UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark One)

|X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
      For the quarterly period ended DECEMBER 31, 2005

                                       or

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT for
      the transition period from _______________ to _______________

                        Commission File Number: 333-44586

                             Thomas Equipment, Inc.
                             ----------------------
             (Exact name of registrant as specified in its charter)

          Delaware                                      58-3565680
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

                 1818 North Farwell Avenue, Milwaukee, WI 53202
               (Address of principal executive offices) (Zip Code)

                                 (312) 224-8812
                                 --------------
              (Registrant's telephone number, including area code)

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12B-2) Yes |_| No |X|

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|

As of February 10, 2006, 21,319,133 shares of common stock, $.0001 par value per
share, were outstanding.


                                       1
<PAGE>

                                      INDEX

 Item                                                                      Page
------                                                                    ------

                         PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements (unaudited)

         Condensed Consolidated Balance Sheet as of December 31, 2005
         and June 30, 2005                                                     3

         Consolidated Statements of Operations and Comprehensive Income
         (Loss) for the Three and Six Months Ended December 31, 2005
         (Successor), the Three Months Ended December 31, 2004
         (Successor) and the Three Months Ended September 30, 2004
         (Predecessor)                                                         4

         Consolidated Statement of Stockholders' Equity (Deficit) for
         the Six Months Ended December 31, 2005 (Successor)                    5

         Consolidated Statements of Cash Flows for the Six Months Ended
         December 31, 2005 (Successor), the Three Months Ended
         December 31, 2004 (Successor) and the Three Months Ended
         September 30, 2004 (Predecessor)                                      6

         Notes to Condensed Consolidated Financial Statements                  8

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                            23

Item 3.  Quantitative and Qualitative Disclosures About Market Risk           33

Item 4.  Controls and Procedures                                              34

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings                                                    35

Item 2.  Unregistered Sales Of Equity Securities And Use Of Proceeds          35

Item 3.  Defaults Upon Senior Securities                                      35

Item 4.  Submission Of Matters To A Vote Of Security Holders                  35

Item 5.  Other Information                                                    35

Item 6.  Exhibits                                                             35


                                       2
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

                             THOMAS EQUIPMENT, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEET
                  (Unaudited - in thousands, except share data)
<TABLE>
<CAPTION>
                                                                                   December 31,         June 30,
                                                                                           2005             2005
                                                                                   -----------------------------
<S>                                                                                <C>              <C>
ASSETS

Current assets:
   Cash                                                                            $        601     $      3,800
   Accounts receivable, net of allowance of $400 and $235 (Note 15)                      36,140           24,426
   Inventories (Note 5)                                                                  34,443           35,574
   Prepaid expenses and other assets                                                      2,938            3,709
                                                                                   ------------     ------------
         Total current assets                                                            74,122           67,509

Property, plant and equipment, net                                                       22,723           21,504
Deferred finance costs and other assets                                                   2,549            1,734
Goodwill                                                                                  5,564            5,301
                                                                                   ------------     ------------
         Total assets                                                              $    104,958     $     96,048
                                                                                   ============     ============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
   Revolving credit facilities (Note 6)                                            $     10,755     $     10,813
   Convertible credit facility (Note 7)                                                      --               --
   Trade payables (Note 15)                                                              28,007           14,490
   Warranty liability (Note 3)                                                            1,174            1,280
   Other payables and accrued liabilities                                                 4,922            4,279
   Current portion of convertible long term debt (Note 7)                                 2,483            2,484
   Current portion of long term obligations (Note 8)                                     10,377            3,794
   Redeemable preferred stock of subsidiary (Note 9)                                         --            8,142
   Derivative financial instruments (Note 10)                                             1,000               --
                                                                                   ------------     ------------
         Total current liabilities                                                       58,718           45,282

Convertible minimum borrowing note (Note 7)                                               3,967            3,387
Convertible long term debt (Note 7)                                                         168              504
Long term obligations (Note 8)                                                               67            6,716
Deferred taxes                                                                              384              366
Redeemable preferred stock of subsidiary (Note 9)                                         8,580               --
Derivative financial instruments (Note 10)                                               85,857          106,921
                                                                                   ------------     ------------
                                                                                        157,741          163,176
                                                                                   ------------     ------------

Redeemable convertible preferred stock, series A (Note 11)                                    2                1

Stockholders' Equity (Deficit):
   Common stock (Note 11)                                                                     2                2
   Additional paid-in capital                                                            11,641           12,267
   Accumulated deficit                                                                  (60,644)         (78,747)
   Accumulated other comprehensive income (loss)                                         (3,784)            (651)
                                                                                   ------------     ------------
         Total stockholders' equity (deficit)                                           (52,785)         (67,129)
                                                                                   ------------     ------------

Total liabilities and stockholders' equity (deficit)                               $    104,958     $     96,048
                                                                                   ============     ============
</TABLE>

See accompanying notes to condensed consolidated financial statements


                                       3
<PAGE>

                             THOMAS EQUIPMENT, INC.

      CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
                  (Unaudited - in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                                                    |  Predecessor
                                                                                  Successor Business                |    Business
                                                                    ----------------------------------------------  |  ------------
                                                                     Six Months      Three Months     Three Months  |  Three Months
                                                                       Ended            Ended            Ended      |     Ended
                                                                    December 31,     December 31,     December 31,  |  September 30,
                                                                        2005             2005             2004      |      2004
                                                                    ----------------------------------------------  |  ------------
<S>                                                                 <C>              <C>              <C>              <C>
Sales                                                               $     62,966     $     36,852     $     14,416  |  $     13,857
Cost of sales                                                             53,956           32,420           12,142  |        11,770
                                                                    ------------     ------------     ------------  |  ------------
Gross profit                                                               9,010            4,432            2,274  |         2,087
                                                                    ------------     ------------     ------------  |  ------------
                                                                                                                    |
Operating expenses:                                                                                                 |
   Selling                                                                 4,830            2,550            1,360  |         1,797
   General and administrative                                              6,889            3,490            7,895  |         2,221
   Provision for doubtful receivables                                        137               53               74  |            41
   Other (income) expense                                                 (4,543)             303             (456) |          (884)
                                                                    ------------     ------------     ------------  |  ------------
                                                                           7,313            6,396            8,873  |         3,175
                                                                    ------------     ------------     ------------  |  ------------
                                                                                                                    |
Operating income (loss)                                                    1,697           (1,964)          (6,599) |        (1,088)
                                                                                                                    |
   Net financial expense                                                   6,153            3,348              809  |           499
   Derivative instrument (income) expense, net                           (22,559)          (8,266)          47,702  |            --
                                                                    ------------     ------------     ------------  |  ------------
                                                                                                                    |
Net income (loss) before income taxes                                     18,103            2,954          (55,110) |        (1,587)
                                                                                                                    |
Provision for income taxes                                                    --               --               --  |            15
                                                                    ------------     ------------     ------------  |  ------------
                                                                                                                    |
Net income (loss)                                                         18,103            2,954          (55,110) |        (1,602)
Dividends and accretion on series A preferred stock                          626              313               --  |            --
                                                                    ------------     ------------     ------------  |  ------------
Net income (loss) attributable to common shareholders               $     17,477     $      2,641     $    (55,110) |  $     (1,602)
                                                                    ============     ============     ============  |  ============
                                                                                                                    |
Weighted average shares outstanding, basic                            21,250,000       21,250,000       20,000,000  |     8,643,000
                                                                    ------------     ------------     ------------  |  ------------
Weighted average shares outstanding, diluted                          52,784,830       52,493,286       20,000,000  |     8,643,000
                                                                    ------------     ------------     ------------  |  ------------
                                                                                                                    |
Basic income (loss) per share                                       $       0.82     $       0.12     $      (2.76) |  $      (0.19)
                                                                    ------------     ------------     ------------  |  ------------
Diluted income (loss) per share                                     $      (0.10)    $      (0.04)    $      (2.76) |  $      (0.19)
                                                                    ------------     ------------     ------------  |  ------------
                                                                                                                    |
Reconciliation of Comprehensive Income (Loss):                                                                      |
Net income (loss)                                                   $     18,103     $      2,954     $    (55,110) |  $     (1,602)
Other comprehensive income (loss) - foreign currency translation          (3,133)             861             (763) |          (726)
                                                                    ------------     ------------     ------------  |  ------------
Total comprehensive income (loss)                                   $     14,970     $      3,815     $    (55,873) |  $     (2,328)
                                                                    ============     ============     ============  |  ============
</TABLE>

See accompanying notes to condensed consolidated financial statements


                                       4
<PAGE>

                             THOMAS EQUIPMENT, INC.

                               Successor Business

            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
              (Unaudited - in thousands, except number of shares)

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

<TABLE>
<CAPTION>
                                              Common Stock           Additional                         Other
                                        -------------------------     Paid-In       Accumulated     Comprehensive
                                          Shares         Amount       Capital         Deficit           Loss            Total
                                        ----------------------------------------------------------------------------------------
<S>                                      <C>           <C>           <C>            <C>             <C>               <C>
Balances, July 1, 2005                   21,250,000    $        2    $   12,267     $   (78,747)    $        (651)    $  (67,129)

Accretion of discount on series A
preferred stock and premium payable
on redemption                                    --            --            (1)             --                --             (1)

Dividends on series A preferred stock            --            --          (625)             --                --           (625)

Currency translation adjustment                  --            --            --              --            (3,133)        (3,133)

Net income for the period                        --            --            --          18,103                --         18,103
                                        ----------------------------------------------------------------------------------------
Balances, December 31, 2005              21,250,000    $        2    $   11,641     $   (60,644)    $      (3,784)    $  (52,785)
                                        ========================================================================================
</TABLE>

See accompanying notes to condensed consolidated financial statements


                                       5
<PAGE>

                             THOMAS EQUIPMENT, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (Unaudited - in thousands)
<TABLE>
<CAPTION>
                                                                                                               |   Predecessor
                                                                                     Successor Business        |    Business
                                                                              -------------------------------  |  -------------
                                                                               Six Months          Three       |  Three Months
                                                                                 Ended             Months      |   Ended Ended
                                                                              December 31,      December 31,   |  September 30,
                                                                                  2005              2004       |      2004
-------------------------------------------------------------------------------------------------------------  |  -------------
<S>                                                                           <C>               <C>               <C>
Cash Flows From Operating Activities:                                                                          |
    Net income (loss)                                                         $      18,103     $     (55,110) |  $      (1,602)
    Adjustments to reconcile net income (loss) to net cash provided by                                         |
      (used in) operating activities:                                                                          |
      Amortization of debt discounts, premiums and deferred financing fees            1,555               300  |             --
      Unrealized gain on derivative instruments                                     (22,559)           47,702  |             --
      Amortization of warrants issued for professional fees                             392                --  |             --
      Depreciation and amortization                                                   1,280               403  |            528
      Unrealized foreign exchange gain on U.S. $ denominated debt                    (5,361)               --  |             --
      Allowance for doubtful accounts                                                   137                74  |             --
      Stock compensation                                                                 --             6,431  |             --
      Contributed services                                                               --               322  |             --
    Net change in working capital items                                               6,445            (3,596) |         (1,103)
                                                                              -------------     -------------  |  -------------
Net Cash (Used In) Operating Activities                                                  (8)           (3,474) |         (2,177)
                                                                              -------------     -------------  |  -------------
                                                                                                               |
Cash Flows From Investing Activities:                                                                          |
    Cash paid for acquisition of assets of Thomas                                        --           (18,119) |             --
    Purchase of property, plant and equipment                                        (1,455)               --  |           (272)
                                                                              -------------     -------------  |  -------------
Net Cash (Used In) Investing Activities                                              (1,455)          (18,119) |           (272)
                                                                              -------------     -------------  |  -------------
                                                                                                               |
Cash Flows From Financing Activities:                                                                          |
    Deferred financing fees                                                            (671)               --  |             --
    Payments on long term obligations and convertible long term debt                 (2,191)               --  |             --
    Increases (decreases) in credit facilities                                         (616)            5,512  |             --
    Increases (decreases) in convertible credit facilities                            2,425                --  |             --
    Payments on capital lease obligations                                              (253)             (127) |             --
    Dividends paid on preferred shares                                                 (371)               --  |             --
    Proceeds from debt issuance related to assets acquired                               --            15,970  |             --
    Deferred financing costs                                                             --            (1,049) |             --
    Proceeds from sale of common stock                                                   --             2,149  |             --
    Net repayments of advances from affiliated companies                                 --                --  |           (588)
    Increase in bank advances                                                            --                --  |          2,277
                                                                              -------------     -------------  |  -------------
Net Cash Provided By (Used In) Financing Activities                                  (1,677)           22,455  |          1,689
                                                                              -------------     -------------  |  -------------
                                                                                                               |
Net Increase (Decrease) in Cash                                                      (3,140)              862  |           (760)
Effect of Exchange Rate Changes on Cash                                                 (59)             (121) |             23
Cash, Beginning of Period                                                             3,800                --  |            823
                                                                              -------------     -------------  |  -------------
Cash, End of Period                                                           $         601     $         741  |  $          86
                                                                              =============     =============  |  =============
</TABLE>


                                       6
<PAGE>

<TABLE>
<CAPTION>
                                                                                                               |   Predecessor
                                                                                     Successor Business        |    Business
                                                                              -------------------------------  |  -------------
                                                                               Six Months       Three Months   |  Three Months
                                                                                 Ended             Ended       |     Ended
                                                                              December 31,      December 31,   |  September 30,
                                                                                 2005              2004        |     2004
-------------------------------------------------------------------------------------------------------------  |  -------------
<S>                                                                           <C>               <C>               <C>
Supplemental Disclosure of Cash Flow Information:                                                              |
    Interest paid                                                             $       2,627     $         232  |  $          15
                                                                              =============     =============  |  =============
                                                                                                               |
    Debt waiver costs                                                         $       1,498                --  |             --
                                                                              =============     =============  |  =============
                                                                                                               |
Supplemental Disclosures Of Non-Cash Investing And Financing                                                   |
Activities:                                                                                                    |
                                                                                                               |
    Stock based compensation                                                             --     $       6,431  |             --
                                                                              =============     =============  |  =============
                                                                                                               |
    Property and equipment acquired under capital leases                                 --     $       5,254  |             --
                                                                              =============     =============  |  =============
</TABLE>

 See accompanying notes to condensed consolidated financial statements


                                       7
<PAGE>

Thomas Equipment, Inc
Notes to Condensed Consolidated Financial Statements (Unaudited - in thousands
except share and per share data)

1.    Organization and description of the business

      On November 9, 2004, Thomas Equipment, Inc. ("we", "us", "our",
"Successor" or "Successor Business") acquired the business, fixed assets and
inventory of Thomas Equipment Limited ("Thomas Equipment Limited", "Predecessor"
or "Predecessor Business"), an unrelated company, effective as of October 1,
2004, which was our date of inception. On February 28, 2005, we acquired 100% of
the common stock of Pneutech Inc. ("Pneutech").

      We have two primary business segments, Thomas Equipment and Pneutech.

      Thomas Equipment Inc. and its subsidiaries manufacture and distribute
through a worldwide network of dealers and distributors a full line of skid
steer and mini skid steer loaders as well as attachments, mobile screening plant
and mini excavators for the industrial and construction industry. Thomas
Equipment also manufactures a complete line of potato harvesting and handling
equipment for the agricultural industry. Thomas Equipment has manufacturing and
assembly facilities in Centreville, New Brunswick, Canada and Busan, South Korea
and also operates five retail stores in New Brunswick, Prince Edward Island,
Maine and Illinois.

      Pneutech and its subsidiaries (Rousseau, Hydramen and Samsung Industry),
are engaged in the fluid power industry providing distribution and manufacturing
of pneumatic and hydraulic components and systems for the industrial market,
distribution and manufacturing of hydraulic components and systems for the
mobile market, and manufacturing of hydraulic cylinders and metal gaskets for
the industrial market. Pneutech maintains nine manufacturing and distribution
facilities in Canada and one manufacturing plant in Busan, South Korea.

2.    Basis of presentation

      The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in our Annual Report on Form 10-K for the fiscal year
ended June 30, 2005, as amended on January 17, 2006. The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and the instructions to Form 10-Q and Rule 210
of Regulation S-K of the Securities and Exchange Commission (the "SEC").
Accordingly, these condensed consolidated financial statements do not include
all of the footnotes required by accounting principles generally accepted in the
United States of America. In management's opinion, all adjustments (consisting
of normal and recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three and six months
ended December 31, 2005 are not necessarily indicative of the results that may
be expected for the year ending June 30, 2006.

      The accompanying unaudited condensed consolidated financial statements, as
of and for the three and six months ended December 31, 2005 and for the three
months ended December 31, 2004, are those of Thomas Equipment, Inc., the
Successor. The statements of operations and of cash flows include those of
Thomas Equipment Limited, our Predecessor, for the three months ended September
30, 2004.

Principles of consolidation

      The consolidated financial statements include the accounts of Thomas
Equipment, Inc. and its wholly owned subsidiaries. All inter-company accounts
and transactions have been eliminated in consolidation.


                                       8
<PAGE>

Thomas Equipment, Inc
Notes to Condensed Consolidated Financial Statements (Unaudited - in thousands
except share and per share data)

Use of estimates

      In preparing our consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America,
management is required to make estimates and assumptions that affect the
reported amounts in the financial statements and the accompanying notes. The
reported amounts of revenues and expenses during the reporting period may be
affected by the estimates and assumptions we are required to make.

      Estimates that are critical to the accompanying consolidated financial
statements include the identification and valuation of derivative instruments;
the amortization periods for debt issuance costs and the amortization of
discounts on convertible securities arising from warrants, options and
bifurcated derivative instruments; estimates that arise from the provisions for
doubtful accounts receivable, warranties and inventory obsolescence; contingent
liabilities; the valuation of deferred income tax assets; and estimating
depreciation for tangible assets. The markets for our products are characterized
by intense competition and price competition, all of which could impact the
future realizability of our assets. Management bases its estimates and
judgements on historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgements about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results could differ
from these estimates. Estimates and assumptions are revised periodically and the
effects of revisions are reflected in the financial statements in the period
they are determined to be necessary.

Translation of foreign currencies

      Our functional currency is the Canadian dollar. Our foreign currency
transactions and balances are translated into Canadian dollars using the
temporal method. Under this method, monetary assets and liabilities denominated
in foreign currencies are translated into Canadian dollars at rates of exchange
prevailing at the balance sheet date. Revenue and expenses are translated into
Canadian dollars at the rate of exchange prevailing at the transaction date. The
resulting foreign currency exchange gains and losses are included in earnings
for the periods presented.

      Assets and liabilities are then translated into United States dollars
(reporting currency) at the exchange rate in effect at each period end.
Revenues, expenses, gains and losses are translated into United States dollars
at the average rate of exchange prevailing during the period. All translation
effects of exchange rate changes are included as a separate component of
stockholders' equity (deficit).

Derivative financial instruments

      We do not use derivative instruments to hedge exposures to cash flow,
market, or foreign currency risks.

      Derivative financial instruments are initially measured at their fair
value. For derivative financial instruments that are accounted for as
liabilities, the derivative instrument is initially recorded at its fair value
and is then re-valued at each reporting date, with changes in the fair value
reported as charges or credits to income. For option-based derivative financial
instruments, we use the Black-Scholes option pricing model to value the
derivative instruments.

      The classification of derivative instruments, including whether such
instruments should be recorded as liabilities or as equity, is re-assessed at
the end of each reporting period. Derivative instrument liabilities are
classified in the balance sheet as current or non-current based on whether or
not net-cash settlement of the derivative instrument could be required within 12
months of the balance sheet date.


                                       9
<PAGE>

Thomas Equipment, Inc
Notes to Condensed Consolidated Financial Statements (Unaudited - in thousands
except share and per share data)

3.    Product warranties

      Our products are sold with a one year comprehensive bumper to bumper
warranty except for loader sales in North America and Australia, which have a
three year bumper to bumper warranty, followed by a power train warranty in
years four and five. We generally determine our total warranty liability by
applying historical claims rate experience to the estimated amount of equipment
that has been sold and is still under warranty based on dealer inventories and
retail sales. The historical claims rate is primarily determined by a review of
claims costs and current quality developments. Warranty provisions are included
as a component of cost of sales.

      A reconciliation of the changes in the warranty liability is as follows:

                                            December 31, 2005     June 30, 2005
                                            -----------------     -------------

Balance, beginning of period                $           1,280     $          --
Liabilities assumed from predecessor                       --               895
Warranty obligations honored                             (425)             (179)
Accruals for warranties                                   253               562
Foreign exchange                                           66                 2
                                            -----------------     -------------
                                            $           1,174     $       1,280
                                            =================     =============

      Subsequent to our acquisition of certain assets of the Predecessor, we
agreed to assume responsibility for the warranty liability of the Predecessor on
equipment sold prior to October 1, 2004. Based on an assessment of that warranty
liability at the time we assumed it, the Predecessor paid us CD$1,100 (U.S.$895)
for our assumption of that liability.

4.    Net income or loss per share

      We compute net income or loss per share in accordance with Statement of
Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS 128") and SEC
Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS 128
and SAB 98, basic net income or loss per share is computed by dividing the net
income or loss available to common stockholders for the period, after deducting
dividends and accretion of discounts and redemption premium on our series A
preferred stock, by the weighted average number of common shares outstanding
during the period. Diluted net income or loss per share is computed by dividing
the net income or loss for the period by the total number of common and common
equivalent shares outstanding during the period. During the period when they
would be anti-dilutive, common stock equivalents (which during the three and six
months ended December 31, 2005 consisted of options to purchase 4,020,000 common
shares, warrants to purchase 6,794,395 common shares, debt convertible into a
maximum of up to 22,566,667 common shares and preferred stock convertible into
8,333,333 common shares) are not considered in the computations. Common stock
issuable on the assumed exercise of options and warrants is computed based on
the treasury stock method, using the average market price for the period, which
for the three month periods ended December 31, 2005 and September 30, 2005 was
$3.24 and $3.95, respectively.


                                       10
<PAGE>

Thomas Equipment, Inc
Notes to Condensed Consolidated Financial Statements (Unaudited - in thousands
except share and per share data)

The following reconciles the numerator and denominator of the basic and diluted
per-share computations:

<TABLE>
<CAPTION>
                                                                     For The Three Months Ended December 31, 2005
                                                                   ------------------------------------------------
                                                                      Income            Shares          Per-Share
                                                                    (Numerator)      (Denominator)        Amount
                                                                   -------------     -------------    -------------
<S>                                                                <C>               <C>              <C>
Net income                                                         $       2,954
Less: dividends and accretion on series A preferred stock                    313
                                                                   -------------

Basic EPS:
Income available to common shareholders                                    2,641        21,250,000    $        0.12
                                                                                                      =============

Effect of dilutive securities:
Options and warrants                                                      (1,841)        4,974,615
Convertible debt                                                          (2,414)       17,935,338
Convertible series A preferred stock                                        (699)        8,333,333
                                                                   -------------     -------------

Diluted EPS:
Income available to common shareholders and assumed conversions    $      (2,313)       52,493,286    $       (0.04)
                                                                   =============     =============    =============

<CAPTION>
                                                                      For The Six Months Ended December 31, 2005
                                                                   ------------------------------------------------
                                                                      Income            Shares          Per-Share
                                                                    (Numerator)      (Denominator)        Amount
                                                                   -------------     -------------    -------------
<S>                                                                <C>               <C>              <C>
Net income                                                         $      18,103
Less: dividends and accretion on series A preferred stock                    626
                                                                   -------------

Basic EPS:
Income available to common shareholders                                   17,477        21,250,000    $        0.82
                                                                                                      =============

Effect of dilutive securities:
Options and warrants                                                      (5,314)        5,342,495
Convertible debt                                                         (12,628)       17,859,002
Convertible series A preferred stock                                      (4,643)        8,333,333
                                                                   -------------     -------------

Diluted EPS:
Income available to common shareholders and assumed conversions    $      (5,108)       52,784,830    $       (0.10)
                                                                   =============     =============    =============
</TABLE>

      Under the "if converted" method, options, warrants and convertible
instruments are assumed to have been converted as of the beginning of the period
or when issued, if later, and any proceeds received on conversion are assumed to
have been used to purchase treasury stock at the average market price for the
period. Net income is adjusted to eliminate interest and dividends on preferred
stock, as well as unrealized gains or losses related to derivative instruments
and foreign exchange associated with the "if converted" instruments.

      Warrants to purchase 250,000 shares of common stock at $4 per share and
2,083,333 shares of common stock at $3.75 were outstanding during the three
month period ended December 31, 2005 but were not included in the computation
because the warrants' exercise price was greater than the average market price
of the common stock during that period.


                                       11
<PAGE>

Thomas Equipment, Inc
Notes to Condensed Consolidated Financial Statements (Unaudited - in thousands
except share and per share data)

5.    Inventories

                                            December 31, 2005     June 30, 2005
                                            -----------------     -------------

Raw materials and spare parts               $           6,959     $       8,905
Work in process                                         5,242             3,863
Finished goods - new                                   19,911            20,797
Finished goods - used                                   2,049             1,775
Packaging and supplies                                    282               234
                                            -----------------     -------------
                                            $          34,443     $      35,574
                                            =================     =============

6.    Revolving credit facilities

      On June 15, 2005, Pneutech entered into a credit facilities agreement with
the Royal Bank of Canada. Pneutech's subsidiaries, Rousseau Controls, Inc. and
Hydramen Fluid Power Limited are also parties to the credit agreement. Under the
terms of the credit agreement, Pneutech was provided with a CD$15,000
(U.S.$12,870 at December 31, 2005) revolving credit facility and Pneutech and
its subsidiaries were also provided with an additional CD$750 (U.S.$644 at
December 31, 2005) revolving lease line of credit. The credit facility became
effective on August 12, 2005. The proceeds of the facility were used to repay
Pneutech's obligations to HSBC Bank Canada and existing obligations of the
subsidiaries to the Royal Bank of Canada.

      The credit facility permits Pneutech to borrow an amount based upon its
eligible accounts receivable and eligible unencumbered inventory, as defined in
the credit agreement. At December 31, 2005, the total amount available under the
CD$15,000 revolving credit facility was CD$11,645 (U.S.$9,991), of which CD$514
(U.S.$441) was unused. The loans generally accrue interest at the bank's prime
rate, plus 0.50%, which is payable monthly in arrears. The obligations under the
credit agreement are secured by all of the assets of Pneutech and its
subsidiaries, including but not limited to inventory and accounts receivable. In
addition, we have provided a guarantee of all obligations under the credit
agreement. The obligations under the credit agreement are payable in full on
March 30, 2006.

7.    Convertible credit facility and convertible long term debt

      On November 9, 2004, concurrently with the closing of the acquisition of
the Thomas Equipment Limited assets, we entered into agreements, as subsequently
amended, with Laurus Master Fund, Ltd. ("Laurus'), a Cayman Islands corporation,
pursuant to which we sold convertible notes and options and warrants to purchase
common stock to Laurus in a private offering exempt from registration under
Section 4(2) of the Securities Act of 1933. The securities sold to Laurus were:

      o     A secured convertible term note with a principal amount of $6,000;

      o     A secured convertible minimum borrowing note with a principal amount
            of $8,000;

      o     A secured convertible revolving note with a principal amount not to
            exceed $16,000, including the $8,000 minimum borrowing amount;

      o     A common stock purchase warrant to purchase 2,200,000 shares of
            common stock of Thomas Equipment, at a purchase price of $2.25 per
            share, exercisable in whole or in part at any time for a period of
            seven years;

      o     An option to purchase 4,020,000 shares of common stock of Thomas
            Equipment, at a purchase price of $.01 per share, exercisable in
            whole or in part at any time.


                                       12
<PAGE>

Thomas Equipment, Inc
Notes to Condensed Consolidated Financial Statements (Unaudited - in thousands
except share and per share data)

      On January 26, 2005, we and Laurus amended certain terms of the original
agreements to:

      o     Increase the maximum principal amount of the secured convertible
            revolving note to $20,000 (including the minimum borrowing note of
            $8,000)

      o     Issue to Laurus warrants to purchase 400,000 shares of our common
            stock, at a price of $2.25 per share. The warrants are exercisable
            at any time and expire on January 26, 2012.

      On February 28, 2005, we issued to Laurus:

      o     A secured convertible term note with a principal amount of $1,900
            and;

      o     A common stock purchase warrant to purchase 150,000 shares of common
            stock of Thomas Equipment, at a purchase price of $2.25 per share,
            exercisable in whole or in part at any time until February 28, 2012;

      On October 28, 2005, we and Laurus entered into an agreement pursuant to
which the Registration Rights Agreement dated as of November 9, 2004 between the
Company and Laurus was terminated in its entirety. As a result of such
agreement, we are no longer required to register all of the shares of common
stock held by Laurus or underlying options, warrants and convertible debt held
by them. Previously, we were not in compliance with our obligations to register
the shares of common stock held by or issuable to Laurus. However, Laurus had
previously waived, through October 31, 2005, the imposition of all penalties
under the Registration Rights Agreement and its right to accelerate payment of
our obligations. In consideration for this waiver, we paid Laurus a fee of $898
(see Note 12), which was less than the damages we would have incurred while not
in compliance through October 31, 2005. As this amount was included in an
over-advance from Laurus under our revolving credit facility with them, the fee
did not have a material impact on our liquidity.

      In connection with the October 28, 2005 agreement, the Company and Laurus
also agreed:

      o     To remove from our agreements all adjustments to the interest rate
            payable on the convertible debt resulting from changes in the
            trading price of our common stock;

      o     To remove the requirement that the shares be registered before they
            can be used for repayment of the convertible debt obligations; and

      o     To remove from our agreements the provisions related to the
            convertible debt that adjust the fixed conversion price in the event
            that we issue common stock at a lower price than the fixed
            conversion price and to replace such provisions with traditional
            anti-dilution provisions.

      In full consideration for all amounts due or which might otherwise have
become due to Laurus pursuant to the Registration Rights Agreement, we paid
Laurus a fee of $600. We have analyzed the amendments to the Laurus debt
agreements in accordance with EITF Issue 96-19. Based on this analysis, the
amendments do not represent a debt extinguishment and the $600 fee to Laurus has
been deferred and is being amortized over the remaining term of the loans.

      On November 16, 2005, the Company and Laurus amended the agreements to
increase the maximum principal amount of the secured convertible revolving note
to $22,000. We paid Laurus a fee of $78.


                                       13
<PAGE>

Thomas Equipment, Inc
Notes to Condensed Consolidated Financial Statements (Unaudited - in thousands
except share and per share data)

      On January 9, 2006, the Company and Laurus amended certain terms of the
original agreements to provide for an additional non-convertible secured term
note in the principal amount of $4,640. In connection with the term note, we
paid Laurus a fee of $640. The Company pledged to Laurus its interest in its
wholly-owned subsidiary, Thomas Equipment Asia Co. Ltd. as additional security.
In addition, entities controlled by the Company's President and Chairman pledged
certain shares of the Company's common stock which they own as additional
security. The term note bears interest at 10% per annum. 115% of the outstanding
principal amount, together with any accrued and unpaid interest, is due and
payable on the earlier of (i) July 6, 2006 or (ii) the consummation of any
offering of the Company's common stock to a Person other than Laurus.

      Because the options and warrants issued to Laurus were subject to our
Registration Rights Agreement with Laurus, they were accounted for as derivative
instrument liabilities (see Note 10). Also, certain derivative instruments
embedded in the debt instruments, including the embedded conversion options,
were bifurcated and accounted for separately as derivative instrument
liabilities (see Note 10).

      The secured convertible notes, together with any accrued but unpaid
interest and fees, are convertible by the holder into common stock, at any time,
in whole or in part, at a price of $1.50 per share. Under the revolving credit
facility, we are permitted to borrow an amount based upon eligible accounts
receivable, inventory and fixed assets, less any reserves, as defined in the
agreements with Laurus. We must pay a fee of 0.30% per annum on the average
monthly unused amount of the revolving credit facility and a 1% per month fee on
any balance in excess of the borrowing limit. We must also pay a fee in the
event the facility is terminated prior to expiration. Our obligations under the
notes are secured by all of our assets. The notes mature on November 9, 2007.
The interest rate on the notes is reset once each month and is equal to the
"prime rate" published in The Wall Street Journal from time to time, plus 3.0%,
provided that the annual rate of interest may not be less than 7.5%. At December
31, 2005, the interest rate on the notes was 10.25%.

      The $6,000 and $1,900 secured convertible term notes and the $8,000
minimum borrowing note may be redeemed by us in cash by paying Laurus 105% of
the outstanding principal amount, plus accrued interest. Upon the occurrence of
certain Events of Default under the agreements (including a change in control of
the Company), Laurus has the right to require us to redeem the notes, at an
amount of 115% of the outstanding principal amounts, plus accrued interest.

      At December 31, 2005, the following amounts were outstanding under the
secured convertible term notes. See Note 10 for information on the derivative
instrument liabilities related to the options and warrants issued to Laurus and
the bifurcated embedded derivative instruments related to the notes.

<TABLE>
<CAPTION>
                                                                               December 31,         June 30,
                                                                                       2005             2005
                                                                               ------------     ------------
<S>                                                                            <C>              <C>
$6,000 term loan, bearing interest at U.S. prime plus 3% with monthly
principal repayments of $207 per month plus interest, starting July 1, 2005    $      4,759     $      6,000
Less: unamortized discount                                                           (2,108)          (3,012)
                                                                               ------------     ------------
                                                                                      2,651            2,988
Less: current portion                                                                (2,483)          (2,484)
                                                                               ------------     ------------
Balance                                                                        $        168     $        504
                                                                               ============     ============

$8,000 minimum borrowing note, bearing interest at U.S. prime plus 3%
due on November 9, 2007                                                        $      8,000     $      8,000
Less: unamortized discount                                                           (4,033)          (4,613)
                                                                               ------------     ------------
Balance                                                                        $      3,967     $      3,387
                                                                               ============     ============

$1,900 term loan, bearing interest at U.S. prime plus 3% with monthly
principal repayments of $66 per month plus interest, starting July 1, 2005     $      1,507     $      1,900
Less: unamortized discount                                                           (1,507)          (1,900)
                                                                               ------------     ------------
                                                                                         --               --
Less: current portion                                                                    --               --
                                                                               ------------     ------------
Balance                                                                        $         --     $         --
                                                                               ============     ============

Revolving credit facility, bearing interest at U.S. prime plus 3%              $     12,178     $      9,684
Less: unamortized discount                                                          (12,178)          (9,684)
                                                                               ------------     ------------
                                                                               $         --     $         --
                                                                               ============     ============

The revolving credit facility provides for borrowings utilizing an asset
based formula, using eligible receivables, inventory and fixed assets,
less any reserves. The amount of available borrowings pursuant to the
formula was as follows:                                                        $     20,442     $     17,710
                                                                               ------------     ------------

Less: amount borrowed under minimum borrowing note                                    8,000            8,000
Less: amount borrowed under revolving credit facility                                12,178            9,684
                                                                               ------------     ------------
                                                                                     20,178           17,684
                                                                               ------------     ------------

Excess availability                                                            $        264     $         26
                                                                               ============     ============
</TABLE>


                                       14
<PAGE>

Thomas Equipment, Inc
Notes to Condensed Consolidated Financial Statements (Unaudited - in thousands
except share and per share data)

8.    Long term obligations

<TABLE>
<CAPTION>
                                                                               December 31,         June 30,
                                                                                       2005             2005
                                                                               -----------------------------
<S>                                                                            <C>              <C>
Note payable to Predecessor, bearing interest at 4%, maturing on
October 31, 2006                                                               $      2,317     $      2,198

Due to affiliate of the Predecessor                                                   2,046            1,944

Capital lease obligations                                                             5,234            5,025

Private loans with interest rates ranging from 3% to 8%, with regular
principal and interest payments                                                         847            1,343
                                                                               -----------------------------
                                                                                     10,444           10,510
Less: current portion                                                               (10,377)          (3,794)
                                                                               -----------------------------
                                                                               $         67     $      6,716
                                                                               =============================
</TABLE>

      We previously entered into two two-year capital lease agreements with
Thomas Equipment Limited. Pursuant to the leases, we have the right at any time
prior to the expiration of the leases on September 30, 2006 to purchase the
leased properties for $5,170 (based on the exchange rate at December 31, 2005).
In addition, Thomas Equipment Limited has the right to require us to purchase
the leased properties at the expiration of the leases. The leases require annual
payments of $515 plus realty taxes, maintenance, heat and certain other
expenses.

9.    Redeemable preferred stock of subsidiary

      In connection with the financing of the asset acquisition from the
Predecessor, we issued to the parent of the Predecessor, 1,000 shares of
redeemable preferred stock of our subsidiary Thomas Equipment 2004 Inc., with a
stated face amount of CD$10,000 ($8,580, translated at December 31, 2005). We
are required to purchase the preferred shares from the holder on April 26, 2006,
if not earlier redeemed. However, the holder has provided an undertaking to the
Minister of Business, New Brunswick (who provided a guarantee to Laurus of
certain of our indebtedness to them) that they will not require redemption as
long as the guarantee, which extends to November 30, 2007, is outstanding. The
preferred shares carry a cumulative dividend of 8% per annum, and a default rate
of 12% if we fail to redeem when required. The shares are currently redeemable
by us for $9,366 (their face amount of $8,580 plus $786 of accrued but unpaid
dividends). The holder of these shares has the right to be an observer at our
board meetings.


                                       15
<PAGE>

Thomas Equipment, Inc
Notes to Condensed Consolidated Financial Statements (Unaudited - in thousands
except share and per share data)

10.   Derivative financial instrument liabilities

      We use the Black-Scholes option pricing model to value options and
warrants, and the embedded conversion option components of any bifurcated
embedded derivative instruments that are recorded as derivative liabilities. See
Note 7 related to embedded derivative instruments that have been bifurcated from
our notes payable to Laurus and Note 11 related to the embedded derivative
instruments that have been bifurcated from our series A preferred stock.

      In valuing the options and warrants and the embedded conversion option
components of the bifurcated embedded derivative instruments, at the time they
were issued and at December 31, 2005, we used the market price of our common
stock on the date of valuation, an expected dividend yield of 0% and the
remaining period to the expiration date of the options or warrants or repayment
date of the convertible debt instrument. The 4,020,000 options issued to Laurus
have no stated expiration date; for the purposes of valuing these options using
the Black-Scholes option pricing model, they are assumed to have an expiry date
of November 9, 2011 (i.e. an initial life of seven years, the same as all
warrants issued to Laurus). Because the exercise price of the options is de
minimis ($0.01 per share), changing the assumed expiry date has no effect on the
value of the options. All options, warrants and conversion options can be
exercised by the holder at any time.

      Because of the limited historical trading period of our common stock, the
expected volatility of our common stock over the remaining life of the options
and warrants has been estimated at 50%, based on a review of the volatility of
entities considered by management as comparable. The risk-free rates of return
used at December 31, 2005 ranged from 4.35% to 4.41%, based on constant maturity
rates published by the U.S. Federal Reserve, applicable to the remaining life of
the options or warrants.

      At December 31, 2005, the following derivative liabilities related to
common stock options and warrants and embedded derivative instruments were
outstanding:

<TABLE>
<CAPTION>
                                                                     Exercise     Value-    Value-        Value-
                                                                    Price Per     Issue     June 30,   December 31,
Issue Date    Expiry Date                                             Share        Date      2005          2005
-------------------------------------------------------------------------------------------------------------------
<S>            <C>           <C>                                     <C>         <C>         <C>            <C>
11-09-2004     N/A           4,020,000 options issued to Laurus      $  0.01     $ 4,020     $17,165        $14,834

11-09-2004     11-09-2011    2,200,000 warrants issued to Laurus        2.25         792       6,490          5,302

01-26-2005     01-26-2012    400,000 warrants issued to Laurus          2.25       2,424       1,192            972

02-28-2005     02-28-2012    150,000 warrants issued to Laurus          2.25         698         449            366

02-28-2005     08-28-2006    1,000,000 warrants issued to Roynat        3.00       3,290       1,650          1,000

04-19-2005     04-19-2010    2,083,333 warrants issued to holders
                             of series A preferred stock                3.75       4,958       4,500          3,458
                                                                                            -----------------------
Fair value of freestanding derivative instrument liabilities for options and warrants        $31,446        $25,932
                                                                                            -----------------------
</TABLE>


                                       16
<PAGE>

Thomas Equipment, Inc
Notes to Condensed Consolidated Financial Statements (Unaudited - in thousands
except share and per share data)

<TABLE>
<CAPTION>
                                                                     Exercise     Value-    Value-        Value-
                                                                    Price Per     Issue     June 30,   December 31,
Issue Date    Expiry Date                                             Share        Date      2005          2005
-------------------------------------------------------------------------------------------------------------------
<S>            <C>           <C>                                     <C>         <C>        <C>             <C>
11-09-2004     11-09-2007    Laurus - $6,000 term note               $  1.50     $ 1,124    $ 13,213        $ 8,209

01-26-2005     11-09-2007    Laurus - $1,900 term note                  1.50       6,778       3,667          2,600

11-09-2004     11-09-2007    Laurus - $8,000 minimum borrowing note     1.50       1,648      19,457         14,957

11-09-2004     11-09-2007    Laurus - $14,000 revolving note            1.50       6,864      18,721         19,242

04-19-2005     N/A           Series A preferred stock                   3.00      22,167      20,417         15,917
                                                                                           ------------------------
Fair value of bifurcated embedded derivative instrument liabilities associated with the
above mentioned instruments                                                                 $ 75,475        $60,925
                                                                                           ------------------------
Total derivative financial instruments                                                      $106,921        $86,857
                                                                                           ========================
</TABLE>

11.   Capital stock

      At December 31, 2005, we have 200,000,000 authorized shares of common
stock, par value $0.0001, 21,250,000 shares issued and outstanding.

      We have 5,000,000 shares of preferred stock authorized, $0.0001 par value.
At December 31, 2005, 25,000 shares of series A preferred stock were issued and
outstanding, as follows.

<TABLE>
<CAPTION>
                                                                                    December 31,         June 30,
                                                                                            2005             2005
                                                                                    ------------     ------------
<S>                                                                                 <C>              <C>
25,000 shares of Series A redeemable convertible preferred stock - stated amount    $     25,000     $     25,000

Less: unamortized discount related to warrants issued to purchasers and
bifurcated embedded derivative instruments (see Note 10)                                 (24,998)         (24,999)
                                                                                    ------------     ------------

Carrying amount                                                                     $          2     $          1
                                                                                    ============     ============
</TABLE>

      The Series A redeemable convertible preferred stock is convertible into
8,333,333 shares of common stock at the rate of $3.00 per share and pays a
dividend of 5% per annum in cash. The preferred stock may be converted at
anytime upon five days notice by the holders. Upon an issuance of shares of
common stock below the fixed conversion price, the fixed conversion price will
be adjusted according to a formula that is intended to maintain the holders in
no better or worse position than before such issuance. The conversion price may
also be adjusted in certain circumstances such as if we pay a stock dividend,
subdivide or combine outstanding shares of common stock into a greater or lesser
number of shares, or take such other actions as would otherwise result in
dilution.

      We can require the holders to convert up to 20% of their preferred stock
per month, if our common stock trades at an average price of $6.00 per share for
20 consecutive days, with average volume of 150,000 shares per day.


                                       17
<PAGE>

Thomas Equipment, Inc
Notes to Condensed Consolidated Financial Statements (Unaudited - in thousands
except share and per share data)

      At any time commencing three years after issuance (after April 19, 2008),
we can redeem the preferred stock at 200% of the stated value if the redemption
occurs in the fourth year and 225% of the stated value if the redemption occurs
during the fifth year. The holders can require the Company to redeem the
preferred stock at 110% of the stated value, together with accrued dividends,
after five years or upon certain events.

      We were previously not in compliance with the Registration Rights
Agreement with the purchasers of the preferred stock because the registration
statement required to register the common stock underlying conversion of the
preferred stock and the common stock warrants issued to the holders was not
effective by October 19, 2005. Accordingly, from that date, we began to incur
damages of 1% per month of the face amount of the preferred stock of $25,000. In
the three months ended December 31, 2005, we accrued $597 for such penalties.
The registration statement became effective on February 1, 2006.

      The fair value of the warrants issued to the purchasers and the fair value
of the bifurcated embedded derivative instrument (see Note 10) initially
exceeded the face amount of the preferred stock. As a result, the preferred
stock was initially recorded at zero, and is being accreted, using an effective
interest method, to its redemption value of $27,500 over the five year period
until the holders may request redemption.

12.   Financing expense

<TABLE>
<CAPTION>
                                                               Six months ended    Three months ended    Three months ended
                                                              December 31, 2005     December 31, 2005     December 31, 2004
                                                             --------------------------------------------------------------
<S>                                                                     <C>                   <C>                   <C>
Capital leases                                                          $   193               $    98               $   101
Credit facility                                                             403                   219                    --
Amortization of discounts and interest on debt instruments                2,741                 1,675                   533
Amortization of deferred financing fees                                     365                   233                    58
Debt premium                                                                295                    56                    --
Dividends on preferred stock of subsidiary                                  338                   172                    95
Waiver fee paid to Laurus                                                   898                    --                    --
Registration rights penalties - series A preferred stock                    597                   597                    --
Registration rights penalties - Roynat warrants                             200                   200                    --
Other                                                                       123                    98                    22
                                                             --------------------------------------------------------------
Total                                                                   $ 6,153               $ 3,348               $   809
                                                             ==============================================================
</TABLE>

13.   Common stock warrants issued to non-employees

      We use the Black-Scholes option pricing model to value warrants issued to
non-employees, based on the market price of our common stock at the time the
warrants are issued. All outstanding warrants may be exercised by the holder at
any time. During the three and six months ended December 31, 2005 and as at that
date, we had the following warrants outstanding:

<TABLE>
<CAPTION>
                                          Exercise
                             Number of    Price Per
Issue Date    Expiry Date    Warrants      Share       Issued For
----------------------------------------------------------------------------------------------
<S>            <C>            <C>           <C>        <C>
01-31-2005     01-31-2008     250,000       $4.00      Investor relations services

02-28-2005     02-28-2010     211,062       $3.00      Acquisition of Pneutech

04-19-2005     04-19-2010     500,000       $3.00      Placement fee, Series A preferred stock
                             --------
Total outstanding             961,062
                             ========
</TABLE>


                                       18
<PAGE>

Thomas Equipment, Inc
Notes to Condensed Consolidated Financial Statements (Unaudited - in thousands
except share and per share data)

14.   Segment information

Successor

      We determine and disclose our segments in accordance with SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information", which
uses a "management" approach for determining segments. The management approach
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of the reportable
segments. Our management reporting structure provides for the following
segments:

Thomas Equipment

      Thomas Equipment manufactures a full line of skid loaders, attachments,
mini skid steers, and screening plants, as well as a full line of mini
excavators and equipment trailers. We also manufacture a complete line of potato
harvesting and handling equipment. Thomas Equipment has approximately a 3.5%
share of the worldwide mini skid market, and is considered the market leader in
the U.S. with its 400 series screening plant model.

Pneutech

      Pneutech manufactures and distributes a full line of pneumatic and
hydraulic components and systems for the industrial and mobile market and also
manufactures hydraulic cylinders and metal gaskets for the industrial market.
Pneutech has three wholly-owned subsidiaries, Hydramen Fluid Power, Ltd.,
Rousseau Controls, Inc., and Samsung Industry Co., Ltd. Pneutech has over thirty
years of experience in the field of fluid power and specializes in the design,
engineering, manufacture and distribution of pneumatic and hydraulic systems and
components for all automation and motion control applications.

Hydramen

      Since 1986, Hydramen Fluid Power has been designing and manufacturing
welded hydraulic cylinders. The welded cylinders are widely used on mobile
hydraulics such as dump trucks, telescoping applications on utility vehicles and
recycling trucks to name a few. Hydramen is engaged in full aftermarket sales
and service of its products as well as other makes and models.

Rousseau

      Rousseau Controls specializes in the design and fabrication of hydraulic
and pneumatic equipment as well as electrically-operated and/or electronically
controlled systems. These projects are usually produced for a customer's
specific needs. Normally we do not perform the function of a general contractor
and usually, when involved in new construction, act as a sub-contractor.
Rousseau provides engineering assistance to its customers in their applications
and will undertake consulting engineering services when requested.

Samsung

      Samsung Industry Co. Ltd., located in Busan, South Korea, is one of Asia's
premier manufacturers of spiral wound metal gaskets and gland packing. Since
1985, the company has been engaged in sales and service of sealing products to
various oil & gas refineries and petrochemical plants. The company has long-term
supply contracts with major corporations such as Daiwoo Heavy Industries and
Hyundai HHI-Ship Building Division.


                                       19
<PAGE>

Thomas Equipment, Inc
Notes to Condensed Consolidated Financial Statements (Unaudited - in thousands
except share and per share data)

      The following table presents financial information with respect to the
segments that management uses to make decisions:

<TABLE>
<CAPTION>
                                                                 Successor Business
                                           -------------------------------------------------------------
                                           Three Months Ended     Six Months Ended    Three Months Ended
                                            December 31, 2005    December 31, 2005     December 31, 2004
                                           -------------------------------------------------------------
<S>                                                  <C>                  <C>                   <C>
Sales:
     Thomas                                          $ 25,533             $ 38,370              $ 14,416
     Pneutech                                           6,307               12,533                    --
     Rousseau                                           5,180               10,306                    --
     Samsung                                              893                3,657                    --
     Hydramen                                             444                  874                    --
                                           -------------------------------------------------------------
       Subtotal                                        38,357               65,740                    --
     Elimination of inter segment sales                (1,505)              (2,774)                   --
                                           -------------------------------------------------------------
       Consolidated total                            $ 36,852             $ 62,966              $ 14,416
                                           =============================================================

Depreciation and amortization:
     Thomas                                          $    463             $    824              $    345
     Pneutech                                              65                  131                    --
     Rousseau                                              45                   89                    --
     Samsung                                              101                  201                    --
     Hydramen                                              15                   30                    --
                                           -------------------------------------------------------------
       Consolidated total                            $    689             $  1,275              $    345
                                           =============================================================

Net financial expense:
     Thomas                                          $    404             $  2,229              $    809
     Pneutech                                             156                  277                    --
     Rousseau                                              41                   83                    --
     Samsung                                                4                   10                    --
     Hydramen                                               3                    6                    --
     Corporate                                          2,740                3,548                    --
                                           -------------------------------------------------------------
      Consolidated total                             $  3,348             $  6,153              $    809
                                           =============================================================

Net income (loss):
     Thomas                                          $ (1,833)            $ (4,157)             $   (978)
     Pneutech                                            (810)                  59                    --
     Rousseau                                             260                  375                    --
     Samsung                                               62                  311                    --
     Hydramen                                             (32)                 (52)                   --
                                           -------------------------------------------------------------
       Subtotal                                        (2,353)              (3,464)                 (978)
     Corporate (1)                                      5,307               21,567               (54,133)
                                           -------------------------------------------------------------
       Consolidated total                            $  2,954             $ 18,103              $(55,111)
                                           =============================================================

Property, plant and equipment, net:
     Thomas                                                               $ 15,302              $ 12,376
     Pneutech                                                                1,931                    --
     Rousseau                                                                  625                    --
     Samsung                                                                 4,617                    --
     Hydramen                                                                  248                    --
                                                                 ---------------------------------------
       Consolidated total                                                 $ 22,723              $ 12,376
                                                                 =======================================
</TABLE>

(1)   Corporate expenses primarily include certain stock-based compensation to
      our founders and derivative financial instrument expense, which we do not
      internally allocate to our segments because they are related to our common
      stock and are non-cash in nature.


                                       20
<PAGE>

Thomas Equipment, Inc
Notes to Condensed Consolidated Financial Statements (Unaudited - in thousands
except share and per share data)

Revenues by geographic destination and product group were as follows:

<TABLE>
<CAPTION>
                                                                 Successor Business
                                           -------------------------------------------------------------
                                           Three Months Ended     Six Months Ended    Three Months Ended
                                            December 31, 2005    December 31, 2005     December 31, 2004
                                           -------------------------------------------------------------
<S>                                                  <C>                  <C>                   <C>
Canada                                               $ 12,545             $ 26,021              $  1,908
USA                                                     2,664                7,023                 6,591
Europe                                                  4,951                8,732                 4,287
Rest of world                                          16,692               21,190                 1,630
                                           -------------------------------------------------------------
Total sales to external customers                    $ 36,852             $ 62,966              $ 14,416
                                           =============================================================

Industrial and construction                          $ 36,288             $ 60,564              $ 13,923
Agriculture                                               564                2,402                   493
                                           -------------------------------------------------------------
Total sales to external customers                    $ 36,852             $ 62,966              $ 14,416
                                           =============================================================
</TABLE>

During the three and six months ended December 31, 2005, revenues from one
customer of Thomas in Korea amounted to $14,447. No other customer accounted for
more than 10% of our revenues.

Property, plant and equipment assets by geographical area were as follows:

                                                      Successor Business
                                          --------------------------------------
                                          December 31, 2005      June 30, 2005
                                          --------------------------------------

Canada                                    $          14,117    $          14,133
USA                                                      12                   54
Korea                                                 8,594                7,317
                                          --------------------------------------
Total                                     $          22,723    $          21,504
                                          ======================================

Predecessor

      Our principal operations related to the manufacturing, sale and
distribution through a worldwide network of dealers, distributors and retailers
of skid steer and mini skid steer loaders, attachments, parts, mobile screening
plants and mini excavators for the industrial and construction industry and
potato harvesting and handling equipment for the agriculture industry. Because
of the integrated nature of our manufacturing operation and common
administrative and marketing support functions, the business was treated by
management as a single operating segment for the purpose of making operating
decisions and assessing performance. Revenues by destination and product group
were as follows:

                                                             Three Months Ended
                                                             September 30, 2004
                                                             ------------------

Canada                                                       $            2,883
USA                                                                       7,177
Europe                                                                    2,517
Rest of world                                                             1,280
                                                             ------------------
Total sales to external customers                            $           13,857
                                                             ==================

Industrial and construction                                  $           12,147
Agriculture                                                               1,710
                                                             ------------------
Total sales to external customers                            $           13,857
                                                             ==================

During the periods presented, no single customer accounted for more than 10% of
our revenues.


                                       21
<PAGE>

Thomas Equipment, Inc
Notes to Condensed Consolidated Financial Statements (Unaudited - in thousands
except share and per share data)

15.   Accounts receivable and trade payables

      Included in accounts receivable and trade payables at December 31, 2005,
are $14,447 and $13,738, respectively, related to sales of hydraulic breakers
and forklifts made to a single customer by our subsidiary Thomas Asia. These
sales, which occurred in October, November and December 2005, and the related
payables to the equipment suppliers, are subject to payment terms of 180 days.

16.   Subsequent events

      As described in Note 7, on January 9, 2006, the Company and Laurus amended
certain terms of the original loan agreements to provide for an additional
non-convertible secured term note in the principal amount of $4,640. In
connection with the term note, we paid Laurus a fee of $640. The Company pledged
to Laurus its interest in its wholly-owned subsidiary, Thomas Equipment Asia Co.
Ltd. as additional security. In addition, entities controlled by the Company's
President and Chairman pledged certain shares of the Company's common stock
which they own as additional security. The term note bears interest at 10% per
annum. 115% of the outstanding principal amount, together with any accrued and
unpaid interest, is due and payable on the earlier of (i) July 6, 2006 or (ii)
the consummation of any offering of the Company's common stock to a Person other
than Laurus.

      At December 31, 2005, we were not in compliance with our obligations to
register the shares of common stock underlying the 1,000,000 warrants issued to
Roynat Merchant Capital Inc. Because the required registration statement was not
effective by August 31, 2005, we began to incur damages of $50 per month and
have accrued penalties in the amount of $200 for the period to December 31,
2005. The registration statement became effective on January 19, 2006.

      At December 31, 2005 we had not filed the registration statement required
by the Registration Rights Agreement with the purchasers of our Series A
Preferred Stock. Because that required registration statement was not effective
by October 19, 2005, we began, from that date, to incur damages of 1% per month
of the face amount of the preferred stock of $25,000. We have accrued penalties
in the amount of $597 for the period to December 31, 2005. The required
registration statement became effective on February 1, 2006.


                                       22
<PAGE>

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

      The following discussion and analysis of the financial condition and
results of our operations relates to the successor company Thomas Equipment,
Inc. for the three and six months ended December 31, 2005 and to our predecessor
company Thomas Equipment Limited for the three months ended September 30, 2004,
the period prior to our acquisition of the business and assets of the
predecessor company on October 1, 2004. We acquired Pneutech on February 28,
2005 and its results of operations are included in our operating results.

      The financial statements underlying the discussion that follows are those
of the Predecessor for the three months ended September 30, 2004 and our
unaudited consolidated financial statements as of December 31, 2005 and for the
three and six months then ended. The discussion should be read in conjunction
with those financial statements and the notes thereto.

      Our functional currency is the Canadian dollar. Except where otherwise
noted, all amounts reported throughout this discussion are stated in thousands
of U.S. dollars, except for the number of shares and per share data. Amounts
derived from specific financial statement items are translated from Canadian
dollars to U.S. dollars at various period end rates, average period rates or
specific transaction rates, as appropriate. Other amounts not related to results
of operations or financial condition have been translated into U.S. dollars at
the December 31, 2005 translation rate of $0.858 U.S. dollars per Canadian
dollar.

      This discussion contains forward-looking statements that involve risks and
uncertainties. All statements regarding future events, our future financial
performance and operating results, our business strategy and our financing plans
are forward-looking statements. In many cases, you can identify forward-looking
statements by terminology, such as "may," "will," "should," "expects,"
"intends," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential" or "continue," or the negative of such terms and other comparable
terminology. These statements are only predictions. Known and unknown risks,
uncertainties and other factors could cause our actual results to differ
materially from those projected in the forward-looking statements. In evaluating
these statements, you should specifically consider various factors, including,
but not limited to, those set forth under "Risk Factors That May Impact Future
Operating Results" and elsewhere in this Report.

      Unless otherwise marked, all amounts are in U.S. dollars in thousands,
except share and per share data.

Overview
--------------------------------------------------------------------------------

      Thomas Equipment, Inc., the successor business, has two primary business
segments, Thomas Equipment and Pneutech.

      Thomas Equipment manufactures and distributes through a worldwide network
of dealers and distributors a full line of skid steer and mini skid steer
loaders as well as attachments, mobile screening plants and six models of mini
excavators for the industrial and construction industry. Thomas Equipment also
manufactures a complete line of potato harvesting and handling equipment for the
agricultural industry. Thomas Equipment has manufacturing and assembly
facilities in Centreville, New Brunswick, Canada and Busan, South Korea and also
operates five retail stores - three in Atlantic Canada, one in Presque Isle,
Maine, and one in Lynwood, Illinois.

      Pneutech, established in 1973, and its subsidiaries are engaged in the
fluid power industry providing distribution and manufacturing of pneumatic and
hydraulic components and systems for the industrial market, distribution and
manufacturing of hydraulic components and systems for the mobile market and
manufacturing of hydraulic cylinders and metal gaskets for the industrial
market. Pneutech is a strategic supplier to Thomas Equipment, as well as 15,000
other active customers. During the six months ended December 31, 2005, Pneutech
supplied Thomas with approximately $1.6 million in hydrostatic transmission
equipment (6.2% of Pneutech's sales and 4.7% of Thomas' cost of sales during
that period). Pneutech maintains nine manufacturing and distribution facilities
in Canada and one manufacturing plant in Busan, South Korea. It has a diverse
array of capabilities in the distribution of fluid power components as well as
manufacturing spiral wound metal gaskets and steel components.


                                       23
<PAGE>

      Although a significant portion of our sales are transacted in the U.S.,
Korea and Europe, most of our assets and operations are in Canada and, as a
result, our functional currency for recording transactions is the Canadian
dollar, which is then translated into U.S. dollars for reporting purposes.
Geographic information on our revenues and property, plant and equipment is
included in Note 14 to the condensed consolidated financial statements, included
in Item 1 of this Report on Form 10-Q.

                              RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

      Although the revenue generating activities of Thomas Equipment Limited,
the predecessor business, remained significantly intact after the acquisition,
there have been changes in our distribution strategy, cost structure, and
financing activities. Additionally, unlike the predecessor business, we do not
currently engage in hedging transactions, although we may do so in the future.
As a result, we believe that the expenses of the predecessor business are not
representative of our current business, financial condition or results of
operations.

The discussion that follows of Results of Operations is in the following
sections:

      o     Results of operations for the three months ended December 31, 2005
            and 2004 (successor);

      o     Results of operations for the six months ended December 31, 2005
            (successor);

      o     Results of operations for the three months ended September 30, 2004
            (predecessor);

   RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2005 AND 2004

      The information contained in this section is that of the successor Thomas
Equipment, Inc. for the three months ended December 31, 2005 and 2004
(unaudited).

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
                                                            2005                       2004
                                                  -----------------------    -----------------------
<S>                                               <C>             <C>        <C>             <C>
Revenues                                          $ 36,852        100.0%     $ 14,416        100.0%
  Cost of Sales                                     32,420         88.0%       12,142         84.2%
Gross Profit                                         4,432         12.0%        2,274         15.8%
  Selling Expenses                                   2,550          6.9%        1,360          9.4%
  G&A Expenses                                       3,490          9.5%        7,895         54.8%
  Provision for Doubtful Receivables                    53          0.1%           74          0.5%
  Other (Income) Expense                               303          0.8%         (456)        (3.2)%
Operating Loss                                      (1,964)        (5.3)%      (6,599)       (46.8)%
  Net Financial Expense                              3,348          9.1%          809          5.6%
  Derivative Instruments (Income) Expense, net      (8,266)       (22.4%)      47,702       (330.9%)
  Provision for Income Taxes                            --           --            --           --
Net Income (loss)                                    2,954         (8.0)%     (55,110)      (382.3)%
----------------------------------------------------------------------------------------------------
</TABLE>

Revenues

      For the three months ended December 31, 2005, revenues were $36,852, which
included $24,318 for Thomas and $12,534 for Pneutech, compared with $14,416 for
Thomas for the quarter ended December 31, 2004. We acquired Pneutech on February
28, 2005. The increase in sales at Thomas of $9,902 for the quarter ended
December 31, 2005 compared with December 31, 2004 mainly related to increased
sales of hydraulic breakers and forklifts of approximately $14,400, offset by a
decrease in sales of other Thomas products of $4,000. The large increase in
hydraulic breaker and forklift sales resulted from sales to a single customer.
The Company is evaluating the direct manufacturing of the hydraulic breakers
internally and is assessing the increased margins, capital expenditures and
timing related to such production.


                                       24
<PAGE>

      We estimate that approximately $2,200 of the decrease in sales of other
Thomas products relates to the fact that, since June 2005, we no longer provide
any significant in-house financing for floor plans and the transition to an
external source was not initially as widely accepted due to the terms of those
external financing programs. $900 of the decrease relates to our exit from lower
margin auction sales. We also had a decrease in our production and sale of
screeners, due to market saturation, which accounted for approximately $900 more
of the decrease in sales. These decreases were offset by approximately $500 in
currency gains due to the strength of the Canadian dollar versus a year ago.

      We have a backlog of orders for the Thomas Equipment business segment of
approximately $59 million and an additional $12 million backlog for the Pneutech
business segment. These backlog figures are based on orders received, though
those orders may be cancelled by the purchasers. Although the major portion of
our products are built in advance of order and either shipped or assembled from
stock, orders for specialized machinery or specific customer applications are
submitted with extensive lead times and are often subject to revision, deferral,
cancellation or termination. We estimate that approximately 95% of the backlog
will be shipped during the next twelve months. In order to accommodate the
substantial increase in our backlog, we have expanded our production facilities.

Cost of Sales and Gross Profit

      For the three months ended December 31, 2005, cost of sales was $32,420
which included $23,307 for Thomas and $9,113 for Pneutech. As a percentage of
sales, cost of sales was 88.0% for the three months ended December 31, 2005,
compared with 84.2% for the quarter ended December 31, 2004, reflecting the
effect of the lower sales at Thomas on the absorption of manufacturing overheads
and the lower-than-normal margins on the large sales of hydraulic breakers and
forklifts. After adjusting for these large, lower-margin sales, cost of sales
was 83.0%, which is more comparable to previous quarters.

      As a result of the above, gross profit margin was $4,432 or 12.0%, which
consisted of $1,663 for Thomas and $2,769 for Pneutech, compared with $2,274 or
15.8% for Thomas for the quarter ended December 31, 2004. The decline in gross
margin as a percentage of sales for the quarter ended December 31, 2005 at
Thomas related mainly to the large sales of hydraulic breakers and forklifts,
which changed the typical product mix for the quarter.

Selling Expenses

      For the three months ended December 31, 2005, selling expenses were
$2,550, including $1,566 for Thomas and $984 for Pneutech, compared with $1,360
for Thomas for the quarter ended December 31, 2004. As a percentage of sales,
selling expenses were 6.9%, a decrease from 9.4% during the quarter ended
December 31, 2004. This decrease resulted from reduced commission costs on the
lower sales for the quarter, lower travel-related and advertising costs and the
effect of the large sales of hydraulic breakers and forklifts.

General and Administrative Expenses

      For the three months ended December 31, 2005, general and administrative
expenses were $3,490, which consisted of $2,281 for Thomas and $1,209 for
Pneutech. As a percentage of sales, general and administrative expenses were
9.5%, a decrease from 54.8% during the quarter ended December 31, 2004. This
decrease is a result of a reduction in professional fees related to our SEC
registration statement filings and organizational start up costs, and the
inclusion in 2004 of stock-based compensation expense of $6,431.

Provision for Doubtful Receivables

      Provision for doubtful accounts receivable was $53 for the quarter ended
December 31, 2005, compared with $74 for the quarter ended December 31, 2004.
Because of our limited history, we continue to use the historical experience of
our predecessor, as well as our own experience since inception, in providing for
credit losses.


                                       25
<PAGE>

Other (Income) Expense, Net

      Other (income) expense, consisting primarily of foreign currency losses of
$427, net of other miscellaneous income and expenses, amounted to an expense of
$303 in the quarter ended December 31, 2005. Other (income) for the quarter
ended December 31, 2004 was $456, which consisted mainly of foreign exchange
gains of $484.

Net Financial Expense

      Net financial expense for the quarter ended December 31, 2005 was $3,348,
which consisted mainly of interest on credit facilities, convertible credit
facilities and capital leases of $1,992, registration rights penalties of $797,
accretion of debt premiums on Laurus borrowings of $56, amortization of deferred
financing fees of $233 and dividends on a subsidiary's preferred stock of $172.
Net financial expense for the quarter ended December 31, 2004 was $809, which
consisted mainly of interest on credit facilities, convertible credit facilities
and capital leases of $634, deferred financing fees of $58, and dividends on a
subsidiary's preferred stock of $95.

Derivative Instruments (Income) Expense, net

      Derivative instruments (income) for the quarter ended December 31, 2005
was $8,266, compared with an expense of $47,702 for the quarter ended December
31, 2004, representing the net unrealized (non-cash) change during the quarter
in the fair value of our derivative instrument liabilities related to certain
options, warrants, and embedded derivatives in our debt instruments that have
been bifurcated and accounted for separately.

Provision for Income Taxes

      During the quarter ended December 31, 2005, we experienced a loss for tax
purposes. As we are uncertain as to whether we will be able to utilize our tax
losses before they expire, we have provided a reserve for the income tax
benefits associated with our net operating tax losses, until such time as
profitability is reasonably assured and it becomes more likely than not that we
will be able to realize the benefit of these losses.

Net Income

      As a result of the above, we reported net income of $2,954 for the quarter
ended December 31, 2005. After recognizing dividends and accretion of discounts
and redemption premium on our series A preferred stock of $313, the net income
attributable to common shareholders was $2,641. Net loss for the quarter ended
December 31, 2004 was $55,110.

Comprehensive Loss

      For the quarter ended December 31, 2005, we recorded a gain for currency
translation adjustments of $861 compared with a loss of $763 for the quarter
ended December 31, 2004, as a result of differences in translating our financial
statements in our functional currency, the Canadian dollar, into our reporting
currency, the U.S. dollar.


                                       26
<PAGE>

        RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 2005

            The information contained in this section is that of the successor
Thomas Equipment, Inc. for the six months ended December 31, 2005 (unaudited).

--------------------------------------------------------------------------------
Revenues                                                 $ 62,966        100.0%
  Cost of Sales                                            53,956         85.7%
Gross Profit                                                9,010         14.3%
  Selling Expenses                                          4,830          7.7%
  G&A Expenses                                              6,889         10.9%
  Provision for Doubtful Receivables                          137          0.2%
  Other (Income)                                           (4,543)        (7.2)%
Operating Income                                            1,697          2.7%
  Net Financial Expense                                     6,153          9.8%
  Derivative Instruments (Income), net                    (22,559)       (35.8%)
  Provision for Income Taxes                                   --           --
Net Income                                                 18,103         28.7%
--------------------------------------------------------------------------------

Revenues

      For the six months ended December 31, 2005, revenues were $62,966
(including $25,133 for Pneutech). Sales for the six months ended December 31,
2005 included sales of hydraulic breakers and forklifts of approximately
$14,400. The large increase in hydraulic breaker and forklift sales resulted
from sales to a single customer. The Company is evaluating the direct
manufacturing of the hydraulic breakers internally and is assessing the
increased margins, capital expenditures and timing related to such production.

      We have a backlog of orders for the Thomas Equipment business segment of
approximately $59 million and an additional $12 million backlog for the Pneutech
business segment. These backlog figures are based on orders received, though
those orders may be cancelled by the purchasers. Although the major portion of
our products are built in advance of order and either shipped or assembled from
stock, orders for specialized machinery or specific customer applications are
submitted with extensive lead times and are often subject to revision, deferral,
cancellation or termination. We estimate that approximately 95% of the backlog
will be shipped during the next twelve months. In order to accommodate the
substantial increase in our backlog, we have expanded our production facilities.

Cost of Sales and Gross Profit

      For the six months ended December 31, 2005, cost of sales was $53,956,
including $19,479 for Pneutech. As a percentage of sales, cost of sales was
85.7% for the six months ended December 31, 2005, compared with 82.5% for the
quarter ended September 30, 2005, reflecting the effect of the lower sales at
Thomas on the absorption of manufacturing overheads and the lower-than-normal
margins on the large sales of hydraulic breakers and forklifts.

      As a result of the above, gross profit margin was $9,010 or 14.3%,
compared with 17.5% for the three months ended September 30, 2005. The decline
in gross margin as a percentage of sales for the six months ended December 31,
2005 related mainly to the lower-than-normal margins on the large sales of
hydraulic breakers and forklifts, which changed the typical product mix.


                                       27
<PAGE>

Selling Expenses

      For the six months ended December 31, 2005, selling expenses were $4,830,
including $1,942 for Pneutech. As a percentage of sales, selling costs were
7.7%, a decrease from 8.7% during the quarter ended September 30, 2005. This
decrease resulted from reduced commission costs on the lower sales for the
quarter, lower travel-related and advertising costs and the effect of the
large sales of hydraulic breakers and forklifts.

General and Administrative Expenses

      For the six months ended December 31, 2005, general and administrative
expenses were $6,889, including $2,534 for Pneutech. As a percentage of sales,
general and administrative expenses were 10.9%, a decrease from 13.0% during the
quarter ended September 30, 2005. This decrease is primarily a result of a
reduction in professional fees related to our SEC registration statement
filings.

Provision for Doubtful Receivables

      Provision for doubtful accounts receivable was $137 for the six months
ended December 31, 2005. Because of our limited history, we continue to use the
historical experience of our predecessor, as well as our own experience since
inception, in providing for credit losses.

Other (Income) Expense, Net

      Other (income) expense, consisting primarily of foreign currency gains of
$4,587, net of other miscellaneous expenses, amounted to an income of $4,543 in
the six months ended December 31, 2005.

Net Financial Expense

      Net financial expense for the six months ended December 31, 2005 was
$6,153, which consisted mainly of interest on credit facilities, convertible
credit facilities and capital leases of $3,337, a waiver fee paid to Laurus of
$898, registration rights penalties related to our series A preferred stock and
Roynat warrants of $797, accretion of debt premiums on Laurus borrowings of
$295, amortization of deferred financing fees of $365 and dividends on a
subsidiary's preferred stock of $338.

Derivative Instruments (Income), net

      Derivative instruments (income) of $22,559 represents the net unrealized
(non-cash) change during the six months ended December 31, 2005 in the fair
value of our derivative instrument liabilities related to certain options,
warrants, and embedded derivatives in our debt instruments that have been
bifurcated and accounted for separately.

Provision for Income Taxes

      During the six months ended December 31, 2005, we experienced a loss for
tax purposes. As we are uncertain as to whether we will be able to utilize our
tax losses before they expire, we have provided a reserve for the income tax
benefits associated with our net operating losses, until such time as
profitability is reasonably assured and it becomes more likely than not that we
will be able to realize the benefit of these losses.

Net Income

      As a result of the above, we reported net income of $18,103 for the six
months ended December 31, 2005. After recognizing dividends and accretion of
discounts and redemption premium on our series A preferred stock of $626, the
net income attributable to common shareholders was $17,477.


                                       28
<PAGE>

Comprehensive Loss

      For the six months ended December 31, 2005, we recorded a loss for
currency translation adjustments of $3,133 as a result of differences in
translating our financial statements in our functional currency, the Canadian
dollar, into our reporting currency, the U.S. dollar.

       RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004

The information contained in this section is that of our predecessor, Thomas
Equipment Limited, for the three months ended September 30, 2004 (unaudited).

--------------------------------------------------------------------------------
Revenues                                                 $ 13,857        100.0%
  Cost of Sales                                            11,770         84.9%
Gross Profit                                                2,087         15.1%
  Selling Expenses                                          1,797         13.0%
  G&A Expenses                                              2,221         16.0%
  Provision for Doubtful Receivables                           41          0.3%
  Other (Income)                                             (884)        (6.4%)
Operating Loss                                             (1,088)        (7.6%)
  Net Financial Expense                                       499          3.6%
  Provision for Income Taxes                                   15          0.1%
Net Loss                                                   (1,602)       (11.6%)
--------------------------------------------------------------------------------

Going Concern

      The financial statements of the predecessor business, Thomas Equipment
Limited, have been prepared on a going concern basis which contemplates the
realization of assets and the satisfaction of liabilities and commitments in the
normal course of business for the foreseeable future. This company was not
generating sufficient cash flows to cover its operating costs and to fund
investments in working capital and additions to property, plant and equipment,
and also had a working capital deficit and shareholder's deficit at the date the
business was acquired by Thomas Equipment.

      These conditions cast substantial doubt upon the validity of the going
concern assumption. Thomas Equipment Limited's parent, McCain Foods Limited, has
committed to provide financial support to ensure Thomas Equipment Limited is
able to settle its obligations after the sale of its business, fixed assets and
inventory to Thomas Equipment. However, this commitment is limited to Thomas
Equipment Limited's remaining obligations as they become due and does not
involve any continued financial support of the business now operated by Thomas
Equipment.

      As a result, the ability of Thomas Equipment to continue as a going
concern and to meet its obligations as they fall due is dependant upon our
ability to secure additional financing as required and upon attaining profitable
operations (see Liquidity and Capital Resources section below for further
discussion on this matter).

Market Conditions and Company Developments in 2004

      In 2004, Thomas Equipment Limited continued to operate under challenging
market conditions. The weakness of the U.S. dollar negatively impacted Thomas
Equipment Limited's financial performance, as the majority of Thomas Equipment
Limited's costs and expenses were incurred in Canadian dollars. In addition,
escalating raw material costs, particularly steel (the world steel price index
rose approximately 125% between June 2003 and June 2004) put pressure on gross
margins and the uncertainty of raw material costs is expected to continue to
remain a challenge for Thomas Equipment in the future.


                                       29
<PAGE>

      Thomas Equipment Limited's market share in the Canadian loader market for
2004 was approximately 3.76% compared to approximately 3.50% in 2003, based on
information obtained from the Association of Equipment Manufacturers.

      2004 represented a vital year for Thomas Equipment Limited in terms of
innovation. The new to market T900 Screen, which is less expensive and more
mobile compared to a competitor's similar product, was developed to meet the
needs and wants of customers. Product lines were also expanded to include a
variety of loaders and mini skids (T320, T205, T250/ T255, 35DT).

Revenues

      For the three months ended September 30, 2004, Thomas Equipment Limited's
revenues were $13,857, which on an annualized basis is similar to fiscal year
2004.

Cost of Sales and Gross Profit

      For the three months ended September 30, 2004, Thomas Equipment Limited's
cost of sales was $11,770. As a percentage of sales, costs of sales were 84.9%
for the three months ended September 30, 2004. This percentage is similar to
that of Thomas Equipment Limited's fiscal years ended June 30, 2004.

      As a result of the above, gross profit margin was $2,087 or 15.1% which
was similar to that of fiscal year ended June 30, 2004.

Selling Expenses

      For the three months ended September 30, 2004, Thomas Equipment Limited's
selling expenses were $1,797. As a percentage of revenues, selling costs were
13.0% which is an increase from fiscal year ended June 30, 2004 and was due to
additional expenditures in 2004 resulting from Thomas Equipment Limited's
decision to exit the auction sales business and focus on increasing dealer
sales.

General and Administrative Expenses

      For the three months ended September 30, 2004, Thomas Equipment Limited's
general and administrative expenses were $2,221 or 16.0% of revenues. As a
percentage, this is a significant increase from their fiscal year ended June 30,
2004 and is primarily related to higher product liability insurance premiums and
deductible costs, higher legal fees resulting from marketing the company for
sale, and higher employee benefit costs due to the curtailment losses recognized
in the period resulting from the July 2004 restructuring and subsequent sale of
the business.

Provision for Doubtful Receivables

      Provision for doubtful accounts receivable for Thomas Equipment Limited
was $41 for the three months ended September 30, 2004, as determined by the
predecessor's management review during this period.

Other (Income) Expense, Net

      Other (income) expense consists primarily of foreign exchange gains and
losses and restructuring charges, and amounted to a net income of $884 for the
three months ended September 30, 2004. Foreign exchange gains arose in the three
months ended September 30, 2004 due to a weakening of the U.S. dollar against
the Canadian dollar during this period, creating fair value gains for Thomas
Equipment Limited's foreign exchange contracts. The restructuring charges in the
three months ended September 30, 2004 relate to special termination expenses
associated with the group of employees whose positions were terminated in July
2004.


                                       30
<PAGE>

Net Financial (Income) Expense

      Net financial (income) expense for the three months ended September 30,
2004 amounted to a net expense of $499. Most of Thomas Equipment Limited's
financial support came from the McCain group in the form of preferred shares
until June 2004, when they were redeemed and replaced with interest bearing
debt. The interest expense in the three months ended September 30, 2004
primarily relates to interest on the intercompany debt that replaced the
preferred shares. Other interest amounts recorded in the period, which were not
significant, primarily relate to late payment interest received, financing and
notional interest charged on financing receivables and bank charges.

Provision for Income Taxes

      Thomas Equipment Limited had historically experienced operating losses,
and as Thomas Equipment Limited's management were uncertain as to whether Thomas
Equipment Limited would be able to utilize these tax losses before they expire,
they provided a reserve for the income tax benefits associated with Thomas
Equipment Limited's net future tax assets which primarily relate to its
cumulative net operating losses. The amounts recorded as an income tax expense
related to large corporation taxes and income taxes incurred by its European
subsidiary, Thomas Europe NV.

Net Loss

      As a result of the above, Thomas Equipment Limited reported a net loss of
$1,602 for the three months ended September 30, 2004.

Comprehensive Loss

      For the three months ended September 30, 2004, Thomas Equipment Limited
recorded a loss for currency translation adjustments of $726 as a result of
differences in translating its financial statements in its functional currency,
the Canadian dollar, into its reporting currency, the U.S. dollar.

Recent Accounting Pronouncements
--------------------------------------------------------------------------------

New pronouncements

SFAS 154 "Accounting Changes and Error Corrections--a replacement of APB Opinion
No. 20 and FASB Statement No. 3"

      In May 2005, the Financial Accounting Standards Board ("FASB") issued
Statement No. 154. This Statement replaces APB Opinion No. 20, Accounting
Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim
Financial Statements, and changes the requirements for the accounting for, and
reporting of, a change in accounting principle. This Statement applies to all
voluntary changes in accounting principle. It also applies to changes required
by an accounting pronouncement in the unusual instance that the pronouncement
does not include specific transition provisions. When a pronouncement includes
specific transition provisions, those provisions should be followed. SFAS 154 is
effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005. It will only affect our financial statements
if we change any of our accounting principles. At this time, no such changes are
contemplated or anticipated.

Liquidity and Capital Resources
--------------------------------------------------------------------------------

THREE AND SIX MONTHS ENDED DECEMBER 31, 2005

      During the three and six months ended December 31, 2005, we had net income
of $2,954 and $18,103, respectively, which included non-cash gains, net of non
cash charges, totaling $7,168 and $24,693, respectively, consisting primarily of
unrealized derivative instrument income ($8,266 and $22,559, respectively),
depreciation, amortization of debt discount related to the issuance of warrants,
and unrealized foreign exchange gains and losses. In addition, we experienced a
number of non-recurring charges associated with our SEC registration statement
filings, registration rights penalties and organizational start up costs of
approximately $1,500. As a result, net cash used by operating activities during
the three and six months ended December 31, 2005 was $1,752 and $8,
respectively.


                                       31
<PAGE>

      Changes in demand for our products and currency exchange rates will affect
the amount of cash we realize on sales and the costs of our operations thereby
affecting our cash provided by or (used in) operating activities. Similarly, as
substantially all of our debt has variable interest rates, a change in interest
rates will affect our cash flows from operations.

      Net cash used in investing activities was $78 and $1,455 for the three and
six months ended December 31, 2005, respectively, all of which was used for the
purchase of new machinery and equipment.

      Net cash used by financing activities for the three and six months ended
December 31, 2005 was $986 and $1,677, respectively, consisting of net
borrowings under our debt and credit facilities of $111 and $382, deferred
financing fees of $598 and $671 and dividends on preferred shares of $371 and
$371. At December 31, 2005, the significant portion of our debt has a remaining
term of 22 months. The redeemable preferred stock of a subsidiary ($8,580) is
due in April 2006 but the holder has provided an undertaking to the Minister of
Business, New Brunswick (who provided a guarantee to Laurus of certain of our
indebtedness to them) that they will not require redemption as long as the
guarantee, which extends to November 30, 2007, is outstanding. At December 31,
2005, debt with a carrying value of $6,618, but which has a face value of
$26,444, is convertible into shares of our common stock at $1.50 per share. Our
Series A preferred stock, which had a carrying value at December 31, 2005 of $2,
but which has a face value of $25,000, is convertible into shares of our common
stock at $3.00 per share. On February 2, 2006, $100 of the preferred stock was
converted into 33,333 shares of common stock.

      As our debt is substantially payable in U.S. dollars and our functional
currency is the Canadian dollar, changes in exchange rates between the two
currencies could have a positive or negative impact on the amount and our
ability to repay such debt. In addition, our convertible debts have prepayment
penalties of 5% for early payment.

      In connection with the acquisition of Thomas Equipment Limited's assets,
we entered into two two-year capital leases for the purchase of land and
buildings from Thomas Equipment Limited. The terms of the capital leases, which
expire on September 30, 2006, require minimum annual payments of $516 plus
taxes, maintenance and certain other expenses. We have the right at any time
prior to the expiration of the leases to purchase the properties for $5,170.
Similarly, Thomas Equipment Limited has the right to require us to purchase the
properties subject to certain provisions such as a favorable environmental
study.

      Pneutech has a credit facilities agreement with the Royal Bank of Canada.
Pneutech's subsidiaries, Rousseau Controls, Inc. and Hydramen Fluid Power
Limited are also parties to the credit agreement. The credit facility provides
Pneutech with a CD$15,000 revolving credit facility and Pneutech and its
subsidiaries were also provided with an additional CD$750 revolving lease line
of credit.

      Pneutech is permitted to borrow an amount based upon its eligible accounts
receivable and eligible unencumbered inventory, as defined in the credit
agreement. The loans generally accrue interest at the bank's prime rate, plus
0.50%, which is payable monthly in arrears. The obligations under the credit
agreement are secured by all of the assets of Pneutech and its subsidiaries,
including but not limited to inventory and accounts receivable. In addition, we
have provided a guarantee of all obligations under the credit agreement. The
obligations under the credit agreement are payable in full on March 30, 2006. We
expect to be able to renew the credit facility when it becomes due.

      At January 31, 2006 we had approximately $1,500 cash on hand and an
availability of approximately $1,000 under our credit facilities. Coupled with
receivables of approximately $36,000 at January 31, 2006, we believe we have
sufficient resources to fund our operations for at least the next twelve months.
As such, we do not believe we will have the same difficulties and concerns about
our ability to continue as a going concern as our predecessor.


                                       32
<PAGE>

Off-Balance Sheet Arrangements
--------------------------------------------------------------------------------

      We currently have no off balance sheet arrangements.

Contractual Obligations
--------------------------------------------------------------------------------

      The impact that our contractual obligations as of December 31, 2005 are
expected to have on our liquidity and cash flow in future periods is as follows:

                                       Less than    1 - 3    3 - 5     More Than
                               Total    1 Year      Years    Years      5 Years
                              --------------------------------------------------

Long-term debt (1)            $40,235   $ 8,419    $31,816   $    --    $    --

Capital lease obligations     $ 5,556   $ 5,556    $    --   $    --    $    --

Operating lease obligations   $ 3,688   $ 1,015    $ 1,428   $   928    $   317

(1) On February 1, 2006, our registration statement related to the common stock
underlying our convertible Series A preferred stock became effective. As a
result, the series A preferred stock is not included in the contractual
obligations table above.

Risk Factors That May Impact Future Operating Results
--------------------------------------------------------------------------------

      Investing in our common stock has a high degree of risk. Investors should
carefully consider these risks and uncertainties before investing in our common
stock. There are many factors that affect our business and the results of our
operations, some of which are beyond our control. Actual results in future
periods could differ materially from those projected in any forwardlooking
statement we may make because of a number of risks and uncertainties, including
general economic, business and industry conditions; the level and intensity of
competition in our markets and the pricing pressures that may result; local
economic and labor conditions, political instability, unexpected regulatory
changes, trade protection measures, changes in tax laws; fluctuations in foreign
currency exchange rates; our inability to meet the covenants or other
requirements of our loan agreements, the ability to accurately predict product
demand or meet customer commitments; the ability to timely and effectively
manage new product introductions; the ability to effectively manage operating
costs; the level of demand for the products we offer; the ability to manage
inventory levels to minimize excess inventory and inventory obsolescence; and
the effect of armed hostilities, terrorism, natural disasters and public health
issues on the global economy generally, on the level of demand for our products
and on our ability to manage our business in such an environment.

      Each of the risks we face may materially and adversely affect our
business, results of operations and financial condition. These risks may cause
the market price of our common stock to decline, which may cause an investor to
lose all or a part of the money they paid to buy our common stock. For a
discussion of these and other factors affecting our business and prospects, see
"Item 7 - Risk Factors That May Impact Future Operating Results" in our Annual
Report on Form 10-K for the fiscal year ended June 30, 2005. That cautionary
discussion of risks, uncertainties and possible inaccurate assumptions relevant
to our business and our products sets forth the factors that we think could
cause our actual results to differ materially from expected results.

ITEM 3. Qualitative and Quantitative Disclosures about Market Risk

      We are exposed to certain market risks which exist as part of our ongoing
business operations. We currently do not engage in derivative and hedging
transactions to mitigate the effects of the risks below. In the future, we may
enter into foreign currency forward contracts to manage foreign currency risk.
Because the operating structure of our business is different from that of our
predecessor, Thomas Equipment Limited, we have described only those risks as
they apply to our current operating environment. Thomas Equipment Limited did
engage in certain derivative and hedging transactions, as well as borrowing
activities through its parent - all of which affected the degree to which market
risks affected Thomas Equipment Limited


                                       33
<PAGE>

Interest Rates

      Because our debt is primarily tied to borrowing rates in the United
States, changes in U.S. interest rates would affect the interest paid on our
borrowings and/or earned on our cash and cash equivalents. Based on our overall
interest rate exposure at December 31, 2005, a near-term change in interest
rates, based on historical small movements, would not materially affect our
operations or the fair value of interest rate sensitive instruments. Our debt
instruments have variable interest rates and terms and, therefore, a significant
change in interest rates could have a material adverse effect on our financial
position or results of operations if we are unable to change the prices we
charge to customers for our products.

      We considered the historical volatility of short term interest rates and
determined that it was reasonably possible that an adverse change of 100 basis
points could be experienced in the near term. Based on our borrowings at
December 31, 2005, a hypothetical 1.00% (100 basis-point) increase in interest
rates would result in additional expenses of approximately $92 for the quarter
or an annual increase in expenses of approximately $370.

Foreign Currency Fluctuations

      Our exposure to foreign currency translation gains and losses arises from
the translation of our statements from our functional currency, the Canadian
dollar, into U.S. dollars for reporting purposes. Additionally, Pneutech has
costs and revenues primarily denominated in Canadian dollars and the Korean WON.
Thomas Equipment has significant revenues denominated in U.S. dollars although
its costs are primarily incurred in Canadian dollars and it is therefore exposed
to risks arising from currency fluctuations between these two currencies.

      We currently do not engage in hedging transactions to manage these risks.
However, we may do so in the future.

ITEM 4. Controls And Procedures

      We carried out an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Rule 13a-15 of
the Securities Exchange Act of 1934 (the "Exchange Act") under the supervision
and with the participation of our chief executive officer, chief financial
officer and other members of our management team. Our disclosure controls and
procedures are designed to provide reasonable assurance of achieving their
objectives. Although we hired a considerable number of the staff from the
predecessor business, we have new management and are using financial accounting
consultants. Any system of controls can provide only reasonable and not absolute
assurance that the objectives of the control system are met. In addition, the
design of any control system is based upon certain assumptions about the
likelihood of future events. Because of these and other inherent limitations of
control systems, there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Based upon the
evaluation of the effectiveness of the design and operations of our disclosure
controls and procedures, the chief executive officer and chief financial officer
concluded that our disclosure controls and procedures were effective as of
December 31, 2005 in timely alerting them to material information required to be
included in our Exchange Act filings.

      There was no change in our internal controls or in other factors that
could affect these controls during our last fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.


                                       34
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

      None.

ITEM 2. Unregistered Sales Of Equity Securities And Use Of Proceeds

      None.

ITEM 3. Defaults Upon Senior Securities

      None.

ITEM 4. Submission Of Matters To A Vote Of Security Holders

      There were no matters submitted to a vote of security holders during the
period covered by this report.

ITEM 5. Other Information

      None.

ITEM 6. Exhibits

Exhibit #                             Description
--------------------------------------------------------------------------------

10.1         Amendment to Security and Purchase Agreement among Thomas
             Equipment, Inc. and certain subsidiaries and Laurus Master Fund,
             Ltd., dated as of January 9, 2006. (1)

10.2         Secured Term Note between Thomas Equipment, Inc., Thomas Ventures,
             Inc., and Laurus Master Fund, Ltd, dated as of January 9, 2006. (1)

10.3         Stock Pledge Agreement between Thomas Equipment, Inc. and Laurus
             Master Fund, Ltd., dated as of January 9, 2006 (1)

10.4         Reaffirmation and Ratification Agreement by Thomas Equipment, Inc.,
             and certain subsidiaries, in favor of Laurus Master Fund, Ltd,
             dated as of January 9, 2006. (1)

31.1         Certification by Chief Executive Officer pursuant to Rule 13a-14(a)
             or 15d-14(a), as adopted pursuant to Section 302 of the
             Sarbanes-Oxley Act of 2002

31.2         Certification by Chief Financial Officer pursuant to Rule 13a-14(a)
             or 15d-14(a), as adopted pursuant to Section 302 of the
             Sarbanes-Oxley Act of 2002

32.1         Certification by Chief Executive Officer pursuant to 18 U.S.C.
             Section 1350, as adopted pursuant to Section 906 of the
             Sarbanes-Oxley Act of 2002

32.2         Certification by Chief Financial Officer pursuant to 18 U.S.C.
             Section 1350, as adopted pursuant to Section 906 of the
             Sarbanes-Oxley Act of 2002


1.    Filed as an exhibit to the Company's Report on Form 8-K, filed January 13,
      2006.


                                       35
<PAGE>

                                   SIGNATURES

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

                                     THOMAS EQUIPMENT, INC.


Dated: February 10, 2006             By: /s/ CLIFFORD M. RHEE
                                         ---------------------------------------
                                         Clifford M. Rhee,
                                         President (Principal Executive Officer)


                                     By: /s/ LUIGI LO BASSO
                                         ---------------------------------------
                                         Luigi Lo Basso,
                                         Chief Financial Officer (Principal
                                         Financial and Accounting Officer)


                                       36