholder. David A. Packer, President of the Company, is
also President and Chief Operating Officer of CTI, Co. General Richard V. Secord
is an officer and director of the Company, a director and the Chief Executive
Officer of CTI, Co. and the Chief Operating Officer of TriSun/CTI Asia, Ltd., a
no-asset company formed in Cyprus to purchase the Systems for installation in
hospitals in the PRC. Each of the foregoing companies can be construed as
affiliated with the Company or a company with which the Company has material
contracts. There are numerous possibilities of conflicts of interest which could
arise based upon the common control of the Company and the roles of Mr.
Johnston, Mr. Packer, and General Secord, and their respective roles in
management of the affiliates. Although each of the officers and directors of the
Company will make every effort to work in the best interests of the Company,
there is no assurance that if a conflict arises it will be resolved in favor of
the Company.

Retention of Control. The Company's officers, directors and principal
stockholders beneficially will own approximately 34 percent of the outstanding
shares of the Common Stock at the completion of the Offering, without taking
into account any of the Newly Issued Shares, any shares of the Common Stock
underlying the Compensation Warrants, or Resale Warrants. As a result, the
officers, directors and principal stockholders of the Company will have the
ability to control the day-to-day affairs and the fundamental policies of the
Company. Voting together, such stockholders, including the officers and
directors of the Company, could possibly block any major corporate transactions,
such as a merger or a sale of substantially all of the Company's assets, which
under Nevada law require

19
<PAGE>

the affirmative vote of holders of a majority of the outstanding shares of the
Common Stock of the Company. See "Management" and "Principal Stockholders".

Anti-Takeover Provisions. The Company's Articles of Incorporation and
Bylaws contain provisions that may have the effect of discouraging certain
transactions involving an actual or threatened change of control of the Company.
In addition, the Board of Directors has the authority to issue up to 3,000,000
shares of the Preferred Stock defined hereinafter in one or more series and to
fix the preferences, rights and limitations of any such series without
stockholder approval. The ability to issue shares of the Preferred Stock could
have the effect of discouraging unsolicited acquisition proposals or making it
more difficult for a third party to gain control of the Company, or otherwise
could adversely affect the market price of the Common Stock. See "Description of
Securities". In addition, CTI, Co.'s Articles of Incorporation likewise provide
for the issuance of preferred shares which could have anti-takeover
implications, but the Company maintains an 80 percent controlling interest to
change those terms if the Company desires to do so.

Dividend Policy. The Company has not paid or declared any cash
dividends with respect to the Common Stock, nor does it anticipate any such
payments or declarations in the foreseeable future. Any future dividends will be
declared at the discretion of the Board of Directors and will depend, among
other things, on the Company's earnings, if any, its financial requirements for
future operations and growth, and such other factors as the Company may then
deem appropriate. Investors should not rely on the receipt of dividends in the
near future or at any time in the future when evaluating the merits of an
investment in the shares of the Common Stock. See "Price Range of Common Stock
and Dividend Policy".

Shares Eligible for Future Sale. Sales of substantial amounts of the
Common Stock in the public market following the completion of the Offering could
have an adverse effect on the market price of the Common Stock. Prior to the
Offering, as of October 29, 1998, there were approximately 48,834,512 shares of
the Common Stock issued and outstanding. Upon completion of the Offering, all of
the shares of the Common Stock being registered hereby and approximately
33,263,187 shares of the Common Stock held by current stockholders of the
Company will be immediately eligible for public sale without restrictions. The
remaining approximately 10,233,584 shares of the Common Stock are "restricted
securities" as that term is defined under Rule 144 promulgated under the
Securities Act. No prediction can be made as to the effect, if any, that future
sales of additional shares of the Common Stock or the availability of such
shares for sale under Rule 144, other applicable exemptions or otherwise will
have on the market price of the Common Stock prevailing from time to time. Sales
of substantial amounts of the Common Stock in the public market, or the
perception that such sales could occur, could adversely affect prevailing market
prices of the Common Stock. See "Principal Stockholders".

Impact on Market of Debenture Conversion or Warrant or Option Exercise.
In the event of the exercise of a substantial number of the outstanding Warrants
and Resale Options within a reasonably short period of time after the right to
convert or exercise commences, the resulting increase in the amount of the
Common Stock in the trading market could substantially affect the market price
of the Common Stock. See "Description of Securities"

No Assurance of Active Public Market; Possible Volatility of the Common
Stock. Although the Common Stock is quoted on the OTC Bulletin Board, there can
be no assurance that an active public market for the Common Stock will be
sustained after the Offering. The trading price of the Common Stock could be
subject to wide fluctuations in response to quarter to quarter variations in
operating results, announcements of innovations or new products by the Company
or its competitors, and other events or factors. In addition, the stock market
has from time to time experienced extreme price and volume fluctuations which
affects the market price of securities of publicly traded companies and which
have often been unrelated to the operating performance of these companies. Broad
market fluctuations may adversely affect the market price of the Common Stock.
See "Price Range of Common Stock and Dividend Policy" and "Description of
Securities".

"Penny Stock" Issues. The shares of the Common Stock are "penny stocks"
as defined in the Exchange Act, which are traded in the over-the-counter market
on the OTC Bulletin Board. As a result, an investor may find it more difficult
to dispose of or obtain accurate quotations as to the price of the shares of the
Common Stock being registered hereby. In addition, the "penny stock" rules
adopted by the Commission under the Exchange Act subject the sale of the shares
of the Common Stock to certain regulations which impose sales practice
requirements on broker-dealers. For

20
<PAGE>

example, broker-dealers selling such securities must, prior to effecting the
transaction, provide their customers with a document which discloses the risks
of investing in such securities. Furthermore, if the person purchasing the
securities is someone other than an accredited investor or an established
customer of the broker-dealer, the broker-dealer must also approve the potential
customer's account by obtaining information concerning the customer's financial
situation, investment experience and investment objectives. The broker-dealer
must also make a determination whether the transaction is suitable for the
customer and whether the customer has sufficient knowledge and experience in
financial matters to be reasonably expected to be capable of evaluating the risk
of transactions in such securities. Accordingly, the Commission's rules may
limit the number of potential purchasers of the shares of the Common Stock.

If the Company can meet the listing requirements in the future,
management intends to apply to include the shares of the Common Stock being
registered hereby for quotation on The Nasdaq SmallCap Market operated by The
Nasdaq Stock Market. The Common Stock has not yet been approved for quotation on
The Nasdaq SmallCap Market and there can be no assurance that an active trading
market will develop or if such market is developed that it will be sustained.
The Nasdaq Stock Market recently approved changes to the standards for companies
to become listed on The Nasdaq SmallCap Market, including, without limitation,
new corporate governance standards, a new requirement that companies seeking
listing have net tangible assets of $2,000,000, market capitalization of
$35,000,000 or net income of $500,000 and other qualitative requirements. If the
Company is unable to satisfy the requirements for quotation on The Nasdaq
SmallCap Market, trading in the Common Stock being registered hereby would
continue to be conducted on the OTC Bulletin Board. Even if the shares of the
Common Stock are listed for quotation on The Nasdaq SmallCap Market, the market
price of the shares must remain above $5.00 per share or else such shares will
be subject to the "penny stock" rules of the Commission discussed above. If the
market price of such shares falls below $1.00 per share, such shares will be
delisted from The Nasdaq SmallCap Market and will once again be quoted on the
OTC Bulletin Board.

In addition to the recent changes in The Nasdaq SmallCap Market listing
requirements discussed above, the National Association of Securities Dealers,
Inc. (the "NASD") has recently announced changes in the requirements for
continued quotation on the OTC Bulletin Board. Essentially the new rules require
OTC Bulletin Board companies to file quarterly and annual reports, required
under the Exchange Act, with the Commission or appropriate banking or insurance
regulators. If companies currently quoted on the OTC Bulletin Board do not
comply with the new NASD rules, their shares will only be quoted in the less
automated "Pink Sheets", a system run by the National Quotation Bureau, Inc. As
stated in this Prospectus, the Company is seeking registration under the
Exchange Act and consequently will be obligated to make all filings required
under the Exchange Act. If for some reason the Company should fail in its
registration efforts described in this Prospectus or not file its required
reports pursuant to the Exchange Act, it is possible that the Company would no
longer be eligible for quotation on the OTC Bulletin Board and would be
relegated to the "Pink Sheets". There can be no assurance that an active trading
market will develop for the shares of the Common Stock in the "Pink Sheets" or
if such market is developed that it will be sustained.

Moreover, various state securities laws impose restrictions on
transferring "penny stocks", and as a result, investors in the Common Stock may
have their ability to sell their shares of the Common Stock impaired. For
example, the Utah Securities Commission prohibits brokers from soliciting buyers
for "penny stocks" which makes selling them more difficult.

Need to Maintain a Current Prospectus. The Company must maintain a
current prospectus in order for the Selling Stockholders to sell the shares of
the Common Stock to which this Prospectus relates. In the event that the Company
is unable to maintain a current prospectus due to lack of sufficient financial
resources or for other reasons, the Selling Stockholders may be unable to resell
their shares of the Common Stock in any public market.

Shares Reserved for Issuance. The Company has 12,642,698 shares of the
Common Stock reserved for issuance upon the exercise of the Warrants and the
Resale Options. These convertible securities are convertible or exercisable at
prices that range from fixed prices of $0.60 to $5.00 per share and at variable
prices depending on the market price of the Common Stock and expire on various
dates extending to June 12, 2005. There can be no assurance that any of these
securities will be sold or converted or exercised, or that the Company will
receive any proceeds from the conversion or the exercise thereof. The exercise
or conversion of these securities, and the resale of the underlying

21
<PAGE>

shares of the Common Stock, could have a dilutive effect on the prevailing
market price of the Common Stock. See "Management - Stock Options" and
"Description of Securities".

Year 2000 Compliance. The Year 2000 issue is the result of computer
programs being written using two digits rather than four to define the
applicable year. Any of the Company's computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities. The Company believes that its internal systems are Year 2000
compliant or will be upgraded or replaced in connection with previously planned
changes to information systems prior to the need to comply with Year 2000
requirements. However, the Company is uncertain as to the extent its customers
and vendors may be affected by Year 2000 issues that require commitment of
significant resources and may cause disruptions in the customers' and vendors'
businesses.

Forward-Looking Statements and Associated Risk. Management believes
that this Prospectus contains forward-looking statements, including statements
regarding, among other items, the Company's future plans and growth strategies
and anticipated trends in the industry in which the Company operates. These
forward-looking statements are based largely on the Company's expectations and
are subject to a number of risks and uncertainties, many of which are beyond the
Company's control. Actual results could differ materially from these
forward-looking statements as a result of the factors described herein,
including, among others, regulatory or economic influences. In light of these
risks and uncertainties, there can be no assurance that the forward-looking
information contained in this Prospectus will in fact transpire or prove to be
accurate. The inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock is traded on the OTC Bulletin Board under the symbol
"COII". The following table sets forth the range of high and low closing bid
prices for the Common Stock for the periods indicated as reported by the NASD.
These prices represent inter-dealer prices, without adjustment for retail
mark-ups, mark-downs or commissions and do not necessarily represent actual
transactions. There can be no assurance that an active trading market in the
shares of the Common Stock will be sustained.

<TABLE>
<CAPTION> Common Stock
Bid Price
-----------------
Calendar Year 1996 Low High
- ------------------ ----------------- -----------------
<S> <C> <C>
Fourth Quarter $1.19 $2.13

Calendar Year 1997 Low High
- ------------------ ----------------- -----------------
First Quarter $1.00 $2.00
Second Quarter $0.50 $1.25
Third Quarter $0.56 $1.69
Fourth Quarter $0.52 $1.06

Calendar Year 1998 Low High
- ------------------ ----------------- -----------------
First Quarter $0.47 $0.81
Second Quarter $0.50 $1.11
Third Quarter $0.75 $2.125
Fourth Quarter $0.51 $0.76
</TABLE>

22
<PAGE>

<TABLE>
<CAPTION>
Calendar Year 1999 Low High
- ------------------ ----------------- -----------------
<S> <C> <C>
First Quarter $0.575 $1.75
</TABLE>

As of May 31, 1999, there were approximately 58,675,631 shares of the
Common Stock issued and outstanding. The Company believes that the Common Stock
was held by approximately 5,400 persons on that date.

The Company has not paid or declared any dividends with respect to the
Common Stock, nor does it anticipate paying any cash dividends or other
distributions on the Common Stock in the foreseeable future. Any future
dividends will be declared at the discretion of the Board of Directors and will
depend, among other things, on the Company's earnings, if any, its financial
requirements for future operations and growth and such other facts as the
Company may then deem appropriate.

CAPITALIZATION

The following table sets forth the capitalization of the Company at
June 30, 1998 and March 31, 1999. This table should be read in conjunction with
the Company's Financial Statements and Notes thereto that are included elsewhere
in this Prospectus.

<TABLE>
<CAPTION>
June 30, 1998(1) March 31, 1999(2)
---------------- -----------------
<S> <C> <C>
Stockholders deficit:
Common Stock, $0.001 par value,
100,000,000 shares authorized;
47,565,757 and 57,366,800 issued and outstanding
on June 30, 1998 and March 31, 1999, respectively $ 47,566 $ 57,367
Additional paid-in capital.................................. 18,373,060 22,932,103
Subscription receivable (3)................................. (525,000) (525,000)
Losses accumulated during the development stage............. (20,682,969) (24,156,406)

Total stockholders deficit.................................... ($2,480,470) ($1,691,936)
========== ==========
</TABLE>

(1) Does not give the effect to the issuance of (i) 20,781,250 shares of the
Common Stock upon the purchase of the Newly Issued Shares, (ii) 3,840,615
shares of the Common Stock upon exercise of the Resale Warrants; (iii)
6,250,000 shares of the Common Stock upon exercise of the Resale Options;
and (iv) 771,200 shares of the Common Stock issued and outstanding but
subject to rescission offers. For December 31, 1998 the 771,200 rescission
offer has expired.
(2) Does not give the effect to the issuance of (i) 20,023,674 shares of the
Common Stock upon the purchase of the Newly Issued Shares, (ii) 3,840,615
shares of the Common Stock upon exercise of the Resale Warrants; (iii)
6,250,000 shares of the Common Stock upon exercise of the Resale Options;
and (iv) 771,200 shares of the Common Stock issued and outstanding but
subject to rescission offers. For December 31, 1998 the 771,200 rescission
offer has expired.
(3) See "Description of Securities - Stock Not Paid Up."

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the combined financial
condition and results of operations should be read in conjunction with the
Consolidated Financial Statements of the Company and Notes thereto contained in
this Prospectus. Statements contained in this "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" which are not
historical facts may be forward-looking statements. Such information involves
risks and uncertainties, including those created by general market conditions,
competition and the possibility that events may occur which could limit the
ability of the Company to maintain or improve its operating results or execute
its primary growth strategy. Although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, any of the assumptions
could be inaccurate, and there can therefore be no assurance that the
forward-looking statements included herein will prove to be accurate. The
inclusion of such information should not be regarded as a

23
<PAGE>

representation by the Company or any other person that the objectives and plans
of the Company will be achieved. Moreover, such forward-looking statements are
subject to certain risks and uncertainties which could cause actual results to
differ materially from those projected. Readers are cautioned not to place undue
reliance on these forward-looking statements that speak only as of the date
hereof.

In October 1996, the Company initiated its relationship with TRW
Systems Integration Group (some subsequent contracts have been entered with
other affiliates of the consolidated group, any of which companies may be
referred to in this Prospectus as "TRW" to design a plan for systems integration
to implement the Golden Health Telemedicine Contract and related contracts
entered by a subsidiary affiliate of the Company (TriSun/CTI Asia, Ltd.) and a
company formed by the Ministry of Public Health in the People's Republic of
China. This initial agreement formed the long-term relationship with TRW, which
later resulted in the execution of contracts with TRW for commercializing the
CTI System and for developing the software and data analysis systems integration
for the CTI, Co. System. The Company has deferred any further expenditures
toward the Golden Health Telemedicine Contract until the Ministry of Public
Health performs in causing the hospitals to place the letters of credit as
provided in the contracts, but the Company has maintained communications with
representatives of the Ministry of Public Health toward a plan for implementing
those contracts. The Asian relationships also include an agreement entered in
1996 with Dr. Ladavan of the Orchard Hospital in Thailand for the purchase of
one CTI System for $125,000, or 50 percent of its anticipated market value,
setting forth an intention to enter a joint venture for the production and
marketing of the CTI System in Thailand. The decision of the Company to defer
further development for commencing those contracts was based primarily upon the
decision of the Company to channel all of its resources to CTI, Co. for
completion of the FDA clinical trials. The Company intends to resume its Asian
relationships and to commence that business when funds become available.

In 1996, the Company entered into a License Agreement with CTI, Co. and
initiated the development by CTI, Co. of a new configuration of the CTI System
to develop the CTI, Co. System for use in the detection of breast cancer for
marketing in North America. When CTI, Co. was incapable of financing its
activities, and when CTI, Co. had made progress through its pre-testing to
obtain FDA approval to proceed for a PMA, the Company executed the Stock
Transfer Agreement in 1997 to devote a primary portion of its funds toward the
development of the CTI, Co. System and toward the clinical trials designed to
obtain a PMA. This resulted in the development of clinical relationships with
several health care providers and medical university teaching institutions. The
clinical trial agreements require CTI, Co. to pay for the examinations using the
CTI, Co. System as complementary medical technology with mammography.
Commencement of the clinical trials also has resulted in CTI, Co. engaging QBRI,
an independent consultant authorized by the FDA to verify clinical examination
results.

General

From inception through the most current fiscal period ending May 31,
1999, the Company has been involved in the research, development and production
of its thermal imaging technology products. Although still in the development
stage, the Company has generated nominal revenues of $125,000, from the sale of
a CTI System to Thailand in 1996, and $55,815, from the sale of laser cards to a
purchaser in the PRC in 1997. The Company has relied almost entirely on the sale
of its securities to fund its research and development operations. The Company
historically has sustained annual losses and will continue to sustain losses
from its operations until its products achieve acceptance within the medical
community and the public. As evidenced by the Consolidated Financial Statements
of the Company included elsewhere in this Prospectus, the level of the Company's
losses has been largely dictated by the amount of capital the Company has been
able to raise and the volume of costs incurred under the research program being
conducted with TRW and Battelle.

Certain Material Contracts

In addition to other agreements discussed elsewhere herein, the Company
and CTI, Co. have entered into several material contracts over the last two
years.

24
<PAGE>

CTI-TRW Agreement. On October 29, 1996, the Company and TRW, Inc -
Systems Integration Group, Strategic System Division ("TRW") entered into an
agreement wherein TRW agreed to provide system management services, including
testing, development, training, engineering, integration and installation
support, with regard to the CTI system. Final closeout of this contract was
accomplished on May 5, 1999 with the Company making final payment of all amounts
due to TRW under that contract and with the delivery to CTI all items called for
on the contract, including items used in the production, documentation and
intellectual property. Any follow-on activities to those efforts performed on
this contract have been consolidated into the new CTI, Co - TRW Agreement
discussed in the next paragraph.

CTI, Co-TRW Agreement. Computerized Thermal Imaging Company, the
Company's 80% owned subsidiary, entered into a separate technical management
agreement and support agreement with TRW on June 19, 1996. This contract was
closed out on May 5, 1999 with the Company making final payment of all amounts
due to TRW under this contract and the delivery to CTI of all items produced on
the contract, including items used in the production, documentation as well as
all intellectual property. A follow-on agreement was signed between CTI, Co. and
TRW on May 7, 1999 to continue the efforts of the previous contract as well as
those ongoing under the previous CTI-TRW agreement.

USC Agreement. CTI, Co. and the University of Southern California
("USC"), a California nonprofit educational institution, entered into a clinical
trial agreement (the "USC Agreement") on May 5, 1997. Under the terms of this
agreement, USC is to perform a clinical study of the screening of breasts for
identification of suspicious tissue using clinical examination and mammography
with and without the use of the CTI, Co. System. The goal of such study is to
establish a specific confidence interval for the detection of breast cancer
associated with the use of the CTI, Co. System. The USC Agreement provides that
the study will be conducted in accordance with a protocol established by CTI,
Co. The estimated period of performance for the USC Agreement was undetermined
at the time of its execution. By its terms, total costs to CTI, Co. under the
USC Agreement shall not exceed $385,219. All right, title, and interest to any
intellectual property that is the direct and specific result of the performance
of the protocol shall belong to CTI, Co. All right, title, and interest to any
intellectual property which are conceived or made jointly by one or more
employees of CTI, Co. and USC shall belong jointly to CTI, Co. and USC. All
right, title, and interest to any other intellectual property developed or
conceived under the study shall be considered property of USC.

HRA Agreement. CTI, Co. and the Health Research Association ("HRA"), a
California nonprofit educational institution affiliated with the University of
Southern California Medical Center, entered into a clinical trial agreement (the
"HRA Agreement") on September 16, 1997. This agreement is under the same terms
and conditions as the USC Agreement. (See above). Under the terms of this
agreement, HRA is to perform a clinical study of the screening of breasts for
identification of suspicious tissue using clinical examination and mammography
with and without the use of the CTI, Co. System. The goal of such study is to
establish a specific confidence interval associated with the use of the CTI, Co.
System for the detection of breast cancer. The HRA Agreement provides that the
study will be conducted in accordance with a protocol established by CTI, Co.
The protocol for the HRA Agreement is identical to the protocol established for
the USC Agreement. The estimated period of performance for this agreement is
from September 1, 1997 through September 1, 1998. All right, title, and interest
to any intellectual property that is the direct and specific result of the
performance of the protocol shall belong to CTI, Co. All right, title, and
interest to any intellectual property which are conceived or made jointly by one
or more employees of CTI, Co. and HRA shall belong jointly to CTI, Co. and HRA.
All right, title, and interest to any other intellectual property developed or
conceived under the study shall be considered property of HRA.

On March 24, 1999 CIT, Co. entered into a subsequent agreement
with HRA with an estimated period of performance of March 15, 1999 through March
15, 2000. Under the terms of the HRA Agreement, HRA is to perform a clinical
study involving the screening of human breast tissue for identification of
potentially cancerous tissue by using clinical examination and mammography with
and without the use of the CTI, Co. System. The goal of such study is to
establish a specific confidence interval for the detection of breast cancer
utilizing the CTI, Co. System.

Providence Hospital Agreement. CTI, Co. and the Providence Hospital of
Washington, D.C.,a non-profit institution incorporated under the laws of the
District of Columbia, entered into a clinical trial agreement (the "Providence
Hospital Agreement") on February 14, 1998. Under the terms of the Providence
Hospital Agreement,

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Providence Hospital is to perform a clinical study involving the screening of
human breast tissue for identification of potentially cancerous tissue by using
clinical examination and mammography with and without the use of the CTI, Co.
System. The goal of such study is to establish a specific confidence interval
for the detection of breast cancer utilizing the CTI, Co. System.

The Providence Hospital Agreement provides that the study will be
conducted by Providence Hospital in accordance with a protocol established by
CTI, Co. The estimated term of the Providence Hospital Agreement is from
February 15, 1998 to February 15, 1999.

All intellectual property that arises from, relates to, or is a direct
and specific result of performance of the protocol and directly related to the
CTI, Co. System shall belong to CTI, Co. In addition, Providence Hospital agrees
not to disclose certain confidential information exchanged in connection with
the Providence Hospital Agreement and agrees to prevent disclosures of such
information to all third parties in a manner in which it treats its own similar
information.

Mt. Sinai Medical Center Agreement. CTI, Co. and the Mt. Sinai Medical
Center, a non-profit institution incorporated under the laws of the State of
Florida, entered into a clinical trial agreement (the "Mt. Sinai Agreement") on
June 4, 1998. Under the terms of the Mt. Sinai Agreement, Mt. Sinai is to
perform a clinical study involving the screening of human breast tissue for
identification of potentially cancerous tissue by using clinical examination and
mammography with and without the use of the CTI, Co. System. The goal of such
study is to establish a specific confidence interval for the detection of breast
cancer utilizing the CTI, Co. System.

The Mt. Sinai Agreement provides that the study will be conducted by
Mt. Sinai in accordance with a protocol established by CTI, Co. The estimated
term of the Mt. Sinai Agreement is from June 1, 1998 to December 31, 1998.

All intellectual property that arises from, relates to, or is a direct
and specific result of performance of the protocol and directly related to the
CTI, Co. System shall belong to CTI, Co. In addition, Mt. Sinai agrees not to
disclose certain confidential information exchanged in connection with the Mt.
Sinai Agreement and agrees to prevent disclosures of such information to all
third parties in a manner in which it treats its own similar information.

Marketing Agreement. On November 19, 1998 the Company entered into a
Marketing Agreement with T.S.E.T., Inc. ("TSET"). The Marketing Agreement
provides that TSET will use its best efforts and marketing resources to actively
market the diagnostic thermal imaging system of the Company on a world wide
basis. Under the terms of the Marketing Agreement, the Company is required, at
its own cost, to provide sales materials and marketing and technical assistance
to TSET in order to facilitate the placement of the systems. TSET is granted the
nonexclusive authority to market and sell the systems throughout the world at
prices to be set by the Company. TSET will be compensated under a commission fee
structure based on a rate of 15 percent of the "value" of each system sold. Fees
earned by TSET shall be paid either in cash or in the cash equivalent of the
Common Stock of the Company, as elected by TSET. The term of the Marketing
Agreement is for one year, but may be renewed for subsequent one year periods or
longer as agreed upon by the parties. The Marketing Agreement does not contain
any minimum sales requirements or other performance criteria providing for
automatic termination, and may only be terminated prior to the expiration of the
initial term by the mutual consent of the parties.

CTI-Battelle Agreement. The Company signed an agreement with Battelle
Memorial Institute on March 19, 1999, for technical consulting services to aid
in the submittal of regulatory submissions to the FDA. The initial period for
the technical consultation services to be provided is 5 months.

St. Agnes HealthCare, Inc. Agreement. CTI, Co. and the St. Agnes
HealthCare, Inc., a non-profit institution incorporated under the laws of the
State of Maryland, entered into a clinical trial agreement (the "St. Agnes
Agreement") on March 8, 1999. Under the terms of the St. Agnes Agreement, St.
Agnes is to perform a clinical study involving the screening of human breast
tissue for identification of potentially cancerous tissue by using clinical
examination and mammography with and without the use of the CTI, Co. System. The
goal of such study is to establish a specific confidence interval for the
detection of breast cancer utilizing the CTI, Co. System.

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The St. Agnes Agreement provides that the study will be conducted by
St. Agnes in accordance with a protocol established by CTI, Co. The estimated
term of the St. Agnes Agreement is from March 1, 1999 to March 1, 2000.

All intellectual property that arises from, relates to, or is a direct
and specific result of performance of the protocol and directly related to the
CTI, Co. System shall belong to CTI, Co. In addition, St. Agnes agrees not to
disclose certain confidential information exchanged in connection with the St.
Agnes Agreement and agrees to prevent disclosures of such information to all
third parties in a manner in which it treats its own similar information.

Lahey Clinic Agreement. CTI, Co. and the Lahey Clinic, a non-profit
institution incorporated under the laws of the State of Massachusetts, entered
into a clinical trial agreement (the "Lahey Clinic Agreement") on May 18, 1999.
Under the terms of the Lahey Clinic Agreement, Lahey Clinic is to perform a
clinical study involving the screening of human breast tissue for identification
of potentially cancerous tissue by using clinical examination and mammography
with and without the use of the CTI, Co. System. The goal of such study is to
establish a specific confidence interval for the detection of breast cancer
utilizing the CTI, Co. System.

The Lahey Clinic Agreement provides that the study will be conducted by
Lahey Clinic in accordance with a protocol established by CTI, Co. The estimated
term of the Lahey Clinic Agreement is from May 1, 1999 to April 30, 2000.

All intellectual property that arises from, relates to, or is a direct
and specific result of performance of the protocol and directly related to the
CTI, Co. System shall belong to CTI, Co. In addition, St. Agnes agrees not to
disclose certain confidential information exchanged in connection with the St.
Agnes Agreement and agrees to prevent disclosures of such information to all
third parties in a manner in which it treats its own similar information.

Results of Operations

RESULTS OF OPERATIONS

The following discussion gives a comparison of the companies financial
position for the third quarter ended March 31, 1999 and March 31, 1998, the nine
months ending March 31,1999 and the fiscal year ending June 30, 1998 and June
30, 1997.

THIRD QUARTER ENDED MARCH 31, 1999 AND MARCH 31, 1998. The Company
incurred a loss of $1,127,614 for the quarter ended March 31, 1999, as compared
to a loss of $1,180,946 for the third quarter ended March 31, 1998. The Company
had no revenues in either period. General and administrative expenses increased
slightly from $590,864 during the third quarter of the Company's last fiscal
year to $667,880 during the third quarter of this fiscal year. Payroll, salary,
consulting and special/stockholder service fees were up during this year's third
fiscal quarter over the third quarter of last year by over $173,000. This
increase is attributable to expenses related to financial consulting and capital
fund raising services. Legal fees however, between the two comparable third
quarters, reduced this year by $34,000, and accounting fees reduced by $85,372.
The reduction in legal and accounting fees was mainly due to the completion of
legal and accounting expenses related to the filing of the Company's Form SB-2
Registration Statement and the related Prospectus declared effective on January
8, 1999. The Company's general and administrative activities focused on fund
raising and support of research activities which included primarily, clinical
testing in 1998-99 and development expenses with TRW in 1997-98.

During its third quarter of this year, the Company spent $282,183
research and development expenses compared with $515,007 during the same period
in 1998, a $233,000 decrease. The reduction was mostly due to a significant
decrease in estimated TRW contract payables of approximately a quarter of a
million dollars between the comparable quarters. The Company had no significant
expenditures on research equipment during the three months ended March 31, 1999
as opposed to equipment costs of $67,000 for the three months ended March 31,
1998. Clinical testing costs rose during the third quarter of the Company's
current fiscal year to $225,848 from $154,930 in the prior year's third quarter.
FDA consulting costs were $51,684 during the third quarter of 1999 compared to
$6,362 in that same period of 1998, a direct result of the increase in clinical
testing expenses.

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Interest expenses increased to $169,805 from $65,299 during this year's
third quarter due to the realization of a $110,400 discount on two notes payable
to MFG during this period. This discount is attributable to the fact that the
notes are convertible into common stock at a rate of fifty percent (50%) of the
market price of the Company's common stock at maturity. Depreciation expenses
during the two comparable periods were nearly the same.

NINE MONTHS ENDED MARCH 31 1999 AND MARCH 31, 1998. The Company
incurred a loss of $3,473,437 for the nine months ended March 31, 1999 as
compared to a loss of $4,306,021 for that same nine month period in 1998. The
Company had no revenues in either period. The decrease was due to a substantial
decrease in general and administrative expenses. General and administrative
expenses decreased to $1,451,594 for the nine months ended March 31, 1999 from
$2,599,507 during that same nine month period in 1998. The Company incurred an
administrative charge of $850,167 for incentive stock options issued to
non-employees in 1998 with no comparable expense in 1999. The Company also
experienced a decrease in legal and accounting expenses of approximately
$159,000 when comparing the same nine month period last year.

During the nine months ended March 31, 1999, the Company spent $108,922
on FDA testing and consulting compared with $31,740 in that same period in 1998.
TRW contracts and patent work cost the Company $485,273 in the first nine months
of this fiscal year, a decrease from the $697,469 spent during that same nine
months in the last fiscal year. Equipment for research was $119,507 for the nine
months ended March 31, 1999 with expenditures in that same time period for the
prior year of only $67,313. Clinical trial expenses significantly increased for
the nine months ended March 31, 1999 when compared to March 31, 1998, and were
$531,668 and $220,732, respectively. This is mostly due to the Company's shift
from research and development to clinical trial testing during this nine month
fiscal period.

Depreciation expenses during the first three quarters of the year ended
March 31, 1999 increased to $33,138 over $23,566 in that same nine month period
ended March 31, 1998. Interest in the two comparable nine month periods, was
$541,077 during the nine months ended March 31, 1999, a substantial increase
over that same period in 1998, when interest cost the Company $239,277. The
increase was a result of discounts on notes payable as discussed above under the
comparison of the three month periods.

The Company funded its losses during the nine months ended March 31,
1999 and 1998, through issuances of common stock in exchange for cash
contributions, notes, and through advances from one or more of the parties which
have consistently provided funding to the Company: Thermal Imaging, Inc.
("TII"), an affiliate of Mr. Johnston, Doug Holt doing business as PDH,
Ltd.("PDH"), an independent contractor which provides various services to the
Company, and Daron Dilia doing business as Manhattan Financial Group ("MFG").

The Company received funding of $2,263,200 from sales of stock for cash during
the nine month period ended March 31, 1999, which included a private placement
of stock with an officer/director for a $200,000 cash contribution, the exercise
of certain warrants for proceeds of $188,200, the completion of a private
placement with gross proceeds of $1,000,000, and $875,000 in cash contributions
from MFG pursuant to a stock purchase agreement exercised in February/March of
1999. The Company also funded operations with stock for services and
non-interest bearing advances from affiliates of the Company. These transactions
included the issuance of 3,936,150 shares to certain affiliates of the Company
as repayment of advances made from July 31, 1997 through December 31, 1998,
aggregating $1,968,085. The Company continued to received funding from
affiliates in 1999 in the amount of $659,686. The Company currently has a
balance of $59,000 due on a revolving note with its former legal counsel; the
Company made payments of $450,000 to such law firm during the first three
quarters of this fiscal year, with an additional $50,000 payment made subsequent
to the quarter end.

During the first nine months of last years fiscal year, the Company
satisfied a large part of its cash flow requirement through issuance of shares.
Shares were issued to affiliates to satisfy advances consisting of 6,382,713
common shares in repayment of advances totaling $2,197,500. Common shares
aggregating 890,752 were also issued as compensation and for services valued at
$383,220. In addition, the Company paid off $640,660 in debentures and accrued
interest through the issuance of 1,621,526 common shares. The Company also
issued 2,914,875 shares for cash proceeds of $557,637.

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<PAGE>

FISCAL YEARS ENDED JUNE 30, 1998 AND JUNE 30, 1997. The Company
incurred a loss of $5,943,855 for the year ended June 30, 1998, as compared to a
loss of $3,349,614 for the same period ending June 30, 1997. The Company had no
revenues in either period. The increase in losses was attributable to additional
research costs associated with clinical testing of patients, increased
compensation expenses recognized in connection with options issued to
consultants, escalating interest expenses incurred as a result of outstanding
subordinated debentures of the Company, and increased spending on legal and
accounting fees in connection with the preparation of this Prospectus and
registration with the Commission.

General administrative expenses increased from $1,571,157 in 1997 to
$3,167,690 in 1998. This increase was due to the recognition of a compensation
expense in the amount of $1,050,167 in connection with the issuance of stock
warrants to Manhattan Financial Group, William Harpster, and Ambient Capital in
1998. Legal and accounting fees for 1998 rose to $610,742 from $232,330 in 1997
as a result of work on this Prospectus, related registration matters and other
transactions. The Company's general and administrative activities focused on
fund raising, support of research activities, and development of business
relationships in the United States and China. A significant portion of the
compensation expense has been paid for by the Company with shares of the Common
Stock, amounting to $306,681 in 1998 and $405,498 in 1997.

During the Company's fiscal year ended June 30, 1998, the Company spent
$2,430,038 on research and development expenses compared with $1,753,366 in
1997. The increase resulted from higher clinical testing costs, $438,530 in 1998
and $54,577 in 1997. However, the Company's expenses incurred in connection with
the TRW contracted decreased from $1,565,615 in 1997 to $1,237,905 in 1998 as a
result of a shifting in contract objectives from product development and
enhancement to support of clinical testing. The Company also incurred expenses
of $54,484 for research equipment in 1998 with no comparable expense in 1997.
The Company has expensed all costs associated with its processes and systems,
including software code writings, computer system hardware and software
purchases from third party vendors, material expenses in the development of the
examination table and all payroll related development expenses throughout the
periods presented. Interest expense increased to $415,101 from $86,688 in 1998
versus 1997 due to an increase in the amount of subordinated debentures issued
and outstanding in 1998 versus 1997. Depreciation expense increased in 1998 to
$32,344 from $29,552 in 1997.

The Company funded losses in during its fiscal year ended June 30, 1998
by selling shares of the Common Stock for cash in the amount $829,106. In
addition, the Company received cash advances from TII and PDH, Ltd. in the total
amount of $2,077,130 for which the Company issued shares of the Common Stock in
repayment of the advances. In 1997, the Company received $1,010,209 in proceeds
from stock sales ,and $1,385,707 in cash contributions from TII and PDH, Ltd.
The Company also issued shares of Common Stock to fund compensation and services
expenses in the amount of $1,311,860 during 1998 versus $405,498 in 1997.
Subordinated debenture holders converted $1,105,403 of principal and accrued
interest to shares of the Common Stock in 1998, versus $64,125 of principal and
interest in 1997.

FISCAL YEARS ENDED JUNE 30, 1997 AND JUNE 30, 1996. The Company
incurred a loss of $3,349,614 for the fiscal year ended June 30, 1997 and
$2,878,250 for the fiscal year ended June 30, 1996. The reduction in losses was
largely attributable to the fact that fewer shares of the Common Stock were
issued in consideration for services; $405,498 in 1997 and $893,152 in 1996. In
1996, the Company also settled a lawsuit against the Company relating to an
outstanding debt by issuing shares of the Common Stock in the amount of
$508,280. These issuances were made in connection with the Assumption of
Liabilities Agreement executed by the Company and Thermal Imaging, Inc., an
affiliate of Mr. Johnston.

Research expenses also increased substantially in fiscal year 1997 due
to the research and development relationship entered into by the Company with
TRW. As a result, research and development expenses increased from $491,320 in
1996 to $1,753,366 in 1997.

The Company funded its losses in fiscal year ended June 30, 1997
through the issuance of shares of the Common Stock in exchange for cash
contributions in the aggregate amount of $1,010,209 compared to $2,259,070
raised in 1996. In addition, outstanding debt obligations in the amount of
$64,125 and represented by certain convertible debentures were retired through
conversions into shares of the Common Stock. The Company received revenues from
the sale of

29
<PAGE>

laser cards to a purchaser in the PRC in the amount of $44,815 in 1997 and the
sale of a CTI System to Thailand in 1996 for $125,000. Neither transaction
resulted in any significant profit margins.

The Company relies upon independent contractors to perform much of its
software development, systems integration and installations. Although David A.
Packer, the President of the Company who was hired in 1997 from TRW, and Bill
Black, an employee of CTI, Co. who was hired from EDS in 1995, both have
extensive systems integration, systems development and installation experience,
the Company and CTI, Co. have no other employees to perform the tasks of
developing and installing the CTI System and the CTI, Co. System. Both the
Company and CTI, Co. have contracted with TRW since late 1995 for specific
technical support. TRW is presently owed past due amounts for services. TRW by
September 1997 completed its software development required to enable CTI, Co. to
conduct clinical trials. The Company and CTI, Co. have slowed down additional
development work with TRW until this past due amount is substantially reduced
from new Company financing. TRW is being paid currently for its maintenance and
data analysis work being performed for CTI, Co.'s clinical trials.

The report from the Company's independent accountants includes an
explanatory paragraph which describes substantial doubt concerning the ability
of the Company to continue as a going concern, without substantial additional
contributions to capital. The Company may incur losses for the foreseeable
future due to the significant costs associated with manufacturing, marketing and
distributing the CTI System and the CTI, Co. System, and due to continual
research and development activities which will be necessary to develop
applications for the Company's thermal imaging technology.

The Company's ability to achieve profitability will depend, in part, on
its ability to successfully develop clinical applications and obtain regulatory
approvals for its products and to develop the capacity to manufacture and market
such products on a wide scale. There is no assurance that the Company will be
able to successfully make the transition from research and development to
manufacturing and selling commercial thermal imaging products on a broad basis.
While attempting to make this transition, the Company will be subject to all
risks inherent in a growing venture, including the need to produce reliable and
effective products, develop marketing expertise and enlarge its sales force.

LIQUIDITY/CAPITAL RESOURCES/PLAN OF OPERATION

NO REVENUES FROM OPERATIONS -The Company has had no significant
revenues from operations from inception. The Company's cash requirements consist
of; office salaries and expenses, legal and accounting fees to comply with
securities registration and reporting requirements, cost of clinical trials, TRW
and Battelle technical support and FDA consulting. The company has raised
sufficient capital to bring accounts with suppliers current.

The Company intends to raise additional equity funds from the sale of
the common stock through private offerings to new investors. And pursuant to the
investment agreement with Beach Boulevard L.L.C. either pursuant to the
investment agreement or from new investors introduced to the Company to meet its
cash requirements through 2000.

THE MANHATTAN FINANCIAL GROUP INVESTMENT AGREEMENT. On February 8,
1999, Daron Dilia, doing business as Manhattan Financial Group ("MFG"),
purchased 2,364,865 restricted shares of the Company's Common Stock for
$875,000. As consideration therefor, the Company allowed MFG to purchase the
common shares at 50% of the low bid price during that time period (February 8
through March 15, 1999). The Company also granted piggy back registration rights
to MFG and MFG has declined to exercise its registration rights in connection
with the filing of this Registration Statement. MFG is one of the parties which
has consistently provided funding to the Company.

BEACH BOULEVARD AGREEMENT. The Company has received $1,000,000 from
Beach Boulevard L.L.C. in accordance with the agreement covered in the section
titled "Beach Boulevard L.L.C. Security Purchase Agreement". The Company intends
to place the third request for $500,000 in early July 1999. Subsequent requests
will be made according to the terms of the Beach Boulevard L.L.C. Security
Purchase Agreement.

CAPITAL REQUIREMENTS OVER THE NEXT YEAR. The Company will require an
estimated $6,000,000 for the next 12

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months will be needed for its research and development programs, preclinical and
clinical testing, development of its sales and distribution efforts, operating
expenses, and regulatory processes. The Company's capital requirements will
depend on numerous factors, including the progress of its research and
development programs; results of preclinical and clinical testing; the time and
cost involved in obtaining regulatory approvals; the cost of filing,
prosecuting, defending and enforcing any patent claims and other intellectual
property rights; the economic impact of competing technological and market
developments; licensing and other relationships; and the terms of any new
collaborative, licensing and other arrangements that the Company may establish.
During the three years prior to the date of its Prospectus, David B. Johnston,
the Chairman of the Board and the Chief Executive Officer of the Company, and
certain affiliates of Mr. Johnston and the Company have contributed
approximately $4,050,000 to the capital of the Company in exchange for shares of
the Common Stock. The Company believes that its current assets and potential
additional contributions from affiliates of the Company and certain accredited
investors, as needed, will be sufficient to meet the Company's short-term
operating expenses and capital expenditures. At the present time, however, there
is no commitment from anyone other than Beach Boulevard L.L.C. with respect to
any future capital contributions to the Company, and there is no way to predict
when and if any such additional contributions may be made Consequently, the bulk
of the needed capital over the next 12 months must come from one or more
substantial new investors. Until such time as it can locate a source of material
funding, the Company expects affiliate stockholders to continue to support the
Company either through loans or contributions to capital in exchange for the
restricted common stock of the Company.

If the Company does not commence generating adequate revenues, or if
it does not attract new capital sufficient to meet its operating needs, the
Company will not be able maintain the existing clinical trials to obtain FDA
approval for the CTI, Co. System or to obtain insurance payment codes for the
CTI System. In such event, the Company would have difficulty selling its
products in the United States. The Company would then be forced to focus on
sales to foreign markets that do not require FDA approval.

The efficacy of the CTI, Co. System is currently subject to
confirmation in FDA clinical trials as a tool complementary to mammography. The
FDA clinical trials requirement for CTI, Co. to receive its PMA approval
requires five separate medical facilities to conduct examinations and conduct
and produce clinical statistical data from use of the CTI, Co. System. Those
clinical trials are currently being conducted at Providence Hospital in
Washinton DC, Norris Cancer Center, managed by the University of Southern
California Medical School, Mt. Sinai Hospital in Miami, Florida, Lahey Clinic in
Boston, Massachusetts and St. Agnes Hospital in Baltimore, Maryland. The rate of
conducting examinations determines the monthly cash flow requirements and the
time for qualifying for PMA. CTI, Co. also incurs costs for FDA legal counsel
and for consulting services from a firm recognized by the FDA for overseeing
clinical trial data collection and adherence to FDA requirements. The Company
has advanced CTI, Co. approximately 6.0 Million through March 31, 1998. The
estimated requirements to fund CTI, Co.'s research and clinical testing are
approximately $500,000 per quarter.

If the Company is incapable of raising sufficient funds to finance
CTI, Co.'s clinical trials, as well as funds sufficient to conduct its own
business, CTI, Co. may be forced to abandon its FDA plans.

CTI SYSTEM DEVELOPMENT. The Company has committed to devote a major
portion of its resources and subsequent capital financing, in excess of its
fixed operating costs, to the operations of CTI, Co. for the completion of the
ongoing FDA Clinical Trials. Although the Company is prioritizing its funding of
CTI, Co., it also plans to conduct multiple clinical trials involving the CTI
System in the identification of soft tissue maladies. Although such clinical
trials may not be necessary for physicians to use the CTI System, the benefit of
specific purpose clinical trials will be to enable the Company to reference
medical efficacy claims in connection with marketing efforts, to enhance
physician in the CTI System, and to obtain the designation of insurance payment
codes for particular CTI System procedures. Management believes that the market
in the United States alone for the CTI System would be dramatically enhanced if
clinical trials were to substantiate the Company's assertion that the CTI System
can distinguish and verify fraudulent (versus real muscular) lower back pains.

MARKETING. The Company cannot assure investors that expenditures for
clinical trials will result in confirming results or an FDA approval, nor can
the Company be sure that any FDA approval or successful clinical trial will
result in a profitable business activity. In order to be successful, the CTI,
Co. System and the CTI System must be accepted both by physicians and the
public. The primary method for creating physician acceptance of the Systems will

31
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be through the publication and presentation of technical research papers to
medical professional groups.

A marketing campaign must also be undertaken to educate the general
public regarding the advantages associated with the use of the Systems.
Management understands that this marketing effort will require substantial funds
which are not presently available. While most of the funds needed to engage in a
large scale marketing effort would be necessary if the PMA were approved and
would likely have to come from equity financing, Management believes that usage
charges from the CTI, Co. System will provide sufficient funds to initiate the
campaign. Based upon the current pace of clinical trials, the 600 qualified
patient examinations required by the FDA should be completed by the end of 1999
for consideration for the FDA to grant the PMA.

EQUIPMENT FINANCING. The Company expects to commence production and
sales for the CTI System when capital or debt financing is available and Use
Agreements are in place. Equipment financing will be necessary for the Company
or CTI, Co. to market the CTI, Co. and/or CTI Systems to enable manufacturing,
production, and extensive marketing. Foreign sales of the CTI System may be
likely with adequate marketing expenditures, but substantial U.S. sales are only
likely to follow an FDA program for approval. A the present time, management
does not expect to seek FDA approval for the CTI System. However, CTI, Co. is
actively pursuing FDA approval (the "PMA") for the CTI, Co. System. The Company
contemplates revenues from the CTI System in the U.S. to be generated pursuant
to Use Agreements, placing the CTI System in a hospital or medical care facility
under an agreement requiring the user to compensate the Company based upon the
time used. The Company contemplates systems integration and sales agreements for
overseas production and sales. The Company expects to obtain equipment financing
for the Company and CTI, Co., secured by the sales or Use Agreements and the
inventory produced. Assuming the PMA is granted after the CTI, Co. clinical
trials are completed, CTI, Co. anticipates funding to be available from capital
and debt financing to commence production and sales of the CTI, Co. System. The
Company has entered into discussions with equipment financing companies that
have indicated that the Systems can be financed in this manner.

YEAR 2000 COMPLIANCE. The Year 2000 issue is the result of computer
programs being written using two digits rather than four to define the
applicable year. Any of the Company's computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities. The Company believes that its internal systems are Year 2000
compliant or will be upgraded or replaced in connection with previously planned
changes to information systems prior to the need to comply with Year 2000
requirements. However, the Company is uncertain as to the extent its customers
and vendors may be affected by Year 2000 issues that require commitment of
significant resources and may cause disruptions in the customers' and vendors'
businesses.

Change of Accountants

On May 13, 1997, King, Griffin & Adamson P.C. ("King Griffin"),
resigned as the independent accountants of the Company. King Griffin has not
issued an opinion with respect to of any of the Company's financial statements
for any of the preceding two years. The Company then discussed the audit needs
with other auditors and engaged Ham, Langston & Brezina, LLP on May 20, 1997.
Prior to the engagement of King Griffin, Randy Simpson, certified public
accountant, audited the financial statements of the Company for the year ended
June 30, 1996. The change of principal auditor for the Company's financial
statements for the years ended June 30, 1996 and 1997 was subsequently ratified
by the Company's Board of Directors on September 18, 1997.

King Griffin had been engaged on March 13, 1997, and performed certain
limited procedures in connection with the start of their audit of the financial
statements of the Company, but it did not reach any conclusions concerning those
financial statements. No disagreements existed between the Company and King
Griffin from the date of King Griffin's engagement through the termination date
of their engagement.

During Randy Simpson's tenure as principal independent accountant to
the Company, there were no disagreements between the Company and Mr. Simpson
whether resolved or not resolved, on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which,
if not resolved, would have caused him to make reference to the subject matter
of the disagreement in connection with his report. Furthermore,

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Mr. Simpson's report for the past fiscal year did not contain any adverse
opinion or disclaimer of opinion, excepting a "going concern" qualification and
an emphasis paragraph on the realizability of certain assets, and was not
qualified or modified as to audit scope or accounting principles.

Management effected the change in accountants in order to provide the
Company with increased service potential in anticipation of a public
registration of the Common Stock. While no longer the principal independent
accountant, Mr. Simpson has been retained by the Company to provide accounting
assistance in connection with the preparation of this Prospectus.

Also, during the Company's two most recent fiscal years, and since
then, Mr. Simpson has not advised the Company that any of the following exist or
are applicable:

1. That the internal controls necessary for the Company to develop
reliable financial statements do not exist, that information has
come to his attention that has lead him to no longer be able to
rely on management's representation, or that has made him
unwilling to be associated with the financial statements prepared
by management;

2. That the Company needs to expand significantly the scope of its
audit, or that information has come to his attention that if
further investigation may materially impact the fairness or
reliability of a previously issued audit report or the underlying
financial statements or any other financial presentation, or
caused him to be unwilling to rely on management's
representations or be associated with the Company's financial
statements for the foregoing reasons or any other reason; or

3. That he has advised the Company that information has come to his
attention that he has concluded materially impacts the fairness
or reliability of either a previously issued audit report or the
underlying financial statements for the foregoing reasons or any
other reason, except as disclosed in the Company's financial
statements.

Prior to the engagement of Ham, Langston & Brezina, L.L.P. as
independent auditors, the Company did not consult Ham, Langston & Brezina,
L.L.P. regarding the application of accounting principles to a specific
transaction, either completed or proposed; or the type of audit opinion that
might be rendered on the Company's financial statements or any other financial
presentation whatsoever.

BUSINESS

General

Computerized Thermal Imaging, Inc. (the "Company") was incorporated on
June 10, 1987 in the State of Nevada as Business Helpers, Inc. The Company
amended its Articles of Incorporation on August 25, 1989 to effect a name change
to DTI Dorex, Ltd. and again on November 3, 1989 to its current name. In April
1992, the Company further amended its Articles of Incorporation to provide for a
capital structure of 100,000,000 shares of common stock, par value of $0.001 per
share, and 3,000,000 shares of preferred stock with such designations,
preferences and other features as may be required by the Board of Directors. On
March 16, 1998, the Company further amended its Articles of Incorporation which
described in more detail the authority of the Board of Directors with respect to
any shares of the preferred stock which may be issued by the Company. In
addition, such amendment denied preemptive rights to all stockholders of the
Company. In 1988, the Company, through the issuance of shares of the Common
Stock, acquired all of the assets of Thermal Imaging, Inc., an Oregon
corporation ("TII"), which assets consisted primarily of certain thermal imaging
intellectual property, proprietary ideas, or technology.

The Company is a development stage company that is a medical imaging
systems integrator and proprietary protocol developer producing a computerized
clinical thermal imaging diagnostic system (the "CTI System") that has been
trademarked under the name Computerized Thermal Imaging. The Company has not
filed any applications for patents covering specific aspects of the CTI System.
Instead, the Company owns computer software which is not

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generally subject to the protection afforded by patents. However, the software
is proprietary and subject to protection as a "trade secret". Since 1995, the
Company has spent approximately $3,000,000 on research, software development,
and further development of the Systems.

The Company plans to place the CTI System in various health care
providers such as hospitals, HMOs and free standing image centers through Use
Agreements. Revenues will be generated under the Use Agreements by charging the
health care providers monthly for time usage and for the disposable supplies
purchased in conjunction with the CTI System. Once the CTI System is inserted
into the marketplace, the Company does not expect to rely on any one or a few
major customers. Consequently, it is anticipated that the CTI System will be
attractive to a widely dispersed number of customers.

Products

The Company currently has five completed CTI Systems in use that have
been configured for breast cancer detection examinations (the "CTI, Co.
System"). CTI, Co. has further developed the software and hardware for the CTI,
Co. System, including the engineering design of a positioning table that
protects the privacy of the patient and avoids invasive compression
examinations. CTI, Co. is currently seeking patent protection for the
positioning table, as well as, for the algorithm process involved with the CTI,
Co. System.

Five units are currently being used by CTI, Co. in clinical trials
being conducted at Norris Comprehensive Cancer Center, Los Angeles, Mt. Sinai
Hospital, Miami, St. Agnes Hospital, Baltimore, Lahey Clinic, Boston and
Providence Hospital, Washington, D.C. Another CTI System was sold in May 1996 to
Orchard Hospital in Bangkok, Thailand, where the CTI System has been used by
that teaching hospital for two years for several medical examination purposes to
establish the confidence level of Orchard Hospital to consider a joint venture
for distribution in Thailand. The fifth CTI System was placed by the Company in
the Friendship Hospital in Beijing, China, which was originally installed by the
Company as a demonstration unit but was subsequently converted to a fee-for-use
revenue generating unit. The CTI System in Beijing produced revenue of 68,000
RMB, or the equivalent of U.S.$8,200 through December 1997. The revenue
generated in Beijing was used to support the Company's operations in the PRC,
where the Company maintained an office until late 1997. This fifth CTI System
was returned to the Company offices in Layton, Utah for calibration, and then
sent to Mt. Sinai Hospital in Miami for clinical trials in conjunction with CTI,
Co.'s attempt to attain a PMA from the FDA for the CTI, Co. System. The Company
intends to return this fifth CTI System to the PRC in preparation of continuing
marketing efforts in the PRC whenever the clinical trials have been completed at
Mt. Sinai Hospital, provided the Company's anticipated funding from the
Investment Agreement occurs.

CTI System. The basis of the CTI System is predicated on the principle
that every externally or internally triggered physiological event causes an
associated caloric reaction. In the opinion of management, any such abnormal
caloric activity will stimulate the body's three temperature and thermal
regulatory systems. These responses are believed to be detectable and
interpretable through tell-tale thermal symptoms and temperature regulatory
response patterns over time. Management believes that the body's thermatome
(temperature) "map" has been well established by medical science, and can
provide a reliable set of clues for diagnostic and patient management purposes,
so long as the thermal symptoms are present. At other times, symptoms such as
pain or numbness and information from other medical tests, will triangulate to
indicate a disorder. Thus, the CTI System may be used by physicians to eliminate
or identify certain possible soft tissue ailments in the process of making a
diagnosis.

"Thermal imaging" as the observation technique is called generically,
is a methodology that long has held great promise, but has not realized its
potential because of deficiencies in the enabling technology. Thus, thermal
imaging has found fairly limited acceptance by the mainstream medical community
because, until the invention and development of the Company's technology, the
testing and evaluation techniques simply have not been scientifically completed,
nor medically reliable for most disorders. The CTI System represents an
integration of state-of-the-art thermal imaging technology hardware and software
components, most of which are configured to the Company's specific needs. The
CTI System is driven by sophisticated software developed over many years by the
Company and its research contractors. The software allows for quantification of
data, and significant flexibility in data manipulation, among other advantages.
However, equally important as the CTI System's components are, the CTI System's
scientifically structured patient

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examination administration protocols and standards are expected to assure the
accuracy, consistency and reliability of the CTI System's generated data.

The CTI System is suitable for use as a screening or directional tool
for imaging or diagnosis modalities, some of which are surgical, chemical and
otherwise extremely invasive. By knowing where in the body to begin looking
because of thermal irregularities, other imaging and testing can proceed more
efficiently and economically; obviously an important advantage in containing
health care costs. Additionally, management believes that as a result of the CTI
System's comparatively low user cost (less than the cost of an MRI or CAT scan),
accuracy and non-invasive procedure, the CTI System will be advantageous for
diagnostic and patient therapy purposes, in both pre- and post-therapy
assessment and with any frequency deemed necessary by the physician. The CTI
System can examine patients dynamically to enable the physician to observe
thermal reactions while the patient moves and while the patient undergoes
thermal applications.

The CTI System is currently composed of four elements. The primary
component is the examination unit, consisting of a highly sensitive and accurate
infra-red camera, imaging monitor, high resolution printer, computer and
proprietary software. The most unique feature of the CTI System is the
application specific software that drives and integrates the entire system, not
only providing user friendliness and analytical flexibility for physicians and
technicians, but enabling scientifically essential calibration corrections.
Management believes that the Company will be the first thermal imaging company
to provide a consistently objective diagnostic assessment tool that will measure
multiple thermal parameters, including facile enclosure of thermal features,
dynamic graphing of temperature distribution in the inset domain, and the use of
temperature gradient profiles in diagnostic testing.

The CTI System is a non-invasive imaging modality scientifically
applicable for an extremely wide range of patient diagnostics and therapy
management situations. The CTI System provides precise, quantitative
observation, as well as computer-assisted interpretation of irregularities in
the body's temperature and thermal regulatory systems. It is expected that with
the generated data available, physicians will be able to detect or at least
infer the presence of many diseases, disorders and injuries within the body's
physiological, neurological and vascular systems that rarely can be detected or
confirmed through conventional dense tissue/skeletal imaging modalities such as
X-ray, CAT scan, MRI and others. The CTI System is non-dosage limited and has no
detrimental side effect.

The second element of the CTI System is the proprietary medical
protocols that will be developed by the Company for each malady assessment.
Computer analysis requires consistently applied patient preparation and
examination application protocols.

Conformity is assured by using the third element, a climate controlled
laboratory (herein the Quantitative Thermal Assessment Laboratory or "QTA" in
which the patient examination occurs for equilibrating all patient examination
environments. In employing the CTI System, the Company anticipates constructing
QTAs for various potential customers including large hospital facilities, HMOs,
free-standing diagnostic centers and mobile clinics. The customer's own
technicians and physicians will operate the QTA after training. Each
installation will be linked electronically to the Company's main image archive.
A QTA center which consists of a three room suite will be constructed within a
standard 16 x 20 x 8 feet two-bed hospital room. The rooms will be precisely
temperature and humidity controlled by the erection of a modular
room-within-a-room. The patient temperature equilibrium rooms will consist of
two rooms within the suite for stabilization of patient temperature as well as
other preparations for testing. The imaging room is a room within the climate
controlled suite in which the patient is placed for infra-red scanning and in
which the camera, computer console and one technician is present during the
testing.

The fourth element of the CTI System is the use of a digital health
card that encodes a patient's thermal image (capable of storing the patient's
medical record) in a digital format on a plastic card the size of a credit card.
Only recently has the technology been improved to be capable of storing the
quantity of data for accurately carrying images from the CTI System. More than
one manufacturer now can produce such cards. The Company plans to embed in the
CTI System a "reader/writer" encoded for Company access only to permit recording
the images on the cards to enable subsequent comparisons of the images by
physicians at different clinical sites over an integrated telemedicine system.

CTI, Co. System. The Company owns 80 percent of the outstanding
capital stock of Computerized

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Thermal Imaging, Co., a Nevada corporation (herein sometimes referred to as
"CTI, Co.". CTI, Co. utilizes the CTI System specially configured as a breast
cancer screening system which is a non-invasive, non-contact procedure that does
not involve breast compression or exposure to radiation (the "CTI, Co. System"),
and which is comprised of an infra-red camera, a central processing unit, input
devices, a display unit, and a power distribution unit. The CTI, Co. System also
employs a proprietary patient positioning system (for which a patent application
has been filed) and an algorithm process (for which a provisional patent
application has been filed). The positioning system was designed to maximize
breast area viewed and to include surrounding areas of interest, to limit
patient movement during the examination, to ensure consistent cooling, to permit
applications of localized thermal changes during the examination, and to
accommodate any residual patient breathing movement. Currently, the CTI, Co.
System is undergoing clinical testing in accordance with an FDA approved
protocol which management expects to lead to pre-market approval (herein
referred to as "PMA" by the FDA. Once it has finished its clinical trials, CTI,
Co. expects to file for PMA in the fall of 1998, as long as the Company can
obtain the necessary financing for the operations of CTI, Co.

The CTI, Co. System performs three independent but interrelated
functions; data acquisition, data analysis and clinical evaluation. The CTI, Co.
System will use the Company's infra-red detection system for use in data
acquisition. The thermal data acquired will consist of a time sequence of
digitized thermal images. The images will then be post-processed on specially
developed data analysis software to generate images for clinical assessment. The
interpreting physician will view an image and the supporting mathematical data
underlying that image.

The CTI, Co. System is currently in clinical testing at Providence
Hospital in Washington, D.C., Norris Cancer Center in Los Angeles, St. Agnes
Hospital in Baltimore, Lahey Clinic in Boston and at Mt. Sinai Hospital located
in Miami.

Competition

CTI System. The Company faces limited direct competition from the
latest versions of conventional thermal technology. Although the CTI System may
have application for detection or diagnosis of numerous soft tissue ailments,
physicians must broadly accept the CTI System as complementary detection
technology to prescribe its use to create a material market for its use. Many
physicians generally equate the CTI System, upon first introduction, with the
predecessor technology of "thermography", an analog infra-red camera system
without the Company's computer algorithm analysis of computed thermal data using
high quality thermal imaging cameras. Educating doctors of the fact that the
Systems are new technology could take time and result in delays in any financial
revenues forecasts. In the opinion of management, thermography is comparatively
crude and unscientific and otherwise seen as inferior to the CTI System and is
not considered an economic barrier to market penetration. The CTI System should
not be seen as competitive to other diagnostic imaging products, such as MRI,
CAT scan, X-ray, ultrasonography, laser, and Doppler mapping (any more than any
one modality of that list is considered competitive to another). Each of these
anatomical modalities has established a niche in the hospital diagnostics
market, free standing imaging centers or physicians' offices. Each modality is
better for some disorder diagnosis situations and less effective for others. The
adoption pattern of the modalities is dictated by the degree of advantage
perceived by one modality as compared to the others.

By comparison to all of the above-described modalities, the CTI System
has no direct competition from existing modalities in many diagnostic situations
because the CTI System gathers data regarding the physiological and functional
domain of human health, as opposed to the anatomical or structural facets. Most
other imaging devices address "anatomical or structural patient issues" and are
therefore complementary and not competitive to the CTI System. Large companies
have the resources to attempt to compete in the long term with the Company in
the physiological assessment of medical issues, but at present are not deemed by
management to be a threat. MRIs, CAT scans, and X-rays all image hard or dense
structures such as bones, organs and other material masses within the body. Many
soft tissue disorders simply are not detectable by conventional modalities until
they become manifested as relatively advanced anatomical abnormalities such as
irregular tissue density or damage.

CTI, Co. System. Mammography is an X-ray technology most widely used
in the Untied States as the imaging mode for detection of breast cancer.
Statistics have been published establishing a low reliability percentage of
close

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to 75 percent for "false positive" indications, where mammography indicates a
suspicious tumor and a follow-up surgical biopsy establishes that the tissue is
benign. An even more frightening statistic is the percentage of mammography
`false negative" indications, by which a breast cancer is not detected.
Mammography is significantly less effective in dense breast tissue; women under
the age of 40 years typically have more dense breast tissue than women over the
age of 40 years. Therefore, mammography is currently most effective in women
over the age of 40 years. The initial clinical trials approved by the FDA for
CTI, Co. are designed to establish the CTI, Co. System as complementary to
mammography. The first PMA uses will be to employ the CTI, Co. System to examine
any patient with "suspicious tissue" indications resulting from a mammography
image.

Potential competition for the CTI, Co. System includes an imaging
device for the detection of breast abnormalities being developed by Imaging
Diagnostics Systems, Inc. located in Sunrise, Florida, known as a Computer
Tomography Laser Mammography System ("CTLM"). This device relies on ultra-fast
laser imaging technology which can acquire data to allow visualization of the
interior structure of the breast. The ability to localize an abnormality within
the breast is greatly enhanced by the slice plane lateral and cranio-caudal
images produced by CTLM. Such images can be stored on CD-ROM and allow the
physician to recall previous studies instantly for immediate comparison with the
current study. The advantage of CTLM over mammography is its use of laser
technology to produce the image, which does not use harmful radiation.
Management, however, believes the CTI, Co. System will prove superior to CTLM
for detection of cancer because laser images still require density of tissue, as
with mammography, to produce an image. Dense tumor formations are a later stage
of cancer and management believes the CTI, Co. System detection of physiological
thermal changes will prove to be more accurate (because some tumors are benign)
and detectable at an earlier stage.

Also, an ultrasound technique is being developed by Advanced
Technology Laboratories ("ATL"), known as High-Definition Imaging. Ultrasound
sends high-frequency sound waves into the body, which are reflected back to
create images. While ultrasound is used in numerous medical procedures, ATL's
system is the first to provide adjunctive diagnostic capability for breast
cancer.

Component Competition. If the Company and CTI, Co. are successful with
their product development and marketing, some component parts for the CTI System
could be in short supply. There are few manufacturers that produce an infra-red
camera and unit cooling system of a high enough quality to satisfy the
specifications for a CTI System. The systems integration and software
development contractor for both CTI and CTI, Co., TRW Systems in its TRW
Healthcare Technology Division (herein referred to as "TRW"), has tested
numerous manufacturer's products for certain parts. If the demand for the CTI
System and the CTI, Co. System increased dramatically, some parts may not be
immediately available.

Future Product and Service Plans

The Company will continue to invest, to the extent of its available
financing, to improve the effectiveness of its proprietary application software.
In addition, the Company will continue to source from vendors who can improve
the precision and reliability of the patient testing of the CTI System. However,
the area of innovation that the Company believes will create the next quantum
leap will be the integration of the Systems with anatomical and other imaging
data. Because the Systems are digitally quantifiable, the Company believes it is
highly technically and economically feasible for the Systems to be the
foundation of inter-modality imaging, where, for instance, image data of the CTI
System is overlaid on CAT scan or MRI or X-ray or sonographic imaging data to
create a multi-dimensional "picture". This development is not forecast until
after significant market penetration.

At present, some other advanced modalities generally are what might be
termed "neo" or non-quantifiable. That is, even if the information from an MRI
is processed by computers digitally, the eventual interpretation of the image
still is subjective on the part of the technicians and diagnosing doctors. The
Company's plan is to first build quantified data bases of tests on the same
patient by other modalities and then develop the necessary interfaces to allow
overlay. Then, with this capability and the combined data base at hand, the
Company can begin offering computerized disorder pattern recognition assistance
based upon a multi-dimensional image of patients.

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Marketing. While product development remains the Company's primary
focus, management has taken steps to explore marketing alliances with other
companies in the medical industry. On November 19, 1998 the Company entered into
a Marketing Agreement with T.S.E.T., Inc. ("TSET"). The Marketing Agreement
provides that TSET will use its best efforts and marketing resources to actively
market the diagnostic thermal imaging system of the Company on a world wide
basis. Under the terms of the Marketing Agreement, the Company is required, at
its own cost, to provide sales materials and marketing and technical assistance
to TSET in order to facilitate the placement of the systems. TSET is granted the
nonexclusive authority to market and sell the systems throughout the world at
prices to be set by the Company. TSET will be compensated under a commission fee
structure based on a rate of 15 percent of the "value" of each system sold. Fees
earned by TSET shall be paid either in cash or in the cash equivalent of the
Common Stock of the Company, as elected by TSET. The term of the Marketing
Agreement is for one year, but may be renewed for subsequent one year periods or
longer as agreed upon by the parties. The Marketing Agreement does not contain
any minimum sales requirements or other performance criteria providing for
automatic termination, and may only be terminated prior to the expiration of the
initial term by the mutual consent of the parties.

Government Regulation

The FDA has no prohibiting regulations preventing the use of thermal
imaging equipment, generally perceived as an infra-red camera, for medical
purposes. There can be no assurance that any state regulatory bodies or the FDA
might not impose some restrictions, with which the Systems, or the users, must
comply. The Company believes no FDA approval is required for health care
physicians or radiologists to use the CTI System, but the Company believes that
broad acceptance for use of the CTI System will require verification of
clearance from the FDA. The CTI and CTI, Co. Systems are considered medical
devices as defined by Section 201(h) of the FDC Act because they are intended
for use in the diagnosis of disease or other conditions, or in the cure,
mitigation, treatment or prevention of disease, in man or other animals. As
such, these devices require either compliance with FDC Act Section 510(k) under
which the Company currently relies with respect to the CTI System, or approval
of a premarket approval application (herein referred to as "PMA" by the FDA
prior to commercialization, with respect to the CTI, Co. System. Satisfaction of
applicable regulatory requirements may take years and varies substantially based
upon the type, complexity and novelty of such devices, as well as the clinical
procedure. Filings and governmental approvals may be required in foreign
countries before the devices can be marketed in these countries. There can be no
assurance that further clinical trials of the Company's thermal imaging systems
or of any future products will be successfully completed or, if they are
completed, that any requisite FDA or foreign governmental clearances or
approvals will be obtained. FDA or other governmental clearances or approvals of
products developed by the Company in the future may require substantial filing
fees, or costs to conduct clinical trials, which could limit the number of
applications sought by the Company and may entail limitations on the indicated
uses for which such products may be marketed. In addition, approved or cleared
products may be subject to additional testing and surveillance programs required
by the FDA and other regulatory agencies, and product approvals and clearances
could be withdrawn for failure to comply with regulatory standards or by the
occurrence of unforeseen problems following initial marketing. The Company is
also required to adhere to applicable requirements for current good
manufacturing practices, to engage in extensive record keeping and reporting and
to comply with the FDA's product labeling, promotional and advertising
requirements. Noncompliance with state, federal or foreign requirements can
result in fines, injunctions, civil penalties, recall or seizure of products,
total or partial suspension of production, delay, denial or withdrawal of
premarket clearance or approval of devices, recommendations by the FDA that the
Company not be allowed to enter into government contracts, and criminal
prosecution, all of which would have a material adverse effect on the Company's
business, financial condition and results of operations.

The FDA review of a PMA application consists of the following four
steps: (i) administrative and limited scientific review by the FDA staff to
determine that the application is complete; (ii) in-depth scientific and
regulatory review by the FDA compliance personnel; (iii) review and
recommendation of the appropriate advisory committee (panel review); and (iv) a
FDA good manufacturing practices inspection. Following the FDA review, the FDA
will notify the applicant by letter of its decision to approve or deny the
application. A notice will also be published in the Federal Register. These
steps are internal FDA PMA processing so no information is available for the
time frame of the individual steps. However, the average review time in 1997 for
new PMA submittals was 207 days. Furthermore, 21 percent of the PMAs were
reviewed in 180 days or less.

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After CTI, Co. developed a product that could have beneficial medical
use and would merit FDA approval, the first step was to hold a series of
discussions with the FDA. These discussions were designed to allow the Company
to present to the FDA the new product to be tested, it's basis of operation,
safety ramifications, intended usage, desired trial composition and desired
approval. Pretrial data was presented to the FDA by CTI, Co. to demonstrate that
there was sufficient probability of success to warrant FDA consideration. These
discussions also reviewed the intended trial protocol. These discussions led to
modifications to the intended trial composition and protocol in order to ensure
that a trial would produce sufficient data quantity and quality to allow a
successful FDA review after the trial. CTI, Co. has successfully completed this
step and has an FDA approved trial protocol, requiring an initial data
collection phase where thermal images collected by the CTI, Co. System from
approximately 600 qualified patients were collected. The next step was to set-up
the trial process with the appropriate trial oversight. CTI, Co. has engaged
QBRI, a consulting firm recognized by the FDA for overseeing clinical trial data
collection and adherence to FDA requirements. CTI, Co. has completed this step
of the process. The next step of the FDA approval process is to implement the
clinical trials by executing the approved protocol and collecting actual patient
data. CTI, Co. is currently in this phase of the approval process with clinical
trial data collection underway at Norris Comprehensive Cancer Center, Los
Angeles, Mt. Sinai Hospital, Miami, St. Agnes Hospital , Baltimore, Providence
Hospital, Washington, D.C. and Lahey Clinic, Boston. The clinical trials permit
the medical facilities to use the CTI, Co. System, to collect the required
patient information and examination results, to compare the CTI, Co. System data
collected to the pathology findings of malignant or benign tumors, to permit
independent review for adherence to examination procedures, and to categorize
the collected data for appropriate presentation to the FDA. This phase is
expected to continue through 1998. Following the completion of the trial data
collection phase, CTI, Co. and its consultants must analyze the trial results to
prepare a PMA submission. The Company makes no estimate of the time required by
the FDA to review CTI, Co.'s PMA submission.

The Company will rely upon a 510(k) exemption under the FDC Act for
general medical applications, based upon the technology of the infra-red camera
components for sales of the CTI System. The Company expects in the future to
pursue specific medical applications by applications to the FDA for a PMA or
other approval, but none have been initiated at this time by the Company.

Third Party Reimbursement

Although use of the CTI System and the CTI, Co. System is permitted
now by physicians, the absence of FDA approval is a practical impediment. Most
physicians prescribe use of external procedures and imaging modalities when
there are approved payment codes acceptable for third party reimbursement (e.g.,
insurance, Medicare, etc.) to enable patients to obtain medical treatment
payment assistance. The Health Insurance Care Finance Administration ("HICFA")
is the agency that establishes for Medicare/Medicaid a payment code approval for
certain imaging modalities for particular suspected ailments. Generally, HICFA
does not set payment codes for use of new technology unless the technology has
obtained FDA approval. Most insurance company reimbursement plans establish
payment codes for their insureds based upon their own experience, and for new
procedures or imaging modalities, based upon HICFA's determination. Therefore,
FDA approval is needed, at least at the inception, for each ailment examination
for which the CTI System or the CTI, Co. System is used seeking reimbursement,
if not covered by other general payment codes.

Neither the Company nor CTI, Co. currently have FDA approval for any
imaging procedure. CTI, Co. clinical trials are in process for use of the CTI,
Co. System for breast cancer detection. The Company has initiated no process to
obtain separate FDA approval to proceed with clinical trials of the CTI System.
Therefore, the Company's efforts to market the CTI System in Asia (the PRC and
Thailand) may result in revenues quicker, if further contracts are entered to
sell the CTI System there, than with the Company's plan to place the CTI System
in U.S. hospitals, clinics, and HMO facilities subject to the Use Agreements.

39
<PAGE>

Patents and Intellectual Property

On June 8, 1996, the Company entered into a License Agreement with
CTI, Co. which granted an exclusive license to CTI, CO. to distribute, research,
and develop the CTI System and related technology. The license covered
applications of the CTI System to the field of breast cancer detection and was
limited in scope to North America. The License Agreement also provided for a
joint research program whereby the parties would share research data relating to
the CTI System and cross-license any developed technologies. In addition, the
terms of the License Agreement established that the agreement would
automatically terminate in the event of any consolidation, merger, share
exchange or other event causing a change in more than 50 percent control of the
voting shares of CTI, Co. or the Company. As a result of the Stock Transfer
Agreement executed on January 28, 1997 by the Company and CTI, Co., the Company
gained control of 80 percent of the common stock of CTI, Co. While the
provisions of the Stock Transfer Agreement manifests the parties' intent to
execute a new licensing agreement and outlined the terms of such an arrangement,
no new licensing agreement has been reached. Although no written licensing or
research agreements presently exist between the Company and CTI, Co., management
believes that the cross-licensing arrangement between the two companies is still
in place and, by virtue of the Company's 80 percent controlling ownership
interest in CTI, Co., it has the requisite ability to ensure access for the
Company to all material technological developments. The risk of the absence of a
clear, written licensing agreement is heightened by the financial constraints
upon the Company. If the Company or CTI, Co. were to be unable to timely pay
creditors, a judgment or lien or bankruptcy against the Company or CTI, Co.
could result in a challenge to the executory nature of any licensing agreement,
or the parties may have a disagreement as to the terms of such agreement, due to
the fact that specific licensing terms are not set forth in writing. Although
the Stock Transfer Agreement evidences the intent of the parties to recognize a
cross-license agreement and geographical restrictions upon the use of the CTI,
Co. System by CTI, Co., that expression of intent set forth in the Stock
Transfer Agreement may not be recognized, if challenged by CTI, Co. or a third
party acquiring either CTI, Co. or some of the Company's technology, as a
binding license agreement. The result could be that CTI, Co., if subsequently
under separate stockholder control, might be a competitor to the Company in the
use of the CTI System technology and marketing of related products. The Company
expects to control this risk by paying its creditors and establishing an
appropriate licensing agreement while controlling the stock of CTI, Co.

Neither the Company nor CTI, Co. currently holds registered United
States or foreign patents. CTI, Co. has acquired, by assignment, a patent
application on a Functional Thermal Imaging Apparatus which has been filed with
the United States Patent and Trademark Office. In addition, CTI, Co. has filed a
provisional patent application with the United States Patent and Trademark
Office covering the algorithm process involved in analyzing the imaging data
collected through the CTI, Co. System. CTI, Co. must file a non-provisional
patent application, providing a more definitive description of the invention for
which patent protection is sought, by October 20, 1999. In the event a
non-provisional patent application is not filed by said date, then the
provisional application will go abandoned. Management believes other developed
technologies or components of either the CTI or CTI, Co. System may warrant
patent protection in the future. Substantial engineering costs and legal fees
will be incurred in order to research, develop and file additional patent
applications. The Company and CTI, Co. intend to explore this possibility when
funds become available to support such expenditures.

Risks of Doing Business in the PRC and Other Foreign Countries

The Company intends to continue its efforts to market the CTI System
to the PRC, Thailand and hospitals in other foreign countries. Doing business in
the PRC, as well as in other developing countries, has risks not prevalent in
the United States or Canada. Judicial systems for enforcement of contracts in
those counties are not reliable. The Company has inserted arbitration clauses in
its foreign contracts to date, but there is risk to arbitration results, because
the holding is not subject to appeal, regardless of error in the application of
law. Furthermore, foreign government laws or regulations can change in a method
not customary to American companies, including the extreme measure of
nationalization of assets.

The Company's existing contracts with a company owned by the Ministry
of Public Health in the PRC require letters of credit enforceable outside the
PRC to be issued as a precondition of performance by the Company. Management
intends to continue to take such financial precautions to protect against
financial risks of doing business in the PRC and developing countries.

40
<PAGE>

Successful operations in developing countries usually require a joint
venture with a respected citizen of that country. The Company has continued one
full time employee in the PRC who maintains his relationships with the Ministry
of Public Health. The initial sale of the CTI System to the Orchard Hospital in
Thailand was brought about through a personal relationship established in
earlier years by General Richard V. Secord, the Chief Operating Officer of the
Company. There is no assurance that a venture will be formed in Thailand, but
the Company's contacts in Thailand have been successfully using and
demonstrating the CTI System and providing a recurring downloading of patient
information. Thailand and the PRC are countries where thermography (a technology
predecessor to the CTI System without computer data analysis and without high
definition cameras) has been accepted for years, largely due to its use in
proving the efficacy and proper location of acupuncture. Management intends to
use this relationship to establish a financing venture in Thailand, when it can
raise the necessary capital to pay start up costs.

Employees

The Company and CTI, Co. currently employ six persons on a full time
basis. The Company has in the past, and will continue in the future, to employ
independent contractors, and make extensive use of its outside directors and
other consultants. None of the employees of the Company and its subsidiaries and
joint operations are represented by a labor organization. The Company believes
its relationships with all of these employees are satisfactory.

Facilities

The Company leases approximately 1,000 square feet of office space in
Lake Oswego, Oregon for an annual rental of approximately $24,000 and
approximately 2,000 square feet of office space in Layton, Utah for an annual
rental of approximately $34,800. The Company believes that its facilities are
adequate for its current operations.

Litigation

Select Capital Advisors, Inc. Debentures and Warrants. On December 9,
1997, the Company filed suit against Select Capital Advisors, Inc. ("Select"),
Ronald G. Williams ("Williams"), and various other parties in the United States
District Court for the Southern District of Florida for damages and recission
with respect to the fraudulent sale of 12% Series A Senior Subordinated
Convertible Debentures issued by the Company. In March 1997, the Company was
introduced to Select and Williams for the purpose of raising capital and
establishing a line of credit. Select, Williams and several of the other
defendants represented that they had the experience, reputation and resources to
raise the needed money. The Company entered into an agreement with Select to
raise the needed money in stages through capital financing, to immediately loan
or guarantee a loan of $2,000,000 for operating capital, and to perform certain
investment banking services to raise at least $6,000,000. In addition, the
Company paid an initial fee of $10,000 to Select.

In April 1997, Select convinced the Company that Select could raise
$1,500,000 through the offering of the Company's 12% Series A Senior
Subordinated Convertible Debentures to foreign investors pursuant to Regulation
S of the Securities Act. As a result, investors purchased debentures which
provided for a 20 percent discount off an aggregate face value of $662,500, an
interest rate of 12 percent per annum, and rights to convert the principal and
interest into shares of the Common Stock on three different installment dates at
a price determined to be the lower of 90 percent of the market value of Company
free trading shares of the Common Stock at the date of subscription or 90
percent of the five day average price prior to the date of conversion. Upon
making an election to convert the amounts due under the debentures into Common
Stock, the investors demanded that free trading shares rather than "restricted"
shares of the Common Stock be issued, claiming that Select had represented to
the investors that they would be issued registered securities. Upon conducting
an investigation into the matter, the Company discovered that numerous false and
misleading statements were made by Select, Williams, and possibly other
defendants in connection with the sale of the debentures; that various documents
were changed by Select, Williams, and the other defendants without the knowledge
of the Company; that the agreement was breached by Select; that the defendants
engaged in market manipulation; that material omissions were made by Williams
and Select both to the Company and to the investors. Some shares of the Common
Stock were issued in conversion and delivered before the Company knew of the
misrepresentations.

41
<PAGE>

During 1998, the Company reached settlements with all of the debenture
holders. Despite reaching settlements with the investors, the Company plans to
continue to seek damages of approximately $200,000,000 against Select and
Williams.

Claims Involving Stockholders. The Company initiated litigation in
1998 against a former director to recover shares of the Common Stock, or
resulting damages, that had been issued to the director in consideration of an
agreement and representation to deliver a commitment from SPRINT, or a similar
telecommunications company, to contribute a substantial amount to the Company
for immediate delivery of planned China production of CTI Systems. The shares
were issued, but the stockholder failed to perform the promised consideration.
During the year ended June 30, 1995, the Company issued 1,000,000 shares of the
Common Stock to Richard Thompson, a former director of the Company, based upon
the director's representation that he would arrange large scale financing by
certain proposed contributors. During the year ended June 30, 1997, actions were
taken to cancel the Common Stock, because the Company contended that the
issuance was conditioned upon Mr. Thompson's performance, which has never
materialized. A lender to Mr. Thompson asserted a pledge of 500,000 shares of
the Common Stock as collateral for a loan and, as such, was a protected
purchaser under the Uniform Commercial Code. See "Description of Securities -
Canceled Shares". An Escrow Agreement was reached between the Company and that
permitted the lender to liquidate the number of shares required to satisfy the
outstanding indebtedness and recoverable costs secured by the shares. The
remaining 48,000 shares have been delivered to the transfer agent of the Company
pursuant to the Escrow Agreement, and it is the transfer agent's intention to
interplead those shares to confirm the Company's right to cancel the shares and
recover damages. The certificate representing the 500,000 shares of the Common
Stock secured by a pledge was re-instated for purposes of the agreement and the
underlying shares are included as issued and outstanding shares in the
accompanying Consolidated Financial Statements at June 30, 1997 and 1998.

Past Due Accounts. As of the date of this Prospectus, the Company has
no past due liabilities with its primary systems development vendor, TRW, Inc.,
an Ohio corporation ("TRW"). The Company has also paid in full the Promissory
Note dated May 1, 1998 executed with the law firm of Looper, Reed, Mark & McGraw
Incorporated.

In addition to the above, the Company, in the normal course of its
business, is subject to claims and litigation in the areas of product and
general liability. The Company believes that CTI, Co. has adequate insurance
coverage for most claims that are incurred in the normal course of its business,
including liability coverage for commercial liability, premises, general
liability, crime, umbrella, and workers compensation, and directors and officers
coverage. The Company self-insures its current operations and carries no
separate liability insurance policies, but intends to obtain coverage as its
operations permit production and sales. In such cases, the effect on the
Company's financial statements is generally limited to the amount of its
insurance deductibles. Management does not believe at this time that any such
claims have a material impact on the Company's financial position, operations
and liquidity

MANAGEMENT

Executive Officers and Directors

Set forth below are the directors and executive officers of the
Company, together with their ages as of the date of this Prospectus.

<TABLE>
<CAPTION>
Name Age Position Director Since
----- --- -------- --------------
<S> <C> <C> <C>
David B. Johnston (1)................ 55 Chairman of the Board and Chief August 1987
Executive Officer

David A. Packer...................... 47 President and Treasurer N/A

Richard V. Secord.................... 63 Chief Operating Officer, Secretary, February 1996
and Director
</TABLE>

42
<PAGE>

<TABLE>
<S> <C> <C> <C>
Brent M. Pratley, M.D. (1) (2)....... 61 Director June 1994

Milton R. Geilmann (1) (2)........... 61 Director January 1998

Harry C. Aderholt (2)................ 78 Director January 1998
</TABLE>

(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.

The Company may employ such additional management personnel as the
Board of Directors deems necessary. The Company has not identified or reached an
agreement or understanding with any other individuals to serve in such
management positions, but does not anticipate any difficulty in employing
qualified personnel.

A description of the business experience during the past several years
for each of the directors and executive officers of the Company is set forth
below.

David B. Johnston has served as Chairman of the Board of the Company
since August 1987 and Chief Executive Officer, effective July 1, 1997. He
currently serves as an officer and/or director of CTI, Co. and of Thermal
Imaging, Inc. (herein sometimes referred to as "TII"), affiliates of the
Company. From 1984 through 1989, Mr. Johnston was President of Funding
Selection, Inc., an Oregon investment banking and mergers and acquisitions firm.
Prior to that, Mr. Johnston was Chairman of Grace Capital, Ltd. in Oregon, a
specialized medical and computer high technology private placement firm. Mr.
Johnston received a Bachelor of Science degree in Business Administration from
Brigham Young University and a graduate degree in banking and corporate finance
from the University of Southern California.

David A. Packer was elected President of the Company in April 1997.
Effective July 1, 1997, he was also elected to be Treasurer of the Company. In
December 1998, Mr. Packer was appointed to serve as President and Chief
Operating Officer of CTI, Co., an 80 percent owned Subsidiary of the Company.
Before joining the Company Mr. Packer served as a senior manager for TRW's
engineering office in Ogden, Utah from 1976 until 1997. Mr. Packer received a
Bachelor of Science degree in Electronics from Brigham Young University in 1975.

Richard V. Secord (Major General, United States Air Force, Retired)
was elected Chief Operating Officer of the Company in June 1995 and currently
serves in that same position for TriSun/CTI Asia, Ltd., an affiliate of the
Company. He was elected as a director of the Company effective February 1996 and
has served as Vice Chairman and Secretary of the Company since July 1, 1997.
General Secord previously served as President of the Company from February 1996
to April 1997. He is also Chief Executive Officer and a director of CTI, Co.
General Secord was instrumental in securing the Company's contracts in Thailand
and with the Chinese government through TriSun/CTI Asia, Ltd., a joint venture
between the Company and TriSun Medical America, Inc., which was formed at the
direction of the PRC Ministry of Public Health to effect the Golden Health Care
Plan for the People's Republic of China. General Secord was awarded The Order of
the White Elephant, one of the highest decorations that can be awarded a non-
Thai military officer, for his distinguished valor and service in assisting the
Thai military. General Secord served in many positions while performing military
service. He was the first military officer to be appointed Deputy Assistant
Secretary of Defense (Near East, Africa and South Asia). General Secord received
a Bachelor of Science degree from the United States Military Academy. He is also
a graduate of the United States Air Force Command and Staff College, and the
United States Naval War College. In addition, he holds a Masters degree in
International Affairs from George Washington University.

Brent M. Pratley, M.D. was elected as a director of the Company in
June 1994 and served as the Secretary of the Company from June 1994 to September
1997. Dr. Pratley is currently licensed to practice medicine in Utah and
California, and since 1978 has been in private practice in General Orthopedics
and Sports Medicine at Utah Valley Regional Medical Center located in Provo,
Utah, as well as in Los Angeles, California. Dr. Pratley received his Doctor of
Medicine degree in Orthopedic Surgery in 1968 from the College of Medicine at
the University of California, Irvine, California.

43
<PAGE>

Milton R. Geilmann was elected as a director of the Company in January
1998. Mr. Geilmann has been associated with the medical field for over 32 years.
From 1985 to 1993, he worked at E. R. Squibb and Sons, where he held many
positions, including Nuclear Consultant for Diagnostic Medicine. Mr. Geilmann
received a Masters of Science degree in Pharmacology in 1957 from State
University of New York.

Harry C. Aderholt (Brigadier General, United States Air Force,
Retired) was elected as a director of the Company in January 1998. General
Aderholt served in Southeast Asia, particularly Thailand, for many years both in
and out of the U.S. Air Force. Since his retirement from military service in
1976, General Aderholt has engaged in various private business ventures,
including serving as Vice President of Air Siam in Bangkok, Thailand.

Directors of the Company are elected by the stockholders at each
annual meeting and serve until the next annual meeting of stockholders or until
their successors are duly elected and qualified. Officers are elected to serve,
subject to the discretion of the Board of Directors, until their successors are
appointed or their earlier resignation or removal from office. The Company does
not have an Executive Committee. However, the Company does have an Audit
Committee and a Compensation Committee which were created in January 1998. The
Audit Committee reviews and reports to the Board of Directors on the financial
results of the Company's operations and the results of the audit services
provided by the Company's independent accountants, including the fees and costs
for such services. The Compensation Committee reviews compensation paid to
management, including administration of the Company's 1997 Stock Option and
Restricted Stock Plan, and recommends to the Board of Directors appropriate
executive compensation. There is no family relationship between or among any of
the directors and executive officers of the Company, except for the relationship
between Mr. Johnston and Mr. Packer, who are cousins by marriage.

Executive Compensation

During the fiscal year ended June 30, 1998, General Secord, Mr. Packer
and Kenneth M. Dodd, former President and Chief Executive Officer of CTI, Co.,
were each paid salaries and bonuses exceeding $100,000. Mr. Johnston, the
Chairman of the Board and Chief Executive Officer, was not paid a cash salary
but was instead deemed compensated in the form of periodic issuances of
restricted shares of the Common Stock to Thermal Imaging, Inc. (herein referred
to as "TII"), an affiliate of Mr. Johnston. In certain instances during fiscal
year 1997, and prior years, funds raised from investors in the Company were
delivered to TII and deposited into TII's bank accounts. In those cases where
reliable evidence was not available to accurately verify the subsequent transfer
of funds from TII to the Company or to creditors of the Company, or to
distinguish contributions made by TII to the Company in return for restricted
shares of the Common Stock from transfers of funds collected by TII on behalf of
the Company, all unaccounted for funds, or excess restricted shares of the
Common Stock issued to TII, have been deemed compensation to Mr. Johnston. See
"Management - Certain Transactions - Proceeds From the Sale of Securities". The
periodic issuance of restricted shares of the Common Stock to TII are in
settlement of both services provided to and expenses incurred on behalf of the
Company by Mr. Johnston.

The total compensation and reimbursement of expenses to officers and
directors for the fiscal year ended June 30, 1998 was $580,173. In addition, Mr.
Johnston and General Secord were granted options to purchase 1,000,000 and
1,250,000 shares of the Common Stock, respectively, subject to certain vesting
requirements.

All corporate decisions regarding employee compensation and stock
option awards during the last three year period have been approved by the Board
of Directors. In January 1998, the Board of Directors created a Compensation
Committee composed of Dr. Pratley, Mr. Geilmann and General Aderholt, all
non-employee directors. The committee will assume responsibility for reviewing
all executive compensation matters and administering the Company's 1997 Stock
Option and Restricted Stock Plan.

44
<PAGE>

Summary Compensation Table

<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
-------------------------------------- ----------------------------
Securities
Underlying
Name and Principal Fiscal All Other Restricted Options and
Position Year Salary Bonus Compensation (1) Common Stock Warrants (3)
-------- ---- ------ ----- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
David B. Johnston, 1998 -0- -0- $ 9,772 -0- 1,000,000
Chairman of the Board, and 1997 -0- -0- $152,498 -0- -0-
Chief Executive Officer, 1996 -0- -0- $474,500 -0- -0-
and Treasurer (2)

Richard V. Secord, 1998 $185,705 -0- -0- -0- 1,250,000
President and 1997 $204,486 -0- -0- -0- -0-
Chief Operating Officer (4) 1996 $189,697 -0- -0- -0- -0-

Kenneth M. Dodd, 1998 $200,004 -0- -0- -0- -0-
President of CTI, Co. (5) 1997 $156,667 -0- -0- -0- -0-
1996 $ 52,000 -0- -0- -0- 500,000

David A. Packer, 1998 $184,692 -0- -0- -0- -0-
President and Treasurer (6) 1997 $ 31,657 -0- -0- -0- 500,000
</TABLE>

(1) Certain of the officers of the Company routinely receive other benefits
from the Company, including travel reimbursement, the amounts of which are
customary in the industry. The Company has concluded, after reasonable
inquiry, that the aggregate amounts of such benefits during the last three
completed fiscal years, which cannot be precisely ascertained, did not
exceed the lesser of $50,000 or 10 percent of the total compensation
reported for the named executive officers excepting Mr. Johnston who has
foregone annual monetary compensation in favor of the issuance of
restricted shares of the Common Stock. Included in All Other Compensation
for Mr. Johnston are reimbursements of travel expenses for himself and
other executives of the Company which were paid by TII. Based on available
information, General Secord's All Other Compensation, which is comprised of
reimbursed travel and a $500 per month car allowance, did not exceed 10
percent of annual compensation during the periods discussed.
(2) The valued referenced represents the fair market value of the shares of the
Common Stock, ranging from $0.28 to $1.00 per share, when issued in the
name of Thermal Imaging, Inc. ("TII"), an affiliate of Mr. Johnston. The
issuance of the referenced shares was treated as compensation to Mr.
Johnston as a result of discrepancies arising from the funding relationship
between TII and the Company. See "Management - Certain Transactions -
Proceeds From the Sale of Securities". Over the last three fiscal years,
Mr. Johnston indirectly has been issued 9,073,895 shares of the Common
Stock as compensation or repayment of expenses and cash advances to the
Company, which based on the fair market value at the time of issuance
equals an aggregate of $4,177,839. Mr. Johnston is the beneficial owner of
8,248,748 shares of the Common Stock of the Company as of October 29, 1998
(including shares of the Common Stock held in the names of Thermal Imaging,
Inc.). The aggregate value of all Common Stock beneficially held by Mr.
Johnston, pursuant to Section 13d-3 of the Exchange Act, as of October 29,
1998, based upon the closing market price of the Company's unrestricted
shares of the Common Stock as of October 29, 1998, was approximately
$8,743,673.
(3) None of the options granted to employees have been exercised. Of Mr.
Johnston's options on 1,000,000 shares, only 500,000 shares are vested as
of the date hereof. Of General Secord's options on 3,250,000 shares, only
2,625,000 shares are vested as of the date hereof. Of the 500,000 option
shares granted to Mr. Packer, only 166,667 shares are vested as of the date
hereof. Of Mr. Dodd's options on 500,000 shares, all 500,000 shares are
vested as of the date hereof.
(4) General Secord served as President of the Company from February 1996 to
April 1997. He was elected Secretary of Company effective July 1, 1997.
(5) Mr. Dodd resigned from his position of Executive Vice President of the
Company in March 1998, and from his position as President and Chief
Executive Officer of CTI, Co. in December 1998. While employed by the
Company Mr. Dodd also received stock in CTI, Co. totaling approximately 7.5
percent of the outstanding CTI, Co. shares. The value of the CTI, Co.
shares on the date of issue was insignificant, and, therefore, not
reflected as compensation to Mr. Dodd.
(6) Mr. Packer was elected President of the Company in April 1997 and Treasurer
of the Company effective July 1, 1997.

45
<PAGE>

Employment Contracts

David B. Johnston, the Chief Executive Officer of the Company, and the
Company entered into an Employment Agreement dated October 29, 1997, but
effective September 18, 1997. The term of the agreement is for three years,
automatically renewable for additional periods of one year thereafter unless
terminated upon the giving of notice at least 14 days prior to the annual
renewal date. The agreement calls for no mandatory annual cash compensation, but
does provide for compensation in the form of non-statutory stock options
covering 1,000,000 shares of the Common Stock at an exercise price of $0.75 per
share. Twenty-five percent of the options vested upon the execution of the
agreement, and 25 percent of the remaining options vest on each anniversary date
of the agreement. The options granted to Mr. Johnston must be exercised within
five years from the date of grant. To the extent applicable, the options granted
to Mr. Johnston are subject to the Company's 1997 Stock Option and Restricted
Stock Plan. At the cost of the Company, Mr. Johnston has "piggyback"
registration rights with respect to the shares of the Common Stock derived from
the exercise of the options. As of the date of this Prospectus, none of the
options granted to Mr. Johnston under the agreement have been exercised. The
agreement subjects Mr. Johnston to a two year non-compete restriction, the
obligation not to induce any employee of the Company to leave his employment
with the Company during the term of the agreement or for two years after the
termination thereof, and the duty not to reveal any confidential information
about the business of the Company.

None of the shares of the Common Stock to be issued to Mr. Johnston in
connection with the exercise of the options is being registered under the
Securities Act pursuant to this Prospectus.

David A. Packer, the President of the Company, and the Company entered
into an Employment Agreement dated April 30, 1997. The term of the agreement is
for three years and calls for compensation of $135,000 per year, plus
non-statutory stock options covering 500,000 shares of the Common Stock at an
exercise price of $0.97 per share. One-third of the options vest on each
anniversary date of the agreement. The options granted to Mr. Packer must be
exercised within five years from the date of the agreement. If the agreement is
terminated for "cause" as defined in the agreement, or Mr. Packer voluntarily
terminates the agreement, all of the options granted to Mr. Packer thereunder,
and which have not been exercised, shall be forfeited. At the cost of the
Company, Mr. Packer has "piggyback" registration rights with respect to the
shares of the Common Stock derived from the exercise of the options. The
agreement subjects Mr. Packer to a two year non-compete restriction, the
obligation to give the Company the right to take advantage of any business
opportunity, and the duty not to reveal any confidential information about the
business of the Company.

In December 1998, Mr. Packer was appointed to serve as President and
Chief Operating Officer of CTI, Co. Mr. Packer does not receive any additional
compensation for the services provided to CTI, Co.

The resale of 500,000 shares of the Common Stock to be issued to Mr.
Packer in connection with the exercise of the options is being registered under
the Securities Act pursuant to this Prospectus.

Richard V. Secord, the Chief Operating Officer of the Company, and the
Company entered into an original Employment Agreement dated June 12, 1995, which
was superseded by a new agreement dated September 18, 1997. The term of the new
agreement is for three years and calls for compensation of $175,000 per year. In
addition to the cash compensation, the agreement ratifies an original grant to
General Secord of non-statutory stock options covering 2,000,000 shares of the
Common Stock at an exercise price of $1.25 per share, 50 percent of which vested
on June 12, 1996 and 50 percent of which vested on June 12, 1998. The options
granted pursuant to the original agreement must be exercised within ten years
from the date of grant. In addition, General Secord was granted additional
non-statutory options covering 1,250,000 shares of the Common Stock at an
exercise price of $0.70 per share. Twenty-five percent of these additional
options vested on September 18, 1997, and 25 percent of the remaining options
vest on each anniversary date of the agreement (September 18). These options
must be exercised within five years from the date of grant. To the extent
applicable, the additional options granted to General Secord are subject to the
Company's 1997 Stock Option and Restricted Stock Plan. At the cost of the
Company, General Secord has "piggyback" registration rights with respect to the
shares of the Common Stock derived from the exercise of the options. As of the
date of this Prospectus, none of the options granted to General Secord under the
agreement have been exercised. The agreement subjects General Secord to a two
year non-compete restriction, the obligation not to induce any employee of the

46
<PAGE>

Company to leave his employment with the Company during the term of the
agreement or for two years after the termination thereof, and the duty not to
reveal any confidential information about the business of the Company.

In December 1998, General Secord was appointed to serve as Chief
Executive Officer of CTI, Co. General Secord does not receive any additional
compensation for the services provided to CTI, Co.

The resale of 3,250,000 shares of the Common Stock to be issued to
General Secord in connection with the exercise of the options is being
registered under the Securities Act pursuant to this Prospectus.

Kenneth M. Dodd, former President of CTI, Co., an 80 percent owned
subsidiary of the Company, executed an Employment Agreement with the Company on
October 11, 1995. The term of the agreement was for three years and called for
compensation of $150,000 per year, plus non-statutory stock options covering
500,000 shares of the Common Stock at an exercise price of $1.25 per share.
One-half of the options vested on June 1,1996, 125,000 options vested on June 2,
1997, and the remaining 125,000 options vested on October 11, 1998. The options
granted to Mr. Dodd must be exercised within 10 years from the date of the
agreement. If the agreement is terminated for "cause" as defined in the
agreement, or Mr. Dodd voluntarily terminates the agreement without the consent
of the Company, all of the options granted to Mr. Dodd thereunder, and which
have not been exercised, shall be forfeited. At the cost of the Company, Mr.
Dodd has `piggyback" registration rights with respect to the shares of the
Common Stock derived from the exercise of the options. As of the date of this
Prospectus, none of the options granted to Mr. Dodd under the agreement have
been exercised. The agreement subjects Mr. Dodd to a two year non-compete
restriction, the obligation to give the Company the right to take advantage of
any business opportunity, and the duty not to reveal any confidential
information about the business of the Company. As part of the consideration for
the agreement, Mr. Dodd was appointed the Chief Executive Officer of CTI, Co.
and received 2,830,959 shares of the common stock of CTI, Co. (approximately 7.6
percent of its issued and outstanding common stock).

Mr. Dodd resigned from his positions as Executive Vice President of
the Company and President, Chief Executive Officer, and Director of CTI, Co. in
March 1998 and December 1998, respectively.

The resale of 500,000 shares of the Common Stock to be issued to Mr.
Dodd in connection with the exercise of the options is being registered under
the Securities Act pursuant to this Prospectus.

Director Compensation

By appropriate resolution of the Board of Directors, directors may be
reimbursed or advanced cash for expenses, if any, relating to attendance at
meetings of the Board of Directors and may be paid a fixed sum (as determined
from time to time by the vote of a majority of the directors then in office) for
attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the Company
in any other capacity and receiving compensation therefor. Members of special or
standing committees may, by appropriate resolution of the Board of Directors, be
allowed similar reimbursement of expenses and compensation for attending
committee meetings.

Stock Options and Restricted Stock

In June 1995, the Board of Directors adopted the Company's 1995 Stock
Option Plan, which was never ratified by the stockholders and formally
terminated by the Board of Directors on September 18, 1997. On September 18,
1997, the Board of Directors adopted the Company's 1997 Stock Option and
Restricted Stock Plan (the "Plan") subject to the approval of the stockholders
of the Company. The Plan was formally adopted by the stockholders of the Company
on February 6, 1998. The Plan provides for the grant by the Company to employees
of the Company of (i) options to purchase shares of the Common Stock, and (ii)
shares of the Company's restricted Common Stock (the "Restricted Stock"). The
options and the Restricted Stock are hereinafter sometimes collectively referred
to as the "Plan Awards". Options granted under the Plan may include
non-statutory options that do not meet the requirements of Sections 421 through
424 of the Internal Revenue Code of 1986, as amended (the "Code"), as well as
incentive stock options ("ISO") intended to qualify under Section 422 of the
Code. An aggregate of 5,125,000 shares of the Common Stock may be issued
pursuant to the provisions of the Plan. The Plan shall be administered by the
Board of Directors or by a

47
<PAGE>

committee of the Board composed solely of two or more non-employee directors
(the "Administrator"). The Administrator shall administer the Plan so as to
comply at all times with the Exchange Act, including Rule 16b-3 (or any
successor rule), and, subject to the Code, shall otherwise have absolute and
final authority to interpret the Plan. The Plan shall continue in effect for a
term of 10 years unless sooner terminated pursuant to its provisions.

As mentioned above, the 1995 Stock Option Plan was to be submitted to
the stockholders in order to qualify for statutory stock option treatment under
the Code, but such submittal never occurred. Employees of the Company who were
awarded options pursuant or in reference to the 1995 Stock Option Plan have
ratified their agreements to reflect that the plan was never submitted to the
stockholders for approval but that such options shall incorporate, as
contractual terms, the terms and conditions of the 1995 Stock Option Plan.

Stock Options. Pursuant to the Plan, the term of each option shall be
10 years from the date of grant or such shorter term as may be determined by the
Administrator; provided, in the case of an ISO granted to a 10 percent
stockholder, the term of such ISO shall be five years from the date of grant or
such shorter time as may be determined by the Administrator. Each option granted
under the Plan may only be exercised to the extent that the optionee is vested
in such option. Except as otherwise provided, all options issued under the Plan
shall vest 20 percent each year over a five year period. Notwithstanding the
foregoing, the Administrator shall have the discretionary power to establish the
vesting periods for any option granted under the Plan, except that in no case
may the Administrator permit more than 25 percent of any option to vest before
the first anniversary of the earlier of the date of grant or the date on which
the optionee began providing services to the Company. The exercise price shall
be such price as is determined by the Administrator in its sole discretion;
provided, however, the exercise price shall not be less than 100 percent of the
Fair Market Value of the shares of the Common Stock subject to such option on
the date of grant (or 110 percent in the case of an option granted to an
employee who is a 10 percent stockholder on the date of grant). A 10 percent
stockholder shall mean a person that owns more than 10 percent of the total
combined voting power of all classes of outstanding stock of the Company or any
subsidiary, taking into account the attribution rules set forth in Section 424
of the Code. Any shares of the Common Stock issued upon exercise of an option
shall be subject to such rights of repurchase and other transfer restrictions as
the Administrator may determine in its sole discretion. To the extent that the
aggregate Fair Market Value (determined on the date of grant) of the shares with
respect to which ISOs are exercisable for the first time by an individual during
any calendar year under the Plan, and under all other plans maintained by the
Company, exceeds $100,000, such options shall be treated as non-statutory
options. "Fair Market Value" shall be the mean between the closing bid and asked
prices of the shares of the Common Stock on the date in question (on the
principal market in which the shares are traded), or if the shares were not
traded on such date, the mean between closing bid and asked prices of the shares
on the next preceding trading day during which the shares were traded.

Restricted Stock. The Administrator shall have the authority to grant
shares of the Common Stock to employees that are subject to certain terms,
conditions, and restrictions (the "Restricted Stock"). The Restricted Stock may
be granted by the Administrator either separately or in combination with
options. The terms, conditions and restrictions of the Restricted Stock shall be
determined from time to time by the Administrator without limitation, except as
otherwise provided in the Plan; provided, however, that each grant of Restricted
Stock to an employee shall require the employee to remain an employee of the
Company or any of its subsidiaries for at least six months from the date of
grant. The Restricted Stock shall be granted to employees for services rendered
and at no additional cost to the employee, provided, however, that the value of
the services performed must, in the opinion of the Administrator, equal or
exceed the par value of the Restricted Stock to be granted to the employee. The
terms, conditions, and restrictions of the Restricted Stock shall be determined
by the Administrator on the date of grant. No certificates will be issued to an
employee with respect to the Restricted Stock until the date the Restricted
Stock becomes vested in accordance with the Plan. The Restricted Stock may not
be sold, assigned, transferred, redeemed, pledged or otherwise encumbered during
the period in which the terms, conditions and restrictions apply (the
"Restriction Period"). More than one grant of Restricted Stock may be
outstanding at any one time, and the Restriction Periods may be of different
lengths. Receipt of the Restricted Stock is conditioned upon satisfactory
compliance with the terms, conditions and restrictions of the Plan and those
imposed by the Administrator. On the date the Restriction Period terminates, the
Restricted Stock shall vest in the employee. If an employee (i) with the consent
of the Administrator, ceases to be an employee of, or otherwise ceases to
provide services to, the Company or any of its subsidiaries, or (ii) dies or
suffers from permanent and total disability, the vesting or forfeiture
(including without limitation the terms, conditions and restrictions) of any
grant under the Plan shall be determined by the Administrator in its sole
discretion, subject to any limitations or terms

48
<PAGE>

of the Plan. If the employee ceases to be an employee of, or otherwise ceases to
provide services to, the Company or any of its subsidiaries for any other
reason, all grants of Restricted Stock under the Plan shall be forfeited
(subject to the terms of the Plan).

As of the date of this Prospectus, no shares of the Restricted Stock
have been granted under the Plan.

As of the date of this Prospectus, the following options were
outstanding under the Plan:

<TABLE>
<CAPTION>
Name of Person to
Whom Options Number of Shares Expiration Date
Were Granted Under Option of Option Vesting Date
----------- ------------ --------- -----------
<S> <C> <C> <C>
David B. Johnston, 250,000 09/18/02 (1) 09/18/97 (2)
Chairman of the Board, 250,000 09/18/02 (1) 09/18/98 (2)
Chief Executive Officer, 250,000 09/18/02 (1) 09/18/99 (2)
and Treasurer 250,000 09/18/02 (1) 09/18/00 (2)

Richard V. Secord, 312,500 09/18/02 (1) 09/18/97 (2)
Chief Operating Officer (3)(4) 312,500 09/18/02 (1) 09/18/98 (2)
312,500 09/18/02 (1) 09/18/99 (2)
312,500 09/18/02 (1) 09/18/00 (2)

Kenneth M. Dodd, -0- N/A N/A
President of CTI, Co. (3)

David A. Packer, -0- N/A N/A
President and Treasurer (3)(4)
</TABLE>

(1) The option may terminate prior to this date. An option will automatically
terminate and revert to the Company upon the termination of employment with
"cause", as defined in the employee's Employment Agreement. In addition, an
option will automatically terminate and revert to the Company if vested as
of the date of resignation or termination "without cause", as defined in
the employee's Employment Agreement, but not exercised on or before the
expiration of 90 days after the termination date of employment.
(2) Conditioned on the employee's continued employment with the Company.
(3) The employee holds options granted prior to the adoption of the Plan. The
options were originally granted pursuant to the terms of the Company's 1995
Stock Option Plan which was never ratified by the stockholders and formally
terminated by the Board of Directors on September 18, 1997. See "Management
- Stock Options and Restricted Stock" and "Management - Employment
Contracts". The terms of the employee stock option agreements were amended
to ratify and incorporate the terms of the 1995 Stock Option Plan into the
respective stock option agreements as contractual provisions.
(4) General Secord was President of the Company from February 1996 to April
1997, and was elected Secretary effective July 1, 1997. Mr. Packer was
elected President in April 1997 and Treasurer effective July 1, 1997.
(5) Mr. Dodd resigned as Executive Vice President of the Company in March 1998
and as President, Chief Executive Officer, and director of CTI, Co. in
December 1998.

The resale of 1,250,000 shares of the Common Stock to be issued upon
the exercise of the above described options granted pursuant to the Plan and in
favor of General Secord is being registered under the Securities Act pursuant to
this Prospectus.

49
<PAGE>

The following table shows, as to the named executive officers,
information concerning individual grants of options during the fiscal year ended
June 30, 1998.

Option/Warrant Grants in Last Fiscal Year

<TABLE>
<CAPTION>
Number of
Securities Percent of Total
Underlying Options/Warrants
Options/Warrants Granted to Exercise Price Expiration
Name Granted (2) Employees in FY98 Per Share Date (3)
---- ------- ----------------- --------- ----
<S> <C> <C> <C> <C>
David B. Johnston, 1,000,000 44% $0.75 9/18/02
Chairman of the Board,
Chief Executive Officer,
and Treasurer

Richard V. Secord, 1,250,000 56% $0.70 9/18/02
Chief Operating Officer (1)

Kenneth M. Dodd, -0- N/A N/A N/A
President of CTI, Co.

David A. Packer, -0- N/A N/A N/A
President and Treasurer (1)
</TABLE>

(1) General Secord was President of the Company from February 1996 to April
1997, and was elected Secretary effective July 1, 1997. Mr. Packer was
elected President in April 1997 and Treasurer effective July 1, 1997.
(2) Represents options to purchase shares of the Common Stock.
(3) The option may terminate prior to this date. An option will automatically
terminate and revert to the Company upon the termination of employment with
"cause", as defined in the employee's Employment Agreement. In addition, an
option will automatically terminate and revert to the Company if vested as
of the date of resignation or termination "without cause", as defined in
the employee's Employment Agreement, but not exercised on or before the
expiration of 90 days after the termination date of employment.
(4) Mr. Dodd resigned as Executive Vice President of the Company in March 1998
and as President, Chief Executive Officer, and director of CTI, Co. in
December 1998.

No warrants to purchase shares of the Common Stock have been granted
to any officer, director, or employee of the Company.

50
<PAGE>

The following table shows, as to the named executive officers,
information concerning aggregate option and warrant exercises during the fiscal
year ended June 30, 1998 and the option and warrant values as of June 30, 1998.

Aggregated Option and Warrant Exercises in Last Fiscal Year
and Year End Option and Warrant Values

<TABLE>
<CAPTION>
Number of
Securities
Underlying Value of Unexercised
Unexercised In-the-Money
Options/Warrants Options/Warrants at
Shares Acquired at June 30, 1998 June 30, 1998
Name on Exercise Value Realized Exercisable/ Unexercisable Exercisable/ Unexercisable (1)
---- ----------- -------------- -------------------------- ------------------------------
<S> <C> <C> <C> <C>
David B. Johnston, -0- -0- 500,000/500,000 $120,000/$120,000
Chairman of the Board,
Chief Executive Officer,
and Treasurer

Richard V. Secord, -0- -0- 2,625,000/625,000 $181,250/$181,250
Chief Operating Officer (2)

David A. Packer, -0- -0- 166,667/333,333 $ 3,333/$6,667
President and Treasurer (2)

Kenneth M. Dodd, -0- -0- 500,000/0 $ 100,000/0
President of CTI, Co. (4)
</TABLE>

(1) The value of the unexercised in-the-money options/warrants at June 30, 1998
was determined by calculating the difference between the exercise price per
share of the Common Stock, as set forth in the respective stock option
agreement, and the closing bid price per share of the Common Stock on June
30, 1998 which was $0.99. The resulting amount is deemed to be the value of
the options/warrants for purposes of this table. In the event the exercise
price per share of the Common Stock exceeded the closing price per share of
the Common Stock on June 30, 1998, a "zero" value is shown.
(2) General Secord was President of the Company from February 1996 to April
1997, and was elected Secretary effective July 1, 1997. Mr. Packer was
elected President in April 1997 and Treasurer effective July 1, 1997.
(3) The option granted to General Secord for 2,000,000 shares of Common Stock
has an exercise price of $1.25 per share and, therefore, the shares
underlying such option are not "in-the-money".
(4) Mr. Dodd resigned as Executive Vice President of the Company in March 1998
and as President, Chief Executive Officer, and director of CTI, Co. in
December 1998.

Long-Term Incentive Plans

The Company has not established, nor does it provide for, long-term
incentive plans or defined benefit or actuarial plans.

Certain Transactions

Management believes that all prior related party transactions are on
terms no less favorable to the Company as could be obtained from unaffiliated
third parties. Management's reasonable belief of fair values is based upon
expert opinions received by management, with respect to share valuations, and,
with respect to the consideration to the Company, is based upon proximate
similar transactions with third parties or attempts to obtain the consideration
from third parties. All ongoing and future transactions with such persons,
including any loans or compensation to such persons, will be approved by a
majority of disinterested, independent outside members of the Board of
Directors.

Since its inception the Company has been dependent upon certain
individuals, consultants, officers/stockholders and the related corporations
under their control (collectively referred to as the "primary contributors") to
provide capital, management services, assistance in finding new sources for debt
and equity financing and guidance in the development of the Company's Systems.
The primary contributors have generally provided services and incurred expenses
on behalf of the Company in exchange for shares of the Common Stock. The Company
has issued Form 1099's for all such share issuances for services rendered after
July 1, 1996.

51
<PAGE>

Proceeds From the Sale of Securities. In certain instances in years
prior to 1997, primary contributors accepted cash raised through the issuance of
short term promissory notes and private placements of securities, including
shares of the Common Stock and debentures, on behalf of the Company. Such
amounts were deposited into the separate bank accounts of certain primary
contributors and either transferred directly to the account of the Company or
transferred to third parties in payment of debts of the Company. In a majority
of these instances, Thermal Imaging, Inc. ("TII'), an affiliate of Mr. Johnston,
the Chief Executive Officer of the Company, received funds raised from investors
and deposited the amounts in an account over which Mr. Johnston had sole
control. The funds received in the TII account were commingled with other assets
of TII.

In an effort to account for such proceeds, the auditors have assumed
that all funds raised during the past three fiscal years which were not paid by
investors directly to the Company were initially transferred to TII. In those
cases where reliable evidence is not available to accurately verify the
subsequent transfer of funds from TII to the Company or to creditors of the
Company, or to distinguish contributions made by TII to the Company in return
for shares of the Common Stock from transfers of funds collected on behalf of
the Company for which shares of the Common Stock had been issued to subscribers,
the discrepancies have been treated as compensation to Mr. Johnston and charged
as a compensation expense to the Company and reflected as operating, general and
administrative expenses in the Consolidated Financial Statements included
elsewhere in this Prospectus. For example, this amount for the fiscal year
ending June 30, 1997, was $152,498, as reflected in the Summary Compensation
Table. This resulting amount constitutes the total of all compensation paid
during such period to Mr. Johnston.

Dorex Settlement. Between July and October 1995, the Company reached
various settlements with former stockholders of Dorex, Inc. ("Dorex") regarding
threats of litigation arising out of the Company's acquisition of certain
research contracts with the State University of New York - Buffalo ("SUNY") and
intellectual property relating to thermal imaging technology. In 1989, Dorex
entered into a research agreement with SUNY regarding the development and
application of computerized thermography analysis. After Dorex became unable to
meet funding obligations under the research program, TII, an affiliate of Mr.
Johnston and a stockholder in Dorex, paid arrearages due under the agreement and
assumed future payment obligations in order to continue the project. As a result
of an arrangement negotiated, TII gained an assignment of the research agreement
and related technology to the exclusion of Dorex. TII subsequently transferred
all of its contractual and proprietary rights in the project to the Company.
According to management, certain Dorex stockholders threatened litigation
against the Company as a result of its role in the acquisition of the research
agreement and related technology. In order to avoid litigation, management
issued 630,000 shares of the Common Stock to Dorex stockholders in 1995 in
consideration of their discharge and release of the Company from all claims and
liabilities relating to the technology. Settling Dorex stockholders executed
written agreements acknowledging their release of the Company. Some remaining
stockholders have not settled. In an effort to protect the Company from future
costs associated with the Dorex transaction, the Company entered into an
Assumption of Liability Agreement (the "Liability Agreement') with TII,
effective April 17, 1996. The terms of the Liability Agreement provide that in
exchange of the issuance of 112,500 shares of the Common Stock to TII, TII
agrees to assume liability for all claims made by Dorex stockholders against the
Company after April 17, 1996.

Promissory Note dated April 15, 1998. The Company has executed a
`Corporation Note - Straight" ("MFG Note I") in an original principal amount of
$250,000, with interest accruing from April 15, 1998 at a rate of 10 percent per
annum, payable on or before October 15, 1998. The MFG Note I names Manhattan
Financial Group as payee and provides that Manhattan Financial Group may elect
at maturity to convert the principal and interest due under the MFG Note I into
the Common Stock at a conversion rate of 50 percent of the closing price as of
April 15, 1998 ($0.25 per share) or the lesser of 50 percent of the closing bid
price on any date on which the lender chooses by written notification to convert
his note and interest into the Common Stock. As of the date of this Prospectus,
the Company has not made any payments on the MFG Note I and Manhattan Financial
Group has not taken any action to convert outstanding amounts due or collect on
such amount.

Promissory Note dated September11, 1998. The Company has executed a
"Corporation Note - Straight" (`MFG Note II') in an original principal amount of
$347,750, with interest accruing from September 11, 1998 at a rate of 10 percent
per annum, payable on or before April 11, 1999. The MFG Note II names Manhattan
Financial Group as payee and provides that Manhattan Financial Group may elect
at maturity to convert the principal and interest due

52
<PAGE>

under the MFG Note into the Common Stock at a conversion rate of 50 percent of
the closing price as of September 11, 1998 ($0.59 per share) or the lesser of 50
percent of the closing bid price on any date on which the lender chooses by
written notification to convert his note and interest into the Common Stock.

Marketing Agreement. On November 19, 1998 the Company entered into a
Marketing Agreement with T.S.E.T., Inc. (`TSET'). The Marketing Agreement
provides that TSET will use its best efforts and marketing resources to actively
market the diagnostic thermal imaging system of the Company on a world wide
basis. Under the terms of the Marketing Agreement, the Company is required, at
its own cost, to provide sales materials and marketing and technical assistance
to TSET in order to facilitate the placement of the systems. TSET is granted the
nonexclusive authority to market and sell the systems throughout the world at
prices to be set by the Company. TSET will be compensated under a commission fee
structure based on a rate of 15 percent of the "value" of each system sold. Fees
earned by TSET shall be paid either in cash or in the cash equivalent of the
Common Stock of the Company, as elected by TSET. The term of the Marketing
Agreement is for one year, but may be renewed for subsequent one year periods or
longer as agreed upon by the parties. The Marketing Agreement does not contain
any minimum sales requirements or other performance criteria providing for
automatic termination, and may only be terminated prior to the expiration of the
initial term by the mutual consent of the parties.

On the date that the Marketing Agreement was entered into by the
Company, General Secord, a Director and Chief Operating Officer of the Company,
beneficially owned approximately 2.4 percent of TSET. No other officers or
directors of the Company had any direct or indirect pecuniary interest in TSET
as of the date the Marketing Agreement was executed.

Certain Stock Transactions. A substantial portion of the cash
contributed to the Company over the past several years has come from primary
contributors. Major contributors have been TII, an affiliate of Mr. Johnston,
Daron Dillia doing business as Manhattan Financial Group, and Paul D. Holt doing
business as PDH, Ltd., an independent contractor who provides various
administrative services to the Company. All of the restricted shares of the
Common Stock issued to the primary contributors, unless otherwise noted, has
been valued at 50 percent of the average monthly trading price of free trading
shares of the Common Stock. Management believes that such a valuation method
fairly and accurately reflected the fair market value of restricted shares of
the Common Stock at the respective dates of issue.

53
<PAGE>

The following is an analysis of transactions involving TII, PDH, Ltd.
and MFG during the six months ended March 31, 1999 and the fiscal years ended
June 30, 1998 and 1997:

<TABLE>
<CAPTION>
TII PDH, Ltd. MFG
------ ------------------- ------------------
Nine Months ended March 31, 1999 Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balances of debt and cash advances as of
June 30, 1998................................ - $ 1,192,854 - $ 223,720 - $ 354,167
Funding for the Company included in
notes payable................................ - - - - - 347,750
Non-interest bearing advances to the Com-
pany to fund current operations. These
advances are uncollateralized................ - 768,023 82,000 -
Payments via stock and cash of $62,300.......... 3,580,800 (1,852,702) 335,350 (305,720)

Interest accrued and accretion of discount
on notes payable............................. - - - - - 521,519
----------- ----------- --------- --------- --------- ----------
Total balances of debt and cash advances as
of March 31, 1999............................ 3,580,800 $ 108,175 355,350 $ 0 - $1,223,436
=========== =========== ========= ========= ========= ==========

Year ended June 30, 1998
Warrants issued as compensation................. - $ - - $ - - $ 740,000
Shares of the Company's Common Stock
issued as compensation at a price of
$0.76 per share.............................. - - - - 100,000 $ 76,000
Cash investment in the Company.................. 5,463,477 $ 1,827,130 666,666 $ 250,000 2,746,27 $ 689,106
----------- ----------- --------- --------- --------- ----------
Total investment - 1998......................... 5,463,477 $ 1,827,130 666,666 $ 250,000 2,846,27 $1,505,106
=========== =========== ========= ========= ========= ==========
Funding for the Company included in notes
payable........................................ - $ - - $ - - $ 250,000
Non-interest bearing advances to the Com-
pany to fund current operations. These
advances are uncollateralized.................. - $ 1,192,854 - $ 223,720 - $ 104,167
----------- ----------- --------- --------- --------- ----------

Total debt to party - 1998...................... - $ 1,192,854 - $ 223,720 - $ 354,167
=========== =========== ========= ========= ========= ==========

Interest expense recognized on note payable..... - $ - - $ - - $ 104,167
----------- ----------- --------- --------- --------- ----------

Total interest expense to party - 1998.......... - $ - - $ - - $ 104,167
=========== =========== ========= ========= ========= ==========

Year Ended June 30, 1997
Shares of the Company's Common Stock
issued as compensation and repayment of
expenses incurred on behalf of the
Company by the parties at prices ranging
from $0.53 to $0.70 per share................. 287,266 $ 152,498 400,000 $ 253,000 - -
Cash investment in the Company................. 1,960,418 $ 980,209 - - - -
----------- ----------- --------- --------- --------- ----------
Total investment by party - 1997............... 2,247,684 $ 1,132,707 400,000 $ 253,000 - $ -
=========== =========== ========= ========= ========= ==========
</TABLE>

54
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table presents certain information regarding the
beneficial ownership of all shares of the Common Stock at October 29, 1998 for
(i) each person who owns beneficially more than five percent of the outstanding
shares of the Common Stock, (ii) each director of the Company, (iii) each named
executive officer, and (iv) all directors and officers as a group. See
"Management Stock Options and Restricted Stock" and " Certain Transactions".

<TABLE>
<CAPTION>
Shares Beneficially Owned
-------------------------
Name of Beneficial Owner (1) Number Percent (8)
---------------------------- ------ -----------
<S> <C> <C>
David B. Johnston (2)............................................ 8,248,748 16.7
Richard V. Secord (3)............................................ 2,625,000 5.1
Brent M. Pratley, M.D............................................ 600 *
David A. Packer (4).............................................. 257,405 *
Harry C. Aderholt................................................ 135,000 *
Milton R. Geilmann............................................... 15,000 *
Daron Dillia (5)................................................. 5,898,525 11.2
All directors and officers
as a group (seven persons) (6)................................. 11,281,753 21.6
</TABLE>

___________________
* Less than one percent.
(1) Unless otherwise indicated, each person named in the above-described table
has the sole voting and investment power with respect to his shares of the
Common Stock beneficially owned. The business address of each individual is
the same as the address of the Company's principal executive offices except
for Dr. Pratley whose business address is 1055 North 300 W., No. 501,
Provo, Utah 84604; Mr. Geilmann, whose business address is 20660 S.W.
Shoshone Drive, Tualatin, Oregon 97062; and General Aderholt, whose address
is 23 Miracle Strip Parkway, N.E., Ft. Walton Beach, Florida 32548.
(2) Includes 500,000 shares of the Common Stock which are covered by options
are exercisable within 60 days from October 29, 1998, and 7,748,784 shares
of the Common Stock owned by Thermal Imaging, Inc., an affiliate of Mr.
Johnston.
(3) Includes 2,625,000 shares of the Common Stock which are covered by options
are exercisable within 60 days from October 29, 1998. (4) Includes 90,739
shares of the Common Stock issued and outstanding, and 166,666 shares of
the Common Stock which are covered by options exercisable within 60 days
from October 29, 1998.
(5) Includes 96,000 shares of the Common Stock issued and outstanding and
700,000 shares of the Common Stock underlying the Resale Warrants in the
name of Daron Dillia. Also includes 1,846,275 shares of the Common Stock
issued and outstanding, 2,000,000 shares of the Common Stock which are
covered by options exercisable within 60 days of October 29, 1998, the
right to acquire, within 60 days of October 29, 1998 approximately
1,050,000 shares of the Common Stock through the conversion of outstanding
amounts due by the Company under a corporate note, and 206,250 beneficially
held, in the name of Manhattan Financial Group, an affiliate of Ms. Dillia.
See "Plan of Distributions and Selling Stockholders".
(6) Includes an aggregate of 7,990,087 shares of the Common Stock issued and
outstanding and an aggregate of 3,791,666 shares of the Common Stock which
are covered by options exercisable within 60 days from October 29, 1998.
(7) Unless otherwise provided, the calculation of percentage ownership is based
on the total number of shares of the Common Stock outstanding as of October
29, 1998. Any shares of the Common Stock which are not outstanding as of
such date but are subject to options, warrants, or rights of conversion
exercisable within 60 days of October 29, 1998 shall be deemed to be
outstanding for the purpose of computing percentage ownership of
outstanding shares of the Common Stock by such person but shall not be
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.

Manhattan Financial Group Consulting Agreement

Effective January 1, 1997, the Company and Manhattan Financial Group
of Manhattan Beach, California ("MFG'), executed a Consulting Agreement covering
financial services. MFG provides regular financial advising services to the
Company, such as strategic consulting to arrange financing of projects. For
example, MFG arranged, for no additional fee other than the Common Stock set
forth below, the sale of convertible debentures in 1996 and the 8% Convertible
Debenture in 1997, and MFG negotiated and arranged an equipment financing
commitment not utilized in 1996. The term of the agreement is for one year,
automatically renewable for additional periods of one year thereafter unless
terminated upon proper notice. The consideration for the agreement was 100,000
shares of the Common Stock and an option to purchase 2,000,000 shares of the
Common Stock at an exercise price of $0.60 per share (the original executed
agreement referenced an exercise price of $0.75 per share, but the agreement was
amended to reflect a reduced exercise price of $0.60 per share). Fifty percent
of the options vested upon the execution of the agreement, and the remaining 50
percent of the options vested on December 31, 1997. At the cost of the Company,
MFG has `piggyback' registration rights with respect to the shares of the Common
Stock derived from the exercise of the options. As of the

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date of this Prospectus, none of the options granted to MFG under the agreement
have been exercised. In the event of termination of the agreement before its
expiration date, all options exercisable must be exercised on or before the
expiration of three years following the termination date, extended by agreement,
from an original exercise period of 90 days following the termination date. In
addition, the agreement subjects MFG to a duty not to reveal any confidential
information about the business of the Company.

In a related transaction, on July 9, 1997, MFG and the Company entered
into a Restricted Stock Purchase Agreement wherein the Company would issue to
MFG 500,000 shares of the Common Stock in consideration for, and subject to,
total contributions of up to $150,000 to the Company in conjunction with the PR
Expense Administration Agreement between the Company and Liberty Capital Group,
Inc. As of the date of this Prospectus, MFG has funded approximately $50,000
pursuant to its obligation. The effective purchase price of the Common Stock was
set at $0.30 per share.

The resale of 2,000,000 shares of the Common Stock to be issued to MFG
in connection with the exercise of options granted pursuant to the above
described Consulting Agreement is being registered under the Securities Act
pursuant to this Prospectus.

Ambient Capital Group, Inc. Financial Advisory Agreement

On October 29, 1997, the Company executed a Financial Advisory
Agreement with Ambient Capital Group, Inc. ("Ambient") appointing Ambient to act
as its financial adviser with respect to planning and executing capital
structure strategies, revising the Company's business plan, and certain other
matters related thereto. These financial advisory services include negotiation
of capital financing for equipment and will include the introduction of new
capital financing sources to the Company. The term of the agreement is for 12
months, with month-to-month extensions thereafter, until terminated upon 60 days
notice by either party. Ambient received as an initial retainer fee for its
services of 83,333 shares of the Common Stock and 83,333 warrants giving Ambient
the right to purchase five shares of the Common Stock at $0.72 per share for
each warrant issued. These warrants are valid for a period of four years from
the date of issue. In addition, Ambient will receive success fees for raising
equity and debt capital, for advising on mergers and acquisitions, and for other
corporate finance transactions pursuant to separate engagement agreements for
each transaction to be negotiated in good faith at such time as the specific
type transaction and/or amount of capital to be raised is determined. If Ambient
terminates the engagement before the end of the initial 12 month term, then
Ambient agreed to a pro-rated cancellation of all unexercised warrants based on
the number of months that the agreement was in effect. The agreement provides
Ambient with anti-dilution protection for stock splits, stock dividends, and
similar corporate events. Moreover, the shares of the Common Stock issued
pursuant to the agreement and all shares of the Common Stock underlying the
warrants shall have standard `piggyback" registration rights at no cost to
Ambient.

The resale of 416,665 shares of the Common Stock to be issued to
Ambient in connection with the above described agreement, including any shares
to be issued upon the exercise of any warrants, is being registered under the
Securities Act pursuant to this Prospectus.

Liberty Capital Group, Inc. Services Agreement

On July 21, 1997, the Company and Liberty Capital Group, Inc.
(`Liberty Capital') executed that certain Services Agreement whereby the Company
engaged Liberty Capital to perform services associated with the development of a
comprehensive business plan, future acquisition strategies, and any other
ancillary services relating to the foregoing. The Services Agreement expanded
upon the terms of an earlier agreement, the Liberty Capital Group, Inc.
Consulting Agreement. In consideration of such services, the Company granted to
Liberty Capital options to purchase all or any portion of 300,000 shares of the
Common Stock at a purchase price equal to $0.60 per share. Options for up to
100,000 shares shall become exercisable on or after the first date, following
the effective date, that the `stock price' (defined as the low bid price for the
Common Stock over three consecutive business days) reaches a level of $2.00 per
share. Options for up to an additional 100,000 shares shall become exercisable
on or after the first date thereafter that the stock price reaches a level of
$3.00 per share, and options for up to an additional 100,000 shares shall become
exercisable on or after the first date thereafter that the stock price reaches a
level of $5.00 per share. In

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the event the Company terminates the agreement for `cause" then any options that
are exercisable as of the date of such termination shall be deemed earned by
Liberty Capital surviving termination and exercisable on or before three years
after the effective date, and any options that are not yet exercisable as of the
date of such termination will terminate automatically without notice and be of
no further force or effect. The options will terminate automatically without
notice and be of no further force or effect to the extent the options are not
yet exercised within three years after the effective date. If an event has
occurred which would permit Liberty Capital to exercise the options, Liberty
Capital has the right to demand registration of the shares when issued. In
addition, if shares of the Common Stock covered by the options have been
exercised but not yet registered, Liberty Capital shall have `piggyback"
registration rights to require the shares which have been issued to be
registered in the event the Company is filing any other registration statement
to register any other shares of the Common Stock.

In conjunction with the Liberty Capital Group, Inc. Consulting
Agreement, the Company, Liberty Capital and MFG executed the PR Expense Funds
Administration Agreement discussed above. See "Management - Manhattan Financial
Group Consulting Agreement".

The Company terminated the services of Liberty Capital in 1998. As of
the date of this Prospectus, the Company is not aware of the occurrence of any
event which would have triggered vesting of the options granted to Liberty
Capital.

None of the shares of the Common Stock to be issued to Liberty Capital
in connection with the exercise of the options are being registered under the
Securities Act pursuant to this Prospectus.

Willard Harpster Consulting Agreement

Effective January 1, 1997, the Company and Willard Harpster
("Harpster") executed a Consulting Agreement covering financial services
associated with the development of a comprehensive business plan, future
acquisition strategies, capital development and fund raising. The Company
requested in 1997 and 1998 numerous consultations with Harpster for advice to
inhibit short selling of the Common Stock, for review of the Common Stock sales
and trading compliance, and for advice in development of its business plan for
presentation to capital markets. In consideration of such services, Harpster was
granted an option to purchase all or any portion of 275,000 shares of the Common
Stock at a purchase price of $0.75 per share. The agreement provides for a term
of one year commencing on the effective date, with automatic renewal, if not
terminated as therein provided, for successive one year periods. Notwithstanding
the foregoing, the agreement permits the parties to terminate the agreement at
any time upon 10 days written notice. In the event Harpster terminates the
agreement or the Company terminates the agreement for "cause" then any options
that are exercisable as of the date of such termination shall be deemed earned
by Harpster, surviving termination, but in all cases must be exercised on or
before the expiration of 90 days following the termination date, and any options
that are not yet exercisable as of the date of such termination will terminate
automatically without notice and be of no further force or effect. In the event
the Company terminates the agreement without cause then any portion of the
options which Harpster has the right to exercise as of the date of such
termination of employment must be exercised on or before 90 days after the date
of termination. All options not exercisable as of the date of termination of
employment and all options earned by Harpster, if any, not exercised on or
before the expiration of the 90 day period will terminate automatically without
notice and be of no further force or effect. The options terminate automatically
without notice and will be of no further force or effect to the extent the
options are not yet exercised before January 1, 2002. All shares of the Common
Stock which Harpster obtains from the exercise of options will be subject to
"piggyback" registration rights.

In November 1998, Harpster terminated the Consulting Agreement and
waived any and all rights to exercise his vested stock options. Consequently,
all stock options granted to Harpster terminated and are of no further force or
effect. In addition, Harpster did not obtain any of the Common Stock of the
Company pursuant to the exercise of stock options granted in connection with the
performance of services under the Consulting Agreement.

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PDH, Ltd. Agreement

PDH, Ltd. has been issued shares of the Common Stock valued at
$253,000 as compensation and reimbursement of expenses for public relations
services rendered from July 1, 1996 through June 30, 1997. The resale of certain
shares of the Common Stock issued to PDH, Ltd. is being registered under the
Securities Act pursuant to this Prospectus. PDH, Ltd. is an assumed business
name for Paul Douglas Holt and any persons engaged by him. This consultant has
been engaged by the Company for several years to assist the Company with
advisory and administrative duties, including stockholder communications. The
Company has engaged PDH, Ltd. in lieu of full time employees. PDH, Ltd.
coordinates stockholder requests for management review and response and
processes Company payables, eliminating the need for administrative staff. PDH,
Ltd. has been familiar with the Company's administrative expenses and operations
requirements and has on occasion paid such costs in exchange for shares of the
Common Stock in the Company.

Bristol Asset Management, L.L.C. Investment Agreement

Subsequent to the original effective date of this Registration
Statement, Bristol Asset Management. L.L.C. ("Bristol") declined to participate
under its investment agreement with the Company, and the Company entered into an
investment agreement with Beach Boulevard L.L.C. ("Beach"). For information
purposes, the below summarizes the transaction that was negotiated with Bristol.

On January 20, 1998, the Company entered into an Investment Agreement
(herein referred to as the (Investment Agreement) with Bristol Asset Management,
L.L.C., a Delaware limited liability company ("Bristol"} regarding the periodic
purchase of shares of the Common Stock. Ambient Capital Group, Inc. ("Ambient")
produced the Investment Agreement for the Company, and the Company has no
financial information available to confirm the financial capability of Bristol
to perform. Subject to the provisions of the Investment Agreement, the Company
shall issue and sell to Bristol, and Bristol shall be obligated to purchase from
the Company, up to $7,000,000 worth of the Common Stock, which shall continue
for the remainder of the three year term of the Investment Agreement.

The determination of the timing and amount of the Common Stock to be
sold shall be made by the Company, in its sole discretion, to the extent not
limited by the terms of Investment Agreement. Subject to certain limitations,
the Company may require Bristol to purchase shares of the Common Stock on a
monthly basis. Within ten days after the end of each calendar month, the Company
is permitted to deliver written notices to Bristol (the "Put Notice") stating a
dollar amount of the Common Stock which the Company intends to sell to Bristol
five business days following the date (the "Put Notice Date") on which the Put
Notice is given to Bristol; provided, the Company may only require Bristol to
purchase a maximum amount of shares of the Common Stock not to exceed the lesser
of (i) $7,000,000 less all amounts previously paid by Bristol, and (ii) the
product of (x) the number of shares of the Common Stock of the Company traded on
the Principal Exchange on which the Common Stock traded for the preceding
calendar month, multiplied by (y) the average of the closing bid prices for the
Common Stock during the prior calendar month, multiplied by (z) 14 percent.
Furthermore, the Company may not deliver a Put Notice if (i) trading of the
Common Stock on the principal market on which it is then traded (the "Principal
Exchange") is suspended or the Common Stock has been delisted, (ii) the closing
price of the Common Stock on the Principal Exchange is less than $0.15 per
share, (iii) a registration statement filed with the Commission is not effective
or is subject to a stop order or is otherwise suspended, (iv) the Dow Jones
Industrial Average has dropped more than five percent within the preceding five
business days, or (v) the Common Stock to be sold is not then registered for
resale under the Exchange Act.

Unless otherwise provided, Bristol shall be required to contribute the
amount of funds specified in the Put Notice. Payment of the draw down amount
must be made by Bristol on the fifth business day following the proper delivery
of a Put Notice. Simultaneously with the receipt of the funds from Bristol in
the amount specified in the Put Notice, the Company shall issue and sell to
Bristol the number of shares of the Common Stock equal to the draw down divided
by 74 percent of the lowest sales price for the Common Stock on the Principal
Exchange (the "Lowest Sale Price") during the 10 trading days prior to the Put
Notice Date (the "Look Back Period"). In the event that the Lowest Sale Price
during the 20 trading days after a particular closing is less than 95 percent of
the Lowest Sale Price applicable to such closing, then the Company shall
promptly issue to Bristol an additional number of shares of the Common Stock
with respect to such closing such that the number of shares of the Common Stock
issued to Bristol at such closing plus

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such additional number of shares are equal to the funds drawn down at such
closing divided by 74 percent of the Lowest Sale Price during such 20 trading
day period. Bristol shall also be issued additional warrants equal to 12 percent
of the number of additional shares so issued and the exercise price of such
additional warrants and the warrants issued at such closing shall be adjusted to
100 percent of the Lowest Sale Price during such 20 trading day period.

Generally, at each closing, the Company shall also deliver to Bristol
warrants to purchase shares of the Common Stock (the "Warrant Shares"). The
warrants shall expire on the fifth anniversary of the date of issuance.
Generally, the warrants shall entitle the holder thereof to purchase a number of
Warrant Shares equal to 12 percent of the number of shares of the Common Stock
purchased at the closing in question at an initial exercise price equal to 100
percent of the average closing sales price for the Common Stock on the Principal
Exchange during the Look Back Period in question.

The Company agrees that all shares of the Common Stock issued to
Bristol pursuant to the Investment Agreement shall, at the time of such issuance
and for so long thereafter as is required by the Investment Agreement, be
subject to an effective registration statement on Form S-1 or an equivalent
thereof, covering the resale or other disposition thereof by Bristol at any time
and from time to time after each such issuance, and with respect to the Warrant
Shares, covering the resale or other disposition by the holders thereof at any
time and from time to time after each such issuance.

As conditions precedent to the obligation of Bristol to purchase any
shares of the Common Stock, the Company must meet numerous organizational,
financial, and reporting criteria, including the ability to engage in the
contemplated transactions, unrestrained trading of the Common Stock on the
Principal Exchange, effectiveness of the Company's registration statement and
certification of corporate authority to engage in the contemplated transactions.

In addition to conditions precedent which must be satisfied prior to
Bristol's obligation to purchase the Common Stock under the Investment
Agreement, the total amount of the Common Stock which the Company can require
Bristol to purchase may be limited to a percentage of the total shares of the
Common Stock outstanding. Under the Investment Agreement, Bristol may refuse to
purchase the Common Stock, as requested in a properly delivered Put Notice, if
the purchase of the Common Stock would result in Bristol beneficially owning
more than 4.9 percent of the Common Stock outstanding, determined in accordance
with Section 13(d) of the Exchange Act, including shares of the Common Stock
acquired pursuant to the Investment Agreement or through unrelated transactions.
As a result, it is possible that Bristol's total investment under the Investment
Agreement could be limited to an aggregate dollar amount well below $7,000,000.

As an illustration, assuming that all of the necessary conditions have
been met and using June 1, 1998 as a constant Put Notice Date, Bristol could be
required to contribute approximately $1,377,465 to the Company in exchange for
an estimated 2,127,360 shares of the Common Stock and 255,284 shares of the
Common Stock underlying the Compensation Warrants before reaching a beneficial
ownership position in excess of 4.9 percent of the Common Stock of the Company
outstanding as of June 30, 1998. Pursuant to Section 1.3 of the Investment
Agreement, the draw down amount would be determined by taking the product of the
number of shares of the Common Stock of the Company traded on the principal
exchange during the applicable month (4,342,200), multiplied by the average of
the closing bid prices for the Common Stock during the applicable month
($0.9865) multiplied by 14 percent. The number of shares to be issued in
exchange for the maximum draw down amount of $599,701 would be determined by
dividing the amount by 74 percent of the lowest sales price for the Common Stock
during the 10 trading days prior to the Put Notice Date ($0.6475). Based on this
calculation, Bristol would be entitled to receive approximately 926,180 shares
of the Common Stock of the Company upon payment of the monthly draw down amount.
In addition to the issuance of shares of the Common Stock, Bristol would
receive, upon each closing, warrants entitling Bristol to purchase 111,142
shares of the Common Stock at $0.964 per share.

Assuming the above figures are constant, all necessary conditions have
been met, and the Company properly delivers Put Notices for the maximum possible
amount in successive months, Bristol could acquire 4.9 percent of the Common
Stock of the Company, calculated as of June 30, 1998, within a period of three
months in exchange for an approximate aggregate contribution of $1,377,465. The
amount contributed by Bristol and the number of shares of Common Stock issued by
the Company under the Investment Agreement could vary significantly based on
fluctuations

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<PAGE>

in the trading price of the Common Stock. In addition, if Bristol acquires
beneficial ownership of shares of the Common Stock through any other means, the
amount Bristol could be required to purchase under the Investment Agreement
would be reduced. In the event the trading price of the Company's Common Stock
were to decline in value, the aggregate contributions the Company could require
Bristol to fund under the Investment Agreement would be reduced.

The Investment Agreement may be terminated at any time only with the
mutual consent of the Company and Bristol. The Investment Agreement shall
automatically terminate without any further action of either party when Bristol
has invested an aggregate of $7,000,000 in Common Stock pursuant to the
Investment Agreement.

Pursuant to the Investment Agreement, 20,781,250 shares of the Common
Stock to be issued to Bristol, including any shares to be issued upon the
exercise of the Compensation Warrants, are being registered under the Securities
Act pursuant to this Prospectus. The number of shares described in this section
includes (i) 18,229,167 Newly Issued Shares; and (ii) 2,552,083 shares to be
issued upon the exercise of the Compensation Warrants. The number of Newly
Issued Shares and shares underlying Compensation Warrants being registered
hereby are generally calculated based on the formula set forth in the Investment
Agreement. The formula used to calculate the number of Newly Issued Shares being
registered hereunder is as follows: $7,000,000 x 74 percent x $0.52 (the lowest
sales price for the Common Stock on the Principal Exchange of the Company during
the 10 trading days prior to January 30, 1998) = 18,229,167 shares of the Common
Stock. The number of shares of the Common Stock underlying the Compensation
Warrants were calculated as follows: 18,229,167 x 14 percent = 2,552,083 shares.
If the sales price for the Common Stock used in the formula is different than
the example of $0.52 contained herein, then the number of Newly Issued Shares
and the number of shares underlying the Compensation Warrants will change.
However, for the purposes of this Prospectus, the formula price of $0.52 per
share is being used. If the sales price is greater than $0.52 per share, a
lesser number of shares of the Common Stock will be issued.

Bristol Management has decided not to go forward with this agreement
and therefore the Company has executed a new agreement with Beach Boulevard
L.L.C. (see below).

Beach Boulevard L.L.C. Security Purchase Agreement

The purchase price for each share of Common Stock being bought by
Beach on each Additional Closing Date will be based on the lowest sale price of
the stock during the period from the date of the relevant Tranche Notice to and
including the trading day immediately before that Additional Closing Date
multiplied by (i) for the first two Additional Closing Dates, 82.5%, and (ii)
for each Additional Closing Date thereafter, 85%.

Beach's obligations to purchase additional tranches are subject to
certain requirements relating to the effectiveness of the Company's Registration
Statement covering the shares issued or be issued to Beach, the number of shares
authorized and reserved for issuance to Beach, the continued accuracy of
representations and warranties made by the Company in the Investment Agreement,
the absence of material adverse changes in the business, operations or
conditions of the Company, and the absence of any suspension of the trading of
the Company's Common Stock by the SEC or the NASD.

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In addition, after Beach has purchased $1,500,000 of the Company's
Common Stock, Beach's obligation to fund subsequent tranches will be subject to
the following conditions: (1) the lowest sale price of the Common Stock during
the period from the date of the Tranche Notice to and including the trading day
before the relevant Additional Closing Date (the "Current Price") must be
seventy-five cents ($0.75) or more and (2) the average daily trading volume for
the twenty consecutive trading days ending the day before the relevant
Additional Closing Date must be 200,000 or more shares.

The Company has also agreed to issue certain additional shares
("Supplemental Shares") to Beach based on the average of the lowest sale price
of a share of Common Stock for any five trading days selected by Beach during
the period beginning on the first trading day after each closing date (whether
the Initial Closing Date or an Additional Closing Date) and continuing through
and including the twentieth trading day after that closing date. If that average
(the "Market Price of the Common Stock") is less than 95% of the Current Price
applicable to the relevant closing date (the "Base Price"), the Company will
issue the number of Supplemental Shares equal to (1) the product of (x) the
number of shares purchased on the relevant closing date, multiplied by (y) the
excess of the Base Price over the Market Price of the Common Stock, divided by
(2) the Market Price of the Common Stock. The Company is obligated to issue the
Supplemental Shares, if any, within 30 days after the relevant closing date. In
connection with the shares issued on the initial Closing Date, the Company issue
57,945 Supplemental Shares to Beach.

DESCRIPTION OF SECURITIES

Under the Company's Articles of Incorporation, the authorized capital
stock of the Company consists of 103,000,000 shares, of which 100,000,000 are
shares of common stock, par value $0.001 per share (the "Common Stock") and
3,000,000 are shares of preferred stock (the "Preferred Stock"). As of May 31,
1999, there were 58,675,631 shares of the Common Stock issued and outstanding,
while no shares of the Preferred Stock were issued or outstanding. The Company
has reserved 20.781,250 shares of the Common Stock for issuance upon the
purchase of the Newly Issued Shares, 3,840,615 shares of the Common Stock for
issuance upon the exercise of the Resale Warrants, and 6,250,000 shares of the
Common Stock for issuance upon exercise of the Resale Options.

The following description of certain matters relating to the Common
Stock, the Preferred Stock, and the Warrants is a summary and is qualified in
its entirety by the provisions of the Company's Articles of Incorporation and
Bylaws.

Common Stock

The holders of the Common Stock are entitled to one vote per share on
all matters submitted to a vote of the stockholders of the Company. The holders
of the Common Stock have the sole right to vote, except as otherwise provided by
law or by the Company's Articles of Incorporation, including provisions
governing any shares of the Preferred Stock. In addition, such holders are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor,
subject to the payment of preferential dividends with respect to any shares of
the Preferred Stock that from time to time may be outstanding. In the event of
the dissolution, liquidation or winding up of the Company, the holders of the
Common Stock are entitled to share ratably in all assets remaining after payment
of all liabilities of the Company and subject to the prior distribution rights
of the holders of any shares of the Preferred Stock that may be outstanding at
that time. All outstanding shares of the Common Stock being registered for
resale hereby, will be fully paid and nonassessable. The resale of (i) 5,337,741
shares of the Common Stock issued and outstanding, (ii) 6,250,000 shares of the
Common Stock pursuant to the exercise of the Resale Options, and (iii)
20,781,250 shares of the Common Stock with respect to the Newly Issued Shares
are being registered hereby.

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Cumulative Voting Rights

The holders of the Common Stock do not have cumulative voting rights.
Accordingly, the holders of more than 50 percent of the issued and outstanding
shares of the Common Stock voting for the election of directors can elect all of
the directors if they choose to do so, and in such event, the holders of the
remaining shares of the Common Stock voting for the election of the directors
will be unable to elect any person or persons to the Board of Directors.

Preemptive Rights

Pursuant to Title 7, Chapter 79 of the Nevada Revised Statutes,
stockholders of corporations organized before October 1, 1991, with certain
limited exceptions set out in the statute, have preemptive rights to acquire pro
rata unissued shares, treasury shares or securities convertible into such
shares, being offered for sale, except to the extent limited or denied by the
corporation's articles of incorporation. Prior to October 1, 1991, among other
circumstances, preemptive rights did not exist with respect to (i) shares issued
to directors, officers or employees of the Company pursuant to a vote of the
stockholders, or pursuant to a plan authorized by the stockholders, (ii) shares
sold for a consideration other than cash, and (iii) shares issued at the same
time that the stockholder who claims a preemptive right acquired his shares. The
Company was incorporated on June 10, 1987, and prior to March 16, 1998, its
Articles of Incorporation did not provide for any limitation with respect to
preemptive rights. In the various offerings of its securities, the Company did
not offer to its existing stockholders preemptive rights to acquire any of the
securities so offered other than to persons in exchange for services rendered.
The applicable remedy, if any, for the failure by the Company to offer to its
stockholders the preemptive rights is not certain after the passage of time and
Common Stock price fluctuations. Under Nevada law, the preemptive right is only
an opportunity to acquire shares upon such terms as the Board of Directors fixes
for the purpose of providing a fair and reasonable opportunity for the exercise
of such right. If a stockholder were to timely demand preemptive rights for a
particular non-excepted prior sale, the Company might be required in equity to
sell additional shares of the Common Stock to the complaining stockholder at
previously offered prices to enable a stockholder exercising such rights to
maintain his ownership percentage for prior sales that would effect preemptive
rights. To the extent that any stockholders were entitled to the right to
purchase shares of the Common Stock upon the exercise of any such preemptive
rights, the Company plans to allow any such requesting stockholder the right to
purchase his pro rata amount of such shares at the same price per share to which
he would have been entitled if such preemptive rights had been offered in
conformity with Nevada law. Any such offering of preemptive rights will be in
conformity with the Securities Act and the various states where any such
stockholders may be located. If any stockholders were to exercise their
preemptive rights within the applicable statute of limitations for any sale of
securities which carried a preemptive right prior to March 16, 1998, the
percentage interests of investors may be diluted by any such sales of additional
securities and the contributions to the Company from such sales, if required to
be offered at the price of previous issuances and if such price is below the
current market value, could result in contributions to the Company at a per
share contribution less than the current market value. The Company cannot
speculate whether any stockholders would elect such preemptive rights, if the
statute of limitations has not barred such rights, or how much additional
capital would be raised or how many shares would be issued or whether other
remedies would be available. Thus, the Company assigns no liability to this
contingency. As of the date of this Prospectus, management is not aware of any
stockholder who intends to make any claim with respect to the failure by the
Company to offer any such preemptive rights. On February 4, 1998, a majority of
the stockholders, by written consent, voted to amend the Articles of
Incorporation of the Company to deny preemptive rights with respect to each new
issuance of shares of the Common Stock. However, the amendment to the Articles
of Incorporation will have no effect with respect to preemptive rights which may
have existed for certain sales of the Common Stock prior to such amendment.

Preferred Stock

The Board of Directors is authorized, without action by the holders of
the Common Stock, to provide for the issuance of the Preferred Stock in one or
more series, to establish the number of shares to be included in each series and
to fix the designations, powers, preferences and rights of the shares of each
such series and the qualifications, limitations or restrictions thereof. This
includes, among other things, voting rights, conversion privileges, dividend
rates, redemption rights, sinking fund provisions and liquidation rights which
shall be superior to the Common Stock. The

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issuance of one or more series of the Preferred Stock could adversely affect the
voting power of the holders of the Common Stock and could have the effect of
discouraging or making more difficult any attempt by a person or group to attain
control of the Company. As of the date of this Prospectus, there are no shares
of the Preferred Stock issued and outstanding.

Debentures

6% Convertible Debenture. On August 15, 1996, the Company issued its
6% Convertible Debenture due August 15, 1999 in the principal amount of $550,000
(the "6% Convertible Debenture"). This debenture included a provision under
which a penalty equal to 1.5 percent of the then outstanding principal shall be
payable monthly, in addition to the six percent interest otherwise due to be
paid, if the shares of the Common Stock issuable upon conversion of the 6%
Convertible Debenture were not the subject of a registration statement filed
with the Commission pursuant to the Securities Act on or before August 30, 1996
and declared effective on or before October 31, 1996. It was subsequently agreed
between the Company and the holder of the 6% Convertible Debenture that any such
penalties would not commence to accrue until April 1, 1997. The 6% Convertible
Debenture was convertible into shares of the Common Stock at a price per share
equal to the lesser of the average closing bid price of the Common Stock for the
five consecutive trading days immediately preceding the date of the 6%
Convertible Debenture, or 77 percent of the average closing bid price of the
Common Stock for the five consecutive trading days prior to conversion. In
connection with the issuance of the 6% Convertible Debenture, the Company also
issued to the holder a warrant to purchase 100,000 shares of the Common Stock at
$2.00 per share. See "Description of Securities - Warrants" The 6% Convertible
Debentures have been fully converted and are no longer outstanding.

8% Convertible Debenture. On March 13, 1997, the Company issued its 8%
Convertible Debenture due March 13, 2000 in the principal amount of $125,000
(the `8% Convertible Debenture"). This debenture included a provision under
which a penalty equal to two percent of the then outstanding principal shall be
payable monthly, in addition to the six percent interest otherwise due to be
paid, if the shares of the Common Stock issuable upon conversion of the 8%
Convertible Debenture were not the subject of a registration statement filed
with the Commission pursuant to the Securities Act on or before May 15, 1997 and
declared effective on or before July 15, 1997. The 8% Convertible Debenture was
convertible into shares of the Common Stock at a price per share equal to the
lesser of the average closing bid price of the Common Stock for the five
consecutive trading days immediately preceding the date of the 8% Convertible
Debenture, or 77 percent of the average closing bid price of the Common Stock
for the five consecutive trading days prior to conversion. In connection with
the issuance of the 8% Convertible Debenture, the Company also issued to the
holder a warrant to purchase 50,000 shares of the Common Stock at $1.50 per
share. See "Description of Securities - Warrants". The 8% Convertible Debentures
have been fully converted and are no longer outstanding.

12% Series A Senior Subordinated Convertible Redeemable Debenture. In
April 1997, the Company issued its 12% Series A Senior Subordinated Redeemable
Debentures in the aggregate amount of $662,500 (the "12% Convertible
Debenture"). These debentures generally matured in April 1998 and were
convertible into shares of the Common Stock at a conversion price equal to the
lower of 90 percent of the average closing bid price of the Common Stock for the
five business days immediately preceding the notice of conversion or 90 percent
of the closing bid price of the Common Stock of the business day immediately
preceding the date of subscription by the holder. All of the 12% Convertible
Debentures have been converted or canceled through a recission effected pursuant
to settlement agreements reached with the respective holders. See `Business -
Litigation".

63
<PAGE>

Warrants

Private Placement Warrants. During the period from November 1995
though February 1996, in connection with a private placement of 2,000,000 shares
of the Common Stock at $1.00 per share, the Company also granted to the
investors warrants to acquire an equal number of shares at $5.00 per share for a
two-year period. Warrants for an additional 203,150 shares of the Common Stock
were issued to the investors in the private placement in September 1996 due to
the failure by the Company to file a registration statement covering the shares
of the Common Stock offered in the private placement. These additional warrants
were likewise exercisable at $5.00 per share. In the spring of 1997, the Company
effected a further settlement with investors in the private placement regarding
the Company's obligation to register the shares of the Common Stock offered in
the private placement. The terms of the settlement provided that certain
investors would turn in the warrants held at that time in exchange for warrants
equal to one and one-half times the warrants held at a new exercise price of
$2.50 per share. Due to the various settlements effected by the Company, as of
February 6, 1998 such investors held warrants which upon exercise would
represent 3,273,950 shares of the Common Stock (the PPM Warrants").

Debenture Warrants. In connection with the purchase of the Company's
6% Convertible Debenture, (which was fully converted and canceled by the Company
on February 6, 1998) on August 15, 1996 the Company issued a warrant for 100,000
shares of the Common Stock at $2.00 per share which expires on August 15, 2001
(the "6% Convertible Debenture Warrant"). In connection with the purchase of the
Company's 8% Convertible Debenture, on March 13, 1997 the Company issued a
warrant for 50,000 shares of the Common Stock at $1.50 per share which expires
on March 13, 2002 (the "8% Convertible Debenture Warrant").

Ambient Warrants. As additional compensation to Ambient Capital Group,
Inc. ("Ambient") for providing services relating to capital structure strategies
and the revision of the Company's business plan, the Company issued Ambient
83,333 warrants on October 29, 1997 (the "Ambient Warrants"). The Ambient
Warrants entitle the holder to purchase five shares of the Common Stock at $0.72
per share for each warrant issued. The Ambient Warrants are valid for a period
of four years from the date of issuance.

The resale of 3,273,950 shares of the Common Stock underlying the PPM
Warrants, 100,000 shares of the Common Stock underlying the 6% Convertible
Debenture Warrant, 50,000 shares of the Common Stock underlying the 8%
Convertible Debenture Warrant and 416,665 shares of the Common Stock underlying
the Ambient Warrants (collectively, the "Resale Warrants") is being registered
hereby pursuant to registration rights granted to the holders thereof. The
Company has agreed to pay all expenses in connection with such registration,
except for underwriting discounts and commissions and legal fees for counsel to
the holders.

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<PAGE>

Canceled Shares

As a result of an internal audit conducted by the Company's
management, including a review of all stock transactions within the past four
years, the Board of Directors approved the cancellation of 5,897,960 shares of
the Common Stock during 1997. The shares of the Common Stock were canceled for
various reasons, including failure of consideration, duplicative issuances, and
the disparity in value between the number of shares issued and the services
rendered to the Company by the respective stockholders. In addition, the Company
recalled and canceled an aggregate of 400,322 shares of the Common Stock issued
to TII (252,597) and MFG (147,725) in 1998 due to mathematical errors in
calculating the purchase price. The following is a summary of the cancellations
which have been effected by the Transfer Agent:

<TABLE>
<CAPTION>
Name Number of Shares Canceled
---- -------------------------
<S> <C>
Thermal Imaging, Inc (1)............................. 4,582,597
PDH, Ltd (2)......................................... 467,260
Bin Zhou (3)......................................... 250,000
Richard Thompson (4)................................. 500,000
Maxwell Rabb (4)..................................... 250,000
sRobert Gray (4)..................................... 100,000
Bruce Huddleston (5)................................. 700
Manhattan Financial Group (6)........................ 147,725
</TABLE>

(1) Several stock issuances to Thermal Imaging, Inc., an affiliate of Mr.
Johnston, were canceled due to failure of consideration. The cancellations
included the following: (i) cancellation of 300,000 shares of the Common
Stock originally issued on February 22, 1995 as a finder's fee relating to
funding which never materialized; (ii) cancellation of 1,400,000 shares of
the Common Stock originally issued on September 22, 1995 in anticipation of
cash contributions to the Company which never materialized due to the
breach by its intended funding source; (iii) cancellation of 630,000 shares
of the Common Stock originally issued on April 18, 1996 due to the fact
that the shares had been directly issued to Dorex stockholders in
settlement of claims for which Thermal Imaging, Inc. had assumed liability
pursuant to the Assumption of Liability Agreement (the Company canceled
certificates totaling 700,000 shares of the Common Stock and re-issued a
certificate to Thermal Imaging, Inc. representing 70,000 shares of the
Common Stock); (iv) cancellation of 2,000,000 shares of the Common Stock
originally issued on February 27, 1997 in anticipation of cash
contributions to the Company which never materialized; and (v) cancellation
of 252,597 shares of the Common Stock originally issued on February 3, 1998
due to a mathematical error in calculating the purchase price.
(2) The Company formally canceled 167,260 shares of the Common Stock originally
issued to PDH, Ltd. on November 18, 1996 due to the fact that the value of
the shares issued was in excess of the value of the services rendered to
the Company. In addition, the Company canceled and set-off 300,000 shares
of the Common Stock originally issued on April 4, 1996 against
approximately 300,000 shares of the Common Stock due to PDH, Ltd. for
services rendered and expenses incurred through June 30, 1997. The
cancellation was to due to the fact that the value of the shares issued
exceeded the value of the services rendered to the Company. Due to the fact
that the set-off was made against unissued shares of the Common Stock, the
transaction did not involve the formal cancellation of additional
certificates.
(3) Pursuant to an understanding reached between the Company and Dr. Ben Zhou,
a former director of the Company, Zhou was to receive 250,000 shares of the
Common Stock in the event that the widespread marketing and distribution of
CTI Systems in China had taken place by November 1997. The planned
distribution of CTI Systems was not implemented by November 1997. The
parties never executed a written document to memorialize the agreement.
While the minutes of the Company evidence that the 250,000 shares of the
Common Stock have been recorded as issued, delivery of the certificates
never took place, consistent with the Company's representation and
understanding that the shares would not be earned until first revenues were
generated from the delivery and installation of CTI Systems in China. The
Company's position was clarified in letters to Zhou dated June 1996 and
January 1997.
(4) The Company has taken action to cancel certain stock certificates that were
conditionally issued and delivered to Richard Thompson, a former director
of the Company, and Maxwell Rabb and Robert Gray, both consultants to the
Company. The Company conditionally issued shares of the Common Stock to
Thompson (1,000,000), Rabb (275,000) and Gray (100,000) based on Thompson's
representation that he had arranged large scale financing by SPRINT and
another proposed contributor. Relying on Thompson's representations that
such agreements had been reached, the shares were issued and delivered
directly to Thompson. When the Company discovered that no financing
agreements had been reached with SPRINT, the Company demanded return of the
certificates from Thompson. After numerous attempts to persuade Thompson to
return the certificates, the Board of Directors canceled the certificates,
along with other certificates issued to Rabb and Gray by resolutions
adopted on February 18, 1997 and April 21, 1997. As of the date of this
Prospectus, the certificates have not been returned. Unfortunately, Mr.
Thompson pledged one of the certificates, Certificate No. 8313, to a lender
in January 1997, who claimed to be a protected purchaser under the Uniform
Commercial Code. An agreement has been reached to permit the lender to
liquidate the number of shares required to satisfy the outstanding
indebtedness and recoverable costs secured by the shares, which shares have
been liquidated and the balance of the shares 48,000 have been returned to
the Company's Transfer Agent who intends to interplead them to resolve the
Company's right to cancel such shares.
(5) The Company canceled these shares of the Common Stock due to the failure of
consideration.
(6) The Company canceled these shares of the Common Stock originally issued on
March 24, 1998 due to a mathematical error in calculating the purchase
price.

65
<PAGE>

In September 1997, the Board of Directors adopted a resolution
instructing its officers to work with the Company's auditor to develop internal
control procedures for the Company, including directives relating to the
separation of duties for account management, centralized record-keeping,
document control, and contract expense authorization limitations on executive
officers. The Company expects the preparation of such procedures to be completed
by December 1998.

Stock Not Paid Up

On February 28, 1996 the Company accepted a "Personal Note - Secured"
(the `Note") in the principal amount of $525,000 from Daron Dillia doing
business as Manhattan Financial Group ("MFG") in exchange for the issuance of
525,000 units (one unit = one share of the Common Stock and one warrant) offered
by the Company in conjunction with its Private Placement Memorandum dated
November 13, 1995. The Note matured on February 28, 1997 and interest has been
accruing on the outstanding amount due since such date at a rate of nine percent
per annum. The terms of the Note also provide that the amount due will be
secured by the 525,000 units issued to MFG which shall be held by the Company
until the Note is paid in full. Pursuant to an agreement between MFG and
Benjamin W. and Nancy L. Anderson which was incorporated into the terms of the
Note (the "Collateral Guarantee"), the Andersons' pledged 500,000 shares of the
Common Stock and 200,000 units as additional security under the Note. As
consideration under the Collateral Guarantee, MFG agreed to transfer 200,000
shares of the Common Stock from the 525,000 units acquired pursuant to the Note
to the Andersons.

In accordance with N.R.S. 78.211, the Company may authorize the
issuance of shares in consideration of any tangible or intangible property or
benefit delivered to the Company, including promissory notes. Upon receipt of
the consideration for which the Board of Directors authorized the issuance of
the shares, the shares issued therefor are fully paid. An issuance of 325,000
shares to Daron C. Dillia and 200,000 shares to Benjamin or Nancy Anderson was
approved by the Board of Directors on February 29, 1996 in consideration for
money received as a result of the Private Placement Memorandum dated November
13, 1995. According to Management, the certificates representing all shares and
warrants issued in connection with the Note are held by the Company.

As of the date of this Prospectus no payments have been made by MFG
towards the outstanding indebtedness due under the Note, nor has the Company
made any effort to collect such amounts.

Certain Provision of the Articles of Incorporation and Bylaws

General. A number of provisions of the Articles of Incorporation
("Articles") and Bylaws ("Bylaws") of the Company concern matters of corporate
governance and the rights of stockholders. Certain of these provisions, as well
as the ability of the Board of Directors to issue shares of the Preferred Stock
and to set the voting rights, preferences and other terms thereof, may be deemed
to have an anti-takeover effect and may discourage takeover attempts not first
approved by the Board of Directors (including takeovers which certain
stockholders may deem to be in their best interests). To the extent takeover
attempts are discouraged, temporary fluctuations in the market price of the
Common Stock, which may result from actual or rumored takeover attempts, may be
inhibited. These provisions, together with the ability of the Board of Directors
to issue the Preferred Stock without further stockholder action, also could
delay or frustrate the removal of incumbent directors or the assumption of
control by the stockholders, even if such removal or assumption would be
beneficial to the stockholders of the Company. These provisions also could
discourage or make more difficult a merger, tender offer or proxy contest, even
if they could be favorable to the interests of the stockholders, and could
potentially depress the market price of the Common Stock. The Board of Directors
believes that these provisions are appropriate to protect the interests of the
Company and all of its stockholders.

Meetings of Stockholders. The Bylaws provide that a special meeting of
the stockholders may be called by the Chairman of the Board, the President, the
Board of Directors, or the holders of not less than 10 percent of the
outstanding shares of the capital stock of the Company entitled to vote at such
a meeting unless otherwise required by law. The Company's Bylaws provide that
only those matters set forth in the notice of the special meeting may be
considered or acted upon at the special meeting.

66
<PAGE>

Indemnification and Limitation of Liability. The Company's Articles
provide that a director of the Company will not be personally liable to the
Company or its stockholders for monetary damages for any act or omission in good
faith. By its terms, and in accordance with applicable state law, however, this
provision does not eliminate or limit the liability of a director of the Company
for any breach of duty based upon an act or omission (i) involving appropriation
in violation of duty of any business opportunity of the Company, (ii) involving
acts or omissions that are not in good faith or which involve intentional
misconduct or a knowing violation of the law, or (iii) involving unlawful
distributions or transactions from which the director derived an improper
personal benefit. The Articles provide further that the Company shall indemnify
its directors, except in such matters as to which the director shall be adjudged
liable for his own negligence or intentional misconduct in the performance of
his duty. A similar indemnification and limitation of liability provision in the
Company's Bylaws also extends such protection to officers of the Company.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers, or persons controlling the Company pursuant
to the foregoing provisions, or otherwise, the Company is aware that, in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.

Amendment of Bylaws. The Bylaws provide that the Bylaws may be
altered, amended or repealed by the Board of Directors or the stockholders of
the Company. Such action by the Board of Directors requires the affirmative vote
of a majority of the directors present at such meeting.

Certain Effects of Authorized but Unissued Stock

Until the issuance of all of the shares of the Common Stock covered by
the Warrants, the Resale Options, and the Debenture, the Company's authorized
but unissued capital stock will consist of approximately 55,431,025 shares of
the Common Stock. One of the effects of the authorized but unissued capital
stock may be to enable the Board of Directors to render more difficult or to
discourage an attempt to obtain control of the Company by means of a tender
offer, proxy contest or otherwise, and thereby to protect the continuity of the
Company's management. If in the due exercise of its fiduciary obligations, for
example, the Board of Directors were to determine that a takeover proposal was
not in the Company's best interests, such shares could be issued by the Board of
Directors without stockholder approval in one or more private or public
offerings or other transactions that might prevent or render more difficult or
costly the completion of the proposed takeover transaction by diluting the
voting or other rights of the proposed acquirer or insurgent stockholder or
stockholder group, by creating a substantial voting block of institutional or
other investors that might undertake to support the position of the incumbent
Board of Directors, by effecting an acquisition that might complicate or
preclude the takeover, or otherwise. In this regard, the Company's Articles
grant the Board of Directors broad power to establish the rights and preferences
of the authorized, but unissued Preferred Stock, one or more series of which
would be issued entitling holders to vote separately as a class on any proposed
merger or consolidation, to convert Preferred Stock into a larger number of
shares of the Common Stock or other securities, to demand redemption at a
specified price under prescribed circumstances related to a change in control,
or to exercise other rights designed to impede a takeover.

The issuance of shares of the Preferred Stock pursuant to the Board's
authority described above could decrease the amount of earnings and assets
available for distribution to holders of the Common Stock, and adversely affect
the rights and powers, including voting rights, of such holders and may have the
effect of delaying, deferring or preventing a change in control of the Company.
The Board of Directors does not currently intend to seek stockholder approval
prior to any issuance of authorized, but unissued stock, unless otherwise
required by law.

Transfer Agent

The Company's transfer agent for the Common Stock is Merit Transfer
Company, 68 South Main Street, Suite 708, Salt Lake City, Utah 84101.

67
<PAGE>

PLAN OF DISTRIBUTION AND SELLING STOCKHOLDERS

This Prospectus relates to the aggregate resale of 36,209,606 shares
of the Common Stock which may be sold by the Selling Stockholders. The shares of
the Common Stock to be resold include (i) 20,781,250 shares to be purchased by
Beach Boulevard, LLC, an unrelated third party investor (the "Newly Issued
Shares") of which 2,435,166 shares have been issued to date; (ii) 5,337,741
shares issued and outstanding; (ii) 3,840,615 shares underlying outstanding
warrants (the "Resale Warrants") and (iii) 6,250,000 shares underlying
outstanding options (the "Resale Options").

The following tables set forth certain information with respect to the
resale of the Common Stock by the Selling Stockholders as described in this
Prospectus. The Company will not receive any proceeds from the resale of the
Common Stock by the Selling Stockholders. However, the Company will receive the
proceeds from the sale of the Newly Issued Shares, the exercise price per share
upon the exercise of the Resale Warrants and the Resale Options.

Resale by Selling Stockholders of Shares Currently Outstanding ("S");
Shares to be issued as Newly Issued Shares ("NS") and Shares Underlying
Resale Warrants ("W") and Resale Options ("O")

Misty Dorman (W) 25,410 25,410 -0-
</TABLE>

68
<PAGE>

<TABLE>
<CAPTION>
Shares Shares
Beneficially Beneficially
Owned Amount Owned
Stockholder Before Resale (1) Offered (2) After Resale Percentage(3)
----------- ----------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Donna L. Doxey (W) 82,500 82,500 -0- *
Robert A. Dresser (S) 138,000 138,000 -0- *
John Egbert (S) 310,000 180,000 130,000 *
Douglas Emery (S) 35,000 35,000 -0- *
Sylvia Epstein (S) 50,000 50,000 -0- *
Dennis W. Ferchland (W) 20,625 20,625 -0- *
David Finney (S) 96,000 96,000 -0- *
Blake Fowler (S) 37,000 37,000 -0- *
Carol Fowler (S) 25,000 25,000 -0- *
Merrill Fowler (S) 204,500 59,000 145,500 *
Jack Gately (S) 50,000 50,000 -0- *
Grisborne Capital (S) 250,000 250,000 -0- *
Joseph K. Grote (W) 41,250 41,250 -0- *
Earl Grundei (S) 45,000 30,000 15,000 *
Bruce B. Hall (W) 41,250 41,250 -0- *
Willard Harpster (S) 7,200 6,000 1,200 *
William Hartman (S) 65,000 65,000 -0- *
Gerald Lynn Hayward (W) 41,250 41,250 -0- *
Michael P. Hill (S) 4,200 4,200 -0- *
Bryan Holbrook (S) 100,000 100,000 -0- *
Darrell J. Horne (W) 82,500 82,500 -0- *
Matthew Jeaufreau (S) 4,000 4,000 -0- *
Winthrop Jeaufreau (S) 55,000 21,000 34,000 *
Soon-Yon Jin (W) 41,250 41,250 -0- *
Lori Koebler (S) 5,000 5,000 -0- *
Arthur Laffer (S) 816 816 -0- *
Lance J. Larson (W) 41,250 41,250 -0- *
Herman Lee (S) 205,000 200,000 5,000 *
Allan-Chad Loo (S) 2,000 2,000 -0- *
Manhattan Financial Group (S) 1,846,275 1,846,275 -0- *
Manhattan Financial Group (O) 2,000,000 2,000,000 -0- *
Masahisa Masuda (W) 330,000 330,000 -0- *
Nolan Maxfield (S) 12,200 10,000 2,000 *
Brad Mefford (W) 41,250 41,250 -0- *
Leonard Meyers (S) 5,000 5,000 -0- *
Meto Miteff (S) 6,752 6,752 -0- *
Orlando Nickerson (W) 41,250 41,250 -0- *
Reed Oldroyd (S) 78,200 5,000 67,200 *
Stephen A. Oliver Trust (W) 20,625 20,625 -0- *
Alex Olson (S) 2,000 2,000 -0- *
John Olson (S) 787 787 -0- *
Aaron Oyler (S) 787 787 -0- *
Dick Oyler (S) 3,150 3,150 -0- *
David Packer (O) 500,000 500,000 -0- *
PDH, Ltd. (S) 801,682 346,092 445,590 *
Gary Post (S) 39,992 39,992 -0- *
Carol T. Racine (W) 33,750 33,750 -0- *
Max B. Reece (W) 41,415 41,415 -0- *
Steven M. Rhodes (W) 20,625 20,625 -0- *
Earl Richards (S) 135,000 135,000 -0- *
</TABLE>

69
<PAGE>

<TABLE>
<CAPTION>
Beneficially Beneficially
Owned Amount Owned
Stockholder Before Resale (1) Offered (2) After Resale Percentage(3)
---------- ----------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
James P. Roake (W) 123,750 123,750 -0- *
David Russell (S) 334,000 44,000 290,000 *
Susan D. Scott (W) 20,625 20,625 -0- *
Larry R. Sears (W) 41,250 41,250 -0- *
Richard V. Secord (O) 3,250,000 3,250,000 -0- *
Peter P. Smith (W) 41,250 41,250 -0- *
Gerald N. Stanley (W) 41,250 41,250 -0- *
Jack M. & Geraldean Stevens (JTWROS)(W) 82,500 82,500 -0- *
Richard M. & Carolyn Stevens (JTWROS)(W) 41,250 41,250 -0- *
David D. Stewart (W) 41,250 41,250 -0- *
David Stewart (S) 163,500 36,000 127,500 *
Ross D. Stokes (W) 25,000 25,000 -0- *
Bee Bee Tan (W) 41,250 41,250 -0- *
Technology Vision Group, LLC (S) 5,313 5,313 -0- *
Charles Howard Thomas (W) 28,600 28,600 -0- *
Daniel G. Thomas (W) 27,500 27,500 -0- *
Alice G. Watts (S) 1,000 1,000 -0- *
Paul Weller (S) 34,000 34,000 -0- *
Harold Werth, Jr. (S) 180,000 127,000 53,000 *
Harold Werth, Jr. (W) 6,875 6,875 -0- *
Royce Yorgason (S) 62,245 15,750 46,495 *
</TABLE>

* Less than one percent.
(1) Shares Beneficially Owned Before Resale include shares of the Common Stock
underlying outstanding Resale Warrants ("W"), Resale Options ("O"), and
Newly Issued Shares ("NS"). For purposes of this table, ownership of Shares
Currently Outstanding ("S") is calculated based on the record number of
outstanding shares held by such person as of May 31, 1999. For purposes of
this table, ownership of Resale Warrants ("W") and Resale Options ("O") are
based on the actual or estimated number of shares of the Common Stock
underlying the referenced class of securities owned by such person as of
May 31, 1999 For purposes of Newly Issued Shares ("NS"), see footnote 4.
(2) Shares offered include Shares Currently Outstanding ("S") subject to the
restrictions of the Securities Act and held by the Selling Stockholder less
than two years as of the date of this Prospectus, and shares of the Common
Stock underlying outstanding Resale Warrants ("W"), Resale Options ("O")
and Newly Issued Shares ("NS").
(3) Percentage based on the number of shares of the Common Stock outstanding as
of May 31, 1999, without regard to beneficial ownership as may be
calculated under Rule 13d-3 of the Exchange Act. The percentage of each
selling shareholder is based on the beneficial ownership of that
shareholder divided by the sum of the current outstanding shares of common
stock as of May 31, 1999, plus, in the case of Beach, the additional
shares, if any, which would be issued to Beach in the next 60 days on the
next two Additional Closing Dates as contemplated by the terms of the
Investment Agreement and based on an average assumed purchase price of
approximately $0.64 per share. (See "Principal Stockholders - Beach
Boulevard L.L. C. Security Purchase Agreement.")
(4) As required by SEC regulations, the number of shares shown as beneficially
owned includes shares that could be purchased within 60 days after the date
of this prospectus. In the case of Beach, however, the number of shares
indicated is more than the shares that would be acquired in that 60-day
period. For Beach the table shows (i) the 1,677,590 shares already issued
to such shareholder prior to the date of this prospectus, and (ii) the
estimated total number of shares which would be issued to Beach (a) on
closing of all additional tranches (each at an assumed average purchase
price of approximately $0.64 per share), and (b) in fulfillment of the
Company's obligations to issue Supplemental Shares to Beach (assuming that
during the period following each closing date the Market Price of the
Common Stock will be approximately $0.38 per share). The Additional Closing
Dates, however, can not take place more frequently than once a month. Thus,
although some of the shares listed in the table might not be subject to
acquisition during that 60-day period, they are nevertheless included in
this table. The actual number of shares of common stock issuable to Beach
is subject to adjustment and could be materially less or more than the
number estimated in the table. This variation is due to factors that cannot
be predicted by the Company at this time. The most significant of these
factors is the future market price of common stock. (See "Principal
Stockholders - Beach Boulevard L.L.C. Security Purchase Agreement.")

Sales of the 36,209,606 shares of the Common Stock offered by the
Selling Stockholders for resale may be effected by or for the account of the
Selling Stockholders from time to time in transactions (which may include block
transactions) in the over-the-counter bulletin board, in negotiated transaction
transactions, through a combination of such methods of sale, or otherwise, at
fixed prices that may be changed, at market prices prevailing at the time of
sale or at negotiated prices. The Selling Stockholders may effect such
transactions by selling the shares of Common Stock directly to purchasers,
through broker-dealers acting as agents for the Selling Stockholders, or to
broker-dealers acting as agents for the selling stockholders, or to
broker-dealers who may purchase shares of Common Stock as principals

70
<PAGE>

and thereafter sell the shares from time to time in any one or more of such
transactions. In effecting sales, brokers-dealers engaged by a Selling
Stockholder may arrange for other broker-dealers to participate. Such broker-
dealers, if any, may receive compensation in the form of discounts, concessions
or commissions from the Selling Stockholders and/or the purchasers of the shares
of Common Stock for whom such broker-dealers may act as agents or whom they may
sell as principals, or both (which compensation, as to a particular broker-
dealer, might be in excess of customary commissions).

The Company has agreed to bear all expenses of registration of the
shares of Common Stock offered by the Selling Stockholders for resale, other
than the legal fees and expenses of counsel or other advisors to the Selling
Stockholders. Any commissions, discounts, concessions or other fees, if any,
payable to broker-dealers in connection with any sale of shares of Common Stock
will be borne by the Selling Stockholders selling those shares or by the
purchasers of such shares.

A current prospectus must be in effect at the time of the sale of the
Common Stock to which this Prospectus relates. Any Selling Stockholder or dealer
effecting a transaction in the registered securities, whether or not
participating in a distribution, is required to deliver a Prospectus. Unless
otherwise exempted, the Selling Stockholders and their agents engaged in the
resale of the Common Stock may be deemed underwriters under the Securities Act.
Beach Boulevard, L.L.C. is deemed to be an underwriter under the Securities Act
with regard to the resale of the Newly Issued Shares. The Company has agreed to
indemnify Beach or its transferees or assigns against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments to which such Selling Stockholder or its pledgees, donees, transferees
or other successors in interest may be required to make in respect thereof.

LEGAL MATTERS

Certain legal matters relating to the issuance and resale of shares
hereby will be passed upon for the Company by Owen M, Naccarato Esq., Irvine,
California.

EXPERTS

The Consolidated Financial Statements and schedules for the years
ended June 30, 1998 and 1997, and for the period from inception, June 30, 1987
to June 30, 1998 included in this Prospectus and in the Registration Statement
to which this Prospectus relates have been audited by Ham, Langston & Brezina,
LLP, independent certified public accountants, to the extent and for the periods
set forth in their reports appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such reports given upon the
authority of said firm as experts in auditing and accounting.