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

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

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

                                    FORM 10-K

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

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


FOR THE FISCAL YEAR ENDED JULY 31, 2005           COMMISSION FILE NUMBER 0-26230




                         WESTERN POWER & EQUIPMENT CORP.
             ------------------------------------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


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


  6407-B N.E. 117TH AVE, VANCOUVER, WA                            98662
----------------------------------------                       ----------
(Address of principal executive offices)                       (Zip Code)


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


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

                                      None


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

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



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

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

     Indicate by check mark whether Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).  YES [_]   NO [X]

     As of September 23, 2005: (a) 10,180,000 shares of Common Stock, $.001 par
value, of the registrant (the "Common Stock") were outstanding; (b) 2,180,576
shares of Common Stock were held by non-affiliates; and (c) the aggregate market
value of the Common Stock held by non-affiliates was $4,252,123 based on the
closing sale price of $1.95 per share on September 23, 2005.

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<PAGE>
                                     PART I


ITEM 1.     BUSINESS
            --------
GENERAL

     Western Power & Equipment Corp., a Delaware corporation (the "Company"), is
engaged in the sale, rental, and servicing of light, medium-sized, and heavy
construction, agricultural, and industrial equipment, parts, and related
products which are manufactured by Case Corporation ("Case") and certain other
manufacturers. The Company believes, based upon the number of locations owned
and operated, that it is 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 had focused on acquiring additional existing
distributorships and rental operations, opening new locations as market
conditions warrant, and increasing sales at its existing locations. In such
connection, it had sought to operate additional Case or other equipment retail
distributorships, and sell, lease, and service additional lines of construction
equipment and related products not manufactured by Case. For the past few years,
the Company has concentrated on consolidating or closing certain of its stores
to improve operating efficiency and profitability. See "Business Strategy."

     Arizona Pacific Materials, LLC, a wholly owned subsidiary, operates two
surface mines producing cinder and basalt aggregate to supply material for block
manufactures, concrete and asphalt suppliers and landscape contractors, in the
Phoenix and Flagstaff, Arizona building/construction markets.

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 held 12.0 percent of the outstanding
shares of the Company as of July 31, 2005.

     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 existing stores, ending
fiscal year 1997 with 23 stores.

     In fiscal 1998, the Company acquired four additional facilities located in
California and Alaska. The previous Alaska facility was discontinued as it was
combined with the new Alaska facility. 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.

                                        2
<PAGE>
     The Company consolidated four facilities in the first quarter of fiscal
2000 into certain larger stores in each region. One branch office in Washington
was sold during the third quarter of fiscal 2000 while two temporary locations
were established in Southern California. The closures were intended to increase
efficiencies and reduce costs. The two locations 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 and sold the two locations in Southern California in the
third quarter of fiscal 2001.

     During fiscal 2002, the Company closed/sold 3 locations resulting in 15
locations at the end of fiscal 2002. There were no store closures and no new
stores opened in fiscal years 2003 and 2004.

     During fiscal 2005, the Company sold 1 location and purchased Arizona
Pacific Materials, LLC, which operates two surface mines producing cinder
aggregate in the Phoenix and Flagstaff, Arizona building/construction markets.
This resulted in 16 locations at the end of fiscal 2005.

BUSINESS STRATEGY

     The Company's strategy is to streamline the Company's operations and close
or consolidate stores and to increase efficiency and profitability as well as
look for opportunities in diversification. The Company is concentrating its
efforts on reducing costs and increasing sales and margins so that all of its
operations can be profitable. The Company has selectively pared down its product
offerings to reduce inventory carrying costs and to improve turnover in the
remaining product lines that it offers.

     The Company's business strategy includes efforts to expand sales at its
existing locations. The Company will continue to seek to improve its product
line and generate incremental sales increases by adding equipment and parts
produced by manufacturers other than Case, where appropriate. The Company will
also seek to increase sales of parts and service--both of which have
considerably higher margins than equipment sales.

     The Company's business strategy had previously 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 recent years due to market conditions. As market
conditions improve and opportunities arise, the Company consider new 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, in the
future the Company may open new retail outlets or make strategic acquisitions in
related areas, as opportunities and conditions permit. 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.

     In September 2004, the Company purchased Arizona Pacific Materials, LLC,
which operates two surface mines producing cinder and basalt aggregate to supply
material for block manufactures, concrete and asphalt suppliers and landscape
contractors, in the Phoenix and Flagstaff, Arizona building/construction
markets. The business strategy of this segment of the Company is to focus on
developing contracts for production of cinder and basalt for contractors in the
Phoenix and Flagstaff areas, which have shown significant growth in the past few
years.

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

                                        3
<PAGE>
quantities of material--e.g., dirt and rocks-- around a job site). Selling
prices for these units range from $15,000 to $350,000 per piece of Equipment.

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

     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 51% and 47% of the Company's net sales for
fiscal year 2005 and fiscal 2004, respectively, 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.

     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 for
rental. Such Equipment is generally held in the rental fleet for 12 to 36 months
and then sold as used Equipment with appropriate discounts reflecting prior
rental usage. As rental Equipment is taken out of the rental fleet, the Company
adds new Equipment to its rental fleet as needed. The rental charges vary, with
different rates for different types of Equipment rented. In October 1998, the
Company opened its first rental-only store, located in the Seattle, Washington
area, under the name Western Power Rents. This store was consolidated with the
Company's Auburn, Washington store in August 2000. Rentals are 3% and 5% of
revenue in fiscal year 2005 and fiscal year 2004, respectively. See Sales and
Marketing below.

                                        4
<PAGE>
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 80 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 that include those that are neither sold by the Company nor
manufactured by Case.

     The Company purchases parts for use in its Equipment service business, as
well as for sale to other customers who are independent service providers 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 Company provides
only the standard manufacturer's warranty on the parts that it sells, which is
generally a 90-day replacement guaranty.

Mining
------

     The Company, through its wholly owned subsidiary, Arizona Pacific
Materials, LLC, operates two surface mines producing cinder and basalt aggregate
to supply material for block manufacturers, concrete and asphalt suppliers and
landscape contractors, in the Phoenix and Flagstaff, Arizona
building/construction markets.

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, 2005.

For fiscal years 2005, 2004, and 2003, the revenue breakdown by source for the
business operated by the Company were approximately as follows:

                               FY 2005      FY 2004      FY 2003
                               ---------------------------------
     Equipment Sales              72%          70%          70%
     Equipment Rental              3%           5%           5%
     Product Support              24%          25%          25%
     Mining                        1%           0%           0%
                               ---------------------------------
                                 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 2005 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 35 equipment salespersons on July 31,
2005. 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 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.

                                        5
<PAGE>
     On July 31, 2005, the Company employed 1 product support salesperson who
sells Company parts and repair services to customers in assigned territories.
The Company has no independent distributors or non-employee sales
representatives.

SUPPLIERS

     The Company purchases its equipment and parts inventory from Case and other
manufacturers. No supplier other than Case accounted for more than 10% of such
inventory purchases during fiscal 2005. 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 several 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 resulting 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 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

     As of July 31, 2005, the Company employed 244 full-time employees. Of that
number, 17 are in corporate administration, 21 are involved in administration at
the branch locations, 61 are employed in equipment sales and rental, 18 are
employed in mining operations, and 127 are employed in product support. As of
July 31, 2005, approximately 15 of the Company's service technicians and parts
employees at the Sacramento, California operation were being represented

                                        6
<PAGE>
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,
2005. 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's business, results of operations, and financial condition.

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. Any forward-looking statements should be considered in light of these
factors.












                                        7
<PAGE>
ITEM 2.     PROPERTIES
            ----------

     The following table sets forth information as to each of the properties
which the Company owns or leases (all of which are retail sales, rental,
service, storage, and repair facilities except as otherwise noted) at July 31,
2005.
<TABLE><CAPTION>
                                                       EXPIRATION      ANNUAL                                       PURCHASE
LOCATION AND USE                LESSOR                 DATE            RENTAL        SIZE/SQUARE FEET               OPTIONS
----------------                ------                 ----------      ------        ----------------               -------
<S>                             <C>                    <C>             <C>           <C>                            <C>
1745 N.E. Columbia Blvd.        Carlton O. Fisher,     12/31/2010      $ 84,000(1)   Approx. 4 acres;               No
Portland, Oregon 97211          CNJ Enterprises                                      building 17,622 sq. ft.

1665 Silverton Road, N.E.       LaNoel Elston          07/31/2009      $ 37,200(1)   Approx. 1 acre;                No
Salem, Oregon 97303             Myers Living Trust                                   building 14,860 sq. ft.

West 7916 Sunset Hwy.           U.S. Bank              09/30/2008(4)   $ 64,800(1)   Approx. 5 acres;               No
Spokane, Washington 99204                                                            building 19,200 sq. ft.

15111 Smokey Point Blvd         Woody & Carol Wells    11/30/2009      $ 57,650(1)   Approx. 2.1 acres;             No
Marysville, Washington 98271                                                         building 13,600 sq. ft.

6407-B  NE 117th Ave            McLain-Rubin Realty    03/31/2006      $ 98,400      Building 8,627 sq. ft.         No
Vancouver, Washington 98662     Company, LLC (3)
(Executive Offices)

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

500 Prospect Lane               Owned                  N/A             N/A           Approx. 1.5 acres;             N/A
Moxee, Washington 98936                                                              building 4,320 sq. ft.
(Subleased to 3rd Party)

1455 Glendale Ave.              McLain-Rubin Realty    09/30/2007      $276,000(2)   Approx. 5 acres;               No
Sparks, Nevada 89431            Company, LLC (3)                                     building 22,475 sq. ft.

3540 D Regional Parkway         Soiland                Month to        $ 63,450(1)   Approx. 1.25 acres;            No
Santa Rosa, California 95403                           Month                         building 5,140 sq. ft.

1751 Bell Avenue                McLain-Rubin Realty    09/30/2007      $228,000(2)   Approx. 8 acres;               No
Sacramento, California 95838    Company, LLC (3)                                     building 35,940 sq. ft.

8271 Commonwealth Avenue        M.E. Robinson &        03/31/2007      $ 97,536      N/A                            No
Buena Park, CA 90621-2537       Lois Robinson

2535 Ellis Street               Hart Enterprises       04/30/2006      $ 33,600      Approx. 2 acres;               Yes
Redding, California 96001                                                            building 6,200 sq. ft.

1041 S Pershing Ave             Raymond Investment     03/14/2006      $ 50,758      Approx. .5 acres;              Yes
Stockton, CA   95206            Corp                                                 building 1,794 sq. ft.
</TABLE>

                                        8
<PAGE>
<TABLE><CAPTION>
                                                       EXPIRATION      ANNUAL                                       PURCHASE
LOCATION AND USE                LESSOR                 DATE            RENTAL        SIZE/SQUARE FEET               OPTIONS
----------------                ------                 ----------      ------        ----------------               -------
<S>                             <C>                    <C>             <C>           <C>                            <C>
723 15th Street                 Mark Flerchinger       Month to        $ 20,400      Approx. 1.2 acres;             Yes
Clarkston, Washington 99403                            Month                         building 3,750 sq. ft.

2020 E. Third Avenue            ROM Holdings           11/30/2014      $108,000      Approx. 4 acres;               No
Anchorage, Alaska 99501                                                              building 15,650 sq. ft.

3511 International Street       Ed Maynard             11/30/2009      $ 78,000      Approx. 1.5 acres;             No
Fairbanks, Alaska 99701                                                              building 8,500 sq. ft.

9390 E Hiller Rd                Owned                  N/A             N/A           Approx. 74 acres               N/A
Phoenix, AZ  85232
                                State of Arizona(5)    10/20/07        $  3,200      Approx. 80 acres               No

4999 E Empire  Unit A           Sister's Cinders       11/30/07        Based upon    Approx. 800 acres              No
Flagstaff, AZ  86004                                                   minerals
                                                                       sold,
                                                                       minimum
                                                                       $25,000
                                                                       per year
</TABLE>

1    Net lease with payment of insurance, property taxes, and maintenance costs
     paid by the Company.
2    Net lease with payment of insurance, property taxes and maintenance costs,
     including structural repairs, paid by the Company.
3    Related party lease.
4    Renewal in process.
5    Own the mineral rights while the State of Arizona owns the surface rights.
================================================================================


     The Company's operating facilities as of July 31, 2005 were separated into
1) six "hub" outlets and eight "sub-stores" and 2) one subsidiary with two
locations. In addition, the Company maintains its headquarter operations in
Vancouver, Washington. The hub stores are the main distribution centers located
in Auburn and Spokane, Washington; Portland, Oregon; Sparks, Nevada; Buena Park,
and Sacramento, California; and Anchorage, Alaska; and the sub-stores are the
smaller facilities located in Mukilteo and Clarkston, Washington; Salem, Oregon;
Santa Rosa, Stockton, and Redding, California; and Fairbanks, Alaska. The
subsidiary (Arizona Pacific Materials, LLC) maintains locations in Florence and
Flagstaff, Arizona.

     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 business,
results of operations, and financial condition.


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

     There were no matters submitted during the fourth quarter of the fiscal
year covered by this report to a vote of security holders, through the
solicitation of proxies or otherwise.

                                        9
<PAGE>
                                     PART II

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

     The Company's stock is traded on the OTC Bulletin Board under the symbol
WPEC. The high and low closing prices for the Company's common stock for the
years ended July 31, 2005 and July 31, 2004 were as follows:


     Fiscal 2005                                               High        Low
     -----------                                               ----        ---
     1ST QUARTER - August 1, 2004 through October 31, 2004    $  0.91    $ 0.52

     2ND QUARTER - November 1, 2004 through January 31, 2005  $  1.95    $ 1.01

     3RD QUARTER - February 1, 2005 through April 30, 2005    $  1.52    $ 0.96

     4TH QUARTER - May 1, 2005 through July 31, 2005          $  1.85    $ 1.20

     Fiscal 2004
     -----------
     1ST QUARTER - August 1, 2003 through October 31, 2003    $ 0.45     $ 0.15

     2ND QUARTER - November 1, 2003 through January 31, 2004  $ 0.43     $ 0.32

     3RD QUARTER - February 1, 2004 through April 30, 2004    $ 0.41     $ 0.35

     4TH QUARTER - May 1, 2004 through July 31, 2004          $ 0.40     $ 0.26


     The number of shareholders of record of the Company's Common Stock on July
31, 2005 was 453 and the number of beneficial holders of the Company's Common
Stock is estimated by management to be approximately 850 holders.

     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
development of its business.

     Equity Compensation Plan Information
     ------------------------------------
<TABLE><CAPTION>
-------------------------   -----------------------   --------------------   -------------------------
Plan category               Number of Securities to   Weighted -average      Number of securities
                            be issued upon exercise   exercise price of      remaining available for
                            of outstanding options,   outstanding options,   future issuance under
                            warrants and rights       warrants and rights    equity compensation plans
                                                                             (excluding securities
                                                                             reflected in column (a))
-------------------------   -----------------------   --------------------   -------------------------
<S>                         <C>                       <C>                    <C>
Equity compensation plans
approved by security
holders                           1,900,000                  $.50                   5,100,000
-------------------------   -----------------------   --------------------   -------------------------
Equity compensation plans
not approved by security
holders                               --                      --                        --
-------------------------   -----------------------   --------------------   -------------------------
</TABLE>

                                      II-1
<PAGE>
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)
<TABLE><CAPTION>
                                                         Fiscal Year Ended July 31,
                                                         --------------------------
                                         2005         2004         2003         2002         2001
                                       ------------------------------------------------------------
<S>                                    <C>          <C>          <C>          <C>          <C>
Net sales                              $117,222     $115,516     $102,396     $107,988     $139,902
Gross profit                           $ 14,158     $ 14,170     $ 13,526     $  7,763     $  9,820
   (% of sales)                            12.1         12.3         13.2          7.2          7.0
Selling, general and administrative    $ 10,169     $  9,594     $  9,955     $ 10,199     $ 12,840
   (% of sales)                             8.7          8.3          9.7          9.4          9.2
(Loss) income before income taxes      $  1,038     $  1,961     $    460     $ (9,971)    $ (7,537)
   (% of sales)                             1.0          1.7           .4         (9.2)        (5.4)
Tax rate (%)                             (140.0)         2.4         10.4          0.5          4.0
Net (loss) income                      $  2,490     $  1,913     $    412     $(10,019)    $ (7,842)

Net (loss) income per basic common
   share                               $   0.25     $   0.19     $   0.08     $  (2.50)    $  (2.30)

Net (loss) income per dilutive
   common share                        $   0.10     $   0.19     $   0.08     $  (2.50)    $  (2.30)

Shares used in basic earnings per
   share calculations                    10,141       10,130        5,336        4,003        3,403

Shares used in dilutive earnings
   per share calculations                26,269       10,130        5,336        4,003        3,403

Working capital surplus (deficit)      $ 19,165     $(12,800)    $(17,590)    $(24,390)    $(20,102)
Long-term debt (including capital
   leases and deferred lease income)   $ 25,437     $    902     $    880     $    928     $  3,469
Stockholders' equity (deficit)         $  6,500     $    102     $ (1,811)    $ (3,136)    $  6,751
Total assets                           $ 71,637     $ 55,024     $ 54,466     $ 60,116     $ 93,092
</TABLE>










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

     The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto appearing elsewhere in
this annual report. Certain matters discussed herein contain forward-looking
statements that are subject to risks and uncertainties that could cause actual
results to differ materially from those projected.

GENERAL

     The Company acquired its first seven retail distribution stores in November
1992. The Company expanded to 18 stores in four states by the end of fiscal
1996, to 23 stores in five states by the end of fiscal 1997, and to 27 stores in
five states by the end of fiscal 1998. In fiscal 1999, the Company closed 3
stores. At the end of fiscal 2003 and 2004, the Company had 15 stores in
operation. In 2005 the Company sold 1 store in California and purchased a
subsidiary, Arizona Pacific Materials, LLC, with 2 locations. At the end of
fiscal year 2005 the Company had 16 locations.

     For the last four years, the Company has concentrated on consolidating or
closing stores to improve operating efficiency and profitability. Store activity
for the last three years is summarized as follows:
<TABLE><CAPTION>
------  -----------------  -------------  -------------  -------------  ----------------
FISCAL  NO. OF STORES AT   NO. OF STORES  NO. OF STORES  NO. OF STORES  NO. OF STORES AT
 YEAR   BEGINNING OF YEAR     OPENED       CLOSED/SOLD      ACQUIRED      END OF YEAR
------  -----------------  -------------  -------------  -------------  ----------------
<S>     <C>                <C>            <C>            <C>            <C>
 2003          15                0              0              0               15
------  -----------------  -------------  -------------  -------------  ----------------
 2004          15                0              0              0               15
------  -----------------  -------------  -------------  -------------  ----------------
 2005          15                0              1              2               16
------  -----------------  -------------  -------------  -------------  ----------------
</TABLE>

     The Company continues to evaluate additional store closures or sales. In
addition, in the future 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. 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 2005, AS COMPARED WITH FISCAL YEAR 2004

     The Company reported net revenues for fiscal 2005 of $117,222,000 compared
with net revenues of $115,516,000 for fiscal 2004. Stores opened longer than 12
months showed an overall revenue increase of 1.5 percent from prior year revenue
reflecting a continued recovery in economic conditions. During 2005, there were
two locations purchased through the acquisition of Arizona Pacific Materials,
LLC, which accounted for $1,223,000 in sales during 2005, and one store closure.

     Gross margin was 12.1 percent during fiscal 2005 which was slightly lower
than the 12.3 percent gross margin during fiscal 2004. The decrease in 2005, is
due to changes in sales mix. Inventory reserves and allowances were $3,914,000
and $4,115,000 in 2005 and 2004 respectively. The Company continues to focus its
sales efforts on specialty and niche lines.

     Selling, general, and administrative expenses were $ 10,169,000 or 8.7
percent of revenues for fiscal 2005 compared to $9,594,000 or 8.3 percent of
sales for fiscal 2004. The increase in selling, general, and administrative
expenses resulted from first year costs associated with the addition of a new
subsidiary, Arizona Pacific Materials, LLC, and its two locations in Arizona in
fiscal 2005. Selling, general and administrative costs for the Arizona
subsidiary were $1,265,000 for the year ended July 31, 2005.

     Interest expense for fiscal 2005 was $3,146,000, up from $2,767,000 in
fiscal 2004 due to a combination of a increase in overall interest rates and
higher inventory levels. The Company had an inventory floor plan and operating
line

                                      II-3
<PAGE>
of credit facility through GE Commercial Distribution Finance ("GE"), fka
Deutsche Financial Services, which was paid off in June 2005. Management had
used this facility to allow the Company to take greater discounts and to lower
overall interest expense and to provide operating capital liquidity. In June
2005, the Company closed a new $32 million senior credit facility with several
institutional lenders. The facility is comprised of $30 million of convertible
debt (convertible into common shares of the Company at $2.00 per share) payable
over the next five years and a $2 million six month bridge loan, both at a
variable interest rate of LIBOR plus 6%. A portion of the proceeds from the
convertible debt was used to pay off the credit line with GE. The lenders were
also granted warrants to purchase approximately 8.5 million common shares of the
Company at $1.75 per share. The value of these warrants is $3,031,000 and is
treated as debt discount to be amortized over the life of the related debt. The
lenders also have the right to lend an additional $7.5 million to the Company
(within 18 months of the date of the original debt) under the same terms as the
existing five year convertible debt and would receive an additional 1,312,500
warrants. The value of these warrants is $441,000 and is also treated as debt
discount to be amortized over 18 months. Included in interest expense for fiscal
2005 is $387,000 of amortized debt discount related to the issuance of warrants.

     For fiscal 2005, the Company reported net income of $2,490,000 or $ 0.25
per share (basic) compared with net income of $1,913,000 or $ 0.19 per share
(basic) in fiscal 2004. The increase in net income is primarily the reduction in
a valuation allowance of the Company's deferred taxes of $1,500,000 offset by
losses incurred by our subsidiary Arizona Pacific Materials, LLC during it's
first year of operations with Western Power & Equipment.

     On September 15, 2004 the Company acquired Arizona Pacific Materials LLC, a
basalt and cinder mining company with operating mines in Phoenix and Flagstaff,
Arizona. The purchase price was $3 million of which $2.5 million was being
carried by the Seller as a note from the Company with interest at 5% and an
installment payment of $2,000,000 plus accrued interest in 13 months from the
date of purchase and the balance of principal and accrued interest due 19 months
from the date of purchase. The $2.5 million note to the seller was paid in June
2005 out of the proceeds from a new $32 million senior credit facility, as
discussed above.

FISCAL YEAR 2004, AS COMPARED WITH FISCAL YEAR 2003

     The Company reported net revenues for fiscal 2004 of $115,516,000 compared
with net revenues of $102,396,000 for fiscal 2003. Stores opened longer than 12
months showed an overall revenue increase of 12.8 percent from prior year
revenue reflecting a slight recovery in economic conditions. During 2004, there
were no new stores opened or additional store closures.

     Gross margin was 12.3 percent during fiscal 2004 which was slightly lower
than the 13.2 percent gross margin during fiscal 2003. The decrease in 2004, is
due in part to management's continued successful efforts in reducing inventory
levels, particularly of older inventory which were sold at slightly lower prices
than those of the prior year. Also contributing to lower margins in 2004, are
changes in sales mix, which reflect a greater number of new and used equipment
sales transactions which traditionally carry lower margins, thus lowering the
weighted average gross margin percent. Inventory reserves and allowances are
slightly lower in 2004 ($4.1 million) than 2003 ($4.8 million) due to the
Company's ability to sell off such older equipment as described above with very
little application of obsolescence reserves to the sales. The Company continues
to focus its sales efforts on specialty and niche lines.

     Selling, general, and administrative expenses were $ 9,594,000 or 8.3
percent of revenues for fiscal 2004 compared to $9,955,000 or 9.7 percent of
sales for fiscal 2003. The decrease in selling, general, and administrative
expenses resulted in part from the concentrated effort by management to reduce
expenses primarily in the area of payroll and payroll related costs.

     Interest expense for fiscal 2004 was $2,767,000, down from $3,363,000 in
fiscal 2003 due to a combination of a decrease in interest rates and lower
inventory levels. The Company has a inventory floor plan and operating line of
credit facility through GE Commercial Distribution Finance ("GE"), fka Deutsche
Financial Services. See LIQUIDITY AND CAPITAL RESOURCES below for a description
of the status of the GE facility. Management has used this facility to allow the
Company to take greater discounts and to lower overall interest expense and to
provide operating capital liquidity.

     For fiscal 2004, the Company reported net income of $1,913,000 or $ 0.19
per share compared with net income of $412,000 or $ 0.08 per share in fiscal
2003. The increase in net income is primarily a result of increased sales and
continued efforts by management to minimize administrative expenses.

                                      II-4
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

     The Company's primary needs for liquidity and capital resources are related
to its acquisition of inventory for sale and its rental fleet. The Company's
primary source of internal liquidity has been from its 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 as well as the credit
facility more fully described below.

     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 to two percent over the
prime rate of interest. Principal payments are typically made under these
agreements at scheduled intervals and/or as the equipment is rented, with the
balance due at the earlier of a specified date or upon sale of the equipment. At
July 31, 2005, the Company was indebted under manufacturer provided floor plan
arrangements in the aggregate amount of $ 24,558,000.

     The Company had an inventory floor plan and operating line of credit with
GE which expired on December 31, 2001. The line of credit agreement had not been
renewed and the Company was operating under the agreement on a month to month
basis. This credit facility was paid in full in June 2005. Amounts were advanced
against the Company's assets, including accounts receivable, parts, new
equipment, rental fleet, and used equipment. The agreement provided for a
floating interest rate based on prime with rates between 0.75% under prime to
2.25% over prime depending on the amount of total debt leverage of the Company.
The Company used 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, and to provide operating capital for further growth.
Borrowings were collateralized by the Company's assets, including accounts
receivable, parts inventory, new and used equipment inventory and rental
equipment. As of July 31, 2005, there were no amounts outstanding under the GE
credit facility.

     In June 2005 the Company closed a new $32 million senior credit facility
with several institutional lenders. The facility is comprised of $30 million of
convertible debt (convertible into common shares of the Company at $2.00 per
share) payable over the next five years and a $2 million six month bridge loan,
both at a variable interest rate of LIBOR plus 6%. The lenders were also granted
warrants to purchase approximately 8.5 million common shares of the Company at
$1.75 per share. The value of these warrants is $3,031,000 and is treated as
debt discount to be amortized over the life of the related debt. The lenders
also have the option to lend an additional $7.5 million to the Company (within
18 months of the date of the original debt) under the same terms as the existing
five year convertible debt. The value of these warrants is $441,000 and is also
treated as debt discount to be amortized over 18 months.

     Western used $23.0 million of the loan proceeds to repay and terminate its
credit facility and forbearance agreement with GE Commercial Distribution
Finance Corporation and $2.5 million to pay off the purchase note of Arizona
Pacific Materials (see Note 11). The remainder of the proceeds will be used to
support its near term needs for working capital, general capital expenditures,
including sufficient working capital to initiate the build out of the Phoenix
mining facilities, and other corporate requirements.

     On July 31, 2005, cash and cash equivalents were 855,000. The Company had
negative cash flows from operating activities during the year of $ 2,215,000.
The Company's cash flow from operating activities consisted primarily of an
decrease in accounts receivable of $1,197,000, an increase of accounts payable
of $2,463,000, depreciation of $5,332,000, offset by an increase in inventories
of $19,816,000, an increase in floor plan financing of $9,997,000 and the
provision for deferred income taxes of 1,500,000. Purchases of fixed assets
during the period were related mainly to the ongoing replacement of aged
operating assets. The Company paid down its short-term financing by $31,710,000,
closed a $30,000,000 convertible debenture and a $2,000,000 bridge loan and
increased its long tem borrowings, net of repayments by $687,000 during the
year.

                                      II-5
<PAGE>
     Our obligations as of July 31, 2005 and the period in which they are
scheduled to become due are set forth in the following table:
<TABLE><CAPTION>
                                          DUE IN LESS      DUE IN         DUE IN        DUE AFTER
OBLIGATION                    TOTAL       THAN 1 YEAR     1-3 YEARS      4-5 YEARS       5 YEARS
------------------------   -----------    -----------    -----------    -----------    -----------
<S>                        <C>            <C>            <C>            <C>            <C>
Long Term Debt             $   809,790    $   154,510    $   327,254    $   328,026    $        --

Related Party Debt             500,000        200,000        200,000        100,000             --

Bridge Loan                  1,333,320      1,333,320             --             --             --

Convertible Debt            30,000,000      3,888,889     13,333,333     12,777,778             --

Capital Lease Obligation       853,115         43,237        118,150        143,210        548,518

Employment Contract
  Obligations                1,228,258      1,228,258             --             --             --

Operating Leases             5,011,029      1,300,512      1,789,653        803,864      1,117,000
                           -----------    -----------    -----------    -----------    -----------
Total Cash Obligations     $39,735,512    $ 8,148,726    $15,768,390    $14,152,878    $ 1,665,518
                           ===========    ===========    ===========    ===========    ===========
</TABLE>

As of July 31, 2005, our obligations included approximately $ 438,000 in various
state sales taxes.

RISK FACTORS

INVENTORY

     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.

INFLATION

     All of the products and services provided by the Company are capital
equipment, included in capital equipment, or raw materials which are used in the
construction 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.

ECONOMIC CONDITIONS

     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 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.

SEASONALITY; FLUCTUATIONS IN RESULTS

     Historically, sales of our products have varied substantially from quarter
to quarter due to the seasonality of the construction business. We attempt to
accurately forecast orders for our products and commence purchasing prior to the

                                      II-6
<PAGE>
receipt of such orders. However, it is highly unlikely that we will consistently
accurately forecast the timing and rate of orders. This aspect of our business
makes our planning inexact and, in turn, affects our shipments, costs,
inventories, operating results and cash flows for any given quarter. In
addition, our quarterly operating results are affected by competitive pricing,
announcements regarding new product developments and cyclical conditions in the
industry. Accordingly, we may experience wide quarterly fluctuations in our
operating performance and profitability, which may adversely affect our stock
price even if our year-to-year performance is more stable, which it also may not
be. In addition, many of our products require significant manufacturing
lead-time, making it difficult to order products on short notice. If we are
unable to satisfy unexpected customer orders, our business and customer
relationships could suffer and result in the loss of future business.

INVENTORY LEAD-TIMES; POTENTIAL WRITE-DOWNS

     To be competitive in certain of its markets, particularly markets for
products with long lead time, the Company will be required to build up
inventories of certain products in anticipation of future orders. There can be
no assurance that the Company will not experience problems of obsolete, excess,
or slow-moving inventory if it is not able to properly balance inventories
against the prospect of future orders, and the Company's operations may,
therefore, be adversely affected by inventory write-downs from time to time. In
periods of general economic slowdown or slowdowns in the construction sector we
could be especially affected by such problems.

WRITE-DOWNS OF GOODWILL AND INTANGIBLES

     Goodwill and other intangible assets are reviewed for impairment whenever
an event or change in circumstances indicates that the carrying amount may not
be recoverable. If the carrying value of the Company's intangible assets exceeds
the expected undiscounted future cash flows, a loss is recognized to the extent
the carrying amount of assets exceeds their fair values.

COMPETITION

     Many of the Company's existing and potential competitors have substantially
greater marketing, financial, and service resources than the Company has. In
addition, some of the Company's competitors have broader product offerings,
placing the Company at a disadvantage to some of its competitors. In addition,
the Company believes that some of its competitors have obtained and maintained
business that loses money - "loss leading" - in order to maintain a competitive
advantage with regard to specific customers or products. If the Company's
competitors were to use such tactics in the future, the Company would be unable
to maintain its market position without incurring a negative impact on its
profitability.

CYCLICALITY OF INDUSTRY

     The construction equipment industry is always very competitive. Advances in
technology may reduce the cost for current or potential competitors to gain
market share, particularly for lower priced products. We cannot guarantee that
sales of our products will continue at current volumes or prices in any event,
but especially if our current competitors or new market entrants introduce new
products with better features, better performance, or lower prices or having
other characteristics that are more attractive than our own. Competitive
pressures or other factors also may result in significant price competition that
could have a material adverse effect on our results of operations.

DEPENDENCE UPON THIRD-PARTY MANUFACTURERS

     All of our products related to the equipment industry are supplied by third
parties. From time to time, we experience delays and disruptions in our supply
chain. To date, these delays and disruptions have not materially adversely
affected our business, but they could do so in the future. Wherever possible, we
try to assure ourselves of adequate inventory supply, but we do not always
succeed. To the extent that we experience significant supply or quality control
problems with our vendors, these problems can have a significant adverse effect
on our ability to meet future delivery commitments to our customers.

     Currently, Case Corporation provides approximately 49% of our products.
Case dealer contracts are non-exclusive and terminable by either party upon
minimum notice. There can be no assurances that Case will continue to supply the
Company with products or continue its relationship with the Company. If we are
unable to obtain Case products

                                      II-7
<PAGE>
or to continue our relationship with Case, we will likely experience reductions
in product and service sales and increased expenses. Our operations will be
negatively affected if we experience inadequate supplies of any key products.

RECENT ACCOUNTING STANDARDS

The following pronouncement has been issued by the FASB.

In December, 2004, the Financial Accounting Standards Board ("FASB") issued its
final standard on accounting for share-based payments ("SBP"), FASB Statement
No. 123R (revised 2004), Share-Based Payment. The Statement requires companies
to expense the value of employee stock options and similar awards. Under FAS
123R, SBP awards result in a cost that will be measured at fair value on the
awards' grant date, based on the estimated number of awards that are expected to
vest. Compensation cost for awards that vest would not be reversed if the awards
expire without being exercised. The effective date for public companies is the
first annual reporting period beginning after June 15, 2005, and will apply to
all outstanding and unvested SBP awards at a company's adoption. Management does
not anticipate that this Statement will have a significant impact on the
Company's consolidated financial statements.

In May 2005, the Financial Accounting Standard Board ("FASB") issued SFAS No.
154, "Accounting Changes and Error Corrections - a Replacement of APB Opinion
No. 20 and FASB No. 3." This statement requires retrospective application of
prior periods' financial statements of changes in accounting principles, unless
it is impracticable to determine the period specific effects, or the cumulative
effect of the change. This pronouncement will be effective December 15, 2005.
Currently, the Company does not have changes in accounting principle, the
adoption of SFAS No. 154 will not have an impact on the Company's financial
position or results of operations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's significant accounting policies are described in Note 1 to the
financial statements included in Item 14 of the Annual Report on Form 10-K. Our
financial statements and accompanying notes are prepared in accordance with U.S.
GAAP. Preparing financial statements requires management to make certain
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses. These estimates and assumptions are affected
by management's application of accounting policies.

The estimates for inventory obsolescence reserves are developed to provide for
allowances in recognition of decreasing market prices for aged equipment
inventory using inventory aging reports for new and used equipment, combined
with available market prices for comparable equipment, historical and forecasted
sales information. As trends in these variables change, the percentages applied
to the inventory aging categories are updated.

The estimates for impairments of goodwill are derived in accordance with
Statement of Financial Accounting Standards No. 142, "Accounting for Goodwill
and other Intangibles." The Company continually reviews goodwill and other
intangibles to evaluate whether events or changes have occurred that would
suggest an impairment.

Also in accordance with Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment of Long-Lived Assets to be Disposed Of" estimates
related to the impairment in the value of the long-lived assets are reviewed at
each balance sheet date. The amount of any such impairment is determined by
comparing anticipated undiscounted future cash flows from operating activities
with the associated carrying value. The factors considered by management in
performing this assessment include operating results, trends and prospects, as
well as the effects of obsolescence, demand, competition, and other economic
factors.

Some amount of judgement is required to assess the ultimate realization of
receivables, including assessing the probability of collection and the current
credit worthiness of our clients. Probability of collection is based upon the
assessment of the client's financial condition through review of its current
financial statements and/or credit reports. The estimate of allowance for
doubtful accounts is comprised of two parts, a specific account analysis and a
general reserve. Accounts where specific information indicates a potential loss
may exist are reviewed and a specific reserve against amounts due is recorded.
As additional information becomes available such specific account reserves are
updated. Additionally, a general reserve is applied to the aging categories
based on historical collection and write-off experience. As trends in historical
collection and write-offs change, the percentages applied against the accounts
receivable aging categories are updated.

                                      II-8
<PAGE>
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.

FORWARD LOOKING STATEMENTS

     Information included within this section relating to projected revenues ,
growth, income, potential cost savings 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 and
industrial sectors and general economic cycles; the success of the Company's
entry into new markets; the success of the Company's entry into new markets; the
success of the Company's operation of the acquired business; 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. Any forward-looking statements should
be considered in light of these factors.














                                      II-9
<PAGE>
ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            ----------------------------------------------------------

     The Company is exposed to market risk from changes in interest rates.
Market risk is the potential loss arising from adverse changes in market rates
and prices such as interest rates. For fixed rate debt, interest rate changes
affect the fair value of financial instruments but do not impact earnings or
cash flows. Conversely for floating rate debt, interest rate changes generally
do not affect the fair market value but do impact future earnings and cash
flows, assuming other factors are held constant. At July 31, 2005, the Company
had variable rate floor plan payables, notes payable, and long-term debt of
approximately $53.4 million. Holding other variables constant, the pre-tax
earnings and cash flow impact for the next year resulting from a one percentage
point increase in interest rates would be approximately $0.53 million. The
Company's policy is not to enter into derivatives or other financial instruments
for trading or speculative purposes.




























                                      II-10
<PAGE>
ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
            -------------------------------------------

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

     Consolidated Statements of Operations for the years ended
          July 31, 2005, 2004, and 2003                                      F-1
     Consolidated Balance Sheets as of July 31, 2005 and 2004                F-2
     Consolidated Statements of Stockholders' Equity/(Deficit)
          for the years ended July 31, 2005, 2004, and 2003                  F-3
     Consolidated Statements of Cash Flows for the years ended
          July 31, 2005, 2004, and 2003                                 F-4, F-5
     Notes to Consolidated Financial Statements                              F-6
     Report of Independent Auditors'                                        F-22


Financial Statement Schedule:

     Report of Independent Registered Public Accounting Firms -
          Financial Statement Schedule                                      F-23
     Schedule II - Valuation and Qualifying Accounts                        F-24


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

     Western Power & Equipment Corp. engaged Marcum & Kliegman LLP as its new
independent registered public accounting firm as of May 1, 2003. During the two
fiscal years and the subsequent interim period prior to the engagement of Marcum
& Kliegman LLP on May 1, 2003, Western Power & Equipment Corp. did not consult
with Marcum & Kliegman LLP regarding the application of accounting principles to
any specific transaction, whether completed or proposed; on the type of audit
opinion that might be rendered on Western Power & Equipment Corp.'s financial
statements; or on any matter that was either the subject of a disagreement or a
reportable event.


ITEM 9A.    CONTROLS AND PROCEDURES
            -----------------------

     We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms and that such
information is accumulated and communicated to our management, including our CEO
and CFO, as appropriate, to allow for timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.

     As required by SEC Rule 13a-15(e) and 15d-15(e), we carried out an
evaluation, under the supervision and with the participation of our management,
including our CEO and CFO, of the effectiveness of the design and operation of
our disclosure controls and procedures as of the end of the period covered by
this report. Based on the foregoing, the CEO and CFO concluded that our
disclosure controls and procedures were effective at the reasonable assurance
level.

     There has been no change in our internal controls over financial reporting
during the most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal controls over financial
reporting.


ITEM 9A.    OTHER INFORMATION
            -----------------

     None.

                                      II-11
<PAGE>
                                    PART III


ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
            ----------------------------------------------

     Directors
     ---------

The following table sets forth the name and age of each of the Company's
directors, as well as the length of time which each director has served.

     Name                              Age                    Director Since
     ----------------                  ---                    --------------
     C. Dean McLain                    51                          1993
     Michael Metter                    54                          2003
     Steven Moskowitz                  41                          2003
     James Fisher                      69                          2004

C. DEAN MCLAIN. Mr. McLain has served as President, Chief Executive Officer, and
a director of the Company since March 7, 1993. Mr. McLain was elected Chairman
of the Board of Directors effective August 1, 1998. From March 1, 1993 through
June 13, 1995, Mr. McLain served as Executive Vice President of AUGI. Mr. McLain
has served on the Board of Directors of AUGI since March 7, 1994. From January
1990 through 1993 Mr. McLain served as Manager of Privatization of Case
Corporation.

MICHAEL METTER. Mr. Metter has served as director since February 11, 2003. Since
April 2001, Mr. Metter has been the President of RME International, Ltd. (RME).
Mr. Metter also currently consults to a broad range of businesses, including IT
communications and media businesses, on mergers, acquisitions, restructuring,
financing and other matters. From October 1998 to February 2001, Mr. Metter was
a principal of Security Capital Trading, Inc., and was a principal at Madison
Capital from September 1997 to October 1998. Prior thereto, Mr. Metter was
President of First Cambridge Securities from October 1994 to August 1997.
Effective with a merger of a division of R.M. Enterprises International, Ltd
into Azurel, Ltd., in October 2002, Mr. Metter became President and COO of
Azurel. He resigned as President in February 2003 and subsequently resigned the
position of COO which he held from February 2003 until June 28, 2003. Mr. Metter
is also President and CEO of BusinessTalkRadio.net (a private company). BTR is a
syndicated radio network based in Greenwich, Connecticut. He has held this
position since June 2002. He is also chairman of Tiburon Capital Group, a
privately held holding corporation.

STEVEN MOSKOWITZ. Mr. Moskowitz has served as director since February 11, 2003.
Since 1997, Mr. Moskowitz has been the Vice-President of Business Development
for H.W. Carter and Sons. Prior thereto, Mr. Moskowitz was Division President of
Evolutions. Mr. Moskowitz is currently a director and secretary for Spongetech.
He previously served as the CEO and a director of Azurel, Ltd from October 2002
through September 2003, President from May 2004 to July 2004. He has been the
CEO of Azurel, Ltd since July 2005. Mr. Moskowitz is also currently an
independent director for R.M. Enterprises International, Ltd. He is also
Executive Vice President of Tiburon Capital Group, a privately held holding
corporation.

JAMES FISHER Mr. Fisher was an insurance agent and broker as well as a
registered representative holding a Series 7 securities license and was an
insurance broker representing CIGNA, UNUM, and Metropolitan Life, among others.
He retired in 1994, when he also resigned from the board of directors of Fleet
Bank of New York.

     Audit Committee Financial Expert
     --------------------------------

Our Company's board of directors has determined that at least two audit
committee financial experts are serving on its audit committee. Mr. Metter and
Mr. Fisher, are financial experts and are independent as that term is used in
Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").

     Code of Ethics
     --------------

     The Company has adopted a code of ethics that applies to its chief
executive officer and chief financial officer and other key financial personnel.
The code of ethics can be viewed at the Company's website, www.westernpower.com.
The Company intends to satisfy the disclosure requirements under item 10 of Form
8-K regarding an amendment to, or a waiver from, a provision of its code of
ethics by putting such information on its Internet website.


                                      III-1
<PAGE>
ITEM  11.   EXECUTIVE COMPENSATION
            ----------------------

     The Compensation Committee of the Board of Directors (the "Committee") is
currently composed of three non-employee directors. The Committee reviews the
compensation of the Company's officers and key employees and the granting of
stock options under the Company's stock option plans and makes recommendations
to the Board of Directors for action on these matters. During the fiscal year
ended July 31, 2005, the Company's Board of Directors decided all compensation
matters relating to the Company's executive officers.

     The key objectives of the Company's executive compensation policies are to
attract and retain key executives who are important to the long-term success of
the Company and to provide incentives for these executives to achieve high
levels of job performance and enhancement of shareholder value. The Company
seeks to achieve these objectives by paying its executives a competitive level
of base compensation for companies of similar size and industry and by providing
its executives an opportunity for further reward for outstanding performance in
both the short term and the long term. The Company has entered into an
employment agreement with Mr. McLain that covers a multiple year term (see
"Chief Executive Officer Compensation," below). The compensation of Mr. Wright
is based on an employment agreement dated August 1, 2000. Mr. Rubin, a major
shareholder, was previously compensated under an employment contract (see
"Employment, Consulting and Incentive Compensation Agreements," below), entered
into a consulting agreement with the Company on August 1, 1998 after he ceased
to be an executive officer of the Company on July 31, 1998 and entered into
another consulting agreement on August 1, 2000 when the original consulting
agreement expired.

     Executive Officer Compensation. The Company's executive officer
compensation program is comprised of three elements: base salary, annual cash
bonus and long-term incentive compensation in the form of stock option grants.

     SALARY. The Committee and the Board of Directors established base salaries
for the Company's executive officers, including the salary established in Mr.
McLain's employment agreement, after taking into account individual experience,
job responsibility and individual performance during the prior year. These
factors are not assigned a specific weight in establishing individual base
salaries. The Committee also considered the Company's executive officers'
salaries relative to salary information for executives in similar industries and
similarly sized companies.

     CASH BONUSES. The purpose of the cash bonus component of the compensation
program is to provide a direct financial incentive in the form of cash bonuses
to executives. Mr. McLain's bonus is derived under the performance formula set
forth in his employment contract described under "Employment and Incentive
Compensation Agreements" below.

     STOCK OPTIONS. Stock options are the primary vehicle for rewarding
long-term achievement of Company goals. The objectives of the program are to
align employee and shareholder long-term interests by creating a strong and
direct link between compensation and increases in share value. Under the
Company's 1995 Employee Stock Option Plan, the Board of Directors or the
Compensation Committee may grant options to purchase Common Stock of the Company
to key employees of the Company. Messrs. McLain and Wright currently participate
in the 1995 Employee Stock Option Plan. The number of options granted to Mr.
McLain are determined under the terms of his employment agreement. The number of
options granted to Mr. Wright are determined by the Compensation Committee on a
discretionary basis. The options generally vest immediately at the time of
grant.

     CHIEF EXECUTIVE OFFICER COMPENSATION. In August 2000 the Company entered
into an new employment agreement with its chief executive officer, Mr. McLain,
to ensure the retention of his services and to encourage him to perform at
increasing levels of effectiveness and to use his best efforts to promote the
growth and profitability of the Company. This approach enabled the Board to
concentrate on the negotiation of a particular employment contract with salary,
incentive bonus and stock option components that reflect a longer term view of
the Company's prospects and goals. See "Employment, Consulting and Incentive
Compensation Agreements" for a complete description of the employment agreements
and the compensation and benefits provided thereunder.


                                      III-2
<PAGE>
     Summary Compensation Table
     --------------------------

     The following table sets forth the amount of all compensation paid during
each of the last three fiscal years to the Chief Executive Officer and to each
of the Company's other executive officers for services in all capacities to the
Company.
<TABLE><CAPTION>
                                                                         COMPENSATION
                                      LONG-TERM                             AWARDS
                                  ANNUAL COMPENSATION                     ---------
                              --------------------------   OTHER ANNUAL   NUMBER OF     ALL OTHER
NAME AND PRINCIPAL POSITION   YEAR    SALARY      BONUS    COMPENSATION    OPTIONS    COMPENSATION
---------------------------   ----   --------   --------   ------------   ---------   ------------
<S>                           <C>    <C>        <C>        <C>            <C>         <C>
C. Dean McLain                2005   $423,376   $257,950     $  1,482         --              --
President, CEO, Chairman      2004   $424,805   $189,491     $     --         --              --
of the Board(1)               2003   $399,633   $ 15,000     $     --         --        $415,413

Mark J. Wright                2005   $189,976   $140,705     $  9,000         --              --
Vice President of             2004   $190,618   $ 10,000     $  9,000         --              --
Finance and CFO               2003   $208,255   $ 75,000     $     --         --              --
</TABLE>


(1)  Mr. McLain joined the Company in March 1993, when he became its Chief
     Executive Officer. On July 31, 1995, Mr. McLain was permitted to and did
     purchase from AUGI 6,000 shares of AUGI's common stock at a price of $.01
     per share. On August 1, 1995, the closing price for a share of AUGI's
     common stock as reported by NASDAQ was $4.875. Effective as of August 1,
     1995, Mr. McLain's employment agreement with the Company was terminated and
     he entered into an amended employment agreement expiring July 31, 2005. The
     base salary under this employment agreement commenced at $250,000 for
     fiscal 1996, and increased to $300,000 for fiscal 2000. His employment
     agreement also calls for Incentive Bonuses under certain circumstances.
     Effective as of August 1, 2000 Mr. McLain's employment agreement with the
     Company was terminated and he entered into a new employment agreement
     expiring July 31, 2007. The base salary under this employment agreement
     commences at $390,000 and increases yearly based upon the average
     percentage increase in salary for all employees of Employer for the current
     fiscal year over the previous fiscal year. His employment agreement also
     calls for Incentive Bonuses under certain circumstances. See "Employment,
     Consulting and Incentive Compensation Agreements" below. Mr. McLain became
     Chairman effective August 1, 1998. On May 1, 2003 Mr. McLain agreed to
     convert the principal amount of a loan made to the Company in the amount of
     $73,500 into shares of the Company's common stock. In connection therewith
     Mr. McLain received 2,769,419 shares of the Company's common stock
     resulting in a compensation charge to the Company in the amount of
     $415,413.

     Option Grants in Last Fiscal Year
     ---------------------------------

     The following table provides information regarding individual grants of
stock options to each executive officer in fiscal 2005.
<TABLE><CAPTION>
                                                                               Potential Realizable
                             Individual Grants                                 Value at Assumed Annual
                             % of Total Options                                Rates of Stock Price
                  Options    Granted to Employees    Exercise    Expiration    Appreciation for term
      Name        Granted    in Fiscal Year          Price       Date             5%           10%
--------------    -------    --------------------    --------    ----------    --------     --------
<S>               <C>        <C>                     <C>         <C>           <C>          <C>
C. Dean McLain      --              N/A                N/A          N/A           N/A          N/A

Mark J. Wright      --              N/A                N/A          N/A           N/A          N/A
</TABLE>


                                      III-3
<PAGE>
     Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

     The following table provides information concerning the exercise of stock
options during the fiscal 2005 by each executive officer and the fiscal year-end
value of unexercised options held by that officer.

<TABLE><CAPTION>
                                                                                Value of
                                               Number of Unexercised         Unexercised In-
                      Shares                       Options at               the-money options
                   Acquired on    Value          Fiscal Year-End            at Fiscal Year-End
    Name             Exercise    Realized    Exercisable/Unexercisable   Exercisable/Unexercisable
--------------       --------    --------    -------------------------   -------------------------
<S>                  <C>         <C>         <C>                         <C>
C. Dean McLain          --          --              700,000                        N/A

Mark J. Wright          --          --              200,000                        N/A
</TABLE>

 Employment, Consulting and Incentive Compensation Agreements

     Upon completion of the Company's 1995 initial public offering, the Company
entered into an employment agreement with Mr. Rubin, a major shareholder,
effective as of June 13, 1995, that expired July 31, 1998. Pursuant to this
agreement, Mr. Rubin served as Chairman of the Board of the Company and received
an annual base salary of $150,000 plus bonuses if certain conditions were met.
Effective August 1, 1998, the Company entered into a new two-year agreement with
Mr. Rubin. Under the terms of this agreement, Mr. Rubin no longer served as
Chairman, but provided consulting services to the Company. He received an annual
fee of $200,000 plus all authorized business expenses. The Company then entered
into a new seven (7) year consulting agreement with Mr. Rubin effective August
1, 2000 paying him $200,000 plus all authorized business expenses in the first
year, followed by a 3% raise in each successive year of the contract.

     Effective as of August 1, 2000 Mr. McLain entered into an employment
agreement expiring July 31, 2007. The base salary under this employment
agreement commences at $390,000 and increases yearly based upon the average
percentage increase in salary for all employees of Employer for the current
fiscal year over the previous fiscal year. His employment agreement also calls
for Incentive bonuses under certain circumstances. Mr. McLain received a
$290,000 bonus during the Company's 2005 fiscal year. In addition, Mr. McLain
receives the use of vehicles at Company expense and certain other fringe
benefits not exceeding $50,000 per year.

Compensation Committee Interlocks and Insider Participation

     The Compensation Committee consists of Mr. Moskowitz, Mr. Metter and Mr.
Fisher. There are no interlocking relationships, as described by the Securities
and Exchange Commission, between the Compensation Committee members. Mr. McLain,
the Chairman of the Board of Directors since August 1998, as well as its
President and CEO, participated in all discussions and decisions regarding
salaries and incentive compensation for all employees and consultants to the
Company, except that he was excluded from discussions regarding his own salary.

Directors' Compensation

     Each director, not otherwise a full time employee of the Company, is
eligible to receive $2,000 per quarter, together with reimbursement of their
reasonable expenses incurred on the Company's behalf.

ITEM 12.    SECUTITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
            ------------------------------------------------------------------
RELATED STOCKHOLDER MATTERS
---------------------------

Security Ownership of Certain Beneficial Owners

The following table sets forth certain information, as of the date hereof, with
respect to the beneficial ownership of our common stock by each: (i) holder of
more than five percent (5%) of the outstanding shares of our common stock; (ii)
our officers and directors; and (iii) all our officers and directors as a group.
The Company's outstanding voting securities at the close of business on
September 23, 2005, consisted of 10,180,000 shares of common stock, $.001 par
value (the "Common Stock"), each of which is entitled to one vote on all matters
to be presented at the Annual Meeting. The



                                      III-4
<PAGE>
Common Stock does not have cumulative voting rights. Unless otherwise indicated,
the address of each of the named persons is care of Western Power & Equipment
Corp., 6407-B North East 117th Avenue, Vancouver, WA 98662.

<TABLE><CAPTION>
                                                                      Shares            Percentage
Name and Address                                      Beneficially Owned (1)    Beneficially Owned
----------------                                      ----------------------    ------------------
<S>                                                   <C>                       <C>
C. Dean McLain (2)(6)(7)                                           4,057,419                 37.3%

Robert M. Rubin(3)(4)(6)                                             750,000                  6.9%

The Rubin Family Irrevocable Stock Trust (4)                       4,169,419                 38.0%

Mark J. Wright (5)                                                   200,000                  1.9%

Steven Moskowitz (10)                                                150,000                  1.5%

Michel Metter (9)                                                    150,000                  1.5%

James Fisher (11)                                                    100,000                  1.0%

American United Global, Inc.(8)
11108 NE 106th Place
Kirkland, WA 98033                                                 1,222,586                 12.0%

JSC, LLC (7)
38207 NE Gerber Rd.
Yacolt, WA  98675                                                    588,000                  5.8%

All officers and directors as a group (5 persons)
(2)(5)(6)(9)(10)(11)                                               4,657,419                 40.6%
</TABLE>

(1) Unless otherwise indicated, we believe that all persons named in the table
have sole voting and investment power with respect to all shares of the
Company's common stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities which may be acquired by such person within 60
days from the date on which beneficial ownership is to be determined, upon the
exercise of options, warrants or convertible securities. Each beneficial owner's
percentage ownership is determined by assuming that options, warrants and
convertible securities that are held by such person (but not those held by any
other person) and which are exercisable within such 60 day period, have been
exercised.

(2) Includes Mr. McLain's direct beneficial ownership of exercisable options to
acquire 500,000 shares of the Company's common stock. Excludes Mr. McLain's
indirect ownership in the Company through his beneficial ownership of options to
purchase 362,000 shares of AUGI common stock. Mr. McLain's beneficial ownership
of AUGI common stock represents 18.1 percent of AUGI voting stock as of
September 23, 2005.

(3) Includes Mr. Rubin's direct beneficial ownership of exercisable options to
acquire 500,000 shares of the Company's common stock. Excludes the shares of the
Company's common stock held by the Rubin Family Irrevocable Stock Trust (the
"Trust"). Excludes Mr. Rubin's indirect ownership in the Company through his
beneficial ownership of 80 shares and options to purchase 33,600 shares of AUGI
common stock. Mr. Rubin's beneficial ownership of AUGI common stock represents
1.7 percent of AUGI voting stock as of September 23, 2005.

(4) Mr. Rubin, a grantor of the Trust, does not have sole or shared voting or
dispositive power over the shares of the Company's common stock held by the
Trust, and disclaims any beneficial ownership of the shares of the Company's
common stock held by the Trust.

(5)   Includes options to purchase 200,000 shares of the Company's common stock.

(6) On May 1, 2003, Mr. McLain and the Rubin Family Irrevocable Stock Trust
agreed to convert the principal amount of a

                                     III-5
<PAGE>

loan made to the Company in the amount of $147,000 into an aggregate of
5,538,838 shares of the Company's common stock, as a result of which Mr. McLain
and the Rubin Family Irrevocable Stock Trust each received 2,769,419 shares of
the Company's common stock.

(7) Includes 588,000 shares beneficially owned by JSC. Through JSC LLC Mr.
McLain has sole or shared voting or dispositive power over the shares of the
Company's common stock beneficially owned by JSC LLC.

(8) Includes the shares of the Company's common stock held by American United
Global, Inc. ("AUGI"), a company of which Mr. Rubin is the chief executive
officer and chairman of the board of directors.

(9) Excludes Mr. Metter's indirect ownership in the Company through his
ownership of exercisable options to acquire 150,000 shares of AUGI, the
Company's principal stockholder. Mr. Metter's beneficial ownership of AUGI
voting stock represents 7.5 percent of AUGI voting stock as of September 23,
2005. Includes options to purchase 150,000 shares of the Company's common stock.

(10) Includes options to purchase 150,000 shares of the Company's common stock.

(11) Includes options to purchase 100,000 shares of the Company's common stock.

Security Ownership of Management

     The following table, which was prepared on the basis of information
furnished by the persons described, shows ownership of the Common Stock as of
September 23, 2005 by the Chief Executive Officer, by each of the other
executive officers, by each of the directors, and by the executive officers and
directors as a group.

Shares Held By Directors and Named Executive Officers

            Set forth in the table below is information concerning the
ownership, as of the close of business on September 23, 2005, of the Common
Stock by the Company's directors and Named Executive Officers and all directors
and present executive officers as a group.

<TABLE><CAPTION>
------------------------------------------------------------------------------------------------
Name and Address                                       Amount and Nature of         Percent (1)
                                                       Beneficial Ownership (1)
------------------------------------------------------------------------------------------------
<S>                                                         <C>                        <C>
C. Dean McLain (2)                                          4,057,419                  37.3%

Mark J. Wright (3)                                            200,000                   1.9%

Steven Moskowitz (4)                                          150,000                   1.5%

Michael Metter (4)                                            150,000                   1.5%

James Fisher (5)                                              100,000                   1.0%
------------------------------------------------------------------------------------------------
All directors and executive officers as a group
(5 persons)                                                 4,657,419                  40.6%
------------------------------------------------------------------------------------------------
</TABLE>
----------
     (1)  Unless otherwise indicated, the Company believes that all persons
          named in the table have sole voting and investment power with respect
          to all shares of Common Stock beneficially owned by them. A person is
          deemed to be the beneficial owner of securities which may be acquired
          by such person within 60 days from the date on which

                                     III-6
<PAGE>
          beneficial ownership is to be determined, upon the exercise of
          options, warrants or convertible securities. Each beneficial owner's
          percentage ownership is determined by assuming that options, warrants
          and convertible securities that are held by such person (but not those
          held by any other person) and which are exercisable within such 60 day
          period, have been exercised.

     (2)  Excludes Mr. McLain's indirect ownership in the Company through his
          beneficial ownership of options to purchase 362,000 shares of AUGI
          common stock. Includes Mr. McLain's direct beneficial ownership
          exercisable options to acquire 500,000 shares of the Company's common
          stock and 588,000 shares of the Company's common stock held by the JSC
          LLC. Mr. McLain's beneficial ownership of AUGI common stock represents
          2.4 percent of AUGI voting stock as at September 23, 2005.

     (3)  Includes exercisable stock options to purchase 200,000 shares of
          common stock of the Company issued to Mr. Wright for services rendered
          to the Company.

     (4)  Includes options to purchase 150,000 shares of the Company's common
          stock.

     (5)  Includes options to purchase 100,000 shares of the Company's common
          stock.

Shares Held by Certain Other Stockholders

The following table sets forth, as of the close of business on September 23,
2005, certain information with respect to each person who is known to the
Company to be the beneficial owner of more than five (5%) percent of the Common
Stock, other than the directors set forth in the Directors and Named Executive
Officers Ownership Table above.

<TABLE><CAPTION>
------------------------------------------------------------------------------------------------
Name and Address                                       Amount and Nature of         Percent (1)
                                                       Beneficial Ownership (1)
------------------------------------------------------------------------------------------------
<S>                                                         <C>                        <C>
Crestview Capital Master, LLC
 95 Revere Drive Suite A                                    3,525,033                  25.7%
 Northbrook, IL   60062 (2)

------------------------------------------------------------------------------------------------
Iroquois Master Fund, LTD
 641 Lexington Avenue, 26th Floor                           3,133,362                  23.5%
 New York, NY   10022
------------------------------------------------------------------------------------------------
Omicron Master Fund
 650 Fifth Avenue, 24th Floor                               6,658,395                  39.5%
 New York, NY  10019
------------------------------------------------------------------------------------------------
Smithfield Fiduciary LLC
 C/O Highland Capital Mgt, LLC                              6,658,395                  39.5%
 9 West 57th Street, 27th Floor
 New York, NY  10019
------------------------------------------------------------------------------------------------
CCA Fund, LP
 19 Old Kings Highway South                                 2,741,692                  21.2%
 Darien, CT  06820
------------------------------------------------------------------------------------------------
</TABLE>

                                     III-7
<PAGE>
----------
          (1) Unless otherwise indicated, the Company believes that all persons
          named in the table have sole voting and investment power with respect
          to all shares of Common Stock beneficially owned by them. A person is
          deemed to be the beneficial owner of securities which may be acquired
          by such person within 60 days from the date on which beneficial
          ownership is to be determined, upon the exercise of options, warrants
          or convertible securities. Each beneficial owner's percentage
          ownership is determined by assuming that options, warrants and
          convertible securities that are held by such person (but not those
          held by any other person) and which are exercisable within such 60 day
          period, have been exercised.









































                                     III-8
<PAGE>
ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED 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 $1,500,000 to the McLain-Rubin Realty Company, LLC ("MRR"), a
    Delaware limited liability company the owners of which are Messrs. C. Dean
    McLain, the President and a director of the Company, and Robert M. Rubin, a
    significant stockholder of the Company. Simultaneous with its acquisition of
    the Sacramento Operation real property and improvements, MRR leased such
    real property and improvements to the Company under the terms of a 20-year
    commercial lease agreement dated March 1, 1996 with the Company paying an
    initial annual rate of $168,000. As of October 1, 2000, the Company entered
    into a renegotiated 7-year lease with an initial annual rate of $228,000. 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. The new 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 by the Company 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
    significant stockholder of the Company. The sale price was $2,210,000 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 $252,000 per year. 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. As of October 1, 2000, the Company entered into a renegotiated
    7-year lease with an initial annual rate of $276,000. The new lease
    qualifies for treatment as an operating lease.

    On April 1, 2001, the Company entered into a lease with 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, a significant stockholder of the Company, for
    a 5-year lease on its Vancouver, Washington corporate office with an annual
    rate of $98,000. 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. The lease
    qualifies for treatment as an operating lease.

    On July 30, 2002, pursuant to shareholder approval at the 2002 Annual
    Meeting of the Stockholders, 600,000 shares of the Company's common stock
    were issued to the Rubin Family Irrevocable Stock Trust in lieu of
    compensation to Mr. Rubin. The fair market value of the shares at the date
    of issuance was $0.22 per share, resulting in a compensation charge to the
    Company in the amount of $132,000.

    On March 24 2003, Mr. McLain agreed to convert the accrued and unpaid
    interest on a loan made to the Company in the amount of $147,000 into shares
    of the Company's common stock. In connection therewith Mr. McLain received
    588,000 shares of the Company's common stock with a value of $ 82,000.

    On May 1, 2003, Mr. McLain and The Rubin Family Irrevocable Stock Trust
    agreed to convert the principal amount of a loan made to the Company in the
    amount of $147,000 into an aggregate of 5,538,838 shares of the Company's
    common stock. In connection therewith The Rubin Family Irrevocable Stock
    Trust received 2,769,419 shares of the Company's common stock and Mr. McLain
    received 2,769,419 shares of the Company's common stock resulting in a
    compensation charge to the Company of $831,000.

    On September 8, 2004, McLain-Rubin Realty Company II, LLC ("MRR II"), The
    Rubin Family Irrevocable Stock Trust and certain other related parties
    loaned the Company $500,000 for the purchase of Arizona Pacific Materials,
    LLC. These related parties received a total of 2,000,000 options to purchase
    the Company's stock at a price of $0.55 per share as part of the loan
    agreement.

                                     III-9
<PAGE>
ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES.
            ---------------------------------------

    AUDIT FEES

    The aggregate fees billed by Marcum & Kliegman LLP for the audit of our
    annual financial statements for the fiscal year ended July 31, 2005 and the
    reviews of the financial statements included in our Forms 10-Q for the
    fiscal year ended July 31, 2005 were $ 166,300.

    The aggregate fees billed by Marcum & Kliegman LLP for the audit of our
    annual financial statements for the fiscal year ended July 31, 2004 and the
    reviews of the financial information included in our Forms 10-Q for the
    fiscal year ended July 31, 2004 were $ 107,525.

    The aggregate fees billed by Marcum & Kliegman LLP for the audit of our
    annual financial statements for the fiscal year ended July 31, 2003 and the
    reviews of the financial information included in our Forms 10-Q for the
    fiscal year ended July 31, 2003 were $ 134,232.

    AUDIT RELATED FEES

    No fees were billed by Marcum & Kliegman LLP for the fiscal years ended July
    31, 2005, July 31, 2004 or July 31, 2003 for services related to the audit
    or review of our financial statements that are not included under the
    caption "Audit Fees".

    No fees were billed by Marcum & Kliegman LLP for the fiscal years ended July
    31, 2005, July 31, 2004 or July 31, 2003 for designing, operating,
    supervising or implementing any of our financial information systems or any
    hardware or software systems for our financial information.

    TAX FEES

    No fees were billed by Marcum & Kliegman LLP for tax compliance, tax advice
    and tax planning in the fiscal year ended July 31, 2005.

    No fees were billed by Marcum & Kliegman LLP for tax compliance, tax advice
    and tax planning in the fiscal year ended July 31, 2004.

    No fees were billed by Marcum & Kliegman LLP for tax compliance, tax advice
    and tax planning in the fiscal year ended July 31, 2003.

    ALL OTHER FEES

    No fees were billed by Marcum & Kliegman LLP for any other services rendered
    by them during the fiscal years ended July 31, 2005, July 31, 2004 and July
    31, 2003.

    Since January 1, 2003, the audit committee has adopted policies and
    procedures for pre-approving all non-audit work performed by the auditors.
    Specifically, the committee must pre-approve the use of the auditors for all
    such services. The audit committee has pre-approved all non-audit work since
    that time and in making its determination has considered whether the
    provision of such services was compatible with the independence of the
    auditors.

    Our audit committee believes that the provision by Marcum & Kliegman LLP of
    services in addition to audit services in fiscal 2005, 2004 and 2003 were
    compatible with maintaining their independence.

                                     III-10
<PAGE>
                                     PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
            ---------------------------------------------------------------

(a)   1.    FINANCIAL STATEMENTS.

            A list of financial statements filed as part of this report is
            identified in Part II, item 8.

            Report of Independent Auditors' - Financial Statement Schedule
            Schedule II - Valuation and Qualifying Accounts

      2.    EXHIBITS.

            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        Loan Agreement, dated January 17, 1997, between
                        Registrant and Case Credit Corp. including related
                        promissory notes. (5)

            10.7        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)

            10.8        Loan and Security Agreement dated as of June 5, 1997
                        between Registrant and Deutsche Financial Services
                        Corporation. (6)

            10.9        Asset Purchase Agreement, dated April 30, 1998, between
                        Yukon Equipment, Inc. and Registrant. (8)

            10.10       Employment Agreement dated May 1, 1998 between Maurice
                        Hollowell and Registrant. (8)

            10.11       Employment Agreement dated August 1, 2000 between C.
                        Dean McLain and Registrant.

            10.12       Consulting Agreement dated August 1, 2000 by and between
                        Registrant and Robert M. Rubin.

            10.13       Commercial Lease dated October 1, 2000 between
                        McLain-Rubin Realty Company III, LLC and Registrant for
                        Yuba City, California facility.

            10.14       Commercial Lease dated October 1, 2000 between
                        McLain-Rubin Realty Company III, LLC and Registrant for
                        Sacramento, California facility.

            10.15       Commercial Lease, dated as of October 1, 2000 between
                        McLain-Rubin Realty Company, LLC and Registrant for the
                        Sparks, Nevada facility.

                                      IV-1
<PAGE>
            10.16       Commercial Lease, dated as of April 1, 2001 between
                        McLain-Rubin Realty Company II, LLC and Registrant for
                        the Vancouver, Washington corporate office.

            10.17       Western Power & Equipment Corp.'s Code of Ethics adopted
                        on November 6, 2003.

            21.         Subsidiaries of the Company.

            23.         Consent of Independent Accountants.

            31.1        Rule 13a-14(a)/15d-14(a) Certifications

            31.2        Rule 13a-14(a)/15d-14(a) Certifications

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

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

                        * The Exhibit attached to this Form 10-K shall not be
                        deemed "filed" for the purposes of Section 18 of the
                        Securities Exchange Act of 1934 (the "Exchange Act") or
                        otherwise subject to liability under that section,
                        amended, or the Exchange Act, except as expressly set
                        forth by specific reference in such filing.

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

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

     (3)  Filed as an Exhibit to the Registrant's Registration Statement on Form
          S-8, filed on September 18, 1998 and incorporated herein by reference
          thereto. (Registration No. 33-63775).

     (4)  Filed as an Exhibit to the Quarterly Report on Form 10-Q of the
          Registrant, as filed on June 11, 1997 and incorporated herein by
          reference thereto.

     (5)  Filed as an Exhibit to the Annual Report on Form 10-K of the
          Registrant, as filed on October 28, 1996 and incorporated herein by
          reference thereto.

     (6)  Filed as an Exhibit to the Annual Report on Form 10-K of the
          Registrant, as filed on October 29, 1998 and incorporated herein by
          reference thereto.

     (7)  Filed as an Exhibit to the Quarterly Report on Form 10-Q of the
          Registrant, as filed on June 14, 1999 and incorporated herein by
          reference thereto.

     (8)  Filed as an Exhibit to Form 8-K of the Registrant, as filed on May 11,
          1998 and incorporated herein by reference thereto.

(b)       EXHIBITS
          --------

          See (a)(3) above.

(c)       ADDITIONAL FINANCIAL STATEMENT SCHEDULES
          ----------------------------------------

          See (a)(2) above.

                                      IV-2
<PAGE>
                         WESTERN POWER & EQUIPMENT CORP.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE><CAPTION>
                                                                 Years Ended July 31,
                                                      ------------------------------------------
                                                         2005            2004            2003
                                                      ----------      ----------      ----------
<S>                                                   <C>             <C>             <C>
Net revenues
     Product sales                                    $  107,544      $  104,767      $   92,461
     Service revenue                                       5,306           5,499           4,978
     Mining revenues                                       1,223            --              --
     Rental revenue                                        3,149           5,250           4,957
  Total net revenues                                     117,222         115,516         102,396

Cost of goods sold
     Product sales                                        94,854          92,505          80,256
     Service revenue                                       4,670           4,355           4,289
     Mining revenues                                         835            --              --
     Rental revenue                                        2,705           4,486           4,325
                                                      ----------      ----------      ----------
  Total cost of goods sold                               103,064         101,346          88,870
                                                      ----------      ----------      ----------


Gross profit                                              14,158          14,170          13,526

Selling, general and administrative expenses
(including non-cash expenses of $144, $0 and $913
for the years ended July 31, 2005, 2004 and 2003,
respectively)                                             10,169           9,594           9,955
                                                      ----------      ----------      ----------

Income from operations                                     3,989           4,576           3,571

Other income (expense):
     Interest expense                                     (3,146)         (2,767)         (3,363)
     Other income                                            195             152             252
                                                      ----------      ----------      ----------
  Total other income (expense)                            (2,951)         (2,615)         (3,111)
                                                      ----------      ----------      ----------

Income before income taxes                                 1,038           1,961             460

Provision (benefit) for income taxes                      (1,452)             48              48
                                                      ----------      ----------      ----------
Net income                                            $    2,490      $    1,913      $      412
                                                      ==========      ==========      ==========

 Income per common share - basic                      $     0.25      $     0.19      $     0.08
                                                      ==========      ==========      ==========

 Income per common share - diluted                    $     0.10      $     0.19      $     0.08
                                                      ==========      ==========      ==========

Weighted average outstanding common shares
     for basic earnings per common share                  10,141          10,130           5,336
                                                      ==========      ==========      ==========
Weighted average outstanding common shares
     for diluted earnings per common share                26,269          10,130           5,336
                                                      ==========      ==========      ==========
</TABLE>
          See accompanying notes to consolidated financial statements.

                                      F-1
<PAGE>
                         WESTERN POWER & EQUIPMENT CORP.
                           CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)
<TABLE><CAPTION>
                                                                         July 31,        July 31,
                                                                           2005            2004
                                                                        ----------      ----------
<S>                                                                     <C>             <C>
ASSETS
------
Current assets:
     Cash and cash equivalents                                          $      855      $        9
     Restricted cash                                                          --               408
     Accounts receivable, less allowance for
       doubtful accounts of $906 and $938                                   10,449          11,660
     Inventories (net)                                                      46,333          28,938
     Deferred taxes                                                            664
     Prepaid expenses                                                          564             205
                                                                        ----------      ----------
         Total current assets                                               58,865          41,220
                                                                        ----------      ----------
Fixed assets (net):
     Property, plant and equipment                                           3,889           2,620
     Rental equipment fleet                                                  6,068          11,053
                                                                        ----------      ----------
         Total fixed assets                                                  9,957          13,673
                                                                        ----------      ----------
Other Assets
     Security deposits                                                         318             131
     Deferred taxes                                                            836            --
     Deferred debt issuance costs                                            1,661            --
                                                                        ----------      ----------
         Total other assets                                                  2,815             131
                                                                        ----------      ----------

Total assets                                                            $   71,637      $   55,024
                                                                        ==========      ==========

LIABILITIES & STOCKHOLDERS'  EQUITY
---------------------------  ------
Current liabilities:
     Borrowings under floor plan financing                              $   24,558      $   14,561
     Short-term borrowings - GE line of credit                                --            31,710
     Bridge loan, net of discount of $ 79                                    1,254            --
     Convertible debt, net of discount of $ 836                              3,052            --
     Notes payable-related parties, net of discount of $82                     418            --
     Notes payable                                                             205              62
     Accounts payable                                                        7,925           5,461
     Accrued payroll and vacation                                              932           1,194
     Other accrued liabilities                                               1,313           1,005
     Capital lease obligations                                                  43              27
                                                                        ----------      ----------
         Total current liabilities                                          39,700          54,020
                                                                        ----------      ----------
Non current liabilities:
     Capital lease obligations                                                 810             853
     Convertible debt, net of discount of $2,404                            23,708            --
     Deferred lease income                                                     264            --
     Notes payable                                                             655              49
                                                                        ----------      ----------
         Total non current liabilities                                      25,437             902

         Total liabilities                                                  65,137          54,922
                                                                        ----------      ----------
Commitments and contingencies

Stockholders' equity:
     Preferred stock-10,000,000 shares authorized; none outstanding           --              --
     Common stock, $.001 par value - 50,000,000 shares authorized
     and 10,180,000 shares and 10,130,000 shares outstanding, as of
     July 31, 2005 and 2004 respectively                                        10              10
     Additional paid-in capital                                             20,859          16,933
     Deferred compensation                                                     (18)           --
     Accumulated deficit                                                   (13,507)        (15,997)
     Less common stock in treasury, at cost (130,300 shares)                  (844)           (844)
                                                                        ----------      ----------
         Total stockholders' equity                                          6,500             102
                                                                        ----------      ----------
Total liabilities and stockholders' equity                              $   71,637      $   55,024
                                                                        ==========      ==========
</TABLE>
          See accompanying notes to consolidated financial statements.

                                      F-2
<PAGE>
                         WESTERN POWER & EQUIPMENT CORP.
          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                             (DOLLARS IN THOUSANDS)

<TABLE><CAPTION>
                                 Common Stock                                                                             Total
                          -------------------------     Additional                                                    Stockholders'
                            Number                       Paid-in      Accumulated       Treasury        Deferred         Equity
                           of Shares       Amount        Capital        Deficit          Stock        Compensation    (Deficiency)
                          ----------     ----------     ----------     ----------      ----------      ----------      ----------
<S>                       <C>            <C>            <C>            <C>             <C>             <C>             <C>
Balance at
  July 31, 2002            4,003,162     $        5     $   16,025     $  (18,322)     $     (844)           --        $   (3,136)

Issuance of Stock-
compensation               5,538,838              4            827           --              --              --               831

Issuance of Stock-           588,000              1             81           --              --              --                82
in lieu of interest

Net Income                      --             --             --              412            --              --               412
                          ----------     ----------     ----------     ----------      ----------      ----------      ----------
Balance at
  July 31, 2003           10,130,000             10         16,933        (17,910)           (844)           --            (1,811)

Net Income                      --             --             --            1,913            --              --             1,913
                          ----------     ----------     ----------     ----------      ----------      ----------      ----------
Balance at
  July 31, 2004           10,130,000     $       10     $   16,933     $  (15,997)     $     (844)           --        $      102

Issuance of Stock-
compensation                  50,000           --               65           --              --              --                65

Issuance of Options-            --             --               97           --              --               (18)             79
deferred compensation

Issuance of Options-            --             --              292           --              --              --               292
debt discount

Issuance of Warrants-
debt discount                   --             --            3,472           --              --              --             3,472


Net Income                      --             --             --            2,490            --              --             2,490
                          ----------     ----------     ----------     ----------      ----------      ----------      ----------
Balance at
  July 31, 2005           10,180,000     $       10     $   20,859     $  (13,507)     $     (844)            (18)     $    6,500
                          ==========     ==========     ==========     ==========      ==========      ==========      ==========
</TABLE>
          See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>
                         WESTERN POWER & EQUIPMENT CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE><CAPTION>
                                                                                    Years Ended July 31,
                                                                          ------------------------------------------
                                                                             2005            2004            2003
                                                                          ----------      ----------      ----------
<S>                                                                       <C>             <C>             <C>
 Cash flows from operating activities:
     Net Income                                                           $    2,490      $    1,913      $      412

Adjustments to reconcile net income to net cash provided by
operating activities:
     Depreciation                                                              5,332           5,513           6,021
     Amortization of deferred debt discount                                      364            --              --
     Bad debts                                                                    14             412             170
      Gain on sale of fixed assets                                            (1,410)         (1,010)           (421)
     Non-cash benefit from deferred taxes                                     (1,500)           --              --
     Non-cash stock compensation expense                                         144            --               831
     Non-cash stock interest expense                                            --              --                82
        Changes in assets and liabilities
              Accounts receivable                                              1,197          (2,293)            355
              Restricted cash                                                    408              (7)            140
              Inventories                                                    (19,816)         (4,239)         (3,335)
              Prepaid expenses and other assets                               (2,207)            (79)            (78)
              Notes receivable current                                          --              --               122
              Accounts payable                                                 2,463          (2,752)             74
              Inventory floor plan financing                                   9,997           3,602             (15)
              Accrued payroll and vacation                                      (263)            622             (87)
              Other accrued liabilities                                          308              21              (1)
              Deferred lease income                                              264            --              --
                                                                          ----------      ----------      ----------
              Net cash provided by operating activities                       (2,215)          1,703           4,270
                                                                          ----------      ----------      ----------
Cash flow from investing activities:
     Purchase of fixed assets                                                   (896)           (267)           (167)
     Purchase of rental equipment                                             (3,193)         (5,401)         (2,119)
     Proceeds on sale of rental equipment                                      7,596           6,723           4,910
     Proceeds on sale of fixed assets                                          1,708              68             156
     Purchase of assets of Arizona Pacific Materials, LLC                       (500)           --              --
     (Purchase) sale of other assets                                            --                22            (101)
                                                                          ----------      ----------      ----------
            Net cash provided by investing activities                          4,715           1,145           2,679
                                                                          ----------      ----------      ----------
Cash flows from financing activities:
     Principal payments on capital leases                                        (27)            (38)            (35)
     Repayments of short-term financing - GE line of credit                  (31,710)         (2,856)         (6,756)
     Note payable payment - purchase of Arizona Pacific
        Materials, LLC                                                        (2,500)           --              --
     Bridge loan borrowing                                                     2,000            --              --
     Bridge loan payments                                                       (604)           --              --
     Notes payable borrowing from related parties                                500            --              --
     Convertible debt issuance                                                30,000            --              --
     Payments on convertible debt                                               --               (13)           (155)
     Long-term debt borrowings                                                 5,295              66            --
     Long-term debt repayments                                                (4,608)             (6)           --
                                                                          ----------      ----------      ----------
            Net cash provided (used) in financing activities                  (1,654)         (2,847)         (6,946)
                                                                          ----------      ----------      ----------
Increase in cash and cash equivalents                                            846               1               3
Cash and cash equivalents at beginning of year                                     9               8               5
                                                                          ----------      ----------      ----------
Cash and cash equivalents at end of year                                  $      855      $        9      $        8
                                                                          ==========      ==========      ==========
</TABLE>
                                      F-4
<PAGE>
<TABLE><CAPTION>
<S>                                                                       <C>             <C>             <C>
Supplemental schedule of non-cash investing and financing
activities:
Notes payable issued for the purchase of Arizona Pacific
Materials, LL20............................................................    2,500            --              --

Options valued at $292 were issued in connection with
a $500 note payable related to the down payment at
closing for the purchase of Arizona Pacific Materials
See Note 12................................................................      292            --              --

Options issued in lieu of cash payments in connection
with consulting service agreements entered into in
November 2004.  See Note 7.................................................       97            --              --

Options issued in lieu of cash payments in connection
with consulting service agreements entered into in
February 2005.  See Note 7.................................................       20            --              --

Stock issued in lieu of cash payments in connection
with consulting service agreements in May 2005.  See
Note 7.....................................................................       65            --              --

Warrants issued in lieu of cash in connection with
a $32,000 senior credit facility issued in June 2005.
See Note 7 ................................................................    3,472            --              --

</TABLE>

          See accompanying notes to consolidated financial statements.























                                      F-5
<PAGE>
Western Power & Equipment Corp.

Notes to Consolidated Financial Statements (DOLLARS IN THOUSANDS, EXCEPT PER
SHARE AND OPTIONS AND WARRANTS DATA)

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BASIS OF PRESENTATION

     The Company is engaged in the sale, rental, and servicing of light, medium,
     and heavy construction and industrial, and agricultural equipment and
     related parts in Washington, Oregon, California, Nevada, and Alaska. Case
     serves as the manufacturer of the single largest portion of the Company's
     products. In September 2005, the Company purchased the assets of Arizona
     Pacific Materials, LLC, with mining operations in the Phoenix and
     Flagstaff, Arizona areas.

     The consolidated financial statements include the accounts of the Company
     and its Oregon and Arizona subsidiaries after elimination of all
     intercompany accounts and transactions.

     The Company is focusing its efforts on streamlining its operations. The
     Company in recent years has selectively reduced the number of stores it
     operates and its product offerings to reduce overall expenses and to
     improve product turnover.

     CASH EQUIVALENTS

     For financial reporting purposes, the Company considers all highly liquid
     investments purchased with an original maturity of three months or less to
     be cash equivalents, which balances may, at times, exceed the Federally
     insured limit.

     RESTRICTED CASH

     In accordance with the borrowing agreement with GE Commercial Distribution
     Financial ("GE"), the Company had a cash account restricted by GE for the
     purpose of paying down the line of credit and accordingly has been recorded
     as a current asset. The line of credit was repaid in June of 2005 thus
     eliminating the requirement of restricted cash as of July 31, 2005. The
     Restricted cash was $408 at July 31, 2004.

     ACCOUNTS RECEIVABLE

     Accounts receivable are reported net of an allowance for doubtful accounts,
     future returns, and markdowns and allowances. The allowance was determined
     by management to be adequate based on a periodic review of the status of
     the individual accounts receivable and the volume of returns.

     INVENTORIES

     Inventories (new and used) are stated at cost, which was lower than 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 utilizes recent sales information, third party
     valuation guides and recent auction results as well as judgments of
     inventory managers within the Company to determine the net realizable value
     of inventory.

     Inventory costs associated with the mining operations of Arizona Pacific
     Materials, LLC are determined using the last-in, first-out (LIFO) method.
     Mining product reserves for obsolescence or slow moving inventory are
     recorded when such conditions are identified. As of July 31, 2005, the LIFO
     reserve was $223.

                                      F-6
<PAGE>
     INTANGIBLE ASSETS

     The Company evaluates the recoverability of it's goodwill and other
     intangibles in accordance with the Statement of Financial Accounting Board
     "SFASB" No. 142, Goodwill and Other Intangible Assets. As of July 31, 2005,
     the Company has not identified any impairment.

     PROPERTY, PLANT, AND EQUIPMENT

     Property, plant, and equipment are stated at cost less accumulated
     depreciation. Depreciation and amortization on the property, plant, and
     equipment are computed using the straight-line method over the estimated
     useful lives of the assets, ranging from 5 to 20 years. Depreciation on the
     rental fleet is calculated using the straight-line method over the
     estimated useful lives, ranging from 3 to 7 years after considering salvage
     values. Expenditures for replacements and major improvements are
     capitalized. Expenditures for repairs, maintenance, and routine
     replacements are charged to expense as incurred. The cost of assets retired
     or otherwise disposed of and the related accumulated depreciation are
     eliminated from the accounts; any resulting gain or loss is included in the
     results of operations.

     LONG LIVED ASSETS

     In accordance with Statement of Financial Accounting Standards No. 144,
     "Accounting for the Impairment of Long-Lived Assets to be Disposed Of" at
     each balance sheet date, management assesses whether there has been
     permanent impairment in the value of the long-lived assets. The existence
     of any such impairment is determined by comparing anticipated undiscounted
     future cash flows from operating activities with the associated carrying
     value of the assets. The factors considered by management in performing
     this assessment include operating results, trends and prospects, as well as
     the effects of obsolescence, demand, competition, and other economic
     factors. The amount of any such impairment is determined by comparing the
     discounted future cash flows noted above with the associated carrying value
     of the assets. As of July 31, 2005 the Company has not identified any
     impairment.

     REVENUE RECOGNITION

     Revenue on equipment and parts sales is recognized upon shipment of
     products and passage of title. Rental and service revenue is generally
     recognized at the time such services are provided. In addition to outright
     sales of new and used equipment, certain rentals include rent-to-purchase
     option agreements. Under such agreements, customers are given a period of
     several months to exercise the option to purchase the rented equipment and
     may be allowed to apply a portion of the rental payments to the purchase
     price.

     ADVERTISING EXPENSE

     The Company expenses all advertising costs as incurred. Total advertising
     expense for the years ended July 31, 2005, 2004 and 2003 was $108, $82, and
     $87 respectively.

     OTHER INCOME

     Other income principally includes gains and losses on the sale of fixed
     assets and finance charges associated with accounts receivable activities.

     INCOME TAXES

     The Company recognizes deferred tax assets and liabilities based upon
     differences between the financial reporting and tax bases of the assets and
     liabilities using the enacted tax rates and laws that are expected to be in
     effect when the differences are expected to be recovered. The Company
     provides a valuation allowance for deferred tax assets for which it does
     not consider realization of such assets to be more likely than not.

                                      F-7
<PAGE>
     TREASURY STOCK

     In April 1998, the Board of Directors authorized the repurchase of up to
     350,000 shares of the Company's common stock in the open market, subject to
     normal trading restrictions. Under this program, the Company purchased a
     total of 230,300 shares of common stock at a cost of $1.49 million in
     fiscal year 1998. Currently, the Company uses shares of treasury stock to
     issue shares upon exercise of outstanding stock options and/or for private
     placements of common stock. As of July 31, 2005 and 2004 the Company held
     130,300 shares of treasury stock.

     RECLASSIFICATIONS

     Certain amounts in the 2004 and 2003 financial statements have been
     reclassified to conform with the 2005 presentation. These reclassifications
     had no impact on net income or cash flows as previously reported.

     FAIR VALUE OF FINANCIAL INSTRUMENTS

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

     NET INCOME PER COMMON SHARE

     Basic net income per common share has been computed using the weighted
     average number of common shares outstanding during the periods presented.

     Diluted net income per share is computed using the weighted average number
     of common shares outstanding during the periods presented plus any dilutive
     securities outstanding. Outstanding options were 4,850,000, warrants were
     8,500,218 and convertible debenture shares were 15,000,000 as of July 31,
     2005.

Earnings per common share is as follows:
<TABLE><CAPTION>
                                                                     Years ended
                                                                       July 31,
                                                                      (`000's)
                                                         2005           2004           2003
                                                      ----------     ----------     ----------
<S>                                                   <C>            <C>            <C>
Basic

Numerator:
Net income available to common shareholders           $    2,490     $    1,913     $      412
Denominator:
Weighted average shares outstanding                       10,141         10,130          5,336

Basic earnings per common share                       $     0.25     $     0.19     $     0.08

Diluted

Net income available to common shareholders           $    2,490     $    1,913     $      412
Interest on convertible debt                                 243           --             --
                                                      ----------     ----------     ----------
Numerator for diluted earnings per share              $    2,733     $    1,913     $      412
                                                      ==========     ==========     ==========

Weighted average shares outstanding                       10,141         10,130          5,336
Stock options                                              1,128           --             --
Convertible debt shares                                   15,000           --             --
                                                      ----------     ----------     ----------
Denominator for diluted earnings per share                26,269         10,130          5,336
                                                      ==========     ==========     ==========

Diluted earnings (loss) per common share              $     0.10     $     0.19     $     0.08
</TABLE>
                                      F-8
<PAGE>
STOCK BASED COMPENSATION

     The Company accounts for employee stock transactions in accordance with APB
     Opinion No. 25, "Accounting for Stock Issued to Employees." The Company has
     adopted the pro-forma disclosure requirements of Statement of Financial
     Accounting Standards No. 123, " Accounting For Stock-Based Compensation."

     During the year ended July 31, 2003, the Company adopted Statement of
     Financial Accounting Standard No. 148, " Accounting For Stock-Based
     Compensation-Transition and Disclosure." This statement amended Statement
     No. 123, Accounting for Stock-Based Compensation." As permitted under
     Statement No. 123, the Company continues to apply the Accounting Principles
     Board Opinion No. 25, "Accounting for Stock Issued to Employees." As
     required under Statement No. 148, the following table present pro-forma net
     income and basic and diluted earnings (loss) per share as if the fair
     value-based method had been applied to all awards.

                                                Years Ended July 31, 2005
                                           ------------------------------------
                                                          Basic        Diluted
                                           Net Loss       E.P.S.        E.P.S.
                                           --------      --------      --------
             As Reported                   $  2,490      $   0.25      $   0.10
             Less stock-based employee
               compensation cost, net
               of tax effect, under
               fair value accounting       $   (113)        (0.02)        (0.01)
                                           --------      --------      --------
             Pro Forma                     $  2,377      $   0.23      $   0.09
                                           ========      ========      ========

             Year Ended July 31, 2004
             ------------------------
                                             Net          Basic        Diluted
                                            income        E.P.S.        E.P.S.
                                           --------      --------      --------
             As Reported                   $  1,913      $   0.19      $   0.19
              Less stock-based employee
               compensation cost, net
               of tax effect, under
               fair value accounting       $   (141)        (0.01)        (0.01)
                                           --------      --------      --------
             Pro Forma                     $  1,772      $   0.18      $   0.18
                                           ========      ========      ========

             Year Ended July 31, 2003
             ------------------------
                                             Net          Basic        Diluted
                                            income        E.P.S.        E.P.S.
                                           --------      --------      --------
             As Reported                   $    412           .08           .08
             Pro Forma                     $    412           .08           .08

     Under APB 25, the Company does not recognize compensation expense upon the
     issuance of its stock options because the option terms are fixed and the
     exercise price equals the market price of the underlying stock on the grant
     date. As required by Statement of Financial Accounting Standards, the
     Company has computed for pro-forma disclosure purposes the value of options
     granted using the Black-Scholes option pricing model. The weighted average
     assumptions used for stock option grants for fiscal years 2005, 2004, and
     2003 were:

                                             FY05          FY04          FY03
                                           --------      --------      --------
             Risk free interest rate           2.50%         4.22%          N/A

             Expected dividend yield            N/A           N/A           N/A

             Expected life                        2            10           N/A

             Expected volatility              115.0%         98.7%          N/A

     Adjustments for forfeitures are made as they occur. The options and
     warrants granted in FY05 were fully vested and exercisable as of year end.
     The weighted average fair value per

                                      F-9
<PAGE>
     share of the options and warrants granted in fiscal years 2005, 2004, and
     2003 are $ 0.71, $ 0.32, and $ -0-, respectively.

     SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
                                                        Years ended July 31,
                                                  ------------------------------
                                                   2005        2004        2003
                                                  ------      ------      ------
     Cash paid (received) during the year for:
         Interest                                 $2,980      $2,409      $3,363
         Income taxes, net of refunds                  5          15           1

     USE OF ESTIMATES

     The preparation of financial statements in conformity with accounting
     principles generally accepted in the United States of America 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.

     RECENT ACCOUNTING PRONOUNCEMENTS

     The following pronouncements have been issued by the FASB.

     In December, 2004, the Financial Accounting Standards Board ("FASB") issued
     its final standard on accounting for share-based payments ("SBP"), FASB
     Statement No. 123R (revised 2004), Share-Based Payment. The Statement
     requires companies to expense the value of employee stock options and
     similar awards. Under FAS 123R, SBP awards result in a cost that will be
     measured at fair value on the awards' grant date, based on the estimated
     number of awards that are expected to vest. Compensation cost for awards
     that vest would not be reversed if the awards expire without being
     exercised. The effective date of this pronouncement for public companies is
     the first annual reporting period beginning after June 15, 2005, and will
     apply to all outstanding and unvested SBP awards at a company's adoption.
     Management does not anticipate that this Statement will have a significant
     impact on the Company's consolidated financial statements.

     In May 2005, the Financial Accounting Standard Board ("FASB") issued SFAS
     No. 154, "Accounting Changes and Error Corrections - a Replacement of APB
     Opinion No. 20 and FASB No. 3." This statement requires retrospective
     application of prior periods' financial statements of changes in accounting
     principles, unless it is impracticable to determine the period specific
     effects, or the cumulative effect of the change. This pronouncement will be
     effective December 15, 2005. Currently, the Company does not have changes
     in accounting principle, the adoption of SFAS No. 154 will not have an
     impact on the Company's financial position or results of operations.

2.   RELATED PARTY TRANSACTIONS

     The real property and improvements used in connection with the Company's
     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. As of October 1,
     2000, the Company entered into a renegotiated 7-year lease with an initial
     annual rate of $228. 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.

                                      F-10
<PAGE>
     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, which was paid 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. The lease is a net lease with payment
     of insurance, property taxes and maintenance costs paid by the Company. As
     of October 1, 2000, the Company entered into a renegotiated 7-year lease
     with an initial annual rate of $276.

     On April 1, 2001, the Company entered into a lease with 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, for a 5-year lease on its Vancouver, Washington corporate office
     with an annual rate of $98. 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.

     On May 17, 2002, the shareholders authorized the issuance of 600,000 shares
     of the Company's common stock to the Rubin Family Irrevocable Stock Trust
     with no monetary consideration received by the Company. Mr. Robert M. Rubin
     was an elected director of the Company and compensation expense for the
     fair market value of the stock on the date of issuance in the amount of
     $132 has been recorded in selling, general and administrative expenses.

     On May 1, 2003, Mr. McLain and Mr. Rubin agreed to convert the principal
     amount of a loan made to the Company in the amount of $147 into an
     aggregate of 5,538,838 shares of the Company's common stock. In connection
     therewith Mr. Rubin received 2,769,419 shares of the Company's common stock
     and Mr. McLain received 2,769,419 shares of the Company's common stock
     resulting in a compensation charge to the Company of $831which has been
     recorded in selling, general and administrative expenses.

     On September 8, 2004, McLain-Rubin Realty Company II, LLC ("MRR II"), The
     Rubin Family Irrevocable Stock Trust and certain other related parties
     loaned the Company $500 for the purchase of Arizona Pacific Materials, LLC.
     The interest rate on these notes is 6% with maturity dates between December
     31, 2005 and 2008. These related parties received a total of 2,000,000
     options to purchase the Company's stock at a price of $0.55 per share as
     part of the loan agreement. The options were valued at $292 and the cost is
     being amortized over the life of the loans. As of July 31, 2005 the balance
     of this loan was $418 (net of discount of $82). No payments have been made
     towards these loans as of July 31, 2005.

3.   INVENTORIES

     Inventories consist of the following:

<TABLE><CAPTION>
                                                               July 31,       July 31,
                                                                 2005           2004
                                                              ----------     ----------
<S>                                                           <C>            <C>
             Equipment (net of reserve allowances of
               $2,937 and $3,427 respectively):
                   New equipment                              $   35,408     $   18,773
                   Used equipment                                  4,545          4,294
             Mining                                                  886           --
             Parts (net of reserve allowance of $977
               and $688 respectively)                              5,494          5,871
                                                              ----------     ----------
                                                              $   46,333     $   28,938
                                                              ==========     ==========
</TABLE>

                                      F-11
<PAGE>
4.    FIXED ASSETS

      Fixed assets consist of the following:

                                                         July 31,      July 31,
                                                           2005          2004
                                                         --------      --------
      Property, plant, and equipment:
      Land                                               $  1,277      $    522
      Buildings                                             1,152         1,749
      Machinery and equipment                               3,059         3,136
      Office furniture and fixtures                         2,055         2,213
      Computer hardware and software                        1,332         1,539
      Vehicles                                              1,404         1,275
      Leasehold improvements                                1,010           985
                                                         --------      --------
                                                           11,289        11,419
      Less: accumulated depreciation                       (7,400)       (8,799)
                                                         --------      --------
      Property, plant, and equipment (net)               $  3,889      $  2,620
                                                         ========      ========
      Rental equipment fleet                             $  9,145      $ 17,545
      Less: accumulated depreciation                       (3,077)       (6,492)
                                                         --------      --------
      Rental equipment (net)                             $  6,068      $ 11,053
                                                         ========      ========

      Included in depreciation are charges related to certain inventory rentals
      under rent-to-purchase option agreements.

      As of July 31, 2005 and 2004 fixed assets (net) includes property under
      capital leases in the amount of $503 and $530, respectively.

5.    DEBT OBLIGATIONS

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

      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 twelve-month
      interest free term followed by a term during which interest is charged.
      Principal payments are generally due at the earlier of sale of the
      equipment or twelve to forty-eight months from the invoice date.

      The Company had an inventory floor plan and operating line of credit
      through GE Commercial Distribution Finance ("GE"), fka Deutsche Financial
      Services. The credit facility matured December 31, 2001 and had provided
      terms with a floating interest rate based on prime with rates between
      0.75% under prime to 2.25% over prime depending on the amount of total
      debt leverage of the Company. Amounts were advanced to the Company based
      on its assets, including accounts receivable, parts inventory, new and
      used equipment inventory, rental fleet, real property, and vehicles.
      Interest payments on the outstanding balance are due monthly.

      As of June 21, 2002, the Company entered into a Forbearance Agreement with
      GE under the terms of which GE raised the interest rate to prime plus 4%
      while the Company was in technical default and required the Company to pay
      a $45 fee to GE for the forbearance. In addition, under the terms of the
      Forbearance Agreement, the Company was required to meet certain financial
      covenants and meet certain debt reduction schedules. The Forbearance
      Agreement expired December 31, 2002.

      As of July 31, 2003 and July 31, 2004, the Company remained in technical
      default of its loan agreement. As of August 12, 2004, the Company entered
      into a Forbearance Agreement with GE, under the terms of which GE lowered
      the interest rate to prime plus 1.75% and required the Company to pay $25
      fee to GE for the forbearance. In addition, under the terms of the
      Forbearance Agreement, the Company is required to meet certain financial
      covenants and

                                      F-12
<PAGE>
      meet certain debt reduction schedules. The Forbearance Agreement expired
      on December 31, 2004.

      In June 2005, the line of credit facility with GE was paid out of proceeds
      from a new $32 million senior credit facility with several institutional
      lenders.

      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,
                                                                  --------
                                         Interest Rate        2005        2004
                                         -------------        ----        ----

            Case Credit Corporation       Prime + 2%        $24,558     $14,561
                                           (6.75%)

            GE                           Prime + 4.00%           --      31,710
                                           (8.75%)
                                                            $24,558     $46,271

      Convertible Debt
      ----------------

      In June 2005, the Company closed a new $30 million convertible debt
      facility (convertible into common shares of the Company at $2.00 per
      share) payable over the next five years, with a variable interest rate of
      LIBOR plus 6%. The lenders were also granted warrants to purchase
      approximately 8.1 million common shares of the Company at $1.75 per share.
      The value of these warrants is $2,920 and is recorded as debt discount to
      be amortized over the life of the related debt. The lenders also have the
      right to lend an additional $7.5 million to the Company (within 18 months
      of the date of the original debt) under the same terms as the existing
      five year convertible debt with 1,312,500 warrants to be issued with this
      additional debt. The value of these rights is $441 and is also recorded as
      debt discount to be amortized over 18 months.

      The Company will begin making monthly principal payments in December 2005.
      The balance of the unpaid principal on the convertible notes (net of
      discount) as of July 31, 2005 is $23,708 (net of discount of $2,404) of
      which $3,052 (net of discount of $836) is short term.

      Western used $23.0 million of the loan proceeds to repay and terminate its
      credit facility and forbearance agreement with GE Commercial Distribution
      Finance Corporation and $2.5 million to pay off the purchase note of
      Arizona Pacific Materials (see Note 12).

      Bridge Loan
      -----------

      In June 2005 the Company closed a new $2 million six month bridge loan,
      with a variable interest rate of LIBOR plus 6%. The lenders were granted
      warrants to purchase approximately 312,000 common shares of the Company at
      $1.75 per share. The value of these warrants is $111 and is recorded as
      debt discount to be amortized over the life of the related debt. The
      balance of the unpaid principal on the bridge loan (net of discount) as of
      July 31, 2005 is $1,254 (net of discount of $79) all of which is short
      term.

                                      F-13
<PAGE>
      Notes Payable
      -------------

      Notes payable consists of the following: (000's)
                                                              July 31,  July 31,
      Description                                               2005      2004
                                                                ----      ----
      Note Payable to Investor dated March 30, 2001 due on
      Demand and non-interest bearing                             50        50

      Note payable to West Coast Bank dated March 15, 2005
      in the amount of $795, due in monthly installments
      of $ 16 beginning May 15, 2005 including interest at
      6.50% per annum secured by specific equipment in
      inventory                                                  761        --

      Notes payable to GMAC dated November 15, 2003 in the
      amount of $66 with payments of $1 per month including
      interest at 7.2% per annum                                  49        61
                                                               -----      ----
         Total                                                 $ 860      $111
         Less current portion                                   (205)      (62)
                                                               -----      ----
         Total Long-Term Notes Payable                         $ 655      $ 49
                                                               =====      ====

      Future minimum payments under these noncancelable notes payable as of July
31, 2005, are as follows:

--------------------------------------------------------------------------------
                                       Notes    Convertible   Bridge
Years ending July 31,                 Payable       Debt       Loan      Total
------------------------------------ ---------- ----------- ---------- ---------
   2006                                $  204      $3,889     $1,333     $5,426
------------------------------------ ---------- ----------- ---------- ---------
   2007                                   165       6,666         --      6,831
------------------------------------ ---------- ----------- ---------- ---------
   2008                                   162       6,667         --      6,829
------------------------------------ ---------- ----------- ---------- ---------
   2009                                   179       6,667         --      6,846
------------------------------------ ---------- ----------- ---------- ---------
   2010                                   150       6,111         --      6,261
------------------------------------ ---------- ----------- ---------- ---------
   Thereafter                              --          --         --         --
------------------------------------ ---------- ----------- ---------- ---------
Total annual payments                     860      30,000      1,333     32,193
------------------------------------ ---------- ----------- ---------- ---------
Less debt discount                         --       3,240         79      3,319
------------------------------------ ---------- ----------- ---------- ---------
Present value of minimum payments
 (net of discount)                        860      26,760      1,254     28,874
------------------------------------ ---------- ----------- ---------- ---------
Less current portion                      205       3,052      1,254      4,511
------------------------------------ ---------- ----------- ---------- ---------
Long-term portion                      $  655     $23,708      $  --    $24,363
--------------------------------------------------------------------------------

6.    INCOME TAXES

      The current year's Federal and State income tax provision consists
      substantially of minimum taxes. The principal reasons for the variation
      between income taxes at the statutory federal rate and that shown in the
      statement of operations were as follows:
                                                         Years Ended
                                                         -----------
                                              July 31,     July 31,     July 31,
                                                2005         2004         2003
                                                ----         ----         ----
         Statutory federal income tax rate      34.0%        34.0%        34.0%
         State income taxes, net of
              federal income tax benefit         5.0%         5.0%        5.0%
         Valuation allowance                  (144.0%)          --          --
         Utilization of NOLs                   (26.1%)      (28.0%)     (27.0%)
         Other                                  (8.9%)       (8.6%)      (1.6%)
                                               ------        -----       -----
                                              (140.0%)        2.4%       10.4%
                                               ======        =====       =====

                                      F-14
<PAGE>
      Temporary differences between the financial statement and tax basis of
      assets and liabilities which give rise to a significant portion of
      deferred tax assets and deferred tax liabilities were as follows:

                                                                Year Ended
                                                                ----------
                                                            July 31,    July 31,
                                                              2005        2004
                                                              ----        ----
         Net Current Deferred Tax Assets (Liability):
           Inventory                                        $ 2,139     $ 2,011
           Accounts receivable allowance                        354         366
           Accrued vacation and bonuses                         (49)        160
           Other accruals                                        47          83
                                                            -------     -------
           Current Deferred Tax Asset                         2,491       2,620
           Less-Valuation Allowance                          (1,827)     (2,620)
                                                            -------     -------
           Net Current Deferred Tax Asset                       664          --
                                                            -------     -------

         Net Long-Term Deferred Tax Assets (Liability):
           Fixed Assets                                         108        (820)
           Goodwill and intangibles                             591         265
           NOL carryforwards                                  2,435       4,374
                                                            -------     -------
           Long-term Deferred Tax Asset (Liability)           3,134       3,819
           Less- Valuation Allowance                         (2,298)     (3,819)
                                                            -------     -------
           Net Long-term Deferred Tax Asset (Liability)     $   836     $    --
                                                            =======     =======

      The net change in the valuation allowance for deferred tax assets
      decreased by approximately $2,314, $123 and $4,796, respectively for the
      years ended July 31, 2005, 2004 and 2003.

      The valuation allowance primarily relates to the Federal and State net
      operating losses for which utilization in future periods is uncertain. The
      ultimate realization of deferred tax assets is dependent upon the
      generation of future taxable income during the periods in which those
      temporary differences become deductible. The Company considers projected
      future taxable income and tax planning strategies in making this
      assessment. Based on the historical taxable income and projections for
      future taxable income over the periods that the deferred tax assets are
      deductible, the Company believes it is more likely than not that the
      Company will realize a portion of the benefits of these deductible
      differences in the near future and therefore a deferred tax asset of
      $1,500 ($644 current and $836 non current) was established in 2005
      resulting in a valuation allowance of $4,125.

      As of July 31, 2005 the Company has approximately $6.2 million of federal
      net operating losses available to offset future taxable income, which if
      not utilized will expire in 2016 through 2021.

7.    STOCKHOLDERS' EQUITY

      On March 24 2003, Mr. McLain agreed to convert the accrued and unpaid
      interest on a loan made to the Company in the amount of $147 into shares
      of the Company's common stock. In connection therewith Mr. McLain received
      588,000 shares of the Company's common stock with a value of $82.

      On May 1, 2003, Mr. McLain and Mr. Rubin agreed to convert the principal
      amount of a loan made to the Company in the amount of $147 into an
      aggregate of 5,538,838 shares of the Company's common stock. In connection
      therewith Mr. Rubin received 2,769,419 shares of the Company's common
      stock and Mr. McLain received 2,769,419 shares of the Company's common
      stock resulting in a compensation charge to the Company of $831.

      In October 2004, the Company issued 2,000,000 stock options with an
      exercise price of $0.55 to related parties as part of a loan made to the
      Company for the purchase of Arizona Pacific Materials, LLC. The fair value
      of the options of $292 was recorded as a debt discount and is being
      amortized over the life of the debt. The unamortized deferred debt
      discount as of July 31, 2005 was $82. See Note 12.

                                      F-15
<PAGE>
      In November 2004, the Company granted 750,000 stock options in connection
      with certain consulting agreements. The fair value of the options granted
      of $97 was recorded as additional paid capital. The associated deferred
      compensation is being amortized over the life of the agreements which is
      twelve months. As of July 31, 2005 unamortized deferred compensation was
      $18.

      In February 2005, the Company granted 200,000 stock options in connection
      with certain consulting agreements. The fair value of the options granted
      of $20 was recorded as compensation expense.

      In May 2005, the Company issued 50,000 shares of restricted stock in
      connection with certain consulting agreement with Mr. Rubin, a significant
      stockholder. The fair value of the stock of $65 was recorded as additional
      paid in capital. The associated compensation was expensed in May 2005.

      In June 2005, The Company granted 8,500,218 warrants in connection with a
      $32,000 senior credit facility consisting of $30,000 of convertible debt
      and $2,000 in bridge loans with investors. The fair value of the warrants
      granted of $3,472 was recorded as debt discount and is being amortized
      over the lives of the convertible debt (5 years) and the bridge loan (6
      months). As of July 31, 2005, the unamortized debt discount was $ 3,319.

      STOCK OPTION PLANS

      Under the Company's 1995 Employee Stock Option Plan, key employees,
      officers, directors, and consultants of the Company can receive incentive
      stock options and non-qualified stock options to purchase up to an
      aggregate of 1,500,000 shares of the Company's common stock. The plan
      provides that the exercise price of incentive stock options be at least
      equal to 100 percent of the fair market value of the common stock on the
      date of grant. With respect to non-qualified stock options, the plan
      requires that the exercise price be at least 85 percent of fair value on
      the date such option is granted. Outstanding options expire no later than
      ten years after the date of grant. In 2005 the board of directors
      established an additional Employee Stock Option Plan with 5,000,000
      incentive stock options.

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

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

                                                                        Option
                                                       Shares            Price

         Options outstanding July 31, 2002            1,210,000           0.56

         Exercised                                          --             --
         Surrendered                                        --             --
         Granted                                            --             --
         Options outstanding July 31, 2003            1,210,000           0.56

         Exercised                                          --             --
         Canceled                                       (50,000)          0.53
         Granted                                        440,000           0.35
         Options outstanding July 31, 2004             1,600,000          0.50

         Exercised                                          --             --
         Canceled                                           --             --
         Granted                                        300,000           1.30
         Options outstanding July 31, 2005            1,900,000           0.63

                                      F-16
<PAGE>
The following table sets forth the exercise prices, the number of options and
warrants outstanding and exercisable, and the remaining contractual lives of all
the Company's stock options at July 31, 2005:
<TABLE><CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                                                             WEIGHTED AVERAGE
                    NUMBER OF OPTIONS/    WEIGHTED AVERAGE   CONTRACTUAL YEARS    NUMBER OF OPTIONS/    WEIGHTED AVERAGE
EXERCISE PRICE     WARRANTS OUTSTANDING    EXERCISE PRICE     LIFE REMAINING     WARRANTS EXERCISABLE    EXERCISE PRICE
----------------- ---------------------- ------------------ ------------------- ---------------------- ------------------
<S>                        <C>                 <C>                <C>                <C>                    <C>
    $4.375                  10,000              $4.375              .08                  10,000              $4.375
----------------- ---------------------- ------------------ ------------------- ---------------------- ------------------
    $0.560               1,150,000              $0.560             5.50               1,150,000              $0.560
----------------- ---------------------- ------------------ ------------------- ---------------------- ------------------
    $0.350                 440,000              $0.350             8.33                 440,000              $0.350
----------------- ---------------------- ------------------ ------------------- ---------------------- ------------------
    $0.550               2,000,000              $0.550             9.17               1,666,666              $0.550
----------------- ---------------------- ------------------ ------------------- ---------------------- ------------------
    $0.550                 750,000              $0.550             9.25                 562,496              $0.550
----------------- ---------------------- ------------------ ------------------- ---------------------- ------------------
    $1.300                 300,000              $1.300             9.75                 300,000              $1.300
----------------- ---------------------- ------------------ ------------------- ---------------------- ------------------
    $1.19                  200,000               $1.19             5.00                 200,000               $1.19
----------------- ---------------------- ------------------ ------------------- ---------------------- ------------------
    $1.750               8,500,218              $1.750             4.80               8,500,218              $1.750
----------------- ---------------------- ------------------ ------------------- ---------------------- ------------------
    Total               13,350,218                                                   12,829,380
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

During the year ended July 31, 2005, the Company issued 8,500,212 warrants.

8.    COMMITMENTS AND CONTINGENCIES

      LEASES

      The Company leases certain facilities under noncancelable lease
      agreements. As more fully described in Note 3, the building portion of
      some 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 and are accounted for as operating
      leases. Certain of the facility lease agreements provide for options to
      renew and generally require the Company to pay property taxes, insurance,
      and maintenance and repair costs. Total rent expense under all operating
      leases aggregated $ 1,364 and $1,458 for the years ended July 31, 2005 and
      2004, respectively.

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

                                                      July 31,      July 31,
                                                        2005          2004
                                                        ----          ----
         Capitalized asset value                      $   953       $   971
         Less accumulated amortization                   (450)         (441)
                                                      -------       -------
                                                      $   503       $   530
                                                      =======       =======

                                      F-17
<PAGE>
      Net capitalized asset values are included in Property, Plant and
      Equipment. Future minimum lease payments under all noncancelable leases as
      of July 31, 2005, are as follows:
                                                         Capital     Operating
         Year ending July 31,                             leases       leases

             2006                                             124       1,306
             2007                                             132       1,152
             2008                                             132         643
             2009                                             132         496
             2010                                             132         308
             Thereafter                                       704       1,117
                                                         --------     -------
             Total annual lease payments                 $  1,356     $ 5,022
                                                                      =======
             Less amount representing interest,
               with imputed interest rates ranging
               from 6% to 15%                                 503
             Present value of minimum lease payments          853
             Less current portion                              43
             Long-term portion                           $    810
                                                         ========

      PURCHASE COMMITMENTS

      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, 2005, such purchase commitments totaled $
      13,488.

      LITIGATION

      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.

9.    CONCENTRATION OF CREDIT RISK

      Case Corporation provided approximately 49%, 53% and 53% of our products
      for the years ending July 31, 2005, 2004 and 2003 respectively. Case
      dealer contracts are non-exclusive and terminable by either party upon
      minimum notice. There can be no assurances that Case will continue to
      supply the Company with products or continue its relationship with the
      Company. If we are unable to obtain Case products or to continue our
      relationship with Case, we will likely experience reductions in product
      and service sales and increased expenses. Our operations will be
      negatively affected if we experience inadequate supplies of any key
      products.

10.   PRODUCT INFORMATION

      The Company's operations consist of two business segments. However, the
      Company evaluates performance based on revenue and gross margin of three
      distinct product categories. Revenue and gross margin by product
      categories are summarized as follows:

      --------------------------------------------------------------------------
        Business Component         Year Ended      Year Ended      Year Ended
          Net Revenues            July 31, 2005   July 31, 2004   July 31, 2003
      -------------------------- --------------- --------------- ---------------
      Equipment Sales               $  84,634       $  82,011       $  71,215
      -------------------------- --------------- --------------- ---------------
      Equipment Rental                  3,149           5,250           4,957
      -------------------------- --------------- --------------- ---------------
      Product Support                  28,216          28,255          26,224
      -------------------------- --------------- --------------- ---------------
      Mining                            1,223             --              --
      -------------------------- --------------- --------------- ---------------
          Totals                    $ 117,222       $ 115,516       $ 102,396
      --------------------------------------------------------------------------

                                      F-18
<PAGE>
      --------------------------------------------------------------------------
        Business Component         Year Ended      Year Ended      Year Ended
          Gross Margins           July 31, 2005   July 31, 2004   July 31, 2003
      -------------------------- --------------- --------------- ---------------
      Equipment Sales                $  7,932        $  7,767       $   8,225
      -------------------------- --------------- --------------- ---------------
      Equipment Rental                    445             763             668
      -------------------------- --------------- --------------- ---------------
      Product Support                   5,393           5,640           4,633
      -------------------------- --------------- --------------- ---------------
      Mining                              388             --              --
      -------------------------- --------------- --------------- ---------------
       Totals                        $ 14,158        $ 14,170       $  13,526
      --------------------------------------------------------------------------

      Asset information by reportable product line is not reported, since the
      Company does not produce such information internally.

11.   UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL DATA
<TABLE><CAPTION>
                                                                 Quarter
                                                                 -------                       Total
                                                 First     Second      Third     Fourth         Year
                                                 -----     ------      -----     ------         ----
Fiscal 2005:
<S>                                            <C>        <C>        <C>        <C>         <C>
      Net sales                                 $26,744    $30,341    $28,677    $31,460     $117,222
      Gross Profit                                3,331      2,995      3,188      4,644       14,158
      Net income (loss)                             519        117       (135)     1,989        2,490
      Income (loss) per share - basic              0.05        .01      (0.01)       .20          .25
      Income (loss) per share - diluted            0.05        .01      (0.01)       .08          .10

                                                                  Quarter
                                                                  -------                      Total
                                                  First     Second      Third     Fourth        Year
                                                  -----     ------      -----     ------        ----
Fiscal 2004:

      Net sales                                 $27,732    $27,960    $26,426    $33,398     $115,516
      Gross Profit                                3,569      2,813      2,284      5,504       14,170
      Net income (loss)                             584       (238)      (702)     2,269        1,913
      Income (loss) per share - basic              0.06      (0.02)     (0.07)       .22          .19
      Income (loss) per share - diluted            0.06      (0.02)     (0.07)       .22          .19

                                                                  Quarter
                                                                  -------                      Total
                                                  First     Second      Third     Fourth        Year
                                                  -----     ------      -----     ------        ----
Fiscal 2003:

      Net sales                                 $24,094    $24,663    $24,772    $28,867     $102,396
      Gross Profit                                3,461      3,430      2,784      3,851       13,526
      Net income (loss)                             279        223        110       (200)         412
      Income (loss) per share - basic              0.07       0.06       0.03      (0.02)        0.08
      Income (loss) per share - diluted            0.07       0.06       0.03      (0.02)        0.08
</TABLE>


12.   ACQUISITIONS

      On September 8, 2004, Western Power & Equipment Corp. ("Western Power"),
      as the purchaser, Advanced Mineral Technology of Nevada, Inc., a Nevada
      Corporation, an outside consultant ("AMT"), as guarantor and Basalite
      Concrete Products, LLC, a Nevada limited liability company ("Basalite"),
      and Edith Greenburg Irrevocable Trust (the "Greenburg Trust"),
      collectively as Seller, entered into the Agreement for the Purchase of
      Arizona Pacific Materials, LLC (the "Purchase Agreement"). Western Power
      consummated the acquisition of Arizona Pacific Materials, LLC ("Arizona
      Pacific") through the purchase, effective as of September 15, 2004 (the
      "APM Acquisition"), of all the issued and outstanding membership interests
      of Arizona Pacific held by Basalite Concrete Products, LLC and the
      Greenburg Trust (collectively, the "Members") as the sole members thereof
      for a cash consideration of $500 paid at closing of the APM Acquisition
      (the "Closing ") and the issuance at Closing by Western Power of a note in
      the principal face amount of $2,500 (the "Western Power Note"), the
      repayment of which (Western Power Note) is guaranteed in full by AMT. The
      Company acquired APM and the seller indemnified Western Power for all of
      APM's liabilities as of the purchase date.

                                      F-19
<PAGE>
      The following table summarizes the allocation of the purchase price:


            Purchase Price:
            ---------------
            Cash                                         $    500
            Note payable to members                         2,500
                                                         --------
                  Total Purchase Price                   $  3,000
                                                         ========
            Allocation of Purchase Price:
            Inventory                                    $  1,005
            Land                                            1,129
            Furniture, fixtures & equipment                   866
                                                         --------
                  Total Assets Acquired                  $  3,000
                                                         ========

      The Western Power Note for $2,500 and accrued interest was paid in June
      2005.

      Western Power issued notes to related parties for the $500 paid at
      closing, on behalf of Western Power by these related parties. Per the note
      agreements payment on these notes is due September 30, 2005 and accrues
      simple interest at the rate of six percent (6%) per annum. Per the terms
      of the convertible debt agreement, the payment of these notes was amended
      to be paid $200 plus accrued interest in December 2005, $100 plus accrued
      interest in December 2006, 2007 and 2008. In addition, the Company issued
      2,000,000 options (associated with the $500 notes) on September 9, 2004
      with an exercise price of $0.55 per share vesting over the twelve months
      beginning October 2004. The estimated fair value of these options is $292
      and is recorded as deferred debt discount and is being amortized over the
      period of the related debt. The unamortized deferred debt discount as of
      July 31, 2005 was $82.

      The following table of proforma unaudited information gives effect to the
      acquisitions of the assets from Arizona Pacific Materials, LLC as if such
      acquisition had occurred at the beginning of the periods shown.

                                                           YEARS ENDED

                                                July 31, 2005     July 31, 2004
                                                   (000's)           (000's)
      Revenues                                   $   117,319       $   116,972
      Net income                                 $     2,206       $      (688)
      Net income per share - basic               $      0.22       $     (0.07)
      Net income per share - diluted             $      0.08       $     (0.07)

13.   SEGMENT INFORMATION

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

                                      Western Power &   Arizona Pacific
                                      Equipment Corp    Materials, LLC    Total

      For the Year Ended July 31, 2005

      Revenue                            $115,999          $ 1,223      $117,222
      Operating Income (Loss)            $  4,867          $  (878)      $ 3,989
      Net Income (Loss)                  $  3,360          $  (870)      $ 2,490
      Capital Expenditures               $  1,548          $ 2,541       $ 4,089
      Total identifiable assets at
       July 31, 2005                     $ 67,387          $ 4,250       $71,637

                                      F-20
<PAGE>
                                      Western Power &   Arizona Pacific
                                      Equipment Corp    Materials, LLC    Total

      For the Year Ended July 31, 2004

      Revenue                            $115,516            $ 0        $115,516
      Operating Income                   $  4,576            $ 0         $ 4,576
      Net Income                         $  1,913            $ 0         $ 1,913
      Capital Expenditures               $  5,668            $ 0         $ 5,668
      Total identifiable assets at
       July 31, 2004                     $ 55,024            $ 0         $55,024

























                                      F-21
<PAGE>
             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


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

We have audited the accompanying consolidated balance sheets of Western Power &
Equipment Corp. (a Delaware Corporation) as of July 31, 2005 and 2004, and the
related consolidated statements of operations, stockholders' equity (deficiency)
and cash flows for the years ending July 31, 2005, 2004 and 2003. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor are we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purposes of expressing an
opinion or the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no opinion. An audit also 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, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Western
Power & Equipment Corp. as of July 31, 2005 and 2004, and the consolidated
results of its operations and its cash flows for the years ending July 31, 2005,
2004, and 2003, in conformity with accounting principles generally accepted in
the United States of America.


                                             /s/ Marcum & Kliegman LLP
                                             -------------------------
                                             MARCUM & KLIEGMAN LLP
New York, New York
September 1, 2005


                                      F-22
<PAGE>
             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                          FINANCIAL STATEMENT SCHEDULE


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

Our audit of the consolidated financial statements referred to in our report
dated September 1, 2005 appearing on page F-22 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.


                                             /s/ Marcum & Kliegman LLP
                                             -------------------------
                                             MARCUM & KLIEGMAN LLP

New York, New York
September 1, 2005

















                                      F-23
<PAGE>
                                   SCHEDULE II

                         WESTERN POWER & EQUIPMENT CORP.

                        VALUATION AND QUALIFYING ACCOUNTS
             For the Fiscal Years Ended July 31, 2005, 2004 and 2003

                             (DOLLARS IN THOUSANDS)

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

Fiscal year ended July 31, 2005        $938          $ 14         $ ---          $(46)        $906

Fiscal year ended July 31, 2004         555           412           ---           (29)         938

Fiscal year ended July 31, 2003         646           170           ---          (261)         555

INVENTORY RESERVE:

Fiscal year ended July 31, 2005       4,115           844           ---        (1,045)       3,914

Fiscal year ended July 31, 2004       4,871           239           ---          (995)       4,115

Fiscal year ended July 31, 2003       8,056           546           ---        (3,731)       4.871
</TABLE>









                                      F-24
<PAGE>
                                   SIGNATURES


     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.



                                             WESTERN POWER & EQUIPMENT CORP.


                                             BY: /S/ C. DEAN MCLAIN
                                                 -----------------------------
                                                 C. DEAN MCLAIN, PRESIDENT AND
                                                 CHIEF EXECUTIVE OFFICER

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


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


/S/ C. DEAN MCLAIN          PRESIDENT, CHIEF                  SEPTEMBER 28, 2005
----------------------      EXECUTIVE OFFICER,
C. DEAN MCLAIN              AND CHAIRMAN


/S/ MARK J. WRIGHT          VICE PRESIDENT OF FINANCE,        SEPTEMBER 28, 2005
----------------------      CHIEF FINANCIAL AND PRINCIPAL
MARK J. WRIGHT              ACCOUNTING OFFICER,
                            TREASURER AND SECRETARY


/S/ MICHAEL METTER          DIRECTOR                          SEPTEMBER 28, 2005
----------------------
MICHAEL METTER


/S/ STEVEN MOSKOWITZ        DIRECTOR                          SEPTEMBER 28, 2005
----------------------
STEVEN MOSKOWITZ


/S/ JAMES FISHER            DIRECTOR                          SEPTEMBER 28, 2005
----------------------
JAMES FISHER