<PAGE>

                                     FORM 10-Q
                                          
                                          
                         SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, D.C.  20549
                                          
                                          
                     Quarterly Report Under Section 13 or 15(d)
                       of the Securities Exchange Act of 1934
                                          
                       For the Quarter Ended January 31, 1998
                           Commission File Number 0-26230
                                          
                                          
                          WESTERN POWER & EQUIPMENT CORP.
                          -------------------------------
               (Exact name of registrant as specified in its charter)
                                          
                                          
               DELAWARE                                 91-1688446
               --------                                 ----------
     (State or other jurisdiction of              (I.R.S. Employer I.D.
     incorporation or organization)                    number)

4601 NE 77th Avenue, Suite 200, Vancouver, WA          98662
---------------------------------------------          -----
(Address of principal executive offices)              (Zip Code)


              Registrant's telephone no.:           360-253-2346
                                                    ------------
                                          
                                          
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days.


                 YES    X                           NO        
                      -----                             -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.

          Title of Class                              Number of shares
           Common Stock                                 Outstanding
     (par value $.001 per share)                         3,533,462

<PAGE>

                           WESTERN POWER & EQUIPMENT CORP.
                                       INDEX


PART I.   FINANCIAL INFORMATION                                    Page Number

     Item 1.   Financial Statements

      Consolidated Balance Sheet
        January 31, 1998 (Unaudited) and July 31, 1997 . . . . . . . .   1

      Consolidated Statement of Operations
        Three months ended January 31, 1998 (Unaudited)
        and January 31, 1997 (Unaudited) . . . . . . . . . . . . . . .   2
     
      Consolidated Statement of Operations
        Six months ended January 31, 1998 (Unaudited)
        and January 31, 1997 (Unaudited) . . . . . . . . . . . . . . .   3

      Consolidated Statement of Cash Flows
        Six months ended January 31, 1998 (Unaudited)
        and January 31, 1997 (Unaudited) . . . . . . . . . . . . . . .   4

      Notes to Consolidated Financial Statements . . . . . . . . . . .   5 - 6

     Item 2.   Management's Discussion and Analysis of
               Financial Condition and Operating Results . . . . . . .   7 - 11


PART II.  OTHER INFORMATION

     Item 1.   Legal Proceedings . . . . . . . . . . . . . . . . . . .   N/A

     Item 2.   Changes in Securities . . . . . . . . . . . . . . . . .   N/A

     Item 3.   Defaults Upon Senior Securities . . . . . . . . . . . .   N/A

     Item 4.   Submission of Matters to a Vote of Security 
               Holders . . . . . . . . . . . . . . . . . . . . . . . .   12

     Item 5.   Other Information . . . . . . . . . . . . . . . . . . .   N/A

     Item 6.   Exhibits and Reports on Form 8-K. . . . . . . . . . . .   12

<PAGE>

ITEM 1.
                          WESTERN POWER & EQUIPMENT CORP.
                             CONSOLIDATED BALANCE SHEET
                               (Dollars in thousands)
<TABLE>
<CAPTION>
                                                      January 31,    July 31,
                                                         1998          1997  
                                                      -----------   ----------
                                                      (Unaudited)
<S>                                                   <C>            <C>
                ASSETS
                ------
Current assets:
  Cash and cash equivalents. . . . . . . . . . .           $1,842      $ 1,875
  Accounts receivable, less allowance for
    doubtful accounts of $715 and $651 . . . . .           12,151        9,677
  Inventories. . . . . . . . . . . . . . . . . .           82,992       83,369
  Prepaid expenses . . . . . . . . . . . . . . .                6           39
  Income taxes receivable. . . . . . . . . . . .              366          514
  Deferred income taxes. . . . . . . . . . . . .              936          936
                                                      -----------   ----------
      Total current assets . . . . . . . . . . .           98,293       96,410

  Property, plant and equipment, net . . . . . .            7,943        8,149
  Intangibles and other assets . . . . . . . . .            2,759        2,864
                                                      -----------   ----------

      Total assets . . . . . . . . . . . . . . .         $108,995     $107,423
                                                      -----------   ----------
                                                      -----------   ----------

               LIABILITIES & STOCKHOLDERS' EQUITY
               ----------------------------------
Current liabilities:
  Borrowings under floor plan financing. . . . .          $16,723      $55,490
  Short-term borrowings. . . . . . . . . . . . .           49,515        4,074
  Accounts payable . . . . . . . . . . . . . . .           11,668       18,107
  Accrued payroll and vacation . . . . . . . . .              768          736
  Other accrued liabilities. . . . . . . . . . .            2,257        1,914
  Capital lease obligation . . . . . . . . . . .              105          106
  Covenant Not to Compete. . . . . . . . . . . .               96          100
                                                      -----------   ----------
      Total current liabilities. . . . . . . . .           81,132       80,527

Covenant Not to Compete. . . . . . . . . . . . .                -           46
Deferred income taxes. . . . . . . . . . . . . .              364          364
Capital lease obligation . . . . . . . . . . . .            2,407        2,453
Long-term borrowings . . . . . . . . . . . . . .            1,197        1,268
                                                      -----------   ----------
      Total liabilities. . . . . . . . . . . . .           85,100       84,658
                                                      -----------   ----------

Commitments and contingencies

Stockholders' equity:
  Preferred stock-10,000,000 shares authorized;
    none issued and outstanding. . . . . . . . .                -            -
  Common stock-$.001 par value; 20,000,000
    shares authorized; 3,533,462 issued and
    outstanding. . . . . . . . . . . . . . . . .                4            4
  Additional paid-in capital . . . . . . . . . .           16,047       16,047
  Retained earnings. . . . . . . . . . . . . . .            7,844        6,714
                                                      -----------   ----------
      Total stockholders' equity . . . . . . . .           23,895       22,765
                                                      -----------   ----------

      Total liabilities and stockholders'
        equity . . . . . . . . . . . . . . . . .         $108,995     $107,423
                                                      -----------   ----------
                                                      -----------   ----------
</TABLE>
                                          
                   See accompanying notes to financial statements.

                                       1
<PAGE>
                                          
                          WESTERN POWER & EQUIPMENT CORP.
                        CONSOLIDATED STATEMENT OF OPERATIONS
                                    (UNAUDITED)
                  (Dollars in thousands, except per share amounts)
                                          
                                          
<TABLE>                                   
<CAPTION>
                                                            Three Months Ended
                                                                January 31, 
                                                             1998         1997
                                                           ------        -----

<S>                                                   <C>              <C>

Net sales. . . . . . . . . . . . . . . . . . . .          $39,658      $34,988

Cost of goods sold . . . . . . . . . . . . . . .           34,669       31,387
                                                          --------     --------
Gross profit . . . . . . . . . . . . . . . . . .            4,989        3,601

Selling, general and administrative expenses . .            3,119        2,384

Other (income) expense:
  Interest expense . . . . . . . . . . . . . . .            1,076          825
  Other income . . . . . . . . . . . . . . . . .             (153)        (154)
                                                          --------     --------

Income before taxes. . . . . . . . . . . . . . .              947          546

Income tax provision . . . . . . . . . . . . . .              332          211
                                                          --------     --------

Net income . . . . . . . . . . . . . . . . . . .          $   615      $   335
                                                          --------     --------
                                                          --------     --------

Basic earnings per common share. . . . . . . . .          $  0.17      $  0.09
                                                          --------     --------
                                                          --------     --------

Average outstanding common shares for 
  basic earnings per share . . . . . . . . . . .            3,533        3,533
                                                          --------     --------
                                                          --------     --------

Average outstanding common shares and equivalants
 for diluted earnings per share. . . . . . . . .            3,747        3,582
                                                          --------     --------
                                                          --------     --------

Diluted earnings per share . . . . . . . . . . .          $  0.16      $  0.09
                                                          --------     --------
                                                          --------     --------
</TABLE>
                  See accompanying notes to financial statements.

                                       2
<PAGE>
                                          
                          WESTERN POWER & EQUIPMENT CORP.
                        CONSOLIDATED STATEMENT OF OPERATIONS
                                    (UNAUDITED)
                  (Dollars in thousands, except per share amounts)
                                          
                                          
<TABLE>
<CAPTION>
                                                            Six Months Ended
                                                                January 31,
                                                             1998         1997
                                                            -----        -----
<S>                                                       <C>          <C>
Net sales. . . . . . . . . . . . . . . . . . . .          $76,616      $66,201

Cost of goods sold . . . . . . . . . . . . . . .           67,292       58,835
                                                          --------     --------

Gross profit . . . . . . . . . . . . . . . . . .            9,324        7,366

Selling, general and administrative expenses . .            5,931        4,635

Other (income) expense:
  Interest expense . . . . . . . . . . . . . . .            1,840        1,678
  Other income . . . . . . . . . . . . . . . . .             (242)        (334)
                                                          --------     --------

Income before taxes. . . . . . . . . . . . . . .            1,795        1,387

Income tax provision . . . . . . . . . . . . . .              665          535
                                                          --------     --------

Net income . . . . . . . . . . . . . . . . . . .          $ 1,130      $   852
                                                          --------     --------
                                                          --------     --------

Basic earnings per common share. . . . . . . . .          $  0.32      $  0.24
                                                          --------     --------
                                                          --------     --------
Average outstanding common shares for 
  basic earnings per share . . . . . . . . . . .            3,533        3,533

Average outstanding common shares and equivalants
 for diluted earnings per share. . . . . . . . .            3,756        3,597
                                                          --------     --------
                                                          --------     --------

Diluted earnings per share . . . . . . . . . . .          $  0.30      $  0.24
                                                          --------     --------
                                                          --------     --------
</TABLE>

                  See accompanying notes to financial statements.
                                          
                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                            Six Months Ended
                                                                January 31,
                                                             1998         1997
                                                            -----        -----
<S>                                                       <C>          <C>
Cash flows from operating activities:
  Net income . . . . . . . . . . . . . . . . . .           $1,130        $ 852
  Adjustments to reconcile net income to net cash
    (used in) provided by operating activities:
      Depreciation . . . . . . . . . . . . . . .              589          513
      Amortization . . . . . . . . . . . . . . .               92           59
      Changes in assets and liabilities:
          Accounts receivable. . . . . . . . . .           (2,474)      (2,697)
          Inventories. . . . . . . . . . . . . .              377        3,725
          Prepaid expenses . . . . . . . . . . .               33          (86)
          Accounts payable . . . . . . . . . . .           (6,438)       1,337
          Accrued payroll and vacation . . . . .               32         (250)
          Other accrued liabilities. . . . . . .             (211)         545
          Income taxes payable . . . . . . . . .              701         (168)
          Other assets . . . . . . . . . . . . .            1,197           10
                                                          --------     --------
Net cash (used in) provided by operating
   activities. . . . . . . . . . . . . . . . . .           (4,972)       3,840
                                                          --------     --------
Cash flow from investing activities:
  Purchase of fixed assets . . . . . . . . . . .             (383)        (867)
                                                          --------     --------
  Net cash used in investing activities  . . . .             (383)        (867)
                                                          --------     --------
Cash flows from financing activities:
  Principal payments on capital leases . . . . .              (47)         (77)
  Floor plan financing . . . . . . . . . . . . .          (39,982)      (9,511)
  Short-term borrowings. . . . . . . . . . . . .           45,351        4,709
                                                          --------     --------
  Net cash provided by (used in)
   financing activities. . . . . . . . . . . . .            5,322       (4,879)
                                                          --------     --------
Decrease in cash and cash equivalents. . . . . .              (33)      (1,906)
Cash and cash equivalents at beginning of 
 period. . . . . . . . . . . . . . . . . . . . .            1,875        2,721
                                                          --------     --------
Cash and cash equivalents at end of period . . .           $1,842       $  815
                                                          --------     --------
                                                          --------     --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
  Interest . . . . . . . . . . . . . . . . . . .           $1,840       $1,678
  Income taxes . . . . . . . . . . . . . . . . .              475          703
</TABLE>

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

A capital lease obligation of $292 was incurred during the year ended July 31,
1997 when the Company entered into a lease for computer equipment and software. 
A capital lease obligation of $680 was incurred in June 1997 when the Company
entered into a 20-year lease for the Kent, Washington facility.

                   See accompanying notes to financial statements.

                                       4

<PAGE>
                         Western Power & Equipment Corp.
                                          
                    Notes to Consolidated Financial Statements
                              (Dollars in thousands)

1.   BASIS OF PRESENTATION

The financial information included in this report has been prepared in
conformity with the accounting principles and practices reflected in the
financial statements for the preceding year included in the annual report on
Form 10-K for the year ended July 31, 1997 filed with the Securities and
Exchange Commission.  All adjustments are of a normal recurring nature and are,
in the opinion of management, necessary for a fair statement of the results for
the interim periods.  This report should be read in conjunction with the
Company's financial statements included in the annual report on Form 10-K for
the year ended July 31, 1997 filed with the Securities and Exchange Commission.


2.   INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
                                                          January 31,   July 31,
                                                           1998           1997
                                                          -----           -----

     <S>                                                  <C>          <C>
     Equipment:
       New equipment                                      $63,676      $66,976
       Used equipment                                       9,607        8,234
       Parts                                                9,709        8,159
                                                          --------     --------
                                                          $82,992      $83,369
                                                          --------     --------
                                                          --------     --------
</TABLE>

3.   CHANGE IN ACCOUNTING ESTIMATE

Effective August 1, 1997, the Company changed its estimate of depreciation on
its rental equipment inventory from 80% of billings to 70% of billings.  This
change in accounting estimate resulted in an increase in rental equipment
inventory and a decrease in cost of goods sold of approximately $190 and $630
for the quarter and six months ended January 31, 1998, respectively.

4.   FISCAL 1998 EVENTS

On December 11, 1997 the Company acquired substantially all of the operating
assets used by Case Corporation in connection with its business of servicing and
distributing agricultural equipment at a distribution facility located in Yuba
City, California.  The real property and improvements used in connection with
the Yuba City operation and upon which the Yuba City operation is located, were
sold to McLain-Rubin Realty III, L.L.C. (MRR III) under the terms of a separate
real property purchase and sale agreement.  MRR III is 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.

The purchase price was an aggregate of $1,945, of which approximately $142 was
paid in cash, consisting of approximately $1,427 for equipment inventory, $383
for parts inventories, $38 for fixed assets, $64 for accounts receivable, and
$33 for other assets.  MRR III acquired the real property and improvements

                                       5

<PAGE>

used in connection with and upon which the Yuba City operation is located for 
$450 via a promissory note from MRR III to Case Corporation with a 12 month 
term. 

The majority of the purchase price was financed by the Company through various
promissory notes to Case Corporation dated December 11, 1997.  The promissory
notes are generally non-interest bearing for a short period (ranging from three
to ten months) and then, if not paid in full, bear interest at prime plus two
percent.  The promissory notes carry repayment terms ranging from three equal
monthly payments to over one year. All of the notes are cross-collateralized and
secured by all the assets acquired in the Yuba City purchase.

Subsequent to the closing of the Yuba City acquisition, the Company entered into
a 20-year lease agreement with MRR III for the Yuba City facility at an initial
rental rate of $54 per year with increases at 5, 10, and 15 years.  The lease is
a net lease with payment of insurance, property taxes and maintenance costs by
the Company.

                                       6

<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
          LIQUIDITY AND CAPITAL RESOURCES

The following discussion and analysis should be read in conjunction with the
Financial Statements and Notes thereto appearing elsewhere in this Form 10-Q.

GENERAL

Effective November 1, 1992, the Company completed the acquisition of seven
stores located in Washington and Oregon which sell and service equipment used in
the construction industry.  The Company's strategic plan was, and continues to
be, that of expanding the operations and improving profitability at each of its
existing retail outlets.  In furtherance of such strategic plan, subsequent to
1992 the Company opened three additional outlets in Washington and Oregon. 
Effective September 10, 1994, the Company also purchased from Case Corporation
(Case) two additional retail construction equipment distribution outlets located
in Sparks, Nevada and Fremont, California.  The Fremont operation was relocated
to neighboring Hayward, California in December 1994.  In March and August 1995
the Company opened distribution outlets in Santa Rosa and Salinas, California,
respectively.  In February 1996, the Company announced the opening of a
distribution outlet in Elko, Nevada.  Also in February 1996, the Company
completed the acquisition of the Sacramento, California outlet from Case.  The
opening of a Stockton, California outlet was completed in March 1996.  In June
1996 the Company completed the acquisition of GCS, Inc., a California
distributor of highway maintenance equipment with offices in Sacramento and
Fullerton.  In January 1997, the Company completed the acquisition of the
operating assets of Sahlberg Equipment Inc., a four-store Pacific Northwest
distributor of construction equipment, bringing the total number of distribution
outlets owned and operated by the Company to 23. In December 1997, the Company
completed the acquisition of a Case Corporation owned agriculatural equipment
store in Yuba City, California.  In addition, in December 1997, the Company
opened a new construction equipment store in Clarkston, Washington bringing the
total number of retail distribution outlets owned and operated by the Company to
25.  The Company plans to open and acquire additional distribution outlets for
Case products, as well as for products which may be manufactured by other
companies.

RESULTS OF OPERATIONS

THE THREE AND SIX MONTHS ENDED JANUARY 31, 1998 COMPARED TO THE THREE AND SIX
MONTHS ENDED JANUARY 31, 1997.

Revenues for the three month period ended January 31, 1998 increased $4,670,000
or approximately 13% over the three month period ended January 31, 1997, due to
the contribution of the stores acquired or opened in the last year. Same store
revenues decreased $1,045,000 or 3% for the three month period ended January 31,
1998, as compared to the prior year period.  The decrease in same store revenues
resulted from decreases in the Washington and Oregon stores due mainly to a
slight slowdown in construction activity in those states. Sales were up from the
prior year's second quarter in all departments.

Revenues for the six month period ended January 31, 1998 increased $10,415,000
or approximately 16% over the six month period ended January 31, 1997.  The
increase was due primarily to the contribution of the stores acquired or opened
in the last year, accounting for $9,714,000 (93%) of the increase in sales. 
Same store revenues increased $701,000 or 1% for the six month period ended
January 31, 1998, as compared to the six month period ended January 31,

                                       7

<PAGE>

1997. For the six month period ended January 31, 1998, sales in all 
departments were up from the same period in the prior year.

The Company's gross profit margin of 12.6% for the three month period ended
January 31, 1998 was up from the prior year comparative period margin of 10.3%. 
The increase in gross profit margins was the result of a slight increase in
higher margin rental, parts, and service revenues as a percentage of sales and
also the effect of buying inventory at lower costs due to cash payment and
marketing incentives taken. For the six month period ended January 31, 1998, the
Company's gross margin was 12.2% up from the 11.1% gross margin for the six
month period ended January 31, 1997.

For the three month period ended January 31, 1998, selling, general, and
administrative ("SG&A") expenses, as a percentage of sales, were 7.9% up from
6.8% for the prior year's quarter.  SG&A expenses for the six month period ended
January 31, 1998 were 7.7% of sales compared to 7.0% of sales for the prior year
six month period. Executive management has put in place a plan to reduce SG&A
expenses as a percentage of sales for the balance of the fiscal year.

Interest expense for the three months ended January 31, 1998 of $1,076,000 was
up significantly from the $825,000 in the prior year comparative period.  This
increase is the result of a build up in inventory levels to support the
Company's higher equipment sales level, including a significant investment in
equipment dedicated to the rental fleet.  Interest expense for the six month
period ended January 31, 1998 was $1,840,000 compared to $1,678,000 for the six
month period ended January 31, 1997, due to the increased inventory carried by
the Company.

The effective tax rate for the six months ended January 31, 1998 was
approximately 37.0%, which is slightly lower than the 38.6% effective tax rate
for the prior year comparative period.  The Company anticipates the effective
tax rate to remain at the current level for the foreseeable future.

Net income for the quarter ended January 31, 1998 was $615,000 or $.17 per share
compared with $335,000 or $0.09 per share for the prior year's second quarter.
For the six month period ended January 31, 1998, earnings per share were $0.32,
a 33% increase from the $0.24 earnings per share for the six month period ended
January 31, 1997. The number of weighted average common shares and equivalents
used for computing dilulted earnings per share for the quarter and six months
ended January 31, 1998 reflects the incremental number of shares calculated
using the treasury stock method for 1,536,000 options and warrants whose
exercise prices range from $4.375 to $10.375.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary source of internal liquidity has been its profitable
operations since its inception in November 1992.  As more fully described below,
the Company's primary sources of external liquidity were contributions to the
Company by its parent, American United Global, Inc. ("AUGI"), and equipment
inventory floor plan financing arrangements provided to the Company by the
manufacturers of the products the Company sells, Seattle-First National Bank
("Seafirst Bank"), and Deutsche Financial Services.  In addition, in fiscal
1995, the Company completed an initial public offering of 1,495,000 shares of
common stock at $6.50 per share, generating net proceeds of $7,801,000.  The net
proceeds of the offering were utilized to repay amounts due to AUGI and to Case,
the acquisition and opening of additional outlets, as well as to reduce floor
plan debt.  

                                       8

<PAGE>

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 two to three percent over the prime rate of
interest.  Principal payments are typically made under these agreements at
scheduled intervals and/or as the equipment is rented, with the balance due at
the earlier of a specified date or sale of the equipment.  At January 31, 1998,
the Company was indebted under manufacturer provided floor planning arrangements
in the aggregate amount of $16,723,000.

In order to take advantage of the three percent cash discount offered by Case,
to provide financing beyond the term of applicable manufacturer provided floor
plan financing or as an alternative to various manufacturer provided floor plan
financing arrangements, the Company has entered into a separate secured floor
planning line of credit with Seafirst Bank.  The Seafirst line of credit was
entered into in June 1994 and renewed on September 1, 1997.  This is a
$22,000,000 line of credit which can be used to finance new and used equipment
or equipment to be held for rental purposes.  On January 31, 1998, approximately
$8,409,000 was outstanding under such line of credit, the principal of which
bears interest at approximately .50 percent below the bank's prime rate and is
subject to annual review and renewal on July 1, 1998.

In June 1997, the Company obtained a $75 million inventory flooring and
operating line on credit through Deutsche Financial Services ("DFS"). The DFS
credit facility is a three-year, floating rate facility based on prime with
rates between 0.50 percent under prime to 1.00 percent over prime depending on
the amount of total borrowing under the facility. Amounts are advanced against
the Company's assets, including accounts receivable, parts, new equipment,
rental fleet, and used equipment. The Company expects to use this borrowing
facility to lower flooring related interest expense by using advances under such
line to finance inventory purchases in lieu of financing provided by suppliers,
to take advantage of cash purchase discounts from its suppliers, to provide
operating capital for further growth, and to refinance some its acquisition
related debt at a lower interest rate. As of January 31, 1998, approximately
$49,396,000 was outstanding under this facility at an interest rate of 8.00
percent.

Amounts owing under these floor plan financing agreements are secured by
inventory purchases financed by these lenders, as well as all proceeds from
their sale or rental, including accounts receivable thereto.

On October 19, 1995, the Company entered into a purchase and sale agreement with
an unrelated party for the Auburn, Washington facility subject to the execution
of a lease.  Under the terms of this agreement, which closed on December 1,
1995, the Company sold the property and is leasing it back from the purchaser. 
In accordance with Statement of Financial Accounting Standards No 13 (SFAS 13),
the building portion of the lease is being accounted for as a capital lease
while the land portion of the lease qualifies for treatment as an operating
lease.

Effective February 17, 1996, the Company acquired substantially all of the
operating assets used by Case in connection with its business of servicing and
distributing Case construction equipment at a facility located in Sacramento,
California (the "Sacramento Operation").  The acquisition was consummated for
approximately $630,000 in cash, $3,090,000 in installment notes payable to Case
and the assumption of $3,965,000 in inventory floor plan debt with Case and its
affiliates.  The acquisition has been accounted for as a purchase.

                                       9

<PAGE>

The real property and improvements used in connection with the Sacramento
Operation, and upon which the Sacramento Operation is located, were sold by Case
for $1,500,000 to the McLain-Rubin Realty Company, LLC ("MRR"), a Delaware
limited liability company, the owners of which are Messrs. C. Dean McLain, the
President and a director of the Company, and Robert M. Rubin, the Chairman and a
director of the Company.  Simultaneous with its acquisition of the Sacramento
Operation real property and improvements, MRR leased such real property and
improvements to the Company under the terms of a 20-year Commercial Lease
Agreement dated as of March 1, 1996.  In accordance with SFAS 13, the building
portion of the lease is being accounted for as a capital lease while the land
portion of the lease qualifies for treatment as an operating lease.

On October 10, 1995, using proceeds from the Company's initial public offering,
the Company retired the $2,175,000 real estate note given to Case for the
purchase of the Sparks, Nevada real estate in September 1994.  In March 1996,
the Company consummated an agreement with an institutional lender for a
conventional mortgage on the property in the amount of $1,330,000, secured by
the Sparks, Nevada real estate.  The agreement calls for principal and interest
payments over a seven year term using a fifteen year amortization period.  The
note cannot be prepaid during the first two years of its term.  

On June 11, 1996, the Company acquired the operating assets of GCS, Inc.
("GCS"), a California-based, closely-held distributor of heavy equipment
primarily marketed to municipal and state government agencies responsible for
street and highway maintenance.  The Company operates the GCS business from an
existing location in Fullerton, California and from the Company's existing
facility in Sacramento, California.  The purchase price for the GCS assets was
$1,655,000.  This transaction was accounted for as a purchase.

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

The real property and improvements upon which the Kent, Washington facility
acquired from Sahlberg is located, was purchased by McLain-Rubin Realty Company
II, LLC ("MRR II"), a Delaware limited liability company, the owners of which
are Messrs. C. Dean McLain, the President and a director of the Company, and
Robert M. Rubin, the Chairman and a director of the Company.  Simultaneous with
its acquisition of such real property and improvements, MRR II leased such real
property and improvements to the Company under the terms of a 20-year Commercial
Lease Agreement dated as of June 1, 1997.  In accordance with SFAS 13, the
building portion of the lease is being accounted for as a capital lease while
the land portion of the lease qualifies for treatment as an operating lease. 
See Notes 3 and 9 to the accompanying Consolidated Financial Statements for more
information.

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

                                       10

<PAGE>

The real property and improvements upon which the Yuba City, California facility
acquired from Case is located, was purchased by McLain-Rubin Realty Company III,
LLC ("MRR III"), a Delaware limited liability company, the owners of which are
Messrs. C. Dean McLain, the President and a director of the Company, and Robert
M. Rubin, the Chairman and a director of the Company. MRR III is leasing such
real property and improvements to the Company under the terms of a Commercial
Lease Agreement dated as of December 11, 1997.  In accordance with SFAS 13, the
building portion of the lease is being accounted for as a capital lease while
the land portion of the lease qualifies for treatment as an operating lease.

During the six months ended January 31, 1998, cash and cash equivalents
decreased by $33,000, reflecting the transfer of inventory funding from the
various manufacturer provided flooring plans to the Deutsche Financial credit
facility.  

Excluding the effect of transferring inventory financing to the Deutsche
Financial credit facility, the Company had negative cash flow from operating
activities of $2,888,000 during the quarter ended January 31, 1998, chiefly as a
result of paying down accounts payables. Purchases of fixed assets during the
quarter were related mainly to the opening of new distribution outlets and the
Yuba City, California store acquisition.  

The Company's cash and cash equivalents of $1,842,000 as of January 31, 1998 and
available credit facilities are considered sufficient to support current or
higher levels of operations for at least the next twelve months.

Certain matters discussed herein contain forward-looking statements that are 
subject to risks and uncertainties any one or more of which could cause actual 
results to differ materially from those projected.

                                       11

<PAGE>

PART II.  OTHER INFORMATION

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

          On January 27, 1998, the Company held its 1997 Annual meeting of
     Stockholders (the "Annual Meeting").  Each director holding office prior to
     the date of the Annual Meeting, Messrs. C. Dean McLain, Robert M. Rubin,
     Harold Chapman, Jr., and James Penland, were the only persons nominated for
     election at the Annual Meeting, and each of such persons was reelected at
     the Annual Meeting for another term as director.  The votes recorded for
     election of each nominee for director were the following:

<TABLE>
<CAPTION>

<S>                            <C>                <C>            <C>
     Name                         For             Against        Abstention
     ----                      ---------          -------        ----------
     C. Dean McLain            3,449,639            -0-            12,622  
     Robert M. Rubin           3,449,639            -0-            12,622  
     Harold Chapman, Jr.       3,449,639            -0-            12,622  
     James Penland             3,449,639            -0-            12,622  
</TABLE>

          Votes were also cast, and proposals approved, at the Annual Meeting
     for (i) ratification of the reappointment of Price Waterhouse, LLP as the
     Company's independent auditors for the 1998 fiscal year (3,456,301 votes in
     favor, 1,260 votes against, and 4,700 abstentions), and (ii) ratification
     of an increase of the number of shares available and to be granted under
     the Non-employee Director Formula Stock Option Plan (2,554,415 votes in
     favor, 268,057 votes against, 8,450 abstentions and 631,339 broker
     non-votes).

     ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

          A.   EXHIBITS.                                                   NONE

          B.   REPORTS ON FORM 8-K.                              

               Form 8-K filed December 27, 1997 reporting on the acquisition of
               the operating assets of Case Corporation's Yuba City, California
               operations.

                                       12

<PAGE>

                                   SIGNATURE


Pursuant to the requirements of the Securities and 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.

March 16, 1998

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

                                       13