WESTERN POWER & EQUIPMENT CORP, 10-K405, 1997-10-29

WESTERN POWER & EQUIPMENT CORP
10-K405, 1997-10-29
CONSTRUCTION & MINING (NO PETRO) MACHINERY & EQUIP

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<PAGE>

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

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

FORM 10-K

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

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

FOR THE FISCAL YEAR ENDED JULY 31, 1997 COMMISSION FILE NUMBER 0-26230

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

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

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

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

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

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

COMMON STOCK, $.001 PAR VALUE
-----------------------------
(Title of Class)

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

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

As of October 21, 1996: (a) 3,533,462 shares of Common Stock, $.001 par
value, of the registrant (the "Common Stock") were outstanding; (b) 1,533,462
shares of Common Stock were held by non-affiliates ; and (c) the aggregate
market value of the Common Stock held by non-affiliates was $8,050,676 based on
the closing sale price of $5.25 per share on October 22, 1997.
<PAGE>

PART I

ITEM 1. BUSINESS

GENERAL

Western Power & Equipment Corp., a Delaware corporation (the "Company"), is
engaged in the sale, rental, and servicing of light, medium-sized, and heavy
construction equipment, parts and related products which are manufactured
principally by Case Corporation ("Case"). The Company believes, based upon the
number of locations owned and operated, that it is the largest independent
dealer of Case construction equipment in the United States. Products sold,
rented, and serviced by the Company include backhoes, excavators, crawler
dozers, skid steer loaders, forklifts, compactors, log loaders, trenchers,
street sweepers, sewer vacuums and mobile highway signs.

The Company operates out of 23 retail distribution facilities located in
the States of Washington, Oregon, Nevada, California, and Alaska. The equipment
distributed by the Company is furnished to contractors, governmental agencies,
and other customers, primarily for use in the construction of residential and
commercial buildings, roads, levees, dams, underground power projects, forestry
projects, municipal construction, and other projects.

The Company's strategy is to accelerate the growth of its distribution
business in the future. In such connection, it may seek to operate additional
Case or other equipment retail distributorships, and sell, lease, and service
additional lines of construction equipment and related products not manufactured
by Case. See "Growth Strategy."

HISTORY AND ACQUISITIONS

The Company was initially organized in August 1992, solely for the purpose
of acquiring certain retail distribution facilities from Case. The Company
became a wholly-owned subsidiary of American United Global, Inc. ("AUGI"),
simultaneous with such acquisition.

Effective November 1, 1992, the Company completed the purchase from Case of
certain assets used in connection with seven separate Case retail construction
equipment distribution operations located in the cities of Portland, Salem and
Springfield, Oregon; and in the cities of Spokane, Everett, Pasco, and Auburn,
Washington. The purchase included approximately $32,669,000 of assets,
including inventories of new and used Case construction equipment and spare
parts, as well as ownership of the Case real estate used in the Auburn,
Washington retail operation. The purchase price was paid $1,940,000 in cash,
$10,749,000 in installment notes payable to Case and $19,980,000 through
inventory floor planning dealer financing agreements with Case and its
affiliates for the purchase of new equipment held for sale at the acquired
retail operations.

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

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<PAGE>

tools and other assets; (iii) $2,175,000 in the form of the Sparks Real Estate
Note due October 10, 1995; and (iv) approximately $5,019,000 for new Case
manufactured equipment through secured inventory floor planning dealer financing
with Case and its affiliates. The Sparks Real Estate Note was retired
October 10, 1995 using proceeds from the initial public offering. The Company
has financed the property with an institutional lender in the amount of
$1,330,000, secured by the Sparks, Nevada real estate.

Effective February 29, 1996, the Company acquired the assets and operations
of two additional factory-owned stores of Case in the state of California. The
acquisition was consummated for approximately $630,000 in cash, $1,590,000 in
installment notes payable to Case and the assumption of $3,965,000 in inventory
floor plan debt with Case and its affiliates. The accounts of these two stores
have been included in the Company's accounts from the effective date of the
acquisition.

On January 17, 1997 the Company acquired the operating assets of Sahlberg
Equipment, Inc.("Sahlberg"), a four-store Northwest distributor of noncompeting
lines of equipment with facilities in Kent, Washington, Portland, Oregon,
Spokane, Washington and Anchorage, Alaska. The purchase price for the assets of
Sahlberg was an aggregate of approximately $5,290,000, most of which was
financed through a loan from Case Corporation secured by the Company's
inventory and other assets.

GROWTH STRATEGY

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

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

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

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

PRODUCTS

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<PAGE>
NEW CASE CONSTRUCTION EQUIPMENT.

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

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

The dealer agreements do not contain requirements for specific minimum
purchases from Case. In consideration for the Company's agreement to act as
dealer, Case supplies to the Company items of Equipment for sale and lease,
parts, cooperative advertising benefits, marketing brochures related to Case
products, access to Case product specialists for field support, the ability to
use the Case name and logo in connection with the Company's sales of Case
products, and access to Case floor plan financing for Equipment purchases. Such
floor planning arrangement currently provides the Company with interest free
credit terms on new equipment purchases ranging from one to twelve months,
depending upon the type of equipment floored, after which interest commences to
accrue monthly at a rate per annum equal to 2% over the prime rate of interest.
The invoice price of each item of Equipment is payable at the earlier of the
time of its sale by the Company or 12 months after the date of shipment to the
Company by Case. Other manufacturers represented by the Company offer
similar supplies and marketing support along with terms which vary from cash
upon delivery to interest-free, 12-month flooring.

OTHER PRODUCTS.

Although the principal products sold, rented, and serviced by the Company
are manufactured by Case, the Company also sells, rents, and services equipment
and sells related parts (e.g., tires, trailers, and compaction equipment)
manufactured by others. Approximately 25% of the Company's net sales for fiscal
year 1997 resulted from sales, rental, and servicing of products manufactured by
companies other than Case, consistent with the 25% figure for fiscal year 1996.

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

NEW EQUIPMENT SALES.

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

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<PAGE>

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

USED EQUIPMENT SALES AND RENTALS.

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

EQUIPMENT RENTAL.

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

EQUIPMENT SERVICING.

The Company operates a service center and yard at each retail outlet for
the repair and storage of Equipment. Both warranty and non-warranty service
work is performed, with the cost of warranty work being reimbursed by the
manufacturer following the receipt of invoices from the Company. The Company
employs approximately 140 manufacturer-trained service technicians who
perform Equipment repair, preparation for sale, and other servicing
activities. Equipment servicing is one of the higher profit margin businesses
operated by the Company. The Company has expanded this business by hiring
additional personnel and developing extended warranty contracts to be
purchased by customers for Equipment sold and serviced by the Company, and
independently marketing such contracts to its customers. The Company services
items and types of Equipment which include those that are neither sold by the
Company nor manufactured by Case.

PARTS SALES.

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

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

SALES AND MARKETING

The Company's customers are typically residential and commercial building
general contractors, road and bridge contractors, sewer and septic contractors,
underground utility contractors, persons engaged in the forestry industry,
equipment rental companies and state and municipal authorities. The Company
estimates that it has approximately 17,000 customers, with most being small
business owners, none of which accounted for more than 5% of its total sales in
the fiscal year ended July 31, 1997.

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<PAGE>

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

New Equipment Sales 58%
Used Equipment Sales 12%
Rental Revenue 8%
Parts Sales 18%
Service Revenue 4%
----
100%
----
----

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

The Company's sales and marketing activities do not result in any
significant backlog of orders. Although the Company has commenced acceptance of
orders from customers for future delivery following manufacture by Case or other
manufacturers, during fiscal 1997 substantially all of its sales revenues
resulted from products sold directly out of inventory, or the providing of
services upon customer request.

All of the Company's sales personnel are employees of the Company, and all
are under the general supervision of C. Dean McLain, the President of the
Company. Each Equipment salesperson is assigned a separate exclusive territory,
the size of which varies based upon the number of potential customers and
anticipated volume of sales, as well as the geographical characteristics of each
area. The Company employed 73 Equipment salespersons on July 31, 1997.

On July 31, 1997, the Company employed 5 product support salespersons who
sell the Company's parts and repair services to customers in assigned
territories. The Company has no independent distributors or non-employee sales
representatives.

SUPPLIERS

The Company purchases the majority of its inventory of equipment and parts
from Case. No other supplier accounted for more than 5% of such inventory
purchases during fiscal 1997. While maintaining its commitment to Case to
primarily purchase Case Equipment and parts as an authorized Case dealer, the
Company plans to expand the number of products and increase the aggregate dollar
value of those products which the Company purchases from manufacturers other
than Case in the future.

COMPETITION

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

Case's two major competitors in the manufacture of full lines of
construction equipment of comparable sizes and quality are Caterpillar
Corporation and Deere & Company. In addition, other manufacturers produce
specific types of equipment which compete with Case Equipment and other
Equipment distributed by the Company. These competitors and their product
specialties include JCB

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Corporation--backhoes, Kobelco Corporation -- excavators, Dresser Industries --
light and medium duty bulldozers, Komatsu Corporation -- wheel loaders and
crawler dozers, and Bobcat, Inc. -- skid steer loaders.

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

ENVIRONMENTAL STANDARDS AND GOVERNMENT REGULATION

The Company's operations are subject to numerous rules and regulations at
the federal, state and local levels which are designed to protect the
environment and to regulate the discharge of materials into the environment.
Based upon current laws and regulations, the Company believes that its policies,
practices and procedures are properly designed to prevent unreasonable risk of
environmental damage and the resultant financial liability to the Company. No
assurance can be given that future changes in such laws, regulations, or
interpretations thereof, changes in the nature of the Company's operations, or
the effects of former occupants' past activities at the various sites at which
the Company operates, will not have an adverse impact on the Company's
operations.

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

EMPLOYEES

At July 31, 1997, the Company employed 414 full-time employees. Of that
number, 35 are in corporate administration for the Company, 24 are involved in
administration at the branch locations, 104 are employed in Equipment sales and
rental, 84 are employed in parts sales, and 167 are employed in servicing
construction equipment. The Company believes that its relations with its
employees are satisfactory.

INSURANCE

The Company currently has product liability insurance policies covering the
Company with $500,000 limits for each occurrence and $1,000,000 in the aggregate
under the general liability and products liability policies. The Company also
has an umbrella liability insurance policy with an annual aggregate coverage
limit of $10,000,000. The Company believes that its product liability insurance
coverage is reasonable in amount and consists of such terms and conditions as
are generally consistent with reasonable business practice, although there is no
assurance that such coverage will prove to be adequate in the future. An
uninsured or partially insured claim, or a claim for which indemnification is
not available, could have a material adverse effect upon the Company.

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<PAGE>

ITEM 2. PROPERTIES

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

<TABLE>
<CAPTION>
Expiration Size/Square Purchase
Location and Use Lessor Date Annual Rental Feet Options
- ---------------- ------ ---- ------------- ---- -------
<S> <C> <C> <C> <C> <C>
1745 N.E. Columbia Blvd. Carlton O. Fisher, 12/31/2000 $67,500(1) Approx. 4 No
Portland, Oregon 97211 Nancy A. Harrison & CPI Acres;
(Retail sales, service, storage Jane G. Whitbread adjustments Building
and repair facilities) 17,622 sq.

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

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

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

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

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

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

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

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

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

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

500 Prospect Lane Frederick Peterson 9/15/2002 $26,496(1) Approx. 1.9 acres; No
Moxee, Washington 98936 Building
(Retail sales, service, storage 6,200 sq. ft.
and repair facilities)

2112 Wildwood Way James Ghia 5/31/98 $18,720 Approx. 1 Acre; No
Elko, Nevada 89431 Building
(Retail sales, service, storage 3,000 sq ft.
and repair facilities)

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

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

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

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

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

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

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

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<PAGE>

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

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

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

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

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

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

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

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

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

ITEM 3. LEGAL PROCEEDINGS

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

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<PAGE>

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

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

None.

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<PAGE>

PART II

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

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

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

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

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

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

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

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

Fiscal 1997
1ST QUARTER - August 1, 1996 through October 31, 1996 $5.250 $4.313

2ND QUARTER - November 1, 1996 through January 31, 1997 $5.375 $4.000

3RD QUARTER - February 1, 1997 through April 30, 1997 $5.500 $4.688

4TH QUARTER - May 1, 1997 through July 31, 1997 $5.500 $4.750

</TABLE>

The number of shareholders of record of the Company's Common Stock on
October 1, 1997 was 40, and the number of beneficial holders of the Company's
Common Stock is estimated by management to be over 1,000 holders.

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

-II-1
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data have been derived from the financial
statements of the Company, which have been audited by Price Waterhouse LLP,
independent accountants. Effective November 1, 1992, the Company completed the
acquisition from Case of certain assets used in connection with seven separate
Case retail construction equipment distributorships located in the states of
Washington and Oregon. The selected financial data of the Company for the ten
months ended October 31, 1992 consist solely of the operations of the seven
retail distribution facilities formerly owned by Case, and have been derived
from the books and records of Case.

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

Fiscal Years Ended
July 31,
-------------------------------------------------------------------------------

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

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

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

* Nine months ended July 31, 1993.

-II-2-
<PAGE>

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

The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto appearing elsewhere in
this annual report.

GENERAL

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

Certain matters discussed herein contain forward-looking statements that
are subject to risks and uncertainties that could cause actual results to
differ materially from those projected, such as projected sales levels,
expense reductions, reduced interest expense, and increased inventory
turnover, one or more of which may not be realized.

RESULTS OF OPERATIONS

FISCAL YEAR 1997, AS COMPARED WITH FISCAL YEAR 1996

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

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

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

Selling, general and administrative expenses were $11,194,000 or 7.6
percent of sales for fiscal 1997 compared to $7,827,000 or 7.3 percent of sales
for fiscal 1996. The increase in selling, general and administrative expenses
as a

-II-3-
<PAGE>
percent of sales resulted mainly from administrative costs associated with the
acquisition and integration of the Sahlberg Equipment operations.

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

FISCAL YEAR 1996, AS COMPARED WITH FISCAL YEAR 1995

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

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

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

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

FISCAL YEAR 1995, AS COMPARED WITH FISCAL YEAR 1994

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

-II-4-
<PAGE>

economic conditions, increased housing starts, as well as revenues realized from
the addition of numerous new parts and equipment lines to our product offerings.

Cost of goods sold as a percentage of sales was 88.4 percent during fiscal
1995 which is consistent with the prior year results. Management has placed a
high priority on improving overall gross margins by increasing higher margin
service and parts revenues and by obtaining higher prices for new equipment.

Selling, general and administrative expenses were $6,078,000 or 7.1 percent
of sales for fiscal 1995 compared to $5,295,000 or 7.9 percent of sales for
fiscal 1994. The decrease in selling, general and administrative expenses as a
percent of sales reflects the spreading of fixed overhead costs over an
increased revenue base which was partially offset by $108,000 in certain
one-time administrative costs associated with the integration of the Sparks,
Nevada and Hayward, California outlets.

The $296,000 increase in interest expense for fiscal 1995 is attributable
to an increasing balance of inventory purchased under the Company's various
floor plan lines of credit to stock our new outlets, and to increasing interest
rates in general.

LIQUIDITY AND CAPITAL RESOURCES

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

Under inventory floor planning arrangements the manufacturers of products sold
by the Company provide interest free credit terms on new equipment purchases for
periods ranging from one to twelve months after which interest commences to
accrue monthly at rates ranging from zero percent to two percent over the prime
rate of interest. Principal payments are typically made under these agreements
at scheduled intervals and/or as the equipment is rented with the balance due at
the earlier of a specified date or sale of the equipment. At July 31, 1997, the
Company was indebted under manufacturer provided floor planning arrangements in
the aggregate amount of $34,634,000. As of September 30, 1997, approximately
$27,888,000 was outstanding under these manufacturer provided floor plan
arrangements.

In order to take advantage of the three percent cash discount offered by Case,
to provide financing beyond the term of applicable manufacturer provided floor
plan financing or as alternatives to manufacturer provided floor plan financing
arrangements, the Company has entered into a separate secured floor planning
line of credit with Seafirst Bank. The Seafirst line of credit was entered into
in June 1994 and renewed on September 1, 1997. This is a $22,000,000 line of
credit which can be used to finance new and used equipment or equipment to be
held for rental purposes. On July 31, 1997, approximately $20,857,000 was
outstanding under such line of credit, the principal of which bears interest at
.50 percent below the bank's prime rate and is subject to annual review and
renewal on September 1, 1998. As of September 30, 1997, approximately
$15,226,000 was outstanding under this facility.

In June 1997, the Company obtained a $75 million inventory flooring and
operating line on credit through Deutsche Financial Services (DFS). The DFS
credit facility is a three-year, floating rate facility based on prime with
rates between 0.50% under prime to 1.00% over prime depending on the amount
of total borrowing under the facility. Amounts are advanced against the
Company's assets, including accounts receivable, parts, new equipment, rental
fleet, and used equipment. The Company expects to use this borrowing facility
to lower flooring related interest expense by using advances under such line
to finance inventory purchases in lieu of financing nnprovided by suppliers,
to take advantage of cash purchase discounts from its suppliers, to provide
operating capital for further growth, and to refinance some its acquisition
related debt at a lower interest rate. Although the Company had not yet
drawn against this credit facility as of July 31, 1997, as of September 30,
1997, approximately $16,609,000 was outstanding under this facility.

-II-5-
<PAGE>

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

On October 19, 1995, the Company entered into a purchase and sale agreement with
an unrelated party for the Auburn, Washington facility subject to the execution
of a lease. Under the terms of this agreement, which closed on December 1,
1995, the Company sold the property and is leasing it back from the purchaser.
In accordance with Statement of Financial Accounting Standards No 13 (SFAS 13),
the building portion of the lease is being accounted for as a capital lease
while the land portion of the lease qualifies for treatment as an operating
lease. See Note 9 to the accompanying Consolidated Financial Statements for
more information.

The real property and improvements used in connection with the Sacramento
Operation, and upon which the Sacramento Operation is located, were sold by Case
for $1,500,000 to the McLain-Rubin Realty Company, LLC ("MRR"), a Delaware
limited liability company, the owners of which are Messrs. C. Dean McLain, the
President and a director of the Company, and Robert M. Rubin, the Chairman and a
director of the Company. Simultaneous with its acquisition of the Sacramento
Operation real property and improvements, MRR leased such real property and
improvements to the Company under the terms of a 20 year Commercial Lease
Agreement dated as of March 1, 1996. In accordance with SFAS 13, the building
portion of the lease is being accounted for as a capital lease while the land
portion of the lease qualifies for treatment as an operating lease. See Notes 3
and 9 to the accompanying Consolidated Financial Statements for more
information.

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

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

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

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

-II-6-
<PAGE>

During the year ended July 31, 1997, cash and cash equivalents decreased by
$846,000 primarily due to the purchase of Sahlberg Equipment, Inc. and increased
inventory levels. The Company had positive cash flow from operating activities
during the year of $2,546,000 reflecting net income for the year after adding
back depreciation and amortization. Purchases of fixed assets during the
period were related mainly to the opening of new distribution outlets and the
Sahlberg acquisition.

The Company's cash and cash equivalents of $1,875,000 as of July 31, 1997 and
available credit facilities are considered sufficient to support current or
higher levels of operations for at least the next twelve months.

EFFECTS OF INFLATION AND INTEREST RATES

All of the products and services provided by the Company are either capital
equipment or included in capital equipment, which are used in the construction
industry. Accordingly, the Company's sales are affected by inflation or
increased interest rates which tend to hold down new construction, and
consequently adversely affects demand for the construction equipment sold and
rented by the Company.

DIVIDEND POLICY

-II-7-
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

Financial Statement Schedule:

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

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

None.

-II-8-
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

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

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

Robert M. Rubin 57 Chairman of the Board of
Directors; Nominee for
Director

C. Dean McLain 44 President, Chief
Executive Officer and
Director; Nominee for
Director

Mark J. Wright 41 Vice President of
Finance, Chief Financial
Officer, and Secretary

Harold Chapman, Jr. 36 Director; Nominee for
Director

James H. Penland 68 Director; Nominee for
Director

Set forth below is a brief background of the executive officers and
directors of the Company, based on information supplied by them.

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

-III-1-
<PAGE>

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

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

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

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

-III-2-
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

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

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Long-Term Compensation
- ------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
---------------------------------------- -------------------------------- ----------
Other
Annual Restricted All Other
Name and Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation Awards SARs(#) Payouts sation
- -------------------------------------------------------------------- -------------------------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert M. Rubin 1997 $150,000 $ 0 $ 0 $ 0 50,000 $ 0 $ 0
Chairman and 1996 $150,000 $50,000 $ 0 $ 0 150,000 $ 0 $ 0
Director(1) 1995 $ 75,000 $25,000 $ 0 $ 0 0 $ 0 $ 0

C. Dean McLain 1997 $268,587 $18,658 $ 0 $ 0 0 $ 0 $ 0
Executive Vice 1996 $250,000 $84,868 $ 0 $ 0 300,000* $ 0 $ 0
President and 1995 $170,709 $75,000 $ 0 $ 0 150,000 $ 0 $ 0
Director; President
and CEO of Western(2)
- -------------------------------------------------------------------- -------------------------------- ------------ -----------
</TABLE>
--------------
* Reflects the repricing of options to acquire 150,000 shares and
the original issuance of options to acquire 150,000 shares.

(1) The foregoing annual compensation amounts represent 50% of the
$150,000 in annual cash salary paid to Mr. Rubin by AUGI and
its subsidiaries, including the Company, in fiscal 1995, and 50%
of the $50,000 annual bonus payable to Mr. Rubin
under the terms of his employment agreement with AUGI during
fiscal 1995 and 1994, respectively. The Company entered into a
separate employment agreement with Mr. Rubin, effective June 14,
1995 and expiring July 31, 1998, pursuant to which Mr. Rubin is
paid a base salary of $150,000 plus an annual bonus. See
"Compensation Committee Interlocks and Insider Participation" and
"Employment and Incentive Compensation Agreements" below.

(2) Mr. McLain joined the Company in March 1993, when he became its
Chief Executive Officer. On July 31, 1995, Mr. McLain was
permitted to and did purchase from AUGI 6,000 shares of AUGI's
common stock, at a price of $.01 per share. On August 1, 1995,
the closing price for a share of AUGI's common stock as reported
by NASDAQ was $4.875. Effective as of August 1, 1995, Mr. McLain's
employment agreement with the Company was terminated and he entered
into an amended employment agreement expiring July 31, 2005. The base
salary under this employment agreement commences at $250,000 for
fiscal 1996, and rises to $300,000 for fiscal 2000. His employment
agreement also calls for Incentive Bonuses under certain
circumstances. See "Compensation Committee Interlocks and Insider
Participation" and "Employment and Incentive Compensation Agreements"
below.

-III-3-
<PAGE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

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

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

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

COMPENSATION POLICY AND OTHER COMPENSATION

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

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

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

-III-4-
<PAGE>

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

-III-5-
<PAGE>

EMPLOYMENT AND INCENTIVE COMPENSATION AGREEMENTS

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

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

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

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

-III-6-
<PAGE>

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

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

STOCK OPTIONS

OPTION GRANTS IN FISCAL YEAR 1997

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

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

Robert M. Rubin 50,000 14% $4.375 8/2006 $137,571 $ 348,631

</TABLE>

-III-7-
<PAGE>

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

AGGREGATED OPTION/SAR EXERCISED
IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION/SAR VALUES
- ----------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)

NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED ON VALUE REALIZED OPTIONS/SARS AT FISCAL YEAR-END OPTIONS/SARS AT FISCAL YEAR-END
NAME EXERCISE (#) ($) (#) ($)
---- ------------------ -------------- ------------------------------- ---------------------------------
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
C. Dean McLain -0- -0- 150,000/300,000 $429,000/$858,000

Robert M. Rubin -0- -0- 50,000/150,000 $143,000/$429,000

</TABLE>

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

NON-MANAGEMENT DIRECTORS STOCK OPTION PLAN

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

-III-8-
<PAGE>

LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION

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

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

-III-9-
<PAGE>

ITEM 12. PRINCIPAL STOCKHOLDERS

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

<TABLE>
<CAPTION>
PERCENTAGE
OF
NUMBER OF SHARES OF COMMON OUTSTANDING
NAME AND ADDRESS OF STOCK OF THE COMPANY COMMON
BENEFICIAL OWNER BENEFICIALLY OWNED STOCK OWNED
---------------- ------------------ -----------
<S> <C> <C>
American United
Global, Inc.
11634 Patton Road
Downey, CA 90241 2,000,000 56.6%

Robert M. Rubin
6060 Kings Gate Circle
Del Ray Beach, FL 33484 580,000(1)(4) 16.4%

C. Dean McLain
4601 N.E. 77th Avenue
Suite 200
Vancouver, WA 98662 589,236(2)(3) 16.7%

D(3) Family Funds
19605 N.E. 8th Street
Camas, WA 98607 350,000 9.9%

James Penland
50 Hillcrest Drive
Weaverville, NC 28787 5,000(5) *

Harold Chapman
4614 Highway 763 North

Columbia, Missouri 65202 5,000(5) *

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

-III-10-
<PAGE>

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

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

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

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

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

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

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

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

-III-11-
<PAGE>

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

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

Effective February 17, 1996, the Company acquired substantially all of
the operating assets used by Case in connection with its business of
servicing and distributing Case construction equipment at a facility located
in Sacramento, California (the "Sacramento Operation"). The real property
and improvements used in connection with the Sacramento Operation, and upon
which the Sacramento Operation is located, were sold by Case for $1,500 to
the McLain-Rubin Realty Company, LLC ("MRR"), a Delaware limited liability
company, the owners of which are Messrs. C. Dean McLain, the President and a
director of the Company, and Robert M. Rubin, the Chairman and a director of
the Company. Simultaneous with its acquisition of the Sacramento Operation
real property and improvements, MRR leased such real property and
improvements to the Company under the terms of a 20-year commercial lease
agreement dated March 1, 1996 with the Company paying an initial annual rate
of $168,000. Under the lease, such annual rate increases to $192,000 after
five years and is subject to fair market adjustments at the end of ten years.
In addition to base rent, the Company is responsible for the payment of all
related taxes and other assessments, utilities, insurance and repairs (both
structural and regular maintenance) with respect to the leased real property
during the term of the lease.

Effective January 17, 1997, the Company acquired substantially all of
the operating assets of Sahiberg Equipment, Inc. (Sahlberg), a four-store
distributor of non-competing equipment lines. On June 1, 1997, the real
property and improvements used in connection with the Sahlberg operation
located in Kent, Washington, was purchased by McLain-Rubin Realty Company II,
LLC ("MRR II"), a Delaware limited liability company, the owners of which are
Messrs. C. Dean McLain, the President and a director of the Company, and
Robert M. Rubin, the Chairman and a director of the Company. Simultaneous
with its acquisition of the Kent, Washington real property and improvements,
MRR II leased such real property and improvements to the Company under the
terms of a 20-year commercial lease agreement dated June 1, 1997, with the
Company paying an initial annual rate of $205,000. Under the lease, such
annual rate increases to $231,000 after five years and is subject to
additional adjustments at the end of ten and fifteen years. In addition to
base rent, the Company is responsible for the payment of all related taxes
and other assessments, utilities, insurance and repairs (both structural and
regular maintenance) with respect to the leased real property during the term
of the lease.

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

-III-12-
<PAGE>

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

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

-III-13-
<PAGE>

PART IV

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

(a) 1. FINANCIAL STATEMENTS.

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

2. FINANCIAL STATEMENT SCHEDULE.

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

(b) REPORTS ON FORM 8-K.

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

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

3.1 Certificate of Incorporation of Registrant. (5)

3.2 By-laws of Registrant. (5)

4.1 Specimen Certificate of Common Stock. (5)

4.2 Stock Option Plan. (6)

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

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

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

10.3 Real Estate Purchase Agreement. (1)

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

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

-IV-1-
<PAGE>

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

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

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

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

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

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

10.11 Case New Dealer Agreement Package. (2)

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

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

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

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

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

10.17 Financing Agreement with Associates Commercial Corporation. (3)

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

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

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

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

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

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

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

-IV-2-
<PAGE>

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

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

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

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

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

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

10.30 Sacramento Acquisition Agreement.

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

10.31 GCS Acquisition Agreement. (9)

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

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

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

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

10.35 Security Agreement, dated January 17, 1997, made by Western Power
& Equipment Corp. In favor of Case Credit Corporation to secure
payment for and collateralized by all assets acquired by Western
Power & Equipment Corp. from Sahlberg Equipment, Inc. (10)

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

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

21. Subsidiaries of the Company.

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

-IV-3-
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

(d) ADDITIONAL FINANCIAL STATEMENT SCHEDULES

None.

-IV-4-
<PAGE>

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

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

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

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

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

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

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

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

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

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

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-1
<PAGE>

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

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

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

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

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

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

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

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

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

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-2
<PAGE>

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

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

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

Net income - - - 1,613 1,613
--------- ---- -------- ------- --------
Balance at
July 31, 1995 3,533,462 4 16,047 3,664 19,715

Net income - - - 2,079 2,079
--------- ---- -------- ------- --------
Balance at
July 31, 1996 3,533,462 4 16,047 5,743 21,794

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

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

</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-3
<PAGE>

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

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

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

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

F-4
<PAGE>

See accompanying notes to consolidated financial statements.

WESTERN POWER & EQUIPMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

INTANGIBLE ASSETS
The Company's acquisition strategy has been focused on existing businesses
with established market share in a contiguous geographic area. Items with
an indeterminate useful life, such as name recognition, geographical
location and presence represent value to the Company. The Company uses
estimates of the useful life of these intangible assets ranging from twenty
to forty years. This life is based on the factors influencing the
acquisition decision and on industry practice. The Company reviews for
asset impairment on a periodic basis and whether events or changes in
circumstances indicate that the carrying amount of the intangible asset may
not be recoverable. Based on this review, no writedown for impairment loss
on intangible assets has been recorded during the three year period ended
July 31, 1997.

PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost less accumulated
depreciation. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the assets, ranging
from 5 to 30 years. Expenditures for replacements and major improvements
are capitalized. Expenditures for repairs, maintenance, and routine
replacements are charged to operating expense as incurred. The cost of
assets retired or otherwise disposed of and the related accumulated
depreciation are eliminated from the accounts; any resulting gain or loss
is included in the results of operations.

F-5
<PAGE>

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

ADVERTISING EXPENSE
The Company expenses all advertising costs as incurred. Total advertising
expense for the years ended July 31, 1997, 1996 and 1995 was $501, $263,
and $274 respectively.

INCOME TAXES
Effective August 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. The
adoption of SFAS No. 109 changed the Company's method of accounting for
income taxes from the deferral method to an asset and liability approach
which requires the recognition of deferred tax liabilities and assets for
the expected future consequences of temporary differences between the
carrying amounts for financial reporting purposes and the tax bases of the
assets and liabilities. The adoption of SFAS No. 109 did not have a
material effect on the results of operations of the Company.

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

FINANCIAL INSTRUMENTS
Effective August 1, 1995 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 107, Disclosures about Fair Value of
Financial Instruments. The adoption of SFAS No. 107 had no material effect
on the financial position or results of operations of the Company. The
recorded amounts of cash and cash equivalents, accounts receivable, short-
term borrowings, accounts receivable and accrued liabilities as presented
in the financial statements approximate fair value because of the short-
term nature of these instruments. The recorded amount of long-term debt
approximates fair value as the actual interest rates approximate current
competitive rates.

NET INCOME PER COMMON SHARE
Net income per common share is computed using the weighted average number
of common and dilutive common equivalent shares outstanding during the
period. In accordance with the regulations of the Securities and Exchange
Commission, common stock and common stock equivalents issued within twelve
months of an initial public offering are considered outstanding for all
periods presented prior to the offering using the treasury stock method and
initial public offering price.

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

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

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

F-6
<PAGE>

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

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

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

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

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

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

F-7
<PAGE>

2. ACQUISITIONS

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

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

Effective September 10, 1994, the Company acquired the assets and
operations of two additional factory-owned stores of Case in the states of
California and Nevada. The acquisition was consummated for approximately
$557 in cash (including $108 of indirect expenses), $4,153 in installment
notes payable to Case and the assumption of $5,019 in inventory floor plan
debt with Case and its affiliates. The accounts of these two stores have
been included in the Company's accounts from the effective date of the
acquisition. The acquisition was accounted for as a purchase and resulted
in the recording of approximately $300 in goodwill which is included in
other long-term assets on the Company's books and is being amortized on the
straight-line basis over 20 years.

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

F-8
<PAGE>

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

Net sales $ 115,097 $ 100,226
Net income $ 2,062 $ 1,400
Net income per
common share $ 0.58 $ 0.58

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

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

1997
---------

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

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

3. RELATED PARTY TRANSACTIONS

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

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

F-9
<PAGE>

term of the lease. In accordance with SFAS 13, the building portion of the
lease is being accounted for as a capital lease (see Note 9) while the land
portion of the lease qualifies for treatment as an operating lease.

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

4. INVENTORIES

Inventories consist of the following:

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

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

5. PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consist of the following:

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

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

6. BORROWINGS

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

F-10
<PAGE>

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

In connection with the acquisition of the original seven stores, the
Company entered into a purchase agreement for the Auburn, Washington
facility subject to the completion by Case of certain environmental
remediation. In December 1995, after completion of the remediation, the
Company entered into a sale-leaseback transaction with an unrelated party
regarding the Auburn facility which resulted in no gain or loss to the
Company. The term of the lease is 20 years at an initial annual rate of
$204. In addition to base rent, the Company is responsible for the payment
of all related taxes and other assessments, utilities, insurance, and
repairs with respect to the leased property during the lease term. In
accordance with SFAS 13, the building portion of the lease is being
accounted for as a capital lease (see Note 9) while the land portion of the
lease qualifies for treatment as an operating lease.

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

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

All floor plan debt is classified as current since the inventory to which
it relates is generally sold within twelve months of the invoice date. The
following table summarizes the inventory floor plan financing arrangements:

<TABLE>
<CAPTION>
JULY 31,
Interest Maturity -----------------------------
Rate Date 1997 1996
---- ---- ---- ----

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

</TABLE>

F-11
<PAGE>

7. INCOME TAXES

The provision for income taxes is comprised of the following:

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

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

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

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

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

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

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

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

F-12
<PAGE>

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

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

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

8. STOCKHOLDERS' EQUITY

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

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

STOCK OPTION PLANS
In March 1995, AUGI, as the sole stockholder of the Company, approved the
Company's 1995 Stock Option Plan, as previously adopted by the Board of
Directors (the "Plan"), under which key employees, officers, directors and
consultants of the Company can receive incentive stock options and non-
qualified stock options to purchase up to an aggregate of 300,000 shares of
the Company's

F-13
<PAGE>

common stock. In December 1995, the stockholders amended the 1995 stock
option plan to increase the number of shares underlying the plan from
300,000 to 850,000 shares. In December 1996, the stockholders amended
the 1985 stock option plan to increase the number of shares underlying the
plan to 1,500,000 shares. The Plan provides that the exercise price of
incentive stock options be at least equal to 100 percent of the fair market
value of the common stock on the date of grant. With respect to non-
qualified stock options, the Plan requires that the exercise price be at
least 85 percent of fair value on the date such option is granted. Upon
approval of the Plan, the Company's Board of Directors awarded non-
qualified stock options for an aggregate of 200,000 shares, all of which
provide for an exercise price of $6.50 per share. On December 28, 1995,
the exercise price of the options previously granted was lowered to $4.50
per share, the market price as of that date. All outstanding options
expire ten years after the date of issue.

In December 1995, the Board of Directors adopted a 5-year "Formula"
stock option plan for non-employee directors under which each
non-employee director is entitled to receive on August 1 of each year
beginning August 1, 1996, options for 2,500 shares of the Company's
Common Stock.

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

The Company has elected to account for its stock based compensation under
APB 25; however, as required by SFAS 123, the Company has computed for pro
forma disclosure purposes the value of options granted during fiscal years
1996 and 1997 using the Black-Scholes option pricing model. The weighted
average assumptions used for stock option grants for fiscal years 1996 and
1997 were:

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

Options are assumed to vest over the five year expected life for purposes
of this valuation. Adjustments for forfeitures are made as they occur.
For the years ended July 31, 1997 and July 31, 1996, the total value of the
options granted, for which no previous expense has been recognized, was
computed as approximately $1,532 and $496, respectively, which would be
amortized on a straight-line basis over the vesting period of the options.
The weighted average fair value per share of the options granted in fiscal
years 1997 and 1996 are $2.46 and $2.48, respectively.

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

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

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

F-14
<PAGE>

The effects of applying SFAS 123 for providing pro forma disclosure for fiscal
years 1997 and 1996 are not likely to be representative of the effects on
reported net income and earnings per share for future years since options vest
over several years and additional awards are made each year.

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

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

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

Options outstanding July 31, 1997: 825 4.49

The following table sets forth the exercise prices, the number of options
outstanding and exercisable, and the remaining contractual lives of the
Company's stock options at July 31, 1997:

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

</TABLE>

9. COMMITMENTS AND CONTINGENCIES

The Company leases certain facilities and certain computer equipment and
software under noncancelable lease agreements. As more fully described in
Notes 3 and 6, the building portion of three of the Company's facility
leases qualify under SFAS 13 as "capital leases" (i.e., an acquisition of
an asset and the incurrence of a liability). The remaining facility lease
agreements have terms ranging from month-to-month to five years. Certain
of the facility lease agreements provide for options to renew and generally
require the Company to pay property taxes, insurance, and maintenance and
repair costs. Total rent expense under all operating leases aggregated
$1,474, $924, and $733 for the years ended July 31, 1997, 1996, and 1995,
respectively. The computer equipment lease expires August 1999 and meets
certain specific criteria to be accounted for as a capital lease.

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

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

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

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

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

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

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

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

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

Subsequent to July 31, 1997, the Company entered into sales contracts containing
repurchase obligations totalling approximately $195 in repurchase obligations.

10. UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL DATA(1)

<TABLE>
<CAPTION>
Quarter
-------------------------------------------------------------------
Total
First Second Third Fourth Year
----- ------ ----- ------ ----
<S> <C> <C> <C> <C> <C>
Fiscal 1997:

Net sales $31,213 $34,988 $42,043 $39,886 $148,130
Gross Profit 3,765 3,601 4,239 4,265 15,870
Net income 517 335 245 (126) 971
Net income per share 0.14 0.09 0.07 (0.03) .27
</TABLE>

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

F-16
<PAGE>

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

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

</TABLE>

F-17
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Western
Power & Equipment Corp. and its subsidiary at July 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended July 31, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.

PRICE WATERHOUSE LLP
Portland, Oregon
September 16, 1997

F-18
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS
FINANCIAL STATEMENT SCHEDULE

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

Our audits of the consolidated financial statements referred to in our report
dated September 16, 1997 appearing on page F-18 of this Annual Report on Form
10-K also included an audit of the Financial Statement Schedule listed in
Item 8 of this Form 10-K. In our opinion, this Financial Statement Schedule
present fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.

PRICE WATERHOUSE LLP
Portland, Oregon
September 16, 1997

F-19
<PAGE>

SCHEDULE II

WESTERN POWER & EQUIPMENT CORP.

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

(DOLLARS IN THOUSANDS)

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

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

Fiscal year ended July 31, 1996 370 353 --- (204) 519

Fiscal year ended July 31, 1995 233 215 --- (78) 370

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

INVENTORY RESERVE:

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

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

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

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

</TABLE>

F-20

<PAGE>

SIGNATURES

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

WESTERN POWER & EQUIPMENT CORP.

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

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

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

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

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

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

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

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

<PAGE>

EXHIBIT 10.37

COMMERCIAL LEASE

DATE: as of June 1, 1997

BETWEEN: McLAIN-RUBIN REALTY COMPANY II, L.L.C., a
Delaware limited liability company ("Landlord")
38207 Northeast Gerber Road
Yacolt, WA 98675

AND: WESTERN POWER & EQUIPMENT CORP., an
Oregon corporation ("Western Power" or "Tenant")
4601 N.E. 77th Avenue
Vancouver, Washington 98662

Subject to the terms and conditions of this Lease, Landlord hereby leases
to Tenant, and Tenant hereby leases from Landlord, the real property described
on Exhibit A hereto (which by this reference is made a part hereof), together
with all improvements now and hereafter situated on said land (said land,
together with such improvements, being hereinafter referred to as the
"Premises"). The Premises are located at 913 South Central Avenue, Kent,
Washington.

The parties hereto, for themselves, their heirs, administrators, executors,
successors and assigns, hereby covenant and agree as follows:

Section 1. Occupancy

1.1 Term. The term of this Lease (hereinafter referred to as the
"Term") shall commence on the date (the "Commencement Date") on which Landlord
acquires fee title to the Premises, and continue through, and expire on, May 31,
2017 (the "Expiration Date"), unless sooner terminated as hereinafter provided.

1.2 Possession. Tenant's right to possession of the Premises, and its
obligations under this Lease, shall commence on the Commencement Date. If the
Commencement Date does not fall on the first day of the month, Rent (as
hereinafter defined) for the first month under this Lease shall be prorated
accordingly, and shall be due on the Commencement Date.

1.3 Lease Conditional. This lease and all of Landlord's and Tenant's
obligations hereunder are expressly conditioned upon Landlord's acquisition of
fee title to the Premises on or before June 30, 1997. If for any reason,
including, without limitation, Landlord's refusal, Landlord does not acquire fee
title to the Premises on or before June 30, 1997, this lease shall be deemed
null and void and of no force or effect.

<PAGE>

Section 2. Rent

2.1 Base Rent. Tenant covenants and agrees to pay to Landlord an
annual base rent (the "Base Rent"), in equal monthly installments, in
advance, without demand, deduction or set off, at such place as may be
designated by Landlord, on the first day of each month throughout the Term of
this Lease, as follows:

(a) For the period commencing on the Commencement Date and
ending on May 31, 2002, both dates inclusive, $205,200.00 per year
($17,100.00 per month);

(b) For the period commencing on June 1, 2002 and ending on May
31, 2007, both dates inclusive, $230,856.00 per year ($19,238.00 per month);

(c) For the period commencing on June 1, 2007 and ending on May
31, 2012, both dates inclusive, $258,000.00 per year ($21,500.00 per month);
and

(d) For the period commencing on June 1, 2012 and continuing
thereafter throughout the remainder of the Term, $288,000.00 per year
($24,000.00 per month).

2.2 Additional Rent. All taxes, insurance costs, utility charges,
maintenance costs, repair charges and other sums that Tenant is required to
pay pursuant to this Lease to Landlord or third parties, shall be "additional
rent." For the purposes of this Lease, Base Rent and additional rent are
sometimes collectively referred to as "Rent."

Section 3. Use of the Premises

3.1 Permitted Use. The Premises shall be used for retail sales,
service, storage and repair of agricultural, utility or industrial equipment,
machinery and parts, and incidental office use, and for any other lawful
purpose, subject to the applicable provisions of this Lease.

3.2 Restrictions on Use. In connection with the use of the Premises,
Tenant shall:

(a) Comply with all applicable laws and regulations of any
public authority having jurisdiction over the Premises and the use thereof,
and correct, at Tenant's own expense, any failure of compliance created
through Tenant's fault or by reason of Tenant's use;

(b) Refrain from any activity that would make it impossible to
insure the Premises against casualty, would permanently increase the
insurance rate, or would prevent Landlord from taking advantage of any ruling
allowing Landlord to obtain reduced premium rates for long-term fire
insurance policies, unless Tenant pays the additional cost of the insurance;

-2-

<PAGE>

(c) Refrain from any use that would be reasonably offensive to
other tenants or owners or users of neighboring premises or that would tend
to create a nuisance or damage the reputation of the Premises;

(d) Refrain from loading the electrical system or floors beyond
the point considered safe by a competent engineer or architect reasonably
selected by Landlord; and

(e) Subject to Section 3.3, refrain from making any marks on or
attaching any additional sign, insignia, antenna, aerial, satellite dish or
other device to the exterior or interior walls, windows, or roof of the
Premises without the written consent of Landlord, which shall not be
unreasonably withheld or delayed.

3.3 Signage. Tenant will be responsible for providing its own
signage. Tenant will obtain Landlord's prior approval of the design, size,
color, materials, and other details of the sign face, which approval shall
not be unreasonably withheld or delayed. Landlord acknowledges that Tenant
already has signage on the Premises and hereby consents to such signage.

3.4 Hazardous Substances.

(a) Definitions. For purposes of this Section, the term
"Hazardous Substance" means any substance, material or waste, including oil
or petroleum products or their derivatives, solvents, PCB's, explosive
substances, asbestos, radioactive materials or waste, and any other toxic,
ignitable, reactive, corrosive, contaminating or pollution materials which
are now or in the future subject to any governmental regulation; the term
Hazardous Substance Laws" means all federal, state and local laws,
ordinances, regulations and standards relating to the use, analysis,
production, storage, sale, release, discharge, disposal or transportation of
any Hazardous Substance.

(b) Tenant Compliance With Hazardous Substance Laws. Neither
Tenant or its officers, employees, agents, invitees, sublessees or assigns
shall cause or permit any Hazardous Substance to be spilled, leaked, disposed
of, or otherwise released or discharged on or under the Premises, or cause
any Hazardous Substance to be spilled, leaked, disposed of, or otherwise
released or discharged on or under any property adjacent to the Premises.
Tenant may use or otherwise handle on the Premises only those Hazardous
Substances (hereinafter referred to as "Ordinary Hazardous Substances")
typically used or sold in the prudent and safe operation of the business
specified in Section 3.1. Tenant may store such Hazardous Substances on the
Premises only in quantities necessary to satisfy Tenant's reasonably
anticipated needs. Tenant shall comply with all Hazardous Substance Laws and
exercise care in the use, handling, storage and transportation of Hazardous
Substances and shall take all possible measures consistent with the
practicable operation of its business to minimize the quantity and toxicity
of Hazardous Substances used, handled, transported or stored on the Premises.
Upon the expiration or termination of this Lease, Tenant shall remove from
the Premises all Hazardous Substances stored there by Tenant or its
sublessees or assigns.

-3-

<PAGE>

(c) Indemnification by Tenant. Tenant shall indemnify, defend,
and hold Landlord harmless from any and all claims, judgments, damages,
penalties, fines, costs, liabilities, or losses which arise during or after
the Term as a result of contamination by Hazardous Substances as a result of
Tenant's use or activities or the use or activities of Tenant's officers,
employees, agents, invitees, sublessees or assigns. This indemnification of
Landlord by Tenant shall include, without limitation, all costs incurred in
connection with any investigation of site conditions or any cleanup,
remedial, removal or restoration work required by any federal, state, or
local governmental agency or political subdivision because of Hazardous
Substances present in the soil and ground water on or under the Premises.

(d) Indemnification by Landlord. Landlord shall indemnify,
defend, and hold Tenant harmless from any and all claims, judgments, damages,
penalties, fines, costs, liabilities, or losses which arise during or after
the Term as a result of contamination by Hazardous Substances that exist on
or before the date of this Lease or as a result of Landlord's use or
activities on the Premises or the use or activities of Landlord's officers,
employees, agents, invitees, or assignees on the Premises. This
indemnification of Tenant by Landlord shall include, without limitation, all
costs incurred in connection with any investigation of site conditions or any
cleanup, remedial, removal or restoration work required by any federal,
state, or local governmental agency or political subdivision because of
Hazardous Substances present in the soil and ground water on or under the
Premises.

(e) Notification. Each party shall give written notice to the
other within three (3) business days after the date on which the party learns
or first has reason to believe that:

(1) there has or will come to be located on or about the
Premises any Hazardous Substance (other than Ordinary Hazardous Substances);

(2) a release, discharge or emission of a Hazardous Substance
has occurred on or about the Premises;

(3) an enforcement, cleanup, removal or other governmental or
regulatory action has been threatened or commenced against the party or with
respect to the Premises pursuant to any Hazardous Substance Laws;

(4) a claim has been made or threatened by any person or entity
against the party or the Premises on account of an alleged loss or bodily
injury claimed to result from the alleged presence or release on the Premises
of a Hazardous Substance; or

(5) a report, notice, or complaint has been made to or filed
with a governmental agency concerning the presence, use or disposal of any
Hazardous Substance on the Premises. Any such notice shall be accompanied by
copies of any such claim, report, complaint, notice, warning or other
communication that is in the possession of or is reasonably available to the
party.

-4-

<PAGE>

(f) Cleanup Activity.

(1) If during the Term any remedial action is necessary to clean
up any environmental contamination of the Premises (the "Cleanup Activity")
to which Tenant's indemnification of Landlord in Section 3.4(c) applies,
Tenant shall proceed with reasonable diligence to complete the Cleanup
Activity as promptly as possible in compliance with all Hazardous Substance
Laws. If after written notice from Landlord, Tenant fails to proceed with
reasonable diligence to complete the Cleanup Activity, Landlord shall have
the right, but not the obligation, to carry out the Cleanup Activity, and to
recover all of the costs and expenses thereof from Tenant. The rights and
obligations of the parties set forth in this Section 3.4(f) shall be in
addition to those rights and obligations set forth elsewhere in this Lease.

(2) Except as set forth in Section 3.4(f)(1), if any other
Cleanup Activity is necessary, Landlord shall proceed with reasonable
diligence to complete the Cleanup Activity as promptly as possible in
compliance with all Hazardous Substance Laws. If Landlord fails to proceed
with reasonable diligence to complete the Cleanup Activity, Tenant shall have
the right, but not the obligation, to carry out the Cleanup Activity, and to
recover all of the costs and expenses thereof from Landlord as a set off
against payment of rent under this Lease. The rights and obligations of the
parties set forth in this Section 3.4(f) shall be in addition to those rights
and obligations set forth elsewhere in this Lease.

(g) Phase I Report. Within thirty (30) days prior to after the
expiration or sooner termination of the Term, Tenant, at its expense, shall
cause a so-called "Phase I" environmental inspection to be performed and a
report in respect thereof to be prepared and delivered to both Landlord and
Tenant to determine whether any Cleanup Activity is required, Landlord and
Tenant agreeing that the responsibility for the Cleanup Activity shall be
determined by the preceding provisions of this Section.

(h) Survival. The parties obligations under this Section 3.4
shall survive the expiration or earlier termination of this Lease.

Section 4. Repairs and Maintenance

4.1 Tenant's Obligations. Tenant shall repair and maintain the
entire Premises to the extent necessary to preserve the Premises in good
working order and condition, including but not limited to providing regularly
scheduled maintenance and replacement (if necessary) of the heating and air
conditioning system, and making structural repairs. Tenant's repair
obligation shall include, but not be limited to, the repair of any damage to
exterior building siding and internal walls of the Premises caused by moving
furniture, fixtures and equipment in and out of the Premises.

4.2 Repairs to Comply with Laws. All repairs, alterations and other
improvements on or to the Premises that are required by any governmental
authority having

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jurisdiction over the Premises or the use thereof shall be performed by
Tenant at its sole cost and expense.

4.3 Reimbursement for Repairs Assumed. If Tenant fails or refuses to
make the repairs that are required by this Section in a timely manner,
Landlord may (but shall not be obligated to) make the repairs and charge the
actual costs of repairs to Tenant. Such expenditures by Landlord shall be
charged to Tenant as additional rent and shall be reimbursed by Tenant within
ten (10) days after Landlord's demand therefor. Except in an emergency
creating an immediate risk of personal injury or property damage, Landlord
may not perform repairs which are the obligation of Tenant and charge Tenant
for the resulting expense, unless at least ten (10) days before work is
commenced Tenant is given notice in writing outlining with reasonable
particularity the repairs required, and Tenant fails within that time to
initiate such repairs in good faith.

4.4 Inspection of Premises. Landlord shall have the right to inspect
the Premises at any reasonable time or times, and upon reasonable prior
(written or oral) notice, to determine the necessity of repair.

Section 5. Alterations

5.1 Alterations Prohibited. Tenant shall make no improvements or
alterations to the Premises without first obtaining Landlord's written
consent, which consent shall not be unreasonably withheld or delayed. All
alterations shall be made according to architectural designs and plans,
construction drawings and specifications approved by Landlord, which approval
shall not be unreasonably withheld or delayed, and in a good and workmanlike
manner, and in compliance with applicable laws and building codes. As used
herein, "Alterations" includes the exterior installation of transmitters and
receivers (e.g., satellite dishes) and related wiring, cables, and conduit.
All approved improvements and alterations shall be made at Tenant's sole
expense and Tenant shall keep the Premises free from any lien arising out of
work performed pursuant to this Section. In the event any such lien is filed
against the Premises by any person claiming by, through or under Tenant,
Tenant shall, within fifteen (15) days after Landlord's demand therefor, at
Tenant's expense, either cause such lien to be removed from the record or
furnish a bond in form and amount and issued by a surety reasonably
satisfactory to Landlord, indemnifying the Landlord against all liability
relating to such lien. Provided that such bond has been furnished to
Landlord, Tenant, at its sole cost and expense may contest, by appropriate
proceedings conducted in good faith and with due diligence, any lien,
encumbrance or charge against the Premises arising from work done or
materials provided to and for Tenant, providing that such contest is
conducted in a manner that does not cause any risk that Landlord's interest
in the Premises will be foreclosed for nonpayment.

5.2 Ownership and Removal of Alterations. All approved improvements
and alterations made to the Premises by Tenant during the Term, other than
Tenant's trade fixtures, shall be the property of Landlord when installed
unless the applicable Landlord's consent provides otherwise. Upon expiration
of the Term or earlier termination under this

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Lease, Tenant's trade fixtures shall be removed by Tenant and the Premises
restored to its condition prior to installation if the applicable consent so
requires.

Section 6. Insurance; Indemnification; Subrogation

6.1 Liability Insurance. Tenant shall procure, and thereafter
maintain during the Term, the following insurance at Tenant's cost:
commercial general liability policy (occurrence version) in a responsible
company with coverage for bodily injury and property damage liability with a
general aggregate limit of not less than $1,000,000 for injury to one person,
$3,000,000 for injury to two or more persons in one occurrence. Such
insurance shall cover all risks arising directly or indirectly out of
Tenant's activities on, or any condition of, the Premises. Such insurance
shall protect Tenant against the claims of Landlord on account of the
obligations assumed by Tenant under Section 6.3, and shall name Landlord as
an additional insured. Certificates evidencing such insurance and bearing
endorsements requiring 10 days' written notice to Landlord prior to any
change or cancellation shall be furnished to Landlord prior to Tenant's
occupancy of the Premises.

6.2 Property Insurance. Tenant shall, at Tenant's expense, keep the
Premises insured against loss or damage resulting from perils covered by what
is commonly referred to as "all risk" coverage insurance (but excluding
earthquake and flood) for the full insurable replacement cost (guaranteed
replacement). All premiums on said policy(s) shall be paid by Tenant. The
policy(s) or a certificate thereof signed by the insurer shall be delivered
to Landlord within five (5) days after the issuance and/or renewal of the
policy(s) to the Tenant. Each policy shall name Landlord as an additional
insured, and shall provide that such policy(s) may not be amended or canceled
without thirty (30) days' prior written notice to Landlord. If Tenant fails
to obtain the above required insurance, Landlord may, but shall not be
required to procure such insurance and charge the cost to Tenant as
additional rent, payable on demand. Tenant shall carry similar insurance
insuring the property of Tenant on the property against such risks.

6.3 Indemnification. Except as set forth in Section 3.4(d), Tenant
shall indemnify and hold Landlord harmless from and against any and all
third-party claims, loss or liability for accident, injury or damage to
persons or property arising from or in connection with, Tenant's possession,
operation, use, or occupation of the Premises. In case any action or
proceeding is brought against Landlord and such claim is a claim from which
Tenant is obligated to indemnify Landlord pursuant to this Section, Tenant,
upon notice from Landlord, shall resist and defend such action or proceeding
(by counsel reasonably satisfactory to Landlord). Landlord and Landlord's
agents shall have no liability to Tenant for any injury, loss, or damage
caused by third parties or by any condition of the Premises, except to the
extent caused by Landlord's negligence or breach of any of Landlord's
covenants contained in this Lease.

6.4 Waiver of Subrogation. Neither party, nor its officers,
directors, employees, agents or invitees, nor, in the case of Tenant,
subtenants, shall be liable to the other party or to any insurance company
(by way of subrogation or otherwise) insuring the other party for

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any loss or damage to any building, structure or other tangible property,
when such loss is caused by any of the perils which are or could be insured
against under a standard policy of full replacement cost insurance for fire,
theft and all risk coverage, or losses under workers' compensation laws and
benefits, even though such loss or damage might have been occasioned by the
negligence of such party, its agents or employees (Landlord and Tenant
agreeing that the preceding clause shall not apply, however, to any damages
causes by intentionally wrongful actions or omissions of such party);
provided, however, that if, by reason of the foregoing waiver, either party
shall be unable to obtain any such insurance, such waiver shall be deemed not
to have been made by such party and, provided further, that if either party
shall be unable to obtain any such insurance without the payment of an
additional premium therefor, then, unless the party claiming the benefit of
such waiver shall agree to pay such party for the cost of such additional
premium within thirty (30) days after notice setting forth such requirement
and the amount of the additional premium, such waiver shall be of no force
and effect between such party and such claiming party. Each party shall use
reasonable efforts to obtain such insurance from a company that does not
charge an additional premium or, if that is not possible, one that charges
the lowest additional premium. Each party shall give the other party notice
at any time when it is unable to obtain insurance with such a waiver of
subrogation without the payment of an additional premium and the foregoing
waiver shall be effective until thirty (30) days after notice is given.
Notwithstanding anything contained herein, Landlord is not obligated under
this Lease to insure the Premises.

Section 7. Taxes; Utilities

7.1 Property Taxes. Tenant shall pay as due all taxes on its
personal property located on the Premises. Tenant shall pay as due all real
property taxes levied against the Premises. As used herein, real property
taxes includes any fee or charge relating to the ownership, use, or rental of
the Premises, other than taxes on the net income of Landlord or Tenant.

7.2 Special Assessments. If an assessment for a public improvement
is made against the Premises, Tenant shall pay such assessment. Landlord
shall take all appropriate action to cause such assessment to be paid in the
maximum number of installments permitted by law, statute or ordinance (if
such option for installment payments is available to Landlord), in which case
all installments coming due during the Lease term shall be treated the same
as general property taxes pursuant to section 7.1.

7.3 Contest of Taxes. Tenant shall be permitted to contest the
amount of any tax or assessment as long as such contest is conducted in a
manner that does not cause any risk that Landlord's interest in the Premises
will be foreclosed for nonpayment.

7.4 Proration of Taxes. Tenant's share of real property taxes for
the years in which this Lease commences or terminates shall be prorated based
on the portion of the tax year that this Lease is in effect.

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7.5 New Charges or Fees. If a new charge or fee relating to the
ownership or use of the Premises or the receipt of rental therefrom or in
lieu of property taxes is assessed or imposed, then, to the extent permitted
by law, Tenant shall pay such charge or fee. Tenant, however, shall have no
obligation to pay any income, profits, or franchise tax levied on the net
income derived by Landlord from this Lease.

7.6 Payment of Utilities Charges. Tenant shall pay when due all
charges for services and utilities incurred in connection with the use,
occupancy, operation, and maintenance of the Premises, including, but not
limited to, charges for fuel, water, gas, electricity, sewage disposal,
power, refrigeration, air conditioning, telephone, and janitorial services.

Section 8. Damage and Destruction

8.1 Damaged Premises. Tenant shall give immediate notice to Landlord
in the event of any damage or destruction affecting the Premises. Subject to
the provisions of this Section, Tenant shall immediately proceed to restore
the Premises using the proceeds of insurance carried pursuant to Section 6 of
this Lease and any insurance proceeds available from Landlord's insurance.
Restoration shall be performed according to architectural designs, plans and
construction drawings and specifications approved in advance by Landlord,
which approval shall not be unreasonably withheld or delayed.

8.2 Damage or Destruction Late in Term. If within two years before
the end of the lease term the Premises are destroyed or damaged such that the
cost of repair exceeds 50% of the value of the structure before the
destruction or damage, Tenant may elect to terminate this Lease as of the
date of the damage or destruction by giving notice to Landlord in writing not
more than 45 days following the date of destruction or damage. In such event
all rights and obligations of the parties shall cease as of the date of
termination, and Tenant shall be entitled to the reimbursement of any prepaid
amounts paid by Tenant and attributable to what would have otherwise been the
unexpired Term. Tenant shall surrender possession of the Premises within a
reasonable time after such written notice is given, and assign any insurance
proceeds paid on account of such damage to Landlord. If Tenant does not elect
to terminate, Tenant shall proceed to restore the Premises to substantially
the same form as prior to the damage or destruction using the proceeds of
insurance carried pursuant to Section 6 of this Lease and any insurance
proceeds available from Landlord's insurance. Work shall be commenced as soon
as reasonably possible and thereafter shall proceed without interruption
except for work stoppages on account of labor disputes and other matters
beyond Tenant's reasonable control.

8.3 Rent Abatement. To the extent that the Premises are rendered
untenantable as a result of a fire or other casualty, the Rent shall not be
abated or reduced in any way.

8.4 Personal Property. All personal property in said Premises shall
be at the risk of Tenant. Except to the extent caused by the negligent or
intentional acts of Landlord, Landlord or Landlord's agents shall not be
liable for any damage either to person or property,

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sustained by Tenant or others, caused by any defects now in said Premises or
hereafter occurring therein, or any part or appurtenance thereof, caused by
being out of repair, or caused by the bursting or leaking of water, gas,
sewer or steam pipes.

Section 9. Eminent Domain

9.1 Partial Taking. If a portion of the Premises is condemned and
Section 9.2 does not apply, this Lease shall continue on the following terms:

(a) The parties shall be entitled to share in the condemnation
proceeds in proportion to the values of their respective interests in the
Premises. Tenant's right to participate in the condemnation proceeds shall be
limited to the value of its leasehold interest and the depreciated value of
any improvements and alterations constructed on the Premises at the Tenant's
sole expense subsequent to the Commencement Date.

(b) Landlord shall proceed as soon as reasonably possible to
make such repairs and alterations to the Premises as are necessary to restore
the remaining Premises to a condition as comparable as reasonably practicable
to that existing at the time of the condemnation.

(c) After the date on which title vests in the condemning
authority or an earlier date on which alterations or repairs are commenced by
Landlord to restore the balance of the Premises in anticipation of taking,
the Base Rent shall be reduced in proportion to the reduction in value of the
Premises as an economic unit on account of the partial taking. If the parties
are unable to agree on the amount of the reduction of Base Rent, the amount
shall be determined by arbitration in the manner provided in Section 17.

9.2 Total Taking. If a condemning authority takes all of the
Premises or a portion which Landlord and Tenant agree is sufficient to render
the remaining Premises reasonably unsuitable for the use that Tenant was then
making of the Premises, this Lease shall terminate as of the date the title
vests in the condemning authorities. The parties shall be entitled to share
in the condemnation proceeds in proportion to the values of their respective
interests in the Premises.

9.3 Sale in Lieu of Condemnation. Sale of all or part of the
Premises to a purchaser with the power of eminent domain in the face of a
threat or probability of the exercise of the power shall be treated for the
purposes of this Section 9 as a taking by condemnation.

Section 10. Liens

10.1 Except with respect to activities for which Landlord is
responsible, Tenant shall pay as due all claims for work done on and for
services rendered or material furnished to the Premises, and shall keep the
Premises free from any liens. If Tenant fails to pay any such claims or to
discharge any lien, Landlord may do so and collect the cost as additional

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rent. Any amount so added shall bear interest at the Interest Rate (as
hereinafter defined) from the date expended by Landlord and shall be payable
on demand. Such action by Landlord shall not constitute a waiver of any right
or remedy which Landlord may have on account of Tenant's default. For the
purposes of this Lease "Interest Rate" shall mean three (3%) percent per
annum over the then prime rate of interest established by Citibank, N.A. (or
any successor thereto), adjusted daily, but in no event in excess of the
maximum lawful rate of interest permitted by applicable law.

10.2 Tenant may withhold payment of any claim in connection with a
good-faith dispute over the obligation to pay, as long as Landlord's interest
in the Premises will not be foreclosed for nonpayment. If a lien is filed as
a result of nonpayment, Tenant shall, within ten (10) days after knowledge of
the filing, secure the discharge of the lien or deposit with Landlord cash or
sufficient corporate surety bond or other surety satisfactory to Landlord in
an amount sufficient to discharge the lien plus any costs, attorney fees, and
other charges that could reasonably accrue as a result of a foreclosure or
sale under the lien.

Section 11. Quiet Enjoyment; Mortgage Priority

11.1 Landlord's Warranty. Landlord warrants that it is the owner of
the Premises and has the right to lease them free of all encumbrances, except
for the encumbrances (the "Permitted Encumbrances") set forth on Exhibit B
hereto (which by this reference is made a part hereof) and except as
expressly set forth in Section 11.2 below. Landlord will defend Tenant's
right to quiet enjoyment of the Premises from the lawful claims of all
persons during the Term. Tenant hereby acknowledges and agrees that this
Lease, and the leasehold estate created hereby, are subject and subordinate
to all of the Permitted Encumbrances.

11.2 Mortgage Priority. This lease is and shall be prior to all
mortgages or deeds of trust (collectively, "Fee Mortgages") recorded after
the date of this lease and affecting Landlord's interest in the Premises.
However, if any lender holding a Fee Mortgage requires that this Lease be
subordinate to the Fee Mortgage in question, then Tenant agrees that this
Lease shall be subordinate to such Fee Mortgage if the holder thereof agrees
in writing with Tenant that as long as Tenant performs its obligations under
this Lease no foreclosure, deed given in lieu of foreclosure, or sale
pursuant to the terms of such Fee Mortgage, or other steps or procedures
taken under such Fee Mortgage shall affect Tenant's rights under this Lease.
If the foregoing condition is met, Tenant shall execute the written agreement
and any other documents required by the holder of such Fee Mortgage to
accomplish the purposes of this paragraph. If the Premises are sold as a
result of foreclosure of any Fee Mortgage thereon, or otherwise transferred
by Landlord or any successor, Tenant shall attorn to the purchaser or
transferee.

11.3 Estoppel Certificate. Either party will, within 20 days after
notice from the other, execute and deliver to the other party a certificate
stating whether or not this Lease has been modified and is in full force and
effect and specifying any modifications or alleged breaches by the other
party. The certificate shall also state the amount of monthly Base Rent, the
dates to which Base Rent and any other Rent payments have been paid in
advance, and

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the amount of any security deposit or prepaid Rent. Failure to deliver the
certificate within the specified time shall be conclusive upon the party from
whom the certificate was requested that this Lease is in full force and
effect and has not been modified except as represented in the notice
requesting the certificate.

Section 12. Assignment and Subletting.

12.1 Landlord hereby agrees that Tenant may assign this Lease or
sublease all or a portion of the Premises in writing to any other party, with
the prior written consent of Landlord, provided that:

(1) Landlord shall have the right to pre-approve each and every
proposed subtenant and assignee, which approval shall not be unreasonably
withheld or delayed.

(2) Any attempt by Tenant to assign, transfer, or sublet without
Landlord's prior written consent shall be void and shall constitute a
material default by Tenant.

(3) Regardless of Landlord's consent to an assignment or
sublease, Tenant shall not be released from any of its obligations and
liabilities under this Lease, except as may be set forth in Landlord's
written consent.

(4) Landlord's acceptance of Rent from any other person or
entity pending a determination of whether to consent to an assignment or
sublease shall not constitute a waiver of Landlord's right to approve or
disapprove such assignment or sublease.

(5) A default by an assignee, sublessee, or transferee shall
constitute a default by Tenant and in the event of such default, Landlord may
proceed directly against Tenant.

(6) Tenant shall grant to Landlord a security interest in all of
its right, title and interest in all rents and income from an assignment or
sublease to secure the payment of Rent owed under this Lease.

(7) Tenant shall pay all reasonable costs and fees incurred by
Landlord in connection with evaluating whether to give its consent and/or in
giving its consent to a proposed assignment or sublease, including
attorneys', architects', engineers' and consultants' fees, not to exceed
$2500.

12.2 Notwithstanding any provision to the contrary, Tenant may assign
this Lease or sublet all or part of the Premises, without Landlord's
approval, to a parent corporation, any subsidiary, any affiliate, any
partnership, limited liability company or other business entity where Tenant
or any affiliate of Tenant is the managing or general partner, manager or the
equivalent, as the case may be, or in connection with a merger, acquisition,
reorganization or consolidation of Tenant, or in connection with the sale or
transfer of all or substantially

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all of Tenant's (or its parent's or affiliates') stock or assets. The term
"affiliate" as used herein shall mean any entity in which Tenant or its
parent corporation holds fifty percent (50%) or more of the ownership
interests. Notwithstanding a transfer pursuant to this Section 12.2, Tenant
shall not be released from liability under this Lease upon the assignment or
subletting of all or part of the Premises to such parent corporation,
subsidiary, affiliate, partnership, limited liability company or other
business entity.

Section 13. Default

The following shall be events of default:

13.1 Default in Rent. Failure of Tenant to pay any installment of
Rent within ten (10) days after written notice by Landlord specifying the
nature of the default with reasonable particularity.

13.2 Default in other covenants. Failure of Tenant to comply with any
other term or condition or fulfill any other obligation of this Lease within
20 days after written notice by Landlord specifying the nature of the default
with reasonable particularity. If the default is of such a nature that it
cannot be completely remedied within the 20-day period, an event of default
shall not have occurred if Tenant begins correction of the default within the
20-day period and thereafter proceeds with reasonable diligence and in good
faith to effect the remedy as soon as practicable.

13.3 Insolvency. Insolvency of Tenant; an assignment by Tenant for
the benefit of creditors; the filing by Tenant of a voluntary petition in
bankruptcy; an adjudication that Tenant is bankrupt or the appointment of a
receiver of the properties of Tenant; or the filing of any involuntary
petition of bankruptcy and failure of Tenant to secure a dismissal of the
petition within 90 days after filing shall constitute a default. If Tenant
consists of two or more individuals or business entities, the events of
default specified in this Section 13.3 shall apply to each individual unless
within ten (10) days after an event of default occurs, the remaining
individuals produce evidence satisfactory to Landlord that they have
unconditionally acquired the interest of the one causing the default. If this
Lease has been assigned, the events of default so specified shall apply only
with respect to Tenant and to the one then exercising the rights of Tenant
under this Lease.

13.4 Abandonment. Failure of Tenant for thirty (30) days or more to
occupy the Premises for one or more of the purposes permitted under this
Lease, unless such failure is excused under other provisions of this Lease.

Section 14. Remedies on Default

14.1 Termination. In the event of a default, the Lease may be
terminated at the option of Landlord by written notice to Tenant. Whether or
not the Lease is terminated by the election of Landlord or otherwise,
Landlord shall be entitled to recover damages from

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Tenant for the default, and Landlord may reenter, take possession of the
Premises, and remove any persons or property by legal action and without
having accepted a surrender.

14.2 Reletting. Following reentry or abandonment, Landlord may relet
the Premises and in that connection may make any suitable alterations or
refurbish the Premises, or both, or change the character or use of the
Premises, but Landlord shall not be required to relet for any use or purpose
other than that specified in this Lease or which Landlord may reasonably
consider injurious to the Premises, or to any tenant that Landlord may
reasonably consider objectionable. Landlord may relet all or part of the
Premises, alone or in conjunction with other properties, for a term longer or
shorter than the term of this Lease, upon any reasonable terms and
conditions, including the granting of reasonable rent-free occupancy or other
rent concession.

14.3 Remedies. In the event of material breach or default under the
terms of this Lease, either party shall have all rights and remedies
available to them under law or equity in the State of Washington and/or City
of Kent.

14.4 Landlord's Right to Cure Defaults. If Tenant fails to perform
any obligation under this Lease, Landlord shall have the option to do so
after 30 days' written notice to Tenant. All of Landlords expenditures to
correct the default shall be reimbursed by Tenant on demand with interest at
the Interest Rate from the date of expenditure by Landlord. Such action by
Landlord shall not waive any other remedies available to Landlord because of
the default.

14.5 Remedies Cumulative. The foregoing remedies shall be in addition
to and shall not exclude any other remedy available to Landlord under
applicable law.

Section 15. Surrender at Expiration

15.1 Condition of Premises. Subject to the provisions of Section 8
herein, upon expiration of the Term or earlier termination on account of
default, Tenant shall deliver all keys to Landlord and surrender the Premises
in first class condition and broom clean, reasonable wear and tear excepted.
Improvements and alterations constructed by Tenant with permission from
Landlord shall not be removed, or the Premises restored to the original
condition, unless the terms of permission for the improvement or alteration
so require.

15.2 Fixtures

(a) All fixtures placed upon the Premises during the Term, other
than Tenant's trade fixtures, shall, at Landlord's option, become the
property of Landlord. Tenant's trade fixtures include, without limitation,
air compressors in shop area (but excluding air lines that are attached to
the walls and overhead bridge cranes and hoists attached to the shop ceiling
or otherwise attached to the walls or floors of the shop area), and those
additional trade fixtures placed on the Premises during the Term. If
Landlord's applicable consent referenced in Section 5 so requires, Tenant
shall remove any or all

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fixtures placed upon the Premises by the Tenant that would otherwise remain
the property of Landlord, and shall repair any physical damage resulting from
the removal. If Tenant fails to remove such fixtures, Landlord may do so and
charge the cost to Tenant with interest at the Interest Rate from the date of
expenditure.

(b) Prior to expiration or other termination of the Term, Tenant
shall remove all furnishings, furniture, and trade fixtures that remain its
property and repair any damage to the Premises caused by such removal. If
Tenant fails to do so, this shall be an abandonment of the property, and
Landlord may retain the property and all rights of Tenant with respect to it
shall cease or, by notice in writing given to Tenant within 20 days after
removal was required, Landlord may elect to hold Tenant to its obligation of
removal. If Landlord elects to require Tenant to remove, Landlord may effect
a removal and place the property in public storage for Tenant's account.
Tenant shall be liable to Landlord for the cost of removal, transportation to
storage, and storage, with interest at the Interest Rate on all such expenses
from the date of expenditure by Landlord.

15.3 Holdover

(a) If Tenant does not vacate the Premises at the time required,
Landlord shall have the option to treat Tenant as a tenant from
month-to-month, subject to all of the provisions of this Lease except the
provisions for term and renewal and at a rental rate equal to $30,000.00 per
month, or to eject Tenant from the Premises and recover damages caused by
wrongful holdover. Failure of Tenant to remove fixtures, furniture,
furnishings, or trade fixtures that Tenant is required to remove under this
Lease shall constitute a failure to vacate to which this Section shall apply
if the property not removed will substantially interfere with occupancy of
the Premises by another tenant or with occupancy by Landlord for any purpose
including preparation for a new tenant.

(b) If a month-to-month tenancy results from a holdover by
Tenant under this Section 15.3, the tenancy shall be terminable at the end of
any monthly rental period on written notice from Landlord given not less than
ten (10) days prior to the termination date which shall be specified in the
notice. Tenant waives any notice that would otherwise be provided by law with
respect to a month-to-month tenancy.

Section 16. Miscellaneous

16.1 Nonwaiver. Waiver by either party of strict performance of any
provision of this Lease shall not be a waiver of or prejudice to the party's
right to require strict performance of the same provision in the future or of
any other provision.

16.2 Attorney Fees. If suit or action is instituted in connection
with any controversy arising out of this Lease, the prevailing party shall be
entitled to recover in addition to costs such sum as the court may adjudge
reasonable as attorney fees at trial, on petition for review, and on appeal.

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16.3 Notices. Except as otherwise expressly permitted in this Lease,
all notices, demands, approvals, consents, requests and other communications
which under the terms of this Lease, or under any statute, must or may be
given or made by the parties hereto, must be in writing, and must be made
either (i) by depositing such notice in registered or certified mail of the
United States of America, return receipt requested, or (ii) by delivering
such notice by a commercial courier, which courier provides for delivery with
receipt guaranteed, addressed to each party at the addresses set forth on the
first page of this Lease. All notices, demands, approvals, consents,
requests and other communications shall be deemed to have been delivered (i)
if mailed as provided for in this Paragraph, on the date which is three (3)
business days after mailing or (ii) if sent by commercial courier, on the
date which is one (1) business day after dispatching. Either party may
designate by notice in writing given in the manner herein specified a new or
other address to which such notice, demand, approval, consent, request and
other communication shall thereafter be so given or made. Notwithstanding
the foregoing all Rent statements, bills and invoices may be given by regular
mail.

16.4 Exculpation. Tenant shall look solely to the estate and property
of Landlord in the Premises (including Landlord's rights to the rents,
profits, insurance proceeds and condemnation awards related thereto), for the
satisfaction of Tenant's remedies for the collection of a judgment (or other
judicial process) requiring the payment of money by Landlord in the event of
any default or breach by Landlord with respect to any of the terms, covenants
and conditions of this Lease to be observed and/or performed by Landlord, and
no other property or assets of Landlord (or of any direct or indirect,
disclosed or undisclosed, partner, member, shareholder, officer, director,
employee or principal in or of Landlord) shall be subject to levy, execution
or other enforcement procedure for the satisfaction of Tenant's remedies
under or with respect to this Lease, the relationship of Landlord and Tenant
hereunder, or Tenant's use and occupancy of the Premises.

16.5 Succession. Subject to the above-stated limitations on transfer
of Tenant's interest, this Lease shall be binding on and inure to the benefit
of the parties and their respective successors and assigns, heirs, executors
and administrators.

16.6 Recordation. Landlord shall execute and acknowledge a memorandum
of this lease in a form suitable for recording, and Tenant may record the
memorandum.

16.7 Entry for Inspection. Landlord shall have the right to enter
upon the Premises upon reasonable advance notice to determine Tenant's
compliance with this Lease, to make repairs to the Premises which it
expressly has the right to make under this Lease, or to show the Premises to
any prospective tenant or purchaser, and in addition shall have the right, at
any time during the last two (2) months of the term of this Lease, to place
and maintain upon the Premises notices for leasing or selling of the Premises.

16.8 Interest on Rent and other Charges. Any rent or other payment
required of Tenant by this Lease shall, if not paid within ten (10) days
after it is due, bear interest at the Interest Rate from the due date until
paid. In addition, if Tenant fails to make any rent or

-16-

<PAGE>

other payment required by this Lease to be paid to Landlord within ten (10)
days after it is due, Landlord shall impose a late charge of five cents
($.05) per dollar of the overdue payment to reimburse Landlord for the costs
of collecting the overdue payment. Tenant shall pay the late charge upon
demand by Landlord. Landlord may levy and collect a late charge in addition
to all other remedies available for Tenant's default, and collection of a
late charge shall not waive the breach caused by the late payment.

16.9 Proration of Rent. In the event of commencement or termination
of this Lease at a time other than the beginning or end of one of the
specified rental periods, then the Rent shall be prorated as of the date of
commencement or termination and in the event of termination for reasons other
than default, all pre paid Rent shall be refunded to Tenant or paid on its
account.

16.10 Time of Essence. Time is of the essence of the performance of
each of Tenant's and Landlord's obligations under this Lease.

Section 17. Arbitration

17.1 Any dispute arising out of or relating to this Lease that cannot
be resolved by good faith negotiations between the parties shall be submitted
to the American Arbitration Association in Portland, Oregon ("AAA") for final
and binding arbitration pursuant to AAA's rules and procedures. The
substantive and procedural law of the State of Washington shall govern this
Lease and the mediation and arbitration proceedings. All statutes of
limitation which would otherwise be applicable will apply to the arbitration
proceedings. There will be one arbitrator agreed upon by the parties or, if
not agreed, selected by the AAA. The arbitrator shall conduct an arbitration
hearing within ninety (90) days after the arbitration demand is received by
the AAA. The arbitrator shall issue a written award within fourteen (14) days
after the hearing.

17.2 The arbitrator may award damages, injunctive relief and/or any
other relief available in law or equity under Washington law. The prevailing
party in the arbitration shall be entitled to an award of costs and
reasonable attorneys' fees in addition to any other award or relief granted.
The arbitration award shall be final and may be reduced in judgment in any
court of competent jurisdiction.

17.3 Absent fraud, collusion or willful misconduct by the arbitrator,
the award will be final, and judgment may be entered in any court having
jurisdiction thereof. The arbitrator may award injunctive relief or any
other remedy available from a judge, including the joinder of parties or
consolidation of this arbitration with any other involving common issues of
law or fact or which may promote judicial economy, and may award attorneys'
fees and costs to the prevailing party but will not have the power to award
punitive or exemplary damages.

-17-

<PAGE>

17.4 If AAA is no longer in existence at the time of any dispute subject
to this Section 17, the parties agree to use an alternative arbitration
service using substantially similar rules and procedures.

IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed as of the day and year first herein written.

Landlord: McLAIN-RUBIN REALTY COMPANY II, L.L.C.,
a Delaware limited liability company

By:
-------------------------------------
Its:
-------------------------------------

Tenant: WESTERN POWER & EQUIPMENT CORP.,
an Oregon corporation

By:
-------------------------------------
Its:
-------------------------------------

STATE OF WASHINGTON )
) ss.
County of _________ )

I certify that I know or have satisfactory evidence that
____________________________ is the person who appeared before me, and said
person acknowledged that said person signed this instrument, on oath stated
that said person was authorized to execute the instrument, and acknowledged
it as the Manager of McLain-Rubin Realty Company II, L.L.C., a Delaware
limited liability company, to be the free and voluntary act of such company
for the uses and purposes mentioned in the instrument.

Dated this __________ day of May, 1997.

--------------------------------
(Signature of Notary)

--------------------------------
(Legibly print or Stamp Name of Notary)

Notary Public in and for the state of Washington,
residing at
---------------------------------

My Appointment Expires
---------------------------

-18-

<PAGE>

STATE OF WASHINGTON )
) ss.
County of ________ )

I certify that I know or have satisfactory evidence that
____________________________ is the person who appeared before me, and said
person acknowledged that said person signed this instrument, on oath stated
that said person was authorized to execute the instrument, and acknowledged
it as the _______________________________ of Western Power & Equipment Corp.,
an Oregon corporation, to be the free and voluntary act of such company for
the uses and purposes mentioned in the instrument.

Dated this __________ day of May, 1997.

--------------------------------
(Signature of Notary)

--------------------------------
(Legibly print or Stamp Name of Notary)

Notary Public in and for the state of Washington,
residing at
----------------------------

My Appointment Expires
-----------------------

-19-

<PAGE>

EXHIBIT A
DESCRIPTION OF REAL PROPERTY

Commonly known as _____________________________.

-20-

<PAGE>

EXHIBIT B
PERMITTED ENCUMBRANCES

-21-

<PAGE>

EXHIBIT 21

SUBSIDIARIES OF THE COMPANY

1. Western Power & Equipment Corp., an Oregon corporation (100% owned by
the Company).

-22-

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
FINANCIALS STATEMENTS FOUND ON PAGES F-1 THROUGH F-4 OF THE COMPANY'S FORM 10-K
FOR THE YEAR ENDED JULY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JUL-31-1997
<CASH> 1,875
<SECURITIES> 0
<RECEIVABLES> 10,196
<ALLOWANCES> 519
<INVENTORY> 83,369
<CURRENT-ASSETS> 96,410
<PP&E> 11,307
<DEPRECIATION> 3,158
<TOTAL-ASSETS> 107,423
<CURRENT-LIABILITIES> 80,527
<BONDS> 4,131
0
0
<COMMON> 4
<OTHER-SE> 22,761
<TOTAL-LIABILITY-AND-EQUITY> 107,423
<SALES> 148,130
<TOTAL-REVENUES> 148,130
<CGS> 132,260
<TOTAL-COSTS> 132,260
<OTHER-EXPENSES> 11,194
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,518
<INCOME-PRETAX> 1,664
<INCOME-TAX> 693
<INCOME-CONTINUING> 971
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 971
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27

</TABLE>