<PAGE>

                                    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, 1997      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 Identification Number)
 incorporation or organization)

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 21, 1996:  (a) 3,533,462 shares of Common Stock, $.001 par
value, of the registrant (the "Common Stock") were outstanding; (b) 1,533,462
shares of Common Stock were held by non-affiliates ; and (c) the aggregate
market value of the Common Stock held by non-affiliates was $8,050,676 based on
the closing sale price of $5.25 per share on October 22, 1997.
<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 equipment, parts and related products which are manufactured
principally by Case Corporation ("Case").  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 23 retail distribution 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 strategy is to accelerate the growth of its distribution
business in the future.  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 was initially organized in August 1992, solely for the purpose
of acquiring certain retail distribution facilities from Case.  The Company
became a wholly-owned subsidiary of American United Global, Inc. ("AUGI"),
simultaneous with such acquisition.
    
    Effective November 1, 1992, the Company completed the purchase from Case of
certain assets used in connection with seven separate Case retail construction
equipment distribution operations located in the cities of Portland, Salem and
Springfield, Oregon; and in the cities of Spokane, Everett, Pasco, and Auburn,
Washington.  The purchase included approximately $32,669,000 of assets,
including inventories of new and used Case construction equipment and spare
parts, as well as ownership of the Case real estate used in the Auburn,
Washington retail operation.  The purchase price was paid $1,940,000 in cash,
$10,749,000 in installment notes payable to Case and $19,980,000 through
inventory floor planning dealer financing agreements with Case and its
affiliates for the purchase of new equipment held for sale at the acquired
retail operations.

    In September 1994, the Company purchased from Case certain assets used in
connection with two additional Case retail construction equipment distribution
outlets located in Sparks, Nevada and Fremont, California (the "1994
Acquisition").  The Company relocated its retail outlet in Fremont to Hayward,
California in December 1994.  The 1994 Acquisition included approximately
$9,729,000 of various assets, including inventories of new and used Case
construction equipment and service parts, as well as the real estate and
buildings located in Sparks, Nevada.  The purchase price was paid as follows:
(i) approximately $557,000 in cash; (ii) approximately $1,978,000 financed
through installment notes bearing interest at a bank prime rate plus 2% and
payable to Case over various periods through September 1996 for parts, used
equipment, new allied equipment (non-Case manufactured items), shop


                                        -I-1-
<PAGE>

tools and other assets; (iii) $2,175,000 in the form of the Sparks Real Estate
Note due October 10, 1995; and (iv) approximately $5,019,000 for new Case
manufactured equipment through secured inventory floor planning dealer financing
with Case and its affiliates.  The Sparks Real Estate Note was retired
October 10, 1995 using proceeds from the initial public offering.  The Company
has financed  the property with an institutional lender in the amount of
$1,330,000, secured by the Sparks, Nevada real estate.  
    
    Effective February 29, 1996, the Company acquired the assets and operations
of two additional factory-owned stores of Case in the state of California.  The
acquisition was consummated for approximately $630,000 in cash, $1,590,000 in
installment notes payable to Case and the assumption of $3,965,000 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.  
    
    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 $1,655,000 in cash.
       
    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, most of which was 
financed through a loan from Case Corporation secured by the Company's 
inventory and other assets.
    
GROWTH STRATEGY
    
    The Company's growth strategy focuses on acquiring additional existing
distributorships, 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 of dealers or distributors of
industrial or construction 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 addition 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 to its inventories products produced
by quality manufacturers such as Dynapac, Champion, Link-Belt, Takeuchi, Tymco,
Vactor, and Kawasaki.  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 


                                        -I-2-
<PAGE>
NEW 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 the states of Oregon, Washington and Nevada and in Northern
California (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.

    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 twelve 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 12 months after the date of shipment to the
Company by Case.  Other manufacturers represented by the Company offer
similar supplies and marketing support along with terms which vary from cash 
upon delivery to interest-free, 12-month flooring.

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 25% of the Company's net sales for fiscal
year 1997 resulted from sales, rental, and servicing of products manufactured by
companies other than Case, consistent with the 25% figure for fiscal year 1996.

    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.


                                        -I-3-
<PAGE>

    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 AND RENTALS.  

    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 generally 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.

EQUIPMENT SERVICING.

    The Company operates a service center and yard at each retail 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 140 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 17,000 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, 1997.


                                        -I-4-
<PAGE>

    For the fiscal year ended July 31, 1997, the revenue breakdown by source
for the business operated by the Company was approximately as follows:

         New Equipment Sales                     58%
         Used Equipment Sales                    12%
         Rental Revenue                           8%
         Parts Sales                             18%
         Service Revenue                          4%
                                                ----
                                                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 has commenced acceptance of
orders from customers for future delivery following manufacture by Case or other
manufacturers, during fiscal 1997 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 73 Equipment salespersons on July 31, 1997.

    On July 31, 1997, the Company employed 5 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 1997.  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 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 Case 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 JCB


                                        -I-5-
<PAGE>

Corporation--backhoes, Kobelco Corporation -- excavators, Dresser Industries --
light and medium duty bulldozers, 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
the states of Washington and Nevada and in the Northern California area (other
than Case-owned distribution outlets), and is one of two Case dealers in the
State of 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
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 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, 1997, the Company employed 414 full-time employees.  Of that
number, 35 are in corporate administration for the Company, 24 are involved in
administration at the branch locations, 104 are employed in Equipment sales and
rental, 84 are employed in parts sales, and 167 are employed in servicing
construction equipment.  The Company believes that its relations with its
employees are satisfactory.  

INSURANCE 

    The Company currently has product liability insurance policies covering the
Company with $500,000 limits for each occurrence and $1,000,000 in the aggregate
under the general liability and products liability policies.  The Company also
has an umbrella liability insurance policy with an annual aggregate coverage
limit of $10,000,000.  The Company believes that its product liability insurance
coverage is reasonable in amount and consists of such terms and conditions as
are generally 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.


                                        -I-6-
<PAGE>

    ITEM 2.   PROPERTIES

    The following table sets forth information as to each of the properties
which the Company owns or leases:

<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)           Approx. 4               No
Portland, Oregon 97211                 Nancy A. Harrison &                       CPI                  Acres;
(Retail sales, service, storage        Jane G. Whitbread                         adjustments          Building
and repair facilities)                                                                                17,622 sq.

1665 Silverton Road, N.E.              LaNoel Elston            7/10/98          $27,480(1)           Approx. 1 Acre;         No
Salem, Oregon 97303                    Myers Living Trust                                             Buildings 
(Retail sales, service, storage                                                                       14,860 sq. ft.
and repair facilities) 

1702 North 28th Street                 McKay Investment         6/14/2001        $69,000(1)           Approx. 5 Acres;        No
Springfield, Oregon 97477              Company                                                        Building
(Retail sales, service, storage                                                                       17,024 sq. ft.
and repair facilities) 

West 7916 Sunset Hwy.                  Case Corporation         9/30/98          $58,404(1)           Approx. 5 Acres;        No
Spokane, Washington 99204                                                                             Building
(Retail sales, service, storage                                                                       19,200 sq. ft.
and repair facilities) 

3217 Hewitt Avenue                     Dick Calkins             Month to         $40,320(1)           Approx. 2.5 Acres;      No
Everett, Washington 98201                                       Month                                 Building
(Retail sales, service, storage                                                                       12,483 sq. ft.
and repair facilities) 

1901 Frontier Loop                     The Landon Group         4/30/2002        $40,500(1)           Approx. 7 Acres;        No
Pasco, Washington 99301                                                                               Building
(Retail sales, service, storage                                                                       14,200 sq. ft.
and repair facilities) 

13184 Wheeler Road, N.E.               Maiers Industrial        Month to Month   $38,400(1)           Approx. 10 Acres;       No
Building 4                             Park                                                           Building
Moses Lake, Washington 98837                                                                          13,680 sq. ft.
(Retail sales, service, storage
and repair facilities) 

63291 Nels Anderson Road               B&K Management Corp.     10/31/98         $31,800(1)           Approx.                 No
Bend, Oregon 97701                                                                                    3,600 sq. ft.
(Retail sales, service, storage
 and repair facilities) 

4601 N.E. 77th Avenue                  Parkway Limited           9/30/99         $101,280              Approx.                No
Suite 200                              Partnership                                                     6,100 sq. ft. 
</TABLE>
---------------
     (1) Net lease with payment of insurance, property taxes and maintenance 
         costs by Company.


                                        -I-7-
<PAGE>
<TABLE>
<CAPTION>
                                                                Expiration                            Size/Square         Purchase
Location and Use                            Lessor                 Date          Annual Rental            Feet             Options
----------------                            ------                 ----          -------------            ----             -------
<S>                                    <C>                      <C>              <C>                  <C>                 <C>
Vancouver, Washington 98662
(Executive Offices)

2702 W. Valley Hwy No.                 Avalon Island LLC        11/30/2015        $204,000(1)         Approx. 8 Acres;        No
Auburn, Washington 98001                                                                              Building
(Retail sales, service, storage                                                                       33,000 sq. ft. 
and repair facilities) 

500 Prospect Lane                      Frederick Peterson      9/15/2002         $26,496(1)         Approx. 1.9 acres;       No
Moxee, Washington 98936                                                                               Building
(Retail sales, service, storage                                                                       6,200 sq. ft.
and repair facilities) 
                                                                              
2112 Wildwood Way                      James Ghia               5/31/98           $18,720             Approx. 1 Acre;         No
Elko, Nevada 89431                                                                                    Building
(Retail sales, service, storage                                                                       3,000 sq ft.
and repair facilities) 

1455 Glendale Ave.                     Owned                    N/A               N/A                 Approx. 5 acres;        N/A
Sparks, Nevada 89431                                                                                  Building
(Retail sales, service, storage                                                                       22,475 sq. ft.
and repair facilities) 

25886 Clawiter Road                    Fred Kewel II,           11/30/99          $110,088(1)         Approx. 2.8 acres;      No
Hayward, California 94545              Agency                                                         Building
(Retail sales, service, storage                                                                       21,580 sq. ft.
and repair facility) 

3540 D Regional Parkway                Soiland                  2/28/98           $36,036(1)           Approx. 1.25 acres;    No
Santa Rosa, California  95403                                                     CPI adjustments      building
(Retail sales, service, storage                                                                        5,140 sq. ft.
and repair facility) 

1751 Bell Avenue                       McLain-Rubin             3/1/2016          $204,000(2)          Approx. 8 Acres;       No
Sacramento, California 95838           Realty Group                                                    Buildings
(Retail sales, service, storage                                                                        35,941 sq. ft.
and repair facility) 

1041 S. Pershing Avenue                Raymond Investment       3/14/2001         $36,000(1)           Approx. 2 Acres;       No
Stockton, California 95206             Corp.                                                           Buildings
(Retail sales, service, storage                                                                        5,000 sq. ft.
and repair facility) 

1126 E. Truslow Avenue                 D. June Brecht,          Month to Month    $22,524(1)           Approx. .25 acre;      No
Fullerton, California  92631           Glen Brecht and                                                 Building
</TABLE>
--------------
     (1) Net lease with payment of insurance, property taxes and maintenance
         costs by Company.

     (2) Net lease with payment of insurance, property taxes, and maintenance
         costs, including structural repairs, by Company.


                                                    -I-8-
<PAGE>

<TABLE>
<CAPTION>
                                                                Expiration                            Size/Square         Purchase
Location and Use                            Lessor                 Date          Annual Rental            Feet             Options
----------------                            ------                 ----          -------------            ----             -------
<S>                                    <C>                      <C>              <C>                  <C>                 <C>
(Retail sales, service, storage        Marshal Brecht                                                 4,800 sq. ft.
and repair facility) 

672 Brunken Avenue                     R. Jay De Serpa, Ltd.    7/31/98           $28,800(1)          Approx. .8 acre;        No
Salinas, CA  93301                                                                                    Building                  

(Retail sales, service, storage                                                                       4,000 sq. ft.
and repair facility)                                                                                               

13691 Whitaker Way                      D&J Enterprises         5/1/98            $77,700             Approx. 2 acres;        No
Portland, OR 97230                                                                                    Building    
(Retail sales, service, storage                                                                       11,780 sq. ft.
and repair facility)

2535 Ellis Street                       Hart Enterprises        2/51/2002         $33,600             Approx. 2 acres;        No
Redding, OR 96001                                                                                     Building       
(Retail sales, service, storage                                                                       6,200 sq. ft.
and repair facility)

1702 Ship Avenue                        D&J Enterprises         1/18/99           $94,200(1)          Approx. 4 acres;        No
Anchorage, AK 99501                                                                                   Building
(Retail sales, service, storage                                                                       11,800 sq. ft.
and repair facility)

913 S. Central                          McLain-Rubin            5/21/2017         $205,200(1)         Approx. 4.4 acres;      No
Kent, WA 98032                          Realty II                                 plus CPI            Building
(Retail sales, service, storage                                                   adjustments         21,400 sq. ft.
and repair facility)

85454 Highway 11                        Eagle Enterprises       9/1/98            $21,600             Approx. 0.5 acres;      No
Milton-Freewater, OR 97862                                                                            Building 
(Retail sales, service, storage                                                                       1,000 sq. ft.
and repair facility)
</TABLE>


    The Company's operating facilities are separated into six "hub" outlets and
twelve "sub-stores".  The hub stores are the main distribution centers located
in Auburn and Spokane, Washington, Portland, Oregon, Sparks, Nevada, Hayward,
California, and Sacramento, California, and the sub-stores are the smaller
retail facilities located in Everett, Pasco, Moses Lake, Kent, and Yakima,
Washington; Portland, Salem, Springfield, Milton-Freewater, and Bend, Oregon;
Santa Rosa, Stockton, Fullerton, Redding, and Salinas, California;  Elko,
Nevada; and Anchorage, 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

--------------
     (1) Net lease with payment of insurance, property taxes and maintenance
         costs by Company.


                                        -I-9-
<PAGE>
    
Except for other ordinary, 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-10-
<PAGE>

                                       PART II

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

    On June 14, 1995, the Company completed an initial public offering of
1,300,000 shares of common stock at $6.50 per share.  In addition, on July 28,
1995, the underwriter exercised its overallotment option for an additional
195,000 shares.  The net proceeds of the offering were $7,801,000 including
$1,102,000 from the exercise of the overallotment option which was received in
cash subsequent to July 31, 1995.  The Company's stock is traded on the NASDAQ
National Market System.  

    The high and low closing prices for the Company's common stock by fiscal
quarter for the period June 14, 1995 through July 31, 1997 were as follows:

<TABLE>
<CAPTION>
                                                            HIGH            LOW  
                                                           ------         ------
<S>                                                        <C>            <C>
June 14, 1995 through July 31, 1995                        $7.375         $5.750

Fiscal 1996
1ST QUARTER - August 1, 1995 through October 31, 1995      $6.625         $4.000

2ND QUARTER - November 1, 1995 through January 31, 1996    $5.000         $3.875

3RD QUARTER - February 1, 1996 through April 30, 1996      $5.675         $4.000

4TH QUARTER - May 1, 1996 through July 31, 1996            $6.250         $4.375


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

</TABLE>


    The number of shareholders of record of the Company's Common Stock on
October 1, 1997 was 40, and the number of beneficial holders of the Company's
Common Stock is estimated by management to be over 1,000 holders.
    
    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 Price Waterhouse LLP,
independent accountants.  Effective November 1, 1992, the Company completed the
acquisition from Case of certain assets used in connection with seven separate
Case retail construction equipment distributorships located in the states of
Washington and Oregon.  The selected financial data of the Company for the ten
months ended October 31, 1992 consist solely of the operations of the seven
retail distribution facilities formerly owned by Case, and have been derived
from the books and records of Case.
    
                                   (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
    
                                                         Fiscal Years Ended
                                                            July 31,
                                -------------------------------------------------------------------------------

                                              1997           1996           1995           1994          1993*
<S>                                       <C>            <C>             <C>            <C>            <C> 
Net sales                                 $148,130       $106,555        $86,172        $67,370        $30,386
Gross profit                              $ 15,870       $ 12,649        $10,028        $ 8,231        $ 4,053
  (% of sales)                                  10.7           11.9           11.6           12.2           13.3
Selling, general and administrative       $ 11,194       $  7,827        $ 6,078        $ 5,295        $ 3,132
  (% of sales)                                   7.6            7.3            7.1            7.9           10.3
Income before income taxes                $  1,664       $  3,363        $ 2,602        $ 2,084        $   700
  (% of sales)                                   1.1            3.2            3.0            3.1            2.3
Tax rate (%)                                    42             38             38             27             24
Net income                                $    971       $  2,079        $ 1,613        $ 1,520        $   531
Net income per common share               $       .27    $       .58     $      .74     $      .75     $      .26
Shares used in net income per share
  calculations                               3,596          3,585          2,192          2,038          2,038

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

Working capital                           $ 15,883       $ 15,326        $10,883        $ 3,957        $ 4,643
Long-term debt                            $  3,767       $  2,924        $    47        $    99        $ 2,714
Stockholders' equity                      $ 22,765       $ 21,794        $19,715        $10,051        $ 8,531
Total assets                              $107,423       $ 85,290        $67,192        $46,040        $42,383
-----------------------------------------------------------------------------------------------------------------
</TABLE>

*   Nine months ended July 31, 1993.


                                        -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.
    
GENERAL
    
    Effective November 1, 1992, the Company completed the acquisition of seven
stores located in Washington and Oregon which sell and service equipment used in
the construction industry.  The Company's strategic plan was, and continues to
be, that of expanding the operations and improving profitability at each of its
existing retail outlets.  In furtherance of such strategic plan, subsequent to
1992 the Company opened three additional outlets in Washington and Oregon. 
Effective September 10, 1994, the Company also purchased from Case two
additional retail construction equipment distribution outlets located in Sparks,
Nevada and Fremont, California.  The Fremont operation was relocated to
neighboring Hayward, California in December 1994.  In March and August 1995 the
Company opened distribution outlets in Santa Rosa and Salinas, California,
respectively.  In February 1996, the Company announced the opening of a
distribution outlet in Elko, Nevada.  Also in February 1996, the Company
completed the acquisition of the Sacramento, California outlet from Case as
further described in Note 2 to the Consolidated Financial Statements.  The
opening of a Stockton, California outlet was completed in March 1996.  In June
1996, the Company completed the acquisition of GCS, Inc. bringing the total
number of distribution outlets owned and operated by the Company to 18. In
September, 1996, the Company opened a new distribution outlet in
Milton-Freewater, Oregon bringing the total number of distribution outlets owned
and operated by the Company to 19.  In January 1997, the Company opened a new
store in Redding, California bringing the total number of distribution outlets
owned and operated by the Company to 20.  Also in January 1997, the Company
acquired substantially all of the assets of Sahlberg Equipment, Inc. and
continues to operates its stores in Kent, Washington, Portland, Oregon, and
Anchorage, Alaska bringing the total number of distribution outlets owned and
operated by the Company to 23. 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.

    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, such as projected sales levels, 
expense reductions, reduced interest expense, and increased inventory 
turnover, one or more of which may not be realized.

RESULTS OF OPERATIONS

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 shares compared with
$2,079,000 or $0.58 per share in fiscal 1996. The Company took a fourth quarter
write-down 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 write-down 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


                                        -II-3-
<PAGE>
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 grants 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.
    
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.
    
FISCAL YEAR 1995, AS COMPARED WITH FISCAL YEAR 1994
    
    The Company reported net sales for fiscal 1995 of $86,172,000 which is an
increase of 28 percent over net sales of $67,370,000 for fiscal 1994.  Included
in the fiscal 1995 amount are revenues of approximately $15,000,000 related to
the acquisition of the Sparks, Nevada and Hayward, California stores and the
opening of the Santa Rosa, California store.  Same store revenues increased 5.6
percent over the prior year results reflecting a continuation of generally good


                                        -II-4-
<PAGE>

economic conditions, 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 88.4 percent during fiscal
1995 which is consistent with the prior year results.  Management has placed a
high priority on improving overall gross margins by increasing higher margin
service and parts revenues and by obtaining higher prices for new equipment.
    
    Selling, general and administrative expenses were $6,078,000 or 7.1 percent
of sales for fiscal 1995 compared to $5,295,000 or 7.9 percent of sales for
fiscal 1994.  The decrease in selling, general and administrative expenses as a
percent of sales reflects the spreading of fixed overhead costs over an
increased revenue base which was partially offset by $108,000 in certain
one-time administrative costs associated with the integration of the Sparks,
Nevada and Hayward, California outlets.
    
    The $296,000 increase in interest expense for fiscal 1995 is attributable
to an increasing balance of inventory purchased under the Company's various
floor plan lines of credit to stock our new outlets, and to increasing interest
rates in general.
    
LIQUIDITY AND CAPITAL RESOURCES
    
The Company's primary source of internal liquidity has been its profitable
operations since its inception in November 1992.  As more fully described below,
the Company's primary sources of external liquidity were contributions to the
Company by its parent, American United Global, Inc. ("AUGI"), and equipment
inventory floor plan financing arrangements provided to the Company by the
manufacturers of the products the Company sells and Seattle-First National Bank
("Seafirst Bank").  In addition, in fiscal 1995, the Company completed an
initial public offering of 1,495,000 shares of common stock at $6.50 per share,
generating net proceeds of $7,801,000.  The net proceeds of the offering were 
utilized to repay amounts due to AUGI and to Case, the acquisition and opening
of additional outlets, as well as to reduce floor plan debt.  
    
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, 1997, the
Company was indebted under manufacturer provided floor planning arrangements in
the aggregate amount of $34,634,000.  As of September 30, 1997, approximately 
$27,888,000 was outstanding under these manufacturer provided floor plan 
arrangements.

In order to take advantage of the three percent 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 has entered into a separate secured floor planning
line of credit with Seafirst Bank.  The Seafirst line of credit was entered into
in June 1994 and renewed on September 1, 1997.  This is a $22,000,000 line of
credit which can be used to finance new and used equipment or equipment to be
held for rental purposes.  On July 31, 1997, approximately $20,857,000 was
outstanding under such line of credit, the principal of which bears interest at
 .50 percent below the bank's prime rate and is subject to annual review and
renewal on September 1, 1998.  As of September 30, 1997, approximately 
$15,226,000 was outstanding under this facility.
    
In June 1997, the Company obtained a $75 million inventory flooring and 
operating line on 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 nnprovided 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.  Although the Company had not yet 
drawn against this credit facility as of July 31, 1997, as of September 30, 
1997, approximately $16,609,000 was outstanding under this facility.

                                        -II-5-
<PAGE>

Amounts owing under these floor plan financing agreements are secured by
inventory purchases financed by these lenders, as well as all proceeds from
their sale or rental, including accounts receivable thereto.  
    
On October 19, 1995, the Company entered into a purchase and sale agreement with
an unrelated party for the Auburn, Washington facility subject to the execution
of a lease.  Under the terms of this agreement, which closed on December 1,
1995, the Company sold the property and is leasing it back from the purchaser. 
In accordance with Statement of Financial Accounting Standards No 13 (SFAS 13),
the building portion of the lease is being accounted for as a capital lease
while the land portion of the lease qualifies for treatment as an operating
lease.  See Note 9 to the accompanying Consolidated Financial Statements for
more information.
    
Effective February 17, 1996, the Company acquired substantially all of the
operating assets used by Case in connection with its business of servicing and
distributing Case construction equipment at a facility located in Sacramento,
California (the "Sacramento Operation").  The acquisition was consummated for
approximately $630,000 in cash, $3,090,000 in installment notes payable to Case
and the assumption of $3,965,000 in inventory floor plan debt with Case and its
affiliates.  The acquisition has been accounted for as a purchase.
    
The real property and improvements used in connection with the Sacramento
Operation, and upon which the Sacramento Operation is located, were sold by Case
for $1,500,000 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 as of March 1, 1996.  In accordance with SFAS 13, the building
portion of the lease is being accounted for as a capital lease while the land
portion of the lease qualifies for treatment as an operating lease.  See Notes 3
and 9 to the accompanying Consolidated Financial Statements for more
information.
    
On October 10, 1995, using proceeds from the Company's initial public offering,
the Company retired the $2,175,000 real estate note given to Case for the
purchase of the Sparks, Nevada real estate in September 1994.  In March 1996,
the Company consummated an agreement with an institutional lender for a
conventional mortgage on the property in the amount of $1,330,000, secured by
the Sparks, Nevada real estate.  The agreement calls for principal and interest
payments over a seven year term using a fifteen year amortization period.  The
note cannot be prepaid during the first two years of its term.  
    
On June 11, 1996, the Company acquired the operating assets of GCS, Inc.
("GCS"), a California-based, closely-held distributor of heavy equipment
primarily marketed to municipal and state government agencies responsible for
street and highway maintenance.  The Company operates the GCS business from
an existing location in Fullerton, California and from the Company's existing
facility in Sacramento, California.  The purchase price for the GCS assets was
$1,655,000.  This transaction is being accounted for as a purchase.
    
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 real property and improvements upon which the Kent, Washington facility 
is located, 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 
such 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 as of June 1, 1997.  In accordance with SFAS 13, the building 
portion of the lease is being accounted for as a capital lease while the land 
portion of the lease qualifies for treatment as an operating lease.  See 
Notes 3 and 9 to the accompanying Consolidated Financial Statements for more 
information.

                                        -II-6-
<PAGE>

During the year ended July 31, 1997, cash and cash equivalents decreased by
$846,000 primarily due to the purchase of Sahlberg Equipment, Inc. and increased
inventory levels.  The Company had positive cash flow from operating activities
during the year of $2,546,000 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
Sahlberg acquisition.  
    
The Company's cash and cash equivalents of $1,875,000 as of July 31, 1997 and
available credit facilities are considered sufficient to support current or
higher levels of operations for at least the next twelve months.

EFFECTS OF INFLATION AND INTEREST RATES
    
    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
industry.  Accordingly, the Company's sales are affected by inflation or
increased interest rates which tend to hold down new construction, and
consequently adversely affects demand for the construction equipment sold and
rented by the Company.  

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.


                                        -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, 1997, 1996, and 1995. . . . . . . . . . . .F-1
    Consolidated Balance Sheets as of 
      July 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . .F-2
    Consolidated Statements of Stockholders'
     Equity for the years ended July 31, 1997, 1996
       and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-3
    Consolidated Statements of Cash Flows for 
      the years ended July 31, 1997, 1996 and 1995 . . . . . . . . . . . .F-4
     Notes to Consolidated Financial Statements. . . . . . . . . . . . . .F-5
     Report of Independent Accountants . . . . . . . . . . . . . . . . . F-18

Financial Statement Schedule:
    
    Report of Independent Accountants - Financial Statement Schedule . . F-19
    Schedule II - Valuation and Qualifying Accounts. . . . . . . . . . . F-20
    
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

     The following table sets forth information with respect to directors,
nominees for directors, executive officers and significant employees of the
Company as of October 21, 1997.  There are no pending legal proceedings to which
any director or executive officer of the Company is a party adverse to the
Company.

           NAME                       AGE                     POSITION 
           ----                       ---                     --------

      Robert M. Rubin                  57             Chairman of the Board of 
                                                      Directors; Nominee for 
                                                      Director 
 
      C. Dean McLain                   44             President, Chief 
                                                      Executive Officer and 
                                                      Director; Nominee for 
                                                      Director 
 
      Mark J. Wright                   41             Vice President of 
                                                      Finance, Chief Financial 
                                                      Officer, and Secretary 
 
    Harold Chapman, Jr.                36             Director; Nominee for 
                                                      Director 
 
     James H. Penland                  68             Director; Nominee for 
                                                      Director 

     Set forth below is a brief background of the executive officers and
directors of the Company, based on information supplied by them.
                                        
     ROBERT M. RUBIN.  Mr. Rubin has served as the Chairman of the Board of
Directors of the Company since November 20, 1992. Between November 20, 1992 and
March 7, 1993, Mr. Rubin served as Chief Executive Officer of the Company. In
addition, between October 1990 and January 1, 1994, Mr. Rubin served as Chairman
and Chief Executive Officer of American United Global, Inc. ("AUGI"). From
January 19, 1996 through the present, Mr. Rubin has again served as Chief
Executive Officer of AUGI. Mr. Rubin was the founder, President, Chief Executive
Officer and a Director of  Superior Care, Inc. ("SCI") from its inception in
1976 until May 1986.  Mr. Rubin continued as a director of SCI (now known as
Olsten Corporation ("Olsten")) until the latter part of 1987. Olsten, a New York
Stock Exchange listed company, is engaged in providing home care and
institutional staffing services and health care management services. Mr. Rubin
is Chairman of the Board, and a stockholder of ERD Waste
Technology, Inc., a diversified waste management public company specializing in
the management and disposal of municipal solid waste, industrial and commercial
non-hazardous waste and hazardous waste.  ERD Waste Technology has filed for 
Chapter 11 bankruptcy reorganization.  Mr. Rubin is a former director and
Vice Chairman, and currently a minority stockholder, of American Complex Care,
Incorporated, a public company formerly engaged in providing on-site health care
services, including intra-dermal infusion therapies.  In April 1995, American
Complex Care, Incorporated's operating subsidiaries made assignments of their
assets for the benefit of creditors without resort to bankruptcy proceedings. 
Mr. Rubin is also a minority stockholder and former Chairman of the Board of 
Universal Self Care, Inc., a public company engaged in the sale of products 
used by diabetics.  Mr. Rubin is also a minority stockholder and a director of 
Response USA, Inc., a public company engaged in the sale and distribution of 
personal emergency response systems and Diplomat Corporation, a public company 
engaged in the manufacture and distribution of baby products.  Mr. Rubin is 
also a minority stockholder and former director of Help at Home, Inc. a public 
company which provides home health care personnel; Arzen International (1991) 
Ltd.; and Kay Kotts Associates, Inc., a public company engaged in providing 
tax preparation and assistance service.  Mr. Rubin is a director of 
Medimerge, Inc.; a company engaged in managing emergency room and outpatient 
clinics in Canada.  In addition, Mr Rubin serves as Chairman of IDF, a 
telecommunications and infrastructure engineering and consulting company.


                                     -III-1-
<PAGE>

     C. DEAN MCLAIN.  Mr. McLain has served as President, Chief Executive
Officer and a director of the Company since March 7, 1993.  From March 1, 1993
through June 13, 1995, Mr. McLain served as Executive Vice President of AUGI. 
Mr. McLain has served on the Board of Directors of AUGI since March 7, 1994. 
From 1989 to 1993, Mr. McLain served as Manager of privatization of Case
Corporation.  From 1985 to 1989, Mr. McLain served as General Manager of Lake
State Equipment, a distributor of John Deere construction equipment.  Mr. McLain
was awarded a B.S. degree in Business and Economics and a Master of Business
Administration degree by West Texas State University.

     MARK J. WRIGHT.  Mr. Wright joined the Company in February 1997 as Vice
President of Finance and Chief Financial Officer.  From October 1992 to January
1997, Mr. Wright maintained a private law practice in Oregon.  Prior to that,
Mr. Wright was employed at Lattice Semiconductor Corp. for approximately  seven
years as the Corporate Treasurer.  Mr. Wright was admitted to the Oregon state
bar in 1992.  Mr. Wright has a J.D. degree from Northwestern School of Law at
Lewis and Clark College, an M.B.A. in finance and international business from
the Marriott School of Management at Brigham Young University, and a B.S. degree
in Accounting from California State University at Fresno.

     JAMES H. PENLAND.  Until his retirement in 1993, Mr. Penland had spent
forty-four years in the construction and agricultural equipment business.  He
was associated with International Harvester Corporation for approximately 36
years, and for the eight years prior to his retirement was associated in various
managerial capacities with Case Corporation.  He joined the Company's Board of
Directors in March 1995.

     HAROLD CHAPMAN, JR.  Mr. Chapman joined the Company's Board of Directors in
July 1995.  Mr. Chapman is a partner in and general manager of Crown Power and
Equipment Co., a multi-line equipment distributor based in Columbia, Missouri. 
Prior to joining Crown Power and Equipment in 1992, Mr. Chapman was in retail
management with Case Corporation for 10 years.


                                     -III-2-
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION
          
     The following table sets forth the amount of all compensation paid by the
Company for services rendered during the fiscal years ended July 31, 1997, 1996,
and 1995 for the Company's Chief Executive Officer and to each of the Company's
most highly compensated executive officers whose total salary and bonus
compensation exceeded $100,000.


                        SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                         Long-Term Compensation 
------------------------------------------------------------------------------------------------------------------------------
                              Annual Compensation                        Awards                         Payouts 
                            ---------------------------------------- -------------------------------- ----------
                                                          Other                                                 
                                                          Annual         Restricted                                 All Other
Name and Principal                                        Compen-        Stock            Options/      LTIP        Compen-
Position                 Year     Salary       Bonus      sation         Awards           SARs(#)       Payouts     sation
-------------------------------------------------------------------- -------------------------------- ----------- ------------
<S>                      <C>      <C>          <C>        <C>            <C>              <C>           <C>         <C>
Robert M. Rubin          1997     $150,000     $     0     $  0           $   0              50,000      $   0       $   0 
Chairman and             1996     $150,000     $50,000     $  0           $   0             150,000      $   0       $   0 
Director(1)              1995     $ 75,000     $25,000     $  0           $   0                   0      $   0       $   0
                                                 
 
 
C. Dean McLain           1997     $268,587     $18,658    $  0           $   0                    0      $   0       $   0 
Executive Vice           1996     $250,000     $84,868    $  0           $   0              300,000*     $   0       $   0 
President and            1995     $170,709     $75,000    $  0           $   0              150,000      $   0       $   0 
Director; President                                                                        
and CEO of Western(2)  
-------------------------------------------------------------------- -------------------------------- ------------ -----------
</TABLE>
     --------------
     *    Reflects the repricing of options to acquire 150,000 shares and
          the original issuance of options to acquire 150,000 shares.
     
     (1)  The foregoing annual compensation amounts represent 50% of the
          $150,000 in annual cash salary paid to Mr. Rubin by AUGI and
          its subsidiaries, including the Company, in fiscal 1995, and 50%
          of the $50,000 annual bonus payable to Mr. Rubin
          under the terms of his employment agreement with AUGI during
          fiscal 1995 and 1994, respectively.  The Company entered into a
          separate employment agreement with Mr. Rubin, effective June 14,
          1995 and expiring July 31, 1998, pursuant to which Mr. Rubin is
          paid a base salary of $150,000 plus an annual bonus.  See
          "Compensation Committee Interlocks and Insider Participation" and
          "Employment and Incentive Compensation Agreements" below.  
     
     (2)  Mr. McLain joined the Company in March 1993, when he became its
          Chief Executive Officer.   On July 31, 1995, Mr. McLain was 
          permitted to and did purchase from AUGI 6,000 shares of AUGI's 
          common stock, at a price of $.01 per share.  On August 1, 1995, 
          the closing price for a share of AUGI's common stock as reported 
          by NASDAQ was $4.875.  Effective as of August 1, 1995, Mr. McLain's 
          employment agreement with the Company was terminated and he entered 
          into an amended employment agreement expiring July 31, 2005. The base
          salary under this employment agreement commences at $250,000 for 
          fiscal 1996, and rises to $300,000 for fiscal 2000. His employment 
          agreement also calls for Incentive Bonuses under certain 
          circumstances.  See "Compensation Committee Interlocks and Insider 
          Participation" and "Employment and Incentive Compensation Agreements"
          below.


                                     -III-3-
<PAGE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The Compensation Committee of the Board of Directors (the "Compensation
Committee") was established in March 1995 and currently consists of Harold
Chapman and James Penland.  Mr. Penland has been a member of the Compensation
Committee since its inception; Mr. Chapman was made a member of the Compensation
Committee in September 1995.  Mr. Rubin, an earlier member of the Compensation
Committee, resigned during fiscal 1996. During the last fiscal year, other than
Messrs. Rubin and McLain, who are officers and directors of the Company, no
officers or employees of the Company participated in compensation decisions
relating to executive officers of the Company.  All compensation decisions for
the Company were made by the full Board of Directors.  Mr. Rubin's annual
compensation identified in the Summary Compensation Table was provided for under
his employment agreement with AUGI and his subsequent separate employment
agreement with the Company which was entered into effective June 14, 1995 and
which was approved by a vote of the Company's Board of Directors.  Mr. McLain's
annual compensation is provided for under his employment contract with the
Company which was entered into as of June 13, 1995, and his amended and
restated employment agreement that was effective August 1, 1995.  Both
agreements were approved by the Company's Board of Directors.  See "Employment
and Incentive Compensation Agreements" below.

     Other than participation in the Company's "Non-Management Directors Stock
Option Plan" (see, "Non-Management Directors Stock Option Plan," below) no
director of the Company receives any directors fees for attendance at Board
meetings, other than Messrs. Penland and Chapman who each receive a fee of $500
per meeting.  All directors are entitled to receive reimbursement for actual
expenses of such attendance.

     The Company's Audit Committee of the Board of Directors consists of C. Dean
McLain, Harold Chapman and James Penland.  No executive officers or directors of
any other publicly held companies serve on the Company's Compensation Committee,
other than Robert M. Rubin, who is a director and member of the compensation
committee of AUGI, and Dean McLain, who is a director of AUGI.

COMPENSATION POLICY AND OTHER COMPENSATION

     During the fiscal year ended July 31, 1997, the Company's Board of
Directors decided all compensation matters relating to the Company's executive
officers.

     The Board of Directors of the Company has decided that the best way to
attract and retain highly capable employees on a basis that will encourage them
to perform at increasing levels of effectiveness, and to use their best efforts
to promote the growth and profitability of the Company and its subsidiaries, is
to enter into employment agreements with its senior executive officers.  Messrs.
Rubin and McLain are each under contract with the Company.  This has enabled the
Board to concentrate on the negotiation of particular employment contracts
rather than on the formulation of more general compensation policies for all
management and other personnel.  The Company believes that its compensation
levels as to all of its employees are comparable to, if not generally lower
than, industry standards.  See "Employment and Incentive Compensation
Agreements".

     In setting levels of compensation under such employment contracts, and in
approving management's compensation of all other Company employees, the Board of
Directors has evaluated the Company's overall performance, the contribution of
particular individuals to Company performance and industry compensation
standards.


                                     -III-4-
<PAGE>

     The Company has adopted a policy of compensating non-employee Directors at
the rate of $500 per meeting (plus reasonable out-of-pocket expenses in a manner
consistent with past practice) for attendance at meetings of the Company's Board
of Directors, as well as with participation in the Company's Non-management
Directors Stock Option Plan.  At this time, Harold Chapman, Jr. and James
Penland are the only directors eligible to be compensated pursuant to this
policy.


                                     -III-5-
<PAGE>

EMPLOYMENT AND INCENTIVE COMPENSATION AGREEMENTS

     Upon completion of the Company's 1995 initial public offering (the
"Offering"), the Company entered into a separate employment agreement with Mr.
Rubin, effective as of June 13, 1995 and expiring July 31, 1998.  Pursuant to
such agreement, Mr. Rubin will serve as Chairman of the Board of the Company and
shall receive an annual base salary of $150,000, payable at the rate of $12,500
per month from the effective date of such agreement.  In addition to his base
annual salary, Mr. Rubin shall be entitled to receive an annual bonus equal to
$50,000 per annum, payable only in the event that the "consolidated pre-tax
income" of the Company (as defined) shall be in excess of $3,000,000 for the
fiscal year ending July 31, 1996, $3,500,000 for the fiscal year ending July 31,
1997, and $4,000,000 for the fiscal year ending July 31, 1998, respectively. 
Under the terms of his employment agreement with the Company, Mr. Rubin is only
obligated to devote a portion of his business and professional time to the
Company (estimated at approximately 20%).  The term "consolidated pre-tax
income" is defined as consolidated net income of the Company and any
subsidiaries of the Company subsequently created or acquired, before income
taxes and gains or losses from disposition or purchases of assets or other
extraordinary items.  Mr. Rubin did not receive a bonus for the Company's 1997
fiscal year. 

     On March 5, 1996, Mr. Rubin received options to acquire 150,000 shares 
of Common Stock exercisable at $4.50 per share and vesting 33.3% on March 5, 
1997 and 33.3% on each succeeding March 5 until all are vested.  In August 
1996, Mr. Rubin received options to acquire 50,000 shares of Common Stock, 
exercisable at $4.375 per share and vesting 50% on each of the first and 
second anniversaries of the date of grant.

     Effective as of August 1, 1995, Mr. McLain's employment agreement with AUGI
was terminated and he entered into an amended employment agreement with the
Company, expiring July 31, 2005.  Pursuant to such agreement, Mr. McLain serves
as President and Chief Executive Officer of the Company and will receive an
annual base salary, payable monthly, of $250,000 through the end of fiscal 1996,
$265,000 per annum in fiscal 1997, $280,000 per annum in fiscal 1998, $290,000
per annum in fiscal 1999, and $300,000 per annum in fiscal 2000.   For each of
the fiscal years ending 2001, 2002, 2003, 2004 and 2005, inclusive, Mr. McLain's
base salary shall be determined by the Compensation Committee and ratified by
the full Board of Directors.  Such base salary in each of the five fiscal years
from 2001 through 2005 shall not be less than the annual base salary in effect
in the immediately preceding fiscal year, plus a cost of living adjustment.  In
addition, Mr. McLain will be entitled to receive bonus payments in each of the
five fiscal years ending 1996 through 2000, inclusive, equal to 5% of the
consolidated pre-tax income in excess of $1,750,000 in each such fiscal year
(the "Incentive Bonus"); provided, that the maximum amount of the Incentive
Bonus payable by the Company to Mr. McLain shall not exceed $150,000 in any such
fiscal year, without regard to the amount by which the Company's consolidated
pre-tax income shall exceed $1,750,000 in any of such fiscal years.  Mr. McLain
received a $18,658 bonus for the Company's 1997 fiscal year under the terms of
his employment agreement.  For each of the fiscal years ending 2001 through
2005, Mr. McLain's Incentive Bonus shall be determined by the Compensation
Committee and ratified by the full Board of Directors.  The maximum annual
Incentive Bonus which Mr. McLain shall be entitled to receive during each of the
fiscal years ending 2001 through 2005 shall not be less than $150,000.  As used
in Mr. McLain's employment agreement, the term "consolidated pre-tax income" is
defined as consolidated net income of the Company and any subsidiaries of the
Company subsequently created or acquired, before the Incentive Bonus, income
taxes and gains or losses from disposition or purchases of assets or other
extraordinary items.

     Under the terms of his amended employment agreement, Mr. McLain received
options to acquire 150,000 shares of Company common stock, exercisable at $6.50
per share, awarded to him under the Company's 1995 Stock Option Plan.  Such
exercise price was the closing sale price of the Company's common stock on
August 1, 1995 as reported by NASDAQ.  On December 28, 1995, all 300,000 options
previously granted to Mr. McLain under the Plan were repriced, such that all of
his existing options were terminated and he was granted 300,000 new options
under the Plan exercisable at $4.50 per share.  All of such options vested in
full in July 1996.  See, "Repricing of Stock Options." In August 1996, Mr.
McLain received options to acquire 150,000 shares of Common Stock, exercisable
at $4.375 and vesting 50% on each of the first and second anniversaries of the
grant date.


                                     -III-6-
<PAGE>

     Under the terms of his employment agreement, Mr. McLain is also entitled to
receive options to purchase 75,000 additional shares of Company Common Stock
under the Plan with respect to the Company's fiscal year ending July 31, 1998,
at the market price per share of Common Stock on July 31, 1998, in the event
that the accumulated consolidated pre-tax income of the Company for the three
consecutive fiscal years ending 1996, 1997 and 1998 shall equal or exceed
$9,000,000.  Mr. McLain shall also be entitled to receive options to purchase
50,000 additional shares of Company Common Stock under the Plan with respect to
the Company's fiscal year ending July 31, 2000 in the event that the accumulated
consolidated pre-tax income of the Company for the two consecutive fiscal years
ending 1999 and 2000 shall equal or exceed $7,000,000.  

     In the event that the Company does not meet the accumulated consolidated
pre-tax income levels described above, Mr. McLain shall still be entitled to
receive options to purchase 125,000 shares under the Plan (minus any options
granted with respect to the fiscal years ending in 1998 and 2000), exercisable
at the market price per share on July 31, 2000, should the accumulated
consolidated pre-tax income of the Company for the five fiscal years ending 1996
through 2000 equal or exceed $16,000,000.  In the event such additional
incentive stock options become available to him, Mr. McLain may exercise such
options beginning August 1, 1996 and ending July 31, 2005.  Mr. McLain's
employment agreement also provides for fringe benefits as are customary for
senior executive officers in the industry in which the Company operates,
including medical coverage, excess life insurance benefits, and use of an
automobile supplied by the Company in addition to a $500 per month auto
allowance, the aggregate value of which is estimated at approximately $20,000
per year.   
     
STOCK OPTIONS

                    OPTION GRANTS IN FISCAL YEAR 1997 

The following table identifies individual grants of stock options made during
the last completed fiscal year to the executive officers named in the Summary
Compensation Table:   

<TABLE>
<CAPTION>
                                                                                                 REALIZABLE
                                                                                                 VALUE AT
                                                                                                 ASSUMED ANNUAL
                                                                                                 RATES OF STOCK
                                                                                                 PRICE
                                                                                                 APPRECIATION
                         INDIVIDUAL GRANTS                                                       FOR OPTION TERM
---------------------------------------------------------------------------------------- ----------------------------
           (a)                (b)               (c)              (d)             (e)          (f)              (g) 
                                            % OF TOTAL 
                                            OPTIONS/SARS      
                          OPTIONS/SARS       GRANTED TO       EXERCISE OF 
                            GRANTED         EMPLOYEES IN       BASE PRICE    EXPIRATION    
     NAME                     (#)            FISCAL YEAR         ($/SH)         DATE         5%    ($)        10%($) 
     ----                   -------          -----------       ---------     ----------      --------         ------
<S>                       <C>               <C>               <C>            <C>             <C>           <C>
C. Dean McLain              150,000             41%            $4.375         8/2006         $412,712      $1,045,893 
 
Robert M. Rubin              50,000             14%            $4.375         8/2006         $137,571      $  348,631 

</TABLE>


                                     -III-7-
<PAGE>

The following table provides information concerning the exercise of stock
options during the last completed fiscal year by each executive officer named in
the Summary Compensation Table, and the fiscal year-end value of unexercised
options held by each such person. 
  
<TABLE>
<CAPTION>

AGGREGATED OPTION/SAR EXERCISED 
IN LAST FISCAL YEAR AND FISCAL 
YEAR-END OPTION/SAR VALUES 
----------------------------------------------------------------------------------------------------------------------------
      (a)                  (b)                (c)                    (d)                                 (e) 
 
                                                             NUMBER OF UNEXERCISED         VALUE OF UNEXERCISED IN-THE-MONEY 
                    SHARES ACQUIRED ON   VALUE REALIZED  OPTIONS/SARS AT FISCAL YEAR-END     OPTIONS/SARS AT FISCAL YEAR-END 
      NAME             EXERCISE (#)           ($)                     (#)                                  ($)       
      ----          ------------------   --------------  -------------------------------   ---------------------------------
                                                                 EXERCISABLE/                        EXERCISABLE/
                                                                UNEXERCISABLE                       UNEXERCISABLE
<S>                 <C>                  <C>              <C>                              <C>
C. Dean McLain             -0-                 -0-              150,000/300,000                    $429,000/$858,000
                              
Robert M. Rubin            -0-                 -0-               50,000/150,000                    $143,000/$429,000

</TABLE>

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

NON-MANAGEMENT DIRECTORS STOCK OPTION PLAN

     On December 28, 1995, the Company adopted a Non-Management Directors Stock
Option Plan for the purpose of compensating all of the Company's outside
directors for their annual service on the Company's Board of Directors (the
"Formula Plan"). Under the terms of the Formula Plan, the Company automatically
grants to each non-management director five-year options to acquire 2,500 shares
of the Company's Common Stock on February 1, 1996 and on each succeeding August
1 upon which the non-management director is a member of the Company's Board of
Directors.  Options granted under the Formula Plan are exercisable at the market
price of a share of Company Common Stock on the date of option grant. The
Formula Plan terminates on December 31, 2000, and a maximum of 50,000 shares of
Company Common Stock are available for the granting of options under the plan.
The Formula Plan was adopted by the Board and is subject to stockholder
approval, without which the Formula Plan itself and the options granted
thereunder are not effective. The Formula Plan received stockholder approval at
the Company's 1996 Annual Stockholders Meeting.



                                     -III-8-
<PAGE>

LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION

     The Company has included in its Certificate of Incorporation and/or Bylaws
provisions to (i) eliminate the personal liability of its directors and officers
for monetary damages resulting from breaches of their fiduciary duty (provided
that such provisions do not eliminate liability for breaches of the duty of
loyalty, acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, violations under Section 174 of the
Delaware Law, or for any transaction from which the director and/or officer
derived an improper personal benefit), and (ii) indemnify its directors and
officers to the fullest extent permitted by the Delaware Law, including
circumstances in which indemnification is otherwise discretionary.  The Company
believes that these provisions are necessary to attract and retain qualified
persons as directors and officers.

     The Company intends to enter into separate but identical indemnity 
agreements (the "Indemnity Agreements") with each director and executive 
officer of the Company (the "Indemnitees").  The Indemnity Agreements will 
provide that the Company will indemnify each Indemnitee against any amounts 
that he becomes legally obligated to pay in connection with any claim against 
him based upon any act, omission, neglect or breach of duty that he may 
commit, omit or suffer while acting in his capacity as a director and/or 
officer of the Company; provided, that such claim: (i) is not based upon the 
Indemnitee's gaining any personal profit or advantage to which he is not 
legally entitled; (ii) is not for an accounting of profits made from the 
purchase or sale by the Indemnitee of securities of the Company within the 
meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, 
or similar provisions of any state law; and (iii) is not based upon the 
Indemnitee's knowingly fraudulent, deliberately dishonest or willful 
misconduct.  The Indemnity Agreements also provide that all costs and 
expenses incurred by the Indemnitee in defending or investigating such claim 
shall be paid by the Company in advance of the final disposition thereof, 
unless the Company, independent legal counsel, the stockholders of the 
Company or a court of competent jurisdiction determines that: (x) the 
Indemnitee did not act in good faith and in a manner that he reasonably 
believed to be in or not opposed to the best interests of the Company; (y) in 
the case of any criminal action or proceeding, the Indemnitee had reasonable 
cause to believe his conduct was unlawful; or (z) the Indemnitee 
intentionally breached his duty to the Company or its stockholders.  Each 
Indemnitee has undertaken to repay the Company for any costs or expenses so 
advanced if it shall ultimately be determined by a court of competent 
jurisdiction in a final, nonappealable adjudication that he is not entitled 
to indemnification under an Indemnity Agreement.


                                     -III-9-
<PAGE>

ITEM 12.  PRINCIPAL STOCKHOLDERS

     The following table sets forth certain information as of October 21, 1997
with respect to the beneficial ownership of the Common Stock of the Company by
each beneficial owner of more than 5% of the outstanding shares of the Common
Stock of the Company, each director and nominee for director and all officers
and directors of the Company as a group.  Unless otherwise indicated, the owners
have sole voting and investment power with respect to their respective shares.

<TABLE>
<CAPTION>
                                                                               PERCENTAGE 
                                                                                   OF 
                                          NUMBER OF SHARES OF COMMON           OUTSTANDING 
   NAME AND ADDRESS OF                       STOCK OF THE COMPANY                COMMON 
    BENEFICIAL OWNER                          BENEFICIALLY OWNED               STOCK OWNED 
    ----------------                          ------------------               -----------
<S>                                       <C>                                 <C>
 American United  
 Global, Inc. 
 11634 Patton Road 
 Downey, CA  90241                          2,000,000                              56.6% 
 
 Robert M. Rubin 
 6060 Kings Gate Circle 
 Del Ray Beach, FL  33484                     580,000(1)(4)                        16.4% 
 
 C. Dean McLain 
 4601 N.E. 77th Avenue 
 Suite 200 
 Vancouver, WA  98662                         589,236(2)(3)                        16.7% 
 
 D(3) Family Funds 
 19605 N.E. 8th Street 
 Camas, WA 98607                              350,000                               9.9% 
 
 James Penland 
 50 Hillcrest Drive 
 Weaverville, NC 28787                          5,000(5)                             * 
 
 Harold Chapman 
 4614 Highway 763 North 

 Columbia, Missouri  65202                      5,000(5)                             * 
 
 All directors and executive officers
 as a group (5 persons)                     1,179,236(1)(2)(3)(4)(5)               33.4%
</TABLE>
--------------
* Less than 1%


                                    -III-10-
<PAGE>

(1)  Represents Mr. Rubin's indirect ownership in the Company through his
     beneficial ownership of an aggregate of 1,775,798 voting shares of American
     United Global, Inc., the Company's principal stockholder ("AUGI"),
     including options to purchase an additional 80,000 shares of AUGI common
     stock.  Mr. Rubin's beneficial ownership of AUGI voting stock represents
     15.8% of AUGI voting stock as at October 24, 1997.

(2)  Represents Mr. McLain's indirect ownership in the Company through his
     beneficial ownership of an aggregate of 12,000 shares of AUGI voting stock
     and options to purchase an additional 234,000 shares of AUGI common stock,
     as well as direct beneficial ownership of Company Common Stock through his
     ownership of exercisable options to acquire 450,000 shares of Company
     Common Stock.  Mr. McLain's beneficial ownership of AUGI common stock
     represents 2.2% of AUGI voting stock as at October 20, 1997.

(3)  Does not include certain incentive stock options which are issuable to Mr.
     McLain in the maximum amount of 125,000 shares, based upon the Company
     achieving certain pre-tax income levels after the fiscal years ending 1998
     (75,000 shares) and 2000 (50,000 shares).  See "MANAGEMENT - Employment and
     Incentive Compensation Agreements." 

(4)  Does not include options to purchase 50,000 shares of the Company's Common
     Stock granted to Mr. Rubin on August 1, 1996 which may be exercised at 
     $4.375 per share, 50% commencing on August 1, 1997, and 50% on 
     August 1, 1998.

(5)  Includes options to purchase 5,000 shares of the Company's Common Stock
     issued to each of Messrs. Chapman and Penland under the terms of the
     Formula Plan for outside directors.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     See "Item 11, Executive Compensation - Compensation Committee Interlocks
and Insider Participation."

     To assist AUGI, the Company's principal stockholder, in capitalizing the
Company and to provide it with ongoing working capital, in November 1992 Robert
M. Rubin advanced to AUGI the sum of $1,375,000 as a subordinated loan, which
was funded together with related subordinated loans aggregating $525,000 made to
AUGI by Lawrence E. Kaplan (until August, 1995 a director of the Company and who
became a director of AUGI in March 1993) and his business associates.  The
proceeds of such loans, aggregating $1,900,000, were used by AUGI to provide
part of the initial equity capital for the Company at the time of its 1992
acquisition of 7 Case Corporation ("Case") retail stores.  Such loans were
evidenced by AUGI notes payable on August 15, 1994 and bearing interest, payable
monthly, at the Citibank, N.A. prime rate, plus 1%.  All such loans were fully
subject and subordinated to all bank and other related secured indebtedness of
AUGI and its subsidiaries, including the Company.

     On November 19, 1992, in consideration of his personal guaranty of a
portion of a loan to AUGI by its commercial lender and his $1,375,000 loan to
AUGI, the proceeds of both of which financings were used to capitalize the
Company, Mr. Rubin received, for $1,250, an aggregate of 125,000 shares of AUGI
Common Stock.  Mr. Rubin agreed that, except in connection with a merger or sale
of AUGI as a whole, he will not sell or otherwise transfer any of the 125,000
shares for a minimum of four years from their date of issuance.  The closing
price of AUGI's Common Stock on the NASDAQ National Market System was $4.94 per
share on November 19, 1992.

     On consummation of an AUGI public offering of its securities in February
1994, Mr. Rubin exchanged 1,200,000 shares of AUGI Preferred Stock (which he
purchased for $1,200,000) and his


                                    -III-11-
<PAGE>

$1,375,000 AUGI note due August 15, 1994, for the AUGI Stockholder Note,
evidenced by a 9.56% $2,575,000 AUGI unsecured note, payable monthly as to
interest and due as to principal on November 30, 1995.  Such AUGI Stockholder
Note was fully subject and subordinated to all indebtedness for money borrowed 
by AUGI and its direct and indirect subsidiaries, including Company indebtedness
to all institutional lenders and to Case.  $1,375,000 of the underlying 
obligation evidenced by the AUGI Stockholder Note was assumed by the Company 
effective as at July 31, 1993.  The Company applied $1,375,000 of the net 
proceeds of its 1995 initial public offering (the "Offering") to prepay a like 
amount of the AUGI Stockholder Note to Mr. Rubin.

     Upon completion of AUGI's February 1994 public offering, the $525,000 of 
AUGI indebtedness owed to Lawrence E. Kaplan (a member of the AUGI Board of 
Directors at that time and currently a former member of the Company's Board 
of Directors) and his business associates was retired.  Mr. Kaplan had lent 
$131,250 of such $525,000 amount.

     Effective February 17, 1996, the Company acquired substantially all of 
the operating assets used by Case in connection with its business of 
servicing and distributing Case construction equipment at a facility located 
in Sacramento, California (the "Sacramento Operation").  The real property 
and improvements used in connection with the Sacramento Operation, 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 $168,000.  Under the lease, such annual rate increases to $192,000 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.

     Effective January 17, 1997, the Company acquired substantially all of 
the operating assets of Sahiberg Equipment, Inc. (Sahlberg), a four-store 
distributor of non-competing equipment lines.  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 $205,000.  Under the lease, such 
annual rate increases to $231,000 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.

     Upon completion of the Offering, the Company entered into a management
agreement with AUGI expiring July 31, 1996, renewable on a year-to-year basis
thereafter by mutual agreement, pursuant to which AUGI provides the Company with
certain general and administrative services, including tax planning,
administering of the annual audit of the Company's financial statements,
assistance in the preparation of annual reports, and periodic reports required
to be filed by the Company with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, including proxy statements, Form 10-K Annual
Reports, Form 10-Q Interim Financial Reports, and Form 8-K Reports, maintenance
of the Company's continued listing on NASDAQ or other national exchange,
financial public relations and other miscellaneous administrative services. 
Under the terms of such management agreement, the Company pays to AUGI the sum
of $10,000 per month, subject to increase or decrease (as the case may be) on a
fiscal quarterly basis, commencing October 31, 1995, to reflect actual expenses
accrued or anticipated to be paid by AUGI in the next succeeding fiscal quarter.
The agreement was terminated effective January 1, 1996 after the principal
operations of AUGI were sold and the general and administrative services
supplied by AUGI to the Company were discontinued.


                                    -III-12-
<PAGE>

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

     To the knowledge of the Company, no officers, directors, beneficial owners
of more than 10 percent of any class of equity securities of the Company
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any other person subject to Section 16 of the
Exchange Act with respect to the Company, failed to file on a timely basis
reports required by Section 16(a) of the Exchange Act during the most recent
fiscal year, which ended July 31, 1996.


                                    -III-13-
<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, 1997, 1996, and 1995 . . . . . . . . . . F-1
          Consolidated Balance Sheets as of 
           July 31, 1997 and 1996. . . . . . . . . . . . . . . . . . . . . . F-2
          Consolidated Statements of Stockholders'
           Equity for the years ended July 31, 1997, 1996
           and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
          Consolidated Statements of Cash Flows for 
           the years ended July 31, 1997, 1996 and 1995. . . . . . . . . . . F-4
          Notes to Consolidated Financial Statements . . . . . . . . . . . . F-5
          Report of Independent Accountants. . . . . . . . . . . . . . . . .F-18

     2.   FINANCIAL STATEMENT SCHEDULE.

          Report of Independent Accountants - Financial
           Statement Schedule. . . . . . . . . . . . . . . . . . . . . . . .F-19
          Schedule II - Valuation and Qualifying Accounts. . . . . . . . . .F-20

(b)  REPORTS ON FORM 8-K.

     The Company filed a Current Report on Form 8-K on February 3, 1997, with
     respect to the acquisition of the assets of Sahlberg Equipment, Inc.

(c)  EXHIBITS.

     EXHIBIT
     NUMBER    DESCRIPTION
     ------    -----------

     3.1       Certificate of Incorporation of Registrant. (5)

     3.2       By-laws of Registrant. (5)

     4.1       Specimen Certificate of Common Stock. (5)

     4.2       Stock Option Plan. (6)

     4.3       Board of Directors' Formula Stock Plan. (9) 

     10.1      Agreement of Purchase and Sale, dated December 4, 1992, by and
               between Case and the Registrant. (1)

     10.2      Price Calculation--Exhibit A to Asset Purchase Agreement. (1)

     10.3      Real Estate Purchase Agreement. (1)

     10.4      Sublease Agreement--Portland, Oregon. (1)

     10.5      Lease Agreement of Salem, Oregon Property, dated July 1, 1993, by
               and between Western Power and LaNoel Elston Myers Living Trust et
               al. (2)


                                     -IV-1-
<PAGE>

    EXHIBIT
     NUMBER    DESCRIPTION
     ------    -----------

     10.6      Sublease Agreement--Springfield, Oregon. (1)

     10.7      Sublease Agreement--Spokane, Washington. (1)

     10.8      Sublease Agreement--Pasco, Washington. (1)

     10.9      Sublease Agreement--Everett, Washington. (1)

     10.10     Amended Congress Loan Agreement; Western Security Agreement with
               Congress; AUG Guaranty to Congress; Western Guaranty to Congress;
               Robert M. Rubin Guaranty to Congress; Cash Collateral Agreement
               with Congress. (1)

     10.11     Case New Dealer Agreement Package. (2)

     10.12     Lease Agreement of Moses Lake, Washington property, dated June 9,
               1993, by and between Western Power and Maiers Industrial Park.
               (2)

     10.13     Lease Agreement of Bend, Oregon property, dated July 15, 1993, by
               and between Western Power and Robert Wilson. (2)

     10.14     Employment Agreement, by and between Registrant and C. Dean
               McLain. (8)

     10.15     Form of Employment Agreement, by and between Registrant and
               Robert M. Rubin. (6)

     10.16     Letter Agreement Amendment to Credit Agreement with Congress,
               dated as of October 1, 1993. (2)

     10.17     Financing Agreement with Associates Commercial Corporation. (3)

     10.18     Asset Purchase Agreement, dated as of September 22, 1994, by and
               between Case and Western (schedules omitted). (4)

     10.19     Case Parts Note; Other Assets and Equipment Note; Used Equipment
               Note; Accounts Receivable Note; Furniture and Fixtures Note; Shop
               Tools Note; Real Estate Note. (4)

     10.20     Deed of Trust with Assignment of Rents, dated September 22, 1994,
               by and between Western and Case. (4)

     10.21     Lease Agreement--Hayward, California. (5)

     10.22     Assignment and Assumption Agreement, dated as of September 22,
               1994, by and between Case and Western. (4)

     10.23     General Security Agreement, dated as of September 22, 1994, by
               and between Case and Western. (4)

     10.24     Guaranty Agreement of the Company, dated as of September 22,
               1994. (4)


                                     -IV-2-
<PAGE>

    EXHIBIT
     NUMBER    DESCRIPTION
     ------    -----------

     10.25     Intercreditor Agreement, dated September 22, 1994, by and between
               Case, Case Credit Corporation, Congress Financial Corporation and
               Western. (4)

     10.26     Management Agreement between Registrant and American United
               Global, Inc. (6)

     10.27     Auburn Facility Real Estate Purchase and Sale Agreement, dated
               October 19, 1995, by and between Western and Ford Kiene. (9)

     10.28     Lease Agreement--Auburn, Washington. (9)

     10.29     Lease Agreement--Sacramento, California. (7)

     10.30     Sacramento Acquisition Agreement.

               a.   Asset Purchase Agreement (7)
               b.   Used Equipment Note (7)
               c.   Parts Note (7)
               d.   Accounts Receivable Note (7)
               e.   Goodwill Note (7)
               f.   Real Estate Note from MRR to Case (7)
               g.   Deed to Secure Debt of MRR to Case (7)
               h.   Security Agreement (7)
               i.   C. Dean McLain's Personal Guaranty (7)

     10.31     GCS Acquisition Agreement. (9)

     10.32     Asset Purchase Agreement, dated January 17, 1997, among Sahlberg
               Equipment, Inc., John Sahlberg and Robert Sahlberg, R & J
               Partners and Western Power & Equipment Corp. (10)

     10.33     Terms of Employment for John Sahlberg and Robert Sahlberg. (10)

     10.34     Real Property Purchase and Sale Agreement for Kent Facility. (10)

     10.35     Loan Agreement, dated January 17, 1997, between Western Power &
               Equipment Corp. And Case Credit Corp. including related
               promissory notes. (10)

     10.35     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. (10)

     10.36     Loan and Security Agreement dated as of June 5, 1997 between
               Western Power & Equipment Corp. and Deutsche Financial Services
               Corporation. (11)

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

     21.       Subsidiaries of the Company.

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


                                     -IV-3-
<PAGE>

(1)  Filed as an Exhibit to the Current Report on Form 8-K of American United
     Global, Inc. ("AUGI"), as filed on December 19, 1992 and incorporated
     herein by reference thereto.

(2)  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.

(3)  Filed as an Exhibit to Amendment No.1 to AUGI's Registration Statement on
     Form S-1, filed on February 1, 1994 and incorporated herein by reference
     thereto.  (Registration No. 33-72556)

(4)  Filed as an Exhibit to the Current Report on Form 8-K of AUGI, as filed on
     September 23, 1994 and incorporated herein by reference thereto.

(5)  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).

(6)  Filed as an Exhibit to the Registrant's Registration Statement on Form S-1,
     filed on February 24, 1995 (Registration No. 33-89762).

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

(8)  Filed as an Exhibit to the Western Power & Equipment Annual Report on Form
     10-K, as filed on October 29, 1995 and incorporated herein by reference
     thereto.

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

(10) 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.

(11) 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.


(d)  ADDITIONAL FINANCIAL STATEMENT SCHEDULES

     None.


                                     -IV-4-
<PAGE>

                         WESTERN POWER & EQUIPMENT CORP.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)


                                             YEAR ENDED JULY 31, 
                                -----------------------------------------------

                                  1997                1996                1995
                                --------            --------            -------
Net Sales                       $148,130            $106,555            $86,172

Cost of goods sold               132,260              93,906             76,144
                                --------            --------            -------
Gross profit                      15,870              12,649             10,028

Selling, general and
 administrative expenses          11,194               7,827              6,078
                                --------            --------            -------
                                   4,676               4,822              3,950

Other (income) expense:
  Interest expense                 3,518               1,838              1,091
  Bridge loan deferred
   financing costs                     -                   -                 29
  Other (income) expense            (506)               (379)               (33)
                                --------            --------            -------

Income before income taxes         1,664               3,363              2,602
Provision for income taxes          (693)             (1,284)              (989)
                                --------            --------            -------

Net income                      $    971            $  2,079            $ 1,613
                                --------            --------            -------
                                --------            --------            -------

Net income per common share     $   0.27            $   0.58            $  0.74
                                --------            --------            -------
                                --------            --------            -------

Shares used in net income
 per share calculations            3,596               3,585              2,192
                                --------            --------            -------
                                --------            --------            -------


          SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       F-1
<PAGE>

                         WESTERN POWER & EQUIPMENT CORP.
                           CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)

                                                              July 31,
                                                    ----------------------------

                                                       1997               1996
                                                    ---------           --------
          ASSETS
Current assets:
     Cash and cash equivalents                       $ 1,875            $ 2,721
     Accounts receivable, less allowance for 
       doubtful accounts of $519 and $370              9,677              6,506
     Inventories                                      83,369             65,689
     Prepaid expenses                                     39                 43
     Income taxes receivable                             514                  -
     Deferred income taxes                               936                556
                                                    --------            -------
          Total current assets                        96,410             75,515

     Property, plant and equipment, net                8,149              7,031
     Intangibles and other assets net of
     accumulated amortization of $1,052 and
     $893                                              2,864              2,744
                                                    --------            -------

          Total assets                              $107,423            $85,290
                                                    --------            -------
                                                    --------            -------

     LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
     Borrowings under floor plan financing           $55,490            $54,364
     Short-term borrowings                             4,074                963
     Accounts payable                                 18,107              2,414
     Accrued payroll and vacation                        736                793
     Other accrued liabilities                         1,914              1,384
     Income taxes payable                                  -                 37
     Covenant Not to Compete                             100                  -
     Capital lease obligations                           106                 46
     Payable to parent                                     -                188
                                                    --------            -------
          Total current liabilities                   80,527             60,189

Covenant Not to Compete                                   46                  -
Deferred income taxes                                    364                383
Capital lease obligations                              2,453              1,656
Long-term borrowings                                   1,268              1,268
                                                    --------            -------
          Total liabilities                           85,658             63,496
                                                    --------            -------
                                                    --------            -------


Stockholders' equity:
     Preferred stock-10,000,000 shares
      authorized;
       none issued and outstanding                         -                  -
     Common stock-$.001 par value; 20,000,000
       shares authorized; 3,533,462 issued 
       and outstanding                                     4                  4
     Additional paid-in capital                       16,047             16,047
     Retained earnings                                 6,714              5,743
                                                    --------            -------
          Total stockholders' equity                  22,765             21,794
                                                    --------            -------

          Total liabilities and stockholders'
           equity                                   $107,423            $85,290
                                                    --------            -------
                                                    --------            -------


          SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       F-2
<PAGE>

                         WESTERN POWER & EQUIPMENT CORP.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                             COMMON STOCK 
                                    ----------------------------        ADDITIONAL                     TOTAL     
                                      NUMBER                             PAID-IN       RETAINED     STOCKHOLDERS'
                                    OF SHARES             AMOUNT         CAPITAL       EARNINGS        EQUITY    
                                    ---------             ------         -------       --------        ------    
<S>                                 <C>                   <C>           <C>            <C>           <C>
Balance at
  July 31, 1994                     2,000,000               2              7,998          2,051         10,051

Issuance of shares
  for bridge loan                      38,462               -                250              -            250

Issuance of shares
  net of issuance
  costs                             1,495,000               2              7,799              -          7,801

Net income                                  -               -                  -          1,613          1,613
                                    ---------            ----           --------        -------       --------
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
                                    ---------            ----           --------        -------       --------
                                    ---------            ----           --------        -------       --------

</TABLE>

          SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       F-3
<PAGE>

                         WESTERN POWER & EQUIPMENT CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                              
                                                                                         Year Ended July 31, 
                                                                         -------------------------------------------------
                                                                           1997                1996               1995
                                                                         -------            --------             -------
<S>                                                                      <C>                 <C>                  <C>
 Cash flows from operating activities:
     Net income                                                             $971              $2,079              $1,613
     Adjustments to reconcile net income to 
          net cash provided by (used in) operating activities:
               Depreciation                                                1,105                 820                 672
               Loss on disposal of fixed assets                              (18)                  -                   4
               Amortization                                                  159                  71                 396
               Changes in assets and liabilities 
               (excluding effects of acquisitions):
                  Accounts receivable                                     (3,171)               (199)             (2,420)
          Inventories                                                    (13,039)            (12,840)             (5,181)
               Inventory floor plan financing                              1,126              12,411               4,187
               Prepaid expenses                                                4                  (8)                  7
               Deferred income taxes                                        (399)                (55)                (67)
               Accounts payable                                           15,693                 264                 261
               Accrued payroll and vacation                                  (57)                142                 273
               Other accrued liabilities                                     530                 582                 223
               Income taxes payable                                         (551)                (85)                122
          Other assets                                                       193                (108)               (101)
                                                                         -------            --------             -------
          Net cash provided by (used in) operating activities              2,546               3,074                 (11)
                                                                         -------            --------             -------
Cash flow from investing activities:
     Purchase of fixed assets                                               (602)               (695)               (332)
     Proceeds on sale of fixed assets                                         53               2,075                   6
     Purchase of distribution outlets                                       (326)             (2,325)               (449)
                                                                         -------            --------             -------
     Net Cash used in investing activities                                  (875)               (945)               (775)
                                                                         -------            --------             -------

Cash flows from financing activities:
     Principal payments on capital lease                                    (174)                (62)                (52)
     Short-term borrowings                                                (2,155)             (5,732)             (1,623)
     Subordinated notes payable to related party                               -                   -              (1,375)
     Payable to/receivable from parent                                      (188)                (53)                674
     Proceeds from initial public offering                                     -                   -               7,801
     Receivable from underwriter                                               -               1,102              (1,102)
     Long-term borrowings                                                      -               1,268                   -
                                                                         -------            --------             -------
          Net cash provided by (used in) financing activities             (2,517)             (3,477)              4,323
                                                                         -------            --------             -------

Increase (decrease) in cash and cash equivalents                            (846)             (1,344)              3,537
Cash and cash equivalents at beginning of year                             2,721               4,065                 528
                                                                         -------            --------             -------
Cash and cash equivalents at end of year                                 $ 1,875              $2,721              $4,065
                                                                         -------            --------             -------
                                                                         -------            --------             -------
</TABLE>


                                       F-4
<PAGE>

          See accompanying notes to consolidated financial statements.

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. (the "Company") was
     formed and incorporated in the state of Oregon 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 "Predecessor
     Company").  The acquisition was completed effective November 1, 1992. 
     Simultaneously, American United Global, Inc. ("AUGI") acquired all of the
     outstanding shares of the Company.  In March 1995, in connection with a
     contemplated initial public offering, AUGI formed a new Delaware
     Corporation.  Upon formation, AUGI contributed to the Delaware Corporation
     all outstanding common stock of the Company.  The consolidated financial
     statements include the accounts of the Delaware Corporation 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.  This life is 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 writedown for impairment loss
     on intangible assets has been recorded during the three year period ended
     July 31, 1997.

     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 30 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>

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     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, 1997, 1996 and 1995 was $501, $263,
     and $274 respectively.

     INCOME TAXES
     Effective August 1, 1993, the Company adopted Statement of Financial
     Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes.  The
     adoption of SFAS No. 109 changed the Company's method of accounting for
     income taxes from the deferral method to an asset and liability approach
     which requires the recognition of 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.  The adoption of SFAS No. 109 did not have a
     material effect on the results of operations of the Company.

     The Company had an informal tax sharing agreement and filed a consolidated
     federal income tax return with AUGI for the year ended July 31, 1994 and
     the eleven month period ended June 30, 1995.   Income taxes as presented in
     the accompanying financial statements are provided on a separate company
     basis. 

     FINANCIAL INSTRUMENTS
     Effective August 1, 1995 the Company adopted Statement of Financial
     Accounting Standards (SFAS) No. 107, Disclosures about Fair Value of
     Financial Instruments.  The adoption of SFAS No. 107 had no material effect
     on the financial position or results of operations of the Company.  The
     recorded amounts of cash and cash equivalents, accounts receivable, short-
     term borrowings, accounts receivable 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
     Net income per common share is computed using the weighted average number
     of common and dilutive common equivalent shares outstanding during the
     period.  In accordance with the regulations of the Securities and Exchange
     Commission, common stock and common stock equivalents issued within twelve
     months of an initial public offering are considered outstanding for all
     periods presented prior to the offering using the treasury stock method and
     initial public offering price.

     SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
     In September 1994 the Company acquired the assets and operations of two
     stores in California and Nevada for approximately $557 in cash (including
     $108 of indirect expenses), $4,153 in installment notes payable and the
     assumption of $5,019 in inventory floor plan debt.

     A capital lease obligation of $926 was incurred in December 1995 when the
     Company consummated a sale leaseback transaction of the Auburn facility. 

     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.


                                       F-6
<PAGE>

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     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.

     In February 1996 the Company acquired the assets and operations of two
     stores in California for approximately $630 in cash, $1,590 in installment
     notes payable and the assumption of $3,965 in inventory floor plan debt. 
     In addition, a capital lease obligation of $740 was incurred related to the
     lease of the Sacramento facility.

     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,
     consisting of $3,844 for equipment inventory, $797 for parts inventories,
     $625 for fixed assets, and $24 for work-in-process. 

     The majority of the purchase price was financed through a loan agreement
     with Case Credit Corporation ("Case Credit").  Under the loan agreement,
     the Company obtained two term loans from Case Credit in the amounts of
     $3,844 for equipment inventory (the "Equipment Note") and $1,422 for parts
     inventories and fixed assets (the "Parts Note"), respectively.  Both term
     loans bear interest at 9.25% which is payable monthly in arrears.  The
     Equipment Note is payable in a single balloon payment on January 17, 1998,
     provided, however, that in the event the Company sells any of the items of
     inventory securing the note prior to January 17, 1998, the principal
     portion of the note represented by such sold equipment becomes due and
     payable at that time.  The Parts Note is payable in twelve equal monthly
     installments of principal and interest beginning February 21, 1997.  Both
     notes are cross-collateralized and secured by all the assets acquired in
     the Sahlberg acquisition as well as certain accounts receivable of the
     Company. Simultaneous with the closing of the Sahlberg acquisition, the
     Company entered into sublease agreements for each of the four facilities
     (all subleases are net leases with payment of insurance, property taxes,
     and maintenance costs by the Company).  Professional fees associated with
     the Sahlberg acquisition totalled approximately $89.

                                            Year ended July 31,
                                          1997     1996      1995
                                        -------   ------    ------
     Cash paid during the year for:
          Interest                      $3,686    $1,838    $1,091
          Income taxes                   1,621     1,284       989

     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.


                                       F-7
<PAGE>

2.   ACQUISITIONS

     Effective November 1, 1992, the Company acquired the assets of the
     Predecessor Company for $1,940 in cash, approximately $10,749 in
     installment notes payable to Case and the assumption of $19,980 in
     inventory floor plan debt with Case and its affiliates.  The acquisition
     was accounted for as a purchase and resulted in the recording of
     approximately $1,830 in goodwill which is included in other long-term
     assets on the Company's books and is being amortized on the straight-line
     basis over 40 years.

     In connection with the capitalization of the Company, AUGI issued 160,000
     shares of its common stock in consideration for subordinated loans
     aggregating $1,900 as well as in consideration for the personal guaranty of
     certain acquisition related indebtedness by AUGI's principal shareholder. 
     The value of the shares, $400, was recorded on the Company's books as
     deferred financing costs in other long-term assets with a corresponding
     amount in payable to parent.  These costs have been amortized on the
     straight-line basis over the term of the related loan.  In June 1995,
     subsequent to the successful completion of the Company's initial public
     offering, the remaining balance of the subordinated loans was paid off and
     the remaining unamortized balance of deferred financing costs was expensed.

     Effective September 10, 1994, the Company acquired the assets and
     operations of two additional factory-owned stores of Case in the states of
     California and Nevada.  The acquisition was consummated for approximately
     $557 in cash (including $108 of indirect expenses), $4,153 in installment
     notes payable to Case and the assumption of $5,019 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 $300 in goodwill which is included in
     other long-term assets on the Company's books and is being amortized on the
     straight-line basis over 20 years.

     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
     other long-term 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 two-year period ended July 31, 1996 as if the 
     acquisition of such stores had occurred as of the beginning of the period 
     are summarized as follows:


                                       F-8
<PAGE>

                                           1996           1995  
                                        ----------     ----------

               Net sales                $ 115,097      $ 100,226
               Net income               $   2,062      $   1,400
               Net income per
                common share            $    0.58      $    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 other long-term 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 has not been provided
     because its effect is immaterial.  The accounts of the GCS stores have been
     included in the Company's accounts from the effective date of acquisition. 

     Effective January 17, 1997, the Company acquired the operating assets of
     Sahlberg Equipment, Inc.("Sahlberg"), as described in Footnote 1 above.  
     The acquisition was accounted for under the purchase method. Unaudited pro
     forma combined results of operations for the year ended July 31, 1997 as if
     the acquisition of the Sahlberg stores had occurred as of the beginning of
     the period are summarized as follows:

                                                1997  
                                             ---------

               Net sales                     $158,391
               Net income                    $    (37)
               Net income per common share   $  (0.01)

     Fiscal year 1996 figures for Sahlberg Equipment, Inc. were not made 
     available to the Company.

3.   RELATED PARTY TRANSACTIONS

     Since the acquisition of the Predecessor Company, the Company has depended
     on AUGI for substantial support as well as for various services such as
     legal, financial and human resources.  American United Global allocated the
     cost for these services pro rata among its businesses based on operating
     revenues. The allocated cost for these services is included in selling,
     general and administrative expense and totaled $50 and $724 for the
     years ended July 31, 1996 and 1995, respectively.  Management believes
     that the method used to allocate these expenses reasonably reflects the
     actual costs of services provided and that such expenses on a stand alone
     basis would not produce materially different results.  As of January 1,
     1996, AUGI no longer provided the above mentioned services and therefore
     the allocation of these expenses ceased.

     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


                                      F-9
<PAGE>

     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 lease agreement 
     dated June 1, 1997 with the Company paying the 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.

4.   INVENTORIES

     Inventories consist of the following:

                                                    July 31,            July 31,
                                                      1997                1996
                                                    --------           --------
          Equipment:
             New equipment                          $ 66,977           $ 53,279
             Used equipment                            8,234              6,090
          Parts                                        8,159              6,320
                                                    --------           --------
                                                    $ 83,369           $ 65,689
                                                    --------           --------
                                                    --------           --------

     At July 31, 1997 and 1996 approximately $18,452 and $12,079, respectively,
     of equipment was being held for rent and, in accordance with standard
     industry practice, is included in new equipment inventory.  Such equipment
     is generally being charged to cost of goods sold at an amount equal to 80
     percent of the rental payments received.

5.   PROPERTY, PLANT, AND EQUIPMENT

     Property, plant, and equipment consist of the following: 

                                                     JULY 31,           JULY 31,
                                                      1997               1996  
                                                    --------           --------

          Land                                      $    840           $    840
          Buildings                                    3,681              3,001
          Machinery and equipment                      2,508              2,092
          Office furniture and fixtures                2,143              1,742
          Computer hardware and software                 927                496
          Vehicles                                     1,095                892
          Leasehold improvements                         114                 41
                                                    --------           --------
                                                      11,308              9,104
          Less: accumulated depreciation              (3,158)            (2,073)
                                                    $  8,149           $  7,031
                                                    --------           --------
                                                    --------           --------

6.   BORROWINGS

     In connection with the acquisition of the Fremont and Sparks stores in
     fiscal 1995, the Sacramento store in fiscal 1996, and the Sahlberg stores
     in fiscal 1997, the Company entered into various term notes with Case for
     the purchase of used equipment, parts, shop tools, furniture and fixtures,
     and accounts receivable.  The terms of these notes range from six to
     twenty-four months, provide for interest charges at various rates up to
     prime plus 2% and are collateralized by the related equipment, parts, and
     fixed assets.  At July 31, 1997 and 1996 a total of $4,082 and $963,
     respectively, remained outstanding on these notes.


                                      F-10
<PAGE>

     On October 10, 1995, using proceeds from the Company's initial public
     offering, the Company retired the $2,175 real estate note to Case for the
     purchase of the Sparks, Nevada real estate in September 1994.  In March
     1996, the Company consummated an agreement with an institutional lender for
     a conventional mortgage on the property in the amount of $1,330, secured by
     the Sparks, Nevada real estate.  The agreement calls for principal and
     interest payments over a seven year term using a fifteen year amortization
     period.  The note cannot be prepaid during the first two years of its term.
     
     In connection with the acquisition of the original seven stores, the
     Company entered into a purchase agreement for the Auburn, Washington
     facility subject to the completion by Case of certain environmental
     remediation.  In December 1995, after completion of the remediation, the
     Company entered into a sale-leaseback transaction with an unrelated party
     regarding the Auburn facility which resulted in no gain or loss to the
     Company.  The term of the lease is 20 years at an initial annual rate of
     $204.  In addition to base rent, the Company is responsible for the payment
     of all related taxes and other assessments, utilities, insurance, and
     repairs with respect to the leased property during the lease term.  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.

     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 four-month to twelve-month interest
     free term followed by a term during which interest is charged.  Principal
     payments are generally due at the earlier of sale of the equipment or
     twelve to forty-eight months from the invoice date.  The Company also has
     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 is
     subject to annual review and expires 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                1997                 1996
                                                     ----                     ----                ----                 ----

<S>                                               <C>                        <C>                 <C>                 <C>
Case Credit Corporation                           Prime + 2%                 8 - 48              $32,177             $38,501
                                                     (10.50%) months
Seafirst Bank                                     Prime                     12 - 24               20,857              14,352
                                                     ( 8.50%) months
Deutsche Financial Services                       Prime                     18 - 36                    -                   -
                                                     ( 8.50%) months
Other finance companies                           variable                  12 - 48                2,456               1,511
                                                     (8.50%-10.50%) months                        -------             -------
                                                                                                 $55,490             $54,364
                                                                                                  -------             -------
                                                                                                  -------             -------

</TABLE>

                                      F-11
<PAGE>

7.   INCOME TAXES

     The provision for income taxes is comprised of the following:              


                                                    YEAR ENDED
                                 ----------------------------------------------

                                  JULY 31,           JULY 31,           JULY 31,
                                    1997               1996              1995
                                 ---------          ---------         ----------
     Current:
     Federal                     $   974            $  1,242          $   1,000
     State                           119                  96                 56
                                 -------            --------          ---------
                                   1,093               1,338              1,056
                                 -------            --------          ---------

     Deferred:
        Federal                     (357)                (49)               (64)
        State                        (43)                 (5)                (3)
                                 -------            --------          ---------
                                    (400)                (54)               (67)
                                 -------            --------          ---------
     Total provision for
      income taxes               $   693            $  1,284           $    989
                                 -------            --------          ---------
                                 -------            --------          ---------

     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:

                                                       YEAR ENDED
                                      ------------------------------------------

                                       JULY 31,         JULY 31,        JULY 31,
                                         1997            1996             1995
                                      ---------        ---------       ---------

     Statutory federal income
      tax rate                          34.0%            34.0%            34.0%
     State income taxes, net of
      federal income tax benefit         4.5%             2.7%             2.1%
     Purchase accounting
      adjustments                           -                -             0.2%

     Other                               3.1%             1.5%             1.8%
                                    ---------        ---------        ---------
                                        41.6%            38.2%            38.1%
                                    ---------        ---------        ---------
                                    ---------        ---------        ---------


                                      F-12
<PAGE>

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

                                                       JULY 31,      JULY 31,
                                                         1997           1996
                                                      --------       --------
     Deferred assets:
        Inventory reserve                                  439            223
        Bad debt reserve                                   157            189
        Accrued vacation and bonuses                        79             91
        Other accruals                                     261             53
                                                      --------       --------
        Current Deferred Tax Asset                         936            556
                                                      --------       --------

     Deferred liabilities:
        Depreciation and amortization                 $   (295)      $   (348)
        Goodwill and intangibles                           (69)           (35)
                                                      --------       --------
        Long-term Deferred Tax Liability                  (364)          (383)
                                                      --------       --------
        Net Deferred Tax Asset                        $    572       $    173
                                                      --------       --------
                                                      --------       --------

8.   STOCKHOLDERS' EQUITY

     INITIAL PUBLIC OFFERING
     On June 14, 1995, the Company completed an initial public offering of
     1,300,000 shares of common stock at $6.50 per share.  In addition, on July
     28, 1995, the underwriter exercised its overallotment option for an
     additional 195,000 shares.  The net proceeds of the offering were $7,801
     including $1,102 from the exercise of the overallotment option which was
     received in cash subsequent to July 31, 1995.

     BRIDGE LOAN
     In February, 1995 the Company issued promissory notes to certain investors
     in exchange for $250  (the "Bridge Notes").  These notes bore interest at
     10 percent per annum and were due and payable on the earlier of the closing
     of a public offering or July 31, 1995.  In connection with the issuance of
     the Bridge Notes, the Company issued 38,462 shares of common stock
     resulting in deferred debt issuance costs of $290, which included $40 of
     related costs.  These bridge notes were paid off subsequent to the
     successful completion of the Company's initial public offering in June
     1995.  The deferred debt issuance costs were amortized over the term of the
     notes.

     STOCK OPTION PLANS
     In March 1995, AUGI, as the sole stockholder of the Company, approved the
     Company's 1995 Stock Option Plan, as previously adopted by the Board of
     Directors (the "Plan"), under which 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 300,000 shares of
     the Company's


                                      F-13
<PAGE>

     common stock.  In December 1995, the stockholders amended the 1995 stock
     option plan to increase the number of shares underlying the plan from
     300,000 to 850,000 shares.  In December 1996, the stockholders amended 
     the 1985 stock option plan to increase the number of shares underlying the
     plan to 1,500,000 shares.  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.  Upon
     approval of the Plan, the Company's Board of Directors awarded non-
     qualified stock options for an aggregate of 200,000 shares, all of which
     provide for an exercise price of $6.50 per share.  On  December 28, 1995,
     the exercise price of the options previously granted was lowered to $4.50
     per share, the market price as of that date.  All outstanding options 
     expire ten years after the date of issue.

     In December 1995, the Board of Directors adopted a 5-year "Formula" 
     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 for 2,500 shares of the Company's 
     Common Stock.

     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 and encourage all entities to adopt that method of accounting
     for all compensation cost related to stock options issues to all employees
     under these plans using the 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
     1996 and 1997 using the Black-Scholes option pricing model.  The weighted
     average assumptions used for stock option grants for fiscal years 1996 and
     1997 were:

                                                         FY97            FY96
                                                      --------        --------
            Risk free interest rate                     6.562%         6.151%
            Expected dividend yield                         0%             0%
            Expected lives                             5 years        5 years
            Expected volatility                         56.59%         56.59%

     Options are assumed to 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, 1997 and July 31, 1996, the total value of the
     options granted, for which no previous expense has been recognized, was
     computed as approximately $1,532 and $496, 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 1997 and 1996 are $2.46 and $2.48, respectively.

     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:

                           Year Ended July 31, 1997    Year Ended July 31, 1996
                           ------------------------    ------------------------
                            Net Income     E.P.S.      Net Income       E.P.S.
                            ----------     ------      ----------       ------

            As Reported       $  971       $  0.27       $  2,079       $0.58
            Pro Forma         $  600       $  0.17       $  2,079       $0.58


                                      F-14
<PAGE>

The effects of applying SFAS 123 for providing pro forma disclosure for fiscal
years 1997 and 1996 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:        

                                                       Shares   Weighted Average
                                                        (000)     Option Price
                                                       ------   ----------------
Options outstanding July 31, 1995:                       200         $ 6.50
     Exercised                                             -              -
     Surrendered                                        (200)          6.50
     Granted                                             200            450

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

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, 1997:

<TABLE>
<CAPTION> 
                                                                                                     
                                                                Weighted Average                  
 Exercise        No. Of Options        Weighted Average         Contractual Life          No. Of Options     Weighted Average
 Price           Outstanding           Exercise Price           Remaining                 Exercisable        Exercise Price 
<S>              <C>                   <C>                      <C>                       <C>                <C>
 $4.375            320,000                $4.375                    9.00                        5,000              $4.375 
  4.656              5,000                 4.656                    9.00                        5,000               4.656 
  4.500            450,000                 4.500                    8.00                      200,000               4.500 
  5.125             50,000                 5.125                    9.50                       50,000               5.125 
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
                   825,000                 4.490                                              260,000               4.621

</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
     Notes 3 and 6, the building portion of three 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
     $1,474, $924, and $733 for the years ended July 31, 1997, 1996, and 1995,
     respectively.  The computer equipment lease expires August 1999 and meets 
     certain specific criteria to be accounted for as a capital lease.


                                      F-15
<PAGE>
     Assets recorded under capital leases are as follows:

                                       JULY 31,       JULY 31,       JULY 31,
                                        1997            1996           1995
                                     ---------      ----------      ---------
     Capitalized asset value            2,830       $    1,836      $    170
     Less accumulated amortization       (271)            (134)          (54)
                                     --------       ----------      --------

                                     $  2,559       $    1,702      $    116
                                     --------       ----------      --------
                                     --------       ----------      --------

Future minimum lease payments under all non-cancelable leases as of July 31,
1997, are as follows:

                                                 CAPITAL           OPERATING
   YEAR ENDING JULY 31,                          LEASES             LEASES
   -------------------                           ------             ------

      1998                                     $    362           $   1,301
      1999                                          362                 917
      2000                                          257                 826
      2001                                          280                 440
      2002                                          307                 356
      Thereafter                                  5,896               4,507
                                               --------           ---------
  Total annual lease payments                  $  7,264           $   8,147
                                                                  ---------
                                                                  ---------

  Less amount representing interest
    with imputed rates ranging from 6% to 15%     4,705
                                               --------
  Present value of minimum lease payments         2,559
  Less current portion                              106
                                               --------

  Long-term portion                            $  2,453
                                               --------
                                               --------

The Company issues purchase orders to Case Corporation for equipment purchases. 
Upon acceptance by Case, these purchases become non-cancellable by the Company. 
As of July 31, 1997, such purchase commitments totaled $13,410.  In addition,
the Company had pending purchase orders not yet accepted by Case Corporation
totalling $14,103.

Subsequent to July 31, 1997, the Company entered into sales contracts containing
repurchase obligations totalling approximately $195 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 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
    Net income per share                                     0.14           0.09           0.07          (0.03)           .27
</TABLE>

(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 write-down 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.

                                      F-16
<PAGE>

<TABLE>
<CAPTION>

                                                                                             Quarter
                                                          -------------------------------------------------------------------
                                                           Total
                                                           First          Second         Third         Fourth           Year
                                                           -----          ------         -----         ------           ----
<S>                                                       <C>            <C>            <C>            <C>           <C>
Fiscal 1996:

    Net sales                                             $23,153        $25,772        $26,136        $31,494       $106,555
    Gross Profit                                            2,704          2,728          3,282          3,935         12,649
    Net income                                                523            318            525            713          2,079
    Net income per share                                        .15            .09            .15            .20            .58

</TABLE>


                                      F-17
<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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended July 31, 1997, 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.



PRICE WATERHOUSE LLP
Portland, Oregon
September 16, 1997


                                      F-18
<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 16, 1997 appearing on page F-18 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 
present fairly, in all material respects, the information set forth therein 
when read in conjunction with the related consolidated financial statements.

PRICE WATERHOUSE LLP
Portland, Oregon
September 16, 1997


                                      F-19
<PAGE>

                                                                     SCHEDULE II

                             WESTERN POWER & EQUIPMENT CORP.

                           VALUATION AND QUALIFYING ACCOUNTS
               For the Fiscal Years Ended July 31, 1997, 1996, and 1995

                               (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>

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

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

 Fiscal year ended July 31, 1996               370            353            ---          (204)             519 
 
 Fiscal year ended July 31, 1995               233            215            ---           (78)             370 

 Fiscal year ended July 31, 1994                74            165            ---            (6)             233 

INVENTORY RESERVE: 

 Fiscal year ended July 31, 1997             1,212            598            ---           (213)          1,597

 Fiscal year ended July 31, 1996               449            768            ---            (5)           1,212

 Fiscal year ended July 31, 1995               439             50            ---           (40)             449 

 Fiscal year ended July 31, 1994               500            ---            ---           (61)             439 

</TABLE>


                                      F-20

<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.


SIGNATURE                          TITLE                         DATE
---------                          -----                         ----

/S/ ROBERT M. RUBIN           CHAIRMAN AND                  OCTOBER 29, 1997
-------------------           DIRECTOR
 ROBERT M. RUBIN              


/S/ C. DEAN MCLAIN            PRESIDENT, CHIEF              OCTOBER 29, 1997
-------------------           EXECUTIVE OFFICER
 C. DEAN MCLAIN               AND DIRECTOR


/S/ MARK J. WRIGHT            VICE PRESIDENT OF FINANCE,    OCTOBER 29, 1997
-------------------           CHIEF FINANCIAL AND 
 MARK J. WRIGHT               PRINCIPAL ACCOUNTING 
                              OFFICER, TREASURER AND 
                              SECRETARY  


/S/JAMES H. PENLAND           DIRECTOR                      OCTOBER 29, 1997
-------------------
 JAMES H. PENLAND   


/S/HAROLD CHAPMAN, JR.        DIRECTOR                      OCTOBER 29, 1997
-------------------
 HAROLD CHAPMAN, JR.