UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

               ---------------------------------------------------

                                    FORM 10-K

               ---------------------------------------------------


                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended July 31, 1998           Commission File Number 0-26230
                                                                         -------

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

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

 4601 NE 77TH AVE, SUITE 200, VANCOUVER, WA                   98662
 ------------------------------------------                   -----
  (Address of principal executive offices)                  (Zip Code)

Registrant's telephone number, including area code: (360) 253-2346
                                                    --------------

Securities registered pursuant to Section 12(b) of the Act:
                                      None

Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.001 par value
                          -----------------------------
                                (Title of Class)

     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 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 if disclosure of delinquent filers pursuant to Item
405 of Regulations S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [X]

     As of October 16, 1998: (a) 3,303,162 shares of Common Stock, $.001 par
value, of the registrant (the "Common Stock") were outstanding; (b) 1,303,162
shares of Common Stock were held by non-affiliates ; and (c) the aggregate
market value of the Common Stock held by non-affiliates was $6,027,124 based on
the closing sale price of $4.625 per share on October 15, 1998.

                      Documents Incorporated by Reference
                      -----------------------------------

     Portions of the Registrant's Proxy Statement to be filed in connection with
the Annual Meeting of Shareholders are incorporated by reference in Part III.

<PAGE>
                                     PART I

ITEM 1. BUSINESS

General

     Western Power & Equipment Corp., a Delaware corporation (the "Company"), 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. The Company believes, based upon the number of locations owned
and operated, that it is the largest independent dealer of Case construction
equipment in the United States. Products sold, rented, and serviced by the
Company include backhoes, excavators, crawler dozers, skid steer loaders,
forklifts, compactors, log loaders, trenchers, street sweepers, sewer vacuums,
and mobile highway signs.

     The Company operates out of 27 facilities located in the states of
Washington, Oregon, Nevada, California, and Alaska. The equipment distributed by
the Company is furnished 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.

     The Company's growth strategy focuses on acquiring additional existing
distributorships and rental operations, opening new locations, and increasing
sales at its existing locations. In such connection, it may seek 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. See "Growth Strategy."

History and Acquisitions

     The Company commenced business in November 1992 with the acquisition from
Case of seven retail distribution facilities located in Oregon and Washington.
The Company became a subsidiary of American United Global, Inc. ("AUGI"),
simultaneous with such acquisition. AUGI holds 60.6 percent of the outstanding
shares of the Company as of July 31, 1998.

     In September 1994 and February 1996, in two different transactions, the
Company acquired from Case four retail construction equipment stores located in
California and Nevada. In addition, in June 1996 and January 1997, the Company
made two additional acquisitions of distributorships of predominantly
non-competing lines of equipment, with locations in California, Oregon,
Washington, and Alaska. From fiscal 1993 through fiscal 1997, the Company also
opened nine new stores in the states served by the acquired stores.

     In fiscal 1998, the Company acquired four additional facilities through
acquisition, located in California and Alaska, and opened one new store in the
state of Washington. On December 11, 1997, the Company acquired substantially
all of the operating assets used by Case in connection with its business of
servicing and distributing Case agricultural equipment at a facility located in
Yuba City, California. The acquisition was consummated for approximately
$142,000 in cash, $628,000 in installment notes payable to Case and the
assumption of $1,175,000 in inventory floor plan debt with Case and its
affiliates.

     On April 30, 1998, the Company acquired substantially all of the operating
assets of Yukon Equipment, Inc. (Yukon) in connection with Yukon's business of
servicing and distributing construction, industrial, and agricultural equipment
in Alaska. Yukon has facilities in Anchorage, Fairbanks, and Juneau, Alaska. The
acquisition was consummated for approximately $4,766,000 in cash, the assumption

                                     - I-1 -
<PAGE>
of approximately $2,786,000 in floor plan debt with Case and its affiliates, and
50,000 shares of the Company's common stock.

Growth Strategy

     The Company's growth strategy focuses on acquiring additional existing
distributorships and rental operations, opening new locations, and increasing
sales at its existing locations.

     As opportunities arise, the Company intends to make strategic acquisitions
of other authorized Case construction equipment retail dealers located in
established or growing markets, as well as dealers or distributors of
construction, industrial, or agricultural equipment, and related parts,
manufactured by companies other than Case.

     In addition to acquisitions, the Company plans to grow by opening new
retail outlets. The strategy in opening additional retail outlets has been to
test market areas by placing sales, parts, and service personnel in the target
market. If the results are favorable, a retail outlet is opened with its own
inventory of equipment. This approach reduces both the business risk and the
cost of market development.

     The third prong of the Company's growth strategy is to expand sales at its
existing locations in three ways. First, the Company will continue to broaden
its product line by adding equipment and parts produced by manufacturers other
than Case. The Company has already added products to its inventories produced by
such quality manufacturers as Dynapac, Champion, Link-Belt, Takeuchi, Tymco,
Vactor, Kawasaki, Kubota, Daewoo, and Stewart & Stevenson. Second, the Company
will seek to increase sales of parts and service--both of which have
considerably higher margins than equipment sales. This growth will be
accomplished through the continued diversification of our parts product lines
and the servicing of equipment produced by manufacturers other than Case. Third,
the Company plans to further develop its fleet of rental equipment. As the cost
of purchasing equipment escalates, short and long-term rental will become
increasingly attractive to the Company's customers. Management anticipates that
rental of equipment will make up an increasing share of its revenues.

Products
--------

Case Construction Equipment.

     The construction equipment (the "Equipment") sold, rented, and serviced by
the Company generally consists of: backhoes (used to dig large, wide and deep
trenches); excavators (used to dig deeply for the construction of foundations,
basements, and other projects); log loaders (used to cut, process and load
logs); crawler dozers (bulldozers used for earth moving, leveling and shallower
digging than excavators); wheel loaders (used for loading trucks and other
carriers with excavated dirt, gravel and rock); roller compactors (used to
compact roads and other surfaces); trenchers (a smaller machine that digs
trenches for sewer lines, electrical power and other utility pipes and wires);
forklifts (used to load and unload pallets of materials); and skid steer loaders
(smaller version of a wheel loader, used to load and transport small quantities
of material--e.g., dirt and rocks-- around a job site). Selling prices for these
units range from $15,000 to $350,000 per piece of Equipment.

     Under the terms of standard Case dealer agreements, the Company is an
authorized Case dealer for sales of Equipment and related parts and services at
locations in Oregon, Washington, Nevada, northern California, and Alaska (the
"Territory"). The dealer agreements have no defined term or duration, but are
reviewed on an annual basis by both parties, and can be terminated without cause
at any time either by the Company on 30 days' notice or by Case on 90 days'
notice. Although the dealer agreements do not prevent Case from arbitrarily
exercising its right of termination, based upon Case's established history of
dealer relationships and industry practice, the Company does not believe that
Case would terminate its dealer agreements without good cause.

                                     - I-2 -
<PAGE>
     The dealer agreements do not contain requirements for specific minimum
purchases from Case. In consideration for the Company's agreement to act as
dealer, Case supplies to the Company items of Equipment for sale and lease,
parts, cooperative advertising benefits, marketing brochures related to Case
products, access to Case product specialists for field support, the ability to
use the Case name and logo in connection with the Company's sales of Case
products, and access to Case floor plan financing for Equipment purchases. Such
floor planning arrangement currently provides the Company with interest free
credit terms on new equipment purchases ranging from one to six months,
depending upon the type of equipment floored, after which interest commences to
accrue monthly at a rate per annum equal to 2% over the prime rate of interest.
The invoice price of each item of Equipment is payable at the earlier of the
time of its sale by the Company or six months after the date of shipment to the
Company by Case.

Other Products.
---------------

     Although the principal products sold, rented, and serviced by the Company
are manufactured by Case, the Company also sells, rents, and services equipment
and sells related parts (e.g., tires, trailers, and compaction equipment)
manufactured by others. Approximately 35% of the Company's net sales for fiscal
year 1998 resulted from sales, rental, and servicing of products manufactured by
companies other than Case, significantly higher than the 25% figure for fiscal
year 1997 as the Company continued its planned growth in product lines other
than Case. Manufacturers other than Case represented by the Company offer
various levels of supplies and marketing support along with purchase terms which
vary from cash upon delivery to interest-free, 12-month flooring.

     The Company's distribution business is divided into five general categories
of activity: (i) New Equipment sales, (ii) Used Equipment sales, (iii) Equipment
rentals, (iv) Equipment servicing, and (v) Parts sales.

New Equipment Sales.
--------------------

     At each of its distribution outlets, the Company maintains a fleet of
various Equipment for sale. The Equipment purchased for each outlet is selected
by the Company's marketing staff based upon the types of customers in the
geographical areas surrounding each outlet, historical purchases as well as
anticipated trends. Subject to applicable limitations in the Company's
manufacturers' dealer contracts, each distribution outlet has access to the
Company's full inventory of Equipment.

     The Company provides only the standard manufacturer's limited warranty for
new Equipment, generally a one-year parts and service repair warranty. Customers
can purchase extended warranty contracts.


Used Equipment Sales.
---------------------

     The Company sells used Equipment that has been reconditioned in its own
service shops. It generally obtains such used Equipment as "trade-ins" from
customers who purchase new items of Equipment and from Equipment previously
rented and not purchased. Unlike new Equipment, the Company's used Equipment is
generally sold "as is" and without a warranty.

Equipment Rental.
-----------------

     The Company maintains a separate fleet of Equipment that it holds solely
for rental. Such Equipment is generally held in the rental fleet for 12 to 36
months and then sold as used Equipment with appropriate discounts reflecting
prior rental usage. As rental Equipment is taken out of the rental fleet, the
Company adds new Equipment to its rental fleet as needed. The rental charges
vary, with different rates for different types of Equipment rented. In October
1998, the Company opened its first rental-only store, located in the Seattle,
Washington area, under the name Western Power Rents. This store rents a wide

                                     - I-3 -
<PAGE>
range of products including Equipment from Case and other manufacturers with
whom the Company has dealer agreements as well as Equipment from companies with
which the Company has had no prior relationship.

Equipment Servicing.
--------------------

     The Company operates a service center and yard at each retail distribution
outlet for the repair and storage of Equipment. Both warranty and non-warranty
service work is performed, with the cost of warranty work being reimbursed by
the manufacturer following the receipt of invoices from the Company. The Company
employs approximately 145 manufacturer-trained service technicians who perform
Equipment repair, preparation for sale, and other servicing activities.
Equipment servicing is one of the higher profit margin businesses operated by
the Company. The Company has expanded this business by hiring additional
personnel and developing extended warranty contracts to be purchased by
customers for Equipment sold and serviced by the Company, and independently
marketing such contracts to its customers. The Company services items and types
of Equipment which include those that are neither sold by the Company nor
manufactured by Case.

Parts Sales.
------------

     The Company purchases a large inventory of parts, principally from Case,
for use in its Equipment service business, as well as for sale to other
customers who are independent servicers of Case Equipment. Generally, parts
purchases are made on standard net 30 day terms.

     The Company employs one or more persons who take orders from customers for
parts purchases at each retail distribution outlet. The majority of such orders
are placed in person by walk-in customers. The Company provides only the
standard manufacturer's warranty on the parts that it sells, which is generally
a 90-day replacement guaranty.

Sales and Marketing
-------------------

     The Company's customers are typically residential and commercial building
general contractors, road and bridge contractors, sewer and septic contractors,
underground utility contractors, persons engaged in the forestry industry,
equipment rental companies and state and municipal authorities. The Company
estimates that it has approximately 18,000 customers, with most being small
business owners, none of which accounted for more than 5% of its total sales in
the fiscal year ended July 31, 1998.

     For fiscal years 1998, 1997, and 1996, the revenue breakdown by source for
the business operated by the Company were approximately as follows:

                                            FY 1998     FY 1997     FY 1996
                                            -------     -------     -------
          New Equipment Sales                 58%         58%         58%
          Used Equipment Sales                11%         11%         12%
          Rental Revenue                       8%          9%          9%
          Parts Sales                         18%         18%         17%
          Service Revenue                      5%          4%          4%
                                             ----        ----        ----
                                             100%        100%        100%
                                             ====        ====        ====

     The Company advertises its products in trade publications and appears at
trade shows throughout its Territory. It also encourages its salespersons to
visit customer sites and offer Equipment demonstrations when requested.

     The Company's sales and marketing activities do not result in any
significant backlog of orders. Although the Company accepts orders from
customers for future delivery following manufacture by Case

                                     - I-4 -
<PAGE>
or other manufacturers, during fiscal 1998 substantially all of its sales
revenues resulted from products sold directly out of inventory, or the providing
of services upon customer request.

     All of the Company's sales personnel are employees of the Company, and all
are under the general supervision of C. Dean McLain, the President of the
Company. Each Equipment salesperson is assigned a separate exclusive territory,
the size of which varies based upon the number of potential customers and
anticipated volume of sales, as well as the geographical characteristics of each
area. The Company employed 75 Equipment salespersons on July 31, 1998.

     On July 31, 1998, the Company employed 7 product support salespersons who
sell the Company's parts and repair services to customers in assigned
territories. The Company has no independent distributors or non-employee sales
representatives.

Suppliers

     The Company purchases the majority of its inventory of equipment and parts
from Case. No other supplier accounted for more than 5% of such inventory
purchases during fiscal 1998. While maintaining its commitment to Case to
primarily purchase Case Equipment and parts as an authorized Case dealer, the
Company plans to expand the number of products and increase the aggregate dollar
value of those products which the Company purchases from manufacturers other
than Case in the future.

Competition

     The Company competes with distributors of construction, agricultural, and
industrial equipment and parts manufactured by companies other than Case on the
basis of price, the product support (including technical service) that it
provides to its customers, brand name recognition for its products, the
accessibility and number of its distribution outlets, and the overall quality of
the products that it sells. The Company's management believes that it is able to
effectively compete with distributors of products produced and distributed by
such other manufacturers primarily on the basis of overall product quality and
the superior product support and other customer services provided by the
Company.

     Case's two major competitors in the manufacture of full lines of
construction equipment of comparable sizes and quality are Caterpillar
Corporation and Deere & Company. In addition, other manufacturers produce
specific types of equipment which compete with Case Equipment and other
Equipment distributed by the Company. These competitors and their product
specialties include, but are not limited to, JCB Corporation--backhoes, Kobelco
Corporation -- excavators, Dresser Industries -- light and medium duty dozers,
Komatsu Corporation -- wheel loaders and crawler dozers, and Bobcat, Inc. --skid
steer loaders.

     The Company is currently the only Case dealer for construction equipment in
Washington, Alaska, northern Nevada, and in the northern California area (other
than Case-owned distribution outlets), and is one of two Case dealers in Oregon.
However, Case has the right to establish other dealerships in the future in the
same territories in which the Company operates. In order to maintain and improve
its competitive position, revenues and profit margins, the Company plans to
increase its sales of products produced by companies other than Case.

Environmental Standards and Government Regulation

     The Company's operations are subject to numerous rules and regulations at
the federal, state, and local levels which are designed to protect the
environment and to regulate the discharge of materials into the environment.
Based upon current laws and regulations, the Company believes that its policies,
practices, and procedures are properly designed to prevent unreasonable risk of
environmental damage and the resultant financial liability to the Company. No
assurance can be given that future changes in such laws, regulations, or
interpretations thereof, changes in the nature of the Company's operations, or

                                     - I-5 -
<PAGE>
the effects of former occupants' past activities at the various sites at which
the Company operates, will not have an adverse impact on the Company's
operations.

     The Company is subject to federal environmental standards because in
connection with its operations it handles and disposes of hazardous materials,
and discharges sewer water in its equipment rental and servicing operations. The
Company's internal staff is trained to keep appropriate records with respect to
its handling of hazardous waste, to establish appropriate on-site storage
locations for hazardous waste, and to select regulated carriers to transport and
dispose of hazardous waste. Local rules and regulations also exist to govern the
discharge of waste water into sewer systems.

Employees

     At July 31, 1998, the Company employed 450 full-time employees. Of that
number, 32 are in corporate administration for the Company, 33 are involved in
administration at the branch locations, 118 are employed in Equipment sales and
rental, 89 are employed in parts sales, and 178 are employed in servicing
construction equipment. At July 31, 1998, approximately 20 of the Company's
service technicians employed in the Sacramento, California operation were being
represented by Operating Engineers Local Union No. 3 of the International Union
of Operating Engineers, AFL-CIO under the terms of a five-year contract expiring
August 31, 2001. The Company believes that its relations with its employees are
satisfactory.

Insurance

     The Company currently has general, product liability, and umbrella
insurance policies covering the Company with limits, terms, and conditions which
the Company believes to be consistent with reasonable business practice,
although there is no assurance that such coverage will prove to be adequate in
the future. An uninsured or partially insured claim, or a claim for which
indemnification is not available, could have a material adverse effect upon the
Company.

Forward Looking Statements

     Information included within this section 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
because of a number of risks and uncertainties, including but not limited to
fluctuations in the construction, agricultural and industrial sectors and
general industrial cycles; the success of the Company's entry into new markets
through store openings or acquisitions; the success of the Company's expansion
of its equipment rental business; rental industry conditions and competitors;
competitive pricing; the Company's relationship with Case and other suppliers;
relations with the Company's employees; the Company's ability to manage its
operating costs and to integrate acquired businesses in an effective manner; the
continued availability of financing; governmental regulations and environmental
matters; risks associated with regional, national and world economies; and
implementation and completion of the Company's year 2000 compliance program. Any
forward-looking statements should be considered in light of these factors.

                                     - I-6 -
<PAGE>
ITEM 2. Properties

     The following table sets forth information as to each of the properties
which the Company owns or leases (all of which are retail sales, rental,
service, storage, and repair facilities except as otherwise noted):

<TABLE>
<CAPTION>
                                                                          Expiration          Size/Square          Purchase
Location and Use                 Lessor                  Date             Annual Rental       Feet                 Options
-----------------                ------                  ----             -------------       ----                 -------
<S>                              <C>                     <C>              <C>                 <C>                     <C>
1745 N.E. Columbia Blvd.         Carlton O. Fisher,      12/31/2000       $67,500/1 plus      Approx. 4               No
Portland, Oregon 97211           CNJ Enterprises                          CPI                 acres; building
                                                                          adjustments         17,622 sq. ft.

1665 Silverton Road, N.E.        LaNoel Elston           7/10/2001        $33,600/1           Approx. 1               No
Salem, Oregon 97303              Myers Living Trust                                           acre; buildings
                                                                                              14,860 sq. ft.

1702 North 28th Street           McKay Investment        6/14/2001        $69,000/1           Approx. 5               No
Springfield, Oregon 97477        Company                                                      acres; building
                                                                                              17,024 sq. ft.

West 7916 Sunset Hwy.            U.S. Bank               9/30/2003        $69,600/1           Approx. 5               No
Spokane, Washington 99204                                                                     acres; building
                                                                                              19,200 sq. ft.

3217 Hewitt Avenue               Dick Calkins            Month to         $40,320/1           Approx. 2.5             No
Everett, Washington 98201                                Month                                acres; building
                                                                                              12,483 sq. ft.

1901 Frontier Loop               The Landon              4/30/2002        $40,500/1           Approx. 7               No
Pasco, Washington 99301          Group                                                        acres; building
                                                                                              14,200 sq. ft.

13184 Wheeler Road, N.E.         Maiers Industrial       Month to         $38,400/1           Approx. 10              No
Building 4                       Park                    Month                                acres; building
Moses Lake, Washington 98837                                                                  13,680 sq. ft.

63291 Nels Anderson Road         B&K Management          10/31/98         $31,800/1           Approx. 1.9             No
Bend, Oregon 97701               Corp.                                                        acres; building
                                                                                              3,600 sq. ft.

4601 N.E. 77th Avenue            Parkway Limited         4/30/2001        $147,288            Building 8,627          No
Suite 200                        Partnership                                                  sq. ft.
Vancouver, Washington 98662
(Executive Offices)

2702 W. Valley Hwy No.           Avalon Island LLC       11/30/2015       $204,000/1          Approx. 8               No
Auburn, Washington 98001                                                                      acres; building
                                                                                              33,000 sq. ft.

500 Prospect Lane                Frederick               9/15/2002        $26,496/1           Approx. 1.5             No
Moxee, Washington 98936          Peterson                                                     acres; building
                                                                                              4,320 sq. ft.

2112 Wildwood Way                James Ghia              8/31/99          $18,720             Approx. 1               No
Elko, Nevada 89431                                                                            acre; building
                                                                                              2,400 sq. ft.

                                     - I-7 -
<PAGE>
                                                                          Expiration          Size/Square          Purchase
Location and Use                 Lessor                  Date             Annual Rental       Feet                 Options
-----------------                ------                  ----             -------------       ----                 -------
<S>                              <C>                     <C>              <C>                 <C>                     <C>
1455 Glendale Ave.               Owned                   N/A              N/A                 Approx. 5               N/A
Sparks, Nevada 89431                                                                          acres; building
                                                                                              22,475 sq. ft.

25886 Clawiter Road              Fred Kewel II,          11/30/99         $110,088/1          Approx. 2.8             No
Hayward, California 94545        Agency                                                       acres; building
                                                                                              21,580 sq. ft.

3540 D Regional Parkway          Soiland                 2/28/99          $43,284/1 plus      Approx. 1.25            No
Santa Rosa, California  95403                                             annual CPI          acres; building
                                                                          adjustments         5,140 sq. ft.

1751 Bell Avenue                 McLain-Rubin            2/2/2016         $168,000/2          Approx. 8               No
Sacramento, California 95838     Realty Group                                                 acres; building
                                                                                              35,940 sq. ft.

1041 S. Pershing Avenue          Raymond                 3/14/2001        $44,400/1 plus      Approx. 2               No
Stockton, California 95206       Investment Corp.                         annual CPI          acres; building
                                                                          adjustments         8,000 sq. ft.

8271 Commonwealth Avenue         M.E. Robinson           3/31/2001        $81,600/1           Approx. 1               Yes
Buena Park, California  90621                                                                 acre; building
                                                                                              11,590 sq. ft.

672 Brunken Avenue               R. Jay De Serpa,        7/31/2001        $28,800/1           Approx. .8              No
Salinas, CA  93301               Ltd.                                                         acre; building
                                                                                              4,000 sq. ft.

13691 Whitaker Way               D&J Enterprises         5/1/2001         $77,700             Approx. 2               No
Portland, OR 97230                                                                            acres; building
                                                                                              11,760 sq. ft.

2535 Ellis Street                Hart Enterprises        2/15/2002        $33,600             Approx. 2               Yes
Redding, OR 96001                                                                             acres; building
                                                                                              6,200 sq. ft.

1702 Ship Avenue                 D&J Enterprises         1/18/99          $94,200/1           Approx. 4               No
Anchorage, AK 99501                                                                           acres; building
                                                                                              11,800 sq. ft.

913 S. Central                   McLain-Rubin            5/31/2017        $205,200/2 plus     Approx. 4.4             No
Kent, WA 98032                   Realty II                                CPI                 acres; building
(Rental only  facility)                                                   adjustments         21,400 sq. ft.

723 15th Street                  Mark Flerchinger        11/02/2002       $18,600             Approx. 1.2             Yes
Clarkston, WA 99403                                                                           acres; building
                                                                                              3,750 sq. ft.

3199 E. Onstott Road             McLain-Rubin            12/31/2017       $54,000/2           Approx. 13              No
Yuba, City, CA 95991             Realty III                                                   acres; building
                                                                                              23, 900 sq. ft.

                                     - I-8 -
<PAGE>
                                                                          Expiration          Size/Square          Purchase
Location and Use                 Lessor                  Date             Annual Rental       Feet                 Options
-----------------                ------                  ----             -------------       ----                 -------
<S>                              <C>                     <C>              <C>                 <C>                     <C>
2020 E. Third Avenue             Owned                   N/A              N/A                 Approx. 4               N/A
Anchorage, AK 99501                                                                           acres; building
                                                                                              15,650 sq. ft.

3510 International Way           C & N Partners          6/15/99          $30,900             Approx 2                No
Fairbanks, AK 99701                                                                           acres; building
                                                                                              4,500 sq. Ft.

2275 Brandy Lane                 Excaliber Drill         2/29/2000        $42,000             Approx. 0.5             No
Juneau, AK 99801                                                                              acre; building
                                                                                              1,500 sq, ft.

85454 Highway 11                 Eagle Enterprises       Month to         $21,600             Approx. 0.5             No
Milton-Freewater, OR 97862                               month                                acres; building
                                                                                              1,000 sq. ft.

--------------

     /1 Net lease with payment of insurance, property taxes, and maintenance
costs paid by the Company.

     /2 Net lease with payment of insurance, property taxes and maintenance
costs, including structural repairs, paid by the Company.
</TABLE>

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

     The Company's operating facilities are separated into nine "hub" outlets
and eighteen "sub-stores". The hub stores are the main distribution centers
located in Auburn, Pasco, and Spokane, Washington; Portland and Springfield,
Oregon; Sparks, Nevada; Hayward and Sacramento, California; and Anchorage,
Alaska; and the sub-stores are the smaller facilities located in Everett, Moses
Lake, Kent, Clarkston, and Yakima, Washington; Portland, Salem,
Milton-Freewater, and Bend, Oregon; Santa Rosa, Stockton, Buena Park, Redding,
Yuba City, and Salinas, California; Elko, Nevada; and Fairbanks and Juneau,
Alaska.

     All of the leased and owned facilities used by the Company are believed to
be adequate in all material respects for the needs of the Company's current and
anticipated business operations.


ITEM 3. LEGAL PROCEEDINGS

     Except for routine proceedings incidental to its business, there are no
pending legal proceedings to which the Company or any of its property is
subject.


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

     None.

                                     - I-9 -
<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT (1)

<TABLE>
<CAPTION>
    Name                   Officer Since         Age       Position Held With the Registrant
    ----                   -------------         ---       ---------------------------------
    <S>                        <C>               <C>       <C>
    C. Dean McLain             1993              45        Chairman, President and Chief Executive
                                                           Officer (2)

    Mark J. Wright             1997              42        Vice President of Finance, Chief Financial
                                                           Officer, Treasurer and Secretary

--------------

(1)  The officers serve for a term of one year and until their successors are
     elected.

(2)  Elected Chairman in 1998, Chief Executive Officer and President in 1993.
</TABLE>

                                    - I-10 -
<PAGE>
                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's stock is traded on the NASDAQ National Market System under
the symbol WPEC. The high and low closing prices for the Company's common stock
for the years ended July 31, 1997 and July 31, 1998 were as follows:

<TABLE>
<CAPTION>
                                                                      High        Low
                                                                      ----        ---
     <S>                                                              <C>        <C>   
     Fiscal 1997
     -----------
     1st Quarter - August 1, 1996 through October 31, 1996            $5.250     $4.313

     2nd Quarter - November 1, 1996 through January 31, 1997          $5.375     $4.000

     3rd Quarter - February 1, 1997 through April 30, 1997            $5.500     $4.688

     4th Quarter - May 1, 1997 through July 31, 1997                  $5.500     $4.750

     Fiscal 1998
     -----------
     1st Quarter - August 1, 1997 through October 31, 1997            $6.375     $4.500

     2nd Quarter - November 1, 1997 through January 31, 1998          $6.625     $4.563

     3rd Quarter - February 1, 1998 through April 30, 1998            $7.313     $5.375

     4th Quarter - May 1, 1998 through July 31, 1998                  $6.625     $5.000
</TABLE>

     The number of shareholders of record of the Company's Common Stock on
October 15, 1998 was 38, and the number of beneficial holders of the Company's
Common Stock is estimated by management to be over 500 holders.

     As part of the Company's acquisition of the business of Yukon Equipment,
Inc., the Company issued 50,000 shares of unregistered common stock from its
treasury stock to Yukon Equipment, Inc. in May, 1998. the shares were issued as
partial consideration for the assets acquired at a stated value of $7.00 per
share. The shares were issued in reliance on Section 4(2) of the Securities Act
of 1933, as amended.

     The Company has never paid cash dividends on its Common Stock and it does
not anticipate that it will pay cash dividends or alter its dividend policy in
the foreseeable future. The payment of dividends by the Company on its Common
Stock will depend on its earnings and financial condition, and such other
factors as the Board of Directors of the Company may consider relevant. The
Company currently intends to retain its earnings to assist in financing the
development of its business.

                                    - II-1 -
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

     The following selected financial data have been derived from the financial
statements of the Company, which have been audited by PricewaterhouseCoopers
LLP, independent accountants. See notes to Consolidated Financial Statements in
Part IV, Item 14(a)(1) for information concerning the effect of acquisitions
completed by the Company during the periods reflected.

(Amounts in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                            Fiscal Years Ended
                                                                                  July 31,
                                              ---------------------------------------------------------------------------------
                                                   1998              1997              1996              1995              1994
                                                   ----              ----              ----              ----              ----
<S>                                           <C>               <C>               <C>               <C>               <C>      
Net sales                                     $ 163,478         $ 148,130         $ 106,555         $  86,172         $  67,370
Gross profit                                  $  19,176         $  15,870         $  12,649         $  10,028         $   8,231
     (% of sales)                                  11.7              10.7              11.9              11.6              12.2
Selling, general and administrative           $  12,092         $  11,194         $   7,827         $   6,078         $   5,295
     (% of sales)                                   7.4               7.6               7.3               7.1               7.9
Income before income taxes                        3,193         $   1,664         $   3,363         $   2,602         $   2,084
     (% of sales)                                   2.0               1.1               3.2               3.0               3.1
Tax rate (%)                                         42                42                38                38                27
Net income                                    $   1,839         $     971         $  2 ,079         $   1,613         $   1,520
Net income per common share                   $    0.53         $    0.27         $    0.59         $   0 .74         $   0 .75
Shares used in basic earnings
     per share calculations                       3,473             3,533             3,533             2,192             2,038

Net income per diluted common share           $    0.49         $    0.27         $    0.58         $    0.74         $    0.75
Shares used in diluted earnings
     per share calculations                       3,772             3,609             3,579             2,192             2,038

-------------------------------------------------------------------------------------------------------------------------------

Working capital (deficit)                     $  (6,339)        $  (2,569)        $  15,326         $  10,883         $   3,957
Long-term debt (including capital leases)     $   7,457         $   3,767         $   2,924         $      47         $      99
Stockholders' equity                          $  23,138         $  22,765         $  21,794         $  19,715         $  10,051
Total assets                                  $ 138,766         $ 107,423         $  85,290         $  67,192         $  46,040

-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                    - II-2 -
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto appearing elsewhere in
this annual report. Certain matters discussed herein contain forward-looking
statements that are subject to risks and uncertainties that could cause actual
results to differ materially from those projected, including, but not limited
to, projected sales levels, expense reductions, reduced interest expense, and
increased inventory turnover, one or more of which may not be realized.

General

     The Company acquired its first seven retail distribution stores in November
1992. The Company expanded to 18 stores in four states by the end of fiscal
1996, to 23 stores in five states by the end of fiscal 1997, and to 27 stores in
five states by the end of fiscal 1998. The Company's growth has been
accomplished through a combination of new store openings, strategic
acquisitions, and to a lesser extent, comparable stores revenue increases.

<TABLE>
<CAPTION>
     Store activity for the last three years is summarized as follows:

   Fiscal       No. of Stores at       No. of Stores      No. of Stores      No. of Stores      No. of Stores at
    Year        Beginning of Year          Opened             Closed            Acquired           End of Year
   ------       -----------------      -------------      -------------      -------------      ----------------
    <S>                <C>                   <C>                <C>                <C>                 <C>
    1996               13                    3                  0                  2                   18
    1997               18                    2                  0                  3                   23
    1998               23                    1                  1                  4                   27
</TABLE>

     The Company plans to open and acquire additional distribution outlets for
Case products, as well as for products which may be manufactured by other
companies. The Company's results can be impacted by the timing of, and costs
incurred in connection with, new store openings and acquisitions.

Results of Operations

Fiscal Year 1998, as Compared with Fiscal Year 1997

     The Company reported net revenue for fiscal 1998 of $163,478,000 which is
an increase of 10 percent over net revenue of $148,130,000 for fiscal 1997.
Approximately $17.4 million of revenue came from stores opened or acquired in
fiscal 1998. Stores opened prior to fiscal 1998 showed an overall revenue
decrease of 3.9 percent from prior year revenue reflecting a general softening
in economic conditions in the northwest, increased competitive pressures, and
some weather related business interruptions.

     Net Income for fiscal 1998 was $1,839,000 or $0.53 per share ($0.49 per
share on a diluted basis) compared with $971,000 or $0.27 per share in fiscal
1997 ($0.27 per share on a diluted basis). In fiscal 1997, the Company
recognized a fourth quarter charge of approximately $440,000 (pre-tax) for
warranty service related expenses that the Company anticipated would not be
reimbursed by Case Corporation. The Company did not experience a similar problem
in fiscal 1998.

     Gross margin was 11.7 percent during fiscal 1998 which is higher than the
10.7 percent gross margin during fiscal 1997. Margins increased in fiscal 1998
on new unit sales, rental, and service business. Management continues to place a
high priority on improving overall gross margins by working to increase higher
margin service, parts, and rental revenues, focusing more sales efforts on
speciality and niche product lines, and by obtaining higher prices for new
equipment.

     Selling, general, and administrative expenses were $12,092,000 or 7.4
percent of revenues for fiscal 1998 compared to $11,194,000 or 7.6 percent of
sales for fiscal 1997. The decrease in selling, general, and administrative

                                    - II-3 -
<PAGE>
expenses as a percent of revenues resulted in part from management's cost
control and efficiency improvement efforts as well as a generally higher level
of revenues.

     Interest expense for fiscal 1998 was $4,687,000, up from $3,518,000 in
fiscal 1997 due in part to an increase in inventory levels, particularly
inventory dedicated to rentals. In addition, effective with deliveries after
July 1, 1998, Case changed factory to dealer terms lowering from 3% to 2% the
cash payment discount if the dealer pays for the machine outright rather than
utilizing the interest-free floor planning. The Company was able to take
advantage of the cash discounts on a majority of its Case purchases in fiscal
1998. In June 1997, the Company obtained a $75 million inventory flooring and
operating line of credit facility through Deutsche Financial Services. The
facility is a three-year, floating rate facility at rates as low as 50 basis
points under the prime rate. Management has used this facility to allow the
Company to take advantage of more purchase discounts and to lower overall
interest expense. Management believes that the positive impact of the discounted
cost of new inventory on gross margins has more than offset the increased
interest expense related to foregoing the interest-free flooring periods.

Fiscal Year 1997, as Compared with Fiscal Year 1996

     The Company reported net sales for fiscal 1997 of $148,130,000 which is an
increase of 39 percent over net sales of $106,555,000 for fiscal 1996. Stores
opened prior to fiscal 1997 showed an overall revenue increase of 25 percent
over the prior year results reflecting a continuation of generally good economic
conditions, increased market acceptance of our products, full-year operation, as
well as revenues realized from the addition of numerous new parts and equipment
lines to our product offerings.

     Net income for fiscal 1997 was $971,000 or $0.27 per share ($0.27 per share
on a diluted basis) compared with $2,079,000 or $0.59 per share ($0.58 per share
on a diluted basis) in fiscal 1996. The Company recognized a fourth quarter
charge of approximately $440,000 (pre-tax) for warranty service related expenses
that it anticipates will not be reimbursed from Case Corporation for
manufacturing problems experienced by customers who have purchased Case
Corporation backhoes from the Company. The Company wrote-down equipment it had
loaned its customers at no charge and accrued a reserve for warranty service
work that the Company anticipated would not be reimbursed by Case Corporation.

     Gross margin was 10.7 percent during fiscal 1997 which is slightly lower
than the 11.9 percent figure for the prior year due in part to the fourth
quarter charge previously mentioned and increased competitive pressure.
Management will be placing a high priority on improving overall gross margins by
working to increase higher margin service and parts revenues, focusing more
sales efforts on speciality and niche product lines, and by obtaining higher
prices for new equipment.

     Selling, general and administrative expenses were $11,194,000 or 7.6
percent of sales for fiscal 1997 compared to $7,827,000 or 7.3 percent of sales
for fiscal 1996. The increase in selling, general and administrative expenses as
a percent of sales resulted mainly from administrative costs associated with the
acquisition and integration of the Sahlberg Equipment operations.

     The $1,680,000 increase in interest expense for fiscal 1997 is attributable
to an increasing balance of inventory purchased under the Company's various
floor plan lines of credit to stock the new outlets, an increase in inventory
dedicated to rental from approximately $12,000,000 in fiscal 1996 to more than
$18,400,000 in fiscal 1997, as well as changes in floor plan terms by Case.
Effective January 1, 1996, Case changed factory to dealer terms in a program
they have named "Focus 2000". While interest free floor plan terms for Case's
most expensive units--wheel loaders and excavators--remains at six to eight
months, the terms on Case's smaller units were shortened from six months to
three months interest free. Case also granted a 3% cash discount if the dealer
pays for the machine outright rather than utilizing the interest-free floor
planning. The Company was not able to take full advantage of the cash discounts
on its purchases in fiscal 1997. However, in June 1997, the Company obtained a
$75 million inventory flooring and operating line of credit facility through
Deutsche Financial Services. The facility is a three-year, floating rate
facility at rates as low as 50 basis points under the prime rate. Management
intends to use this facility to allow the Company to take advantage of more
purchase discounts and to lower overall interest expense. Management believes
that the positive impact of the discounted cost of new inventory will, when
sold, more than offset the increased interest expense.

                                    - II-4 -
<PAGE>
Fiscal Year 1996, as Compared with Fiscal Year 1995

     The Company reported net sales for fiscal 1996 of $106,555,000 which is an
increase of 24 percent over net sales of $86,172,000 for fiscal 1995. Same store
revenues increased 13.8 percent over the prior year results reflecting a
continuation of generally good economic conditions, increased market acceptance
of our products, increased housing starts, as well as revenues realized from the
addition of numerous new parts and equipment lines to our product offerings.

     Cost of goods sold as a percentage of sales was 88.1 percent during fiscal
1996 which is consistent with the prior year results. Management has placed a
high priority on improving overall gross margins by working to increase higher
margin service and parts revenues and by obtaining higher prices for new
equipment.

     Selling, general and administrative expenses were $7,827,000 or 7.3 percent
of sales for fiscal 1996 compared to $6,078,000 or 7.1 percent of sales for
fiscal 1995. The increase in selling, general and administrative expenses as a
percent of sales resulted mainly from administrative costs associated with the
acquisition and integration of the Sacramento Case operations and the GCS
operations.

     The $747,000 increase in interest expense for fiscal 1996 is attributable
to an increasing balance of inventory purchased under the Company's various
floor plan lines of credit to stock the new outlets, an increase in inventory
dedicated to rental from approximately $5,000,000 in fiscal 1995 to more than
$12,000,000 in fiscal 1996, as well as changes in floor plan terms by Case.
Effective January 1, 1996, Case changed factory to dealer terms in a program
they have named "Focus 2000". While interest free floor plan terms for Case's
most expensive units--wheel loaders and excavators--remains at six to eight
months, the terms on Case's smaller units were shortened from six months to four
months interest free. For the first time, Case is also granting a 4% cash
discount if the dealer pays for the machine outright rather than utilizing the
interest-free floor planning. The Company was able to take advantage of the cash
discounts for some of its purchases in fiscal 1996, which had an immediate
effect on interest expense. The interest free floor planning period was not
utilized, however. Nevertheless, Management believes that the positive impact of
the discounted cost as these units are sold will more than offset the increased
interest expense.

Liquidity and Capital Resources

     The Company's primary needs for liquidity and capital resources are related
to its inventory for sale and its rental and lease fleet inventories, store
openings, and acquisitions of additional stores. The Company's primary source of
internal liquidity has been its profitable operations. As more fully described
below, the Company's primary sources of external liquidity are equipment
inventory floor plan financing arrangements provided to the Company by the
manufacturers of the products the Company sells, and Deutsche Financial Services
("DFS") and, with respect to acquisitions, secured loans from Case.

     Under inventory floor planning arrangements the manufacturers of products
sold by the Company 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 percent 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 sale of the equipment. At
July 31, 1998, the Company was indebted under manufacturer provided floor
planning arrangements in the aggregate amount of $11,038,000. As of September
30, 1998, approximately $10,836,000 was outstanding under these manufacturer
provided floor plan arrangements.

     In order to take advantage of the cash discount offered by Case, to provide
financing beyond the term of applicable manufacturer provided floor plan
financing, or as alternatives to manufacturer provided floor plan financing
arrangements, the Company had entered into a separate secured floor planning
line of credit with Seafirst Bank ("Seafirst"). The Seafirst line of credit was
entered into in June 1994 and was renewed on September 1, 1997. This was a
$22,000,000 line of credit which could be used to finance new and used equipment
or equipment to be held for rental purposes. The Company has had no outstanding
balance on the Seafirst line of credit since March 1998. On July 1, 1998, the
term of the credit line expired without renewal at the mutual agreement of
Seafirst and the Company.

                                    - II-5 -
<PAGE>
     In June 1997, the Company obtained a $75 million inventory flooring and
operating line of credit through Deutsche Financial Services ("DFS"). The DFS
credit facility is a three-year, floating rate facility based on prime with
rates between 0.50% under prime to 1.00% over prime depending on the amount of
total borrowing under the facility. Amounts are advanced against the Company's
assets, including accounts receivable, parts, new equipment, rental fleet, and
used equipment. The Company expects to use this borrowing facility to lower
flooring related interest expense by using advances under such line to finance
inventory purchases in lieu of financing provided by suppliers, to take
advantage of cash purchase discounts from its suppliers, to provide operating
capital for further growth, and to refinance some its acquisition related debt
at a lower interest rate. As of July 31, 1998, approximately $75,886,000 was
outstanding under the DFS credit facility. As of September 30, 1998,
approximately $67,855,000 was outstanding under this facility. At July 31, 1998,
the Company was in technical default of the leverage covenant in the Deutsche
Financial Services Loan Agreement. The Company obtained a waiver letter for the
period July 31, 1998 through September 30, 1998. There is no guarantee that
Deutsche Financial Services will not call this debt at any time after September
30, 1998. The Company and DFS have reached preliminary agreement on increasing
this credit facility to $100,000,000. Finalization of this increase is expected
by October 31, 1998. Amounts owing under the DFS credit facility are secured by
inventory purchases financed by DFS, as well as all proceeds from their sale or
rental, including accounts receivable thereto.

     During the year ended July 31, 1998, cash and cash equivalents increased by
$680,000 primarily due to the increased borrowing from DFS. The Company had
positive cash flow from operating activities during the year of $8,342,000
reflecting net income for the year after adding back depreciation and
amortization. Purchases of fixed assets during the period were related mainly to
the opening of new distribution outlets and the Yukon acquisition.

     The Company's cash and cash equivalents of $2,555,000 as of July 31, 1998
and available credit facilities are considered sufficient to support current or
higher levels of operations for at least the next twelve months.

Inventory; Effects of Inflation and Interest Rates; General Economic Conditions

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

     All of the products and services provided by the Company are either capital
equipment or included in capital equipment, which are used in the construction,
agricultural, and industrial sectors. Accordingly, the Company's sales are
affected by inflation or increased interest rates which tend to hold down new
construction, and consequently adversely affect demand for the construction and
industrial equipment sold and rented by the Company. In addition, although
agricultural equipment sales are less than 5% of the Company's total revenues,
factors adversely affecting the farming and commodity markets also can adversely
affect the Company's agricultural equipment related business.

     The Company's 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, agricultural, and industrial sectors.
An erosion in North American and/or other countries' economies could adversely
affect the Company's business. Market specific factors could also adversely
affect one or more of the Company's target markets and/or products.

Dividend Policy

     The Company has never paid cash dividends on its Common Stock and it does
not anticipate that it will pay cash dividends or alter its dividend policy in
the foreseeable future. The payment of dividends by the Company on its Common
Stock will depend on its earnings and financial condition, and such other
factors as the Board of Directors of the Company may consider relevant. The
Company currently intends to retain its earnings to assist in financing the
growth of its business.

Impact of the Year 2000 Issue

     The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have date sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.

                                    - II-6 -
<PAGE>
     The Company has determined that it will be required to modify or replace
significant portions of its software so that its computer systems will properly
utilize dates beyond December 31, 1999. The Company presently believes that with
modifications to existing software and conversions to new software, the Year
2000 issue can be mitigated. However, if such modifications and conversions are
not made, are not timely completed, or do not work as anticipated, the Year 2000
issue could have a material impact on the operations of the Company.

     The Company has a plan in place to contact all of its significant suppliers
to determine the extent to which the Company is vulnerable to those third
parties' failure to remediate their own Year 2000 issues. There can be no
guarantees that the systems of third parties on which the Company's systems rely
or which influence the business of the Company's customers will be timely
remediated, that any attempted remediation will be successful, or that such
conversions would be compatible with the Company's systems. The Company has not
yet determined the projected costs of the Company's Year 2000 project and cannot
yet determine whether the Company has any exposure to contingencies related to
the Year 2000 issue for the products it has previously sold.

     The Company will utilize both internal and external resources to reprogram,
or replace, and test the Company's software for Year 2000 modifications. The
Company plans to complete its Year 2000 project by July 31, 1999. Funding for
the costs of the program are anticipated to come from operating cash flows.

     The Company's current plan to complete the Year 2000 modifications are
based on management's best estimates, which were derived using numerous
assumptions of future events including the continued availability of certain
resources, third party modification plans, and the ability to meet projected
time lines. There can be no guarantee that these estimates will be achieved and
actual results could differ materially from those plans. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and other uncertainties.

Forward Looking Statements

     Information included within this section 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
because of a number of risks and uncertainties, including but not limited to
fluctuations in the construction, agricultural and industrial sectors and
general industrial cycles; the success of the Company's entry into new markets
through store openings or acquisitions; the success of the Company's expansion
of its equipment rental business; rental industry conditions and competitors;
competitive pricing; the Company's relationship with Case and other suppliers;
relations with the Company's employees; the Company's ability to manage its
operating costs and to integrate acquired businesses in an effective manner; the
continued availability of financing; governmental regulations and environmental
matters; risks associated with regional, national and world economies; and
implementation and completion of the Company's year 2000 compliance program. Any
forward-looking statements should be considered in light of these factors.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     None.

                                    - II-7 -
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The following financial statements and financial schedule are attached to
this Report on Form 10-K following Part IV, Item 14:

     Consolidated Statements of Operations for
         the years ended July 31, 1998, 1997, and 1996.....................  F-1
     Consolidated Balance Sheets as of
         July 31, 1998 and 1997............................................  F-2
     Consolidated Statements of Stockholders'
         Equity for the years ended July 31, 1998, 1997
       and 1996............................................................  F-3
     Consolidated Statements of Cash Flows for
         the years ended July 31, 1998, 1997, and 1996.....................  F-4
     Notes to Consolidated Financial Statements............................  F-5
     Report of Independent Accountants..................................... F-16

Financial Statement Schedule:

     Report of Independent Accountants - Financial Statement Schedule...... F-17
     Schedule II - Valuation and Qualifying Accounts....................... F-18


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     None.

                                    - II-8 -
<PAGE>
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

     Information with respect to Directors of the Company is incorporated herein
by reference to "Proposal 1: Election of Directors" continuing through "Report
of the Compensation Committee on Executive Compensation" in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be filed pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered
by this Form 10-K. The information required by this Item with respect to the
Company's Executive Officers follows Part I, Item 4 of this document.

ITEM 11. EXECUTIVE COMPENSATION

     Information with respect to Executive Compensation is incorporated herein
by reference to "Compensation of Executive Officers" in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be filed pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered
by this Form 10-K.

ITEM 12. PRINCIPAL STOCKHOLDERS

     Information with respect to Security Ownership of Certain Beneficial Owners
and Management is incorporated herein by reference to "Security Ownership of
Certain Beneficial Owners" and "Security Ownership of Directors and Executive
Officers" in the Company's Proxy Statement for the Annual Meeting of
Shareholders to be filed pursuant to Regulation 14A not later than 120 days
after the end of the fiscal year covered by this Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information with respect to Certain Relationships and Related Transactions
is incorporated herein by reference to "Board Compensation, Attendance and
Committees, Certain Transactions" in the Company's Proxy Statement for the
Annual Meeting of Shareholders to be filed pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this Form 10-K.

                                    - III-1 -
<PAGE>
                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)   1. Financial Statements.

         Consolidated Statements of Operations for
            the years ended July 31, 1998, 1997, and 1996..................  F-1
         Consolidated Balance Sheets as of
            July 31, 1998 and 1997.........................................  F-2
         Consolidated Statements of Stockholders'
            Equity for the years ended July 31, 1998, 1997, and 1996.......  F-3
         Consolidated Statements of Cash Flows for
            the years ended July 31, 1998, 1997, and 1996..................  F-4
         Notes to Consolidated Financial Statements........................  F-5
         Report of Independent Accountants................................. F-16

      2. Financial Statement Schedule.

         Report of Independent Accountants - Financial Statement Schedule.. F-17
         Schedule II - Valuation and Qualifying Accounts................... F-18

      3. Exhibits.

         Exhibit
         Number         Description
         ------         -----------

         3.1            Certificate of Incorporation of Registrant. (3)

         3.2            By-laws of Registrant. (3)

         10.1           1995 Employee Stock Option Plan. (4)

         10.2           Second Amended and Restated Stock Option Plan for
                        Non-Employee Directors. (4)

         10.3           Case New Dealer Agreement Package. (1)

         10.4           Lease Agreement--Hayward, California. (3)

         10.5           Lease Agreement--Auburn, Washington. (8)

         10.6           Lease Agreement--Sacramento, California. (5)

         10.7           Loan Agreement, dated January 17, 1997, between Western
                        Power & Equipment Corp. and Case Credit Corp. including
                        related promissory notes. (6)

         10.8           Security Agreement, dated January 17, 1997, made by
                        Western Power & Equipment Corp. in favor of Case Credit
                        Corporation to secure payment for and collateralized by
                        all assets acquired by Western Power & Equipment Corp.
                        from Sahlberg Equipment, Inc. (6)

         10.9           Loan and Security Agreement dated as of June 5, 1997
                        between Western Power & Equipment Corp. and Deutsche
                        Financial Services Corporation. (7)

         10.10          Commercial Lease dated June 1, 1997 between McLain-Rubin
                        Realty Company II, LLC and Western Power & Equipment
                        Corp. for Kent, Washington facility.

                                    - IV-1 -
<PAGE>
         10.11          Asset Purchase Agreement, dated December 11, 1997,
                        between Case Corporation and Western Power & Equipment
                        Corp. and McLain-Rubin Realty Company III, LLC.

         10.12          Commercial Lease dated December 11, 1997 between
                        McLain-Rubin Realty Company III, LLC and Western Power &
                        Equipment Corp. for Yuba City, California facility.

         10.13          Employment Agreement, by and between Registrant and C.
                        Dean McLain, dated January 1, 1998.

         10.14          Asset Purchase Agreement, dated April 30, 1998, between
                        Yukon Equipment, Inc. and Western Power & Equipment
                        Corp. (9)

         10.15          Employment Agreement dated May 1, 1998 between Maurice
                        Hollowell and Western Power & Equipment Corp. (9).

         10.16          Consulting Agreement, by and between Registrant and
                        Robert M. Rubin.

         10.17          Employment Agreement, by and between Registrant and
                        Robert M. Rubin. (2)

         21.            Subsidiaries of the Company.

         23.            Consent of Independent Public Accountants.

         27.            Financial Data Schedule.

--------------

(1)  Filed as an Exhibit to the AUGI Annual Report on Form 10-K, as filed on
     October 29, 1993 and incorporated herein by reference thereto.

(2)  Filed as an Exhibit to the Registrant's Registration Statement on Form S-1,
     filed on February 24, 1995. (Registration 33-89762)

(3)  Filed as an Exhibit to Amendment No. 1 to the Registrant's Registration
     Statement on Form S-1, filed on May 16, 1995 and incorporated herein by
     reference thereto. (Registration No. 33-89762).

(4)  Filed as an Exhibit to the Registrant's Registration Statement on Form S-8,
     filed on September 18, 1998 (Registration No. 33-63775).

(5)  Filed as an Exhibit to the Current Report on Form 8-K of Western Power &
     Equipment, as filed on March 6, 1996 and incorporated herein by reference
     thereto.

(6)  Filed as an Exhibit to the Current Report on Form 8-K of Western Power &
     Equipment, as filed on February 3, 1997 and incorporated herein by
     reference thereto.

(7)  Filed as an Exhibit to the Western Power & Equipment Annual Report on Form
     10-Q, as filed on June 11, 1997 and incorporated herein by reference
     thereto.

(8)  Filed as an Exhibit to the Western Power & Equipment Corp. Annual Report on
     Form 10-K, as filed on October 28, 1996 and incorporated herein by
     reference thereto.

(9)  Filed as an Exhibit to the Current Report on Form 8-K of Western Power &
     Equipment, as filed on May 11, 1998 and incorporated herein by reference
     thereto.

                                    - IV-2 -
<PAGE>
(b)  Reports on Form 8-K.

     The Company filed a Current Report on Form 8-K on May 11, 1998, with
     respect to the acquisition of the assets of Yukon Equipment, Inc.

(c)  Exhibits

     See (a)(3) above.

(d)  Additional Financial Statement Schedules

     See (a)(2) above.

                                    - IV-3 -
<PAGE>
<TABLE>
<CAPTION>
                         WESTERN POWER & EQUIPMENT CORP.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)


                                                                               Year Ended July 31,
                                                               -------------------------------------------------
                                                                    1998                1997                1996
                                                               ---------           ---------           ---------
<S>                                                            <C>                 <C>                 <C>      
Net revenue                                                    $ 163,478           $ 148,130           $ 106,555

Cost of goods sold                                               144,302             132,260              93,906
                                                               ---------           ---------           ---------

Gross profit                                                      19,176              15,870              12,649

Selling, general and administrative expenses                      12,092              11,194               7,827
                                                               ---------           ---------           ---------
                                                                   7,084               4,676               4,822

Other income (expense):
     Interest expense                                             (4,687)             (3,518)             (1,838)
     Other income                                                    796                 506                 379
                                                               ---------           ---------           ---------

Income before income taxes                                         3,193               1,664               3,363

Provision for income taxes                                         1,354                 693               1,284
                                                               ---------           ---------           ---------

Net income                                                     $   1,839           $     971           $   2,079
                                                               =========           =========           =========

Basic Earnings per common share                                $    0.53           $    0.27           $    0.59
                                                               =========           =========           =========

Average Outstanding Common Shares
     for Basic EPS                                                 3,473               3,533               3,533
                                                               =========           =========           =========

Diluted Earnings per common share                              $    0.49           $    0.27           $    0.58
                                                               =========           =========           =========

Average Outstanding Common Shares
     And Equivalents for Diluted EPS                               3,772               3,609               3,579
                                                               =========           =========           =========


          See accompanying notes to consolidated financial statements.
</TABLE>

                                       F-1
<PAGE>
<TABLE>
<CAPTION>
                         WESTERN POWER & EQUIPMENT CORP.
                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)
                                                                                              July 31,
                                                                                  -------------------------------
                                                                                       1998                  1997
                                                                                  ---------             ---------
<S>                                                                               <C>                   <C>      
ASSETS
Current assets:
     Cash and cash equivalents                                                    $   2,555             $   1,875
     Accounts receivable, less allowance for
       doubtful accounts of $670 and $519                                            23,626                 9,677
     Inventories                                                                     73,491                64,917
     Prepaid expenses                                                                   172                    39
     Income taxes receivable                                                              -                   514
     Deferred income taxes                                                            1,298                   936
                                                                                  ---------             ---------
         Total current assets                                                       101,142                77,958

     Property, plant and equipment, net                                               8,614                 8,149
     Rental equipment fleet, net                                                     23,080                18,452
     Lease equipment fleet, net                                                       2,760                     -
     Intangibles and other assets, net of accumulated
          amortization of $1,262 and $1,052                                           3,170                 2,864
                                                                                  ---------             ---------
         Total assets                                                             $ 138,766             $ 107,423
                                                                                  ---------             ---------

LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
     Borrowings under floor plan financing                                          $11,038             $  55,490
     Short-term borrowings                                                           76,019                 4,074
     Accounts payable                                                                17,574                18,107
     Accrued payroll and vacation                                                       858                   736
     Other accrued liabilities                                                        1,653                 1,914
     Income taxes payable                                                               255                     -
     Covenant not to compete                                                             21                   100
     Capital lease obligations                                                           63                   106
                                                                                  ---------             ---------
         Total current liabilities                                                  107,481                80,527

Covenant not to compete                                                                   -                    46
Deferred income taxes                                                                   690                   364
Capital lease obligations                                                             2,827                 2,453
Long-term borrowings                                                                  1,156                 1,268
Deferred lease income                                                                 3,474                     -
                                                                                  ---------             ---------
         Total liabilities                                                          115,628                84,658
                                                                                  ---------             ---------

Commitments and contingencies

Stockholders' equity:
     Preferred stock-10,000,000 shares authorized; none outstanding                       -                     -
     Common stock, $.001 par value -
         Authorized, 20,000,000 shares
         Outstanding, 1998 - 3,303,162; 1997 - 3,533,462 shares                           4                     4
     Additional paid-in capital                                                      16,072                16,047
     Retained earnings                                                                8,553                 6,714
     Less common stock in treasury, at cost
        (230,300 shares)                                                             (1,491)                    -
                                                                                  ---------             ---------
         Total stockholders' equity                                                  23,138                22,765
                                                                                  ---------             ---------
         Total liabilities and stockholders' equity                               $ 138,766             $ 107,423
                                                                                  =========             =========


          See accompanying notes to consolidated financial statements.
</TABLE>

                                       F-2
<PAGE>
<TABLE>
<CAPTION>
                         WESTERN POWER & EQUIPMENT CORP.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                             (Dollars in thousands)


                                      Common Stock
                                -------------------------      Additional                                              Total
                                   Number                         Paid-in        Retained         Treasury     Stockholders'
                                of Shares          Amount         Capital        Earnings            Stock            Equity
                                ---------     -----------     -----------     -----------     -----------     --------------
<S>                             <C>              <C>           <C>              <C>              <C>              <C>       
Balance at
  July 31, 1995                 3,533,462        $      4      $   16,047       $   3,664        $       -        $   19,715

Net income                              -               -               -           2,079                -             2,079
                                ---------        --------      ----------       ---------        ---------        ----------

Balance at
  July 31, 1996                 3,533,462               4          16,047           5,743                -            21,794

Net income                              -               -               -             971                -               971
                                ---------        --------      ----------       ---------        ---------        ----------

Balance at
  July 31, 1997                 3,533,462               4          16,047           6,714                -            22,765

Repurchase of shares             (280,300)              -               -               -           (1,816)           (1,816)

Issuance of shares -
  Yukon acquisition                50,000                              25               -              325               350

Net income                              -               -               -           1,839                -             1,839
                                ---------        --------      ----------       ---------        ---------        ----------

Balance at
  July 31, 1998                 3,303,162        $      4      $   16,072       $   8,553        $  (1,491)       $   23,138
                                =========        ========      ==========       =========        =========        ==========


          See accompanying notes to consolidated financial statements.
</TABLE>

                                       F-3
<PAGE>
<TABLE>
<CAPTION>
                         WESTERN POWER & EQUIPMENT CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)


                                                                                     Year Ended July 31,
                                                                           --------------------------------------
                                                                               1998           1997           1996
                                                                           --------       --------       --------
<S>                                                                        <C>            <C>            <C>     
 Cash flows from operating activities:
     Net income                                                            $  1,839       $    971       $  2,079
     Adjustments to reconcile net income to
       net cash provided by (used in) operating activities:
               Depreciation                                                   1,237          1,105            820
               Loss on disposal of fixed assets                                   -            (18)             -
               Amortization                                                     210            159             71
               Changes in assets and liabilities
               (excluding effects of acquisitions):
                 Accounts receivable                                        (13,298)        (3,171)          (199)
                   Inventories                                               (4,982)       (13,039)       (12,840)
                 Inventory floor plan financing                             (47,246)         1,126         12,411
                 Short-term financing                                        67,179         (2,155)        (5,732)
                 Prepaid expenses                                              (133)             4             (8)
                 Deferred income taxes                                          369           (399)           (55)
                 Accounts payable                                              (533)        15,693            264
                 Accrued payroll and vacation                                   122            (57)           142
                 Other accrued liabilities                                     (992)           530            582
                 Income taxes receivable/payable                                769           (551)           (85)
                 Deferred lease income                                        3,474              -              -
                   Other assets/liabilities                                     327            193           (108)
                                                                           --------       --------       --------
           Net cash provided by (used in) operating activities                8,342            391         (2,658)
                                                                           --------       --------       --------

Cash flow from investing activities:
     Purchase of fixed assets                                                (5,570)          (602)          (695)
     Proceeds on sale of fixed assets                                            35             53          2,075
     Covenant not to compete                                                   (125)             -              -
     Purchase of other assets                                                    (9)             -              -
     Purchase of distribution outlets                                             -           (326)        (2,325)
                                                                           --------       --------       --------
           Net cash used in investing activities                             (5,669)          (875)          (945)
                                                                           --------       --------       --------

Cash flows from financing activities:
     Principal payments on capital leases                                       (66)          (174)           (62)
     Payable to/receivable from parent                                            -           (188)           (53)
     Receivable from underwriter                                                                 -          1,102
     Treasury stock repurchases                                              (1,816)             -              -
     Long-term borrowings                                                      (111)             -          1,268
                                                                           --------       --------       --------
           Net cash provided by (used in) financing activities               (1,993)          (362)         2,255
                                                                           --------       --------       --------

Increase (decrease) in cash and cash equivalents                                680           (846)        (1,344)
Cash and cash equivalents at beginning of year                                1,875          2,721          4,065
                                                                           --------       --------       --------
Cash and cash equivalents at end of year                                   $  2,555       $  1,875       $  2,721
                                                                           ========       ========       ========


          See accompanying notes to consolidated financial statements.
</TABLE>

                                       F-4
<PAGE>
Western Power & Equipment Corp.

Notes to Consolidated Financial Statements (Dollars in thousands)
--------------------------------------------------------------------------------


1.   Summary of Significant Accounting Policies

     Basis of Presentation

     On August 13, 1992, Western Power & Equipment Corp., an Oregon corporation,
     was formed and incorporated for the purpose of acquiring the assets and
     operations of seven factory owned stores of Case Corporation ("Case") in
     the states of Washington and Oregon. The acquisition was completed
     effective November 1, 1992. Simultaneously, American United Global, Inc.
     ("AUGI") acquired all of the outstanding shares of the Oregon corporation.
     In March 1995, in connection with a contemplated initial public offering, a
     new corporation under the name Western Power & Equipment Corp. was
     incorporated in Delaware (the "Company") to hold all the shares of the
     Oregon corporation. Upon formation, AUGI contributed to the Company all
     outstanding common stock of the Oregon corporation. The consolidated
     financial statements include the accounts of the Company and its Oregon
     subsidiary after elimination of all intercompany accounts and transactions.

     The Company is engaged in the sale, rental, and servicing of light, medium,
     and heavy construction equipment and related parts in Washington, Oregon,
     California, Nevada, and Alaska. Case serves as the manufacturer of the
     majority of the Company's products.

     Cash Equivalents

     For financial reporting purposes, the Company considers all highly liquid
     investments purchased with an original maturity of three months or less to
     be cash equivalents.

     Inventories

     Inventories are stated at the lower of cost or market. Cost is determined
     using the first-in, first-out (FIFO) method for parts inventories and the
     specific identification method for equipment inventories.

     Intangible Assets

     The Company's acquisition strategy has been focused on existing businesses
     with established market share in a contiguous geographic area. Items with
     an indeterminate useful life, such as name recognition, geographical
     location and presence represent value to the Company. The Company uses
     estimates of the useful life of these intangible assets ranging from twenty
     to forty years. These lives are based on the factors influencing the
     acquisition decision and on industry practice. The Company reviews for
     asset impairment on a periodic basis and whether events or changes in
     circumstances indicate that the carrying amount of the intangible asset may
     not be recoverable. Based on this review, no write-down for impairment loss
     on intangible assets has been recorded during the three-year period ended
     July 31, 1998.

     Property, Plant, and Equipment

     Property, plant, and equipment are stated at cost less accumulated
     depreciation. Depreciation and amortization are computed using the
     straight-line method over the estimated useful lives of the assets, ranging
     from 5 to 20 years. Expenditures for replacements and major improvements
     are capitalized. Expenditures for repairs, maintenance, and routine
     replacements are charged to operating expense as incurred. The cost of
     assets retired or otherwise disposed of and the related accumulated
     depreciation are eliminated from the accounts; any resulting gain or loss
     is included in the results of operations.

                                       F-5
<PAGE>
     Revenue Recognition

     Revenue on equipment and parts sales is recognized upon shipment of
     products and passage of title. Rental and service revenue is generally
     recognized at the time such services are provided.

     Advertising Expense

     The Company expenses all advertising costs as incurred. Total advertising
     expense for the years ended July 31, 1998, 1997 and 1996 was $434, $501,
     and $263 respectively.

     Income Taxes

     The Company recognizes deferred tax liabilities and assets for the expected
     future consequences of temporary differences between the carrying amounts
     for financial reporting purposes and the tax bases of the assets and
     liabilities.

     Financial Instruments

     The recorded amounts of cash and cash equivalents, accounts receivable,
     short-term borrowings, accounts payable and accrued liabilities as
     presented in the financial statements approximate fair value because of the
     short-term nature of these instruments. The recorded amount of long-term
     debt approximates fair value as the actual interest rates approximate
     current competitive rates.

     Net Income Per Common Share

     During fiscal 1998, the Company adopted Statement of Financial Accounting
     Standards (SFAS) No. 128, Earnings Per Share. Under the provisions of SFAS
     128, basic net income per common share is computed using the average number
     of common shares outstanding during the period. Diluted net income per
     share is computed using the average number of common shares and common
     share equivalents outstanding during the period. SFAS 128 has been
     retroactively applied to calculate prior years' earnings per share.

     Supplemental disclosures of cash flow information

     A capital lease obligation of $292 was incurred during the year ended July
     31, 1997 when the Company entered into a lease for computer equipment and
     software.

     A capital lease obligation of $680 was incurred in June 1997 when the
     Company entered into a 20-year lease for the Kent, Washington facility.

     A capital lease obligation of $397 was incurred in December 1997 when the
     Company entered into a 20-year lease for the Yuba City, California
     facility.

     The Company has consummated various acquisitions using, in part, the
     assumption of notes payable and the issuance of Company common stock and
     notes payable. Such non-cash transactions have been excluded from the
     statement of cash flows.

<TABLE>
<CAPTION>
                                                         Year ended July 31,
                                                 -----------------------------------
                                                    1998          1997          1996
                                                 -------       -------       -------
     <S>                                         <C>           <C>           <C>    
     Cash paid during the year for:
         Interest                                $ 4,377       $ 3,686       $ 1,838
         Income taxes, net of refunds              1,063         1,621         1,284
</TABLE>

                                       F-6
<PAGE>
     Use of Estimates

     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the reported amounts of assets and liabilities and
     disclosure of contingent assets and liabilities at the date of the
     financial statements and the reported amounts of revenues and expenses
     during the fiscal periods presented. Actual results could differ from those
     estimates.

2.   Acquisitions

     Effective February 29, 1996, the Company acquired the assets and operations
     of two factory-owned stores of Case in California. The acquisition was
     consummated for approximately $630 in cash, $1,590 in installment notes
     payable to Case and the assumption of $3,965 in inventory floor plan debt
     with Case and its affiliates. The accounts of these two stores have been
     included in the Company's accounts from the effective date of the
     acquisition. The acquisition was accounted for as a purchase and resulted
     in the recording of approximately $150 in goodwill which is included in
     intangible assets on the Company's books and is being amortized on the
     straight-line basis over 20 years. Unaudited pro forma combined results of
     operations for the year ended July 31, 1996 as if the acquisition of such
     stores had occurred as of the beginning of the period are summarized as
     follows:

                                                               1996
                                                         ----------
           Net revenues                                  $  115,097

           Net income                                    $    2,062

           Basic earnings per share                      $     0.58

           Diluted earnings per share                    $     0.58

     In addition, effective June 11, 1996, the Company acquired the assets and
     operations of GCS, Inc. ("GCS"), a California-based closely-held
     distributor of heavy equipment primarily marketed to municipal and state
     government agencies responsible for highway maintenance. The acquisition
     was consummated for approximately $1,655 in cash. The acquisition was
     accounted for as a purchase and resulted in goodwill of approximately $400
     which is included in intangible assets on the Company's books and is being
     amortized on the straight-line basis over 20 years. Pro forma financial
     information relating to this acquisition was not provided because its
     effect was immaterial. The accounts of the GCS stores have been included in
     the Company's accounts from the effective date of acquisition.

     On January 17, 1997 the Company acquired the operating assets of Sahlberg
     Equipment, Inc.("Sahlberg"), a four-store Northwest distributor of
     noncompeting lines of equipment with facilities in Kent, Washington,
     Portland, Oregon, Spokane, Washington and Anchorage, Alaska. The purchase
     price for the assets of Sahlberg was an aggregate of approximately
     $5,290,000, consisting of $3,844,000 for equipment inventory, $797,000 for
     parts inventories, $625,000 for fixed assets, and $24,000 for
     work-in-process. The acquisition was accounted for as a purchase.

     On December 11, 1997, the Company acquired substantially all of the
     operating assets used by Case in connection with its business of servicing
     and distributing Case agricultural equipment at a facility located in Yuba
     City, California. The acquisition was consummated for approximately
     $142,000 in cash, $628,000 in installment notes payable to Case and the
     assumption of $1,175,000 in inventory floor plan debt with Case and its
     affiliates. The acquisition was accounted for as a purchase.

     On April 30, 1998, the Company acquired substantially all of the operating
     assets of Yukon Equipment, Inc. (Yukon) in connection with Yukon's business
     of servicing and distributing construction, industrial, and agricultural
     equipment in Alaska. Yukon has facilities in Anchorage, Fairbanks, and
     Juneau, Alaska. The acquisition was consummated for approximately
     $4,766,000 in cash, the assumption of approximately $2,786,000 in floor
     plan debt with Case and its affiliates, and 50,000 shares of the Company's
     common stock. The acquisition was accounted for as a purchase.

                                       F-7
<PAGE>
     Unaudited pro forma combined results of operations for the acquisitions
     occurring during the two-year period ended July 31, 1998 as if such
     acquisitions had occurred as of the beginning of the period are summarized
     as follows:

                                                          1998             1997
                                                    ----------       ----------
           Net revenues                             $  173,414       $  175,396

           Net income                               $    1,776       $      (60)

           Basic earnings per share                 $     0.51       $    (0.02)

           Diluted earnings per share               $     0.47       $    (0.02)

3.   Related Party Transactions

     The real property and improvements used in connection with the Sacramento
     Operations, and upon which the Sacramento Operation is located, were sold
     by Case for $1,500 to the McLain-Rubin Realty Company, LLC ("MRR"), a
     Delaware limited liability company the owners of which are Messrs. C. Dean
     McLain, the President and a director of the Company, and Robert M. Rubin,
     the Chairman and a director of the Company. Simultaneous with its
     acquisition of the Sacramento Operation real property and improvements, MRR
     leased such real property and improvements to the Company under the terms
     of a 20 year commercial lease agreement dated March 1, 1996 with the
     Company paying an initial annual rate of $168. Under the lease, such annual
     rate increases to $192 after five years and is subject to fair market
     adjustments at the end of ten years. In addition to base rent, the Company
     is responsible for the payment of all related taxes and other assessments,
     utilities, insurance and repairs (both structural and regular maintenance)
     with respect to the leased real property during the term of the lease. In
     accordance with SFAS 13, the building portion of the lease is being
     accounted for as a capital lease (see Note 9) while the land portion of the
     lease qualifies for treatment as an operating lease.

     On June 1, 1997, the real property and improvements used in connection with
     the Sahlberg operation located in Kent, Washington, was purchased by
     McLain-Rubin Realty Company II, LLC ("MRR II"), a Delaware limited
     liability company, the owners of which are Messrs. C. Dean McLain, the
     President and a director of the Company, and Robert M. Rubin, the Chairman
     and a director of the Company. Simultaneous with its acquisition of the
     Kent, Washington, real property and improvements, MRR II leased such real
     property and improvements to the Company under the terms of a 20-year
     commercial lease agreement dated June 1, 1997 with the Company paying an
     initial annual rate of $205. Under the lease, such annual rate increases to
     $231 after five years and is subject to additional adjustments at the end
     of ten and fifteen years. In addition to base rent, the Company is
     responsible for the payment of all related taxes and other assessments,
     utilities, insurance, and repairs (both structural and regular maintenance)
     with respect to the leased real property during the term of the lease. In
     accordance with SFAS 13, the building portion of the lease is being
     accounted for as a capital lease (see Note 9) while the land portion of the
     lease qualifies for treatment as an operating lease.

     On December 11, 1997, the real property and improvements used in connection
     with Case's Yuba City, California operation, was purchased by McLain-Rubin
     Realty Company III, LLC ("MRR III"), a Delaware limited liability company,
     the owners of which are Messrs. C. Dean McLain, the President and a
     director of the Company, and Robert M. Rubin, the Chairman and a director
     of the Company. Simultaneous with its acquisition of the Yuba City,
     California real property and improvements, MRR III leased such real
     property and improvements to the Company under the terms of a 20-year
     commercial lease agreement dated effective December 11, 1997 with the
     Company paying an initial annual rate of $54. Under the lease, such annual
     rate increases to $59 after five years and is subject to additional
     adjustments at the end of ten and fifteen years. In addition to base rent,
     the Company is responsible for the payment of all related taxes and other
     assessments, utilities, insurance, and repairs (both structural and regular
     maintenance) with respect to the leased real property during the term of
     the lease. In accordance with SFAS 13, the building portion of the lease is
     being accounted for as a capital lease (see Note 9) while the land portion
     of the lease qualifies for treatment as an operating lease.

                                       F-8
<PAGE>
4.    Inventories

      Inventories consist of the following:

                                                        July 31,       July 31,
                                                           1998           1997
                                                     ----------     ----------
           Equipment:
                New equipment                        $   54,883     $   48,524

                Used equipment                           10,073          8,234

              Parts                                       8,535          8,159
                                                     ----------     ----------
                                                     $   73,491     $   64,917
                                                     ==========     ==========

     At July 31, 1998 and 1997 approximately $23,080 and $18,452, respectively,
     of equipment was being held for rent. Equipment in the rental fleet has
     been reclassified as rental equipment fleet in fixed assets. In addition,
     equipment in the lease fleet has been reclassified as lease equipment in
     fixed assets. In fiscal year 1998, rentals of all equipment was generally
     charged to cost of goods sold at an amount equal to 70 percent of the
     rental payments received.

     The Company previously used a depreciation estimate on rented equipment of
     80 percent of the rental payments received. This change in accounting
     estimate was made to more closely match the actual reduction in the
     relative value of rented equipment to the resulting book value after
     depreciation. In fiscal 1998, this change in accounting estimate resulted
     in a decrease in cost of goods sold of $1,286.

5.   Fixed Assets

<TABLE>
<CAPTION>
     Fixed assets consist of the following:

                                                                            July 31,            July 31,
                                                                               1998                1997
                                                                          ---------            --------
           <S>                                                            <C>                  <C>     
           Operating property, plant, and equipment:
           Land                                                           $     840            $    840
           Buildings                                                          4,078               3,680
           Machinery and equipment                                            3,236               2,508
           Office furniture and fixtures                                      2,263               2,143
           Computer hardware and software                                     1,045                 927
           Vehicles                                                           1,291               1,095
           Leasehold improvements                                               202                 114
                                                                          ---------            --------
                                                                             12,955              11,307
           Less: accumulated depreciation                                    (4,341)             (3,158)
                                                                          ---------            --------
           Property, plant, and equipment (net)                           $   8,614            $  8,149
                                                                          ---------            --------

           Rental equipment fleet (net)                                      23,080              18,452
                                                                          ---------            --------

           Leased equipment fleet (net)                                       2,760                 -0-
</TABLE>

     Equipment in the rental fleet has been reclassified as rental equipment
     fleet in fixed assets. In addition, equipment in the lease fleet has been
     reclassified as lease equipment in fixed assets.

                                       F-9
<PAGE>
6.   Borrowings

     The Company has inventory floor plan financing arrangements with Case
     Credit Corporation, an affiliate of Case, for Case inventory and with other
     finance companies affiliated with other equipment manufacturers. The terms
     of these agreements generally include a one-month to six-month interest
     free term followed by a term during which interest is charged. Principal
     payments are generally due at the earlier of sale of the equipment or
     twelve to forty-eight months from the invoice date. The Company also had an
     inventory credit facility with Seafirst Bank to provide up to $22,000 for
     the purchase of new and used equipment held for sale as well as equipment
     held for rental. Principal payments under this line are generally due in
     periodic installments over terms ranging from twelve to twenty-four months
     from the borrowing date. This credit facility expired July 1, 1998.

     In June 1997, the Company obtained a $75,000 inventory flooring and
     operating line of credit through Deutsche Financial Services ("DFS"). The
     DFS credit facility is a three-year, floating rate facility based on prime
     with rates between 0.50% under prime to 1.00% over prime depending on the
     amount of total borrowing under the facility. Amounts may be advanced
     against the Company's assets, including accounts receivable, parts, new
     equipment, rental fleet, and used equipment. Interest payments on the
     outstanding balance are due monthly.

     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. The
     following table summarizes the inventory floor plan financing arrangements:

<TABLE>
<CAPTION>
                                                                                        July 31,
                                              Interest         Maturity       ---------------------------
                                                  Rate             Date             1998             1997
                                            ----------       ----------       ----------       ----------
      <S>                                <C>                    <C>           <C>              <C>       
      Case Credit Corporation               Prime + 2%           8 - 48       $   11,038       $   32,177
                                               (10.50%)          months

      Seafirst Bank                              Prime          12 - 24                -           20,857
                                                (8.50%)          months

      Deutsche Financial Services                Prime          12 - 36           75,886                -
                                                (8.50%)          months

      Other                                   variable          12 - 48              133            2,456
                                         (8.50%-10.50%)          months       ----------       ----------
                                                                              $   87,057       $   55,490
</TABLE>

     At July 31, 1998, the Company was in technical default of the leverage
     covenant in the Deutsche Financial Services Loan Agreement. The Company
     obtained a waiver letter for the period July 31, 1998 through September 30,
     1998. There is no guarantee that Deutsche Financial Services will not call
     this debt at any time after September 30, 1998. However, the amount due to
     Deutsche Financial Services is already included as a current liability.

                                      F-10
<PAGE>
7.   Income Taxes

<TABLE>
<CAPTION>
     The provision for income taxes is comprised of the following:

                                                                                 Year Ended
                                                            --------------------------------------------------
                                                               July 31,            July 31,            July 31,
                                                                  1998                1997                1996
                                                            ----------          ----------          ----------
           <S>                                              <C>                 <C>                 <C>       
           Current:
              Federal                                       $    1,227          $      974          $    1,242
              State                                                162                 119                  96
                                                            ----------          ----------          ----------
                                                                 1,389               1,093               1,338
                                                            ----------          ----------          ----------
           Deferred:
              Federal                                              (32)               (357)                (49)
              State                                                 (3)                (43)                 (5)
                                                            ----------          ----------          ----------
                                                                   (35)               (400)                (54)
                                                            ----------          ----------          ----------

           Total provision for income taxes                 $    1,354          $      693          $    1,284
                                                            ==========          ==========          ==========
</TABLE>

     The principal reasons for the variation from the customary relationship
     between income taxes at the statutory federal rate and that shown in the
     statement of operations were as follows:

<TABLE>
<CAPTION>
                                                                                 Year Ended
                                                            --------------------------------------------------
                                                               July 31,            July 31,            July 31,
                                                                  1998                1997                1996
                                                            ----------          ----------          ----------
           <S>                                                   <C>                 <C>                 <C>
           Statutory federal income tax rate                     34.0%               34.0%               34.0%
           State income taxes, net of
                federal income tax benefit                        5.0%                4.5%                2.7%
           Purchase accounting adjustments                          -                   -                   -
           Other                                                  3.4%                3.1%                1.5%
                                                            ----------          ----------          ----------

                                                                 42.4%               41.6%               38.2%
                                                            ==========          ==========          ==========
</TABLE>

     Temporary differences and carry forwards which give rise to a significant
     portion of deferred tax assets and liabilities were as follows:

<TABLE>
<CAPTION>
                                                                                  Year Ended 
                                                                        ------------------------------
                                                                          July 31,             July 31,
                                                                             1998                 1997
                                                                        ---------            ---------
           <S>                                                          <C>                  <C>
           Deferred assets:
               Inventory reserve                                              775                  439
               Bad debt reserve                                               261                  157
               Accrued vacation and bonuses                                    98                   79
               Other accruals                                                 164                  261
                                                                        ---------            ---------
               Current Deferred Tax Asset                                   1,298                  936
                                                                        ---------            ---------

           Deferred liabilities:
               Depreciation and amortization                            $    (615)           $    (295)
               Goodwill and intangibles                                       (75)                 (69)
                                                                        ---------            ---------
               Long-term Deferred Tax Liability                              (690)                (364)
                                                                        ---------            --------

               Net Deferred Tax Asset                                   $     608            $     572
                                                                        =========            =========
</TABLE>

                                      F-11
<PAGE>
8.   Stockholders' Equity

     Stock Option Plans

     Under the Company's 1995 Employee Stock Option Plan, key employees,
     officers, directors, and consultants of the Company can receive incentive
     stock options and non-qualified stock options to purchase up to an
     aggregate of 1,500,000 shares of the Company's common stock. The plan
     provides that the exercise price of incentive stock options be at least
     equal to 100 percent of the fair market value of the common stock on the
     date of grant. With respect to non-qualified stock options, the plan
     requires that the exercise price be at least 85 percent of fair value on
     the date such option is granted. Outstanding options expire no later than
     ten years after the date of grant.

     In December 1995, the Board of Directors adopted a stock option plan for
     non-employee directors under which each non-employee director is entitled
     to receive on August 1 of each year beginning August 1, 1996, options to
     purchase 2,500 shares of the Company's common stock at the fair market
     value of the stock at the date of grant. In January 1998, the Company's
     shareholders approved an amendment to this plan increasing the number of
     shares for which options are granted yearly to non-employee directors from
     2,500 to 5,000. Outstanding options expire no later than five years after
     the date of grant.

     During 1995, the Financial Accounting Standards Board issued SFAS 123,
     "Accounting for Stock Based Compensation," which defines a fair value
     method of accounting for an employee stock option or similar equity
     instrument. That pronouncement encourages all entities to adopt that method
     of accounting for all compensation costs related to stock options issued to
     all employees under these plans or to continue using the intrinsic value
     method of accounting prescribed by the Accounting Principles Board Opinion
     No. 25 ("APB 25"), "Accounting for Stock Issued to Employees." Entities
     electing to remain with the accounting in APB 25 must make pro forma
     disclosures of net income and earnings per share, as if the fair value
     based method of accounting defined in this statement has been applied.

     The Company has elected to account for its stock based compensation under
     APB 25; however, as required by SFAS 123, the Company has computed for pro
     forma disclosure purposes the value of options granted during fiscal years
     1998 and 1997 using the Black-Scholes option pricing model. The weighted
     average assumptions used for stock option grants for fiscal years 1998 and
     1997 were:

                                                       FY98             FY97
                                                      ------           ------
           Risk free interest rate                    5.875%           6.562%

           Expected dividend yield                        0%               0%

           Expected lives                           5 years          5 years

           Expected volatility                        56.43%           56.59%

     Options vest over the five year expected life for purposes of this
     valuation. Adjustments for forfeitures are made as they occur. For the
     years ended July 31, 1998 and July 31, 1997, the total value of the options
     granted, for which no previous expense has been recognized, was computed as
     approximately $1,425 and $1,532, respectively, which would be amortized on
     a straight-line basis over the vesting period of the options. The weighted
     average fair value per share of the options granted in fiscal years 1998
     and 1997 are $2.31 and $2.46, respectively.

                                      F-12
<PAGE>
     If the Company had accounted for these stock options issued to employees in
     accordance with SFAS 123, the Company's net income and pro forma net income
     and net income per share and pro forma net income per share would have been
     reported as follows:

<TABLE>
<CAPTION>
                                              Year Ended July 31, 1998              Year Ended July 31, 1997
                                          ---------------------------------     ---------------------------------
                                                        Basic       Diluted                     Basic     Diluted
                                          Net Income    E.P.S.       E.P.S.     Net Income      E.P.S.     E.P.S.
                                          ----------    ------      -------     ----------      ------     ------
           <S>                            <C>           <C>         <C>             <C>         <C>        <C>   
           As Reported                    $    1,839    $ 0.53      $  0.49         $  971      $ 0.27     $ 0.27
           Pro Forma                      $      583    $ 0.17      $  0.15         $  600      $ 0.17     $ 0.17
</TABLE>

     The effects of applying SFAS 123 for providing pro forma disclosure for
     fiscal years 1998 and 1997 are not likely to be representative of the
     effects on reported net income and earnings per share for future years
     since options vest over several years and additional awards are made each
     year.

     The following summarizes the stock option transactions under the Company's
     stock option plans:

<TABLE>
<CAPTION>
                                                          Shares          Weighted Average
                                                            (000)           Option Price
                                                          ------          ----------------
           <S>                                               <C>               <C>   
           Options outstanding July 31, 1995:                200               $ 6.50
           Exercised                                           -                    -
           Surrendered                                      (200)                6.50
           Granted                                           200                 4.50
                                                          ------               ------

           Options outstanding July 31, 1996:                200                 4.50
           Exercised                                           -                    -
           Surrendered                                       (82)                4.45
           Granted                                           707                 4.48
                                                          ------               ------

           Options outstanding July 31, 1997:                825                 4.49
           Exercised                                           -                    -
           Surrendered                                       (31)                4.38
           Granted                                           714                 4.62
                                                          ------               ------

Options outstanding July 31, 1998:                         1,508                 4.56
                                                          ======               ======
</TABLE>

The following table sets forth the exercise prices, the number of options
outstanding and exercisable, and the remaining contractual lives of the
Company's stock options at July 31, 1998:

<TABLE>
<CAPTION>
                                                            Weighted
                                       Weighted              Average          No. Of           Weighted
Exercise      No. Of Options            Average     Contractual Life         Options            Average
Price         Outstanding        Exercise Price            Remaining     Exercisable     Exercise Price
--------      --------------     --------------     ----------------     -----------     --------------
<S>                  <C>                <C>                     <C>          <C>                <C>    
 $ 4.375             289,000            $ 4.375                 8.00         192,667            $ 4.375
   4.656               5,000              4.656                 8.00           5,000              4.656
   4.500             450,000              4.500                 7.00         400,000              4.500
   6.250              25,000              6.250                 5.00             -0-                n/a

                                      F-13
<PAGE>
                                                            Weighted
                                       Weighted              Average          No. Of           Weighted
Exercise      No. Of Options            Average     Contractual Life         Options            Average
Price         Outstanding        Exercise Price            Remaining     Exercisable     Exercise Price
--------      --------------     --------------     ----------------     -----------     --------------
   4.875               5,000              4.875                 5.00           5,000              4.875
   4.563             683,500              4.563                 4.33         683,500              4.563
   5.125              50,000              5.125                 8.50          16,666              5.125
                   ---------              -----                            ---------              -----
                   1,507,500              4.556                            1,302,833              4.524
</TABLE>

9.   Commitments and Contingencies

     The Company leases certain facilities and certain computer equipment and
     software under noncancelable lease agreements. As more fully described in
     Note 3, the building portion of four of the Company's facility leases
     qualify under SFAS 13 as "capital leases" (i.e., an acquisition of an asset
     and the incurrence of a liability). The remaining facility lease agreements
     have terms ranging from month-to-month to five years. Certain of the
     facility lease agreements provide for options to renew and generally
     require the Company to pay property taxes, insurance, and maintenance and
     repair costs. Total rent expense under all operating leases aggregated
     $1,883, $1,474, and $924 for the years ended July 31, 1998, 1997, and 1996,
     respectively. The computer equipment lease expires August 1999 and meets
     certain specific criteria to be accounted for as a capital lease.

<TABLE>
<CAPTION>
     Assets recorded under capital leases are as follows:

                                                          July 31,         July 31,         July 31,
                                                             1998             1997             1996
                                                       ----------        ---------        ---------
           <S>                                         <C>               <C>              <C>      
           Capitalized asset value                     $    3,036        $   2,830        $   1,836
           Less accumulated amortization                     (315)            (271)            (134)
                                                       ----------        ---------        ---------
                                                       $    2,721        $   2,559        $   1,702
                                                       ==========        =========        =========
</TABLE>

     Future minimum lease payments under all noncancelable leases as of July 31,
     1998, are as follows:

<TABLE>
<CAPTION>
                                                                                   Capital         Operating
           Year ending July 31,                                                     leases            leases
           -------------------                                                  ----------        ----------
                <S>                                                             <C>               <C>       
                1999                                                            $      394        $    1,609
                2000                                                                   286             1,346
                2001                                                                   312             1,059
                2002                                                                   338               608
                2003                                                                   363               410
                Thereafter                                                           6,028             6,400
                                                                                ----------        ----------
                Total annual lease payments                                     $    7,721        $   11,432
                                                                                                  ==========
                Less amount representing interest, with imputed
                     interest rates ranging from 6% to 15%                           4,831
                                                                                ----------
                Present value of minimum lease payments                              2,890
                Less current portion                                                    63
                                                                                ----------
                Long-term portion                                               $    2,827
                                                                                ==========
</TABLE>

                                      F-14
<PAGE>
     The Company issues purchase orders to Case Corporation for equipment
     purchases. Upon acceptance by Case, these purchases become noncancelable by
     the Company. As of July 31, 1998, such purchase commitments totaled $3,789.

     As of July 31, 1998, the Company had entered into sales contracts
     containing repurchase obligations totaling approximately $3,083 in
     repurchase obligations. Subsequent to July 31, 1998, the Company entered
     into sales contracts containing repurchase obligations totaling
     approximately $1,289 in repurchase obligations.

10.  Unaudited Quarterly Consolidated Financial Data (1)

<TABLE>
<CAPTION>
                                                                  Quarter
                                             ------------------------------------------------          Total
                                               First       Second         Third        Fourth           Year
                                             -------      -------       -------       -------       --------
     <S>                                     <C>          <C>           <C>           <C>           <C>     
     Fiscal 1998:

        Net sales                            $36,959      $39,659       $40,948       $45,912       $163,478
        Gross Profit                           4,336        4,990         4,391         5,459         19,176
        Net income                               516          616           101           606          1,839
        Basic earnings per share                0.15         0.17          0.03          0.18           0.53
        Diluted earnings per share              0.14         0.16          0.02          0.17           0.49

                                                                  Quarter
                                             ------------------------------------------------          Total
                                               First       Second         Third        Fourth           Year
                                             -------      -------       -------       -------       --------
     Fiscal 1997:

        Net sales                            $31,213      $34,988       $42,043       $39,886       $148,130
        Gross Profit                           3,765        3,601         4,239         4,265         15,870
        Net income                               517          335           245          (126)           971
        Basic earnings per share                0.14         0.09          0.07         (0.03)          0.27
        Diluted earnings per share              0.14         0.09          0.07         (0.03)          0.27

(1)  The figures for the third and fourth quarters of fiscal year 1997 have been
     revised from previously reported quarterly figures to reflect an
     approximately $360 reclassification of costs of sales from the fourth
     quarter to the third quarter. In addition, figures for the fourth quarter
     of fiscal year 1997 reflect an approximately $440 one-time charge for
     unreimbursed warranty related expenses already incurred and to accrue for
     future warranty related expenses the Company does not expect to be
     reimbursed by Case Corporation.
</TABLE>

                                      F-15
<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and
Stockholders of Western Power & Equipment Corp.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Western
Power & Equipment Corp. and its subsidiary at July 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended July 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.



PRICEWATERHOUSECOOPERS LLP
Portland, Oregon
September 30, 1998

                                      F-16
<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS
                          FINANCIAL STATEMENT SCHEDULE


To the Board of Directors and
Stockholders of Western Power & Equipment Corp.

Our audits of the consolidated financial statements referred to in our report
dated September 30, 1998 appearing on page F-16 of this Annual Report on Form
10-K also included an audit of the Financial Statement Schedule listed in Item 8
of this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.




PRICEWATERHOUSECOOPERS LLP
Portland, Oregon
September 30, 1998

                                      F-17
<PAGE>
                                                                     SCHEDULE II

                         WESTERN POWER & EQUIPMENT CORP.

<TABLE>
<CAPTION>
                        VALUATION AND QUALIFYING ACCOUNTS
                For the Fiscal Years Ended July 31, 1998 and 1997

                             (Dollars in Thousands)


                                              Balance at      Charged to         Charged                      Balance at
                                               Beginning       Costs and              to                          End of
           Description                         of Period        Expenses           Other      Deductions          Period
           -----------                        ----------      ----------      ----------      ----------      ----------
<S>                                              <C>             <C>             <C>            <C>              <C>    
Accounts Receivable Reserve:

  Fiscal year ended July 31, 1998                $   431         $   596         $   ---        $   (357)        $   670

  Fiscal year ended July 31, 1997                    519             516             ---            (604)            431

Inventory Reserve:

  Fiscal year ended July 31, 1998                  1,597           1,734             ---            (498)          2,833

  Fiscal year ended July 31, 1997                  1,212             598             ---            (213)          1,597
</TABLE>

                                      F-18
<PAGE>
                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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.



                                       By: /s/ C. DEAN MCLAIN
                                           -------------------------------------
                                           C. Dean McLain, President and
                                           Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature                                    Title                             Date
---------                                    -----                             ----
<S>                                    <C>                               <C> 
/s/ C. DEAN MCLAIN                     President, Chief                  October 29, 1998
-----------------------------------    Executive Officer
    C. Dean McLain                     and Director


/s/ MARK J. WRIGHT                     Vice President of Finance,        October 29, 1998
-----------------------------------    Chief Financial and Principal
    Mark J. Wright                     Accounting Officer,
                                       Treasurer and Secretary


/s/ ROBERT M. RUBIN                    Director                          October 29, 1998
-----------------------------------    
    Robert M. Rubin


/s/ HAROLD CHAPMAN, JR.                Director                          October 29, 1998
-----------------------------------    
    Harold Chapman, Jr.



/s/ MERRILL A. MCPEAK                  Director                          October 29, 1998
-----------------------------------    
    Merrill A. McPeak
</TABLE>