Western Power & Equipment 10-Q 2001 Q3 Quarterly report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarter Ended April 30, 2001

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 incorporation or organization)	(I.R.S. Employer I.D. number)

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

Registrant's telephone no.:360-253-2346

    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.

Yes  /x/    No  / /

    Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report.

Title of Class Common Stock	Number of shares Outstanding
(par value $.001 per share)	3,403,162

WESTERN POWER & EQUIPMENT CORP.
INDEX

				Page Number
PART I.  FINANCIAL INFORMATION
	Item 1.		Financial Statements
		Consolidated Balance Sheets April 30, 2001 (Unaudited) and July 31, 2000		1
		Consolidated Statements of Operations Three months ended April 30, 2001 (Unaudited) and April 30, 2000 (Unaudited)		2
		Consolidated Statements of Operations Nine months ended April 30, 2001 (Unaudited) and April 30, 2000 (Unaudited)		3
		Consolidated Statements of Cash Flows Nine months ended April 30, 2001 (Unaudited) and April 30, 2000 (Unaudited)		4
		Notes to Consolidated Financial Statements		5-6
	Item 2.		Management's Discussion and Analysis of Financial Condition and Operating Results	7-9
PART II.  OTHER INFORMATION
	Item 1.		Legal Proceedings	N/A
	Item 2.		Changes in Securities	N/A
	Item 3.		Defaults Upon Senior Securities	N/A
	Item 4.		Submission of Matters to a Vote of Security Holders	10
	Item 5.		Other Information	10
	Item 6.		Exhibits and Reports on Form 8-K	10

ITEM 1.

WESTERN POWER & EQUIPMENT CORP.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

			April 30, 2001			July 31, 2000
			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	248		$	824
	Accounts receivable, less allowance for doubtful accounts of $930 and $563			11,216			17,347
	Inventories			49,033			58,297
	Prepaid expenses			282			210
	Income taxes receivable			-0-			400
	Deferred income taxes			2,273			2,273
		Total current assets		63,051			79,351
Fixed Assets:
	Property, plant and equipment (net)			5,886			9,450
	Rental equipment fleet (net)			23,178			26,076
	Leased equipment fleet (net)			552			4,975
		Total fixed assets		29,616			40,501
Intangibles and other assets, net of accumulated amortization of $776 and $683				2,770			2,858
Total assets			$	95,437		$	122,710
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
	Borrowings under floor plan financing		$	14,633		$	14,768
	Short-term borrowings			53,965			67,671
	Accounts payable			9,171			10,730
	Accrued payroll and vacation			787			751
	Other accrued liabilities			1,035			1,323
	Capital lease obligation			4			17
		Total current liabilities		79,595			95,260
Deferred income taxes				2,273			2,273
Capital lease obligation				938			4,786
Long-term borrowings				28			28
Deferred lease income				973			5,982
		Total long-term liabilities		4,212			13,069
Total liabilities				83,807			108,329
Stockholders' equity:
	Preferred stock—10,000,000 shares authorized; none issued and outstanding			—			—
	Common stock—$.001 par value; 20,000,000 shares authorized; 3,403,162 and 3,353,162 issued and outstanding respectively			4			4
	Additional paid-in capital			15,894			16,005
	Retained earnings			(3,424	)		(460	)
	Less common stock in treasury, at cost (130,300 and 180,300 respectively)			(844	)		(1,168	)
		Total stockholders' equity		11,630			14,381
Total liabilities and stockholders' equity			$	95,437		$	122,710

See accompanying notes to financial statements.

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WESTERN POWER & EQUIPMENT CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollars in thousands, except per share amounts)

		Three Months Ended April 30,
		2001			2000
Net revenue		$	33,641		$	35,340
Cost of revenues			31,283			32,104
Gross profit			2,358			3,236
Selling, general and administrative expenses			3,117			3,220
Operating (loss) income			(759	)		16
Other income (expense):
	Interest expense		(1,425	)		(1,641	)
	Other income		108			82
Loss before taxes			(2,076	)		(1,543	)
Income tax (expense) benefit			(3,043	)		596
Net loss		$	(5,119	)	$	(947	)
Basic loss per common share		$	(1.53	)	$	(0.29	)
Average outstanding common shares for basic loss per share			3,371			3,303
Average outstanding common shares and equivalents for diluted loss per share			3,371			3,303
Diluted loss per share		$	(1.53	)	$	(0.29	)

See accompanying notes to financial statements.

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WESTERN POWER & EQUIPMENT CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollars in thousands, except per share amounts)

		Nine Months Ended April 30,
		2001			2000
Net revenue		$	105,723		$	111,392
Cost of revenues			95,550			99,371
Gross profit			10,173			12,021
Selling, general and administrative expenses			9,473			9,924
Operating income			700			2,097
Other income (expense):
	Interest expense		(4,654	)		(4,386	)
	Other income		1,283			524
Loss before taxes			(2,671	)		(1,765	)
Income tax (expense) benefit			(292	)		659
Net loss		$	(2,963	)	$	(1,106	)
Basic loss per common share		$	(0.88	)	$	(0.33	)
Average outstanding common shares for basic loss per share			3,358			3,303
Average outstanding common shares and equivalents for diluted loss per share			3,358			3,303
Diluted loss per share		$	(0.88	)	$	(0.33	)

See accompanying notes to financial statements.

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

				Nine Months Ended April 30,
				2001			2000
Cash flows from operating activities:
	Net loss			$	(2,963	)	$	(1,106	)
	Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
		Depreciation			7,220			8,370
		Amortization			93			81
		Gain on sale of fixed assets			(772	)		(44	)
		Stock in lieu of services rendered			100			-0-
		Compensation related to stock options			113			0
		Changes in assets and liabilities:
			Accounts receivable		6,131			1,901
			Inventories		5,701			2,441
			Leased equipment, net		4,423			235
			Inventory floor-plan financing		(115	)		(5,959	)
			Short-term financing		(13,908	)		(565	)
			Prepaid expenses		(72	)		12
			Accounts payable		(1,559	)		(3,003	)
			Accrued payroll and vacation		36			(130	)
			Other accrued liabilities		(288	)		(178	)
			Deferred lease income		(5,009	)		(136	)
			Deferred income taxes		0			7
			Deferred gain		0			(140	)
			Income taxes receivable/payable		400			(894	)
	Net cash (used in) provided by operating activities				(569	)		892
Cash flow from investing activities:
	Purchase of fixed assets				(852	)		(798	)
	Purchase/sales of rental equipment, net				305			(2,002	)
	Proceeds on sale of fixed assets				260			120
	Purchase of other assets				(5	)		0
	Net cash used in investing activities				(292	)		(2,680	)
Cash flows from financing activities:
	Principal payments on capital leases				3			21
	Convertible Debt				182			0
	Long-term repayments				0			(14	)
	Net cash provided by financing activities				185			7
Decrease in cash and cash equivalents					(576	)		(1,781	)
Cash and cash equivalents at beginning of period					824			2,629
Cash and cash equivalents at end of period				$	248		$	848
Supplemental disclosures of cash flow information:
Cash paid during the period for:
	Interest			$	5,275		$	4,356
	Income taxes				2			204
Supplemental schedule of non-cash investing and financing activities:
	Capital leases reclassified to operating leases				3,865			0
	Re-issuance of treasury stock				224			0

See accompanying notes to financial statements.

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Western Power & Equipment Corp.

Notes to Consolidated Financial Statements
(Dollars in thousands)

1.  Basis of Presentation

    The financial information included in this report has been prepared in conformity with the accounting principles and practices reflected in the financial statements for the preceding year included in the annual report on Form 10-K for the year ended July 31, 2000 filed with the Securities and Exchange Commission. All adjustments are of a normal recurring nature and are, in the opinion of management, necessary for a fair statement of the results for the interim periods. This report should be read in conjunction with the Company's financial statements included in the annual report on Form 10-K for the year ended July 31, 2000 filed with the Securities and Exchange Commission.

2.  Inventories

    Inventories consist of the following:

		April 30, 2001		July 31, 2000
Equipment (net of reserve allowances of $3,732 and $4,770 respectively):
	New equipment	$	33,482	$	40,148
	Used equipment		6,058		7,442
Parts (net of reserve allowances of $444 and $522 respectively)			9,493		10,707
		$	49,033	$	58,297

3.  Fixed Assets

    Fixed Assets consist of the following:

		April 30, 2001			July 31, 2000
Operating property, plant and equipment:
	Land	$	500		$	500
	Buildings		1,706			5,334
	Machinery and equipment		4,042			4,030
	Office furniture and fixtures		2,377			2,360
	Computer hardware and software		1,452			1,869
	Vehicles		2,018			1,428
	Leasehold improvements		922			550
			13,017			16,071
	Less: accumulated depreciation		(7,131	)		(6,621	)
Property, plant, and equipment (net)		$	5,886		$	9,450
Rental equipment fleet		$	30,244		$	32,493
	Less: accumulated depreciation		(7,066	)		(6,417	)
Rental equipment (net)		$	23,178		$	26,076
Leased equipment fleet		$	565		$	5,481
Less: accumulated amortization			(13	)		(506	)
Leased equipment fleet (net)		$	552		$	4,975

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4.  Convertible Debt

    In September 2000, the Company sold a total of $182,000 convertible promissory notes pursuant to Rule 506 of Regulation D. The notes are due on or before December 31, 2001 and accrue interest at the rate of 10% payable in stock after March 1, 2001, payable upon the earlier of maturity or conversion. The Notes are presently convertible into shares of Common Stock at a Conversion Price of $3.00 per share.

5.  Stock Options

    On March 22, 2001, the Board of Directors authorized the issuance of 1,200,000 stock options to certain employees and board members with an exercise price of $0.53 per option. These options vested immediately and resulted in compensation expense amounting to $112,800 for the quarter.

6.  Segment Information

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

Business Component Net Revenues		3 Months Ended April 30, 2001		3 Months Ended April 30, 2000		9 Months Ended April 30, 2001		9 Months Ended April 30, 2000
Equipment Sales		$	22,328	$	21,989	$	63,353	$	65,755
Equipment Rental			3,263		4,538		15,651		18,153
Product Support			8,050		8,813		26,719		27,484
	Totals	$	33,641	$	35,340	$	105,723	$	111,392

Business Component Gross Margins		3 Months Ended April 30, 2001		3 Months Ended April 30, 2000		9 Months Ended April 30, 2001		9 Months Ended April 30, 2000
Equipment Sales		$	1,073	$	789	$	2,147	$	2,683
Equipment Rental			363		543		3,393		4,301
Product Support			922		1,904		4,633		5,037
	Totals	$	2,358	$	3,236	$	10,173	$	12,021

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

7.  Subsequent Events

    On May 15, 2001 the Company announced that it had merged with SupplyPoint, Inc., based in San Jose, California conditioned on certain closing requirements, including, but not limited to, approval by Deutsche Financial Services and Case Corporation.

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

    The following discussion and analysis should be read in conjunction with the Financial Statements and Notes thereto appearing elsewhere in this Form 10-Q. Information included herein relating to projected growth and future results and events constitutes forward-looking statements. Actual results in future periods may differ materially from the forward-looking statements because of a number of risks and uncertainties, including but not limited to fluctuations in the construction, agricultural and industrial sectors and general economic cycles; the success of the Company's entry into new markets through store openings or acquisitions; the success of the Company's expansion of its equipment rental business; rental industry conditions and competitors; competitive pricing; the Company's relationship with its suppliers; relations with the Company's employees; the Company's ability to manage its operating costs and to integrate acquired businesses in an effective manner; the continued availability of financing; governmental regulations and environmental matters; risks associated with regional, and national and world economies. Any forward-looking statements should be considered in light of these factors.

Results of Operations

The Three Months and Six Months ended April 30, 2001 compared to the Three Months and Six Months ended April 30, 2000.

    Revenues for the three-month period ended April 30, 2001 decreased 4.8% to $33.6 million compared with $35.3 million for the three-month period ended April 30, 2000. Revenues were down from the prior year's third quarter in the rental, parts and service departments. The decrease in sales was primarily due to slowing of the economy over the past year.

    Revenues for the nine-month period ended April 30, 2001 decreased $5,669,000 or approximately 5.1% over the nine-month period ended April 30, 2000. The decrease was due primarily to the consolidation of stores and a slowing economy during the past year. For the nine-month period ended April 30, 2000, revenues in all departments, except rentals, were down from the same period in the prior year.

    The Company's gross profit margin of 7.0% for the three-month period ended April 30, 2001 was down from the prior year comparative period margin of 9.2%. The decrease in gross profit margins was partly the result of increased pressure from an economic downturn in the equipment industry. For the nine-month period ended April 30, 2001, the Company's gross margin was 9.6%, down from the 10.8% gross margin for the nine-month period ended April 30, 2000 due to the same factors mentioned previously.

    For the three-month period ended April 30, 2001, selling, general, and administrative ("SG&A") expenses, as a percentage of sales, were 9.3%, slightly up from 9.1% for the prior year's third quarter. This increase in SG&A expenses is attributable to one time costs associated with compensation expense of $112,800 related to the issue of stock options. SG&A expenses for the nine-month period ended April 30, 2001 were 9.0%, slightly up from the 8.9% for the nine-month period ended April 30, 2000 due to the same factors mentioned previously.

    Interest expense for the three months ended April 30, 2001 of $1,425,000 was down from the $1,641,000 in the prior year comparative period. This decrease is the result of lower inventory levels in the quarter. Interest expense for the nine-month period ended April 30, 2001 was $4,654,000 compared to $4,386,000 for the nine-month period ended April 30, 2000, due to higher average interest rates during the first half of the year.

    The provision for taxes in the third quarter relates to re-establishing a valuation allowance related to deferred tax assets. The effective tax rate for the nine-months ended April 30, 2001, differs from the

7

expected rate primarily due to increasing the valuation allowance for the amount of the tax benefit of the net operating loss during the period by approximately $900,000. As of April 30, 2001, the Company has an accumulative valuation allowance offsetting the deferred tax asset of approximately $3,800,000.

    The Company had a net loss for the quarter ended April 30, 2001 of $3,117,000 or $(1.53) per (basic and diluted) share compared with a net loss of $947,000 or $(0.29) per (basic and diluted) for the prior year's third quarter. The slowing of the economy and the equipment industry have contributed to these losses. For reasons stated in the previous paragraph, the provision for taxes has also affected the net loss for the three-month period ended April 30, 2001. For the nine-month period ended April 30, 2001, the Company reported a loss of $0.88 per share (basic and diluted) compared with a net loss of $0.43 per (basic and diluted) share for the nine-month period ended April 30, 2000. This loss is a result of the factors previously mentioned.

Liquidity and Capital Resources

    The Company's primary needs for liquidity and capital resources are related to its inventory for sale and its rental and lease fleet inventories. The Company's primary source of internal liquidity has been its operations. The Company's primary sources of external liquidity are equipment inventory floor plan financing arrangements provided to the Company by the manufacturers of the products the Company sells and Deutsche Financial Services ("DFS") credit facility and, with respect to acquisitions, secured loans from Case Corporation (now CNH Global).

    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 April 30, 2001, the Company was indebted under manufacturer-provided floor planning arrangements in the aggregate amount of $14,633,000.

    The Company recently amended its inventory flooring and operating line of credit through DFS. The amended DFS credit facility matures December 28, 2001 and is a floating rate facility based on prime with rates between 0.75% under prime to 2.25% over prime depending on the amount of total debt leverage of the Company. Borrowings are secured by the Company's assets, including accounts receivable, parts, new equipment, rental fleet, and used equipment. The Company uses this borrowing facility to lower flooring-related interest expense by using advances under such line to finance inventory purchases in lieu of financing provided by suppliers, to take advantage of cash purchase discounts from its suppliers, to provide operating capital for further growth, and to refinance some its acquisition related debt at a lower interest rate. As of April 30, 2001, approximately $53,778,000 was outstanding under the DFS credit facility.

    As of October 31,2000, the Company and DFS signed an amendment to the existing loan and security agreement. The amendment waived all prior defaults under the agreement and established revised financial covenants to be measured at the Company's second and fourth quarters. In addition, the amendment included several, periodic mandatory reductions in the credit limit.

    During the quarter ended April 30, 2001, cash and cash equivalents decreased by $1,317,000. For the nine-month period ended April 30, 2001, cash and cash equivalents decreased by $576,000. The Company had negative cash flow from operating activities for the first nine months reflecting an increase in short term financing. Purchases of fixed assets during the period were related mainly to the purchase of vehicles company wide and leasehold improvements to the Portland branch facility.

8

    The Company's cash and cash equivalents of $248,000 as of April 30, 2001 and available credit facilities are considered sufficient to support current levels of operations for at least the next twelve months.

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

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

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

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

    The Company's sales and profit margins can be affected by Case Corporation because approximately 50% of the Company's product sales are products provided by Case Corporation.

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PART II.  OTHER INFORMATION

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

None.

    ITEM 5.  OTHER INFORMATION

None.

    ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

A.

EXHIBITS.

None.

B.

REPORTS ON FORM 8-K.

Form 8-K filed May 25, 2001 reporting on the closing of the merger between Western Power & Equipment Corp. and SupplyPoint, Inc.

10

SIGNATURE

    Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

WESTERN POWER & EQUIPMENT CORP.
June 14, 2001	By:	/s/ MARK J. WRIGHT   Mark J. Wright Vice President of Finance and Chief Financial Officer

11

QuickLinks

INDEX

ITEM 1.

CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF CASH FLOWS
Notes to Consolidated Financial Statements

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

PART II. OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

SIGNATURE