================================================================================


                                    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 January 31, 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 March 15, 2007.

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

                                        1
<PAGE>

                  WESTERN POWER & EQUIPMENT CORP. & SUBSIDIARY
                                      INDEX
<TABLE><CAPTION>

PART I. FINANCIAL INFORMATION                                                       Page Number

   Item 1.     Financial Statements
<S>                                                                                     <C>
   Condensed Consolidated Balance Sheets
      January 31, 2007 (Unaudited) and July 31, 2006................................     3

   Condensed Consolidated Statements of Operations (Unaudited)
      Three months ended January 31, 2007 and January 31, 2006 .....................     4

   Condensed Consolidated Statements of Operations (Unaudited)
      Six months ended January 31, 2007 and January 31, 2006 .......................     5

   Condensed Consolidated Statements of Cash Flows (Unaudited)
      Six months ended January 31, 2007 and January 31, 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........................     16-23

   Item 3.     Quantitative and Qualitative Disclosures about Market Risk...........     24

   Item 4.     Controls and Procedures..............................................     24


PART II. OTHER INFORMATION

   Item 1.     Legal Proceedings....................................................     25

   Item 1A.    Risk Factors.........................................................     25

   Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds..........     25

   Item 3.     Defaults Upon Senior Securities......................................     25

   Item 4.     Submission of Matters to a Vote of Security Holders..................     25

   Item 5.     Other Information....................................................     25

   Item 6.     Exhibits.............................................................     25

SIGNATURES..........................................................................     26
</TABLE>

                                        2
<PAGE>
<TABLE><CAPTION>
ITEM 1. FINANCIAL STATEMENTS

                  WESTERN POWER & EQUIPMENT CORP. & SUBSIDIARY
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)
                                                                                      January 31,       July 31,
                                                                                         2007            2006
                                                                                      ----------      ----------
                                                                                      (Unaudited)
                                     ASSETS
<S>                                                                                   <C>             <C>
Current assets:
     Cash and cash equivalents ..................................................     $      931      $    1,072
     Accounts receivable, less allowance for doubtful
       accounts of $ 933 and $ 864 ..............................................          5,387           9,078
     Inventories - net ..........................................................         36,142          42,483
     Deferred tax asset .........................................................            669             669
     Prepaid expenses ...........................................................            194             141
                                                                                      ----------      ----------
            Total current assets ................................................         43,323          53,443
                                                                                      ----------      ----------
Fixed assets:
     Property, plant and equipment (net) ........................................          5,992           5,230
     Rental equipment fleet (net) ...............................................          5,660           3,423
                                                                                      ----------      ----------
            Total fixed assets ..................................................         11,652           8,653
                                                                                      ----------      ----------
Other assets
     Security Deposits ..........................................................            379             379
     Deferred taxes .............................................................            831             831
     Deferred debt issuance costs ...............................................          1,112           1,297
                                                                                      ----------      ----------
         Total other assets .....................................................          2,322           2,507
                                                                                      ----------      ----------

Total assets ....................................................................     $   57,297      $   64,603
                                                                                      ==========      ==========

                       LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
     Borrowings under floor plan financing ......................................     $   21,562          22,627
     Convertible debt, net of discount of $ 2,474 and $ 1,046 ...................         20,757           6,176
     Notes payable-related parties, net of discount of $ 17 and $ 28 ............            425             472
     Notes payable ..............................................................            773             629
     Accounts payable ...........................................................         10,111           9,937
     Accrued payroll and vacation ...............................................          1,099           1,404
     Other accrued liabilities ..................................................          1,417           1,567
     Capital lease obligation ...................................................             59              56
                                                                                      ----------      ----------
         Total current liabilities ..............................................         56,203          42,868
                                                                                      ----------      ----------
Long-term liabilities
     Notes Payable ..............................................................          1,646           1,573
     Convertible debt, net of discount of $ 0 and $ 2,404 .......................           --            14,047
     Deferred lease income ......................................................            221             236
     Capital lease obligation ...................................................            723             755
                                                                                      ----------      ----------
      Total long-term liabilities ...............................................          2,590          16,611
                                                                                      ----------      ----------
Total liabilities ...............................................................         58,793          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 January 31, 2007 and July 31, 2006, respectively .......             11              12
     Additional paid-in capital .................................................         23,432          24,072
     Deferred compensation ......................................................           --              (642)
     Accumulated deficit ........................................................        (24,095)        (17,474)
     Less common stock in treasury, at cost
       (130,300 shares) .........................................................           (844)           (844)
                                                                                      ----------      ----------
         Total stockholders' equity .............................................         (1,496)          5,124
                                                                                      ----------      ----------
Total liabilities and stockholders' equity ......................................     $   57,297      $   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
                                                                     January 31,
                                                                2007            2006
                                                             ----------      ----------
<S>                                                          <C>             <C>
Net revenues ...........................................     $   29,031      $   31,223

Cost of revenues (includes depreciation of
   $916 and $930, respectively) ........................         26,926          28,107
                                                             ----------      ----------

Gross profit ...........................................          2,105           3,116

Selling, general and administrative expenses ...........          2,555           2,542
                                                             ----------      ----------

Operating (loss) income ................................           (450)            574

Other expense:
     Interest expense ..................................         (1,308)         (1,367)
     Convertible debt penalty ..........................         (3,900)           --
     Other expense .....................................            (97)            (96)
                                                             ----------      ----------

Loss before income tax provision .......................         (5,755)           (889)

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

Loss from continuing operations ........................         (5,773)           (907)

Income (loss) from discontinued operations .............            (79)            149
                                                             ----------      ----------

Net loss ...............................................     $   (5,852)     $     (758)
                                                             ==========      ==========

Basic and diluted earnings (loss) per common share
     Continuing operations .............................     $    (0.51)     $    (0.09)

     Discontinued operations ...........................          (0.01)           0.02
                                                             ----------      ----------

     Net loss per share ................................     $    (0.52)     $    (0.07)
                                                             ==========      ==========

Weighted average outstanding common shares for basic and
     diluted  net loss per common share ................         11,230          10,180
                                                             ==========      ==========
</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>

                                                                  Six Months Ended
                                                                     January 31,
                                                                2007            2006
                                                             ----------      ----------
<S>                                                          <C>             <C>
Net revenues ...........................................     $   58,317      $   60,799

Cost of revenues (includes depreciation of
   $2,483 and $2,353, respectively) ....................         52,975          54,019
                                                             ----------      ----------

Gross profit ...........................................          5,342           6,780

Selling, general and administrative expenses ...........          5,412           5,265
                                                             ----------      ----------

Operating (loss) income ................................            (70)          1,515

Other expense:
     Interest expense ..................................         (2,578)         (2,930)
     Convertible debt penalty ..........................         (3,900)           --
     Other expense .....................................             54              30
                                                             ----------      ----------

Loss before income tax provision .......................         (6,494)         (1,385)

Income tax provision ...................................             33              34
                                                             ----------      ----------

Loss from continuing operations ........................         (6,527)         (1,419)

Income (loss) from discontinued operations .............            (94)            452
                                                             ----------      ----------

Net loss ...............................................     $   (6,621)     $     (967)
                                                             ==========      ==========

Basic and diluted earnings (loss) per common share
     Continuing operations .............................     $    (0.58)     $    (0.14)

     Discontinued operations ...........................          (0.01)           0.04
                                                             ----------      ----------

     Net loss per share ................................     $    (0.59)     $    (0.10)
                                                             ==========      ==========

Weighted average outstanding common shares for basic and
     diluted net loss per common share .................         11,230          10,180
                                                             ==========      ==========
</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>
                                                                  Six Months Ended
                                                                     January 31,
                                                                2007            2006
                                                             ----------      ----------
<S>                                                          <C>             <C>
Cash flows from operating activities:
     Net loss ..........................................     $   (6,621)     $     (967)

Adjustments to reconcile net loss from operation
   to net cash provided by operating activities:
     Depreciation ......................................          2,958           3,303
     Bad debts .........................................            111               9
     Amortization of debt discount .....................            534             538
     Gain on sale of fixed assets and rental
     equipment .........................................           (144)           (308)
     Amortization of debt issuance costs ...............            185             250
     Convertible debt penalty ..........................          3,900            --
     Stock based compensation ..........................           --                18
     Changes in assets and liabilities:
         Accounts receivable ...........................          3,579           3,047
         Inventories ...................................            377           3,308
         Prepaid expenses and other assets .............            (52)            232
         Accounts payable and accrued expenses .........            174          (1,584)
         Accrued payroll and vacation ..................           (305)            (34)
         Other accrued liabilities .....................           (150)            210
         Deferred lease income .........................            (15)            (14)
                                                             ----------      ----------
Net cash provided by operating activities ..............          4,531           8,008
                                                             ----------      ----------

Cash flows from investing activities:
     Purchase of property, plant and equipment .........           (827)           (355)
     Purchases of rental equipment .....................           (428)         (1,069)
     Proceeds on sale of fixed assets ..................             58              42
     Proceeds on sale of rental equipment ..............          1,349           1,819
                                                             ----------      ----------
Net cash provided by investing activities ..............            152             437
                                                             ----------      ----------

Cash flows from financing activities:
     Principal payments on capital leases ..............            (27)            (17)
     Payments on short-term borrowings .................           (200)           --
     Short-term debt borrowings ........................            141            --
     Inventory floor plan financing ....................         (1,064)         (7,128)
     Bridge loan payments ..............................           --            (1,333)
     Long term debt borrowings .........................            736           1,928
     Long term debt payments ...........................           (521)           (113)
     Payments on convertible debt ......................         (3,889)         (1,111)
                                                             ----------      ----------
Net cash used in financing activities ..................         (4,824)         (7,774)
                                                             ----------      ----------

Increase (decrease) in cash and cash equivalents .......           (141)            671
Cash and cash equivalents at beginning of period .......          1,072             855
                                                             ----------      ----------

Cash and cash equivalents at end of period .............     $      931      $    1,526
                                                             ==========      ==========

Supplemental disclosures:
Interest paid ..........................................     $    1,862      $    2,372
Income taxes paid ......................................              6            --

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 six month periods
ended January 31, 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 operations of $ 6,621 for the six-month
period ended January 31, 2007 compared to a loss of $ 967 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 flow from operations of
$4,531 for the six-month period ended January 31, 2007 as compared to $ 8,008
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 period also
includes a charge for a late payment penalty of $3,900, 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 tentatively 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.

With the technical default, the convertible debt becomes due immediately due.
The Company is negotiating 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.

                                        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
Company does not expect the new standard 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 Company does not expect
the new standard to 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 six months ended January
31, 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 24,576,243 shares as of January 31, 2007. As of
January 31, 2006, potentially dilutive securities consisted of outstanding stock
options and warrants to acquire 28,650,218 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 January 31, 2007, all options were fully
vested and during the year ended July 31, 2006 and the six months ended January
31, 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):
                                                       January 31,     July 31,
                                                           2007          2006
                                                        ---------     ---------
   Equipment (net of reserves of $3,435 and
    $3,429, respectively):
     New                                                $  26,288     $  30,939
     Used                                                   4,445         4,724
   Mining products                                            521           825
   Parts (net of reserves of $866
    and $734, respectively)                                 4,888         5,995
                                                        ---------     ---------
                                                        $  36,142     $  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 January 31, 2007, the LIFO
reserve was $ 79 and as of July 31, 2006 the LIFO reserve was $ 371.

6. FIXED ASSETS

Fixed assets consist of the following (`000's):
                                                       January 31,     July 31,
                                                           2007          2006
                                                        ---------     ---------
   Operating property, plant and equipment:
     Land                                               $   1,277     $   1,277
     Buildings                                              1,185         1,152
        Machinery and equipment                             5,811         4,751
     Office furniture and fixtures                          1,767         1,779
     Computer hardware and software                         1,080         1,068
     Vehicles                                               1,414         1,399
     Leasehold improvements                                 1,087         1,082
                                                        ---------     ---------
                                                           13,621        12,508
     Less: accumulated depreciation                        (7,629)       (7,278)
                                                        ---------     ---------
   Property, plant, and equipment (net)                 $   5,992     $   5,230
                                                        =========     =========

   Rental equipment fleet                               $   7,054     $   4,757
     Less: accumulated depreciation                        (1,394)       (1,334)
                                                        ---------     ---------
   Rental equipment (net)                               $   5,660     $   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 January 31, 2007 and July 31, 2006, fixed assets (net) includes property
under capital leases in the amount of $ 432 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 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%).

                                       10
<PAGE>

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)
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
January 31, 2007 is $20,757 (net of discount of $ 2,474), all of which is short
term. The amounts amortized to interest expense during the six months ended
January 31, 2007 and January 31, 2006 were $ 523 and $ 497, 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 $3,900 in January 2007 for this penalty.
The Company has tentatively 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 th Company's
subsidiary, Arizona Pacific Materials, LLC.

                                       11
<PAGE>

With the technical default, the convertible debt becomes due immediately due.
The Company is negotiating 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
-------------
<TABLE><CAPTION>

   Notes payable consists of the following: (000's)
                                                                                  January 31,      July 31,
   Description                                                                       2007            2006
                                                                                  ----------      ----------
<S>                                                                               <C>             <C>
   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                                                                         547             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                                                     1,791           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                                      31              36
                                                                                  ----------      ----------

   Total                                                                          $    2,419      $    2,202
     Less current portion                                                               (773)           (629)
                                                                                  ----------      ----------
   Total Long-Term Notes Payable                                                  $    1,646      $    1,573
                                                                                  ==========      ==========
</TABLE>

Future minimum payments under these noncancelable notes payable as of January
31, 2007, are as follows:


Twelve months ending January 31,          Notes      Convertible
                                         Payable        Debt          Total
                                        --------      --------      --------

   2008                                 $    773      $ 23,231      $ 24,004
   2009                                      724           --            724
   2010                                      654           --            654
   2011                                      203           --            203
   2012                                       34           --             34
   Thereafter                                 31           --             31
                                        --------      --------      --------
Total annual payments                      2,419        23,231        25,650
Less debt discount                           --         (2,474)       (2,474)
                                        --------      --------      --------
Present value of minimum payments
(net of discount)                          2,419        20,757        23,176
Less current portion                        (773)      (20,757)      (21,530)
                                        --------      --------      --------
Long-term portion                       $  1,646      $    --       $  1,646
                                        ========      ========      ========


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-

                                       12
<PAGE>

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 $ 877 and $ 675 for the six months
ended January 31, 2007 and 2006, respectively.

Future minimum lease payments under all noncancelable leases as of January 31,
2007, are as follows (`000's):

                                                       Capital     Operating
   Twelve months ending January 31,                    leases       leases

   2008                                                   132        1,538
   2009                                                   132        1,178
   2010                                                   132        1,103
   2011                                                   132          890
   2012                                                   132          600
   Thereafter                                             506        1,517
                                                      -------      -------
   Total annual lease payments                        $ 1,166      $ 6,826
                                                                   =======
   Less amount representing interest
     at a rate of 6.5%                                   (384)
                                                      -------
   Present value of minimum lease payments                782
   Less current portion                                   (59)
                                                      -------
   Long-term portion                                  $   723
                                                      =======

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 January 31, 2007, such purchase commitments totaled $ 9,995.

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        Six Months Ended
   Net Revenues                       January 31,              January 31,
                                    2007       2006         2007        2006
                                  -------    -------      -------     -------
   Equipment Sales                $20,822    $22,885      $40,572     $43,382

   Equipment Rental                 1,217      1,762        3,073       4,067

   Mining Sales                       869        508        1,299         598

   Product Support                  6,123      6,068       13,373      12,752
                                  -------    -------      -------     -------
   Total                          $29,031    $31,223      $58,317     $60,799
                                  =======    =======      =======     =======

   Business product category      Three Months Ended        Six Months Ended
   Gross Profit                       January 31,              January 31
                                    2007       2006         2007        2006
                                  -------    -------      -------     -------
   Equipment Sales                $   747    $ 1,408      $ 2,230     $ 3,185

   Equipment Rental                   178        591          580         899

   Mining Sales                         1        (53)        (328)         99

   Product Support                  1,179      1,170        2,860       2,597
                                  -------    -------      -------     -------
   Total                          $ 2,105    $ 3,116      $ 5,342     $ 6,780
                                  =======    =======      =======     =======

                                       13
<PAGE>

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 January 31, 2007

   Net revenues                                        $ 28,162          $    869          $ 29,031
                                                       ========          ========          ========
   Loss from continuing operations                     $ (5,497)         $   (276)         $ (5,773)
                                                       ========          ========          ========
   Net loss                                            $ (5,361)         $   (491)         $ (5,852)
                                                       ========          ========          ========
   Capital expenditures                                $    478          $    211          $    689
                                                       ========          ========          ========

   For the Three Months Ended January 31, 2006

   Net revenues                                        $ 30,703          $    520          $ 31,223
                                                       ========          ========          ========
   Operating loss from continuing operations           $   (507)         $   (400)         $   (907)
                                                       ========          ========          ========
   Net loss                                            $   (344)         $   (414)         $   (758)
                                                       ========          ========          ========
   Capital expenditures                                $  1,163          $     10          $  1,173
                                                       ========          ========          ========

   For the Six Months Ended January 31, 2007

   Net revenues                                        $ 57,017          $  1,300          $ 58,317
                                                       ========          ========          ========
   Loss from continuing operations                     $ (5,295)         $ (1,232)         $ (6,527)
                                                       ========          ========          ========
   Net loss                                            $ (5,041)         $ (1,580)         $ (6,621)
                                                       ========          ========          ========
   Capital expenditures                                $    547          $    708          $  1,255
                                                       ========          ========          ========
   Total identifiable assets at January 31, 2007       $ 51,489          $  5,808          $ 57,297
                                                       ========          ========          ========

   For the Six Months Ended January 31, 2006

   Net revenues                                        $ 60,201          $    598          $ 60,799
                                                       ========          ========          ========
   Operating loss from continuing operations           $   (802)         $   (617)         $ (1,419)
                                                       ========          ========          ========
   Net loss                                            $   (142)         $   (825)         $   (967)
                                                       ========          ========          ========
   Capital expenditures                                $  1,226          $    198          $  1,424
                                                       ========          ========          ========
   Total identifiable assets at January 31, 2006       $ 57,776          $  4,324          $ 62,100
                                                       ========          ========          ========
</TABLE>

11. CONCENTRATION OF CREDIT RISK

Approximately 49% and 52% of the Company's net sales for both the three and six
month periods ended January 31, 2007 and January 31, 2006, respectively,
resulted from sales, rental, and servicing of products manufactured by Case.

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 fiscal year 2007.

                                       14
<PAGE>

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.

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):

                           Three Months  Three Months   Six Months   Six Months
                              Ended         Ended         Ended        Ended
                            January 31,   January 31,   January 31,  January 31,
                               2007          2006          2007         2006
--------------------------------------------------------------------------------
Revenue from discontinued
operations                   $    --       $  2,192       $    46     $  5,578

Gross Profit (loss) from
discontinued operations      $   (48)      $    361       $   (41)    $    711

SG & A from discontinued
operations                   $    31       $    211       $    53     $    260

Income (loss) from
discontinued operations      $   (79)      $    149       $  (94)     $    452

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.


                                       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

                                       16
<PAGE>

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 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>

                            Three Months   Three Months                Six Months     Six Months
                               Ended          Ended                      Ended          Ended
Consolidated - continuing    January 31,    January 31,    Increase    January 31,    January 31,   Increase
operations (in 000's)           2007           2006       (Decrease)      2007           2006      (Decrease)
-------------------------------------------------------------------------------------------------------------
<S>                           <C>            <C>          <C>           <C>            <C>         <C>
Revenue                       $ 29,031       $ 31,223     $ (2,192)     $ 58,317       $ 60,799    $ (2,482)

Gross profit                  $  2,105       $  3,116     $ (1,011)     $  5,342       $  6,780    $ (1,438)

SG&A                          $  2,555       $  2,542     $     13      $  5,412       $  5,265    $    147

Operating income (loss)       $   (450)      $    574     $ (1,024)     $    (70)      $  1,515    $ (1,585)

Loss from continuing
operations                    $ (5,773)      $   (907)    $ (4,866)     $ (6,527)      $ (1,419)   $ (5,108)
-------------------------------------------------------------------------------------------------------------
EBITDA (1)                    $ (3,352)      $  2,203     $ (5,555)     $ (1,052)      $  4,751    $ (5,803)
</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 Six Months ended January 31, 2007 compared to the Three and Six
-----------------------------------------------------------------------------
Months ended January 31, 2006.
------------------------------

REVENUES

Revenues from continuing operations for the three-month period ended January 31,
2007 decreased by $2,192 or 7.0% over the comparative three-month period ended
January 31, 2006. For the three-month period ended January 31, 2007 equipment
sales and rentals decreased by $2,608 while product support and mining sales
increased by $416. Sales continued to be strong in our Northern California
locations in the second quarter. Sales in our Sparks, Nevada location decreased
by $1,385 compared to the prior year's second quarter. Our Sparks location had
an unusually high level of sales in fiscal year 2006. Sales in our Alaska
locations declined by $852 compared to the prior year second quarter.
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 $ 430 or 70.8% 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.

Revenues from continuing operations for the six-month period ended January 31,
2007 decreased by $2,482 or 4.1% over the comparative six-month period ended
January 31, 2006. For the six-month period ended January 31, 2007, equipment
sales and rental decreased by $3,804 while product support and mining sales
increased by $1,322. The decrease occurred for the most part in the second
quarter as described above. With the exception of our Sparks, Nevada and Buena
Park, California locations, sales continue to remain strong. Sales in our
Sparks,

                                       17
<PAGE>

Nevada location decreased by $2,722 compared to the prior year's second
quarter. Our Sparks location had an unusually high level of sales in fiscal year
2006. Sales in our Buena Park, California location decreased by $1,033 over the
prior year's comparative six-month period. The Buena Park location has a large
sweeper market, primarily to city governments, which are subject to budget
cycles. Mining sales from our subsidiary in Phoenix, Arizona increased $ 701 or
117.3% over the prior year's comparative six-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.

GROSS MARGIN

The Company's gross profit margin of 7.2% for the three-month period ended
January 31, 2007 was lower than the prior year's comparative period margin of
9.9%. During the quarter, the Company made several large used equipment sales
with lower than average margin which affected overall margin on equipment sales
for the quarter. In addition, gross margin was affected by expenses related to
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 prevents us
from having to shut down production to set up production to process different
products.

The Company's gross profit margin of 9.2% for the six-month period ended January
31, 2007 was lower than the prior year's comparative period margin of 11.1%.
Loader backhoes, which typically maintain higher margins, represented the
largest decline in sales, decreasing by $5,500 and excavator and paver sales,
which maintain lower margins, increased by $1,181 compared to the six-month
period ended January 31, 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. 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.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

For the three-month period ended January 31, 2007, selling, general, and
administrative ("SG&A") expenses from continuing operations were only slightly
higher by $13 compared to the prior year's comparative second 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. The slight increase 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.

For the six-month period ended January 31, 2007, selling, general, and
administrative ("SG&A") expenses from continuing operations increased $147 from
the prior year's comparative second quarter. The slight increase in SG&A from
the prior year's comparative period also reflects the impact of the increased
business activities and production levels at our mining subsidiary, APM.

INCOME FROM CONTINUING OPERATIONS

Loss from continuing operations for the three months ended January 31, 2007
increased by $ 4,866 compared to the three months ended January 31, 2006, again
reflecting the decrease in margin percentages in equipment sales and increased
costs related to continued ramping up of production activities of our mining
operation in the second 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.

Loss from continuing operations for the six months ended January 31, 2007
increased by $5,108 compared to the six months ended January 31, 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.

                                       18
<PAGE>

INTEREST EXPENSE

Interest expense for the three months ended January 31, 2007 of $ 1,308 was down
from $ 1,367 in the prior year comparative period. This decrease from the prior
year's comparative period is the result of payments, beginning in December 2005,
against the principal of the convertible debt. In addition, $ 261 of debt
discount (related to warrants issued with the convertible debt transaction in
June 2005) and $ 92 in debt issuance costs were amortized during the three
months ended January 31, 2007 while during the three months ended January 31,
2006, these amounts were $ 233 and $82, respectively.

Interest expense for the six months ended January 31, 2007 of $ 2,578 was down
from $ 2,930 in the prior year comparative period. This decrease from the prior
year's comparative period is the result of payments, beginning in December 2005,
against the principal of the convertible debt. As of January 2007, interest
bearing debt totaled $ 43,995 compared to $ 47,467 as of January 31, 2006. The
decline in interest bearing debt was somewhat offset by increases in interest on
the variable rate debt such as the convertible debt. During the first six months
of fiscal year 2007, the average interest rate on the convertible debt was 1.5%
higher than the comparative prior year six-month period. In addition, $ 523 of
debt discount (related to warrants issued with the convertible debt transacted
in June 2005) and $ 185 in debt issuance costs were amortized during the six
months ended January 31, 2007 while during the six months ended January 31,
2006, these amounts were $ 497 and $107, respectively.

NET LOSS

We had a net loss from continuing operations for the quarter ended January 31,
2007 of $ 5,773 compared with a net loss of $ 907 for the prior year's
comparative quarter. Included in the current quarter's net loss is a $3,900
penalty accrual related to a late payment in January on the convertible debt. No
such charge occurred in the second quarter of fiscal year 2006. 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.

We had a net loss from continuing operations for the six months ended January
31, 2007 of $ 6,527 compared with a net loss of $ 1,419 for the prior year's
comparative period. This primarily relates to the effects of the second quarter
as discussed in the previous paragraph.

Discontinued Operations

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

                           Three Months  Three Months   Six Months   Six Months
                              Ended         Ended         Ended        Ended
                            January 31,   January 31,   January 31,  January 31,
                               2007          2006          2007         2006
--------------------------------------------------------------------------------
Revenue from discontinued
operations                   $   --        $  2,192      $    46      $  5,578

Gross Profit from
discontinued operations      $   (48)      $    361      $   (41)     $    711

SG&A from discontinued
Operations                   $    31       $    211      $    53      $    260

Operating income (loss)
from discontinued
operations                   $   (79)      $    149      $   (94)     $    452


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

                                       19
<PAGE>

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 January 31, 2007 is $20,757 (net of discount of $2,474) all of is short
term.

The Company has incurred a loss from continuing operations of $ 6,527 for the
six month period ended January 31, 2007 compared to a loss of $ 1,419 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 flow from operations
of $4,531 for the six month period ended January 31,2007 period as compared to $
8,008 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
period also includes a charge for a late payment penalty of $3,900, 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 tentatively 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.

With the technical default, the convertible debt becomes due immediately due.
The Company is negotiating 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 six months ended January 31, 2007 we had positive cash flows from
operating activities of $4,531. Our

                                       20
<PAGE>

cash flow from operating activities consisted primarily of a reduction of
accounts receivable of $3,579 and depreciation of $2,958. 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 and the need for additional equipment in
our mining operation in Phoenix to improve production levels. Over the past few
years, we have 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 decreased our floor plan financing by $1,064 and paid $3,889 against our
convertible debt balance during the six-month period ended January 31, 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.

CASH AND CASH EQUIVALENTS

Our cash and cash equivalents was $931 as of January 31, 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 January 31, 2007, the Company had outstanding convertible instruments,
options and warrants convertible into 24,576,243 shares of common stock, which
would be dilutive to 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.

                                       21
<PAGE>

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
Company does not expect the new standard 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 Company does not expect
the new standard to 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 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

                                       22
<PAGE>

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.

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 six months ended January 31, 2007
resulted from sales, rental, and servicing of products manufactured by companies
other than Case. That compares with a figure of 47% for the six-month period
ended January 31, 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 six months ended January 31, 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.

                                       23
<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 January 31, 2007, we had variable rate floor plan
payables, notes payable, convertible debt and short-term debt of approximately
$44.0 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 $0.44 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 six months ended January 31, 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.

                                       24
<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 tentatively 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. The Company is negotiating 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.

     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.

                                       25
<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

March 19, 2007

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






















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