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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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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, 2000

Commission File Number 0-26230

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

|DELAWARE                                                       |  | 91-1688446                             
|-------------------------------------------------------------- |  | ---------------------------------------
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification Number)
|4601 NE 77TH AVE, SUITE 200,
VANCOUVER, WA                     |  | 98662                                  
|(Address of principal executive offices)                       |  | (Zip Code)                             

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

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

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

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

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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. YES /x/  NO / /

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

As
of October 16, 2000: (a) 3,353,162 shares of Common Stock, $.001 par value, of the registrant (the "Common Stock") were outstanding; (b) 1,353,162 shares of
Common Stock were held by non-affiliates; and (c) the aggregate market value of the Common Stock held by non-affiliates was $2,960,042 based on the closing sale price of
$2.1875 per share on October 12, 2000.

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

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## 

PART I

ITEM 1.BUSINESS

General

Western Power & Equipment Corp., a Delaware corporation (the "Company"), is engaged in the sale, rental, and servicing of light, medium-sized, and heavy
construction, agricultural, and industrial equipment, parts, and related products which are manufactured by Case Corporation ("Case") and certain other manufacturers. The Company believes, based upon
the number of locations owned and operated, that it is one of the largest independent dealers 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 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 has focused on acquiring additional existing distributorships and rental operations, opening new locations as market conditions warrant, and increasing sales at
its existing locations. In such connection, 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. For the past two years, the Company has concentrated on consolidating its stores to improve operating efficiency and profitability. See "Business
Strategy."

History and Acquisitions

The Company commenced business in November 1992 with the acquisition from Case of seven retail distribution facilities located in Oregon and Washington.
The Company became a subsidiary of American United Global, Inc. ("AUGI"), simultaneous with such acquisition. AUGI holds 59.6 percent of the outstanding shares of the Company as of
July 31, 2000.

In
September 1994 and February 1996, in two different transactions, the Company acquired from Case four retail construction equipment stores located in California and
Nevada. In addition, in June 1996 and January 1997, the Company made two additional acquisitions of distributorships of predominantly non-competing lines of equipment, with
locations in California, Oregon, Washington, and Alaska. From fiscal 1993 through fiscal 1997, the Company also opened nine new stores in the states served by the acquired stores, ending fiscal year
1997 with 23 stores.

In
fiscal 1998, the Company acquired four additional facilities through acquisition, located in California and Alaska. The pre-existing Alaska facility was discontinued as
it was combined with the acquired Alaska facility. In addition, in fiscal 1998 the Company opened one new store in Washington. On December 11, 1997, the Company acquired substantially all of
the operating assets used by Case in connection with its business of servicing and distributing Case agricultural equipment at a facility located in Yuba City, California.

On
April 30, 1998, the Company acquired substantially all of the operating assets of Yukon Equipment, Inc. (Yukon) in connection with Yukon's business of servicing and
distributing construction, industrial, and agricultural equipment in Alaska. Yukon has facilities in Anchorage, Fairbanks, and Juneau, Alaska.

In
fiscal 1999, the Company closed three of its smaller facilities and began servicing the territories served by these small stores by larger facilities in the region.

I-1

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The Company consolidated four facilities in the first quarter of fiscal 2000 into larger stores in each region. One branch office in Washington was sold during the third quarter while
two temporary locations were established in Southern California. The closures are intended to increase efficiencies and reduce costs. The two branches in California were established in an effort to
assist Case Corporation in a dealership transition for Southern California.

The
Company consolidated one branch in Washington during the first quarter of fiscal 2001. There were 21 branches as of the end of fiscal year 2000.

Business Strategy

The Company's business strategy has focused on acquiring additional existing distributorships and rental operations, opening new locations, and increasing
sales at its existing locations. The Company reduced its acquisition activity in fiscal 1999 and 2000 due to market conditions.

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

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

The
third prong of the Company's business strategy is to expand sales at its existing locations in three ways. First, the Company will continue to broaden its product line by adding
equipment and parts produced by manufacturers other than Case. The Company has already added products to its inventories produced by such quality manufacturers as Dynapac, Champion,
Link-Belt, Takeuchi, Tymco, Vactor, Kawasaki, Kubota, Daewoo, and Stewart & Stevenson. Second, the Company will seek to increase sales of parts and serviceboth of which
have considerably higher margins than equipment sales. This increase 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 the Company's revenues.

Products

Case Construction Equipment.

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

Under
the terms of standard Case dealer agreements, the Company is an authorized Case dealer for sales of Equipment and related parts and services at locations in Oregon, Washington,
Nevada, northern California, and Alaska (the "Territory"). The dealer agreements have no defined term or

I-2

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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 six months, depending upon the type of equipment floored, after which interest commences to accrue monthly at an annual rate
equal to 2% over the prime rate of interest. The invoice price of each item of Equipment is payable at the earlier of the time of its sale by the Company or six months after the date of shipment to
the Company by Case.

Other Products.

Although the principal products sold, rented, and serviced by the Company are manufactured by Case, the Company also sells, rents, and services equipment and
sells related parts (e.g., tires, trailers, and compaction equipment) manufactured by others. Approximately 42% of the Company's net sales for fiscal year 2000 and fiscal 1999 resulted from sales,
rental, and servicing of products manufactured by companies other than Case. Manufacturers other than Case represented by the Company offer various levels of supplies and marketing support along with
purchase terms which vary from cash upon delivery to interest-free, 12-month flooring.

The
Company's distribution business is divided into three general categories of activity: (i) Equipment sales, (ii) Equipment rentals, and (iii) Product Support.

Equipment Sales.

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

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

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

Equipment Rental.

The Company maintains a separate fleet of Equipment that it holds solely for rental. Such Equipment is generally held in the rental fleet for 12 to
36 months and then sold as used Equipment with appropriate discounts reflecting prior rental usage. As rental Equipment is taken out of the rental fleet, the Company adds new Equipment to its
rental fleet as needed. The rental charges vary, with different rates for different types of Equipment rented. In October 1998, the Company opened its first

I-3

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rental-only store, located in the Seattle, Washington area, under the name Western Power Rents. This store was consolidated with the Company's Auburn, Washington store in
August 2000. Rentals have increased to 17% of revenue in fiscal year 2000 from 8% of revenue in fiscal year 1998. See Sales and Marketing below.

Product Support.

The Company operates a service center and yard at each retail distribution outlet for the repair and storage of Equipment. Both warranty and
non-warranty service work is performed, with the cost of warranty work being reimbursed by the manufacturer following the receipt of invoices from the Company. The Company employs
approximately 115 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.

The
Company purchases 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 19,000
customers, with most being small business owners, none of which accounted for more than 3% of its total sales in the fiscal year ended July 31, 2000.

For
fiscal years 2000, 1999, and 1998, the revenue breakdown by source for the business operated by the Company were approximately as follows:

FY 2000

FY 1999

FY 1998Equipment Sales

59
%
60
%
69
%Equipment Rental

17
%
16
%
8
%Product Support

24
%
24
%
23
%100
%
100
%
100
%


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

The
Company's sales and marketing activities do not result in any significant backlog of orders. Although the Company accepts orders from customers for future delivery following
manufacture by Case or other manufacturers, during fiscal 2000 a majority of its sales revenues resulted from products sold directly out of inventory, or the providing of services upon customer
request.

The
Company employed approximately 60 Equipment salespersons on July 31, 2000. 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

I-4

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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.

On
July 31, 2000, the Company employed 6 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 10% of such inventory purchases
during fiscal 2000. While maintaining its commitment to Case to primarily purchase Case Equipment and parts as an authorized Case dealer, the Company plans to expand the number of products and
increase the aggregate dollar value of those products which the Company purchases from manufacturers other than Case in the future.

Competition

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

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

The
Company is currently the only Case dealer for construction equipment in Alaska, northern Nevada, and in the northern California area (other than Case-owned
distribution outlets), and is one of two Case dealers in Oregon and Washington. 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 rental and servicing operations. The Company's internal staff is trained to keep appropriate records

I-5

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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, 2000, the Company employed 377 full-time employees. Of that number, 22 are in corporate administration, 25 are involved in
administration at the branch locations, 108 are employed in Equipment sales and rental, and 222 are employed in product support. At July 31, 2000, approximately 19 of the Company's service
technicians and parts employees at the Sacramento, California operation were being represented by Operating Engineers Local Union No. 3 of the International Union of Operating Engineers,
AFL-CIO under the terms of a five-year contract expiring August 31, 2001. As of May 1999, approximately 19 service technicians employed at the Auburn, Washington
operation had voted to be represented in collective bargaining by Operating Engineers Local Union Nos. 302 and 612 of the International Union of Operating Engineers, AFL-CIO. The Company
and the local union representatives are currently in contract negotiations as to a contract for these employees. As of January 2000, approximately 5 service technicians and 2 parts employees
employed at the Springfield, Oregon operation had voted to be represented in collective bargaining by Operating Engineers Local Union No. 701 of the Operating Engineers. The Company and the
local union representatives are currently in contract negotiations as to a contract with these employees. The Company believes that its relations with its employees are generally satisfactory.

Insurance

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

Forward-Looking Statements

Information included above relating to projected growth and future results and events constitutes forward-looking statements. Actual results in future periods
may differ materially from the forward-looking statements due to a number of risks and uncertainties, including but not limited to fluctuations in the construction, agricultural, and industrial
sectors; the success of the Company's entry into new markets; the success of the Company's expansion of its equipment rental business; rental industry conditions and competitors; competitive pricing;
the Company's relationship with its suppliers; relations with the Company's employees; the Company's ability to manage its operating costs; the continued availability of financing; governmental
regulations and environmental matters; risks associated with regional, national, and world economies; and consummation of the merger transaction (see below). Any forward-looking statements should be
considered in light of these factors.

Letter of Intent to Merge

On April 18, 2000, the Company announced that it had entered into a letter of intent to merge with e-Mobile, Inc., a Delaware
corporation, and sell the Company's existing business to the Company's management. If the transaction is consummated, shares of the Company's common stock would be converted into shares of the
surviving corporation in the merger, subject to any applicable dissenters' rights. Closing of the transaction is conditioned on the approval of the transaction by shareholders of the Company and
certain other regulatory approvals. Completion of the transaction is also subject to the satisfaction of a number of contractual conditions, including but not limited to the Company repurchasing or
retiring outstanding options. The Company is continuing to negotiate the terms of a definitive agreement and preparing to satisfy the expected conditions of the merger agreement. There is no assurance
that the transaction will be consummated.

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## 

ITEM 2.PROPERTIES

The following table sets forth information as to each of the properties which the Company owns or leases (all of which are retail sales, rental, service,
storage, and repair facilities except as otherwise noted) at July 31, 2000. The Store located in Kent, Washington was closed in the first quarter of fiscal 2001.

|Location and Use                                                                |  | Lessor                             |  | Expiration
Date |  | Annual Rental                          |  | Size/Square Feet                           |  | Purchase
Options
|------------------------------------------------------------------------------- |  | ---------------------------------- |  | --------------- |  | -------------------------------------- |  | ------------------------------------------ |  | ----------------
|1745 N.E. Columbia Blvd.
Portland, Oregon 97211                                 |  | Carlton O. Fisher, CNJ Enterprises |  | 12/31/2010      |  | $84,000(1) plus CPI adjustments        |  | Approx. 4 acres;
building 17,622 sq. ft.   |  | No              
|1665 Silverton Road, N.E.
Salem, Oregon 97303                                   |  | LaNoel Elston Myers Living Trust   |  | 7/10/2001       |  | $33,600(1)                             |  | Approx. 1 acre;
buildings 14,860 sq. ft.   |  | No              
|1702 North 28th Street
Springfield, Oregon 97477                                |  | McKay Investment Company           |  | 6/14/2001       |  | $69,000(1)                             |  | Approx. 5 acres;
building 17,024 sq. ft.   |  | No              
|West 7916 Sunset Hwy.
Spokane, Washington 99204                                 |  | U.S. Bank                          |  | 9/30/2003       |  | $69,600(1)                             |  | Approx. 5 acres;
building 19,200 sq. ft.   |  | No              
|12406 Mukilteo Speedway
Mukilteo, Washington 98275                              |  | Phil & Jana Pickering              |  | 10/31/2008      |  | $114,000(1)                            |  | Approx. 2.1 acres;
building 13,600 sq. ft. |  | No              
|620 N. Oregon Ave
Pasco, Washington 99301                                       |  | Dress Bros. Partnership            |  | 11/15/2000      |  | $66,000(1)                             |  | Approx. 3 acres;
building 10,000 sq. ft.   |  | No              
|4601 N.E. 77th Avenue
Suite 200
Vancouver, Washington 98662
(Executive Offices) |  | Parkway Limited Partnership        |  | 1/31/2001       |  | $157,200                               |  | Building 8,627 sq. ft.                     |  | No              
|2702 W. Valley Hwy No.
Auburn, Washington 98001                                 |  | Avalon Island LLC                  |  | 11/30/2015      |  | $204,000(1)                            |  | Approx. 8 acres;
building 33,000 sq. ft.   |  | No              
|500 Prospect Lane
Moxee, Washington 98936
(Subleased to 3rd Party)              |  | Owned                              |  | N/A             |  | N/A                                    |  | Approx. 1.5 acres;
building 4,320 sq. ft.  |  | N/A             
|1455 Glendale Ave.
Sparks, Nevada 89431                                         |  | McLain-Rubin Realty Company, LLC   |  | 1/31/2007       |  | $276,000(2)                            |  | Approx. 5 acres;
building 22,475 sq. ft.   |  | No              
|25886 Clawiter Road
Hayward, California 94545                                   |  | Fred Kewel II, Agency              |  | 11/30/99        |  | $110,088(1)                            |  | Approx. 2.8 acres;
building 21,580 sq. ft. |  | No              
|3540 D Regional Parkway
Santa Rosa, California 95403                            |  | Soiland                            |  | Month-to-Month  |  | $43,284(1) plus annual CPI adjustments |  | Approx. 1.25 acres;
building 5,140 sq. ft. |  | No              
|1751 Bell Avenue
Sacramento, California 95838                                   |  | McLain-Rubin Realty Company, LLC   |  | 9/30/2007       |  | $228,000(2)                            |  | Approx. 8 acres;
building 35,940 sq. ft.   |  | No              
|1041 S. Pershing Avenue
Stockton, California 95206                              |  | Raymond Investment Corp.           |  | 3/14/2001       |  | $44,400(1) plus annual CPI adjustments |  | Approx. 2 acres;
building 8,000 sq. ft.    |  | No              
|8271 Commonwealth Avenue
Buena Park, California 90621                           |  | M.E. Robinson                      |  | 3/31/2001       |  | $89,964(1)                             |  | Approx. 1 acre;
building 11,590 sq. ft.    |  | Yes             

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|2535 Ellis Street
Redding, Oregon 96001                      |  | Hart Enterprises          |  | 2/15/2002  |  | $33,600                          |  | Approx. 2 acres;
building 6,200 sq. ft.    |  | Yes
|------------------------------------------------------------ |  | ------------------------- |  | ---------- |  | -------------------------------- |  | ------------------------------------------ |  | ---
|913 S. Central
Kent, Washington 98032
(Rental only facility) |  | McLain-Rubin Realty II    |  | 5/31/2017  |  | $205,200(2) plus CPI adjustments |  | Approx. 4.4 acres;
building 21,400 sq. ft. |  | No 
|723 15th Street
Clarkston, Washington 99403                  |  | Mark Flerchinger          |  | 11/02/2002 |  | $18,600                          |  | Approx. 1.2 acres;
building 3,750 sq. ft.  |  | Yes
|3199 E. Onstott Road
Yuba City, California 95991             |  | McLain-Rubin Realty III   |  | 9/30/2007  |  | $66,000(2)                       |  | Approx. 13 acres;
building 23,900 sq. ft.  |  | No 
|2020 E. Third Avenue
Anchorage, Alaska 99501                 |  | Owned                     |  | N/A        |  | N/A                              |  | Approx. 4 acres;
building 15,650 sq. ft.   |  | N/A
|10062 Live Oaks Ave
Fontana, California 92335                |  | Fruehauf Trailer Services |  | 04/30/01   |  | $120,000                         |  | Approx. 1.8 acres;
building 16,000 sq. ft. |  | No 
|1445 Simpson Way
Escondido, California 92029                 |  | SMA Equipment Company     |  | 11/30/02   |  | $99,395                          |  | Approx. 1 acre;
building 9,700 sq. ft.     |  | No 
|3511 International Street
Fairbanks, Alaska 99701            |  | Airport Rentals           |  | 11/30/2009 |  | $74,400                          |  | Approx. 1.5 acres;
building 8,500 sq. ft.  |  | No 

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The Company's operating facilities at July 31, 2000 were separated into ten "hub" outlets, ten "sub-stores" and one rental
only store in Kent, Washington. In addition the Company maintains its headquarters operations in Vancouver, Washington. The hub stores are the main distribution centers located in Auburn, and Spokane,
Washington; Portland and Springfield, Oregon; Sparks, Nevada; Hayward, Buena Park and Sacramento, California; and Anchorage, Alaska; and the sub-stores are the smaller facilities located
in Mukilteo, Pasco and Clarkston Washington; Salem, Oregon; Santa Rosa, Stockton, Fontana, Escondido, Redding, and Yuba City, California; and Fairbanks, Alaska.

The
rental store in Kent was closed in the first quarter of fiscal year 2001 and the operations combined with the operations in Auburn, Washington.

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

The Company is involved in various legal proceedings which are incidental to the industry and for which certain matters are covered in whole or in part by
insurance or, otherwise, the Company has recorded accruals for estimated settlements. Management believes that any liability which may result from these proceedings will not have a material adverse
effect on the Company's consolidated financial statements.

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

None.

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ITEM 4A.EXECUTIVE OFFICERS OF THE REGISTRANT(1)

Name

Officer Since

Age

Position Held With the RegistrantC. Dean McLain

1993

47

Chairman, President, and Chief Executive Officer(2)Mark J. Wright

1997

44

Vice President of Finance, Chief Financial Officer, Treasurer, and Secretary


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I-9

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## 

PART II

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

The Company's stock is traded on the NASDAQ National Market System (until May 20, 1999) and the NASDAQ SmallCap Market (since May 20, 1999) under
the symbol WPEC. The high and low closing prices for the Company's common stock for the years ended July 31, 1999 and July 31, 2000 were as follows:

High

LowFiscal 19991st QuarterAugust 1, 1998 through October 31, 1998

$
6.125

$
4.0002nd QuarterNovember 1, 1998 through January 31, 1999

$
4.625

$
2.8753rd QuarterFebruary 1, 1999 through April 30, 1999

$
3.500

$
2.0004th QuarterMay 1, 1999 through July 31, 1999

$
3.375

$
2.375Fiscal 20001st QuarterAugust 1, 1999 through October 31, 1999

$
2.750

$
1.0002nd QuarterNovember 1, 1999 through January 31, 2000

$
1.938

$
1.0003rd QuarterFebruary 1, 2000 through April 30, 2000

$
8.500

$
1.0634th QuarterMay 1, 2000 through July 31, 2000

$
10.000

$
4.188


The
number of shareholders of record of the Company's Common Stock on October 11, 2000 was 26, and the number of beneficial holders of the Company's Common Stock is estimated
by management to be approximately 320 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

---

ITEM 6.SELECTED FINANCIAL DATA

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

(Amounts in thousands, except per share data)

|                                                                    |              | Fiscal Year Ended July 31,
|------------------------------------------------------------------- | ------------ | --------------------------
|
|Net sales                                                           |              | $                         
|Gross profit                                                        |              | $                         
|                                                                    | (% of sales) |                           
|Selling, general and administrative                                 |              | $                         
|                                                                    | (% of sales) |                           
|Income (loss) before income taxes                                   |              |                           
|                                                                    | (% of sales) |                           
|Tax rate (%)                                                        |              |                           
|Net income (loss)                                                   |              | $                         
|Net income (loss) per common share                                  |              | $                         
|Shares used in basic earnings per share calculations                |              |                           
|Net income (loss) per diluted common share                          |              | $                         
|Shares used in diluted earnings per share calculations              |              |                           
|Working capital (deficit)                                           |              | $                         
|Long-term debt (including capital leases and deferred lease income) |              | $                         
|Stockholders' equity                                                |              | $                         
|Total assets                                                        |              | $                         

ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

General

The Company's growth has been accomplished through a combination of new store openings, strategic acquisitions, and to a lesser extent, comparable stores
revenue increases. The Company acquired its first seven retail distribution stores in November 1992. The Company expanded to 18 stores in four states by the end of fiscal 1996, to 23 stores in
five states by the end of fiscal 1997, and to 27 stores in five states by the end of fiscal 1998. In fiscal 1999, the Company closed its Milton-Freewater, Oregon store, its Elko, Nevada store, and its
Juneau, Alaska store. At the end of fiscal 2000, the Company had 21 stores in operation, including two temporary stores in Southern California established in an effort to assist Case Corporation in a
dealership transition in Southern California.

II-2

---

Store activity for the last three years is summarized as follows:

|Fiscal Year |  | No. of Stores at
Beginning of Year |  | No. of Stores
Opened |  | No. of Stores
Closed |  | No. of Stores
Acquired |  | No. of Stores
at End of Year
|----------- |  | ---------------------------------- |  | -------------------- |  | -------------------- |  | ---------------------- |  | ----------------------------
|1998        |  | 23                                 |  | 1                    |  | 1                    |  | 4                      |  | 27                          
|1999        |  | 27                                 |  | 0                    |  | 3                    |  | 0                      |  | 24                          
|2000        |  | 24                                 |  | 2                    |  | 5                    |  | 0                      |  | 21                          

Subsequent
to the end of fiscal 2000, the Company has consolidated one additional store into a larger neighboring store. The Company may open and acquire additional distribution
outlets for Case products, as well as for products which may be manufactured by other companies as circumstances permit. In addition, the Company is evaluating additional store closures or sales. The
Company's results can be impacted by the timing of, and costs incurred in connection with, new store openings and acquisitions as well as the costs of closing existing stores.

Results of Operations

Fiscal Year 2000, as Compared with Fiscal Year 1999

The Company reported net revenue for fiscal 2000 of $155,637,000 compared with net revenue of $163,650,000 for fiscal 1999. Stores opened longer than
12 months showed an overall revenue decrease of 4.9 percent from prior year revenue reflecting a general softening in economic conditions in the northwest along with increased
competitive pressures. The Company consolidated five of its facilities during fiscal 2000 into larger facilities in the region in order to reduce costs and leverage existing, larger facilities in the
region to cover the territories previously served by the closed facilities.

The
Company had a net loss for fiscal 2000 of $7,198,000 or $2.18 per share compared with a net loss of $1,815,000 or $0.55 per share in fiscal 1999. In fiscal 2000, the Company
recognized a fourth quarter pre-tax non-recurring charge of approximately $2,547,000 to provide allowances in recognition of decreasing market prices on aged equipment in the
last half of the year. In addition, the Company recorded a valuation allowance of $2,956,000 related to its deferred tax asset.

Gross
margin was 7.4 percent during fiscal 2000 which is lower than the 8.9 percent gross margin during fiscal 1999. Margins decreased in fiscal 2000 due mainly to
continued competitive pressures and the fourth quarter equipment reserve. Management continues to place a high priority on improving overall gross margins by working to increase higher margin service,
parts, and rental revenues, focusing more sales efforts on specialty and niche product lines, and by obtaining higher prices for new and used equipment.

Selling,
general, and administrative expenses were $13,534,000 or 8.7 percent of revenues for fiscal 2000 compared to $12,586,000 or 7.7 percent of sales for fiscal
1999. The increase in selling, general, and administrative expenses as a percent of revenues resulted in part from lower than expected revenue levels and the costs of closing stores during the year.

Interest
expense for fiscal 2000 was $6,069,000, up from $5,454,000 in fiscal 1999 due in part to an increase in interest rates. In June 1997, the Company obtained a
$75 million inventory flooring and operating line of credit facility through Deutsche Financial Services ("DFS"). The facility is a three-year, floating rate facility at rates as
low as 50 basis points under the prime rate. Prime interest
rates have increased from those in fiscal 1999. Management has used this facility to allow the Company to take advantage of more purchase discounts and to lower overall interest expense. The DFS
credit facility expired August 18, 2000 and the Company is currently in negotiation with DFS to extend the term of the facility and modify some of its terms. See Liquidity and Capital Resourcesbelow for a description of the status of the DFS facility.

II-3

---

Fiscal Year 1999, as Compared with Fiscal Year 1998

The Company reported net revenue for fiscal 1999 of $163,650,000 which is a increase of .1 percent over net revenue of $163,478,000 for fiscal 1998.
Stores opened prior to fiscal 1999 showed an overall revenue decrease of 2.8 percent from prior year revenue reflecting a general softening in economic conditions in the northwest, increased
competitive pressures, and some weather related business interruptions. The Company consolidated three of its facilities during fiscal 1999 into larger facilities in the region in order to reduce
costs and leverage existing, larger facilities in the region to cover the territories previously served by the closed facilities.

The
Company had a net loss for fiscal 1999 of $1,815,000 or $0.55 per share compared with net income of $1,839,000 or $0.53 per share in fiscal 1998 ($0.49 per share on a diluted
basis). In fiscal 1999, the Company recognized a first quarter pre-tax charge of approximately $1,100,000 to provide allowances to recognize decreasing market prices on used equipment. The
Company did not experience a similar problem in fiscal 1998.

Gross
margin was 8.9 percent during fiscal 1999 which is lower than the 11.7 percent gross margin during fiscal 1998. Margins decreased in fiscal 1999 due primarily to
continued competitive pressures and the first quarter equipment reserve Management continues to place a high priority on improving overall gross margins by working to increase higher margin service,
parts, and rental revenues, focusing more sales efforts on specialty and niche product lines, and by obtaining higher prices for new equipment.

Selling,
general, and administrative expenses were $12,586,000 or 7.7 percent of revenues for fiscal 1999 compared to $12,092,000 or 7.4 percent of sales for fiscal
1998. The increase in selling, general, and administrative expenses as a percent of revenues resulted in part from lower than expected revenue levels and full year expenses for stores opened or
acquired in fiscal 1998.

Interest
expense for fiscal 1999 was $5,454,000, up from $4,687,000 in fiscal 1998 due in part to an increase in inventory levels, particularly inventory dedicated to rentals. In
addition, effective with deliveries after July 1, 1998, Case changed factory to dealer terms lowering from 3% to 2% the cash payment discount if the dealer pays for the machine outright rather
than utilizing the interest-free floor planning. The Company was able to take advantage of the cash discounts on a majority of its Case purchases in fiscal 1998. In June 1997, the
Company obtained a $75 million inventory flooring and operating line of credit facility through DFS. The facility is a three-year, floating rate facility at rates as low as 50 basis
points under the prime rate. Management has used this facility to allow the Company to take advantage of more purchase discounts and to lower overall interest expense.

Liquidity and Capital Resources

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

Under
inventory floor planning arrangements the manufacturers of products sold by the Company provide interest free credit terms on new equipment purchases for periods ranging from
one to twelve months, after which interest commences to accrue monthly at rates ranging from zero percent to two percent over the prime rate of interest. Principal payments are typically made under
these agreements at scheduled intervals and/or as the equipment is rented, with the balance due at the earlier of a specified date or sale of the equipment. At July 31, 2000, the Company was
indebted under manufacturer provided floor planning arrangements in the aggregate amount of $14,768,000.

II-4

---

In June 1997, the Company obtained a $75 million inventory flooring and operating line of credit through DFS. The DFS credit facility is a three-year,
floating rate facility based on prime with rates between 0.50% under prime to 1.00% over prime depending on the amount of total borrowing under the facility. Amounts are advanced against the Company's
assets, including accounts receivable, parts, new equipment, rental fleet, and used equipment. The Company expects to use this borrowing facility to lower flooring related interest expense by using
advances under such line to finance inventory purchases in lieu of financing provided by suppliers, to take advantage of cash purchase discounts from its suppliers, to provide operating capital for
further growth, and to refinance some its acquisition
related debt at a lower interest rate. As of July 31, 2000, approximately $67,671,000 was outstanding under the DFS credit facility. At July 31, 2000 and July 31, 1999, the
Company was in technical default of the leverage covenant and the minimum tangible net worth covenant in the DFS Loan Agreement. The Company has requested but has not obtained a waiver letter for the
period July 31, 2000 or thereafter. Although DFS has not called the debt due to such defaults, there is no guarantee that DFS will not call this debt at any time after July 31, 2000.
Although this credit facility expired on August 18, 2000, the Company and DFS are negotiating an extension of the credit facility and a revision of certain leverage covenants. Finalization of
this amendment is expected by November 30, 2000. Amounts owing under the DFS credit facility are secured by inventory purchases financed by DFS, as well as all proceeds from their sale or
rental, including accounts receivable thereto. If the Company is not successful in negotiating an extension of the DFS credit facility and curing the defaults, DFS may call the loan in which case the
Company may not be able to continue operations.

During
the year ended July 31, 2000, cash and cash equivalents decreased by $1,805,000. The Company had positive cash flow from operating activities during the year of
$3,539,000. Purchases of fixed assets during the period were related mainly to the ongoing replacement of aged operating assets.

Assuming
the Company successfully completes its negotiations with DFS, the Company's cash and cash equivalents of $824,000 as of July 31, 2000 and available credit facilities
are considered sufficient to support current levels of operations for at least the next twelve months.

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

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

All
of the products and services provided by the Company are either capital equipment or included in capital equipment, which are used in the construction, agricultural, and
industrial sectors. Accordingly, the Company's sales are affected by inflation or increased interest rates which tend to hold down new construction, and consequently adversely affect demand for the
construction and industrial equipment sold and rented by the Company. In addition, although agricultural equipment sales are less than 2% of
the Company's total revenues, factors adversely affecting the farming and commodity markets also can adversely affect the Company's agricultural equipment related business.

The
Company's business can also be affected by general economic conditions in its geographic markets as well as general national and global economic conditions that affect the
construction, agricultural, and industrial sectors. An erosion in North American and/or other countries' economies could adversely affect the Company's business. Market specific factors could also
adversely affect one or more of the Company's target markets and/or products.

II-5

---

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.

Letter of Intent to Merge

On April 18, 2000, the Company announced that it had entered into a letter of intent to merge with e-Mobile, Inc., a Delaware
corporation, and sell the Company's existing business to the Company's management. If the transaction is consummated, shares of the Company's common stock would be converted into shares of the
surviving corporation in the merger, subject to any applicable dissenters' rights. Closing of the transaction is conditioned on the approval of the transaction by shareholders of the Company and
certain other regulatory approvals. Completion of the transaction is also subject to the satisfaction of a number of contractual conditions, including but not limited to the Company repurchasing or
retiring outstanding options. The Company is continuing to negotiate the terms of a definitive agreement and preparing to satisfy the expected conditions of the merger agreement. There is no assurance
that the transaction will be consummated.

Forward Looking Statements

Information included within this section relating to growth projections and future results and events constitutes forward-looking statements. Actual results in
future periods may differ materially from the forward-looking statements because of a number of risks and uncertainties, including but not limited to fluctuations in the construction, agricultural,
and industrial sectors; the success of the Company's entry into new markets; the success of the Company's expansion of its equipment rental business; rental industry conditions, and competitors;
competitive pricing; the Company's relationship with its suppliers; relations with the Company's employees; the Company's ability to manage its operating costs; the continued availability of
financing; governmental regulations and environmental matters; risks associated with regional, national, and world economies; and implementation and consummation of the merger transaction (see Letter
of Intent to Merge above). Any forward-looking statements should be considered in light of these factors.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

None.

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, 2000, 1999, and 1998

F-1Consolidated Balance Sheets as of July 31, 2000 and 1999

F-2Consolidated Statements of Stockholders' Equity for the years ended July 31, 2000, 1999, and 1998

F-3Consolidated Statements of Cash Flows for the years ended July 31, 2000, 1999, and 1998

F-4Notes to Consolidated Financial Statements

F-5Report of Independent Accountants

F-17


Financial
Statement Schedule:

Report of Independent AccountantsFinancial Statement Schedule

F-18Schedule IIValuation and Qualifying Accounts

F-19


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

None.

II-6

---

WESTERN POWER & EQUIPMENT CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

|                                                                  |                  | Year Ended July 31, |        
|----------------------------------------------------------------- | ---------------- | ------------------- | -------
|
|Net revenue                                                       |                  | $                   | 155,637
|Cost of goods sold                                                |                  |                     | 144,099
|                                                                  |                  |                     |        
|Gross profit                                                      |                  |                     | 11,538 
|Selling, general and administrative expenses                      |                  |                     | 13,534 
|                                                                  |                  |                     |        
|                                                                  |                  |                     | (1,996 
|Other income (expense):                                           |                  |                     |        
|                                                                  | Interest expense |                     |        
|                                                                  | Other income     |                     |        
|                                                                  |                  |                     |        
|Income before income taxes                                        |                  |                     | (6,419 
|Provision (benefit) for income taxes                              |                  |                     | 779    
|                                                                  |                  |                     |        
|Net income (loss)                                                 |                  | $                   | (7,198 
|                                                                  |                  |                     |        
|Basic Earnings (loss) per common share                            |                  | $                   | (2.18  
|                                                                  |                  |                     |        
|Average Outstanding Common Shares for Basic EPS                   |                  |                     | 3,306  
|                                                                  |                  |                     |        
|Diluted Earnings (loss) per common share                          |                  | $                   | (2.18  
|                                                                  |                  |                     |        
|Average Outstanding Common Shares And Equivalents for Diluted EPS |                  |                     | 3,306  
|                                                                  |                  |                     |        

See
accompanying notes to consolidated financial statements.

F-1

---

WESTERN POWER & EQUIPMENT CORP.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

|                                                                               |                                                                                   | July 31,
2000                              |       | July 31,
1999 |        
|------------------------------------------------------------------------------ | --------------------------------------------------------------------------------- | ------------------------------------------ | ----- | ------------- | -------
|ASSETS                                                                         |                                                                                  
|Current assets:                                                                |                                                                                   |                                            |       |               |        
|                                                                               | Cash and cash equivalents                                                         |                                            | $     | 824           |        
|                                                                               | Accounts receivable, less allowance for doubtful accounts of $563 and $724        |                                            |       | 17,347        |        
|                                                                               | Inventories                                                                       |                                            |       | 58,297        |        
|                                                                               | Prepaid expenses                                                                  |                                            |       | 210           |        
|                                                                               | Income taxes receivable                                                           |                                            |       | 400           |        
|                                                                               | Deferred income taxes                                                             |                                            |       | 2,273         |        
|                                                                               |                                                                                   |                                            |       |               |        
|                                                                               |                                                                                   | Total current assets                       |       |               | 79,351 
|Fixed assets (net):                                                            |                                                                                   |                                            |       |               |        
|                                                                               | Property, plant and equipment                                                     |                                            |       | 9,450         |        
|                                                                               | Rental equipment fleet                                                            |                                            |       | 26,076        |        
|                                                                               | Lease equipment fleet                                                             |                                            |       | 4,975         |        
|                                                                               |                                                                                   |                                            |       |               |        
|                                                                               |                                                                                   | Total fixed assets                         |       |               | 40,501 
|Intangibles and other assets, net of accumulated amortization of $683 and $570 |                                                                                   |                                            | 2,858 |               |        
|                                                                               |                                                                                   |                                            |       |               |        
|                                                                               |                                                                                   | Total assets                               |       | $             | 122,710
|                                                                               |                                                                                   |                                            |       |               |        
|LIABILITIES & STOCKHOLDERS' EQUITY                                             |                                                                                  
|Current liabilities:                                                           |                                                                                   |                                            |       |               |        
|                                                                               | Borrowings under floor plan financing                                             |                                            | $     | 14,768        |        
|                                                                               | Short-term borrowings                                                             |                                            |       | 67,671        |        
|                                                                               | Accounts payable                                                                  |                                            |       | 10,730        |        
|                                                                               | Accrued payroll and vacation                                                      |                                            |       | 751           |        
|                                                                               | Other accrued liabilities                                                         |                                            |       | 1,323         |        
|                                                                               | Capital lease obligations                                                         |                                            |       | 17            |        
|                                                                               |                                                                                   |                                            |       |               |        
|                                                                               |                                                                                   | Total current liabilities                  |       |               | 95,260 
|Deferred income taxes                                                          |                                                                                   |                                            | 2,273 |               |        
|Capital lease obligations                                                      |                                                                                   |                                            | 4,786 |               |        
|Long-term borrowings                                                           |                                                                                   |                                            | 28    |               |        
|Deferred gain                                                                  |                                                                                   |                                            |      |               |        
|Deferred lease income                                                          |                                                                                   |                                            | 5,982 |               |        
|                                                                               |                                                                                   |                                            |       |               |        
|                                                                               |                                                                                   | Total liabilities                          |       |               | 108,329
|                                                                               |                                                                                   |                                            |       |               |        
|Commitments and contingencies                                                  |                                                                                   |                                            |       |               |        
|Stockholders' equity:                                                          |                                                                                   |                                            |       |               |        
|                                                                               | Preferred stock10,000,000 shares authorized; none outstanding                    |                                            |       |              |        
|                                                                               | Common stock, $.001 par valueAuthorized, 20,000,000 shares                       |                                            |       |               |        
|                                                                               | Outstanding, 3,353,162 and 3,303,162 shares, respectively                         |                                            |       | 4             |        
|                                                                               | Additional paid-in capital                                                        |                                            |       | 16,005        |        
|                                                                               | Retained earnings                                                                 |                                            |       | (460          | )      
|                                                                               | Less common stock in treasury, at cost (180,300 and 230,300 shares, respectively) |                                            |       | (1,168        | )      
|                                                                               |                                                                                   |                                            |       |               |        
|                                                                               |                                                                                   | Total stockholders' equity                 |       |               | 14,381 
|                                                                               |                                                                                   |                                            |       |               |        
|                                                                               |                                                                                   | Total liabilities and stockholders' equity |       | $             | 122,710
|                                                                               |                                                                                   |                                            |       |               |        

See accompanying notes to consolidated financial statements.

F-2

---

WESTERN POWER & EQUIPMENT CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Dollars in thousands)

|                                     |  | Common Stock |           |   |   |   |  |   |        |   |  
|------------------------------------ |  | ------------ | --------- | - | - | - |  | - | ------ | - | -
|
|Balance at July 31, 1997             |  | $            | 3,533,462 |   | $ | 4 |  | $ | 16,047 |   | $
|Repurchase of shares                 |  |              | (280,300  | ) |   |  |  |   |       |   |  
|Issuance of sharesYukon acquisition |  |              | 50,000    |   |   |   |  |   | 25     |   |  
|Net income                           |  |              |          |   |   |  |  |   |       |   |  
|                                     |  |              |           |   |   |   |  |   |        |   |  
|Balance at July 31, 1998             |  |              | 3,303,162 |   |   | 4 |  |   | 16,072 |   |  
|Net loss                             |  |              |           |   |   |   |  |   |        |   |  
|                                     |  |              |           |   |   |   |  |   |        |   |  
|Balance at July 31, 1999             |  |              | 3,303,162 |   |   | 4 |  |   | 16,072 |   |  
|Issuance of Treasury Stock           |  |              | 50,000    |   |   |   |  |   | (67    | ) |  
|Net loss                             |  |              |           |   |   |   |  |   |        |   |  
|                                     |  |              |           |   |   |   |  |   |        |   |  
|Balance at July 31, 2000             |  |              | 3,353,162 |   | $ | 4 |  | $ | 16,005 |   | $
|                                     |  |              |           |   |   |   |  |   |        |   |  

See
accompanying notes to consolidated financial statements.

F-3

---

WESTERN POWER & EQUIPMENT CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

|                                                    |                                                                                             | Year Ended July 31,                                                    |                                
|--------------------------------------------------- | ------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | -------------------------------
|
|Cash flows from operating activities:               |                                                                                             |                                                                        |                                
|                                                    | Net income (loss)                                                                           |                                                                        | $                              
|                                                    | Adjustments to reconcile net income to net cash provided by (used in) operating activities: |                                                                        |                                
|                                                    |                                                                                             | Depreciation                                                           |                                
|                                                    |                                                                                             | Gain on disposal of fixed assets                                       |                                
|                                                    |                                                                                             | Amortization                                                           |                                
|                                                    |                                                                                             | Changes in assets and liabilities (excluding effects of acquisitions): |                                
|                                                    |                                                                                             |                                                                        | Accounts receivable            
|                                                    |                                                                                             |                                                                        | Inventories                    
|                                                    |                                                                                             |                                                                        | Leased equipment               
|                                                    |                                                                                             |                                                                        | Prepaid expenses               
|                                                    |                                                                                             |                                                                        | Deferred income taxes          
|                                                    |                                                                                             |                                                                        | Accounts payable               
|                                                    |                                                                                             |                                                                        | Accrued payroll and vacation   
|                                                    |                                                                                             |                                                                        | Other accrued liabilities      
|                                                    |                                                                                             |                                                                        | Income taxes receivable/payable
|                                                    |                                                                                             |                                                                        | Deferred lease income          
|                                                    |                                                                                             |                                                                        | Other assets/liabilities       
|                                                    |                                                                                             |                                                                        |                                
|Net cash provided by (used in) operating activities |                                                                                             |                                                                        | 3,539                          
|                                                    |                                                                                             |                                                                        |                                
|Cash flow from investing activities:                |                                                                                             |                                                                        |                                
|                                                    | Purchase of fixed assets                                                                    |                                                                        |                                
|                                                    | Purchase of rental equipment                                                                |                                                                        |                                
|                                                    | Sale of rental equipment                                                                    |                                                                        |                                
|                                                    | Proceeds on sale of fixed assets                                                            |                                                                        |                                
|                                                    | Covenant not to compete                                                                     |                                                                        |                                
|                                                    | Purchase of other assets                                                                    |                                                                        |                                
|                                                    | Purchase of distribution outlets                                                            |                                                                        |                                
|                                                    |                                                                                             |                                                                        |                                
|Net cash used in investing activities               |                                                                                             |                                                                        | (40                            
|                                                    |                                                                                             |                                                                        |                                
|Cash flows from financing activities:               |                                                                                             |                                                                        |                                
|                                                    | Principal payments on capital leases                                                        |                                                                        |                                
|                                                    | Treasury stock repurchases/sales                                                            |                                                                        |                                
|                                                    | Inventory floor plan financing                                                              |                                                                        |                                
|                                                    | Short-term financing                                                                        |                                                                        |                                
|                                                    | Long-term debt repayments                                                                   |                                                                        |                                
|                                                    |                                                                                             |                                                                        |                                
|Net cash provided by (used in) financing activities |                                                                                             |                                                                        | (5,304                         
|                                                    |                                                                                             |                                                                        |                                
|Increase (decrease) in cash and cash equivalents    |                                                                                             |                                                                        | (1,805                         
|Cash and cash equivalents at beginning of year      |                                                                                             |                                                                        | 2,629                          
|                                                    |                                                                                             |                                                                        |                                
|Cash and cash equivalents at end of year            |                                                                                             | $                                                                      | 824                            
|                                                    |                                                                                             |                                                                        |                                

See
accompanying notes to consolidated financial statements.

F-4

---

Western Power & Equipment Corp.

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share and options data)

1.  Summary of Significant Accounting Policies



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

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



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.



In accordance with the borrowing agreement with Deutsche Financial Services (DFS), the Company has a cash account restricted by DFS for the purpose of paying
down the line of credit. Restricted cash included in the cash balances totaled $543 and $724 at July 31, 2000 and 1999, respectively.



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.



The Company's acquisition strategy has been focused on existing businesses with established market share in a contiguous geographic area. Items with an
indeterminate useful life, such as name recognition, geographical location and presence represent value to the Company. The Company uses estimates of the useful life of these intangible assets ranging
from twenty to forty years. These lives are based on the factors influencing the acquisition decision and on industry practice. The Company
reviews for asset impairment on a periodic basis and whenever events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable. Based on this review,
no write-down for impairment loss on intangible assets has been recorded during the three-year period ended July 31, 2000.

F-5

---



Property, plant, and equipment are stated at cost less accumulated depreciation. Depreciation and amortization are computed using the straight-line
method over the estimated useful lives of the assets, ranging from 5 to 20 years. Expenditures for replacements and major improvements are capitalized. Expenditures for repairs, maintenance,
and routine replacements are charged to expenses 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.



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.

The
Company has entered into sales contracts under which the customer may require the Company to repurchase equipment at specified dates and specified prices. The Company records the
proceeds from such sales contracts as deferred lease income. The difference between the sale contract amount and the repurchase obligation is recognized as revenue over the period of the repurchase
obligation. The remaining repurchase obligation is recorded as a sale if and when the customer does not exercise the repurchase option. At July 31, 2000, repurchase obligations aggregated
$5,982.



The Company expenses all advertising costs as incurred. Total advertising expense for the years ended July 31, 2000, 1999 and 1998 was $320, $311, and
$434 respectively.



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



Certain amounts in the 1999 financial statements have been reclassified to conform with the 2000 presentation.



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



During fiscal 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. Under the provisions of
SFAS 128, basic net income (loss) per common

F-6

---

share is computed using the average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the average number of common shares and common share
equivalents outstanding during the period, unless inclusion of common share equivalents would be antidilutive.



A capital lease obligation of $397 was incurred in December 1997 when the Company entered into a 20-year lease for the Yuba City, California
facility. A capital lease obligation of $1,942 was incurred in February 1999 when the Company entered into a 20-year lease for the Sparks, Nevada facility.

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

Year Ended July 31,2000

1999

1998Cash paid (received) during the year for:Interest

$
5,922

$
5,482

$
4,377Income taxes, net of refunds


219


(834
)

1,063




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

2.  Acquisitions

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

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

F-7

---

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

1998Net revenues

$
173,414Net income (loss)

$
1,776Basic earnings (loss) per share

$
0.51Diluted earnings (loss) per share

$
0.47


3.  Related Party Transactions

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

On
June 1, 1997, the real property and improvements used in connection with the operation located in Kent, Washington, was purchased by McLain-Rubin Realty Company II, LLC
("MRR II"), a Delaware limited liability company, the owners of which are Messrs. C. Dean McLain, the President and a director of the Company, and Robert M. Rubin, the Chairman and a director
of the Company. Simultaneous with its acquisition of the Kent, Washington, real property and improvements, MRR II leased such real property and improvements to the Company under the terms of a
20-year commercial lease agreement dated June 1, 1997 with the Company paying an initial annual rate of $205. Under the lease, such annual rate increases to $231 after five years
and is subject to additional adjustments at the end of ten and fifteen years. In addition to base rent, the Company is responsible for the payment of
all related taxes and other assessments, utilities, insurance, and repairs (both structural and regular maintenance) with respect to the leased real property during the term of the lease. In
accordance with SFAS 13, the building portion of the lease is being accounted for as a capital lease (see Note 9) while the land portion of the lease qualifies for treatment as an
operating lease. Effective September 1, 2000, the lease of the Kent facility was cancelled and the landlord leased the facility to a third party.

On
December 11, 1997, the real property and improvements used in connection with Case's Yuba City, California operation, was purchased by McLain-Rubin Realty Company III, LLC
("MRR III"), a

F-8

---

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

In
February, 1999, the real property and improvements used in connection with the Company's Sparks, Nevada operation and upon which such operation is located, were sold to
McLain-Rubin Realty, L.L.C.
(MRR) under the terms of a real property purchase and sale agreement. MRR is a Delaware limited liability company the owners of which are Messrs. C. Dean McLain, the President and Chairman of
the Company, and Robert M. Rubin, a director of the Company. The sale price was $2,210 in cash at closing. Subsequent to the closing of the sale, the Company entered into a 20-year
commercial lease agreement with MRR for the Sparks, Nevada facility at an initial rental rate of $252 per year with increases at five, ten, and fifteen years resulting in a maximum annual rental rate
of $374. The present value of the minimum lease payments at the commencement of the lease back transaction aggregated $3,052. The lease is a net lease with payment of insurance, property taxes and
maintenance costs paid by the Company. The sale resulted in a deferred gain which will be amortized over the life of the lease pursuant to generally accepted accounting principles. 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.

Subsequent
to year-end, the Company renegotiated the terms of the Sacramento, Yuba City and Sparks leases to shorten the terms of the leases. These leases were then
reclassified as operating leases.

4.  Inventories

Inventories consist of the following:

July 31,
2000

July 31,
1999Equipment (net of reserve allowances of 4,770 and 1,671 respectively):New equipment

$
40,148

$
49,325Used equipment


7,442


7,642Parts (net of reserve allowances of 522 and 842 respectively)


10,707


10,101$
58,297

$
67,068


F-9

---

5.  Fixed Assets

Fixed assets consist of the following:

July 31,
2000

July 31,
1999Property, plant, and equipment:Land

$
500

$
420Buildings


5,334


5,126Machinery and equipment


4,030


3,869Office furniture and fixtures


2,360


2,291Computer hardware and software


1,869


1,299Vehicles


1,428


1,841Leasehold improvements


550


36016,071


15,206Less: accumulated depreciation


(6,621
)

(5,388
)Property, plant, and equipment (net)

$
9,450

$
9,818Rental equipment fleet

$
32,493

$
36,395Less: accumulated depreciation


(6,417
)

(5,029
)Rental equipment (net)

$
26,076

$
31,366Leased equipment fleet

$
5,481

$
5,481Less: accumulated depreciation


(506
)

(217
)Leased equipment fleet

$
4,975

$
5,264


6.  Borrowings

The Company has inventory floor plan financing arrangements with Case Credit Corporation, an affiliate of Case, for Case inventory and with other finance
companies affiliated with other equipment manufacturers. The terms of these agreements generally include a one-month to six-month interest free term followed by a term during
which interest is charged. Principal payments are generally due at the earlier of sale of the equipment or twelve to forty-eight months from the invoice date.

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.

F-10

---

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:

|                            |  |                         |  |                |  | July 31,
|--------------------------- |  | ----------------------- |  | -------------- |  | --------
|
|
|Case Credit Corporation     |  | Prime + 2%
(10.00%)     |  | 8 - 48 months  |  | $       
|Deutsche Financial Services |  | Prime - 0.5%
(7.50%)    |  | 12 - 36 months |  |         
|Other                       |  | variable
(8.00%-10.00%) |  | 12 - 48 months |  |         
|                            |  |                         |  |                |  |         
|                            |  |                         |  |                |  | $       
|                            |  |                         |  |                |  |         

At
July 31, 2000 and July 31, 1999, the Company was in technical default of the leverage covenant and the minimum tangible net worth covenant in the Deutsche Financial
Services Loan Agreement. The Company asked for but did not obtain a waiver letter as of July 31, 2000 and thereafter. The credit facility expired on August 18, 2000. Although this credit
facility expired on August 18, 2000, the Company and DFS are negotiating an extension of the credit facility and a revision of certain leverage covenants. There is no guarantee that Deutsche
Financial Services will not call this debt at any time after July 31, 2000. If DFS does call the debt, it will become immediately due and payable in full. However, the amount due to Deutsche
Financial Services is already included as a current liability. If the Company is not successful in negotiating an extension of the DFS credit facility and curing the defaults, DFS may call the loan in
which case the Company would not be able to continue operations.

7.  Income Taxes

The provision (benefit) for income taxes is comprised of the following:

Year EndedJuly 31,
2000

July 31,
1999

July 31,
1998Current:Federal

$
180

$
(978
)
$
1,227State


26


(157
)

162206


(1,135
)

1,389Deferred:Federal


500


29


(32
)State


73


5


(3
)573


34


(35
)Total provision (benefit) for income taxes

$
779

$
(1,101
)
$
1,354


F-11

---

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 EndedJuly 31,
2000

July 31,
1999

July 31,
1998Statutory federal income tax rate

(34.0
)%
(34.0
)%
34.0
%State income taxes, net of federal income tax benefit

(2.9
)%
(5.2
)%
5.0
%Valuation allowance

46.1
%
0.0
%
0.0
%Other

2.9
%
1.5
%
2.1
%12.1
%
(37.7
)%
41.1
%


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

Year EndedJuly 31,
2000

July 31,
1999Deferred assets:Inventory reserve

$
1,739

$
918Bad debt reserve


219


283Accrued vacation and bonuses


127


96NOL Carryforward


3,069


Other accruals


75


113Current Deferred Tax Asset


5,229


1,410LessValuation Allowance


(2,956
)

Net Current Deferred Tax Asset


2,273


1,410Deferred liabilities:Depreciation and amortization


(2,159
)

(757
)Goodwill and intangibles


(114
)

(80
)Long-term Deferred Tax Liability


(2,273
)

(837
)Net Deferred Tax Asset

$
0

$
573


8.  Stockholders' Equity



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

In
December 1995, the Board of Directors adopted a stock option plan for non-employee directors under which each non-employee director is entitled to
receive on August 1 of each year beginning August 1, 1996, options to purchase 2,500 shares of the Company's common stock at the fair market value of the stock at the date of grant. In
January 1998, the Company's shareholders approved an amendment to this plan increasing the number of shares for which options are granted yearly to

F-12

---

non-employee directors from 2,500 to 5,000. Outstanding options expire no later than ten years after the date of grant.

During
2000, 50,000 options were exercised, 716,500 surrendered and 736,500 were repurchased by the Company at a cost of $74 which was expensed as incurred.

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

The
Company has elected to account for its stock based compensation under APB 25; however, as required by SFAS 123, the Company has computed for pro forma disclosure purposes
the value of options granted during fiscal years 2000, 1999, and 1998 using the Black-Scholes option pricing model. The weighted average assumptions used for stock option grants for fiscal years 2000,
1999, and 1998 were:

FY00

FY99

FY98Risk free interest rate

4.85 - 5.45
%
4.85 - 5.45
%
5.875
%Expected dividend yield

0
%
0
%
0
%Expected life

4 years

4 years

5 yearsExpected volatility

93.31
%
62.56
%
56.43
%


Adjustments
for forfeitures are made as they occur. For the years ended July 31, 2000, 1999, and 1998, the total value of the options granted, for which no previous expense has
been recognized, was computed as approximately $0, $72, and $1,425 respectively, which would be amortized over the vesting
period of the options. The weighted average fair value per share of the options granted in fiscal years 2000, 1999, and 1998 are $0, $5.07, and $2.31, respectively.

F-13

---

If the Company had accounted for these stock options issued to employees in accordance with SFAS 123, the Company's net income (loss) and pro forma net income (loss) and net
income (loss) per share and pro forma net income (loss) per share would have been reported as follows.

Year Ended July 31, 2000

Net Loss

Basic
E.P.S.

Diluted
E.P.S.As Reported

$
(7,198
)
$
(2.18
)
$
(2.18
)Pro Forma

$
(7,206
)
$
(2.18
)
$
(2.18
)


Year Ended July 31, 1999

Net Loss

Basic
E.P.S.

Diluted
E.P.S.As Reported

$
(1,815
)
$
(0.55
)
$
(0.55
)Pro Forma

$
(2,174
)
$
(0.66
)
$
(0.66
)


Year Ended July 31, 1998

Net Income

Basic
E.P.S.

Diluted
E.P.S.As Reported

$
1,839

$
0.53

$
0.49Pro Forma

$
583

$
0.17

$
0.15


The
effects of applying SFAS 123 for providing pro forma disclosure for fiscal years 2000, 1999, and 1998 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
(000)

Weighted Average
Option PriceOptions outstanding July 31, 1997:

825

4.49Exercised



Surrendered

(31
)
4.38Granted

714

4.62Options outstanding July 31, 1998:

1,508

4.56Exercised



Surrendered

(12
)
4.53Granted

17

5.07Options outstanding July 31, 1999:

1,513

4.56Exercised

(50
)
5.13Surrendered

(1,453
)
4.64Granted



Options outstanding July 31, 2000:

10

4.38


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, 2000:

Exercise
Price

Number of
Options
Outstanding

Weighted Average
Exercise Price

Weighted Average
Contractual Life
Remaining

Number of
Options
Exercisable

Weighted Average
Exercise Price$4.375

10,000

$
4.375

6.00

10,000

$
4.375


F-14

---

9.  Commitments and Contingencies

The Company leases certain facilities under noncancelable lease agreements. As more fully described in Note 3, the building portion of five 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 nine 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 $2,129, $2,000, and $1,883 for the years ended July 31, 2000, 1999, and 1998, respectively.

The
Company is involved in various legal proceedings which are incidental to the industry and for which certain matters are covered in whole or in part by insurance or, otherwise, the
Company has
recorded accruals for estimated settlements. Management believes that any liability which may result from these proceedings will not have a material adverse effect on the Company's consolidated
financial statements.

Assets
recorded under capital leases are recorded in fixed assets and are as follows:

July 31,
2000

July 31,
1999

July 31,
1998Capitalized asset value

$
4,553

$
4,978

$
3,036Less accumulated amortization


(667
)

(550
)

(315
)$
3,886

$
4,428

$
2,721


Net
capitalized assets values are included in Property, Plant & Equipment. Future minimum lease payments under all noncancelable leases as of July 31, 2000, are as
follows:

Capital
leases

Operating
leasesYear ending July 31,2001

$
459

$
1,6642002


485


1,2242003


510


1,1662004


525


9972005


538


810Thereafter


8,336


5,382Total annual lease payments

$
10,853

$
11,243Less amount representing interest, with imputed interest rates ranging from 6% to 15%


6.050Present value of minimum lease payments


4,803Less current portion


17Long-term portion

$
4,786


The
Company issues purchase orders to Case Corporation for equipment purchases. Upon acceptance by Case, these purchases become noncancelable by the Company. As of July 31,
2000, such purchase commitments totaled $11,130,000.

As
described in Note 5, some of the capital leases were renegotiated subsequent to year end.

F-15

---

10.  Segment Information

In fiscal 1999, the Company adopted Statement of Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an Enterprise
and Related Information," which requires the reporting of certain financial information by business segment. For the purpose of providing segment information, management believes that all of the
Company's operations consist of one segment. However, the Company evaluates performance based on revenue and gross margin of three distinct business components. Revenue and gross margin by component
are summarized as follows:

Business Component
Net Revenues

Year Ended
July 31, 2000

Year Ended
July 31, 1999

Year Ended
July 31, 1998Equipment Sales

$
92,513

$
98,450

$
112,061Equipment Rental


26,334


25,771


13,389Product Support


36,790


39,429


38,028Totals

$
155,637

$
163,650

$
163,478


Business Component
Gross Margins

Year Ended
July 31, 2000

Year Ended
July 31, 1999

Year Ended
July 31, 1998Equipment Sales

$
(66
)
$
2,591

$
8,334Equipment Rental


5,556


5,017


3,555Product Support


6,048


6,986


7,287Totals

$
11,538

$
14,594

$
19,176


There
are no inter-segment revenues. Asset information by reportable segment is not reported, since the Company does not produce such information internally.

11.  Unaudited Quarterly Consolidated Financial Data

QuarterFirst

Second

Third

Fourth

Total
YearFiscal 2000:Net sales

$
42,063

$
33,988

$
35,340

$
44,246

$
155,637Gross Profit


4,920


3,865


3,236


(483
)

11,538Net income (loss)


125


(284
)

(947
)

(6,092
)

(7,198
)Basic income (loss) per share


0.04


(0.09
)

(0.29
)

(1.84
)

(2.18
)Diluted income (loss) per share


0.04


(0.09
)

(0.29
)

(1.84
)

(2.18
)


QuarterFirst

Second

Third

Fourth

Total
YearFiscal 1999:Net sales

$
40,365

$
41,279

$
40,371

$
41,635

$
163,650Gross Profit


2,475


4,492


4,094


3,533


14,594Net income


(1,288
)

331


(62
)

(796
)

(1,815
)Basic earnings per share


(0.39
)

0.10


(0.02
)

(0.24
)

(0.55
)Diluted earnings per share


(0.39
)

0.10


(0.02
)

(0.24
)

(0.55
)


F-16

---

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, 2000 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended July 31, 2000, in conformity with accounting principles generally accepted in the United States. 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 auditing
standards generally accepted in the United States, 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.

The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred losses from operations for the years
ended July 31, 2000 and 1999. Further, as discussed in Note 6 to the financial statements, the Company is in technical default of its loan agreement and has not obtained a waiver or
revisions to the agreement from the financial institution. Accordingly, the financial institution at any time may call the outstanding borrowings, which aggregated $67.7 million at
July 31, 2000. Such factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in
Note 6. The financial statements do not include any adjustment that might result from the outcome of this uncertainty.



Portland,
Oregon
October 6, 2000

F-17

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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 October 6, 2000 appearing on page F-17 of this Annual Report on
Form 10-K also included an audit of the financial statement schedules listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.



Portland,
Oregon
October 6, 2000

F-18

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SCHEDULE II

WESTERN POWER & EQUIPMENT CORP.

VALUATION AND QUALIFYING ACCOUNTS

For the Fiscal Years Ended July 31, 2000 and 1999

(Dollars in Thousands)

|Description                  |                                 | Balance at
Beginning
of Period |   | Charged to
Costs and
Expenses |  | Charged to
Other
Accounts |       | Deductions |   | Balance at
End of
Period
|---------------------------- | ------------------------------- | ------------------------------ | - | ----------------------------- |  | ------------------------- | ----- | ---------- | - | ------------------------
|Accounts Receivable Reserve: |                                 |                                |   |                               |  |                           |       |            |   |                         
|                             | Fiscal year ended July 31, 2000 |                                | $ | 724                           |  | $                         | 690   |            | $ |                        
|                             | Fiscal year ended July 31, 1999 |                                |   | 670                           |  |                           | 732   |            |   |                        
|Inventory Reserve:           |                                 |                                |   |                               |  |                           |       |            |   |                         
|                             | Fiscal year ended July 31, 2000 |                                |   | 2,513                         |  |                           | 2,188 |            |   |                        
|                             | Fiscal year ended July 31, 1999 |                                |   | 2,833                         |  |                           | 884   |            |   |                        

F-19

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## 

PART III

ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

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

ITEM 11.EXECUTIVE COMPENSATION

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

ITEM 12.PRINCIPAL STOCKHOLDERS

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

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

III-1

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## 

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, 2000, 1999, and 1998

F-1Consolidated Balance Sheets as of July 31, 2000 and 1999

F-2Consolidated Statements of Stockholders' Equity for the years ended July 31, 2000, 1999, and 1998

F-3Consolidated Statements of Cash Flows for the years ended July 31, 2000, 1999, and 1998

F-4Notes to Consolidated Financial Statements

F-5Report of Independent Accountants

F-16






|Exhibit
Number |  | Description                                                                                                                                                                                                      
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | Certificate of Incorporation of Registrant.(2)                                                                                                                                                                   
|3.2            |  | By-laws of Registrant.(2)                                                                                                                                                                                        
|10.1           |  | 1995 Employee Stock Option Plan.(3)                                                                                                                                                                              
|10.2           |  | Second Amended and Restated Stock Option Plan for Non-Employee Directors.(3)                                                                                                                                     
|10.3           |  | Case New Dealer Agreement Package.(1)                                                                                                                                                                            
|10.4           |  | Lease AgreementHayward, California.(2)                                                                                                                                                                          
|10.5           |  | Lease AgreementAuburn, Washington.(7)                                                                                                                                                                           
|10.6           |  | Lease AgreementSacramento, California.(4)                                                                                                                                                                       
|10.7           |  | Loan Agreement, dated January 17, 1997, between Registrant and Case Credit Corp. including related promissory notes.(5)                                                                                          
|10.8           |  | Security Agreement, dated January 17, 1997, made by Registrant in favor of Case Credit Corporation to secure payment for and collateralized by all assets acquired by Registrant from Sahlberg Equipment, Inc.(5)
|10.9           |  | Loan and Security Agreement dated as of June 5, 1997 between Registrant and Deutsche Financial Services Corporation.(6)                                                                                          
|10.10          |  | Commercial Lease dated June 1, 1997 between McLain-Rubin Realty Company II, LLC and Registrant for Kent, Washington facility.(9)                                                                                 
|10.11          |  | Asset Purchase Agreement, dated December 11, 1997, between Case Corporation and Registrant and McLain-Rubin Realty Company III, LLC.(9)                                                                          
|10.12          |  | Commercial Lease dated December 11, 1997 between McLain-Rubin Realty Company III, LLC and Registrant for Yuba City, California facility.(9)                                                                      
|10.13          |  | Employment Agreement, by and between Registrant and C. Dean McLain, dated January 1, 1998.(9)                                                                                                                    

IV-1

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|10.14 |  | Asset Purchase Agreement, dated April 30, 1998, between Yukon Equipment, Inc. and Registrant(8)                                            
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------
|10.15 |  | Employment Agreement dated May 1, 1998 between Maurice Hollowell and Registrant(8).                                                        
|10.16 |  | Consulting Agreement, by and between Registrant and Robert M. Rubin.(9)                                                                    
|10.17 |  | Commercial Lease, dated as of February 17,1999 between McLain-Rubin Realty Company, LLC and Registrant for the Sparks, Nevada facility.(10)
|21.   |  | Subsidiaries of the Company.                                                                                                               
|23.   |  | Consent of Independent Accountants.                                                                                                        
|27.   |  | Financial Data Schedule.                                                                                                                   

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(b)Reports on Form 8-K.

The
Company filed a current report on Form 8-K on August 16, 2000 with respect to inquiries by Nasdaq regarding the Company signing a letter of intent to
merge with e-Mobile, Inc..

(c)Exhibits

See
(a)(3) above.

(d)Additional Financial Statement Schedules

See
(a)(2) above.

IV-2

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## 

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:                            
| |  |                                

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/C. DEAN MCLAINC. Dean McLain           |  | President, Chief Executive Officer, and Chairman                                                     |  | October 30, 2000
|/s/MARK J. WRIGHTMark J. Wright           |  | Vice President of Finance, Chief Financial and Principal Accounting Officer, Treasurer and Secretary |  | October 30, 2000
|/s/ROBERT M. RUBINRobert M. Rubin         |  | Director                                                                                             |  | October 30, 2000
|/s/DR. SEYMOUR KESSLERDr. Seymour Kessler |  | Director                                                                                             |  | October 30, 2000
|/s/ALLEN PERRESAllen Perres               |  | Director                                                                                             |  | October 30, 2000
|                                          |  |                                                                                                      |  |                 

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