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                                    FORM 10-Q


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                   Quarterly Report Under Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                      For the Quarter Ended April 30, 2007
                         Commission File Number 0-26230


                         WESTERN POWER & EQUIPMENT CORP.
             (Exact name of registrant as specified in its charter)


           DELAWARE                                         91-1688446
           --------                                         ----------
(State or other jurisdiction of                    (I.R.S. Employer I.D. number)
 incorporation or organization)

6407-B N.E. 117th Avenue, Vancouver, WA                       98662
---------------------------------------                       -----
(Address of principal executive offices)                   (Zip Code)


                    Registrant's telephone no.: 360-253-2346
                                                ------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days.

                               YES [X]   NO [_]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of June 12, 2007.

            Title of Class                               Number of shares
             Common Stock                                  Outstanding
      (par value $.001 per share)                           11,230,000





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<PAGE>


                  WESTERN POWER & EQUIPMENT CORP. & SUBSIDIARY
                                      INDEX


PART I.     FINANCIAL INFORMATION                                          Page
                                                                          Number
                                                                          ------

            Item 1.     Financial Statements

             Condensed Consolidated Balance Sheets
               April 30, 2007 (Unaudited) and July 31, 2006.............       3

             Condensed Consolidated Statements of Operations (Unaudited)
               Three months ended April 30, 2007 and April 30, 2006 ....       4

             Condensed Consolidated Statements of Operations (Unaudited)
               Nine months ended April 30, 2007 and April 30, 2006 .....       5

             Condensed Consolidated Statements of Cash Flows (Unaudited)
               Nine months ended April 30, 2007 and April 30, 2006......       6

             Notes to Condensed Consolidated Financial Statements
             (Unaudited)................................................    7-15

            Item 2.  Management's Discussion and Analysis of
                     Financial Condition and Results of Operations......   16-24

            Item 3.  Quantitative and Qualitative Disclosures about
                     Market Risk........................................      25

            Item 4.  Controls and Procedures............................      25


PART II.    OTHER INFORMATION

            Item 1.  Legal Proceedings..................................      26

            Item 1A. Risk Factors.......................................      26

            Item 2.  Unregistered Sales of Equity Securities and Use
                     of Proceeds........................................      26

            Item 3.  Defaults Upon Senior Securities....................      26

            Item 4.  Submission of Matters to a Vote of Security
                     Holders............................................      26

            Item 5.  Other Information..................................      26

            Item 6.  Exhibits...........................................      26

SIGNATURES..............................................................      27



                                       2
<PAGE>

ITEM 1.  FINANCIAL STATEMENTS

                  WESTERN POWER & EQUIPMENT CORP. & SUBSIDIARY
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)
<TABLE><CAPTION>
                                                                                           April 30,       July 31,
                                                                                             2007            2006
                                                                                          ----------      ----------
                                                                                          (Unaudited)
<S>                                                                                       <C>             <C>
                ASSETS
                ------
Current assets:
     Cash and cash equivalents ......................................................     $      632      $    1,072
     Accounts receivable, less allowance for doubtful
       accounts of $ 933 and $ 864 ..................................................          5,876           9,078
     Inventories - net ..............................................................         36,252          42,483
     Deferred tax asset .............................................................            622             669
     Prepaid expenses ...............................................................            205             141
                                                                                          ----------      ----------
            Total current assets ....................................................         43,587          53,443
                                                                                          ----------      ----------
Fixed assets:
     Property, plant and equipment (net) ............................................          5,850           5,230
     Rental equipment fleet (net) ...................................................          5,787           3,423
                                                                                          ----------      ----------
            Total fixed assets ......................................................         11,637           8,653
                                                                                          ----------      ----------
Other assets
     Security Deposits ..............................................................            441             379
     Deferred taxes .................................................................           --               831
     Deferred debt issuance costs ...................................................            865           1,297
                                                                                          ----------      ----------
         Total other assets .........................................................          1,306           2,507
                                                                                          ----------      ----------

Total assets ........................................................................     $   56,530      $   64,603

               LIABILITIES & STOCKHOLDERS' EQUITY
               ----------------------------------
Current liabilities:
     Borrowings under floor plan financing ..........................................     $   23,362          22,627
     Convertible debt, net of discount of $ 1,905 and $ 1,046 .......................         18,759           6,176
     Notes payable-related parties, net of discount of $ 13 and $ 28 ................            287             472
     Notes payable ..................................................................            753             629
     Accounts payable ...............................................................         11,101           9,937
     Accrued payroll and vacation ...................................................          1,166           1,404
     Other accrued liabilities ......................................................          2,195           1,567
     Capital lease obligation .......................................................             63              56
                                                                                          ----------      ----------
         Total current liabilities ..................................................         57,686          42,868
                                                                                          ----------      ----------
Long-term liabilities
     Notes Payable ..................................................................          1,428           1,573
     Convertible debt, net of discount of $ 0 and $ 1,951 ...........................           --            14,047
     Deferred lease income ..........................................................            214             236
     Capital lease obligation .......................................................            718             755
                                                                                          ----------      ----------
      Total long-term liabilities ...................................................          2,360          16,611
                                                                                          ----------      ----------
Total liabilities ...................................................................         60,046          59,479
                                                                                          ----------      ----------
Stockholders' equity:
     Preferred stock-10,000,000 shares authorized;
       none issued and outstanding ..................................................           --              --
     Common stock-$.001 par value; 50,000,000 shares
       authorized; 11,360,300 and 11,860,300 issued and 11,230,000 and 11,730,000
       outstanding as of April 30, 2007 and July 31, 2006, respectively .............             11              12
     Additional paid-in capital .....................................................         23,432          24,072
     Deferred compensation ..........................................................           --              (642)
     Accumulated deficit ............................................................        (26,115)        (17,474)
     Less common stock in treasury, at cost
       (130,300 shares) .............................................................           (844)           (844)
                                                                                          ----------      ----------
         Total stockholders' equity (deficiency) ....................................         (3,516)          5,124
                                                                                          ----------      ----------
Total liabilities and stockholders' equity ..........................................     $   56,530      $   64,603
                                                                                          ==========      ==========
</TABLE>

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

                                       3
<PAGE>

                  WESTERN POWER & EQUIPMENT CORP. & SUBSIDIARY
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                (Dollars in thousands, except per share amounts)

<TABLE><CAPTION>
                                                                                              Three Months Ended
                                                                                                   April 30,
                                                                                             2007            2006
                                                                                          ----------      ----------
<S>                                                                                       <C>             <C>
Net revenues ........................................................................     $   28,944      $   29,877

Cost of revenues (includes depreciation of
   $839 and $826, respectively) .....................................................         27,711          27,005
                                                                                          ----------      ----------

Gross profit ........................................................................          1,233           2,872

Selling, general and administrative expenses ........................................          2,684           2,779
                                                                                          ----------      ----------

Operating (loss) income .............................................................         (1,451)             93

Other expense:
     Interest expense ...............................................................         (1,757)         (1,352)
     Gain on settlement of penalty ..................................................          1,967            --
     Other expense ..................................................................            113             (87)
                                                                                          ----------      ----------

Loss before income tax provision ....................................................         (1,128)         (1,346)

Income tax provision ................................................................            892              18
                                                                                          ----------      ----------

Loss from continuing operations .....................................................         (2,020)         (1,364)

Income (loss) from discontinued operations ..........................................           --               (76)
Gain on disposal of discontinued operations .........................................           --               251
                                                                                          ----------      ----------
Total income from discontinued operations ...........................................           --               175
                                                                                          ----------      ----------

Net loss ............................................................................     $   (2,020)     $   (1,189)
                                                                                          ==========      ==========
Basic and diluted loss per common share
     Continuing operations ..........................................................     $    (0.18)     $    (0.12)
                                                                                          ----------      ----------

     Discontinued operations ........................................................           --              --
     Gain on disposal of discontinued operations ....................................           --              0.01
                                                                                          ----------      ----------
     Earnings per share of discontinued operations ..................................           --              0.01
                                                                                          ----------      ----------

     Net loss per share .............................................................     $    (0.18)     $    (0.11)
                                                                                          ==========      ==========
Weighted average outstanding common shares for basic and
     diluted  net loss per common share .............................................         11,230          10,970
                                                                                          ==========      ==========
</TABLE>

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

                                       4
<PAGE>


                  WESTERN POWER & EQUIPMENT CORP. & SUBSIDIARY
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                (Dollars in thousands, except per share amounts)
<TABLE><CAPTION>
                                                                                              Nine Months Ended
                                                                                                   April 30,
                                                                                             2007            2006
                                                                                          ----------      ----------
<S>                                                                                       <C>             <C>
Net revenues ........................................................................     $   87,261      $   90,796

Cost of revenues (includes depreciation of
   $3,477 and $3,614, respectively) .................................................         80,686          80,929
                                                                                          ----------      ----------

Gross profit ........................................................................          6,575           9,867

Selling, general and administrative expenses ........................................          8,095           8,259
                                                                                          ----------      ----------

Operating (loss)  income ............................................................         (1,520)          1,608

Other expense:
     Interest expense ...............................................................         (4,302)         (4,283)
     Convertible debt penalty (net) .................................................         (1,933)           --
     Other expense ..................................................................            132             (55)
                                                                                          ----------      ----------

Loss before income tax provision ....................................................         (7,623)         (2,730)

Income tax provision ................................................................            924              52
                                                                                          ----------      ----------

Loss from continuing operations .....................................................         (8,547)         (2,782)

Income (loss) from discontinued operations ..........................................            (94)            375
Gain on disposal of discontinued operations .........................................           --               251
                                                                                          ----------      ----------
Total income (loss) from discontinued operations ....................................            (94)            626
                                                                                          ----------      ----------

Net loss ............................................................................     $   (8,641)     $   (2,156)
                                                                                          ==========      ==========
Basic and diluted loss per common share
     Continuing operations ..........................................................     $    (0.76)     $    (0.27)
                                                                                          ----------      ----------

     Discontinued operations ........................................................          (0.01)           0.04
     Gain on disposal of discontinued operations ....................................           0.00            0.02
                                                                                          ----------      ----------
     Earnings per share of discontinued operations ..................................          (0.01)           0.06
                                                                                          ----------      ----------

     Net loss per share .............................................................     $    (0.77)     $    (0.21)
                                                                                          ==========      ==========
Weighted average outstanding common shares for basic and
     diluted net loss per common share ..............................................         11,230          10,438
                                                                                          ==========      ==========
</TABLE>

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

                                       5
<PAGE>

                  WESTERN POWER & EQUIPMENT CORP. & SUBSIDIARY
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                             (Dollars in thousands)
<TABLE><CAPTION>
                                                                                              Nine Months Ended
                                                                                                   April 30,
                                                                                             2007            2006
                                                                                          ----------      ----------
<S>                                                                                       <C>             <C>
Cash flows from operating activities:
     Net loss .......................................................................     $   (8,641)     $   (2,156)

Adjustments to reconcile net loss from operations to
net cash provided by operating activities:
     Depreciation ...................................................................          3,979           4,258
     Bad debts ......................................................................            117              77
     Amortization of debt discount ..................................................          1,106             787
     Gain on sale of fixed assets and rental equipment ..............................           (257)           (624)
     Deferred income taxes ..........................................................            878            --
     Amortization of debt issuance costs ............................................            432             341
     Convertible debt penalty (net) .................................................          1,933            --
     Stock based compensation .......................................................           --                18
     Changes in assets and liabilities:
         Accounts receivable ........................................................          3,084           2,225
         Inventories ................................................................             88           6,475
         Prepaid expenses and other assets ..........................................           (126)            286
         Accounts payable and accrued expenses ......................................          1,193          (1,225)
         Accrued payroll and vacation ...............................................           (237)             61
         Other accrued liabilities ..................................................            597             195
         Deferred lease income ......................................................            (21)            (22)
                                                                                          ----------      ----------
Net cash provided by operating activities ...........................................          4,125          10,696
                                                                                          ----------      ----------
Cash flows from investing activities:
     Purchase of property, plant and equipment ......................................           (961)         (1,629)
     Purchases of rental equipment ..................................................         (2,184)           --
     Proceeds on sale of fixed assets ...............................................             86              37
     Proceeds on sale of rental equipment ...........................................          2,497           2,668
                                                                                          ----------      ----------
Net cash (used in) provided by investing activities .................................           (562)          1,076
                                                                                          ----------      ----------
Cash flows from financing activities:
     Principal payments on capital leases ...........................................            (29)            (30)
     Payments on short-term borrowings ..............................................           (341)           --
     Issuance of common stock .......................................................           --             1,710
     Short-term debt borrowings .....................................................            141            --
     Inventory floor plan financing .................................................            737          (8,112)
     Bridge loan payments ...........................................................           --            (1,333)
     Long term debt borrowings ......................................................            736           1,896
     Long term debt payments ........................................................           (758)           (415)
     Payments on convertible debt ...................................................         (4,489)         (5,669)
                                                                                          ----------      ----------
Net cash used in financing activities ...............................................         (4,003)        (11,953)
                                                                                          ----------      ----------

Decrease in cash and cash equivalents ...............................................           (440)           (181)
Cash and cash equivalents at beginning of period ....................................          1,072             855
                                                                                          ----------      ----------

Cash and cash equivalents at end of period ..........................................     $      632      $      674
                                                                                          ==========      ==========

Supplemental disclosures:
Interest paid .......................................................................     $    2,285      $    3,136
Income taxes paid ...................................................................           --              --

In connection with consulting service agreements entered into in June 2005,
warrants were issued in lieu of cash payment ........................................                     $       69

Return of common stock pursuant to cancellation of consulting agreement .............     $      642            --
</TABLE>


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

                                       6
<PAGE>

                  WESTERN POWER & EQUIPMENT CORP. & SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements include the
accounts of Western Power & Equipment Corp and its wholly owned subsidiary,
Arizona Pacific Materials, LLC, collectively ("The Company"). All intercompany
transactions have been eliminated.

The accompanying condensed consolidated financial statements are unaudited and
in the opinion of management contain all the adjustments (consisting of those of
a normal recurring nature) considered necessary to present fairly the condensed
consolidated balance sheet and the condensed consolidated results of operations
and cash flows for the periods presented in conformity with accounting
principles generally accepted in the United States of America applicable to
interim periods. The results of operations for the three and nine month periods
ended April 30, 2007 are not necessarily indicative of results that may be
expected for any other interim periods or for the full year. This report should
be read in conjunction with our consolidated financial statements included in
the Annual Report on Form 10-K for the fiscal year ended July 31, 2006 filed
with the Securities and Exchange Commission. The accounting policies used in
preparing these unaudited condensed consolidated financial statements are
consistent with those described in the July 31, 2006 consolidated financial
statements.

Cost of revenues includes the cost of products sold; the cost of services
provided in connection with product support; depreciation related to the rental
equipment; in-bound freight expenses; inventory reserves for obsolescence; and
certain allocated general and administrative expenses directly related to the
generation of revenues.

Selling, general and administrative expenses include payroll and benefit costs;
occupancy costs; depreciation of property, plant and equipment; outside service
fees; and other costs.

Interest expense includes the interest related to all debt instruments, the
amortization of debt discount related to warrants and the amortization of
capitalized debt issuance costs in association with convertible debt issued in
June of 2005. See Note 7 for additional information.

Certain amounts in the fiscal year 2006 financial statements have been
reclassified to conform with the fiscal year 2007 presentation. These
reclassifications had no impact on net income or cash flows as previously
reported other than to separately report discontinued operations.

Liquidity

The Company has incurred a net loss from continuing operations of $ 8,547 for
the nine-month period ended April 30, 2007 compared to a loss of $ 2,782 for the
comparable period in 2006. During the 2007 period, the Company experienced a
slightly weaker market and changes in product mix both of which contributed to
lower sales and weaker margins. The Company generated cash flows from operations
of $4,125 for the nine-month period ended April 30, 2007 as compared to $ 10,696
for the 2006 comparative period. A significant amount of resources continue to
be used to fund losses of the mining operations as well as to make the required
payments associated with the convertible debt. The loss for the nine-month
period ending April 30, 2007 also includes a charge for a late payment penalty
of $3,866, regarding a technical default of the convertible debt, as prescribed
under the convertible debt agreement (20% of the convertible debt balance on the
date of the default). The Company has negotiated an agreement with the
convertible debt holders to have 50% of the penalty paid in cash and the
remaining 50% of the penalty satisfied by the transfer of a 10% ownership
interest in our subsidiary, Arizona Pacific Materials, LLC, which resulted in a
gain of $1,933 and a net penalty of $1,933.

With the technical default, the convertible debt became due immediately. The
Company negotiated and signed an agreement that revised the due date to December
31, 2007. The convertible debt holders are also requiring several additional
large principal payments prior to December 31, 2007. Management is currently in
discussions to refinance the debt but there is no assurance it will succeed in
these refinancing efforts. If management is not successful in obtaining
alternative financing, the Company may have to sell off certain assets or the
Company's operations may not be able to continue. The previously described
conditions raise substantial doubt about the Company's ability to continue as a
going concern.

                                        7
<PAGE>

2. ACCOUNTING POLICIES AND NEW ACCOUNTING PRONOUNCEMENTS

The Company's accounting policies are set forth in Note 1 to the consolidated
financial statements as filed in Form 10-K for the year ended July 31, 2006.

In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets" ("SFAS 156"), which amends SFAS 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," with
respect to the accounting for separately recognized servicing assets and
servicing liabilities. SFAS 156 permits the choice of the amortization method or
the fair value measurement method, with changes in fair value recorded in
income, for the subsequent measurement for each class of separately recognized
servicing assets and servicing liabilities. The statement is effective for years
beginning after September 15, 2006, with earlier adoption permitted. The Company
does not expect SFAS 156 to have a material impact on the Company's consolidated
financial position or results of operations.

In July 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109" (FIN 48). FIN 48 clarifies the
accounting and reporting for uncertainties in income tax law. FIN 48 prescribes
a comprehensive model for the financial statement recognition, measurement,
presentation and disclosure of uncertain tax positions taken or expected to be
taken in income tax returns. FIN 48 shall be effective for fiscal years
beginning after December 15, 2006. Earlier adoption is permitted as of the
beginning of an enterprise's fiscal year, provided the enterprise has not yet
issued financial statements, including financial statements for any interim
period for that fiscal year. The cumulative effects, if any, of applying FIN 48
will be recorded as an adjustment to retained earnings as of the beginning of
the period of adoption. The Company does not expect FIN 48 to have a material
impact on the Company's consolidated financial position or results of
operations.

In September 2006, the FASB issued SFAS No. 157, "Accounting for Fair Value
Measurements". SFAS No. 157 defines fair value, and establishes a framework for
measuring fair value in generally accepted accounting principles and expands
disclosure about fair value measurements. SFAS No. 157 is effective for the
Company for financial statements issued subsequent to November 15, 2007. The
adoption of this pronouncement is not expected to have any material impact on
the Company's consolidated financial position and results of operations.

In September 2006, the FASB issued SFAS No. 158, "Employees' Accounting for
Defined Benefit Pension and Other Postretirement Plans" (SFAS 158"). SFAS 158
requires an employer to recognize the over-funded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability
in its statement of financial position and to recognize changes in that funded
status in the year in which the changes occur through comprehensive income of a
business entity or changes in unrestricted net assets of a not-for-profit
organization. SFAS 158 also requires an employer to measure the funded status of
a plan as of the date of its year-end statement of financial position, with
limited exceptions. SFAS 158 is effective for the Company for financial
statements issued subsequent to December 15, 2006. The adoption of this
pronouncement did not have a material impact on the Company's consolidated
financial position, results of operations or cash flows.

In September 2006, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 108 ("SAB 108"), which provides interpretive
guidance on how the effects of the carryover or reversal of prior year
misstatements should be considered in quantifying a current year misstatement.
SAB 108 becomes effective for the first fiscal year ending after November 15,
2006. The adoption of SAB 108 is not expected to have a material impact on the
Company's consolidated financial position, results of operations or cash flows.

In December 2006, the FASB approved FASB Staff Position (FSP) No. EITF 00-19-2,
"Accounting for Registration Payment Arrangements" ("FSP EITF 00-19-2"), which
specifies that the contingent obligation to make future payments or otherwise
transfer consideration under a registration payment arrangement, whether issued
as a separate agreement or included as a provision of a financial instrument or
other agreement, should be separately recognized and measured in accordance with
SFAS No. 5, "Accounting for Contingencies". FSP EITF 00-19-2 also requires
additional disclosure regarding the nature of any registration payment
arrangements, alternative settlement methods, the maximum potential amount of
consideration and the current carrying amount of the liability, if any. The
guidance in FSP EITF 00-19-2 amends FASB Statements No. 133, "Accounting for
Derivative Instruments and Hedging Activities", and No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity", and FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others", to include scope exceptions for registration payment arrangements.

                                        8
<PAGE>

FSP EITF 00-19-2 is effective immediately for registration payment arrangements
and the financial instruments subject to those arrangements that are entered
into or modified subsequent to the issuance date (December 21, 2006) of this
FSP, or for financial statements issued for fiscal years beginning after
December 15, 2006, and interim periods within those fiscal years, for
registration payment arrangements entered into prior to the issuance date of
this FSP. The adoption of this pronouncement is not expected to have an impact
on the Company's consolidated financial position, results of operations or cash
flows.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 provides
companies with an option to report selected financial assets and liabilities at
fair value. The objective of SFAS 159 is to reduce both complexity in accounting
for financial instruments and the volatility in earnings caused by measuring
related assets and liabilities differently. Generally accepted accounting
principles have required different measurement attributes for different assets
and liabilities that can create artificial volatility in earnings. The FASB has
indicated it believes that SFAS 159 helps to mitigate this type of
accounting-induced volatility by enabling companies to report related assets and
liabilities at fair value, which would likely reduce the need for companies to
comply with detailed rules for hedge accounting. SFAS 159 also establishes
presentation and disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes for similar types
of assets and liabilities.

SFAS 159 does not eliminate disclosure requirements included in other accounting
standards, including requirements for disclosures about fair value measurements
included in SFAS 157 and SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments." SFAS 159 is effective for the Company as of the
beginning of fiscal year 2009. The Company has not yet determined the impact
SFAS 159 may have on its consolidated financial position, results of operations,
or cash flows.

3. EARNINGS OR LOSS PER SHARE

Basic net income or loss per share of common stock is computed based on the
weighted average number of common shares outstanding during the period.

The Company computes earnings per share in accordance with SFAS No. 128,
"Earnings Per Share." SFAS No. 128 requires dual presentation of basic and
diluted earnings per share.

Basic loss per common share is computed by dividing net loss by the weighted
average number of common shares outstanding during the period. Diluted loss per
common share is computed by dividing net loss by the weighted average number of
common shares outstanding, plus the issuance of common shares, if dilutive,
resulting from the exercise of outstanding stock options, warrants and
convertible debt. These potentially dilutive securities were not included in the
calculation of loss per common share for the three and nine months ended April
30, 2007 and 2006 because the Company incurred a loss during such periods and
thus their inclusion would have been anti-dilutive. Accordingly, basic and
diluted loss per common share are the same for all periods presented.

Potentially dilutive securities consisted of outstanding stock options, warrants
and convertible debt to acquire 24,233,386 shares as of April 30, 2007. As of
April 30, 2006, potentially dilutive securities consisted of outstanding stock
options and warrants to acquire 27,553,386 shares.

4. STOCK BASED COMPENSATION

In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123 (revised 2004), "Share-Based Payment", SFAS 123R. SFAS 123R requires the
compensation cost relating to stock-based payment transactions to be recognized
in financial statements. That cost will be measured based on the fair value of
the equity or liability instruments issued on the grant date of such
instruments, and will be recognized over the period during which an individual
is required to provide service in exchange for the award (typically the vesting
period). SFAS 123R covers a wide range of stock-based compensation arrangements
including stock options, restricted stock plans, performance-based awards, stock
appreciation rights, and employee stock purchase plans. SFAS 123R replaces SFAS
123 and supersedes APB Opinion 25. The Company has adopted SFAS 123R as of
August 1, 2005. As of July 31, 2006 and April 30, 2007, all options were fully
vested and during the year ended July 31, 2006 and the nine months ended April
30, 2007, the Company did not grant any options to employees to purchase common
stock. Accordingly, no additional compensation charge was recorded and therefore
there was no impact on the consolidated financial statements.

                                        9
<PAGE>

5. INVENTORIES

Inventories consist of the following (`000's):
                                                           April 30,   July 31,
                                                             2007        2006
                                                           -------     -------
     Equipment (net of reserves of $3,441 and $3,429,
      respectively):
       New                                                 $27,750     $30,939
       Used                                                  3,339       4,724
     Mining products                                           674         825
     Parts (net of reserves of $855
      and $734, respectively)                                4,489       5,995
                                                           -------     -------
                                                           $36,252     $42,483
                                                           =======     =======

Mining products is comprised substantially of processed cinder aggregate in a
finished state ready for resale. Inventory costs of the mining products are
comprised of direct costs of production and overhead charges including mining
and other plant administrative expenses. Inventory of mining products is valued
at the lower of cost or market, with cost stated on a last-in, first-out (LIFO)
basis. Mining product reserves for obsolescence or slow moving inventory are
recorded when such conditions are identified. As of April 30, 2007, the LIFO
reserve was $ 132 and as of July 31, 2006 the LIFO reserve was $ 371.

6. FIXED ASSETS

Fixed assets consist of the following (`000's):
                                                           April 30,   July 31,
                                                             2007        2006
                                                           -------     -------
     Operating property, plant and equipment:
       Land                                                $ 1,277     $ 1,277
       Buildings                                             1,205       1,152
          Machinery and equipment                            5,888       4,751
       Office furniture and fixtures                         1,767       1,779
       Computer hardware and software                        1,069       1,068
       Vehicles                                              1,369       1,399
       Leasehold improvements                                1,088       1,082
                                                           -------     -------
                                                            13,663      12,508
       Less: accumulated depreciation                       (7,813)     (7,278)
                                                           -------     -------
     Property, plant, and equipment (net)                  $ 5,850     $ 5,230
                                                           =======     =======

     Rental equipment fleet                                $ 6,853     $ 4,757
       Less: accumulated depreciation                       (1,066)     (1,334)
                                                           -------     -------
     Rental equipment (net)                                $ 5,787     $ 3,423
                                                           =======     =======

Depreciation and amortization on the property, plant, and equipment are computed
using the straight-line method over the estimated useful lives of the assets,
ranging from 5 to 20 years. Depreciation on the rental fleet is calculated using
the straight-line method over the estimated useful lives, ranging from 3 to 7
years after considering salvage values.

As of April 30, 2007 and July 31, 2006, fixed assets (net) includes property
under capital leases in the amount of $ 420 and $ 456, respectively.

7. DEBT OBLIGATIONS

Floor Planning
--------------

The Company has inventory floor plan financing arrangements with Case Credit
Corporation, an affiliate of Case (for Case inventory) and with other finance
companies and equipment manufacturers. The terms of these agreements generally
include a one-month to twelve-month interest free term followed by a term during
which interest is charged. Principal payments are generally due at the earlier
of sale of the equipment or twelve to forty-eight months

                                       10
<PAGE>

from the invoice date. The maximum amount of the credit facility is $ 24.5
million and the interest rate is prime plus 2% (currently 10.25%).

All floor plan debt is classified as current since the inventory to which it
relates is generally sold within twelve months of the invoice date.

Convertible Debt

In June 2005, the Company closed a new $ 30 million convertible debt facility
(convertible into common shares of the Company at $ 2.00 per share) payable over
the next five years, with a variable interest rate of LIBOR plus 6%. The Company
allocated the proceeds to the debt and the warrants in accordance with EITF 98-5
and EITF 00-27. The lenders were also granted warrants to purchase approximately
8.1 million common shares of the Company at $ 1.75 per share. The value of these
warrants is $ 2,920 and was recorded as debt discount to be amortized over the
life of the related debt. The lenders also had the right to lend an additional $
7.5 million to the Company (within 18 months of the date of the original debt,
which has expired as of 01/31/07) under the same terms as the existing five year
convertible debt with warrants to purchase 1,312,500 shares of common stock to
be issued with this additional debt. The value of these rights is $ 441 and was
also recorded a debt discount to be amortized over 18 months. In March 2006, the
convertible debt agreement was modified whereby the conversion price was reduced
from $ 2.00 per share to $ 1.75 per share related to certain conditions
associated with selling the Company's Spokane and Clarkston locations. The value
of this conversion price change was calculated to be $ 680 (based on a
Black-Scholes model determined by an independent appraiser) and was recorded as
debt discount to be amortized over the remaining life of the related debt. In
connection with the convertible debt and the bridge loan (see below), the
Company paid a $ 1,600 finders fee and 300,000 warrants to purchase common
shares were issued, valued at $ 70. The finders fee and the warrants are
recorded as debt issuance costs and are being amortized over the life of the
related convertible debt.

The convertible debt agreement contains a provision whereby the holders of such
debt obligations (after 36 months from the original issue date) may require the
Company to redeem up to 50% of the outstanding principal balance of the
debenture.

The financial instruments discussed above were accounted for in accordance with
EITF 98-5 and EITF 00-27, "Application of Issue No. 98-5 ("Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios") to Certain Convertible Instruments". The Company
also considered EITF Issue No. 05-4 "The Effect of a Liquidated Damages Clause
on a Freestanding Financial Instrument Subject to EITF Issue No. 00-19,
`Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock" ("EITF No. 05-4") which addresses financial
instruments, such as stock purchase warrants, that are accounted for under EITF
00-19 that may be issued at the same time and in contemplation of a registration
rights agreement that includes a liquidated damages clause. In June 2005, the
Company entered into a private placement agreement for convertible debentures, a
registration rights agreement and warrants in connection with the private
placement (see Note 7). Based on the interpretive guidance in EITF Issue No.
05-4, since the registration rights agreement includes provisions for liquidated
damages, the Company determined that the registration rights is a derivative
liability and accounted for such liability under View C of this guidance.
However due to the registration statement becoming effective in January 2006 and
other relevant factors, the value of the registration rights was deemed to be de
minimus and therefore no liability was recorded in the consolidated financial
statements.

The Company began making monthly principal payments in December 2005. The
balance of the unpaid principal on the convertible notes (net of discount) as of
April 30, 2007 is $18,759 (net of discount of $ 1,905), all of which is short
term. The amounts amortized to interest expense during the nine months ended
April 30, 2007 and April 30, 2006 were $ 1,092 and $ 787, respectively.

Western used $23.0 million of the loan proceeds to repay and terminate its
credit facility and forbearance agreement with GE Commercial Distribution
Finance Corporation and $2.5 million to pay off the purchase note of Arizona
Pacific Materials.

In January 2007 the Company was in technical default of the convertible debt
agreement because of a late payment, which, under the terms of the agreement,
would result in a penalty of 20% of the loan balance at the time of the default.
The Company has recorded an expense of $3,866 in the second quarter of 2007 for
this penalty. The Company has negotiated an agreement with the convertible debt
holders to have 50% of the penalty paid in cash and the remaining 50% of the
penalty satisfied by a transfer of a 10% ownership interest in the

                                       11
<PAGE>

Company's subsidiary, Arizona Pacific Materials, LLC in lieu of a cash
settlement. This resulted in a gain of $ 1,967 and a net penalty of $1,933. The
carrying amount of the subsidiary's common stock sold was removed from the
parent company's investment in subsidiary's common stock account and the
difference between the carrying amount and current value of the consideration is
recorded as a gain.

With the technical default, the convertible debt becomes due immediately due.
The Company has negotiated a revised due date of December 31, 2007. The
convertible debt holders are also requiring several additional large principal
payments prior to December 31, 2007. Management is currently in discussions to
refinance the debt but there is no assurance it will succeed in these
refinancing efforts. If management is not successful in obtaining alternative
financing, the Company may have to sell off certain assets and the business may
suffer.

Notes Payable
-------------

    Notes payable consists of the following: (000's)
                                                           April 30,   July 31,
    Description                                              2007        2006
                                                           -------     -------

    Note Payable to Investor dated March 30, 2001
    due on demand and non-interest bearing                      50          50

    Note payable to West Coast Bank dated March 15,
    2005 in the amount of $795, due in monthly
    installments of $16 beginning May 15, 2005,
    expiring April 2010 including interest at 6.50%
    per annum secured by specific equipment in inventory       510         621

    Note payable to CIT Financial dated beginning
    August 15, 2005 in the amount of $2,632, due in
    monthly installments of $45 beginning December
    2005, expiring November 2010, including interest
    ranging from 8.25% to 9.5% per annum secured by
    specific equipment in inventory                          1,595       1,495

    Notes payable to GMAC dated November 15, 2003 in
    the amount of $66 with payments of $1 per month
    including interest at 7.2% per annum, expiring
    January 2009                                                26          36
                                                           -------     -------

     Total                                                 $ 2,181     $ 2,202
       Less current portion                                   (753)       (629)
                                                           -------     -------
     Total Long-Term Notes Payable                         $ 1,428     $ 1,573
                                                           =======     =======

     Future minimum payments under these noncancelable notes payable as of
April 30, 2007, are as follows:

                                          Notes   Convertible
Twelve months ending April 30,           Payable      Debt       Total
--------------------------------------  --------  -----------  ---------
   2008                                  $  753      $20,664    $21,417
   2009                                     704           --        704
   2010                                     593           --        593
   2011                                      75           --         75
   2012                                      32           --         32
   Thereafter                                24           --         24
                                         ------      -------    -------
Total annual payments                     2,181       20,664     22,845
Less debt discount                          --        (1,905)    (1,905)
                                         ------      -------    -------
Minimum payments (net of discount)        2,181       18,759     20,940
Less current portion                       (753)     (18,759)   (19,512)
                                         ------      -------    -------
Long-term portion                        $1,428      $   --     $ 1,428
                                         ======      =======    =======

                                       12
<PAGE>

8. COMMITMENTS AND CONTINGENCIES

Leases
------

The Company leases certain facilities under noncancelable lease agreements.
Certain of the Company's building leases have been accounted for as capital
leases. Other facility lease agreements have terms ranging from month-to-month
to nine years and are accounted for as operating leases. Certain of the facility
lease agreements provide for options to renew and generally require the Company
to pay property taxes, insurance, and maintenance and repair costs. Total rent
expense under all operating leases aggregated $ 1,324 and $ 1,001 for the nine
months ended April 30, 2007 and 2006, respectively.

Future minimum lease payments under all noncancelable leases as of April 30,
2007, are as follows (`000's):

                                                   Capital          Operating
     Twelve months ending April 30,                 leases            leases

     2008                                               135            1,431
     2009                                               135            1,290
     2010                                               135            1,171
     2011                                               135              882
     2012                                               135              483
     Thereafter                                         473            1,418
                                                    -------          -------
     Total annual lease payments                    $ 1,148          $ 6,675
     Less amount representing interest
       at a rate of 6.5%                               (367)
                                                    -------
     Present value of minimum lease payments            781
     Less current portion                               (63)
                                                    -------
     Long-term portion                              $   718
                                                    =======
Purchase Commitments

The Company issued purchase orders to Case Corporation for equipment purchases.
Upon acceptance by Case, these purchases become noncancelable by the Company. As
of April 30, 2007, such purchase commitments totaled $ 9,968.

Litigation

Incident to the Company's business activities, it may at times be a party to
legal proceedings, lawsuits and claims. Such matters are subject to
uncertainties whose outcomes are not predictable with assurance. Management
believes, at this time, there are no ongoing matters which will have a material
adverse effect on the Company's consolidated financial statements.

9. PRODUCT INFORMATION

Revenue and gross profit from continuing operations by product categories are
summarized as follows (`000's):

     Business product category    Three Months Ended        Nine Months Ended
     Net Revenues                      April 30,                 April 30,
                                   2007        2006          2007        2006
                                 -------     -------       -------     -------

     Equipment Sales             $20,031     $21,998       $60,603     $65,041

     Equipment Rental              1,722       1,099         4,795       5,625

     Mining Sales                    563         422         1,863       1,020

     Product Support               6,628       6,358        20,000      19,110
                                 -------     -------       -------     -------
     Total                       $28,944     $29,877       $87,261     $90,796
                                 =======     =======       =======     =======

                                       13
<PAGE>

     Business product category    Three Months Ended        Nine Months Ended
     Gross Profit                      April 30,                  April 30
                                   2007        2006          2007        2006
                                 -------     -------       -------     -------

     Equipment Sales             $  (522)    $ 1,455       $ 1,708     $ 4,446

     Equipment Rental                123         225           703       1,439

     Mining Sales                     55         (15)         (273)        179

     Product Support               1,577       1,207         4,437       3,803
                                 -------     -------       -------     -------
     Total                       $ 1,233     $ 2,872       $ 6,575     $ 9,867
                                 =======     =======       =======     =======

10. SEGMENT INFORMATION

Summarized financial information concerning the Company's reportable segments is
shown in the following tables (`000's).
<TABLE><CAPTION>
                                              Western Power &    Arizona Pacific
                                              Equipment Corp     Materials, LLC        Total
<S>                                              <C>               <C>                <C>
For the Three Months Ended April 30, 2007
Net revenues                                     $ 28,381          $    563           $ 28,944
                                                 ========          ========           ========
Loss from continuing operations                  $ (1,351)         $   (669)          $ (2,020)
                                                 ========          ========           ========
Net loss                                         $ (1,351)         $   (669)          $ (2,020)
                                                 ========          ========           ========
Capital expenditures                             $  1,772          $    116           $  1,888
                                                 ========          ========           ========

For the Three Months Ended April 30, 2006
Net revenues                                     $ 29,422          $    455           $ 29,877
                                                 ========          ========           ========
Operating loss from continuing operations        $   (902)         $   (462)          $ (1,364)
                                                 ========          ========           ========
Net loss                                         $   (578)         $   (611)          $ (1,189)
                                                 ========          ========           ========
Capital expenditures                             $     27          $     73           $    100
                                                 ========          ========           ========

For the Nine Months Ended April 30, 2007
Net revenues                                     $ 85,352          $  1,909           $ 87,261
                                                 ========          ========           ========
Loss from continuing operations                  $ (6,194)         $ (2,353)          $ (8,547)
                                                 ========          ========           ========
Net loss                                         $ (6,288)         $ (2,353)          $ (8,641)
                                                 ========          ========           ========
Capital expenditures                             $  2,324          $    821           $  3,145
                                                 ========          ========           ========
Total identifiable assets at April 30, 2007      $ 50,617          $  5,913           $ 56,530
                                                 ========          ========           ========

For the Nine Months Ended April 30, 2006
Net revenues                                     $ 89,603          $  1,193           $ 90,796
                                                 ========          ========           ========
Operating loss from continuing operations        $ (1,330)         $ (1,452)          $ (2,782)
                                                 ========          ========           ========
Net loss                                         $   (719)         $ (1,437)          $ (2,156)
                                                 ========          ========           ========
Capital expenditures                             $  1,196          $    433           $  1,629
                                                 ========          ========           ========
Total identifiable assets at April 30, 2006      $ 52,082          $  5,329           $ 57,411
                                                 ========          ========           ========
</TABLE>

11. CONCENTRATION OF CREDIT RISK

Approximately 49% and 52% of the Company's net sales for the nine month periods
ended April 30, 2007 and April 30, 2006, respectively, resulted from sales,
rental, and servicing of products manufactured by Case.

                                       14
<PAGE>

12. DISCONTINUED OPERATIONS

The accompanying financial statements for all periods presented have been
presented to reflect the accounting of discontinued operations for certain
branch locations sold or closed in fiscal year 2006 and the nine-month period
ending April 30, 2007.

The Company classifies closed or sold branch locations in discontinued
operations when the operations and cash flows of the location have been
eliminated from ongoing operations and when the Company will not have any
significant continuing involvement in the operation of the branch after
disposal. For purposes of reporting the operations of branch locations meeting
the criteria of discontinued operations, the Company reports net revenue, gross
profit and related selling, general and administrative expenses that are
specifically identifiable to those branch locations as discontinued operations.
Assets to be sold shall be classified as held for sale in the period in which
all of the criteria as outlined in SFAS No. 144 `Accounting for the Impairment
or Disposal of Long Lived Assets" have been met. In accordance with these
provisions, management must have committed to a definitive plan of disposal and
the sale must be deemed probable to occur.

The Company sold its Spokane and Clarkston, Washington locations in March 2006
for a total sales price of $ 2,871. Included in the sale was inventory with a
cost of $ 2,455. The Company also sold fixed assets with an original cost of $
662 (net book value of $ 150) resulting in a gain of $ 251.

In November 2006, the Company closed its Flagstaff, Arizona location, a location
of its subsidiary, APM and transferred the fixed assets to its Phoenix, Arizona
mining facility.

The following table presents selected financial data for the discontinued
operations of the Company's business (in thousands of dollars):
<TABLE><CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                    Three Months Ended   Three Months Ended   Nine Months Ended   Nine Months Ended
                                                      April 30, 2007       April 30, 2006       April 30, 2007     April 30, 2006
-------------------------------------------------  -------------------- -------------------- ---------------------------------------
<S>                                                      <C>                 <C>                  <C>                <C>
Revenue from discontinued operations                      $   --              $  2,947             $     46           $  8,525
-------------------------------------------------  -------------------- -------------------- ------------------- -------------------
Gross Profit (loss) from discontinued operations          $   --              $    (20)            $    (41)          $    710
-------------------------------------------------  -------------------- -------------------- ------------------- -------------------
SG & A from discontinued
operations                                                $   --              $     56             $     53           $    335
-------------------------------------------------  -------------------- -------------------- ------------------- -------------------
Income (loss) from discontinued operations                $   --              $    (76)            $    (94)          $    375
-------------------------------------------------  -------------------- -------------------- ------------------- -------------------
Gain on disposal                                          $   --              $    251             $    --            $    251
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

13. EQUITY TRANSACTIONS

In June 2006, the Company issued 500,000 restricted common shares in connection
with a consulting agreement. The fair value of the consulting services is $ 700
and was recorded as deferred compensation and was being amortized over the
12-month agreement period beginning in June of 2006. In September 2006, the
agreement was cancelled and the shares of common stock were surrendered to the
Company and the unamortized deferred compensation was reversed. The shares have
been cancelled.

14. SUBSEQUENT EVENTS

In May 2007, the Board of Directors approved the sale of the Company's Anchorage
and Fairbanks, Alaska operations for $ 12 million. The carrying amount of such
assets as of the date of the sale was $ 11.3 million consisting of equipment and
parts inventories and fixed assets. The Company recorded a gain on the sale of $
690.

15. INCOME TAXES

The Company periodically evaluates the realization of its deferred tax assets.
Accordingly, during the quarter ended April 30, 2007 the Company increased its
valuation allowance related to such assets by $ 878 based on the expected future
realization to such tax benefits.

                                       15
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
LIQUIDITY AND CAPITAL RESOURCES

Management's Discussion and Analysis of Results of Operations and Liquidity and
Capital Resources (MD&A) is designed to provide a reader of the financial
statements with a narrative on our financial condition, results of operations,
liquidity, critical accounting policies and the future impact of accounting
standards that have been issued but are not yet effective. Our MD&A is presented
in six sections: Overview, Results of Operations, Liquidity and Capital
Resources, Off-Balance Sheet Arrangements, New Accounting Pronouncements and
General Economic Conditions. We believe it is useful to read our MD&A in
conjunction with our Annual Report on Form 10-K for the fiscal year ended July
31, 2006. Amounts are stated in `thousands of dollars' unless otherwise stated.

Section 27A of the Securities Act of 1933, as amended, and Section 21E if the
Securities Act of 1934, as amended (Exchange Act), provide a "safe harbor" for
forward-looking statements to encourage companies to provide prospective
information about their companies. With the exception of historical information,
the matters discussed in this Quarterly Report on Form 10-Q are forward-looking
statements and may be identified by the use of words such as "believe",
"expect", "anticipate", plan, "estimate", "intend" and "potential". The
following discussion and analysis should be read in conjunction with the
Condensed Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Form 10-Q. Information included herein relating to projected
growth and future results and events constitutes forward-looking statements.

Actual results in future periods may differ materially from the forward-looking
statements due to a number of risks and uncertainties, including but not limited
to fluctuations in the construction, agricultural, and industrial sectors; the
success of our restructuring and cost reduction plans; the success of our
equipment rental business; rental industry conditions and competitors;
competitive pricing; our relationship with its suppliers; relations with our
employees; our ability to manage its operating costs; the continued availability
of financing; our ability to refinance/restructure our existing debt;
governmental regulations and environmental matters; risks associated with
regional, national, and world economies; and consummation of the merger and
asset purchase transactions. Any forward-looking statements should be considered
in light of these factors.

OVERVIEW

Western Power & Equipment Corp., a Delaware corporation, (the "Company", "us",
"we" or "our"), is engaged in the sale, rental, and servicing of light,
medium-sized, and heavy construction, agricultural, and industrial equipment,
parts, and related products which are manufactured by Case Corporation ("Case")
and certain other manufacturers and operates a mining company in Arizona. We
believe, based upon the number of locations owned and operated, that we are one
of the largest independent dealers of Case construction equipment in the United
States. Products sold, rented, and serviced include backhoes, excavators,
crawler dozers, skid steer loaders, forklifts, compactors, log loaders,
trenchers, street sweepers, sewer vacuums, and mobile highway signs.

We maintain two distinct segments which include Western Power & Equipment Corp.,
the equipment dealership and Arizona Pacific Materials, LLC, a mining operation.

We operate out of facilities located in the states of Washington, Oregon,
Nevada, California and Alaska for our equipment dealership. Our revenue sources
are generated from equipment (new and used) sales, parts sales, equipment
service and equipment rental. The equipment is distributed to contractors,
governmental agencies, and other customers, primarily for use in the
construction of residential and commercial buildings, roads, levees, dams,
underground power projects, forestry projects, municipal construction and other
projects.

Certain matters discussed herein contain forward-looking statements that are
subject to risks and uncertainties that could cause results to differ materially
from those projected.

Due to the seasonal nature of our business, interim results are not necessarily
indicative of results for the entire year. Our revenue and earnings are
typically greater in the first and fourth quarters of the year, which include
early spring through late fall seasons.

Our strategy had focused on acquiring additional existing distributorships and
rental operations, opening new locations as market conditions warrant, and
increasing sales at its existing locations. In such connection, we had sought to
operate additional Case or other equipment retail distributorships, and sell,
lease, and service additional lines of construction equipment and related
products not manufactured by Case. For the past few years, we have

                                       16
<PAGE>

concentrated on consolidating or closing certain of our stores to improve
operating efficiency and profitability.

Arizona Pacific Materials, LLC, a wholly owned subsidiary purchased in September
2004, operates a surface mine producing cinder and basalt aggregate to supply
material for block manufactures, concrete and asphalt suppliers and landscape
contractors, in the Phoenix, Arizona building/construction market. In November
2006, we closed our Flagstaff location. The assets of the branch were
transferred to our remaining mining location in Phoenix, Arizona.

We have focused on developing the mining operation over the past year to
primarily provide basalt in the Phoenix area housing development construction
market. Over the past few years there has been significant increases in
construction in the Phoenix area, especially in Pinal County, where the mining
operation is located. Although the level of construction starts in the Phoenix
area has slowed in the last year, the Company believes the area is still one of
the top growth areas in the United States. Close proximity to the construction
sites provides basalt and cinder to the contractors at a lower cost, as freight
costs are minimized. Based upon a 2004 third party expert survey, our Phoenix
location had approximately 39,000,000 tons of proven reserves and an additional
38,000,000 tons of indicated reserves of high grade basalt available to be
processed to meet the future demands of the Phoenix market.

RESULTS OF OPERATIONS

Consolidated results

The following table presents unaudited selected financial data for our
consolidated business activities (in thousands of dollars):
<TABLE><CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Consolidated - continuing   Three Months Ended   Three Months Ended   Increase    Nine Months Ended   Nine Months Ended   Increase
operations (in 000's)         April 30, 2007       April 30, 2006    (Decrease)     April 30, 2007      April 30, 2006   (Decrease)
-------------------------- -------------------- -------------------- ----------- ------------------- ------------------- -----------
<S>                            <C>                  <C>              <C>             <C>                 <C>             <C>
Revenue                         $   28,944           $   29,877       $   (933)       $  87,261           $  90,796       $ (3,535)
-------------------------- -------------------- -------------------- ----------- ------------------- ------------------- -----------
 Gross profit                   $    1,233           $    2,872       $ (1,639)       $   6,575           $   9,867       $ (3,292)
-------------------------- -------------------- -------------------- ----------- ------------------- ------------------- -----------
SG&A                            $    2,684           $    2,779       $    (95)       $   8,095           $   8,259       $   (164)
-------------------------- -------------------- -------------------- ----------- ------------------- ------------------- -----------
Operating income (loss)         $   (1,451)          $       93       $ (1,544)       $  (1,520)          $   1,608       $ (3,128)
-------------------------- -------------------- -------------------- ----------- ------------------- ------------------- -----------
Loss from continuing
operations                      $   (2,020)          $   (1,364)      $   (656)       $  (8,547)          $  (2,782)      $ (5,765)
-------------------------- -------------------- -------------------- ----------- ------------------- ------------------- -----------
-------------------------- -------------------- -------------------- ----------- ------------------- ------------------- -----------
EBITDA (1)                      $    1,612           $    1,139       $    473        $     570           $   6,435       $ (5,865)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

     (1) EBITDA (earnings before interest, taxes, depreciation and amortization)
     is calculated as net income(loss) (including discontinued operations) plus
     interest, taxes, depreciation and amortization.

The Three and Nine Months ended April 30, 2007 compared to the Three and Nine
-----------------------------------------------------------------------------
Months ended April 30, 2006.
----------------------------

REVENUES

Revenues from continuing operations for the three-month period ended April 30,
2007 decreased by $ 933 or 3.1% over the comparative three-month period ended
April 30, 2006. For the three-month period ended April 30, 2007 equipment sales
and rentals decreased by $1,283 while product support and mining sales increased
by $ 457. Sales in most of our locations have declined in the third quarter as
compared to the prior year's third quarter. We still maintain our market share
indicating a general decline in the overall economy impacting the construction
equipment industry. Sales were strong in our Washington locations in the third
quarter, increasing by $ 1,724 over the prior year's comparative quarter. Sales
in our Sparks, Nevada location decreased by $ 1,041 compared to the prior year's
third quarter as residential construction has diminished substantially over the
past year. The Sparks location also had an unusually high level of sales in
fiscal year 2006. Sales in our Alaska locations declined by $ 1,024 compared to
the prior year third quarter. Subsequent to April 30, 2007, this branch was sold
(see Subsequent Event Footnote # 14). Governmental sales, which can change
dramatically based upon budget cycles, comprise a significant amount of the
sales in our Alaska locations. Mining sales from our subsidiary in Phoenix,
Arizona increased $ 141 or 33.5% over the prior year's comparative three-month
period as a result of increased basalt production and sales of crushed
aggregates for road, housing and related construction, specifically in the fast
growing area southeast of Phoenix. Our subsidiary is also experiencing more
demand for rip rap (larger sized rock used in support for topography stabilizing
and ballast).

                                       17
<PAGE>

Revenues from continuing operations for the nine-month period ended April 30,
2007 decreased by $ 3,535 or 3.9% over the comparative nine-month period ended
April 30, 2006. For the nine-month period ended April 30, 2007, equipment sales
and rental decreased by $ 5,087 while product support and mining sales increased
by $ 1,778. Although sales have declined, we are maintaining our market share
which indicates a general decline in the construction equipment market. The
decrease are in all our locations except Washington, which has increased by
1,421 over the prior year comparative nine-month period. Sales in our Sparks,
Nevada location decreased by $3,052 compared to the prior year's nine-month
period. Our Sparks location had an unusually high level of sales in fiscal year
2006 compounded by a significant decrease in residential housing construction
during the current fiscal year. Sales in our Buena Park, California and
Anchorage, Alaska locations decreased by $ 2,661 over the prior year's
comparative nine-month period. The Buena Park location has a large sweeper
market, primarily to city governments, and Anchorage maintains a significant
sales relationship with the State of Alaska. These city and state governments
are subject to budget cycles thus causing swings in sales levels. Mining sales
from our subsidiary in Phoenix, Arizona increased $ 843 or 82.6% over the prior
year's comparative nine-month period as a result of increased basalt production
and sales of crushed aggregates for road, housing and related construction,
specifically in the fast growing area southeast of Phoenix. One of our customers
erected an asphalt plant at our mining location in Phoenix, Arizona during
fiscal year 2006 and utilizes our basalt in their production process. Production
in the asphalt plant has now reached full capacity. Our subsidiary is also
experiencing more demand for rip rap, which is a larger sized rock used in
support for hillsides.

GROSS MARGIN

The Company's gross profit margin of 4.2% for the three-month period ended April
30, 2007 was lower than the prior year's comparative period margin of 9.6%.
During the quarter, the Company made several large, used equipment sales at
sales prices below cost through auctions. These auction sales consisted of
severely aged equipment that the Company is no longer the manufacturers'
representative for and resulted in a loss of $ 1,510, primarily related to
pavers. In addition, gross margin was adversely affected by the expenses related
to the production growth and equipment investment in APM, our mining subsidiary.
Production capacity has increased at the mining facility which we believe will
assist in obtaining improved production costs of the products produced. We now
have two processing plants, one for basalt and one for cinder, which enables us
to process multiple products more efficiently.

The Company's gross profit margin of 7.5% for the nine-month period ended April
30, 2007 was lower than the prior year's comparative period margin of 10.8%.
During the quarter, the Company made several large, used equipment sales at
sales prices below cost through auctions. These auction sales consisted of
severely aged equipment that the Company is no longer the manufacturers'
representative for and resulted in a loss of $ 1,510, primarily related to
pavers. In addition, our sales mix changed from that of the prior year's
nine-month period as loader backhoes, which typically maintain higher margins,
represented the largest decline in sales, decreasing by $ 5,910 over the
comparative nine-month period ended April 30, 2006. Both of these factors caused
overall margins to decrease. In addition, margins were adversely affected by the
production growth and equipment investment in APM, our mining subsidiary.
Production capacity has been increased at the mining facility, which we believe
will assist in obtaining improved production costs of the products produced.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

For the three-month period ended April 30, 2007, selling, general, and
administrative ("SG&A") expenses from continuing operations were only slightly
lower by $ 95 compared to the prior year's comparative third quarter. The
majority of these expenses, such as rent, depreciation and salaries, are fixed
in nature and are not impacted by the level of sales.

For the nine-month period ended April 30, 2007, selling, general, and
administrative ("SG&A") expenses from continuing operations decreased $ 164 from
the prior year's comparative nine-month period. The slight decrease in SG&A from
the prior year's comparative period reflects the impact of the increased
business activities and production levels at our mining subsidiary, APM., offset
by decreases in corporate overhead expenses as we have sold several branches.

INCOME FROM CONTINUING OPERATIONS

Loss from continuing operations for the three months ended April 30, 2007
increased by $ 656 compared to the three months ended April 30, 2006, reflecting
the decrease in margin percentages in equipment sales and increased costs

                                       18
<PAGE>

related to continued ramping up of production activities of our mining operation
in the third quarter of fiscal year 2007. The acquisition of additional
processing equipment, we believe, will substantially increase our production
capacity in the future. We anticipate that current demand for our mining
products will allow us to sell as much as we can produce. We now have two
processing plants, one for basalt and one for cinder, which prevents us from
having to shut down production to set up production to process different
products. The Company also recorded a valuation reserve, related to its deferred
tax asset, of $ 878 during the three-month period ending April 30, 2007.

Loss from continuing operations for the nine months ended April 30, 2007
increased by $ 5,765 compared to the nine months ended April 30, 2006, again
reflecting the decreased margins in equipment sales and the increased costs
related to continued ramping up of production activities of our mining operation
in fiscal year 2007 as discussed in the previous paragraph.

INTEREST EXPENSE

Interest expense for the three months ended April 30, 2007 of $ 1,757 was up
from $ 1,352 in the prior year comparative period. This increase from the prior
year's comparative period is the result of accelerated amortization of debt
discount and deferred debt issuance costs related to a negotiated earlier
payment schedule on the convertible debt. We amortized $ 568 of debt discount
(related to warrants issued with the convertible debt transaction in June 2005)
and $ 247 in debt issuance costs were amortized during the three months ended
April 30, 2007 while during the three months ended April 30, 2006, these amounts
were $ 242 and $ 91, respectively.

Interest expense for the nine months ended April 30, 2007 of $ 4,302 was up from
$ 4,283 in the prior year comparative period. The convertible debt balance as of
April 30, 2007 (net of discount) was $18,759 compared to $ 21,122 (net of
discount) as of April 30, 2006. Although the Company has been making payments on
the convertible debt, the decrease in interest costs was offset by the
accelerated amortization of debt discount and deferred debt issuance costs as a
result of a negotiated accelerated payment schedule on the convertible debt.
During the nine-month period ending April 30, 2007, the Company amortized $1,092
in debt discount and $ 432 in deferred debt issuance costs as compared to $ 787
and 341, respectively, for the comparative nine-month period ending April 30,
2006.

NET LOSS

We had a net loss from continuing operations for the quarter ended April 30,
2007 of $ 2,020 compared with a net loss of $ 1,364 for the prior year's
comparative quarter. Included in the current quarter's net loss is a $1,510 loss
on used equipment sold at auction, as described above. The additional increase
in the net loss is a result of lower margins on equipment sales and additional
administrative and production costs at our mining operation as discussed above.
The loss, related to the used equipment, was offset in the quarter ending April
30, 2007 by the gain resulting from the transfer of a 10% ownership interest in
the Company's subsidiary, Arizona Pacific Materials, LLC to satisfy 50% of the
penalty related a technical default of the convertible agreement. The Company
also recorded a valuation reserve, related to its deferred tax asset, of $878
during the three-month period ending April 30, 2007.

We had a net loss from continuing operations for the nine months ended April 30,
2007 of $ 8,547 compared with a net loss of $ 2,782 for the prior year's
comparative period. In January 2007, the Company was in technical default of the
convertible debt agreement because of a late payment, which, under the terms of
the agreement, would result in a penalty of 20% of the loan balance at the time
of the default. The Company recorded an expense of $3,866 in the second quarter
of 2007 for this penalty. The Company has negotiated an agreement with the
convertible debt holders to have 50% of the penalty paid in cash and the
remaining 50% of the penalty satisfied by a transfer of a 10% ownership interest
in the Company's subsidiary, Arizona Pacific Materials, LLC, which resulted in a
gain of $1,933 and a net penalty of $1,933. The new agreement also required an
accelerated payment schedule which resulted in an accelerated amortization of
the related debt discount and debt issuance costs. During the nine-month period
ending April 30, 2007, the Company amortized $1,092 in debt discount and $ 432
in deferred debt issuance costs as compared to $ 787 and 341, respectively, for
the comparative nine-month period ending April 30, 2006.

Discontinued Operations
-----------------------

The following table presents unaudited selected financial data for the
discontinued operations of our business (in thousands of dollars):

                                       19
<PAGE>
<TABLE><CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                    Three Months Ended   Three Months Ended   Nine Months Ended   Nine Months Ended
                                                      April 30, 2007       April 30, 2006      April 30, 2007      April 31, 2006
-------------------------------------------------  -------------------- -------------------- ------------------- -------------------
<S>                                                     <C>                  <C>                 <C>                 <C>
Revenue from discontinued operations                     $     --             $  2,947            $     46            $  8,525
-------------------------------------------------  -------------------- -------------------- ------------------- -------------------
Gross Profit from discontinued operations                $     --             $    (20)           $    (41)           $    710
-------------------------------------------------  -------------------- -------------------- ------------------- -------------------
SG&A from discontinued Operations                        $     --             $     56            $     53            $    335
-------------------------------------------------  -------------------- -------------------- ------------------- -------------------
Income (loss) from discontinued operations               $     --             $    (76)           $    (94)           $    375
-------------------------------------------------  -------------------- -------------------- ------------------- -------------------
Gain on disposal                                         $     --             $    251            $    --             $    251
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

We classify closed or sold branch locations in discontinued operations when the
operations and cash flows of the location have been eliminated from ongoing
operations and when we will not have any significant continuing involvement in
the operation of the branch after disposal. To determine if cash flows had been
or would be eliminated from ongoing operations, we evaluate a number of
qualitative and quantitative factors, including, but not limited to, proximity
to remaining open branch locations and estimates of sales migration from the
closed or sold branch to any branch locations remaining open. The estimated
sales migration is primarily based on our continued level of involvement as a
Case dealer once the branch location is sold or closed and whether there is
continued active solicitation of sales in that market. For purposes of reporting
the operations of branch locations meeting the criteria of discontinued
operations, we report net revenue, gross profit and related selling, general and
administrative expenses that are specifically identifiable to those branch
locations as discontinued operations. Certain corporate level charges, such as
general office expenses and interest expense are not allocated to discontinued
operations because we believe that these expenses are not specific to the branch
location's operations.

Our strategy had focused on acquiring additional existing distributorships and
rental operations, opening new locations as market conditions warrant, and
increasing sales at its existing locations. In such connection, we had sought to
operate additional Case or other equipment retail distributorships, and sell,
lease, and service additional lines of construction equipment and related
products not manufactured by Case. For the past few years, we have concentrated
on consolidating or closing certain of our store locations to improve operating
efficiency and profitability. The locations that have been sold or closed in the
past few years represent locations that we believe were more difficult markets
to maintain in comparison to other locations within our organization. We believe
that focusing our efforts and capital resources on more profitable locations
will result in overall long-term benefits to the Company.

LIQUITY AND CAPITAL RESOURCES

Primary needs for liquidity and capital resources are related to the acquisition
of inventory for sale and our rental fleet. Our primary source of liquidity has
been from operations. As more fully described below, our primary sources of
external liquidity are equipment inventory floor plan financing arrangements
provided to us by the manufacturers of the products we sell as well as the
credit facility or long-term convertible debt more fully described below.

Under inventory floor planning arrangements, the manufacturers of products
provide interest free credit terms on new equipment purchases for periods
ranging from one to twelve months, after which interest commences to accrue
monthly at rates ranging from zero to two percent over the prime rate of
interest. Principal payments are typically made under these agreements at
scheduled intervals and/or as the equipment is rented, with the balance due at
the earlier of a specified date or upon sale of the equipment.

In June 2005, we closed a new $30 million convertible debt facility (convertible
into common shares of the Company at $2.00 per share) payable over the next five
years, with a variable interest rate of LIBOR plus 6%. In March 2006, the
conversion price in the convertible debt agreement was modified from $2.00 per
share to $1.75 per share as part of the approval process for selling our Spokane
and Clarkston locations. The lenders also had the right to lend an additional
$7.5 million to us (within 18 months of the date of the original debt, which has
expired as of 01/31/07) under the same terms as the existing five year
convertible debt. We began making monthly principal payments in January 2006.
The balance of the unpaid principal on the convertible notes (net of discount)
as of April 30, 2007 is $18,759 (net of discount of $1,905) all of which is
short term.

                                       20
<PAGE>

In May 2007, the Board of Directors approved the sale of the Company's Anchorage
and Fairbanks, Alaska operations for $ 12 million. The carrying amount of such
assets as of the date of the sale was $ 11.3 million consisting of equipment and
parts inventories and fixed assets. The Company recorded a gain on the sale of $
690.

The Company has incurred a loss from continuing operations of $ 8,547 for the
nine-month period ended April 30, 2007 compared to a loss of $ 2,782 for the
comparable period in fiscal year 2006. During the 2007 period, the Company
experienced a slightly weaker market and changes in product mix both of which
contributed to lower sales and weaker margins. The loss for the period also
includes a net charge for a late payment penalty of $1,933, regarding a
technical default of the convertible debt, as prescribed under the convertible
debt agreement (20% of the convertible debt balance on the date of the default).
The Company has negotiated an agreement with the convertible debt holders to
have 50% of the penalty paid in cash and the remaining 50% of the penalty
satisfied by a transfer of 10% ownership interest in our subsidiary, Arizona
Pacific Materials, LLC. We also sold equipment at auctions to generate cash
flow, resulting in a loss of $ 1,510. The Company generated cash flow from
operations of $4,125 for the nine-month period ended April 30,2007 period as
compared to $ 10,696 for the 2006 comparative period. A significant amount of
resources continue to be used to fund losses of the mining operations as well as
to make the required payments associated with the convertible debt.

With the technical default, the convertible debt becomes due immediately due.
The Company has negotiated a revised due date of December 31, 2007. The
convertible debt holders are also requiring several additional large principal
payments prior to December 31, 2007. Management is currently in discussions to
refinance the debt but there is no assurance it will succeed in these
refinancing efforts. If management is not successful in obtaining alternative
financing, the Company may have to sell off certain assets or the Company's
operations may not be able to continue. The previously described conditions
raise substantial doubt about the Company's ability to continue as a going
concern.

CASH FLOW FROM OPERATING ACTIVITIES

During the nine months ended April 30, 2007 we had positive cash flows from
operating activities of $4,125. Our cash flow from operating activities
consisted primarily of a reduction of accounts receivable of $3,084 and
depreciation of $3,979. Accounts receivable monitoring and collections have been
an increased focus of ours over the past two years with the need to make
payments on convertible debt, which replaced the revolving line of credit
maintained in prior years. Additional credit personnel have been added to our
staff to accomplish this goal. We continue to analyze our inventory levels and
projected equipment and parts future sales to minimize our investment in
inventory and maximize our ability to support future sales with consideration
given to manufacture delivery lead times. We also continue to analyze each
branch location and its market to assess the past and future contribution each
location has and will make to the overall profitability of the Company.

CASH FLOW FROM INVESTING ACTIVITIES

Purchases of fixed assets during the period were related mainly to the ongoing
replacement of aged operating assets, particularly in our rental fleet and the
need for additional equipment in our mining operation in Phoenix to improve
production levels. In prior years, we had focused less on our rental fleet
inventory levels (allowing inventory levels to decline). We focus on the
utilization of the rental fleet and continue to sell older equipment with less
utilization and replace, as needed, with newer equipment where there is demand.
As interest rates rise, we will continue to analyze the need to rebuild our
rental fleet as customer "buy versus rent" decisions change with economic
conditions.

CASH FLOW FROM FINANCING ACTIVITIES

We increased our floor plan financing by $ 737 and paid $4,489 against our
convertible debt balance during the nine-month period ended April 30, 2007 which
also required us to obtain additional financing through long term notes payable,
which increased by $736. Sales and collections of accounts receivable continue
to be our major source for the payment of long-term debt. We continue to analyze
liquidity and our ability to maintain a balance between inventory levels and
capital resources available for inventory and varying levels of sales. The need
for future capital resources relates primarily to our obligation to make monthly
payments on our convertible debt as outlined in Note 7 of the consolidated
financial statements. We are actively exploring avenues that will generate
longer-term capital sources, including the generation of equity capital. We also
continue to analyze each branch location and its market to assess the demand
each location places on our financing activities and the contribution each
location will make to the overall profitability of the Company as a result of
these financing needs.

                                       21
<PAGE>

CASH AND CASH EQUIVALENTS

Our cash and cash equivalents was $ 632 as of April 30, 2007. As a result of the
accelerated due date of the convertible debt, the Company will be required to
obtain alternate third party financing to support its current operations and to
meet the accelerated convertible debt pay-off. There can be no assurance that
the Company can obtain such third party financing. We are actively exploring
avenues that will generate both short-term and long-term financing sources, as
well as the generation of additional equity capital.

OTHER

As of April 30, 2007, the Company had outstanding convertible instruments,
options and warrants convertible into 24,233,386 shares of common stock, which
could potentially dilute earnings per share.

OFF-BALANCE SHEET ARRANGEMENTS

Our off-balance sheet arrangements are principally lease arrangements associated
with the retail stores and the corporate office.

NEW ACCOUNTING PRONOUNCEMENTS

In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets" ("SFAS 156"), which amends SFAS 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," with
respect to the accounting for separately recognized servicing assets and
servicing liabilities. SFAS 156 permits the choice of the amortization method or
the fair value measurement method, with changes in fair value recorded in
income, for the subsequent measurement for each class of separately recognized
servicing assets and servicing liabilities. The statement is effective for years
beginning after September 15, 2006, with earlier adoption permitted. The Company
does not expect SFAS 156 to have a material impact on the Company's consolidated
financial position or results of operations.

In July 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109" (FIN 48). FIN 48 clarifies the
accounting and reporting for uncertainties in income tax law. FIN 48 prescribes
a comprehensive model for the financial statement recognition, measurement,
presentation and disclosure of uncertain tax positions taken or expected to be
taken in income tax returns. FIN 48 shall be effective for fiscal years
beginning after December 15, 2006. Earlier adoption is permitted as of the
beginning of an enterprise's fiscal year, provided the enterprise has not yet
issued financial statements, including financial statements for any interim
period for that fiscal year. The cumulative effects, if any, of applying FIN 48
will be recorded as an adjustment to retained earnings as of the beginning of
the period of adoption. The Company does not expect FIN 48 to have a material
impact on the Company's consolidated financial position or results of
operations.

In September 2006, the FASB issued SFAS No. 157, "Accounting for Fair Value
Measurements". SFAS No. 157 defines fair value, and establishes a framework for
measuring fair value in generally accepted accounting principles and expands
disclosure about fair value measurements. SFAS No. 157 is effective for the
Company for financial statements issued subsequent to November 15, 2007. The
adoption of this pronouncement is not expected to have any material impact on
the Company's consolidated financial position and results of operations.

In September 2006, the FASB issued SFAS No. 158, "Employees' Accounting for
Defined Benefit Pension and Other Postretirement Plans" (SFAS 158"). SFAS 158
requires an employer to recognize the over-funded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability
in its statement of financial position and to recognize changes in that funded
status in the year in which the changes occur through comprehensive income of a
business entity or changes in unrestricted net assets of a not-for-profit
organization. SFAS 158 also requires an employer to measure the funded status of
a plan as of the date of its year-end statement of financial position, with
limited exceptions. SFAS 158 is effective for the Company for financial
statements issued subsequent to December 15, 2006. The adoption of this
pronouncement did not have a material impact on the Company's consolidated
financial position, results of operations or cash flows.

In September 2006, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 108 ("SAB 108"), which provides interpretive
guidance on how the effects of the carryover or reversal of prior year
misstatements should be considered in quantifying a current year misstatement.
SAB 108 becomes effective in fiscal

                                       22
<PAGE>

year 2007. The adoption of SAB 108 is not expected to have a material impact on
the Company's consolidated financial position, results of operations or cash
flows.

In December 2006, the FASB approved FASB Staff Position (FSP) No. EITF 00-19-2,
"Accounting for Registration Payment Arrangements" ("FSP EITF 00-19-2"), which
specifies that the contingent obligation to make future payments or otherwise
transfer consideration under a registration payment arrangement, whether issued
as a separate agreement or included as a provision of a financial instrument or
other agreement, should be separately recognized and measured in accordance with
SFAS No. 5, "Accounting for Contingencies". FSP EITF 00-19-2 also requires
additional disclosure regarding the nature of any registration payment
arrangements, alternative settlement methods, the maximum potential amount of
consideration and the current carrying amount of the liability, if any. The
guidance in FSP EITF 00-19-2 amends FASB Statements No. 133, "Accounting for
Derivative Instruments and Hedging Activities", and No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity", and FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others", to include scope exceptions for registration payment arrangements.

FSP EITF 00-19-2 is effective immediately for registration payment arrangements
and the financial instruments subject to those arrangements that are entered
into or modified subsequent to the issuance date (December 21, 2006) of this
FSP, or for financial statements issued for fiscal years beginning after
December 15, 2006, and interim periods within those fiscal years, for
registration payment arrangements entered into prior to the issuance date of
this FSP. The adoption of this pronouncement is not expected to have an impact
on the Company's consolidated financial position, results of operations or cash
flows.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 provides
companies with an option to report selected financial assets and liabilities at
fair value. The objective of SFAS 159 is to reduce both complexity in accounting
for financial instruments and the volatility in earnings caused by measuring
related assets and liabilities differently. Generally accepted accounting
principles have required different measurement attributes for different assets
and liabilities that can create artificial volatility in earnings. The FASB has
indicated it believes that SFAS 159 helps to mitigate this type of
accounting-induced volatility by enabling companies to report related assets and
liabilities at fair value, which would likely reduce the need for companies to
comply with detailed rules for hedge accounting. SFAS 159 also establishes
presentation and disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes for similar types
of assets and liabilities.

SFAS 159 does not eliminate disclosure requirements included in other accounting
standards, including requirements for disclosures about fair value measurements
included in SFAS 157 and SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments." SFAS 159 is effective for the Company as of the
beginning of fiscal year 2009. The Company has not yet determined the impact
SFAS 159 may have on its consolidated financial position, results of operations,
or cash flows.

GENERAL ECONOMIC CONDITIONS

Controlling inventory is a key ingredient to the success of an equipment
distributor because the equipment is characterized by long order cycles,
high-ticket prices, and the related exposure to "flooring" interest. Our
interest expense may increase if inventory is too high or interest rates rise.
We manage our inventory through Company-wide information and inventory sharing
systems wherein all locations have access to the Company's entire inventory. In
addition, we closely monitor inventory turnover by product categories and we
place equipment orders based upon targeted turn ratios.

All of the products and services we provide are either capital equipment or
included in capital equipment, which are used in the construction, industrial,
and agricultural sectors. Accordingly, our sales are affected by inflation or
increased interest rates, which tend to hold down new construction, and
consequently adversely affect demand for the equipment sold and rented by us. In
addition, although agricultural equipment sales are less than 2% of our total
revenues, factors adversely affecting the farming and commodity markets also can
adversely affect our agricultural equipment related business.

Our business can also be affected by general economic conditions in its
geographic markets as well as general national and global economic conditions
that affect the construction, industrial, and agricultural sectors. Further
erosion in North American and/or other countries' economies could adversely
affect our business.

                                       23
<PAGE>

Although the principal products sold, rented, and serviced by us are
manufactured by Case, we also sell, rent, and service equipment and sell related
parts (e.g., tires, trailers, and compaction equipment) manufactured by others.
Approximately 51% of our net sales for the nine months ended April 30, 2007
resulted from sales, rental, and servicing of products manufactured by companies
other than Case. That compares with a figure of 48% for the nine-month period
ended April 30, 2006. These other manufacturers offer various levels of supplies
and marketing support along with purchase terms, which vary from cash upon
delivery to interest-free, 12-month flooring.

We purchase equipment and parts inventory from Case and other manufacturers. No
supplier other than Case accounted for more than 10% of such inventory purchases
during the nine months ended April 30, 2007. While maintaining its commitment to
Case to primarily purchase Case Equipment and parts as an authorized Case
dealer, we plan to expand the number of products and increase the aggregate
dollar value of those products which we purchases from manufacturers other than
Case in the future.

The generally soft economic conditions in the equipment market, particularly in
the northwest, have contributed to a decline in equipment sales in prior years.
A further softening in the industry could severely affect our sales and
profitability. Market specific factors could also adversely affect one or more
of our target markets and/or products.















                                       24
<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in interest rates. Market risk is the
potential loss arising from adverse changes in market rates and prices such as
interest rates. For fixed rate debt, interest rate changes affect the fair value
of financial instruments but do not impact earnings or cash flows. Conversely
for floating rate debt, interest rate changes generally do not affect the fair
market value but do impact future earnings and cash flows, assuming other
factors are held constant. At April 30, 2007, we had variable rate floor plan
payables, notes payable, convertible debt and short-term debt of approximately
$47.0 million. Holding other variables constant, the pre-tax earnings and cash
flow impact for the next year resulting from a one-percentage point increase in
interest rates would be approximately $0.47 million. Our policy is not to enter
into derivatives or other financial instruments for trading or speculative
purposes.

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms and that such information
is accumulated and communicated to our management, including our CEO and CFO, as
appropriate, to allow for timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and management is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(e) and 15d-15(e), we carried out an evaluation,
under the supervision and with the participation of our management, including
our CEO and CFO, of the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this
report. Based on the foregoing, the CEO and CFO concluded that our disclosure
controls and procedures were effective at the reasonable assurance level.

There has been no change in our internal controls over financial reporting
during the most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal controls over financial
reporting.

Changes in Internal Controls
----------------------------

There were no significant changes in our internal controls over financial
reporting that occurred during the nine months ended April 30, 2007 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

Limitations on the Effectiveness of Controls
--------------------------------------------

We believe that a control system, no matter how well designed and operated,
cannot provide absolute assurance that the objectives of the control system are
met, and no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within a company have been
detected.

                                       25
<PAGE>

PART II. OTHER INFORMATION

     ITEM 1. LEGAL PROCEEDINGS

          Incident to the Company's business activities, it may at times be a
          party to legal proceedings, lawsuits and claims. Such matters are
          subject to uncertainties whose outcomes are not predictable with
          assurance. Management believes, at this time, there are no ongoing
          matters, which will have a material adverse effect on the Company's
          consolidated financial statements.

     ITEM 1A. RISK FACTORS

          None.

     ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

          None.

     ITEM 3. DEFAULTS UPON SENIOR SECURITIES

          In January 2007, the Company was in technical default of the
          convertible debt agreement because of a late payment, which, under the
          terms of the agreement, would result in a penalty of 20% of the loan
          balance at the time of the default. The Company has negotiated an
          agreement with the convertible debt holders to have 50% of the penalty
          paid in cash and the remaining 50% of the penalty satisfied by a
          transfer of 10% ownership interest in our subsidiary, Arizona Pacific
          Materials, LLC. In January 2007, the Company recorded a $3.9 million
          expense for this penalty. With the technical default, the convertible
          debt becomes due immediately due. A revised due date of December 31,
          2007 has been negotiated. The convertible debt holders are also
          requiring several additional large principal payments prior to
          December 31, 2007.

     ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          None.

     ITEM 5. OTHER INFORMATION

          None.

     ITEM 6. EXHIBITS

          Exhibit 31.1, 31.2     Rule 13a-14(a)/15d-14(a) Certification
          Exhibit 32.1           Certification by the Chief Executive Officer
                                 Relating to a Periodic Report Containing
                                 Financial Statements.*
          Exhibit 32.2           Certification by the Chief Financial Officer
                                 Relating to a Periodic Report Containing
                                 Financial Statements.*

          * The Exhibit attached to this Form 10-Q shall not be deemed "filed"
          for purposes of Section 18 of the Securities Exchange Act of 1934 (the
          "Exchange Act") or otherwise subject to liability under that section,
          nor shall it be deemed incorporated by reference in any filing under
          the Securities Act of 1933, as amended, or the Exchange Act, except as
          expressly set forth by specific reference in such filing.

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<PAGE>

                                    SIGNATURE

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.


WESTERN POWER & EQUIPMENT CORP. & SUBSIDIARY

June 14, 2007

                                         By: /s/ Mark J. Wright
                                             ------------------------
                                             Mark J. Wright
                                             Vice President of Finance and
                                             Chief Financial Officer























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