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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

For the Quarter Ended April 30, 2008
Commission File Number 0-26230

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

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

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

Registrant's telephone no.: 360-253-2346
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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 [_]

Small Reporting Company [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 June 16, 2008.

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

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WESTERN POWER & EQUIPMENT CORP. & SUBSIDIARY
INDEX

Page
PART I. FINANCIAL INFORMATION Number
------
Item 1. Financial Statements

Condensed Consolidated Balance Sheets
April 30, 2008 (Unaudited) and July 31, 2007...................3

Condensed Consolidated Statements of Operations (Unaudited)
three months ended April 30, 2008 and April 30, 2007...........4

Condensed Consolidated Statements of Operations (Unaudited)
nine months ended April 30, 2008 and April 30, 2007............5

Condensed Consolidated Statements of Cash Flows (Unaudited)
nine months ended April 30, 2008 and April 30, 2007...........6-7

Notes to Condensed Consolidated Financial Statements
(Unaudited).................................................8-17

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....................................................28-29

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

ITEM 1. FINANCIAL STATEMENTS

WESTERN POWER & EQUIPMENT CORP. & SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

April 30, July 31,
2008 2007
---------- ----------
(Unaudited)

ASSETS
------
Current assets:
Cash and cash equivalents ........................................... $ 277 $ 62
Accounts receivable (net) ........................................... 3,803 4,886
Inventories - net ................................................... 18,740 28,576
Prepaid expenses .................................................... 104 150
---------- ----------
Total current assets ......................................... 22,924 33,674
---------- ----------
Fixed assets:
Property, plant and equipment (net) ................................. 4,738 5,703
Rental equipment fleet (net) ........................................ 7,411 5,671
---------- ----------
Total fixed assets ........................................... 12,149 11,374
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Other assets
Security Deposits ................................................... 430 465
Deferred debt issuance costs ........................................ -- 541
---------- ----------
Total other assets .............................................. 430 1,006
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Total assets ............................................................. $ 35,503 $ 46,054
========== ==========

LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Current liabilities:
Borrowings under floor plan financing ............................... $ 16,919 20,521
Convertible debt, net of discount of $ 0 and $ 1,190 ................ 19,674 18,193
Notes payable-related parties, net of discount of $ 3 and $ 10 ...... 1,307 290
Notes payable ....................................................... 2,162 821
Accounts payable .................................................... 5,313 8,149
Accrued payroll and vacation ........................................ 849 1,032
Other accrued liabilities ........................................... 1,911 2,156
Capital lease obligation ............................................ 69 64
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Total current liabilities ....................................... 48,204 51,226
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Long-term liabilities
Notes Payable ....................................................... 847 1,577
Deferred lease income ............................................... 186 206
Capital lease obligation ............................................ 649 702
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Total long-term liabilities ........................................ 1,682 2,485
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Total liabilities ........................................................ 49,886 53,711
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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
April 30, 2008 and July 31, 2007, respectively .................... 11 11
Additional paid-in capital .......................................... 23,431 23,431
Accumulated deficit ................................................. (36,981) (30,255)
Less common stock in treasury, at cost (130,300 shares) ............. (844) (844)
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Total stockholders' deficiency .................................. (14,383) (7,657)
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Total liabilities and stockholders' deficiency ........................... $ 35,503 $ 46,054
========== ==========

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

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

Three Months Ended
April 30,
--------------------------
2008 2007
---------- ----------

Net revenues ............................................................... $ 15,736 $ 23,257

Cost of revenues (includes depreciation of
$315 and $566, respectively) ............................................ 14,436 22,596
---------- ----------

Gross profit ............................................................... 1,300 661

Selling, general and administrative expenses ............................... 2,518 2,460
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Operating loss ............................................................. (1,218) (1,799)
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Other income (expense):
Interest expense ...................................................... (806) (1,757)
Gain on settlement of penalty ......................................... -- 1,967
Other income .......................................................... 24 113
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Loss before income tax provision ........................................... (2,000) (1,476)

Income tax provision ....................................................... 14 892
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Loss from continuing operations ............................................ (2,014) (2,368)

Income from discontinued operations ........................................ -- 348
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Net loss ................................................................... $ (2,014) $ (2,020)
========== ==========
Basic and diluted loss per common share
Continuing operations ........................................ $ (0.18) $ (0.21)

Discontinued operations ............................................... -- 0.03
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Net loss per share .................................................... $ (0.18) $ (0.18)
========== ==========

Weighted average outstanding common shares for basic and
diluted net loss per common share .................................... 11,230 11,230
========== ==========

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

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

Nine Months Ended
April 30,
--------------------------
2008 2007
---------- ----------

Net revenues ............................................................... $ 54,063 $ 72,776

Cost of revenues (includes depreciation of
$1,701 and $ 2,584, respectively) ....................................... 49,101 67,585
---------- ----------

Gross profit ............................................................... 4,962 5,191

Selling, general and administrative expenses ............................... 7,741 7,253
---------- ----------

Operating loss ............................................................. (2,779) (2,062)
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Other income (expense):
Interest expense ...................................................... (4,251) (4,302)
Convertible debt penalty (net) ........................................ -- (1,933)
Gain on settlement of penalty ......................................... 250 --
Other income .......................................................... 95 132
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Loss before income tax provision ........................................... (6,685) (8,165)

Income tax provision ....................................................... 41 924
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Loss from continuing operations ............................................ (6,726) (9,089)

Income from discontinued operations ........................................ -- 448
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Net loss ................................................................... $ (6,726) $ (8,641)
========== ==========

Basic and diluted loss per common share
Continuing operations ........................................ $ (0.60) $ (0.81)

Discontinued operations ............................................... -- 0.04
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Net loss per share .................................................... $ (0.60) $ (0.77)
========== ==========

Weighted average outstanding common shares for basic and
diluted net loss per common share .................................... 11,230 11,230
========== ==========

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

WESTERN POWER & EQUIPMENT CORP. & SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)

Nine Months Ended
April 30,
--------------------------
2008 2007
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Cash flows from operating activities:
Net loss ............................................................ $ (6,726) $ (8,641)

Adjustments to reconcile net loss from operations to
net cash provided by operating activities:
Depreciation ........................................................ 2,426 3,979
Bad debts ........................................................... 10 117
Amortization of debt discount ....................................... 1,197 1,106
Gain on sale of fixed assets and rental equipment ................... (239) (257)
Deferred income taxes ............................................... -- 878
Gain on convertible debt penalty settlement ......................... (250) --
Amortization of debt issuance costs ................................. 541 432
Convertible debt penalty ............................................ -- 1,933
Changes in assets and liabilities:
Accounts receivable ............................................. 1,073 3,084
Inventories ..................................................... 5,599 88
Prepaid expenses and other assets ............................... 81 (126)
Accounts payable and accrued expenses ........................... (2,836) 1,193
Accrued payroll and vacation .................................... (183) (237)
Other accrued liabilities ....................................... 1,521 597
Deferred lease income ........................................... (21) (21)
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Net cash provided by operating activities ................................ 2,193 4,125
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Cash flows from investing activities:
Purchases of property, plant and equipment .......................... (43) (961)
Purchases of rental equipment ....................................... (342) (2,184)
Proceeds on sale of fixed assets .................................... 2 86
Proceeds on sale of rental equipment ................................ 1,659 2,497
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Net cash provided by (used in) investing activities ...................... 1,276 (562)
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Cash flows from financing activities:
Principal payments on capital leases ................................ (48) (29)
Payments on short-term borrowings ................................... -- (341)
Short-term debt borrowings .......................................... -- 141
Related party short term loan ....................................... 1,011 --
Inventory floor plan financing ...................................... (3,602) 737
Long term debt borrowings ........................................... 95 736
Long term debt payments ............................................. (1,000) (758)
Cancellation of convertible debt payment ............................ 290 --
Payments on convertible debt ........................................ -- (4,489)
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Net cash used in financing activities .................................... (3,254) (4,003)
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Increase (decrease) in cash and cash equivalents ......................... 215 (440)
Cash and cash equivalents at beginning of period ......................... 62 1,072
---------- ----------

Cash and cash equivalents at end of period ............................... $ 277 $ 632
========== ==========
Supplemental disclosures:
Interest paid ............................................................ $ 916 $ 2,285
Income taxes paid ........................................................ 10 --

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

Transfer of equipment inventory to the rental fleet ...................... $ 3,355 $ 4,265

Accrued interest converted to short-term note payable .................... $ 1,516 --

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

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 nine month periods
ended April 30, 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 the 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 loss from continuing operations of $6,726 for the
nine-month period ended April 30, 2008 compared to a loss of $9,089 for the
comparable period in fiscal year 2007. During the fiscal year 2008 period, the
Company's markets slowed resulting in lower sales. Changes in product mix also
contributed to lower sales levels. In addition, during the nine-month period
ended April 30, 2008, the Company expensed $541 in debt issuance costs and
$1,197 in debt discount related to the convertible debt issued in June of 2005.
This compares to $432 in debt issuance costs and $1,106 in debt discount
amortized during the same period in fiscal year 2007. The Company generated
positive cash flows from operations of $2,193 for the nine-month period ended
April 30, 2008 as compared to positive cash flows of $4,125 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.

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 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 nine-month period ended April 30, 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.

Due to the default, the convertible debt becomes due immediately due. The
current convertible debt holders are demanding repayment of the convertible
debt. The Company has a net negative working capital and does not have the
resources to repay the convertible debt. The Company is in discussions with the
convertible debt holders on ways to repay or restructure the debt, including
potential asset sales. The Company is also currently discussing with third
parties alternatives to refinance the debt and/or raise additional capital.
There is no assurance the Company will succeed in any of these efforts. If
management is not successful in restructuring the convertible debt or obtaining
alternative financing and/or additional capital, the Company may have to sell
off some or all of its assets and 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.

In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value
Measurements" ("SFAS 157"). SFAS 157 establishes a single definition of fair
value and a framework for measuring fair value, sets out a fair value hierarchy
to be used to classify the source of information used in fair value
measurements, and requires new disclosures of assets and liabilities measured at
fair value based on their level in the hierarchy. This statement applies under
other accounting pronouncements that require or permit fair value measurements.
In February 2008, the FASB issued FASB Staff Position ("FSP") 157-1,
"Application of FASB Statement No. 157 to FASB Statement No. 13 and Other
Accounting Pronouncements That Address Fair Value Measurements For Purposes of
Lease Classification or Measurement Under Statement 13" ("FSP 157-1") and FSP
157-2, "Effective Date of FASB Statement No. 157" ("FSP 157-2"), which,
respectively, remove leasing transactions from the scope of SFAS 157 and defer
its effective date for one year relative to certain nonfinancial assets and
liabilities. As a result, the application of the definition of fair value

and related disclosures of SFAS 157 (as impacted by FSP 157-1 and FSP 157-2)
will be effective for the Company beginning August 1, 2008 on a prospective
basis with respect to fair value measurements of (a) nonfinancial assets and
liabilities that are recognized or disclosed at fair value in the Company's
financial statements on a recurring basis (at least annually) and (b) all
financial assets and liabilities. The Company does not expect the adoption of
the new standard to have a material impact on the Company's consolidated
financial position or results of operations. The remaining aspects of SFAS 157
for which the effective date was deferred under FSP 157-2 are currently being
evaluated by the Company. Areas impacted by the deferral relate to nonfinancial
assets and liabilities that are measured at fair value, but are recognized or
disclosed at fair value on a nonrecurring basis. This deferral applies to such
items as nonfinancial assets and liabilities initially measured at fair value in
a business combination (but not measured at fair value in subsequent periods) or
nonfinancial long-lived assets groups measured at fair value for an impairment
assessment. The effects of these remaining aspects of SFAS 157 are to be applied
to fair value measurements prospectively beginning August 1, 2009. The Company
does not expect these remaining aspects to have a material impact on the
Company's financial position or 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.

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.

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.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities - an amendment of FASB Statement No. 133"
("SFAS 161"). SFAS 161 changes the disclosure requirements for derivative
instruments and hedging activities. Entities are required to provide enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133")
and its related interpretations, and (c) how derivative instruments and related
hedged items affect an entity's financial position, financial performance and
cash flows. The guidance in SFAS 161 is effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008,
with early application encouraged. SFAS 161 encourages, but does not require,
comparative disclosures for earlier periods at initial adoption. The Company
does not expect the adoption of SFAS 161 to have a material impact on its
consolidated financial position or results of operations.

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. FIN48
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 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 nine months ended April 30, 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.

3. EARNINGS OR LOSS PER SHARE

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

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

Basic loss per common share is computed by dividing net loss by the weighted
average number of common shares outstanding during the period. Diluted loss per
common share is computed by dividing net loss by the weighted average number of
common shares outstanding, plus the issuance of common shares, if dilutive,
resulting from the exercise of outstanding stock options, warrants and
convertible debt. These potentially dilutive securities were not included in the
calculation of loss per common share for the three and nine months ended April
30, 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.

Potentially dilutive securities consisted of outstanding stock options, warrants
and convertible debt to acquire 24,700,086 shares as of April 30, 2008. As of
April 30, 2007, potentially dilutive securities consisted of outstanding stock
options, warrants and convertible debt to acquire 24,233,386 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 April 30, 2008, all options were fully vested and during the year
ended July 31, 2007 and the nine months ended April 30, 2008 and April 30, 2007,
the Company did not grant any options to employees to purchase common stock.
Accordingly, no additional compensation charge was recorded and therefore there
was no impact on the consolidated financial statements.

5. INVENTORIES

Inventories consist of the following (`000's):

April 30, July 31,
2008 2007
---------- ----------
(Unaudited)
Equipment (net of reserves of
$ 1,755 and $ 1,835, respectively):
New $ 13,006 $ 20,685
Used 1,772 2,793
Mining products 710 829
Parts (net of reserves of $ 631
and $ 453, respectively) 3,252 4,269
---------- ----------
$ 18,740 $ 28,576
========== ==========

6. FIXED ASSETS

Fixed assets consist of the following (`000's):

April 30, July 31,
2008 2007
---------- ----------
(Unaudited)
Property, plant and equipment:
Land $ 1,277 $ 1,277
Buildings 1,205 1,205
Machinery and equipment 5,180 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
---------- ----------
12,653 13,125
Less: accumulated depreciation (7,915) (7,422)
---------- ----------
Property, plant, and equipment (net) $ 4,738 $ 5,703
========== ==========

Rental equipment fleet $ 9,193 $ 6,735
Less: accumulated depreciation (1,782) (1,064)
---------- ----------
Rental equipment (net) $ 7,411 $ 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.

As of April 30, 2008 and July 31, 2007, fixed assets (net) includes property
under capital leases in the amount of

$373 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 as of April 30, 2008 is
$19,674, all of which is short term. The amounts of debt discount amortized to
interest expense during the nine months ended April 30, 2008 and April 30, 2007
were $1,197 and

$1,106, respectively. Debt discount amortization during the three months ended
April 30, 2008 and April 30, 2007 were $0-0 and $572, 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 nine -month period ended April 30, 2008, the Company recorded as a
charge $1,197 for deferred debt discount 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.

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 was deferred until June 1, 2008. The note carries an interest
rate of LIBOR plus 5.25%. The Company is currently in default of this note and
such default is being addressed as part of the discussions with the debt
holders.

Due to the above described defaults, the convertible debt plus interest becomes
due immediately due. The current convertible debt holders are demanding
repayment of the convertible debt. The Company has a net negative working
capital and does not have the resources to repay the convertible debt. The
Company is in discussions with the convertible debt holders on ways to repay or
restructure the debt, including potential asset sales. The Company is also
currently discussing with third parties alternatives to refinance the debt
and/or raise additional capital. There is no assurance the Company will succeed
in any of these efforts. If management is not successful in restructuring the
convertible debt or obtaining alternative financing and/or additional capital,
the Company may have to sell off some or all of its assets and the Company's
operations may not be able to continue.

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

Notes payable consists of the following: (000's)
April 30, July 31,
Description 2008 2007
---------- ----------

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 352 471

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 December 2005,
expiring November 2010, including interest ranging from 8.25% to 9.5% per
annum secured by specific
equipment in inventory 1,003 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 88 110
---------- ----------

Total $ 3,009 $ 2,398
Less current portion (2,162) (821)
---------- ----------
Total Long-Term Notes Payable $ 847 $ 1,577
========== ==========

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

On September 8, 2004, McLain-Rubin Realty II LLC, 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 April 30, 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, President and Chief Executive
Officer of the Company, 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
April 30, 2008, are as follows:

Twelve months ending April 30,
Related
Notes Convertible Party
Payable Debt Flooring Notes Total
-------- -------- -------- -------- --------

2009 $ 2,162 $ 19,674 $ 16,919 $ 1,307 $ 40,062
2010 499 -- -- 499
2011 181 -- -- 181
2012 141 -- -- 141
2013 26 -- -- 26
Thereafter -- -- -- -- --
-------- -------- -------- -------- --------
Total annual payments 3,009 19,674 16,919 1,307 40,909
Less current portion (2,162) (19,674) (16,919) (1,307) (40,062)
-------- -------- -------- -------- --------
Long-term portion $ 847 $ -- $ -- $ -- $ 847
======== ======== ======== ======== ========

8. COMMITMENTS AND CONTINGENCIES

Leases
- ------

The Company leases certain facilities under noncancelable lease agreements.
Certain of the Company's building leases have been accounted for as capital
leases. Other facility lease agreements have terms ranging from month-to-month
to nine years and are accounted for as operating leases. Certain of the facility
lease agreements provide for options to renew and generally require the Company
to pay property taxes, insurance, and maintenance and repair costs. Total rent
expense under all operating leases aggregated $439 and $483 for the three months
ended April 30, 2008 and 2007, respectively. Total rent expense under all
operating leases aggregated $1,247 and $1,324 for the nine months ended April
30, 2008 and 2007, respectively.

Future minimum lease payments under all noncancelable leases as of April 30,
2008, are as follows (`000's):

Capital Operating
Twelve months ending April 30, leases leases
-------- --------

2009 135 1,818
2010 135 1,764
2011 135 1,519
2012 135 1,120
2013 132 1,032
Thereafter 341 5,993
-------- --------
Total annual lease payments $ 1,013 $ 13,246
========
Less amount representing interest
at a rate of 6.5% (295)
--------

Present value of minimum lease payments 718
Less current portion (69)
--------
Long-term portion $ 649
========

Purchase Commitments
- --------------------

The Company issued purchase orders to Case Corporation ("Case") for equipment
purchases. Upon acceptance by Case, these purchases become noncancelable by the
Company. As of April 30, 2008, such purchase commitments totaled $ 4,072.

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 Nine Months Ended
Net Revenues April 30, April 30,
2008 2007 2008 2007
-------- -------- -------- --------
Equipment Sales $ 9,438 $ 15,637 $ 33,308 $ 49,284

Equipment Rental 963 1,444 3,680 4,286

Mining Sales 1,019 563 2,783 1,863

Product Support 4,316 5,613 14,292 17,343
-------- -------- -------- --------

Total $ 15,736 $ 23,257 $ 54,063 $ 72,776
======== ======== ======== ========

Business product category Three Months Ended Nine Months Ended
Gross Margin April 30, April 30,
2008 2007 2008 2007
-------- -------- -------- --------
Equipment Sales $ 105 $ (858) $ 783 $ 836

Equipment Rental 125 52 594 600

Mining Sales 312 55 653 (226)

Product Support 758 1,412 2,932 3,981

Total $ 1,300 $ 661 $ 4,962 $ 5,191

10. SEGMENT INFORMATION

Summarized financial information concerning the Company's reportable segments is
shown in the following tables (`000's).

Western Power & Arizona Pacific
Equipment Corp Materials, LLC Total
-------------- -------------- -----

For the Three Months Ended April 30, 2008
Net revenues $ 14,717 $ 1,019 $ 15,736
======== ======== ========
Loss from continuing operations $ (1,253) $ (761) $ (2,014)
======== ======== ========
Net loss $ (1,253) $ (761) $ (2,014)
======== ======== ========
Capital expenditures $ 227 $ 1 $ 228
======== ======== ========

For the Three Months Ended April 30, 2007
Net revenues $ 22,694 $ 563 $ 23,257
======== ======== ========
Loss from continuing operations $ (1,699) $ (669) $ (2,368)
======== ======== ========
Net loss $ (1,351) $ (669) $ (2,020)
======== ======== ========
Capital expenditures $ 1,794 $ 96 $ 1,890
======== ======== ========

For the Nine Months Ended April 30, 2008
Net revenues $ 52,299 $ 1,764 $ 54,063
======== ======== ========
Loss from continuing operations $ (4,634) $ (2,092) $ (6,726)
======== ======== ========
Net loss $ (4,634) $ (2,092) $ (6,726)
======== ======== ========
Capital expenditures $ 360 $ 25 $ 385
======== ======== ========
Total identifiable assets at April 30, 2008 $ 31,649 $ 3,854 $ 35,503
======== ======== ========

For the Nine Months Ended April 30, 2007
Net revenues $ 70,913 $ 1,863 $ 72,776
======== ======== ========
Loss from continuing operations $ (6,642) $ (2,447) $ (9,089)
======== ======== ========
Net loss $ (6,100) $ (2,541) $ (8,641)
======== ======== ========
Capital expenditures $ 3,029 $ 116 $ 3,145
======== ======== ========
Total identifiable assets at April 30, 2007 $ 40,141 $ 5,913 $ 46,054
======== ======== ========

11. CONCENTRATION OF CREDIT RISK

Approximately 38% and 48% of the Company's net sales for the three-month periods
ended April 30, 2008 and April 30, 2007, respectively, resulted from sales,
rental, and servicing of products manufactured by Case. Approximately 41% and
50% of the Company's net sales for the nine-month periods ended April 30, 2008
and April 30, 2007, respectively, resulted from sales, rental, and servicing of
products manufactured by Case.

12. DISCONTINUED OPERATIONS

The accompanying financial statements for all periods presented have been
presented to reflect the accounting of discontinued operations for certain
branch locations sold or closed in fiscal year 2007. There were no operations
discontinued in the nine months ended April 30, 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, Arizona Pacific Materials, LLC (APM) and transferred the
fixed assets to its Phoenix, Arizona mining facility. In May 2007, the Company
sold the assets of its two Alaska operations and used the net proceeds to pay
down the convertible debt balance.

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

Three Months Nine Months
Ended Ended
April 30, 2007 April 30, 2007
----------------------------------- -------- --------
Revenue from discontinued
operations $ 5,608 $ 14,530
----------------------------------- -------- --------
Gross profit from discontinued
operations $ 600 $ 1,343
----------------------------------- -------- --------
SG & A from discontinued
operations $ 252 $ 895
----------------------------------- -------- --------
Income from discontinued
operations $ 348 $ 448
----------------------------------- -------- --------
Gain on disposal $ -- $ --
----------------------------------- -------- --------

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.

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. 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):

- ------------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
Consolidated - continuing April 30, April 30, Increase April 30, April 30, Increase
operations (in 000's) 2008 2007 (Decrease) 2008 2007 (Decrease)
- ------------------------------------ ---------- ---------- ---------- ---------- ---------- ----------

Revenue $ 15,736 $ 23,257 $ (7,521) $ 54,063 $ 72,776 $ (18,713)
- ------------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
Gross profit $ 1,300 $ 661 $ 641 $ 4,962 $ 5,191 $ (229)
- ------------------------------------ ---------- ---------- ---------- ---------- ---------- ----------

- ------------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
SG&A $ 2,518 $ 2,460 $ 58 $ 7,741 $ 7,253 $ 488
- ------------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
Operating (loss) income $ (1,218) $ (1,799) $ 581 $ (2,779) $ (2,062) $ (717)
- ------------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
Loss from continuing
operations $ (2,014) $ (2,368) $ 354 $ (6,726) $ (9,089) $ (2,363)
- ------------------------------------ ---------- ---------- ---------- ---------- ---------- ----------

The Three and Nine Months ended April 30, 2008 compared to the Three and Nine
- -----------------------------------------------------------------------------
Months ended April 30, 2007.
- ----------------------------

REVENUES

Revenues from continuing operations for the three-month period ended April 30,
2008 decreased by $7,521 or 32.3% over the comparative three-month period ended
April 30, 2007. For the three-month period ended April 30, 2008 equipment sales
and rentals decreased by $6,680 and product sales decreased by $1,297 while
mining sales increased by $456. Sales in all of our locations have declined in
the third quarter as compared to the prior year's third quarter, with the
exception of our Buena Park, California location, which had an increase of
$1,493 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 $456 or 81.0%
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 nine-month period ended April 30,
2008 decreased by $18,713 or 25.7% over the comparative nine-month period ended
April 30, 2007. Equipment sales and rentals decreased by $16,582 and product
sales decreased by $3,051 while mining sales increased by $920. Excavators,
wheel loaders and backhoes sales declined by $15,317 compared to the prior
year's comparative nine-month period. Sweeper sales increased by $5,497 over the
same comparative nine-month period. Sales in all of our locations have declined
in the first nine months as compared to the prior year's first nine months, with
the exception of our Buena Park, California location, which had an increase of
$3,524 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 and restricted the Company's ability to obtain
additional 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 $920 or 49.4%
over the prior year's comparative nine-month period as a result of increased
basalt production and sales of crushed aggregates for road, housing and related
construction, specifically in the fast growing area southeast of Phoenix. Most
of this increase occurred in the first and third quarters 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 April
30, 2008 was higher than the prior year's comparative period margin of 2.8%.
During the prior year's quarter, the Company made several large sales of aged
used equipment at a loss which resulted in an overall negative gross margin on
equipment sales for that quarter. The third quarter ending April 30, 2008 has no
such auction sales. In addition, gross margin was enhanced, in comparison to the
prior years third 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 9.2% for the nine-month period ended April
30, 2008 was higher than the prior year's comparative period margin of 7.1%.
During the nine months ending April 30, 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 $1,510
primarily related to pavers. No such sales occurred in the nine-months ending
April 30, 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 April 30, 2008, selling, general, and
administrative ("SG&A") expenses were only slightly higher by $58 compared to
the prior year's comparative third quarter. The majority of these expenses, such
as rent, depreciation and salaries, are fixed in nature and are not impacted by
the level of sales. With the efforts related to refinancing, the Company is also
incurring additional expenses related to legal and accounting fees.

For the nine-month period ended April 30, 2008, selling, general, and
administrative ("SG&A") expenses were higher by $488 compared to the prior
year's comparative nine-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. Upon failure to reach a deal with the potential lender, the Company
wrote off these fees. 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 April 30, 2008 of
$1,218 compared to operating loss of $1,799 for the three months ended April 30,
2007, reflecting the continuing soft market conditions and the ongoing costs
related to our refinancing activities. Although higher production capacity of
our mining facility in Phoenix, Arizona has benefited our 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 nine months ended April 30, 2008 of
$2,779 compared to operating loss of $2,062 for the nine months ended April 30,
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 April 30, 2008 of $806 was down from
$1,757 in the prior year's comparative period. Included in prior year's interest
expense is $244 in debt discount amortization and $247 in debt issuance cost
amortization. The three months ending April 30, 2008 had no such costs. The
Company is in technical default of their convertible debt agreement, 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. Reductions in overall interest rates over the past year
have also helped in reducing interest costs during the quarter.

Interest expense for the nine months ended April 30, 2008 of $4,251 was up from
$4,302 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 nine months ended
April 30, 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 $662 in debt discount amortization and $432 in debt
issuance cost amortization during the nine months ended April 30, 2007. These
charges were somewhat offset by 1) a decline in equipment and parts inventories
of $9,836 thus reducing flooring interest and 2) reductions in overall interest
rates over the past year.

NET LOSS

The Company had a net loss from continuing operations for the quarter ended
April 30, 2008 of $2,014 compared with a net loss of $2,368 for the prior year's
comparative quarter. Included in the net loss in the quarter ended April 30,
2007 the Company recorded a gain on the transfer of a 10% ownership in its
subsidiary, Arizona Pacific Materials, LLC, as a settlement of 50% of a
technical default penalty assessed in January 2007.

The Company had a net loss from continuing operations for the nine months ended
April 30, 2008 of $6,726 compared with a net loss of $9,089 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 negotiated a settlement of 50% of the
technical default penalty with a transfer of 10% ownership in its subsidiary,
Arizona Pacific Materials, LLC resulting in an offsetting gain.

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

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

Three Months Nine Months
Ended Ended
April 30, April 30,
2007 2007
-------------------------------------------------- ---------- ----------

Revenue from discontinued
operations $ 5,608 $ 14,530
-------------------------------------------------- ---------- ----------
Gross Profit from discontinued
operations $ 600 $ 1,343
-------------------------------------------------- ---------- ----------
SG&A from discontinued
Operations $ 252 $ 895
-------------------------------------------------- ---------- ----------
Income from discontinued
operations $ 348 $ 448
-------------------------------------------------- ---------- ----------
Gain on disposal $ -- $ --
-------------------------------------------------- ---------- ----------

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

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

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.

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 April 30, 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.

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

For the nine-month period ended April 30, 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%. The Company is currently in default of this
note and such default is being addressed as part of the discussion with the debt
holder.

CASH FLOW FROM OPERATING ACTIVITIES

During the nine-month period ended April 30, 2008 we had positive cash flows
from operating activities of $2,193. Our cash flow from operating activities
consisted primarily of a reduction of inventory of $5,599, depreciation of
$2,426 and the amortization of debt discount and deferred debt issuance costs of
$1,738. These were offset by the use of funds to decrease accounts payable by
$2,836. 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 nine months ended
April 30, 2008 and 2007, we generated approximately $1,659 and $2,497,
respectively, from such sales. With the decline in the economy resulting in
lower equipment sales, we will continue to analyze the need to rebuild our
rental fleet as customer "buy versus rent" decisions change with these economic
conditions.

CASH FLOW FROM FINANCING ACTIVITIES

We decreased our floor plan financing by $3,602 and paid $1,000 against our
long-term debt balances during the nine-month period ended April 30, 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 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 $277 as of April 30, 2008. As a result of the
accelerated due date of the convertible debt, the Company is now required to
obtain alternate third party financing to support its current operations and to
meet the accelerated convertible debt pay-off. There can be no assurance that
the Company can obtain such third party financing. We are actively exploring
avenues that will generate both short-term and long-term financing sources, as
well as the generation of additional equity capital.

OTHER

As of April 30, 2008, the Company had outstanding convertible instruments,
options and warrants convertible into 24,700,086 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

source of information used in fair value measurements, and requires new
disclosures of assets and liabilities measured at fair value based on their
level in the hierarchy. This statement applies under other accounting
pronouncements that require or permit fair value measurements. In February 2008,
the FASB issued FASB Staff Position ("FSP") 157-1, "Application of FASB
Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements
That Address Fair Value Measurements For Purposes of Lease Classification or
Measurement Under Statement 13" ("FSP 157-1") and FSP 157-2, "Effective Date of
FASB Statement No. 157" ("FSP 157-2"), which, respectively, remove leasing
transactions from the scope of SFAS 157 and defer its effective date for one
year relative to certain nonfinancial assets and liabilities. As a result, the
application of the definition of fair value and related disclosures of SFAS 157
(as impacted by FSP 157-1 and FSP 157-2) will be effective for the Company
beginning August 1, 2008 on a prospective basis with respect to fair value
measurements of (a) nonfinancial assets and liabilities that are recognized or
disclosed at fair value in the Company's financial statements on a recurring
basis (at least annually) and (b) all financial assets and liabilities. The
Company does not expect the adoption of the new standard to have a material
impact on the Company's consolidated financial position or results of
operations. The remaining aspects of SFAS 157 for which the effective date was
deferred under FSP 157-2 are currently being evaluated by the Company. Areas
impacted by the deferral relate to nonfinancial assets and liabilities that are
measured at fair value, but are recognized or disclosed at fair value on a
nonrecurring basis. This deferral applies to such items as nonfinancial assets
and liabilities initially measured at fair value in a business combination (but
not measured at fair value in subsequent periods) or nonfinancial long-lived
assets groups measured at fair value for an impairment assessment. The effects
of these remaining aspects of SFAS 157 are to be applied to fair value
measurements prospectively beginning August 1, 2009. The Company does not expect
these remaining aspects to have a material impact on the Company's financial
position or results of operations.

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
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 62% and 51% of our net sales for the three and nine-month periods
ended April 30, 2008 resulted from sales, rental, and servicing of products
manufactured by companies other than Case. That compares with a figure of 52%
and 50% for the three and nine-month periods ended April 30, 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 nine- month period ended April 30, 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in interest rates. Market risk is the
potential loss arising from adverse changes in market rates and prices such as
interest rates. For fixed rate debt, interest rate changes affect the fair value
of financial instruments but do not impact earnings or cash flows. Conversely
for floating rate debt, interest rate changes generally do not affect the fair
market value but do impact future earnings and cash flows, assuming other
factors are held constant. At April 30, 2008, we had variable rate floor plan
payables, notes payable, convertible debt and short-term debt of approximately
$40 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 $0.40 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 nine months ended April 30, 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.

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 nine-month period ended April
30, 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 June 1, 2008. The
Company is currently in default of this note and such
default is being addressed as part of the discussions
with the debt holders.

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

None.

ITEM 5. OTHER INFORMATION
-----------------

None.

ITEM 6. EXHIBITS

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

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

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

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

SIGNATURE

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

WESTERN POWER & EQUIPMENT CORP. & SUBSIDIARY

June 16, 2008

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