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                                    FORM 10-Q


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


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

                     For the Quarter Ended January 31, 2008
                         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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12B-2 of the Securities and Exchange Act of 1934).

                                 YES [ ] NO [X]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12B-2 of the Securities and Exchange
Act of 1934. (Check one)

   Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [X]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12B-2 of the Securities and Exchange Act of 1934).

                                 YES [ ] NO [X]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of March 14, 2008.

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

                  WESTERN POWER & EQUIPMENT CORP. & SUBSIDIARY
                                      INDEX


PART I. FINANCIAL INFORMATION                                             Page
                                                                          Number

  Item 1. Financial Statements

           Condensed Consolidated Balance Sheets
           January 31, 2008 (Unaudited) and July 31, 2007....................3

           Condensed Consolidated Statements of Operations (Unaudited)
           three months ended January 31, 2008 and January 31, 2007 .........4

           Condensed Consolidated Statements of Operations (Unaudited)
           six months ended January 31, 2008 and January 31, 2007 ...........5

           Condensed Consolidated Statements of Cash Flows (Unaudited)
           six months ended January 31, 2008 and January 31, 2007............6

           Notes to Condensed Consolidated Financial Statements
           (Unaudited).....................................................7-17

  Item 2.  Management's Discussion and Analysis of
           Financial Condition and Results of Operations..................18-26

  Item 3.  Quantitative and Qualitative Disclosures about Market Risk.......27

  Item 4.  Controls and Procedures..........................................27

PART II. OTHER INFORMATION

  Item 1.  Legal Proceedings................................................28

  Item 1A. Risk Factors.....................................................28

  Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds......28

  Item 3.  Defaults Upon Senior Securities..................................28

  Item 4.  Submission of Matters to a Vote of Security Holders..............28

  Item 5.  Other Information................................................28

  Item 6.  Exhibits.........................................................29

SIGNATURES..................................................................30

                                        2
<PAGE>

ITEM 1.  FINANCIAL STATEMENTS

                  WESTERN POWER & EQUIPMENT CORP. & SUBSIDIARY
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)
<TABLE><CAPTION>
                                                                          January 31,       July 31,
                                                                              2008            2007
                                                                          ----------      ----------
                                                                          (Unaudited)
                                     ASSETS
Current assets:
<S>                                                                       <C>             <C>
     Cash and cash equivalents ......................................     $       26      $       62
     Accounts receivable, net .......................................          3,906           4,886
     Inventories - net ..............................................         20,787          28,576
     Prepaid expenses ...............................................            147             150
                                                                          ----------      ----------
            Total current assets ....................................         24,866          33,674
Fixed assets:
     Property, plant and equipment (net) ............................          5,034           5,703
     Rental equipment fleet (net) ...................................          8,109           5,671
            Total fixed assets ......................................         13,143          11,374
                                                                          ----------      ----------
Other assets
     Security Deposits ..............................................            450             465
     Deferred debt issuance costs ...................................             --             541
                                                                          ----------      ----------
         Total other assets .........................................            450           1,006
                                                                          ----------      ----------

Total assets ........................................................     $   38,459      $   46,054
                                                                          ==========      ==========

                       LIABILITIES & STOCKHOLDERS' EQUITY

Current liabilities:
     Borrowings under floor plan financing ..........................     $   17,785          20,521
     Convertible debt, net of discount of $ 0 and $ 1,190 ...........         19,674          18,193
     Notes payable-related parties, net of discount of $ 5 and $ 10 .          1,306             290
     Notes payable ..................................................          2,254             821
     Accounts payable ...............................................          5,844           8,149
     Accrued payroll and vacation ...................................            805           1,032
     Other accrued liabilities ......................................          1,255           2,156
     Capital lease obligation .......................................             67              64
                                                                          ----------      ----------
         Total current liabilities ..................................         48,990          51,226
                                                                          ----------      ----------
Long-term liabilities
     Notes Payable ..................................................            976           1,577
     Deferred lease income ..........................................            193             206
     Capital lease obligation .......................................            668             702
                                                                          ----------      ----------
      Total long-term liabilities ...................................          1,837           2,485
                                                                          ----------      ----------
Total liabilities ...................................................         50,827          53,711
                                                                          ----------      ----------
Stockholders' deficiency:
     Preferred stock-10,000,000 shares authorized;
       none issued and outstanding ..................................             --              --
     Common stock-$.001 par value; 50,000,000 shares
       authorized; 11,360,300 issued and 11,230,000 outstanding as of
       January 31, 2007 and July 31, 2007, respectively .............             11              11
     Additional paid-in capital .....................................         23,431          23,431
     Accumulated deficit ............................................        (34,966)        (30,255)
     Less common stock in treasury, at cost (130,300 shares) ........           (844)           (844)
                                                                          ----------      ----------
         Total stockholders' deficiency .............................        (12,368)         (7,657)
                                                                          ----------      ----------
Total liabilities and stockholders' deficiency ......................     $   38,459      $   46,054
                                                                          ==========      ==========
</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,
                                                                 2008            2007
                                                             ----------      ----------
<S>                                                          <C>             <C>
Net revenues ...........................................     $   18,794      $   25,908

Cost of revenues (includes depreciation of
   $410 and $798, respectively) ........................         17,233          24,037
                                                             ----------      ----------

Gross profit ...........................................          1,561           1,871

Selling, general and administrative expenses ...........          2,448           2,219
                                                             ----------      ----------

Operating loss .........................................           (887)           (348)

Other income (expense):
     Interest expense ..................................           (990)         (1,308)
     Convertible debt penalty ..........................             --          (3,900)
     Other income ......................................             40             (97)
                                                             ----------      ----------

Loss before income tax provision .......................         (1,837)         (5,653)

Income tax provision ...................................             14              18
                                                             ----------      ----------

Loss from continuing operations ........................         (1,851)         (5,671)

Loss from discontinued operations ......................             --            (181)
                                                             ----------      ----------

Net loss ...............................................     $   (1,851)     $   (5,852)
                                                             ==========      ==========

Basic and diluted loss per common share
     Continuing operations .............................     $    (0.16)     $    (0.50)

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

     Net loss per share ................................     $    (0.16)     $    (0.52)
                                                             ==========      ==========
Weighted average outstanding common shares for basic and
     diluted  net loss per common share ................         11,230          11,230
                                                             ==========      ==========
</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,
                                                                 2008            2007
                                                             ----------      ----------
<S>                                                          <C>             <C>
Net revenues ...........................................     $   38,327      $   49,519

Cost of revenues (includes depreciation of
   $1,385 and $2,018, respectively) ....................         34,665          44,988
                                                             ----------      ----------
Gross profit ...........................................          3,662           4,531

Selling, general and administrative expenses ...........          5,223           4,794
                                                             ----------      ----------
Operating loss .........................................         (1,561)           (263)

Other income (expense):
     Interest expense ..................................         (3,445)         (2,578)
     Convertible debt penalty ..........................             --          (3,900)
     Gain on settlement of penalty .....................            250              --
     Other income ......................................             72              53
                                                             ----------      ----------
Loss before income tax provision .......................         (4,684)         (6,688)

Income tax provision ...................................             27              33
                                                             ----------      ----------
Loss from continuing operations ........................         (4,711)         (6,721)

Income from discontinued operations ....................             --             100
                                                             ----------      ----------
Net loss ...............................................     $   (4,711)     $   (6,621)
                                                             ----------      ----------
Basic and diluted loss per common share
     Continuing operations .............................     $    (0.42)     $    (0.60)
                                                             ----------      ----------
     Discontinued operations ...........................             --            0.01
                                                             ----------      ----------
     Net loss per share ................................     $    (0.42)     $    (0.59)
                                                             ==========      ==========
Weighted average outstanding common shares for basic and
     diluted  net loss per common share ................         11,230          11,230
                                                             ==========      ==========
</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,
                                                                                  2008            2007
                                                                              ----------      ----------
Cash flows from operating activities:
<S>                                                                           <C>             <C>
     Net loss ...........................................................     $   (4,711)     $   (6,621)

Adjustments to reconcile net loss from operations to net cash provided by
operating activities:
     Depreciation .......................................................          1,887           2,958
     Bad debts ..........................................................             --             111
     Amortization of debt discount ......................................          1,195             534
     Gain on sale of fixed assets and rental equipment ..................           (149)           (144)
     Gain on convertible debt penalty settlement ........................           (250)             --
     Amortization of debt issuance costs ................................            541             185
     Convertible debt penalty ...........................................             --           3,900
     Changes in assets and liabilities:
         Accounts receivable ............................................            980           3,579
         Inventories ....................................................          3,320             377
         Prepaid expenses and other assets ..............................             18             (52)
         Accounts payable and accrued expenses ..........................         (2,304)            174
         Accrued payroll and vacation ...................................           (226)           (305)
         Other accrued liabilities ......................................            866            (150)
         Deferred lease income ..........................................            (14)            (15)
                                                                              ----------      ----------
Net cash provided by operating activities ...............................          1,153           4,531
                                                                              ----------      ----------

Cash flows from investing activities:
     Purchases of property, plant and equipment .........................            (16)           (827)
     Purchases of rental equipment ......................................           (141)           (428)
     Proceeds on sale of fixed assets ...................................              1              58
     Proceeds on sale of rental equipment ...............................          1,119           1,349
                                                                              ----------      ----------
Net cash provided by investing activities ...............................            963             152
                                                                              ----------      ----------

Cash flows from financing activities:
     Principal payments on capital leases ...............................            (31)            (27)
     Payments on short-term borrowings ..................................             --            (200)
     Short-term debt borrowings .........................................             --             141
     Related party short term loan ......................................          1,011              --
     Inventory floor plan financing .....................................         (2,737)         (1,064)
     Long term debt borrowings ..........................................             96             736
     Long term debt payments ............................................           (780)           (521)
     Convertible debt borrowings ........................................            289              --
     Payments on convertible debt .......................................             --          (3,889)
                                                                              ----------      ----------
Net cash used in financing activities ...................................         (2,152)         (4,824)
                                                                              ----------      ----------

Decrease in cash and cash equivalents ...................................            (36)           (141)
Cash and cash equivalents at beginning of period ........................             62           1,072
                                                                              ----------      ----------

Cash and cash equivalents at end of period ..............................     $       26      $      931
                                                                              ==========      ==========

Supplemental disclosures:
Interest paid ...........................................................     $      791      $    1,862
Income taxes paid .......................................................             10               6


Return of common stock pursuant to cancellation of consulting agreement .     $       --      $      642

Transfer of equipment inventory to the rental fleet .....................     $    3,720      $    4,087

Accrued interest converted to short-term note payable ...................     $    1,516              --
</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 85% 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, 2008 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, 2007 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, 2007 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 2007 financial statements have been
reclassified to conform with the fiscal year 2008 presentation. These
reclassifications had no impact on net income or cash flows as previously
reported other than to separately report discontinued operations.

Liquidity and Going Concern

The Company has incurred a net loss from continuing operations of $4,711 for the
six-month period ended January 31, 2008 compared to a loss of $6,721 for the
comparable period in fiscal year 2007. During the fiscal year 2008 period, the
Company experienced a weaker market and changes in product mix both of which
contributed to lower sales levels. In addition, during the six-month period
ended January 31, 2008, the Company expensed $541 in debt issuance costs and
$1,195 in debt discount related to the convertible debt issued in June of 2005.
This compares to $185 in debt issuance costs and $534 in debt discount amortized
during the same period in fiscal year 2007. The Company generated positive cash
flows from operations of $1,153 for the six-month period ended January 31, 2008
as compared to positive cash flows of $4,531 for the fiscal year 2007
comparative period. A significant amount of resources continue to be used to
fund losses of the mining operations and a declining construction equipment
market.

In January 2007, the Company was in technical default of the convertible debt
agreement because of a late payment, which, under the terms of the agreement,
would result in a penalty of 20% of the loan balance at the time of the default.
The Company recorded an expense of $3,866 in the second quarter of 2007 for this
penalty. The Company entered into a waiver agreement in April of 2007 with the
convertible debt holders whereby 50% of the penalty was paid in cash and the
remaining 50% of the penalty was satisfied by the transfer of a 10% ownership
interest in the Company's subsidiary, Arizona Pacific Materials, LLC in lieu of
the remaining $1,933 obligation.

As of July 2007, the Company was in technical default of the terms of the April
default waiver, as the Company did not make all of the required principal
payment due June 30, 2007. The Company negotiated a waiver of that default in
exchange for a transfer of an additional 5% ownership interest (valued at $250)
in the Company's subsidiary, Arizona Pacific Materials, LLC. A revised due date
of October 15, 2007 was negotiated to pay the entire loan

                                        7
<PAGE>

balance. The Company did not make the required full loan repayment on October
15, 2007 and continues to be in default with the debt agreement. The Company
recorded an expense of $3,200 (representing a 20% default penalty) in the fourth
quarter of fiscal year 2007.

As a result of the above defaults, the Company recorded total convertible debt
penalties of $5,383 in fiscal year 2007.

The loss for the six-month period ended January 31, 2008 includes a gain of $250
related to the issuance of the 5% ownership interest in the Company's
subsidiary, Arizona Pacific Materials, LLC in accordance with the June 2007
default waiver discussed above.

Management is currently in discussions to refinance the debt and/or raise
additional capital but there is no assurance it will succeed in these efforts.
If management is not successful in obtaining alternative financing and/or
additional capital, 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. The financial statements do not include any adjustments related
to the recoverability of assets or classifications of liabilities that might be
necessary should the Company be unable to continue as a going concern.

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, 2007.

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
adoption of this pronouncement did not have a material impact on the Company's
consolidated financial position, results of operations or cash flows.

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 adoption of this pronouncement did not have a
material impact on the Company's consolidated financial position, results of
operations or cash flows. (See Note 13)

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
fiscal years beginning after November 15, 2007. The Company does not expect the
new standard to have any material impact on the financial position and results
of operations.

In December 2006, the FASB approved FASB Staff Position ("FSP") No. EITF
00-19-2, "Accounting for Registration 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, "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 did not have a material 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 the 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 be enabling companies to report
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. The adoption of this pronouncement is
not expected to have a material impact on the Company's consolidated financial
position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling interests in
Consolidated Financial Statements--An Amendment of ARB No. 51". SFAS No. 160
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary (previously referred to as minority interests). SFAS No. 160
also requires that a retained noncontrolling interest upon the deconsolidation
of a subsidiary be initially measured at its fair value. Upon adoption of SFAS
No. 160, the Company would be required to report any noncontrolling interests as
a separate component of consolidated stockholders' equity. The Company would
also be required to present any net income allocable to noncontrolling interests
and net income attributable to the stockholders of the Company separately in its
consolidated statements of operations. SFAS No. 160 is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
January 1, 2009. SFAS No. 160 requires retroactive adoption of the presentation
and disclosure requirements for existing minority interests. All other
requirements of SFAS No. 160 shall be applied prospectively. SFAS No. 160 would
have an impact on the presentation and disclosure of the noncontrolling
interests of any non wholly-owned business acquired in the future.

In December 2007, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141R, "Business
Combinations" ("SFAS 141R"), which replaces SFAS No. 141, "Business
Combinations." SFAS 141R establishes principles and requirements for determining
how an enterprise recognizes and measures the fair value of certain assets and
liabilities acquired in a business combination, including noncontrolling
interests, contingent consideration, and certain acquired contingencies. SFAS
141R also requires acquisition-related transaction expenses and restructuring
costs be expensed as incurred rather than capitalized as a component of the
business combination. SFAS 141R will be applicable prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. SFAS 141R
would have an impact on accounting for any businesses acquired after the
effective date of this pronouncement.

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, 2008 and 2007 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.

                                        9
<PAGE>

Potentially dilutive securities consisted of outstanding stock options, warrants
and convertible debt to acquire 23,668,400 shares as of January 31, 2008. As of
January 31, 2008, potentially dilutive securities consisted of outstanding stock
options, warrants and convertible debt to acquire 24,576,243 shares.

4. STOCK BASED COMPENSATION

The Company accounts for stock based compensation arrangements in accordance
with 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. As of July
31, 2007 and January 31, 2008, all options were fully vested and during the year
ended July 31, 2007 and the six months ended January 31, 2008 and 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.

5. INVENTORIES

Inventories consist of the following (`000's):
                                                      January 31,       July 31,
                                                          2008            2007
                                                       --------        --------
                                                      (Unaudited)
  Equipment (net of reserves of $1,804 and $1,835,
  respectively):
    New                                                $ 13,863        $ 20,685
    Used                                                  2,467           2,793
  Mining products                                           754             829
  Parts (net of reserves of $ 534
   and $ 453, respectively)                               3,703           4,269
                                                       --------        --------
                                                       $ 20,787        $ 28,576
                                                       ========        ========

6. FIXED ASSETS

Fixed assets consist of the following (`000's):
                                                      January  31,      July 31,
                                                          2008            2007
                                                      (Unaudited)
  Property, plant and equipment:
    Land                                                $ 1,277        $  1,277
    Buildings                                             1,205           1,205
       Machinery and equipment                            5,362           5,631
    Office furniture and fixtures                         1,661           1,660
    Computer hardware and software                        1,055           1,051
    Vehicles                                              1,214           1,247
    Leasehold improvements                                1,061           1,054
                                                       --------        --------
                                                         12,835          13,125
    Less: accumulated depreciation                       (7,801)         (7,422)
                                                       --------        --------
  Property, plant, and equipment (net)                 $  5,034        $  5,703
                                                       ========        ========

  Rental equipment fleet                               $  9,841        $  6,735
    Less: accumulated depreciation                       (1,732)         (1,064)
                                                       --------        --------
  Rental equipment (net)                               $  8,109        $  5,671
                                                       ========        ========

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.

                                       10
<PAGE>

As of January 31, 2008 and July 31, 2007, fixed assets (net) includes property
under capital leases in the amount of $568 and $408, respectively.

7. DEBT OBLIGATIONS

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

The Company has inventory floor plan financing arrangements with Case Credit
Corporation (Case), an affiliate of Case Corporation (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. 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,
such right has expired as of January 31, 2007) 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) 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. The Company has adopted EITF-00-19-2, "Accounting for Registration
Payment Arrangements", 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 FASB Statement No. 5, "Accounting for
Contingencies". If the registration statement ceases to be continuously
effective during the 5-year period in which the Company is required to maintain
its effectiveness, the investors are entitled to "partial liquidated damages" in
the form of cash, computed as 2 percent of the aggregate purchase price of the
securities per month. Management believes that it is not probable that it will
be required to remit any payments to the investors for failing to maintain
effectiveness of the registration statement and therefore no liability has been
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, 2008 is $19,674, all of which is short term. The amounts

                                       11
<PAGE>

amortized to interest expense during the six months ended January 31, 2008 and
January 31, 2007 were $1,190 and $262, respectively.

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

In January 2007 the Company was in technical default of the convertible debt
agreement because of a late payment, which, under the terms of the agreement,
would result in a penalty of 20% of the loan balance at the time of the default.
The Company has recorded an expense of $3,866 in the second quarter of 2007 for
this penalty. The Company negotiated an agreement with the convertible debt
holders to have 50% of the penalty paid in cash and the remaining 50% of the
penalty satisfied by a transfer of a 10% ownership interest in the Company's
subsidiary, Arizona Pacific Materials, LLC in lieu of the remaining $1,933
obligation. This resulted in a gain of $1,967 and a net penalty of $1,933. The
carrying amount of the subsidiary's common stock sold was removed from the
parent company's investment in subsidiary's common stock account and the
difference between the carrying amount and current value of the consideration
was recorded as a gain.

As of July 2007, the Company was in technical default of the terms of the April
default waiver agreement, as the Company did not make all of the required
principal payment due June 2007. The Company negotiated a waiver of that default
in consideration for a transfer of an additional 5% ownership interest (valued
at $250) in the Company's subsidiary, Arizona Pacific Materials, LLC. A revised
payment due date of October 15, 2007 was negotiated to pay the entire loan
balance. The Company did not make the required full loan payment on October 15,
2007 and continues to be in default with the debt agreement. The Company
recorded an expense of $3,200 (representing a 20% default penalty) in the fourth
quarter of 2007.

As a result of the above defaults, the Company recorded total convertible debt
penalties of $5,383 during fiscal year 2007.

For the six -month period ended January 31, 2008, the Company recorded as a
charge $1,190 for deferred debt issuance costs and $541 of debt issuance costs
related to the above defaults. The Company also transferred the additional 5%
ownership in the Company's subsidiary, Arizona Pacific Materials, LLC resulting
in a gain of $250.

With this technical default, the convertible debt becomes immediately due.
Management is currently in discussions with the debt holders and is seeking to
refinance the debt but there is no assurance they will succeed in these efforts.
If management is not successful in obtaining alternative financing, the Company
may have to sell off certain assets and the business may suffer.

In December of 2007, the Company executed a note payable with the convertible
debt holders whereby payment of accrued interest as of December 27, 2007 in the
amount of $1,516 which was deferred until June 1, 2008. The note carries an
interest rate of LIBOR plus 5.25%.

  Notes Payable
  -------------
<TABLE><CAPTION>
      Notes payable consists of the following: (000's)
                                                                                       January 31,                   July 31,
      Description                                                                          2008                        2007
<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                                                                  392                         471

      Note payable to Wells Fargo Construction Funding (formerly CIT Financial)
      dated beginning August 15, 2005 in the amount of $ 2,643, due in monthly
      installments of $ 31 beginning
</TABLE>

                                       12
<PAGE>
<TABLE><CAPTION>
<S>                                                                                    <C>                         <C>
      December 2005, expiring November 2010, including interest ranging from
      8.25% to 9.5% per annum secured by specific equipment in inventory                    1,176                       1,767

      Note Payable to various investors for accrued interest dated 12/21/07 in
      the amount of $ 1,516 due June 1, 2008, including interest at LIBOR plus
      5.25% per annum                                                                       1,516

      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                                                                             96                         110

      Total                                                                            $    3,230                  $    2,398
        Less current portion                                                               (2,254)                       (821)
      Total Long-Term Notes Payable                                                    $      976                  $    1,577
</TABLE>

      Notes Payable - Related Parties
      -------------------------------

      On September 8, 2004, MRR II, The Rubin Family Irrevocable Stock Trust and
      certain other related parties loaned the Company $500 for the purchase of
      Arizona Pacific Materials, LLC. The interest rate on these notes is 6%
      with maturity dates between December 31, 2005 and 2008. These related
      parties received a total of 2,000,000 options to purchase the Company's
      stock at a price of $0.55 per share as part of the loan agreement. The
      options were valued at $292 and the cost is being amortized over the life
      of the loans. As of January 31, 2008 the balance of this loan was $295
      (net of discount of $5). There were $200 in payments made towards these
      loans in fiscal year 2007. The remaining loan balance of $300 is in
      default and therefore is accruing interest at 18% per annum under the
      provisions of the note agreement.

      On September 27, 2006, Mr. Dean McLain loaned the Company $141. The
      interest on this note was 8.75%. The loan was paid with interest on March
      28, 2007.

      In November 2007, a stockholder of the Company loaned the Company $500 at
      an interest rate of 12%. On December 27, 2007, an additional $500 was
      loaned to the Company with the same interest rate. The two loans (plus the
      accrued interest through December 27, 2007) were combined into one note in
      the amount of $ 1,011 due June 27, 2008. Interest on the note is 12% per
      annum.

      Future minimum payments under these noncancelable notes payable as of
      January 31, 2008, are as follows:

<TABLE><CAPTION>
                                                                     Related
Twelve months ending        Notes      Convertible                    Party
January 31,                Payable        Debt        Flooring        Notes         Total
--------------------      --------      --------      --------      --------      --------
<S>                       <C>           <C>           <C>           <C>           <C>
2009                      $  2,254      $ 19,674      $ 17,785      $  1,311      $ 41,024

2010                           500            --            --           500

2011                           273            --            --           273

2012                           144            --            --           144

2013                            59            --            --            59

Thereafter                      --            --            --            --            --
                          --------      --------      --------      --------      --------
Total annual payments        3,230        19,674        17,785         1,311        42,000

Less current portion        (2,254)      (19,674)      (17,785)       (1,311)      (41,024)
                          --------      --------      --------      --------      --------
Long-term portion         $    976      $     --      $     --      $     --      $    976
                          ========      ========      ========      ========      ========
</TABLE>

8. COMMITMENTS AND CONTINGENCIES

Leases
------

The Company leases certain facilities under noncancelable lease agreements.
Certain of the Company's building leases have been accounted for as capital
leases. Other facility lease agreements have terms ranging from month-to-month
to nine years and are accounted for as operating leases. Certain of the facility
lease agreements provide for options to renew and generally require the Company
to pay property taxes, insurance, and maintenance and repair

                                       13
<PAGE>

costs. Total rent expense under all operating leases aggregated $484 and $483
for the three months ended January 31, 2008 and 2007, respectively. Total rent
expense under all operating leases aggregated $ 808 and $1054 for the six months
ended January 31, 2008 and 2007, respectively.

Future minimum lease payments under all noncancelable leases as of January 31,
2008, are as follows (`000's):

                                                       Capital       Operating
  Twelve months ending January 31,                     leases         leases

  2009                                                     135         1,821
  2010                                                     135         1,809
  2011                                                     135         1,560
  2012                                                     135         1,236
  2013                                                     132         1,033
  Thereafter                                               375         6,251
                                                      --------      --------
  Total annual lease payments                         $  1,047      $ 13,710
                                                      ========      ========
  Less amount representing interest
    at a rate of 6.5%                                     (312)
                                                      --------
  Present value of minimum lease payments                  735
  Less current portion                                     (67)
                                                      --------
  Long-term portion                                   $    668
                                                      ========

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, 2008, such purchase commitments totaled $ 4,383.

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 condensed 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,
                                2008         2007           2008         2007
                              -------      -------        -------      -------
     Equipment Sales          $12,106      $18,459        $23,870      $33,647

     Equipment Rental           1,345        1,132          2,717        2,842

     Mining Sales                 891          869          1,764        1,300

     Product Support            4,452        5,448          9,976       11,730
                              -------      -------        -------      -------
     Total                    $18,794      $25,908        $38,327      $49,519
                              =======      =======        =======      =======

                                       14
<PAGE>
Business product category      Three Months Ended           Six Months Ended
     Gross Margin                   January 31,                 January 31,
                                2008         2007           2008         2007
                              -------      -------        -------      -------
     Equipment Sales          $   370      $   662        $   677      $ 1,694

     Equipment Rental             141          169            469          549

     Mining Sales                 150           48            341         (280)

     Product Support              900          992          2,175        2,568
                              -------      -------        -------      -------
     Total                    $ 1,561      $ 1,871        $ 3,662      $ 4,531

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, 2008
  Net revenues                                      $ 17,903          $    891          $ 18,794
                                                    ========          ========          ========
  Loss from continuing operations                   $ (1,123)         $   (728)         $ (1,851)
                                                    ========          ========          ========
  Net loss                                          $ (1,123)         $   (728)         $ (1,851)
                                                    ========          ========          ========
  Capital expenditures                              $    101          $     24          $    125
                                                    ========          ========          ========

  For the Three Months Ended January 31, 2007
  Net revenues                                      $ 25,039          $    869          $ 25,908
                                                    ========          ========          ========
  Loss from continuing operations                   $ (5,395)         $   (276)         $ (5,671)
                                                    ========          ========          ========
  Net loss                                          $ (5,361)         $   (491)         $ (5,852)
                                                    ========          ========          ========
  Capital expenditures                              $    143          $    211          $    689
                                                    ========          ========          ========


  For the Six Months Ended January 31, 2008
  Net revenues                                      $ 36,563          $  1,764          $ 38,327
                                                    ========          ========          ========
  Loss from continuing operations                   $ (3,379)         $ (1,332)         $ (4,711)
                                                    ========          ========          ========
  Net loss                                          $ (3,379)         $ (1,332)         $ (4,711)
                                                    ========          ========          ========
  Capital expenditures                              $    133          $     24          $    157
                                                    ========          ========          ========
  Total identifiable assets at January 31, 2008     $ 34,338          $  4,121          $ 38,459
                                                    ========          ========          ========

  For the Six Months Ended January 31, 2007
  Net revenues                                      $ 48,219          $  1,300          $ 49,519
                                                    ========          ========          ========
  Loss from continuing operations                   $ (5,489)         $ (1,232)         $ (6,721)
                                                    ========          ========          ========
  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
                                                    ========          ========          ========
</TABLE>

11. CONCENTRATION OF CREDIT RISK

Approximately 41% and 49% of the Company's net sales for the three month periods
ended January 31, 2008 and January 31, 2007, respectively, resulted from sales,
rental, and servicing of products manufactured by Case. Approximately 42% and
49% of the Company's net sales for the six month periods ended January 31, 2008
and January 31, 2007, respectively, resulted from sales, rental, and servicing
of products manufactured by Case.

12. DISCONTINUED OPERATIONS

                                       15
<PAGE>

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 2007. There were no operations
discontinued in the six months ended January 31, 2008.

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

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 Company sold its Anchorage and Fairbanks, Alaska locations in May 2007 for a
total sales price of $12,158. Included in the sale was inventory with a cost of
$11,409. The Company also sold fixed assets with an original cost of $503 (net
book value of $230) resulting in a gain of $690.

The following table presents selected financial data for the discontinued
operations of the Company's business (in thousands of dollars):

                                         Three Months Ended     Six Months Ended
                                          January 31, 2007      January 31, 2007

Revenue from discontinued operations         $    3,176            $   8,922

Gross profit from discontinued operations    $      133            $     744

SG & A from discontinued Operations          $      314            $     644

Income from discontinued operations          $     (181)           $     100

Gain on disposal                             $      --             $     --


13. ACCOUNTING FOR THE UNCERTAINTY IN INCOME TAXES

The Company has adopted the provisions of Financial Accounting Standards Board
("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109" (FIN48"), on August 1, 2007. FIN 48
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with SFAS No. 109, "Accounting
for Income Taxes," and prescribes a recognition threshold and measurement
process for financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. FIN48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
period, disclosure and transition.

The Company has identified its federal tax return and its state tax returns in
Oregon, California, Arizona and Alaska as "major" tax jurisdictions, as defined.
Based on the Company's evaluation, it has been concluded that there are no
significant uncertain tax positions requiring recognition in the Company's
financial statements. The Company's evaluation was performed for the tax years
ended July 31, 2005 through 2007, the periods subject to examination. The
Company believes that its income tax positions and deductions would be sustained
on audit and does not anticipate any adjustments that would result in a material
change to its financial position. In addition, the Company did not record a
cumulative effect adjustment related to adoption of FIN48.

The Company's policy for recording interest and penalties associated with audits
is to record such items as a component of income before income taxes. Penalties
are recorded in other expense and interest paid or received is

                                       16
<PAGE>

recorded in interest expense or interest income, respectively, in the statement
of operations. There were no amounts accrued for penalties and interest as of or
during the six months ended January 31, 2008. The Company does not expect its
unrecognized tax benefit position to change during the next twelve months.
Management is currently unaware of any issues under review that could result in
significant payments, accruals or material deviations from its position.

















                                       17
<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, 2007. 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
and California for our equipment dealership. Our revenue sources are generated
from equipment (new and used) sales, parts sales, equipment service and
equipment rental. The equipment is distributed to contractors, governmental
agencies, and other customers, primarily for use in the construction of
residential and commercial buildings, roads, levees, dams, underground power
projects, forestry projects, municipal construction and other projects.

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

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

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

                                       18
<PAGE>

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

Arizona Pacific Materials, LLC, an 85% 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 construction activity
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 study, our Phoenix location had approximately
39,000,000 tons of proven reserves and an additional 38,000,000 tons of
indicated reserves of high grade basalt available to be processed to meet the
future demands of the Phoenix market.

RESULTS OF OPERATIONS

Consolidated results

The following table presents unaudited selected financial data for our
consolidated business activities (in thousands of dollars):

<TABLE><CAPTION>
Consolidated - continuing        Three Months Ended  Three Months Ended   Increase   Six Months Ended  Six Months Ended   Increase
operations (in 000's)             January 31, 2008    January 31, 2007   (Decrease)  January 31, 2008  January 31, 2007  (Decrease)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                 <C>             <C>              <C>              <C>           <C>
Revenue                              $  18,794           $  25,908       $  (7,114)       $  38,327        $  49,519     $ (11,192)
------------------------------- -------------------- ------------------ ------------ ----------------- ---------------- ------------
Gross profit                         $   1,561           $   1,871       $    (310)       $   3,662        $   4,531     $    (869)
------------------------------- -------------------- ------------------ ------------ ----------------- ---------------- ------------
SG&A                                 $   2,448           $   2,219       $     229        $   5,223        $   4,794     $     429
------------------------------- -------------------- ------------------ ------------ ----------------- ---------------- ------------
Operating (loss) income              $    (887)          $    (348)      $    (539)       $  (1,561)       $    (263)    $  (1,298)
------------------------------- -------------------- ------------------ ------------ ----------------- ---------------- ------------
Loss from continuing operations      $  (1,851)          $  (5,671)      $  (3,820)       $  (4,711)       $  (6,721)    $  (2,010)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The Three and Six Months ended January 31, 2008 compared to the Three and Six
-----------------------------------------------------------------------------
Months ended January 31, 2007.
------------------------------

REVENUES

Revenues from continuing operations for the three-month period ended January 31,
2008 decreased by $7,114 or 27.5% over the comparative three-month period ended
January 31, 2007. For the three-month period ended January 31, 2008 equipment
sales and rentals decreased by $6,140 and product sales decreased by $996 while
mining sales increased by $22. Sales in all of our locations have declined in
the second quarter as compared to the prior year's second quarter, with the
exception of our Buena Park, California location, which had an increase of
$1,595 as a result of several large sweeper sales to municipalities.
Governmental sales, which can change dramatically based upon budget cycles,
comprise a significant amount of the sales in our Buena Park location. Our
construction equipment sales have also been reduced as a result of significant
declines over the past year in the residential construction market as the
economy softens. This has resulted in declining equipment sales throughout the
construction equipment industry. Through this we have been able to retain our
relative market share. With our current cash flow and with the economy
softening, credit limitations have made it more difficult to obtain inventory.
The decline in the number of branches has also affected the Company's ability to
transfer specific inventory to other market areas.

Mining sales from our subsidiary in Phoenix, Arizona increased $22 or 2.5% over
the prior year's comparative three-month period indicating a continued demand
for basalt production and sales of crushed aggregates for road, housing and
related construction in the area southeast of Phoenix.

Revenues from continuing operations for the six-month period ended January 31,
2008 decreased by $11,192 or 22.6% over the comparative six-month period ended
January 31, 2007. Equipment sales and rentals decreased by $9,902 and product
sales decreased by $1,754 while mining sales increased by $464. Excavators,
wheel loaders and

                                       19
<PAGE>

backhoes sales declined by $10,904 compared to the prior year's comparative
six-month period. Sweeper sales increased by $2,785 over the same comparative
six-month period. Sales in all of our locations have declined in the first six
months as compared to the prior year's first six months, with the exception of
our Buena Park, California location, which had an increase of $3,471 as a result
of several large sweeper sales to municipalities. With the softening of the
economy over the past two years, equipment sales for the Company, as well as the
industry, have decreased, especially in the residential construction market, and
through this we have been able to retain our relative market share. With our
current cash flow and with the economic softening, credit terms have become more
difficult to obtain inventory. The decline in the number of branches has also
affected the Company's ability to transfer specific inventory to a larger market
area. We expect this trend to continue in the near future.

Mining sales from our subsidiary in Phoenix, Arizona increased $464 or 35.7%
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. Most
of this increase occurred in the first quarter of fiscal 2008. Our subsidiary is
also experiencing more demand for rip rap (larger sized rock used in support for
topography stabilizing and ballast for train and light rail construction).

GROSS MARGIN

The Company's gross profit margin of 8.3% for the three-month period ended
January 31, 2008 was higher than the prior year's comparative period margin of
7.2%. During the prior year's quarter, the Company made several large used
equipment sales with lower than average margin which affected overall margin on
equipment sales for that quarter. The second quarter ending January 31, 2008 has
no such auction sales. In addition, gross margin was enhanced, in comparison to
the prior years second quarter, by product mix as the most significant equipment
sales declines occurred in excavators and wheel loaders which typically maintain
lower margins, thus increasing the overall margin percent. Production capacity
has increased at the mining facility, which we believe has assisted in obtaining
improved production costs of the products produced. We now have two processing
plants, one for basalt and one for cinder, which enables us to process multiple
products more efficiently.

The Company's gross profit margin of 9.6% for the six-month period ended January
31, 2008 was slightly higher than the prior year's comparative period margin of
9.2%. During the six months ending January 31, 2007, the Company made several
used equipment sales at sales prices below cost through auctions. These auction
sales consisted of severely aged equipment that the Company is no longer the
manufacturers' representative for and resulted in a loss of approximately $200.
No such sales occurred in the six-months ending January 31, 2008. Production
capacity has increased at the mining facility, which we believe has assisted in
obtaining improved production costs of the products produced. We now have two
processing plants, one for basalt and one for cinder, which enables us to
process multiple products more efficiently.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

For the three-month period ended January 31, 2008, selling, general, and
administrative ("SG&A") expenses from continuing operations were only slightly
higher by $229 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. With the efforts related
to refinancing, the Company is also incurring additional expenses related to
legal and accounting fees.

For the six-month period ended January 31, 2008, selling, general, and
administrative ("SG&A") expenses from continuing operations were higher by $429
compared to the prior year's comparative six-month period. 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 Company prepaid $100 in fiscal 2007 and
$110 in the first quarter of fiscal year 2008 in bank fees related to potential
re-financing with a bank. The financing arrangement did not materialize and
these loan fees were expensed in the first quarter of fiscal year 2008. . With
the efforts related to refinancing, the Company is also incurring additional
expenses related to legal and accounting fees.

OPERATING INCOME

The Company had an operating loss for the three months ended January 31, 2008 of
$887 compared to operating loss of $348 for the three months ended January 31,
2007, reflecting the additional costs related to our refinancing activities.
Although higher production capacity of our mining facility in Phoenix, Arizona
has benefited our

                                       20
<PAGE>

production cost per ton, the higher sales levels and production activities
continue to adversely affect operating income as additional fixed costs are
incurred, such as depreciation and repairs.

The Company had an operating loss for the six-months ended January 31, 2008 of
$1,561 compared to operating loss of $263 for the six-months ended January 31,
2007, reflecting the decrease in sales, which in turn affects the Company's
ability to cover fixed expenses, such as rent and non sales related expenses
such as administrative payroll. The Company's efforts to refinance its
operations have also increased legal and accounting fees.

INTEREST EXPENSE

Interest expense for the three months ended January 31, 2008 of $990 was down
from $1,308 in the prior year's comparative period. Included in prior year's
interest expense is $232 in debt discount amortization and $93 in debt issuance
cost amortization. The three-months ending January 31, 2008 had no such costs.
The Company is in technical default of their convertible debt agreement (see
Note 7), causing the debt to become immediately due. As a result the Company
expensed the remainder of the debt discount (related to warrants issued with the
convertible debt transaction in June 2005) and deferred debt issuance costs
during the quarter ended October 31, 2007.

Interest expense for the six-months ended January 31, 2008 of $3,445 was up from
$2,578 in the prior year's comparative period. The Company is in technical
default of their convertible debt agreement (see Note 7), causing the debt to
become immediately due. As a result the Company expensed the remainder of the
debt discount (related to warrants issued with the convertible debt transaction
in June 2005) and deferred debt issuance costs during the six-months ended
January 31, 2008. The Company amortized $1,190 of debt discount and $541 in debt
issuance costs as a result of expensing the debt related costs. Amortization of
these expenses amounted to $497 in debt discount amortization and $250 in debt
issuance cost amortization during the six-months ended January 31, 2007.

NET LOSS

The Company had a net loss from continuing operations for the quarter ended
January 31, 2008 of $1,837 compared with a net loss of $5,653 for the prior
year's comparative quarter. In addition to the discussions above, the Company
recorded a $3,900 penalty as a result of a technical default of their
convertible debt agreement (see Note 7).

The Company had a net loss from continuing operations for the six-months ended
January 31, 2008 of $4,711 compared with a net loss of $6,721 for the prior
year's comparative quarter. . In addition to the discussions above, the Company
recorded a $3,900 penalty as a result of a technical default of their
convertible debt agreement (see Note 7).

Discontinued Operations

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


                                          Three Months Ended   Six Months Ended
                                           January 31, 2007    January 31, 2007
                                         -------------------- ------------------
Revenue from discontinued operations           $   3,176          $   8,922

Gross Profit from discontinued
operations                                     $     132          $     744

SG&A from discontinued
Operations                                     $     314          $     644

Income from discontinued operations            $    (181)         $     100

Gain on disposal                               $     --           $     --

We classify closed or sold branch locatns 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

                                       21
<PAGE>

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

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

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 Company sold its Anchorage and Fairbanks, Alaska locations in May 2007 for a
total sales price of $12,158. Included in the sale was inventory with a cost of
$11,409. The Company also sold fixed assets with an original cost of $503 (net
book value of $230) resulting in a gain of $690.

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 January 31, 2007) 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, 2008 is $19,674 (net of discount of $0) all of which is short
term.

In January 2007, the Company was in technical default of the convertible debt
agreement because of a late payment, which, under the terms of the agreement,
would result in a penalty of 20% of the loan balance at the time of the default.
The Company has recorded an expense of $3,866 in the second quarter of 2007 for
this penalty. The Company has negotiated an agreement with the convertible debt
holders to have 50% of the penalty paid in cash and the remaining 50% of the
penalty satisfied by a transfer of a 10% ownership interest in the Company's
subsidiary, Arizona Pacific Materials, LLC in lieu of the remaining $1,933
obligation. This resulted in a gain of $1,967 and a net penalty of $1,933. The
carrying amount of the subsidiary's common stock sold was removed from the
parent company's investment in subsidiary's common stock account and the
difference between the carrying amount and current value of the consideration
was recorded as a gain.

                                       22
<PAGE>

As of July 2007, the Company was in technical default of the terms of the April
default waiver agreement, as the Company did not make all of the required
principal payment due June 2007. The Company negotiated a waiver of that default
in consideration for a transfer of an additional 5% ownership interest (valued
at $250) in the Company's subsidiary, Arizona Pacific Materials, LLC. A revised
payment due date of October 15, 2007 was negotiated to pay the entire loan
balance. The Company did not make the required full loan payment on October 15,
2007 and continues to be in default with the debt agreement. The Company
recorded an expense of $3,200 (representing a 20% default penalty) in the fourth
quarter of 2007.

As a result of the above defaults, the Company recorded total convertible debt
penalties of $5,383 during fiscal year 2007.

For the six- month period ended January 31, 2008, the Company recorded as a
charge $1,190 for deferred debt discount costs and $541 of debt issuance costs
as a result of the above defaults. The Company also transferred the additional
5% ownership in the Company's subsidiary, Arizona Pacific Materials, LLC
resulting in a gain of $250.

In December of 2007, the Company executed a note payable with the convertible
debt holders whereby payment of accrued interest as of December 27, 2007 in the
amount of $1,516 which was deferred until June 1, 2008. The note carries an
interest rate of LIBOR plus 5.25%.

With this technical default, the convertible debt becomes due immediately due.
Management is currently in discussions with the debt holders to re-negotiate the
convertible debt terms and is seeking to refinance the debt and/or raise
additional capital but there is no assurance they will succeed in these efforts.
If management is not successful in obtaining alternative financing and/or
additional capital, 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-month period ended January 31, 2008 we had positive cash flows
from operating activities of $1,153. Our cash flow from operating activities
consisted primarily of a reduction of inventory of $3,320, depreciation of
$1,887 and the amortization of debt discount and deferred debt issuance costs of
$1,736. These were offset by the use of funds to decrease accounts payable by
$2,304. 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. As we sell inventory, the proceeds are used to manage our accounts
payable in an effort to maintain good relations with our vendors. We also
continue to analyze each branch location and its market to assess the past and
future contribution each location has and will make to the overall profitability
of the Company.

CASH FLOW FROM INVESTING ACTIVITIES

Purchases of fixed assets during the period were related mainly to the ongoing
replacement of aged operating assets, particularly in our rental fleet. In prior
years, we had focused less on our rental fleet inventory levels (allowing
inventory levels to decline). We focus on the utilization of the rental fleet
and continue to sell older equipment with less utilization and replace, as
needed, with newer equipment where there is demand. During the six months ended
January 31, 2008 and 2007, we generated approximately $1,100 and $1,300,
respectively, from such sales. 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 $2,737 and paid $780 against our long
term debt balances during the six-month period ended January 31, 2008. 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 pay
amounts owed on the convertible debt as well as other long term notes payable as
outlined in Note 7 of the consolidated financial statements. Management is
currently in discussions with the debt holders and is seeking to refinance the
debt with longer-term capital

                                       23
<PAGE>

resources, including the generation of equity capital, but there is no assurance
they will succeed in these 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.

CASH AND CASH EQUIVALENTS

Our cash and cash equivalents was $26 as of January 31, 2008. 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, 2008, the Company had outstanding convertible instruments,
options and warrants convertible into 23,668,400 shares of common stock, which
could potentially dilute earnings per share.

OFF-BALANCE SHEET ARRANGEMENTS

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

NEW ACCOUNTING PRONOUNCEMENTS

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

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 adoption of this pronouncement did not have a
material impact on the Company's consolidated financial position, results of
operations or cash flows.

In September 2006, the 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 fiscal
years beginning after November 15, 2007. The Company does not expect the new
standard to have any material impact on the financial position and results of
operations.

In December 2006, the FASB approved FASB Staff Position ("FSP") No. EITF
00-19-2, "Accounting for Registration 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

                                       24
<PAGE>

Hedging Activities", and No. 150, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others", to include scope exceptions for registration payment arrangement.

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 did not have a material 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 the 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 be enabling companies to report
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. The adoption of this pronouncement is
not expected to have a material impact on the Company's consolidated financial
position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling interests in
Consolidated Financial Statements--An Amendment of ARB No. 51". SFAS No. 160
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary (previously referred to as minority interests). SFAS No. 160
also requires that a retained noncontrolling interest upon the deconsolidation
of a subsidiary be initially measured at its fair value. Upon adoption of SFAS
No. 160, the Company would be required to report any noncontrolling interests as
a separate component of consolidated stockholders' equity. The Company would
also be required to present any net income allocable to noncontrolling interests
and net income attributable to the stockholders of the Company separately in its
consolidated statements of operations. SFAS No. 160 is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
January 1, 2009. SFAS No. 160 requires retroactive adoption of the presentation
and disclosure requirements for existing minority interests. All other
requirements of SFAS No. 160 shall be applied prospectively. SFAS No. 160 would
have an impact on the presentation and disclosure of the noncontrolling
interests of any non wholly-owned business acquired in the future.

In December 2007, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141R, "Business
Combinations" ("SFAS 141R"), which replaces SFAS No. 141, "Business
Combinations." SFAS 141R establishes principles and requirements for determining
how an enterprise recognizes and measures the fair value of certain assets and
liabilities acquired in a business combination, including noncontrolling
interests, contingent consideration, and certain acquired contingencies. SFAS
141R also requires acquisition-related transaction expenses and restructuring
costs be expensed as incurred rather than capitalized as a component of the
business combination. SFAS 141R will be applicable prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. SFAS 141R
would have an impact on accounting for any businesses acquired after the
effective date of this pronouncement.

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

                                       25
<PAGE>

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 59% and 58% of our net sales for the three and six-month periods
ended January 31, 2008 resulted from sales, rental, and servicing of products
manufactured by companies other than Case. That compares with a figure of 52%
and 51% for the three and six-month periods ended January 31, 2007. 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- month period ended January 31, 2008. 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 the past few
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.

                                       26
<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, 2008, we had variable rate floor plan
payables, notes payable, convertible debt and short-term debt of approximately
$41 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 $0.41 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 three and six months ended January 31, 2008
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.
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<PAGE>

PART II. OTHER INFORMATION

     ITEM 1. LEGAL PROCEEDINGS

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

     ITEM 1A. RISK FACTORS None.

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

          None

     ITEM 3. DEFAULTS UPON SENIOR SECURITIES

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

          As of July 2007, the Company was in technical default of the terms of
          the April default waiver agreement, as the Company did not make all of
          the required principal payment due June 2007. The Company negotiated a
          waiver of that default in consideration for a transfer of an
          additional 5% ownership interest (valued at $250) in the Company's
          subsidiary, Arizona Pacific Materials, LLC. A revised payment due date
          of October 15, 2007 was negotiated to pay the entire loan balance. The
          Company did not make the required full loan payment on October 15,
          2007 and continues to be in default with the debt agreement. The
          Company recorded an expense of $3,200 (representing a 20% default
          penalty) in the fourth quarter of 2007.

          As a result of the above defaults, the Company recorded total
          convertible debt penalties of $5,383 during fiscal year 2007. For the
          six-month period ended January 31, 2008, the Company recorded as a
          charge $1,190 for deferred debt issuance costs and $541 of debt
          issuance costs as a result of the above defaults. The Company also
          transferred the additional 5% ownership in the Company's subsidiary,
          Arizona Pacific Materials, LLC resulting in a gain of $250.

          In December 2007, the Company executed a note payable for the accrued
          interest owed to the convertible debt holds in the amount of $1,516
          due December 31, 2008.

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

          None.

     ITEM 5. OTHER INFORMATION

          None.


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<PAGE>

     ITEM 6. EXHIBITS

          Exhibit 31.1, 31.2     Rule 13a-14(a)/15d-14(a) Certification

          Exhibit 32.1           Certification by the Chief Executive Officer
                                 Relating to a Periodic Report Containing
                                 Financial Statements.*

          Exhibit 32.2           Certification by the Chief Financial Officer
                                 Relating to a Periodic Report Containing
                                 Financial Statements.*

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











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<PAGE>

                                    SIGNATURE


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


WESTERN POWER & EQUIPMENT CORP. & SUBSIDIARY

March 24, 2008

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























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