| **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 **MARCH                31, 2006** |
|                      |   |
| or                        |
|                      |   |
| [                ]        | TRANSITION                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE                ACT |
|                      | for                the transition period from _______________ to                _______________ |
|                      |   |

| Commission                File Number: **001-32831**                          |
|-------------------------------------------------------------------------------|
|                                                                          |
| **Thomas                Equipment, Inc.**                                     |
| (Exact                name of registrant as specified in its charter)         |
|                                                                          |
| **Delaware**                                                                  | ** ****58-2565680** |
| (State                or other jurisdiction of incorporation or organization) | (I.R.S.                Employer Identification No.) |
|                                                                          |
| **1818                North Farwell Avenue, Milwaukee, WI 53202**             |
| (Address                of principal executive offices) (Zip Code)            |
|                                                                          |
| **(312)                224-8812**                                             |
| (Registrant’s                telephone number, including area code)     |
|                                                                          |

----

*Table          of Contents*

|                       | **INDEX**                                                                                                                                                                                                                                                                                                                                   |     |
|----------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
|                       |                                                                                                                                                                                                                                                                                                                                        |     |
| **Item**                   |                                                                                                                                                                                                                                                                                                                                        | **Page** |
|                       |                                                                                                                                                                                                                                                                                                                                        |     |
|                       | **PART                I - FINANCIAL INFORMATION**                                                                                                                                                                                                                                                                                           |     |
|                       |                                                                                                                                                                                                                                                                                                                                        |     |
| **Item                1.** | **Financial                Statements (unaudited)**                                                                                                                                                                                                                                                                                         |     |
|                       |                                                                                                                                                                                                                                                                                                                                        |     |
|                       | Condensed                Consolidated Balance Sheet as of March 31, 2006 and                June 30, 2005                                                                                                                                                                                                                                   | 3        |
|                       |                                                                                                                                                                                                                                                                                                                                        |     |
|                       | Consolidated                Statements of Operations and Comprehensive Income                (Loss) for the Three and Nine Months Ended March 31, 2006 (Successor),                the                Six Months Ended March 31, 2005 (Successor) and the Three Months                Ended                September 30, 2004 (Predecessor) | 4        |
|                       |                                                                                                                                                                                                                                                                                                                                        |     |
|                       | Consolidated                Statement of Stockholders’ Equity (Deficit) for                the Nine Months Ended March 31, 2006 (Successor)                                                                                                                                                                                           | 5        |
|                       |                                                                                                                                                                                                                                                                                                                                        |     |
|                       | Consolidated                Statements of Cash Flows for the Nine Months Ended                March 31, 2006 (Successor), the Six Months Ended March 31, 2005                (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**                                                                                                                                                                                                               | 29       |
|                       |                                                                                                                                                                                                                                                                                                                                        |     |
| **Item                3.** | **Quantitative                and Qualitative Disclosures About Market                Risk**                                                                                                                                                                                                                                                | 44       |
|                       |                                                                                                                                                                                                                                                                                                                                        |     |
| **Item                4.** | **Controls                and Procedures**                                                                                                                                                                                                                                                                                                  | 45       |
|                       |                                                                                                                                                                                                                                                                                                                                        |     |
|                       |                                                                                                                                                                                                                                                                                                                                        |     |
|                       | **PART                II - OTHER INFORMATION**                                                                                                                                                                                                                                                                                              |     |
|                       |                                                                                                                                                                                                                                                                                                                                        |     |
| **Item                1.** | **Legal                Proceedings**                                                                                                                                                                                                                                                                                                        | 46       |
|                       |                                                                                                                                                                                                                                                                                                                                        |     |
| **Item                2.** | **Unregistered                Sales Of Equity Securities And Use Of                Proceeds**                                                                                                                                                                                                                                               | 46       |
|                       |                                                                                                                                                                                                                                                                                                                                        |     |
| **Item                3.** | **Defaults                Upon Senior Securities**                                                                                                                                                                                                                                                                                          | 46       |
|                       |                                                                                                                                                                                                                                                                                                                                        |     |
| **Item                4.** | **Submission                Of Matters To A Vote Of Security                Holders**                                                                                                                                                                                                                                                       | 46       |
|                       |                                                                                                                                                                                                                                                                                                                                        |     |
| **Item                5.** | **Other                Information**                                                                                                                                                                                                                                                                                                        | 46       |
|                       |                                                                                                                                                                                                                                                                                                                                        |     |
| **Item                6.** | **Exhibits**                                                                                                                                                                                                                                                                                                                                | 47       |
|                       |                                                                                                                                                                                                                                                                                                                                        |     |
|                       |                                                                                                                                                                                                                                                                                                                                        |     |
|                       |                                                                                                                                                                                                                                                                                                                                        |     |
|                       |                                                                                                                                                                                                                                                                                                                                        |     |

----

*Table          of Contents*

| **PART                I - FINANCIAL INFORMATION**                               |
|---------------------------------------------------------------------------------|
| **ITEM                1.*****Financial                Statements (unaudited)*** |   |   |   |
| **THOMAS                EQUIPMENT, INC.**                                       |
|                                                                            |   |   |   |
| **CONDENSED                CONSOLIDATED BALANCE SHEET**                         |
| (Unaudited                - in thousands)                                       |

|                                                                                                |       | **March                31,** | ** ** | **June                30,** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                                          | ** ** | **2006**                     | ** ** | **2005**                    |       |
| **ASSETS**                                                                                          |       |                         |       |                        |       |   |   |
|                                                                                                |       |                         |       |                        |       |   |   |
| Current                assets:                                                                      |       |                         |       |                        |       |   |   |
| Cash                                                                                                |       | $                            | 1,473      |                        | $          | 3,800 |   |
| Accounts                receivable, net of allowance of $624 and $235 (Note 15)                     |       |                         | 45,556     |                        |       | 24,426 |   |
| Inventories                (Note 5)                                                                 |       |                         | 32,943     |                        |       | 35,574 |   |
| Prepaid                expenses and other assets                                                    |       |                         | 2,837      |                        |       | 3,709 |   |
| Total                current assets                                                                 |       |                         | 82,809     |                        |       | 67,509 |   |
|                                                                                                |       |                         |       |                        |       |   |   |
| Property,                plant and equipment, net                                                   |       |                         | 22,750     |                        |       | 21,504 |   |
| Deferred                finance costs and other assets                                              |       |                         | 2,822      |                        |       | 1,734 |   |
| Goodwill                                                                                            |       |                         | 5,556      |                        |       | 5,301 |   |
| Total                assets                                                                         |       | $                            | 113,937    |                        | $          | 96,048 |   |
|                                                                                                |       |                         |       |                        |       |   |   |
| **LIABILITIES                AND STOCKHOLDERS' EQUITY (DEFICIT)**                                   |       |                         |       |                        |       |   |   |
|                                                                                                |       |                         |       |                        |       |   |   |
| Current                liabilities:                                                                 |       |                         |       |                        |       |   |   |
| Revolving                credit facilities (Note 6)                                                 |       | $                            | 9,378      |                        | $          | 10,813 |   |
| Convertible                credit facility (Note 7)                                                 |       |                         | -          |                        |       | - |   |
| Trade                payables (Note 15)                                                             |       |                         | 38,633     |                        |       | 14,490 |   |
| Warranty                liability (Note 3)                                                          |       |                         | 1,151      |                        |       | 1,280 |   |
| Other                payables and accrued liabilities                                               |       |                         | 4,521      |                        |       | 3,790 |   |
| Current                portion of long term debt (Note 7)                                           |       |                         | 5,336      |                        |       | - |   |
| Current                portion of convertible long term debt (Note 7)                               |       |                         | 2,484      |                        |       | 2,484 |   |
| Current                portion of long term obligations (Note 8)                                    |       |                         | 10,773     |                        |       | 3,794 |   |
| Redeemable                preferred stock of subsidiary (Note 9)                                    |       |                         | 9,596      |                        |       | 8,631 |   |
| Derivative                financial instruments (Note 10)                                           |       |                         | 360        |                        |       | - |   |
| Total                current liabilities                                                            |       |                         | 82,232     |                        |       | 45,282 |   |
|                                                                                                |       |                         |       |                        |       |   |   |
| Long                term debt (Note 7)                                                              |       |                         | -          |                        |       | - |   |
| Convertible                minimum borrowing note (Note 7)                                          |       |                         | 4,316      |                        |       | 3,387 |   |
| Convertible                long term debt (Note 7)                                                  |       |                         | 161        |                        |       | 504 |   |
| Long                term obligations (Note 8)                                                       |       |                         | 66         |                        |       | 6,716 |   |
| Deferred                taxes                                                                       |       |                         | 384        |                        |       | 366 |   |
| Derivative                financial instruments (Note 10)                                           |       |                         | 58,064     |                        |       | 106,921 |   |
|                                                                                                |       |                         | 145,223    |                        |       | 163,176 |   |
|                                                                                                |       |                         |       |                        |       |   |   |
| Redeemable                convertible preferred stock, series A (Note 11)                           |       |                         | 3          |                        |       | 1 |   |
|                                                                                                |       |                         |       |                        |       |   |   |
| Stockholders’                Equity (Deficit):                                                |       |                         |       |                        |       |   |   |
| Common                stock (Note 11)                                                               |       |                         | 2          |                        |       | 2 |   |
| Additional                paid-in capital                                                           |       |                         | 11,560     |                        |       | 12,267 |   |
| Accumulated                deficit                                                                  |       |                         | (39,138    | )                           |       | (78,747 | ) |
| Accumulated                other comprehensive income (loss)                                        |       |                         | (3,713     | )                           |       | (651 | ) |
| Total                stockholders’ equity (deficit)                                           |       |                         | (31,289    | )                           |       | (67,129 | ) |
|                                                                                                |       |                         |       |                        |       |   |   |
| Total                liabilities and stockholders’ equity (deficit)                           |       | $                            | 113,937    |                        | $          | 96,048 |   |
|                                                                                                |       |                         |       |                        |       |   |   |
| See                accompanying notes to condensed consolidated financial                statements |       |                         |       |                        |       |   |   |

----

*Table          of Contents*

| **THOMAS                EQUIPMENT, INC.** **CONSOLIDATED                STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME                (LOSS)**(Unaudited                - in thousands, except share and per share                data) |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                |       |                                                                   |       |                                                                   |                        |                                                                  |       |                                                                 |       |       |                                                                       |       |
|-----------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|------------------------------------------------------------------------|-----------------------------|-----------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|------------|----------------------------------------------------------------------------|------------|
|                                                                                                |       | **Successor                Business**                                  |       | ** **                                                             | **Predecessor****Business** | ** **                                                            |
| ** **                                                                                          | ** ** | **Three                Months Ended****March                31, 2006** | ** ** | **Three                Months Ended****March                31, 2005** | ** **                  | **Nine                Months Ended****March                31, 2006** | ** ** | **Six                Months Ended****March                31, 2005** |       | ** ** | **Three                Months Ended****September                30, 2004** |       |
|                                                                                                |       |                                                                   |       |                                                                   |                        |                                                                  |       |                                                                 |       |       |                                                                       |       |
| **Sales**                                                                                           |       | $                                                                      | 32,869     |                                                                   | $                           | 17,036                                                                |       | $                                                                    | 95,835     |       | $                                                                          | 31,452     |   |   | $ | 13,857 |   |
| Cost                of sales                                                                        |       |                                                                   | 29,211     |                                                                   |                        | 14,770                                                                |       |                                                                 | 83,167     |       |                                                                       | 26,912     |   |   |   | 11,770 |   |
| **Gross                profit**                                                                     |       |                                                                   | 3,658      |                                                                   |                        | 2,266                                                                 |       |                                                                 | 12,668     |       |                                                                       | 4,540      |   |   |   | 2,087 |   |
|                                                                                                |       |                                                                   |       |                                                                   |                        |                                                                  |       |                                                                 |       |       |                                                                       |       |   |   |   |   |   |
| **Operating                expenses:**                                                              |       |                                                                   |       |                                                                   |                        |                                                                  |       |                                                                 |       |       |                                                                       |       |   |   |   |   |   |
| Selling                                                                                             |       |                                                                   | 2,610      |                                                                   |                        | 1,760                                                                 |       |                                                                 | 7,440      |       |                                                                       | 3,120      |   |   |   | 1,797 |   |
| General                and administrative                                                           |       |                                                                   | 3,560      |                                                                   |                        | 1,999                                                                 |       |                                                                 | 10,449     |       |                                                                       | 9,894      |   |   |   | 2,221 |   |
| Provision                for doubtful receivables                                                   |       |                                                                   | 208        |                                                                   |                        | 57                                                                    |       |                                                                 | 345        |       |                                                                       | 131        |   |   |   | 41 |   |
| Other                (income) expense                                                               |       |                                                                   | (207       | )                                                                      |                        | 511                                                                   |       |                                                                 | (4,750     | )          |                                                                       | 55         |   |   |   | (884 | ) |
|                                                                                                |       |                                                                   | 6,171      |                                                                   |                        | 4,327                                                                 |       |                                                                 | 13,484     |       |                                                                       | 13,200     |   |   |   | 3,175 |   |
|                                                                                                |       |                                                                   |       |                                                                   |                        |                                                                  |       |                                                                 |       |       |                                                                       |       |   |   |   |   |   |
| **Operating                income (loss)**                                                          |       |                                                                   | (2,513     | )                                                                      |                        | (2,061                                                                | )          |                                                                 | (816       | )          |                                                                       | (8,660     |   | ) |   | (1,088 | ) |
|                                                                                                |       |                                                                   |       |                                                                   |                        |                                                                  |       |                                                                 |       |       |                                                                       |       |   |   |   |   |   |
| Net                financial expense                                                                |       |                                                                   | 3,473      |                                                                   |                        | 1,447                                                                 |       |                                                                 | 9,626      |       |                                                                       | 2,256      |   |   |   | 499 |   |
| Derivative                instrument (income)expense,                net                            |       |                                                                   | (27,492    | )                                                                      |                        | 56,927                                                                |       |                                                                 | (50,051    | )          |                                                                       | 104,629    |   |   |   | - |   |
|                                                                                                |       |                                                                   |       |                                                                   |                        |                                                                  |       |                                                                 |       |       |                                                                       |       |   |   |   |   |   |
| **Net                income (loss) before income taxes**                                            |       |                                                                   | 21,506     |                                                                   |                        | (60,435                                                               | )          |                                                                 | 39,609     |       |                                                                       | (115,545   | ) |   |   | (1,587 | ) |
|                                                                                                |       |                                                                   |       |                                                                   |                        |                                                                  |       |                                                                 |       |       |                                                                       |       |   |   |   |   |   |
| **Provision                for income taxes**                                                       |       |                                                                   | -          |                                                                   |                        | -                                                                     |       |                                                                 | -          |       |                                                                       | -          |   |   |   | 15 |   |
|                                                                                                |       |                                                                   |       |                                                                   |                        |                                                                  |       |                                                                 |       |       |                                                                       |       |   |   |   |   |   |
| **Net                income (loss)**                                                                |       |                                                                   | 21,506     |                                                                   |                        | (60,435                                                               | )          |                                                                 | 39,609     |       |                                                                       | (115,545   | ) |   |   | (1,602 | ) |
| Dividends                and accretion on series Apreferred                stock                    |       |                                                                   | 313        |                                                                   |                        | -                                                                     |       |                                                                 | 939        |       |                                                                       | -          |   |   |   | - |   |
| Net                income (loss) attributable tocommon                shareholders                  |       | $                                                                      | 21,193     |                                                                   | $                           | (60,435                                                               | )          | $                                                                    | 38,670     |       | $                                                                          | (115,545   |  ) |   | $ | (1,602 | ) |
|                                                                                                |       |                                                                   |       |                                                                   |                        |                                                                  |       |                                                                 |       |       |                                                                       |       |   |   |   |   |   |
| Weighted                average shares outstanding,basic                                            |       |                                                                   | 21,298,955 |                                                                   |                        | 20,435,393                                                            |       |                                                                 | 21,266,080 |       |                                                                       | 20,214,088 |   |   |   | 8,643,000 |   |
| Weighted                average shares outstanding,diluted                                          |       |                                                                   | 52,505,963 |                                                                   |                        | 20,435,393                                                            |       |                                                                 | 52,691,636 |       |                                                                       | 20,214,088 |   |   |   | 8,643,000 |   |
|                                                                                                |       |                                                                   |       |                                                                   |                        |                                                                  |       |                                                                 |       |       |                                                                       |       |   |   |   |   |   |
| Basic                income (loss) per share                                                        |       | $                                                                      | 1.00       |                                                                   | $                           | (2.96                                                                 | )          | $                                                                    | 1.82       |       | $                                                                          | (5.72      | ) |   | $ | (0.19 | ) |
| Diluted                income (loss) per share                                                      |       | $                                                                      | (0.08      | )                                                                      | $                           | (2.96                                                                 | )          | $                                                                    | (0.17      | )          | $                                                                          | (5.72      | ) |   | $ | (0.19 | ) |
|                                                                                                |       |                                                                   |       |                                                                   |                        |                                                                  |       |                                                                 |       |       |                                                                       |       |   |   |   |   |   |
| **Reconciliation                of Comprehensive Income (Loss):**                                   |       |                                                                   |       |                                                                   |                        |                                                                  |       |                                                                 |       |       |                                                                       |       |   |   |   |   |   |
| Net                income (loss)                                                                    |       | $                                                                      | 21,506     |                                                                   | $                           | (60,435                                                               | )          | $                                                                    | 39,609     |       | $                                                                          | (115,545   | ) |   | $ | (1,602 | ) |
| Other                comprehensive income (loss) -foreign                currency translation       |       |                                                                   | 71         |                                                                   |                        | 66                                                                    |       |                                                                 | (3,062     | )          |                                                                       | (697       |  ) |   |   | (726 | ) |
| **Total                comprehensive income (loss)**                                                |       | $                                                                      | 21,577     |                                                                   | $                           | (60,369                                                               | )          | $                                                                    | 36,547     |       | $                                                                          | (116,242   | )  |   | $ | (2,328 | ) |
|                                                                                                |       |                                                                   |       |                                                                   |                        |                                                                  |       |                                                                 |       |       |                                                                       |       |   |   |   |   |   |
| See                accompanying notes to condensed consolidated financial                statements |       |                                                                   |       |                                                                   |                        |                                                                  |       |                                                                 |       |       |

----

*Table          of Contents*

| **THOMAS                EQUIPMENT, INC.**** ** **Successor                Business** **CONSOLIDATED                STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)**(Unaudited                - in thousands, except number of                shares) |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                                |       |                            |       |        |       | **Additional**  | ** ** | ** **        | ** ** | **Other**  | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|-------------|------------|-----------------|------------|-------------------|------------|------------|------------|------------|------------|
| ** **                                                                                                          | ** ** | **Common                Stock** | ** ** | **Paid-In** | ** ** | **Accumulated** | ** ** | **Comprehensive** | ** ** | ** ** | ** ** |
| ** **                                                                                                          | ** ** | **Shares**                      | ** ** | **Amount**  | ** ** | **Capital**     | ** ** | **Deficit**       | ** ** | **Loss**   | ** ** | **Total**  |       |
|                                                                                                                |       |                            |       |        |       |            |       |              |       |       |       |       |       |
| **Balances,                July 1, 2005**                                                                           |       |                            | 21,250,000 |        | $          | 2               |       | $                 | 12,267     |       | $          | (78,747    | )          | $ | (651 | ) | $ | (67,129 | ) |
|                                                                                                                |       |                            |       |        |       |            |       |              |       |       |       |       |       |   |   |   |   |   |   |
| Issuance                of 35,800 shares under the 2005 Stock Option Plan                                           |       |                            | 35,800     |        |       | -               |       |              | 150        |       |       | -          |       |   | - |   |   | 150 |   |
|                                                                                                                |       |                            |       |        |       |            |       |              |       |       |       |       |       |   |   |   |   |   |   |
| Accretion                of discount on series A preferred stock and premium payable on                redemption   |       |                            | -          |        |       | -               |       |              | (2         | )          |       | -          |       |   | - |   |   | (2 | ) |
|                                                                                                                |       |                            |       |        |       |            |       |              |       |       |       |       |       |   |   |   |   |   |   |
| Dividends                on series A preferred stock                                                                |       |                            | -          |        |       | -               |       |              | (937       | )          |       | -          |       |   | - |   |   | (937 | ) |
|                                                                                                                |       |                            |       |        |       |            |       |              |       |       |       |       |       |   |   |   |   |   |   |
| Conversion                of 100 shares of series A preferred stock to 33,333 shares of common                stock |       |                            | 33,333     |        |       | -               |       |              | 82         |       |       | -          |       |   | - |   |   | 82 |   |
|                                                                                                                |       |                            |       |        |       |            |       |              |       |       |       |       |       |   |   |   |   |   |   |
| Currency                translation adjustment                                                                      |       |                            | -          |        |       | -               |       |              | -          |       |       | -          |       |   | (3,062 | ) |   | (3,062 | ) |
|                                                                                                                |       |                            |       |        |       |            |       |              |       |       |       |       |       |   |   |   |   |   |   |
| Net                income for the period                                                                            |       |                            | -          |        |       | -               |       |              | -          |       |       | 39,609     |       |   | - |   |   | 39,609 |   |
|                                                                                                                |       |                            |       |        |       |            |       |              |       |       |       |       |       |   |   |   |   |   |   |
| **Balances,                March 31, 2006**                                                                         |       |                            | 21,319,133 |        | $          | 2               |       | $                 | 11,560     |       | $          | (39,138    | )          | $ | (3,713 | ) | $ | (31,289 | ) |
|                                                                                                                |       |                            |       |        |       |            |       |              |       |       |       |       |       |   |   |   |   |   |   |
|                                                                                                                |       |                            |       |        |       |            |       |              |       |       |       |       |       |   |   |   |   |   |   |
| See                accompanying notes to condensed consolidated financial                statements                 |

----

*Table          of Contents*

| **THOMAS                EQUIPMENT, INC.** **CONSOLIDATED                STATEMENTS OF CASH FLOWS**(Unaudited                - in thousands) |
|--------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                                            |       | **Successor                Business**                                 |       | ** **                                                                 | **Predecessor****Business** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|----------------------------------------------------------------------------|-----------------------------|------------|
| ** **                                                                                                                      | ** ** | **Nine                Months Ended****March                31, 2006** | ** ** | **Six                Months****Ended****March                31,****2005** |                        | ** ** | **Three                Months Ended****September                30, 2004** |   |
| **Cash                Flows From Operating Activities:**                                                                        |       |                                                                  |       |                                                                       |                        |       |   |   |   |   |   |   |
| Net                income (loss)                                                                                                |       | $                                                                     | 39,609     |                                                                       | $                           |       | (115,545 | ) |   | $ | (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                                             |       |                                                                  | 3,819      |                                                                       |                        |       | 830 |   |   |   | - |   |
| Unrealized                (gain) loss on derivative instruments                                                                 |       |                                                                  | (50,051    | )                                                                          |                        |       | 104,629 |   |   |   | - |   |
| Amortization                of warrants issued for professional fees                                                            |       |                                                                  | 459        |                                                                       |                        |       | 131 |   |   |   | - |   |
| Depreciation                and amortization                                                                                    |       |                                                                  | 2,014      |                                                                       |                        |       | 993 |   |   |   | 528 |   |
| Unrealized                foreign exchange gain on U.S. $ denominated debt                                                      |       |                                                                  | (5,748     | )                                                                          |                        |       | - |   |   |   | - |   |
| Allowance                for doubtful accounts receivable                                                                       |       |                                                                  | 345        |                                                                       |                        |       | 131 |   |   |   | - |   |
| Stock                compensation                                                                                               |       |                                                                  | 150        |                                                                       |                        |       | 6,431 |   |   |   | - |   |
| Contributed                services                                                                                             |       |                                                                  | -          |                                                                       |                        |       | 322 |   |   |   | - |   |
| Net                change in working capital items                                                                              |       |                                                                  | 9,806      |                                                                       |                        |       | (3,931 | ) |  |   | (1,103 | ) |
| **Net                Cash Provided By (Used In) Operating Activities**                                                          |       |                                                                  | 403        |                                                                       |                        |       | (6,009 | ) |   |   | (2,177 | ) |
|                                                                                                                            |       |                                                                  |       |                                                                       |                        |       |   |   |   |   |   |   |
| **Cash                Flows From Investing Activities:**                                                                        |       |                                                                  |       |                                                                       |                        |       |   |   |   |   |   |   |
| Cash                paid for acquisition of assets of Thomas                                                                    |       |                                                                  | -          |                                                                       |                        |       | (18,119 | ) |   |   | - |   |
| Cash                paid for acquisition of Pneutech                                                                            |       |                                                                  | -          |                                                                       |                        |       | (3,845 | ) |  |   | - |   |
| Proceeds                from disposal of property, plant and equipment                                                          |       |                                                                  | 27         |                                                                       |                        |       | - |   |   |   | - |   |
| Purchase                of property, plant and equipment                                                                        |       |                                                                  | (1,938     | )                                                                          |                        |       | (195 | ) |  |   | (272 | ) |
| **Net                Cash (Used In) Investing Activities**                                                                      |       |                                                                  | (1,911     | )                                                                          |                        |       | (22,159 | ) |   |   | (272 | ) |
|                                                                                                                            |       |                                                                  |       |                                                                       |                        |       |   |   |   |   |   |   |
| **Cash                Flows From Financing Activities:**                                                                        |       |                                                                  |       |                                                                       |                        |       |   |   |   |   |   |   |
| Payments                on long term obligations and convertible long term debt                                                 |       |                                                                  | (2,738     | )                                                                          |                        |       | - |   |   |   | - |   |
| Increases                (decreases) in credit facilities                                                                       |       |                                                                  | (2,039     | )                                                                          |                        |       | 12,911 |   |   |   | - |   |
| Increases                (decreases) in convertible credit facilities                                                           |       |                                                                  | 1,565      |                                                                       |                        |       | - |   |   |   | - |   |
| Payments                on capital lease obligations                                                                            |       |                                                                  | (383       | )                                                                          |                        |       | (249 | ) |  |   | - |   |
| Dividends                paid on preferred shares                                                                               |       |                                                                  | (450       | )                                                                          |                        |       | - |   |   |   | - |   |
| Proceeds                from debt issuance                                                                                      |       |                                                                  | 4,640      |                                                                       |                        |       | - |   |   |   | - |   |
| Proceeds                from debt issuance related to assets acquired                                                           |       |                                                                  | -          |                                                                       |                        |       | 15,970 |   |   |   | - |   |
| Deferred                financing costs                                                                                         |       |                                                                  | (1,345     | )                                                                          |                        |       | (1,394 | ) |  |   | - |   |
| 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**                                                          |       |                                                                  | (750       | )                                                                          |                        |       | 29,387 |   |   |   | 1,689 |   |
|                                                                                                                            |       |                                                                  |       |                                                                       |                        |       |   |   |   |   |   |   |
| **Net                (Decrease) Increase in Cash**                                                                              |       |                                                                  | (2,258     | )                                                                          |                        |       | 1,219 |   |   |   | (760 | ) |
| **Effect                of Exchange Rate Changes on Cash**                                                                      |       |                                                                  | (69        | )                                                                          |                        |       | (108 | ) |   |   | 23 |   |
| **Cash,                Beginning of Period**                                                                                    |       |                                                                  | 3,800      |                                                                       |                        |       | - |   |   |   | 823 |   |
| **Cash,                End of Period**                                                                                          |       | $                                                                     | 1,473      |                                                                       | $                           |       | 1,111 |   |   | $ | 86 |   |
|                                                                                                                            |

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*Table          of Contents*

| **THOMAS                EQUIPMENT, INC.** **CONSOLIDATED                STATEMENTS OF CASH FLOWS**(Unaudited                - in thousands) |
|--------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                |       |                                                                  |       |                                                                       |       |                                                                       |   |
|-----------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|----------------------------------------------------------------------------|------------|----------------------------------------------------------------------------|--------|
|                                                                                                |       |                                                                  |       |                                                                       |       |                                                                       |   |
|                                                                                                |       | **Successor                Business**                                 | ** ** | **Predecessor****Business**                                                | ** ** |
| ** **                                                                                          | ** ** | **Nine                Months Ended****March                31, 2006** | ** ** | **Six                Months****Ended****March                31,****2005** | ** ** | **Three                Months Ended****September                30, 2004** |   |
|                                                                                                |       |                                                                  |       |                                                                       |       |                                                                       |   |
| **Supplemental                Disclosure of Cash Flow Information:**                                |       |                                                                  |       |                                                                       |       |                                                                       |   |   |   |   |
| Interest                paid                                                                        |       | $                                                                     | 3,276      |                                                                       | $          | 818                                                                        |   | $ | 15 |   |
|                                                                                                |       |                                                                  |       |                                                                       |       |                                                                       |   |   |   |   |
| Debt                waiver costs                                                                    |       | $                                                                     | 1,498      |                                                                       | $          | -                                                                          |   | $ | - |   |
|                                                                                                |       |                                                                  |       |                                                                       |       |                                                                       |   |   |   |   |
| **Supplemental                Disclosures Of Non-Cash Investing And Financing**                     |       |                                                                  |       |                                                                       |       |                                                                       |   |   |   |   |
| **Activities:**                                                                                     |       |                                                                  |       |                                                                       |       |                                                                       |   |   |   |   |
|                                                                                                |       |                                                                  |       |                                                                       |       |                                                                       |   |   |   |   |
| Stock                based compensation                                                             |       | $                                                                     | 150        |                                                                       | $          | 6,431                                                                      |   | $ | - |   |
|                                                                                                |       |                                                                  |       |                                                                       |       |                                                                       |   |   |   |   |
| Property                and equipment acquired under capital leases                                 |       | $                                                                     | -          |                                                                       | $          | 5,254                                                                      |   | $ | - |   |
|                                                                                                |       |                                                                  |       |                                                                       |       |                                                                       |   |   |   |   |
| Warrants                issued for investor relations services                                      |       | $                                                                     | -          |                                                                       | $          | 785                                                                        |   | $ | - |   |
|                                                                                                |       |                                                                  |       |                                                                       |       |                                                                       |   |   |   |   |
| Common                shares and warrants issued in Pneutech acquisition                            |       | $                                                                     | -          |                                                                       | $          | 3,858                                                                      |   | $ | - |   |
|                                                                                                |       |                                                                  |       |                                                                       |       |                                                                       |   |   |   |   |
| See                accompanying notes to condensed consolidated financial                statements |       |                                                                  |       |                                                                       |       |                                                                       |   |   |   |   |

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*Table          of Contents*

**1.**
**Organization      and description of the business**

**2.**
**Basis      of presentation**

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*Table          of Contents*

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*Table          of Contents*

**3.**
**Product      warranties**

|                                                |   |                              |   |                             |   |
|-----------------------------------------------------|--------|-----------------------------------|--------|----------------------------------|--------|
|                                                |   | **March                31, 2006** |   | **June                30, 2005** |   |
|                                                |   |                              |   |                             |   |
| Balance,                beginning of period         |   | $                                 | 1,280  |                             | $      | - |   |
| Liabilities                assumed from predecessor |   |                              | -      |                             |   | 895 |   |
| Warranty                obligations honored         |   |                              | (573   | )                                |   | (179 | ) |
| Accruals                for warranties              |   |                              | 380    |                             |   | 562 |   |
| Foreign                exchange                     |   |                              | 64     |                             |   | 2 |   |
|                                                |   | $                                 | 1,151  |                             | $      | 1,280 |   |

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*Table          of Contents*

**4.**
**Net      income or loss per share **

|                                                                           |       | **For                The Three Months Ended March 31, 2006** | ** ** |
|--------------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                                     | ** ** | ** **                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                     | ** ** | **Income****(Numerator)**                                    | ** ** | **Shares****(Denominator)** | ** ** | **Per-Share****Amount** |   |
|                                                                           |       |                                                         |       |   |   |   |   |
| Net                income                                                      |       | $                                                            | 21,506     |   |   |   |   |   |   |   |
| Less:                dividends and accretion on series A preferred stock       |       |                                                         | 313        |   |   |   |   |   |   |   |
|                                                                           |       |                                                         |       |   |   |   |   |   |   |   |
| Basic                EPS:                                                      |       |                                                         |       |   |   |   |   |   |   |   |
| Income                available to common shareholders                         |       |                                                         | 21,193     |   |   | 21,298,955 |   | $ | 1.00 |   |
|                                                                           |       |                                                         |       |   |   |   |   |   |   |   |
| Effect                of dilutive securities:                                  |       |                                                         |       |   |   |   |   |   |   |   |
| Options                and warrants                                            |       |                                                         | (6,879     | ) |   | 5,244,342 |   |   |   |   |
| Convertible                debt                                                |       |                                                         | (13,408    | ) |   | 17,629,333 |   |   |   |   |
| Convertible                series A preferred stock                            |       |                                                         | (4,980     | ) |   | 8,333,333 |   |   |   |   |
|                                                                           |       |                                                         |       |   |   |   |   |   |   |   |
| Diluted                EPS:                                                    |       |                                                         |       |   |   |   |   |   |   |   |
| Income                available to common shareholders and assumed conversions |       | $                                                            | (4,074     | ) |   | 52,505,963 |   | $ | (0.08 | ) |

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*Table          of Contents*

|                                                                           |       | **For                The Nine Months Ended March 31, 2006** | ** ** |
|--------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                     | ** ** | ** **                                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                     | ** ** | **Income****(Numerator)**                                   | ** ** | **Shares****(Denominator)** | ** ** | **Per-Share****Amount** |   |
|                                                                           |       |                                                        |       |   |   |   |   |
| Net                income                                                      |       | $                                                           | 39,609     |   |   |   |   |   |   |   |
| Less:                dividends and accretion on series A preferred stock       |       |                                                        | 939        |   |   |   |   |   |   |   |
|                                                                           |       |                                                        |       |   |   |   |   |   |   |   |
| Basic                EPS:                                                      |       |                                                        |       |   |   |   |   |   |   |   |
| Income                available to common shareholders                         |       |                                                        | 38,670     |   |   | 21,266,080 |   | $ | 1.82 |   |
|                                                                           |       |                                                        |       |   |   |   |   |   |   |   |
| Effect                of dilutive securities:                                  |       |                                                        |       |   |   |   |   |   |   |   |
| Options                and warrants                                            |       |                                                        | (12,194    | ) |   | 5,309,777 |   |   |   |   |
| Convertible                debt                                                |       |                                                        | (27,402    | ) |   | 17,782,446 |   |   |   |   |
| Convertible                series A preferred stock                            |       |                                                        | (8,257     | ) |   | 8,333,333 |   |   |   |   |
|                                                                           |       |                                                        |       |   |   |   |   |   |   |   |
| Diluted                EPS:                                                    |       |                                                        |       |   |   |   |   |   |   |   |
| Income                available to common shareholders and assumed conversions |       | $                                                           | (9,183     | ) |   | 52,691,636 |   | $ | (0.17 | ) |

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*Table          of Contents*

**5.**
**Inventories      **

|                                         |   | **March                31, 2006** |   | ** June                30, 2005** |   |
|----------------------------------------------|--------|-----------------------------------|--------|----------------------------------------|--------|
|                                         |   |                              |   |                              |   |
| Raw                materials and spare parts |   | $                                 | 8,212  |                                   | $      | 8,905 |   |
| Work                in process               |   |                              | 3,760  |                                   |   | 3,863 |   |
| Finished                goods - new          |   |                              | 18,366 |                                   |   | 20,797 |   |
| Finished                goods - used         |   |                              | 2,371  |                                   |   | 1,775 |   |
| Packaging                and supplies        |   |                              | 234    |                                   |   | 234 |   |
|                                         |   | $                                 | 32,943 |                                   | $      | 35,574 |   |

**6.**
**Revolving      credit facilities**

----

*Table          of Contents*

**7.**
**Convertible      credit facility, convertible long term debt and long term      debt**

|   | · | A                  secured convertible term note with a principal amount of                  $6,000; |
|--------|--------|------------------------------------------------------------------------------------------------------|

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

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

|   | · | 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; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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

|   | · | A                secured convertible term note with a principal amount of $1,900                and |
|--------|--------|-----------------------------------------------------------------------------------------------------|

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

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*Table          of Contents*

|   | · | 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; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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*Table          of Contents*

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*Table          of Contents*

|                                                                                                                                                                                                                                                                                                                                                   |   | **March                31,****2006** | ** ** | **June                30,****2005** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|------------|-------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                   |   |                                 |       |                                |   |
| $4,640                term loan, bearing interest at 10% with a single principal repayment,                including redemption premium, of $5,336 due July 6, 2006                                                                                                                                                                                    |   | $                                    | 5,336      |                                | $      | - |   |
| Less:                current                portion                                                                                                                                                                                                                                                                                                    |   |                                 | (5,336     | )                                   |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                   |   | $                                    | -          |                                | $      | - |   |
|                                                                                                                                                                                                                                                                                                                                                   |   |                                 |       |                                |   |   |   |
| $6,000                convertible                term loan, bearing interest at U.S. prime plus 3% with monthly principal                repayments of $207 per month plus interest, starting July 1,                2005                                                                                                                              |   | $                                    | 4,345      |                                | $      | 6,000 |   |
| Less:                unamortized discount                                                                                                                                                                                                                                                                                                              |   |                                 | (1,700     | )                                   |   | (3,012 | ) |
|                                                                                                                                                                                                                                                                                                                                                   |   |                                 | 2,645      |                                |   | 2,988 |   |
| Less:                current                portion                                                                                                                                                                                                                                                                                                    |   |                                 | (2,484     | )                                   |   | (2,484 | ) |
| Balance                                                                                                                                                                                                                                                                                                                                                |   | $                                    | 161        |                                | $      | 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                                                                                                                                                                                                                                                                                                              |   |                                 | (3,684     | )                                   |   | (4,613 | ) |
| Balance                                                                                                                                                                                                                                                                                                                                                |   | $                                    | 4,316      |                                | $      | 3,387 |   |
|                                                                                                                                                                                                                                                                                                                                                   |   |                                 |       |                                |   |   |   |
| $1,900                convertible                term loan, bearing interest at U.S. prime plus 3% with monthly principal                repayments of $66 per month plus interest, starting July 1,                2005                                                                                                                               |   | $                                    | 1,376      |                                | $      | 1,900 |   |
| Less:                unamortized discount                                                                                                                                                                                                                                                                                                              |   |                                 | (1,376     | )                                   |   | (1,900 | ) |
|                                                                                                                                                                                                                                                                                                                                                   |   |                                 | -          |                                |   | - |   |
| Less:                current portion                                                                                                                                                                                                                                                                                                                   |   |                                 | -          |                                |   | - |   |
| Balance                                                                                                                                                                                                                                                                                                                                                |   | $                                    | -          |                                | $      | - |   |
|                                                                                                                                                                                                                                                                                                                                                   |   |                                 |       |                                |   |   |   |
| Revolving                credit facility, bearing interest at U.S. prime plus 3%                                                                                                                                                                                                                                                                       |   | $                                    | 11,320     |                                | $      | 9,684 |   |
| Less:                unamortized discount                                                                                                                                                                                                                                                                                                              |   |                                 | (11,320    | )                                   |   | (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: |   | $                                    | 20,008     |                                | $      | 17,710 |   |
|                                                                                                                                                                                                                                                                                                                                                   |   |                                 |       |                                |   |   |   |
| Less:                amount borrowed under minimum borrowing note                                                                                                                                                                                                                                                                                      |   |                                 | 8,000      |                                |   | 8,000 |   |
| Less:                amount borrowed under revolving credit facility                                                                                                                                                                                                                                                                                   |   |                                 | 11,320     |                                |   | 9,684 |   |
|                                                                                                                                                                                                                                                                                                                                                   |   |                                 | 19,320     |                                |   | 17,684 |   |
|                                                                                                                                                                                                                                                                                                                                                   |   |                                 |       |                                |   |   |   |
| Excess                availability                                                                                                                                                                                                                                                                                                                     |   | $                                    | 688        |                                | $      | 26 |   |
|                                                                                                                                                                                                                                                                                                                                                   |   |                                 |       |                                |   |   |   |

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*Table          of Contents*

| **8.** **Long                term obligations**                                                                                |   |                                 |    |                                |   |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|---------|-------------------------------------|--------|
|                                                                                                                                |   | **March                31,****2006** |    | **June                30,****2005** |   |
|                                                                                                                                |   |                                 |    |                                |   |
| Note                payable to Predecessor, bearing interest at 4%, maturing on October                31,                2006.     |   | $                                    | 2,313   |                                | $      | 2,198 |   |
|                                                                                                                                |   |                                 |    |                                |   |   |   |
| Due                to affiliate of the Predecessor                                                                                  |   |                                 | 1,623   |                                |   | 1,944 |   |
|                                                                                                                                |   |                                 |    |                                |   |   |   |
| Capital                lease obligations                                                                                            |   |                                 | 5,196   |                                |   | 5,025 |   |
|                                                                                                                                |   |                                 |    |                                |   |   |   |
| Private                loans with interest rates ranging from 3% to 8%, with regular principal                and interest payments |   |                                 | 1,707   |                                |   | 1,343 |   |
|                                                                                                                                |   |                                 | 10,839  |                                |   | 10,510 |   |
| Less:                current portion                                                                                                |   |                                 | (10,773 | )                                   |   | (3,794 | ) |
|                                                                                                                                |   | $                                    | 66      |                                | $      | 6,716 |   |

**9.**
**Redeemable      preferred stock of subsidiary**

----

*Table          of Contents*

**10.**
**Derivative      financial instrument liabilities**

| **Issue                Date**                                                                                                      | ** ** | **Expiry                Date** | ** ** | ** ** | ** ** | **Exercise****Price                Per****Share**                               | ** ** | **Value                - Issue Date** | ** ** | **Value                -****June                30,****2005** | ** ** | **Value                -****March                31,****2006** |   |
|------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|------------|------------|---------------------------------------------------------------------------------|------------|---------------------------------------|------------|---------------------------------------------------------------|------------|----------------------------------------------------------------|--------|
|                                                                                                                               |       |                           |       |       |       |                                                                            |       |                                  |       |                                                          |       |                                                           |   |
|                                                                                                                               |       |                           |       |       |       |                                                                            |       |                                  |       |                                                          |       |                                                           |   |
| 11-09-2004                                                                                                                         |       |                           | N/A        |       |       | 4,020,000                options issued to Laurus                               |       | $                                     | 0.01       |                                                          | $          | 4,020                                                          |   | $ | 17,165 |   | $ | 11,698 |   |
|                                                                                                                               |       |                           |       |       |       |                                                                            |       |                                  |       |                                                          |       |                                                           |   |   |   |   |   |   |   |
| 11-09-2004                                                                                                                         |       |                           | 11-09-2011 |       |       | 2,200,000                warrants issued to Laurus                              |       |                                  | 2.25       |                                                          |       | 792                                                            |   |   | 6,490 |   |   | 3,784 |   |
|                                                                                                                               |       |                           |       |       |       |                                                                            |       |                                  |       |                                                          |       |                                                           |   |   |   |   |   |   |   |
| 01-26-2005                                                                                                                         |       |                           | 01-26-2012 |       |       | 400,000                warrants issued to Laurus                                |       |                                  | 2.25       |                                                          |       | 2,424                                                          |   |   | 1,192 |   |   | 696 |   |
|                                                                                                                               |       |                           |       |       |       |                                                                            |       |                                  |       |                                                          |       |                                                           |   |   |   |   |   |   |   |
| 02-28-2005                                                                                                                         |       |                           | 02-28-2012 |       |       | 150,000                warrants issued to Laurus                                |       |                                  | 2.25       |                                                          |       | 698                                                            |   |   | 449 |   |   | 264 |   |
|                                                                                                                               |       |                           |       |       |       |                                                                            |       |                                  |       |                                                          |       |                                                           |   |   |   |   |   |   |   |
| 02-28-2005                                                                                                                         |       |                           | 08-28-2006 |       |       | 1,000,000                warrants issued to Roynat                              |       |                                  | 3.00       |                                                          |       | 3,290                                                          |   |   | 1,650 |   |   | 360 |   |
|                                                                                                                               |       |                           |       |       |       |                                                                            |       |                                  |       |                                                          |       |                                                           |   |   |   |   |   |   |   |
| 04-19-2005                                                                                                                         |       |                           | 04-19-2010 |       |       | 2,083,333                warrants issued to holders of series A preferred stock |       |                                  | 3.75       |                                                          |       | 4,958                                                          |   |   | 4,500 |   |   | 2,250 |   |
|                                                                                                                               |       |                           |       |       |       |                                                                            |       |                                  |       |                                                          |       |                                                           |   |   |   |   |   |   |   |
| Fair                value of freestanding derivative instrument liabilities for options                and                warrants | $          | 31,446                         |       | $          | 19,052     |                                                                            |

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*Table          of Contents*

| Issue                Date                                                                                                                         |   | Expiry                Date |       |   |   | ExercisePrice                PerShare                 |   | Value                - Issue Date |   | Value                - June                30,2005 |   | Value                - March                31,2006 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|------------|--------|--------|-------------------------------------------------------|--------|-----------------------------------|--------|----------------------------------------------------|--------|-----------------------------------------------------|--------|
|                                                                                                                                              |   |                       |       |   |   |                                                  |   |                              |   |                                               |   |                                                |   |
| 11-09-2004                                                                                                                                        |   |                       | 11-09-2007 |   |   | Laurus                - $6,000 term note              |   | $                                 | 1.50   |                                               | $      | 1,124                                               |   | $ | 13,213 |   | $ | 5,052 |   |
|                                                                                                                                              |   |                       |       |   |   |                                                  |   |                              |   |                                               |   |                                                |   |   |   |   |   |   |   |
| 01-26-2005                                                                                                                                        |   |                       | 11-09-2007 |   |   | Laurus                - $1,900 term note              |   |                              | 1.50   |                                               |   | 6,778                                               |   |   | 3,667 |   |   | 1,600 |   |
|                                                                                                                                              |   |                       |       |   |   |                                                  |   |                              |   |                                               |   |                                                |   |   |   |   |   |   |   |
| 11-09-2004                                                                                                                                        |   |                       | 11-09-2007 |   |   | Laurus                - $8,000 minimum borrowing note |   |                              | 1.50   |                                               |   | 1,648                                               |   |   | 19,457 |   |   | 9,946 |   |
|                                                                                                                                              |   |                       |       |   |   |                                                  |   |                              |   |                                               |   |                                                |   |   |   |   |   |   |   |
| 11-09-2004                                                                                                                                        |   |                       | 11-09-2007 |   |   | Laurus                - $14,000 revolving note        |   |                              | 1.50   |                                               |   | 6,864                                               |   |   | 18,721 |   |   | 12,150 |   |
|                                                                                                                                              |   |                       |       |   |   |                                                  |   |                              |   |                                               |   |                                                |   |   |   |   |   |   |   |
| 04-19-2005                                                                                                                                        |   |                       | N/A        |   |   | Series                A preferred stock (a)           |   |                              | 3.00   |                                               |   | 22,167                                              |   |   | 20,417 |   |   | 10,624 |   |
|                                                                                                                                              |   |                       |       |   |   |                                                  |   |                              |   |                                               |   |                                                |   |   |   |   |   |   |   |
| Fair                value of bifurcated embedded derivative instrument liabilities associated                with the above mentioned instruments | $      | 75,475                     |       | $      | 39,372 |                                                  |
|                                                                                                                                              |   |                       |       |   |   |                                                  |
|                                                                                                                                              |   | 106,921                    |       |   | 58,424 |                                                  |
| Less                current portion                                                                                                               |   | -                          |       |   | (360   | )                                                     |
|                                                                                                                                              | $      | 106,921                    |       | $      | 58,064 |                                                  |

** **

**11.**
**Capital      stock **

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*Table          of Contents*

|                                                                                                                                                           |   | **March                31, 2006** |    | **June                30, 2005** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|----------------------------------|--------|
|                                                                                                                                                           |   |                              |    |                             |   |
| 24,900                shares (June 30, 2005 - 25,000 shares) of Series A redeemable convertible                preferred stock - stated amount                 |   | $                                 | 24,900  |                             | $      | 25,000 |   |
|                                                                                                                                                           |   |                              |    |                             |   |   |   |
| Less:                unamortized discount related to warrants issued to purchasers and                bifurcated embedded derivative instruments (see Note 10) |   |                              | (24,897 | )                                |   | (24,999 | ) |
|                                                                                                                                                           |   |                              |    |                             |   |   |   |
| Carrying                amount                                                                                                                                 |   | $                                 | 3       |                             | $      | 1 |   |

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*Table          of Contents*

**12.**
**Financing      expense**

|                                                                      |   | **Nine                months ended****March                31, 2006** | ** ** | **Three                months ended****March                31, 2006** | ** ** | **Three                months ended****March                31, 2005** | ** ** | **Six                months****ended****March                31, 2005** |   |
|---------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|--------|
|                                                                      |   |                                                                  |       |                                                                   |       |                                                                   |       |                                                                    |   |
| Capital                leases                                             |   | $                                                                     | 292        |                                                                   | $          | 99                                                                     |       | $                                                                       | 86     |   | $ | 187 |   |
| Credit                facility                                            |   |                                                                  | 620        |                                                                   |       | 218                                                                    |       |                                                                    | -      |   |   | - |   |
| Amortization                of discounts and interest on debt instruments |   |                                                                  | 4,435      |                                                                   |       | 1,682                                                                  |       |                                                                    | 1,115  |   |   | 1,648 |   |
| Amortization                of deferred financing fees                    |   |                                                                  | 923        |                                                                   |       | 580                                                                    |       |                                                                    | 63     |   |   | 121 |   |
| Debt                premium                                               |   |                                                                  | 1,010      |                                                                   |       | 696                                                                    |       |                                                                    | -      |   |   | - |   |
| Dividends                on preferred stock of subsidiary                 |   |                                                                  | 510        |                                                                   |       | 173                                                                    |       |                                                                    | 161    |   |   | 256 |   |
| Waiver                fee paid to Laurus                                  |   |                                                                  | 898        |                                                                   |       | -                                                                      |       |                                                                    | -      |   |   | - |   |
| Registration                rights penalties - series A preferred stock   |   |                                                                  | 597        |                                                                   |       | -                                                                      |       |                                                                    | -      |   |   | - |   |
| Registration                rights penalties - Roynat warrants            |   |                                                                  | 200        |                                                                   |       | -                                                                      |       |                                                                    | -      |   |   | - |   |
| Other                                                                     |   |                                                                  | 141        |                                                                   |       | 25                                                                     |       |                                                                    | 22     |   |   | 44 |   |
| Total                                                                     |   | $                                                                     | 9,626      |                                                                   | $          | 3,473                                                                  |       | $                                                                       | 1,447  |   | $ | 2,256 |   |

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*Table          of Contents*

**13.**
**Common      stock warrants issued to non-employees**

| **Issue                Date**    |   | **Expiry                Date** |       | **Number                of****Warrants** |   | **Exercise****Price                Per****Share** |   | **Issued                For** |   |
|----------------------------------|--------|--------------------------------|------------|------------------------------------------|--------|---------------------------------------------------|--------|-------------------------------|--------|
|                             |   |                           |       |                                     |   |                                              |   |                          |   |
| 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                        |       |                                     |   |                                              |   |                          |   |
|                             |   |                           |       |                                     |   |                                              |   |                          |   |   |   |   |   |

**14.**
**Segment      information**

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*Table          of Contents*

----

*Table          of Contents*

|                                                   |   | **Successor                Business**                                  |   |
|--------------------------------------------------------|--------|------------------------------------------------------------------------|--------|
|                                                   |   | **Three                Months Ended****March                31, 2006** |   | **Three                Months Ended****March                31, 2005** |   | **Nine                Months Ended****March                31, 2006** |   | **Six                Months Ended****March                31, 2005** |   |
| **Sales:**                                             |   |                                                                   |   |   |   |   |   |   |   |
| Thomas                                                 |   | $                                                                      | 20,930 |   | $ | 12,368 |   | $ | 59,300 |   | $ | 26,784 |   |
| Pneutech                                               |   |                                                                   | 6,782  |   |   | 2,426 |   |   | 19,316 |   |   | 2,426 |   |
| Rousseau                                               |   |                                                                   | 4,854  |   |   | 1,878 |   |   | 15,160 |   |   | 1,878 |   |
| Samsung                                                |   |                                                                   | 761    |   |   | 403 |   |   | 4,418 |   |   | 403 |   |
| Hydramen                                               |   |                                                                   | 524    |   |   | 142 |   |   | 1,398 |   |   | 142 |   |
| Subtotal                                               |   |                                                                   | 33,851 |   |   | 17,217 |   |   | 99,592 |   |   | 31,633 |   |
| Elimination                of inter segment sales      |   |                                                                   | (982   | ) |   | (181 | ) |   | (3,757 | ) |   | (181 | ) |
| Consolidated                total                      |   | $                                                                      | 32,869 |   | $ | 17,036 |   | $ | 95,835 |   | $ | 31,452 |   |
|                                                   |   |                                                                   |   |   |   |   |   |   |   |   |   |   |   |
| **Depreciation                and amortization:**      |   |                                                                   |   |   |   |   |   |   |   |   |   |   |   |
| Thomas                                                 |   | $                                                                      | 480    |   | $ | 334 |   | $ | 1,309 |   | $ | 572 |   |
| Pneutech                                               |   |                                                                   | 68     |   |   | 31 |   |   | 199 |   |   | 31 |   |
| Rousseau                                               |   |                                                                   | 53     |   |   | 22 |   |   | 141 |   |   | 22 |   |
| Samsung                                                |   |                                                                   | 118    |   |   | 33 |   |   | 319 |   |   | 33 |   |
| Hydramen                                               |   |                                                                   | 16     |   |   | 3 |   |   | 46 |   |   | 4 |   |
| Consolidated                total                      |   | $                                                                      | 735    |   | $ | 423 |   | $ | 2,014 |   | $ | 662 |   |
|                                                   |   |                                                                   |   |   |   |   |   |   |   |   |   |   |   |
| **Net                financial expense:**              |   |                                                                   |   |   |   |   |   |   |   |   |   |   |   |
| Thomas                                                 |   | $                                                                      | 1,298  |   | $ | 788 |   | $ | 3,527 |   | $ | 1,598 |   |
| Pneutech                                               |   |                                                                   | 146    |   |   | 69 |   |   | 423 |   |   | 69 |   |
| Rousseau                                               |   |                                                                   | 38     |   |   | 12 |   |   | 123 |   |   | 11 |   |
| Samsung                                                |   |                                                                   | 19     |   |   | 15 |   |   | 29 |   |   | 15 |   |
| Hydramen                                               |   |                                                                   | 1      |   |   | 1 |   |   | 6 |   |   | 1 |   |
| Corporate                                              |   |                                                                   | 1,971  |   |   | 562 |   |   | 5,518 |   |   | 562 |   |
| Consolidated                total                      |   | $                                                                      | 3,473  |   | $ | 1,447 |   | $ | 9,626 |   | $ | 2,256 |   |
|                                                   |   |                                                                   |   |   |   |   |   |   |   |   |   |   |   |
| **Net                income (loss):**                  |   |                                                                   |   |   |   |   |   |   |   |   |   |   |   |
| Thomas                                                 |   | $                                                                      | (3,730 | ) | $ | (2,261 | ) | $ | (7,886 | ) | $ | (3,238 | ) |
| Pneutech                                               |   |                                                                   | 184    |   |   | 21 |   |   | 244 |   |   | 21 |   |
| Rousseau                                               |   |                                                                   | 82     |   |   | 83 |   |   | 455 |   |   | 83 |   |
| Samsung                                                |   |                                                                   | 145    |   |   | (114 | ) |   | 456 |   |   | (114 | ) |
| Hydramen                                               |   |                                                                   | 7      |   |   | (10 | ) |   | (44 | ) |   | (10 | ) |
| Subtotal                                               |   |                                                                   | (3,312 | ) |   | (2,281 | ) |   | (6,775 | ) |   | (3258 | ) |
| Corporate                (1)                           |   |                                                                   | 24,818 |   |   | (58,154 | ) |   | 46,384 |   |   | (112,287 | ) |
| Consolidated                total                      |   | $                                                                      | 21,506 |   | $ | (60,435 | ) | $ | 39,609 |   | $ | (115,545 | ) |
|                                                   |   |                                                                   |   |   |   |   |   |   |   |   |   |   |   |
| **Property,                plant and equipment, net:** |   |                                                                   |   |   |   |   |   |   |   |   |   |   |   |
| Thomas                                                 |   |                                                                   |   |   |   |   |   | $ | 15,179 |   | $ | 11,932 |   |
| Pneutech                                               |   |                                                                   |   |   |   |   |   |   | 1,867 |   |   | 2,010 |   |
| Rousseau                                               |   |                                                                   |   |   |   |   |   |   | 803 |   |   | 706 |   |
| Samsung                                                |   |                                                                   |   |   |   |   |   |   | 4,665 |   |   | 4,782 |   |
| Hydramen                                               |   |                                                                   |   |   |   |   |   |   | 236 |   |   | 265 |   |
| Consolidated                total                      |   |                                                                   |   |   |   |   |   | $ | 22,750 |   | $ | 19,695 |   |

| (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. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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*Table          of Contents*

|                                                 |   | **Successor                Business**                                  |   |
|------------------------------------------------------|--------|------------------------------------------------------------------------|--------|
|                                                 |   | **Three                Months Ended****March                31, 2006** |   | **Three                Months Ended****March                31, 2005** |   | **Nine                Months****Ended****March                31, 2006** |   | **Six                Months****Ended****March                31, 2005** |   |
|                                                 |   |                                                                   |   |   |   |   |   |   |   |
| Canada                                               |   | $                                                                      | 13,296 |   | $ | 5,981 |   | $ | 39,317 |   | $ | 7,890 |   |
| USA                                                  |   |                                                                   | 4,393  |   |   | 5,067 |   |   | 11,415 |   |   | 11,440 |   |
| Europe                                               |   |                                                                   | 3,527  |   |   | 5,043 |   |   | 12,260 |   |   | 9,330 |   |
| Rest                of world                         |   |                                                                   | 11,652 |   |   | 945 |   |   | 32,843 |   |   | 2,792 |   |
| **Total                sales to external customers** |   | $                                                                      | 32,868 |   | $ | 17,036 |   | $ | 95,835 |   | $ | 31,452 |   |
|                                                 |   |                                                                   |   |   |   |   |   |   |   |   |   |   |   |
| Industrial                and construction           |   | $                                                                      | 32,664 |   | $ | 16,913 |   | $ | 93,228 |   | $ | 30,836 |   |
| Agriculture                                          |   |                                                                   | 204    |   |   | 123 |   |   | 2,607 |   |   | 616 |   |
| **Total                sales to external customers** |   | $                                                                      | 32,868 |   | $ | 17,036 |   | $ | 95,835 |   | $ | 31,452 |   |

|   |   | Successor                Business |   |
|--------|--------|-----------------------------------|--------|
|   |   | March                31, 2006     |   | June                30, 2005 |   |
|   |   |                              |   |   |   |
| Canada |   | $                                 | 13,927 |   | $ | 14,133 |   |
| USA    |   |                              | 11     |   |   | 54 |   |
| Korea  |   |                              | 8,812  |   |   | 7,317 |   |
| Total  |   | $                                 | 22,750 |   | $ | 21,504 |   |

----

*Table          of Contents*

|                                                 |   | **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 |   |

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*Table          of Contents*

**15.**
**Accounts      receivable and trade payables**

**16.**
**Subsequent      events**

----

*Table          of Contents*

**ITEM      2. **
***Management’sDiscussion      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 nine months ended March 31, 2006 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 March 31, 2006 and for the three and      nine 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,      a*
*ll      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      March 31, 2006 translation rate of $0.8568 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**

----

*Table          of Contents*

***RESULTS      OF OPERATIONS***

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

|   | · | *Results                of operations for the three months ended March 31, 2006 and 2005                (successor);* |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------|

|   | · | *Results                of operations for the nine months ended March 31,                2006;* |
|--------|--------|-------------------------------------------------------------------------------------------------|

|   | · | *Results                of operations for the three months ended September 30, 2004                (predecessor);* |
|--------|--------|--------------------------------------------------------------------------------------------------------------------|

----

*Table          of Contents*

***RESULTS      OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND      2005***

|                                                                                         |   | **2006** |    | **2005** |   |
|----------------------------------------------------------------------------------------------|--------|----------|---------|----------|--------|
| **Revenues**                                                                                 |   | $        | 32,869  |     |   | 100.0 | % | $ | 17,036 |   |   | 100.0 | % |
| **    Cost                of                Sales**                      |   |     | 29,211  |     |   | 88.9 | % |   | 14,770 |   |   | 86.7 | % |
| **Gross                Profit**                                                              |   |     | 3,658   |     |   | 11.1 | % |   | 2,266 |   |   | 13.3 | % |
| **    Selling                Expenses**                                  |   |     | 2,610   |     |   | 7.9 | % |   | 1,760 |   |   | 10.3 | % |
| **    G&A                Expenses**                                  |   |     | 3,560   |     |   | 10.8 | % |   | 1,999 |   |   | 11.7 | % |
| **    Provision                for                Doubtful Receivables** |   |     | 208     |     |   | 0.6 | % |   | 57 |   |   | 0.3 | % |
| **    Other                (Income) Expense**                            |   |     | (207    | )        |   | (0.6 | )% |   | 511 |   |   | 3.0 | % |
| **Operating                Loss**                                                            |   |     | (2,513  | )        |   | (7.6 | )% |   | (2,061 | ) |   | (12.1 | )% |
| **    Net                Financial Expense**                             |   |     | 3,473   |     |   | 10.6 | % |   | 1,447 |   |   | 8.5 | % |
| **    Derivative                Instruments (Income) Expense, net**      |   |     | (27,492 | )        |   | (83.6 | %) |   | 56,927 |   |   | 334.2 | % |
| **    Provision                for                Income Taxes**         |   |     | -       |     |   | - |   |   | - |   |   | - |   |
| **Net                Income (Loss)**                                                         |   |     | 21,506  |     |   | (65.4 | )% |   | (60,435 | ) |   | (354.7 | )% |

**Revenues**

----

*Table          of Contents*

**Cost      of Sales and Gross Profit**

**Selling      Expenses**

**General      and Administrative Expenses**

**.**

----

*Table          of Contents*

**Provision      for Doubtful Receivables**

**Other      (Income) Expense, Net **

**Net      Financial Expense**

**Derivative      Instruments (Income) Expense, net**

**Provision      for Income Taxes**

----

*Table          of Contents*

**Net      Income**

**Comprehensive      Loss**

***RESULTS      OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31,      2006***

|                                                                                         |   |   |    |   |   |
|----------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|
| **Revenues**                                                                                 |   | $      | 95,835  |   |   | 100.0 | % |
| **    Cost                of                Sales**                      |   |   | 83,167  |   |   | 86.8 | % |
| **Gross                Profit**                                                              |   |   | 12,668  |   |   | 13.2 | % |
| **    Selling                Expenses**                                  |   |   | 7,440   |   |   | 7.8 | % |
| **    G&A                Expenses**                                  |   |   | 10,449  |   |   | 10.9 | % |
| **    Provision                for                Doubtful Receivables** |   |   | 345     |   |   | 0.4 | % |
| **    Other                (Income) Expense**                            |   |   | (4,750  | )      |   | (5.0 | )% |
| **Operating                Income**                                                          |   |   | (816    | )      |   | (0.9 | )% |
| **     Net                Financial                Expense**        |   |   | 9,626   |   |   | 10.0 | % |
| **    Derivative                Instruments (Income) Expense, net**      |   |   | (50,051 | )      |   | (52.2 | )% |
| **    Provision                for                Income Taxes**         |   |   | -       |   |   | - |   |
| **Net                Income**                                                                |   |   | 39,609  |   |   | 41.3 | % |

----

*Table          of Contents*

**Revenues**

**Cost      of Sales and Gross Profit**

**Selling      Expenses**

**General      and Administrative Expenses**

----

*Table          of Contents*

**Provision      for Doubtful Receivables**

**Other      (Income) Expense, Net **

**Net      Financial Expense**

**Derivative      Instruments (Income), net**

**Provision      for Income Taxes**

**Net      Income**

----

*Table          of Contents*

**Comprehensive      Loss**

***RESULTS      OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004      (Predecessor)***

|                                                                                         |   |   |   |   |   |
|----------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|
| **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 | )      |   | (7.8 | %) |
| **    Net                Financial Expense**                             |   |   | 499    |   |   | 3.6 | % |
| **    Provision                for                Income Taxes**         |   |   | 15     |   |   | 0.1 | % |
| **Net                Loss**                                                                  |   |   | (1,602 | )      |   | (11.5 | %) |
|                                                                                         |   |   |   |   |   |   |   |

*Going      Concern of Predecessor*

* *

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*Market      Conditions and Company Developments in 2004*

**Revenues**

**Cost      of Sales and Gross Profit**

**Selling      Expenses**

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**General      and Administrative Expenses**

**Provision      for Doubtful Receivables**

**Other      (Income) Expense, Net **

**Net      Financial (Income) Expense**

**Provision      for Income Taxes**

**Net      Loss**

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**Comprehensive      Loss**

**Recent      Accounting Pronouncements**

**New      pronouncements**

*SFAS      156 “Accounting for Servicing of Financial Assets - an amendment of FASB      Statement No. 140”*

*Accounting      for Transfers and Servicing of Financial Assets and Extinguishments of      Liabilities,*

*SFAS      155 “*
*Accounting      for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133      and 140”*

*Accounting      for Derivative Instruments and Hedging Activities,*
*Accounting      for Transfers and Servicing of Financial Assets and Extinguishments of      Liabilities.*

|   | a. | Permits                fair value re-measurement for any hybrid financial instrument that                contains an embedded derivative that otherwise would require                bifurcation |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | Clarifies                which interest-only strips and principal-only strips are not subject                to                the requirements of Statement 133 |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c. | Establishes                a requirement to evaluate interests in securitized financial assets                to                identify interests that are freestanding derivatives or that are                hybrid                financial instruments that contain an embedded derivative requiring                bifurcation |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | d. | Clarifies                that concentrations of credit risk in the form of subordination are                not                embedded derivatives |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | e. | Amends                Statement 140 to eliminate the prohibition on a qualifying special-purpose                entity from holding a derivative financial instrument that pertains                to a                beneficial interest other than another derivative financial                instrument. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*SFAS      154 “Accounting Changes and Error Corrections—a replacement of APB Opinion No.      20 and FASB Statement No. 3”*

*Accounting      Changes,*
*Reporting      Accounting Changes in Interim Financial Statements,*

**Liquidity      and Capital Resources**

**THREE      AND NINE MONTHS ENDED MARCH 31, 2006 **

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**Off-Balance      Sheet Arrangements**

**Contractual      Obligations**

|                                       |   |      |       |                                                  |       |                           |       |                           |       |                                                   |   |
|--------------------------------------------|--------|-----------|------------|-------------------------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|--------------------------------------------------------|--------|
|                                       |   | **Total** | ** ** | **Less                than****1                Year** | ** ** | **1                - 3 Years** | ** ** | **3                - 5 Years** | ** ** | **More                Than****5                Years** |   |
|                                       |   |      |       |                                                  |       |                           |       |                           |       |                                                   |   |
| Long-term                debt (1)          |   | $         | 44,588     |                                                  | $          | 13,032                         |       | $                              | 31,556     |                                                   | $      | - |   | $ | - |   |
|                                       |   |      |       |                                                  |       |                           |       |                           |       |                                                   |   |   |   |   |   |   |
| Capital                lease obligations   |   | $         | 5,420      |                                                  | $          | 5,420                          |       | $                              | -          |                                                   | $      | - |   | $ | - |   |
|                                       |   |      |       |                                                  |       |                           |       |                           |       |                                                   |   |   |   |   |   |   |
| Operating                lease obligations |   | $         | 4,178      |                                                  | $          | 948                            |       | $                              | 1,377      |                                                   | $      | 832 |   | $ | 1,021 |   |
|                                       |   |      |       |                                                  |       |                           |       |                           |       |                                                   |   |   |   |   |   |   |

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

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**ITEM      3. **
***Qualitative      and Quantitative Disclosures about Market      Risk***

**Interest      Rates**

**Foreign      Currency Fluctuations**

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**ITEM      4. **
***Controls      And Procedures***

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**PART      II - OTHER INFORMATION**

**ITEM      1. **
***Legal      Proceedings***

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

**ITEM      3. **
***Defaults      Upon Senior Securities***

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

**ITEM      5. **
***Other      Information***

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**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                         |   | Certifications                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                         |   | Certifications                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. |
|----|----------------------------------------------------------------------------------------------------------------------|

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| **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: May                15, 2006                                                                                                                                                                                               | By: | /s/                CLIFFORD M. RHEE |
|                                                                                                                                                                                                                                  |   | Clifford                M. Rhee,President                (Principal Executive Officer) |
|                                                                                                                                                                                                                                  |   |   |
|                                                                                                                                                                                                                                  |   |   |
|                                                                                                                                                                                                                                  | By: | /s/                LUIGI LO BASSO |
|                                                                                                                                                                                                                                  |   | Luigi                Lo Basso,Chief                Financial Officer (PrincipalFinancial                and Accounting Officer) |
|                                                                                                                                                                                                                                  |   |   |
|                                                                                                                                                                                                                                  |   |   |
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