<PAGE>   1


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

                                    FORM 10-K

         (Mark One)
[X]      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
         OF 1934 
         For the fiscal year ended December 31, 1998 or 
         TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934

         For the transition period from ________ to _______
         Commission file number             000-21813

                           Texas Equipment Corporation
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

               Nevada                                  62-1459870
--------------------------------------------------------------------------------
   (State or other jurisdiction of          (I.R.S. Employer Identification No.)
    incorporation or organization)

         1305 Hobbs Hwy, Seminole, Texas                       79360
--------------------------------------------------------------------------------
         (Address of principal executive offices)              (Zip Code)

         Registrant's telephone number: (915) 758-3643
         Securities registered under Section 12(b) of the Exchange Act:

<TABLE>
<CAPTION>
     Title of each Class               Name of each exchange on which registered
     -------------------               -----------------------------------------
<S>                                    <C>
            None                                        None
</TABLE>

         Securities registered under Section 12(g) of the Exchange Act:

                               Title of each class
                               -------------------
                          Common Stock, $.001 par value

         Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
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 Regulation 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 this Form 10-K.  X
                             ---

<PAGE>   2

       The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant computed by reference to the average
bid and asked price, as of March 12, 1999, was $1,993,702 (for purposes of
calculating this amount, only directors, officers and beneficial owners of 5% or
more of the Common Stock of the registrant have been deemed affiliates).

       The number of shares outstanding of the registrant's Common Stock, as of
March 12, 1999, was 24,824,808.



                                       2
<PAGE>   3

                                     PART I

                         CAUTIONARY STATEMENT REGARDING
                  FUTURE RESULTS AND FORWARD-LOOKING STATEMENTS

         The future results of Texas Equipment Corporation ("TEC" or the
"Company"), including results reflected in any forward-looking statement made by
or on behalf of the Company, will be impacted by a number of important factors.
The factors identified below in the section entitled "Item 7. - Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Certain Important Factors" are important factors (but not necessarily all
important factors) that could cause the Company's actual future results to
differ materially from those expressed in any forward-looking statement made by
or on behalf of the Company. Words such as "may," "will," "expect," "believe,"
"anticipate," "estimate," or "continue" or comparable terminology is intended to
identify forward-looking statements. Forward-looking statements, by their
nature, involve substantial risks or uncertainties.

ITEM 1. BUSINESS.

         The Company, a Nevada corporation, formerly Marinex Multimedia
Corporation, in September 1996 exchanged its Common Stock for all of the capital
stock of Texas Equipment Co., Inc., a Texas corporation ("TECI"). Unless the
context otherwise indicates, the "Company" refers to TEC and its wholly owned
subsidiary, TECI, and TECI's wholly owned subsidiary, New Mexico Implement
Company, Inc. ("NMIC").

GENERAL

        The Company currently operates eight retail stores in two states,
specializing in the distribution, sales, service and rental of agricultural
equipment, primarily supplied by Deere & Company and its subsidiaries ("Deere").
The Company's stores are located in West Texas and Eastern New Mexico. The
Company acquired four of its agricultural equipment stores in fiscal 1997 and
two in fiscal 1998. The 1998 acquisitions extended the Company's equipment
retail store network northward in West Texas with its Amarillo dealership
purchase, and westward in Texas with its acquisition of one store located in
Tornillo, Texas, about thirty miles southeast of El Paso, Texas and three miles
from the border between the US and Mexico. The Company believes that its network
of stores enables it to achieve operating benefits from increasing operational
synergies. The Company's growth strategy is to continue to expand its network
through future acquisitions of similar dealerships, although the Company does
not presently have any agreements, written or oral, with any third party
regarding a potential acquisition or business combination.

       Deere, a leading manufacturer and supplier of agricultural equipment in
the United States, is the primary supplier of the equipment and parts sold by
the Company. Sales of new Deere equipment by the Company accounted for
approximately 68% of the Company's new equipment sales in 1998. No other
supplier accounted for more than 13% of the Company's new equipment sales in
1998. The Company expects that Deere products will continue to account for the
majority of its agricultural new equipment sales. The Company's stores also
offer complementary equipment from other suppliers, used equipment, new and used
parts, equipment rental, and other related products and services.



                                       3
<PAGE>   4

INDUSTRY OVERVIEW

       According to industry sources, the United States retail sales of new
agricultural equipment in calendar 1998 totaled in excess of $10 billion. Deere
is the leading supplier of agricultural equipment in the United States. Within
the Deere agricultural dealer system, dealers are not assigned exclusive
territories, but are authorized to operate at specific store locations, which
define a trade area. Currently, Deere has in excess of 1,200 agricultural dealer
locations in the United States. The Company believes that increasing needs for
capital and more sophisticated management and marketing information systems of
typical Deere agricultural equipment dealers, owners' concerns about succession
(a substantial number of such dealers have traditionally been family-owned
businesses), and Deere's increasing support for consolidation among its dealers
create a business climate conducive to further consolidation of Deere
agricultural dealers. The Company expects that it will have increasing
opportunities to complete strategic acquisitions of Deere agricultural
dealerships as this consolidation trend develops.

GROWTH STRATEGY

       The key elements of the Company's growth strategy are:

INCREASING MARKET SHARE

       The Company seeks to increase its market share by enhancing customer
service and generating customer loyalty. To accomplish this, the Company offers
a broad range of products, utilizes aggressive marketing programs, trains its
employees to have a strong customer orientation, employs state-of-the-art
service equipment, and maintains a computerized real-time inventory system. Each
agricultural retail equipment store offers a broad array of its respective Deere
equipment lines, and also sells complementary products from other suppliers,
based on the nature of each store's customer base. As the installed base of
equipment expands with the Company's increasing market share, the Company has
the opportunity to generate additional parts and service business. The Company
believes that each customer's experience with the Company's parts and service
departments and other value-added services can positively influence such
customer's overall satisfaction. Parts and service currently have higher profit
margins than equipment sales. The Company serves its customers' financing needs
by developing innovative ways to finance its products.

PURSUING ADDITIONAL ACQUISITIONS

       Acquisitions are expected to continue to be an important element of the
Company's growth strategy, particularly given the consolidation trends among
agricultural retail equipment dealers. Because of the Company's record of
accomplishment in completing and integrating acquisitions, the Company believes
that attractive acquisition candidates will continue to become available to the
Company. The Company management team has substantial experience in evaluating
potential acquisition candidates and determining whether a particular group of
dealerships can be integrated successfully into the Company's existing dealer
network. Management believes that it can operate new facilities effectively and
improve the operating results of acquired dealers because of economies of scale,
purchasing power, and merchandising capability. Upon consummation of each
acquisition, the Company integrates the dealership into its agricultural retail
equipment operations by implementing the Company's operating model and seeks to
enhance the acquired dealership's performance within its target market.
Integration of an acquisition generally is completed within the first six to 12
months, although it can take several years before the benefits of the Company's
operating model, store network, strategies, and systems are fully realized. The
consent of Deere is required for the acquisition of any Deere dealership.



                                       4
<PAGE>   5

IMPLEMENTING THE TEC OPERATING MODEL

       The Company has developed a proven operating model designed to improve
the performance and profitability of each of its retail equipment stores.
Components of this operating model include (i) pursuing aggressive marketing
programs, (ii) allowing store employees to focus on customers by managing
administrative functions, training, and purchasing at the corporate level, (iii)
providing a full complement of parts and state-of-the-art service functions,
including a computerized real-time inventory system and quick response, on-site
repair service, (iv) motivating store level management in accordance with
corporate goals, and (v) focusing on cost structures at the store level. The
Company centralizes such functions as accounting, purchasing, and employee
recruitment, allowing its store managers and personnel more time to focus on
making sales and providing product support to customers.

CAPITALIZING ON DIVERSITY OF OPERATIONS

       A major focus of the Company's strategy has been to expand its network of
agricultural retail equipment stores into geographic areas that have a large
base of agricultural activity and provide the Company with opportunities to
continue to develop its store network. The Company's plan for geographic
diversification into regions outside its initial base in the West Texas
Panhandle will help to diminish the effects of seasonality, as well as local and
regional economic fluctuations. Typically, other Deere dealers operate one to
three agricultural dealership locations (generally not more than three
locations) concentrated in a specific geographic region compared to the
Company's eight Deere agricultural equipment stores.

WHOLEGOODS

        The Company is one of the largest Deere retail agricultural equipment
dealer networks in the United States and Canada in total revenues and accounted
for approximately 0.5% percent, or $35 million of Deere's United States and
Canada agricultural wholegoods sales of $7.2 billion in 1998. According to
industry usage, "wholegoods" represents agricultural machinery that can be sold
either as an individual item or as part of a series of machines to perform
certain farming operations. As of the end of fiscal 1998, the Company owned and
operated eight Deere agricultural equipment stores located in West Texas and
Eastern New Mexico.

        The Company is a full-service supplier to farmers, offering a broad
range of farm equipment and related products. The Company's customers primarily
farm cotton and peanuts in the Southern Panhandle, corn, soybeans, wheat, sugar
beets, and potatoes in the Northern Panhandle, and cotton and alfalfa in eastern
New Mexico and Tornillo, Texas. As a result of the customer mix and Deere's
product offerings, the Company's core products include grain and peanut
combines, tractors, planting equipment, and tillage equipment. The Company's
agricultural equipment stores also carry other harvesting and crop handling
machinery, as well as lawn and grounds care equipment. The sale of new and used
Deere agricultural equipment is the primary focus of the Company and accounts
for approximately 72% of the Company's new and used equipment sales. The Company
according to local market demand also offers a variety of additional new and
used wholegoods lines, which complement the Deere products and account for the
remaining wholegoods sales of the Company.

        The agricultural equipment stores are located in areas with significant
concentrations of farmers and typically serve customers within a 50 to 100 mile
radius. Each store displays a broad array of new and used equipment and has
fully-equipped service bays to provide in-store and on-site service and
maintenance of agricultural equipment. The Company believes it has a competitive
advantage over other agricultural dealers given its ability to draw on its
network of agricultural stores for equipment, parts and service. As well as the
economies of scale inherent in it's centralized administrative, purchasing, and
inventory management functions.



                                       5
<PAGE>   6

PARTS AND SERVICE

         The Company's retail agricultural equipment stores offer a broad range
of replacement parts and fully-equipped service and repair facilities for their
respective product lines. The Company believes that product support through
parts and service will be increasingly important to its ability to attract and
retain customers for its agricultural equipment operations. Each store includes
four to six service bays staffed by highly trained service technicians.
Technicians are also available to make on-site repairs (other than engine and
transmission overhauls) of equipment that cannot be brought in for service. The
Company's service technicians receive training from Deere and certain other
suppliers, as well as additional in-store training conducted by the Company.

INVENTORY AND ASSET MANAGEMENT

         The Company maintains substantial inventories of equipment and parts in
order to facilitate sales to customers on a timely basis. The Company also is
required to build its inventory in advance of its selling seasons to ensure that
it will have sufficient inventory available to meet its customer needs and to
avoid shortages or delays. Deere has an inventory warehouse that its dealers may
access to obtain equipment to facilitate inventory management. In addition, to
maximize asset productivity, the Company maintains a complete database on sales
and inventory of parts and equipment, and has a sophisticated, centralized
real-time inventory control system. This system enables each store to access the
available inventory of the Company's other stores before ordering additional
parts or equipment from the supplier. As a result, the Company minimizes its
investment in inventory while still effectively and promptly satisfying its
customers' parts needs. Using this system, the Company also monitors inventory
levels and inventory mix in its network and make adjustments as needed in
accordance with its operating plan.

DEERE AGRICULTURAL DEALER AGREEMENTS

         The Company has non-exclusive dealer agreements with Deere for each of
its Deere agricultural equipment stores, each of which authorizes the Company to
act as a dealer in Deere agricultural equipment (the "Agricultural Dealer
Agreements") at a specific authorized store location. The Company is not
required to pay a royalty fee under the Agricultural Dealer Agreements. Rather,
the Company agrees to stock, sell at retail and service Deere equipment in its
defined market area. The Company's areas of responsibility for the sale of Deere
agricultural equipment are in the West Texas, Texas Panhandle and Eastern New
Mexico. The Agricultural Dealer Agreements continue until terminated by Deere
upon a violation by the Company of the provisions contained therein and in
certain other circumstances described herein, although Deere may require the
execution on a new Agricultural Dealer Agreement at any time upon 30-day notice.
Any termination or non-renewal of the Dealership Agreements must be done by
Deere in accordance with state legislation designed to protect dealers from
arbitrary termination or non-renewal of franchise agreements. Applicable Texas
laws provide that termination or non-renewal of a dealership agreement may not
be done by a manufacturer without cause. The Company has consistently had its
Agricultural Dealer Agreements renewed and the Company anticipates obtaining
renewals in the future. However, no assurances can be given that such renewals
will be obtained.

         Pursuant to the Agricultural Dealer Agreements, the Company is
required, among other things, to maintain suitable facilities, provide competent
management, actively promote the sale of agricultural equipment in the
designated areas of responsibility, fulfill the warranty obligations of Deere
(with reimbursement at agreed rates therefor), maintain inventory in proportion
to the sales potential in each area 



                                       6
<PAGE>   7

of responsibility, provide service and maintain sufficient parts inventory to
service the needs of its customers, maintain adequate working capital, and
maintain stores only in authorized locations. In addition, Deere has the right
to have input into the selection of the Company's management personnel,
including managers of the Company's Deere equipment stores. Deere is obligated
to make available to the Company any finance plans, lease plans, floor plans,
parts return programs, sales or incentive programs or items and marketing
materials prepared by Deere for its agricultural equipment dealers. The
Agricultural Dealer Agreements also entitle the Company to use John Deere
trademarks and trade names, with certain restrictions.

         The agricultural equipment stores also offer John Deere lawn and
grounds equipment, for which the Company has entered into non-exclusive Lawn and
Garden Dealer Agreements containing substantially the same terms as the
Agricultural Dealer Agreements.

         The prior consent of Deere is required for the opening of any Deere
store within the Company's designated areas of responsibility and for the
acquisition of any other Deere dealership. Deere may immediately cancel the
Agricultural Dealer Agreement by giving notice to the Company at any time after
the occurrence of any of the following: (i) death of Mr. Paul J. Condit or a
major shareholder unless an ownership succession plan has been approved by Deere
and certain other conditions are satisfied; (ii) change of control, as defined,
without the prior written consent of Deere; (iii) closeout or sale of a
substantial part of the Company's business, the commencement of dissolution or
liquidation proceedings with respect to the Company, or a change, without the
prior written approval of Deere, in the location of the dealership's principal
place of business under the agreement; (iv) default by the Company under any
chattel mortgage or other security agreement between Deere and the Company; and
(v) revocation or discontinuance of any guaranty of the Company's present or
future obligations to Deere.

         Under a 1998 agreement amending the terms of its dealership agreement
with Deere, the Company is required to maintain an equity-to-asset ratio, as
defined, of at least 30% at all times on and after the earlier of (i) December
31, 2000, (ii) 120 days following any completion of a public offering by the
Company involving gross proceeds of at least $20 million, and (iii) immediately
following any further expansion of the Company's agricultural area of
responsibility under its Deere dealership agreements. Without Deere's prior
written consent, the Company is also prohibited from making Deere agricultural
dealership acquisitions, initiating new business activity, paying dividends,
repurchasing its capital stock, or making any other distributions to
stockholders if the Company's equity-to-assets ratio is below 30%, or if such
ratio would fall below 30% as a result of such action. If such ratio falls below
25%, Deere may elect to terminate the dealer agreements with one year's advance
written notice, although the Company has 180 days to cure. As of December 31,
1998, the Company's equity-to-asset ratio was approximately 17%. Product
inventory changes have the most significant effect on the equity-to-asset ratio.
The unusually high product inventory is expected to be lower at the end of
fiscal 1999, which should result in a higher equity-to-asset ratio. Subsequent
to the August 1998 date of such agreement, Deere waived compliance with the
equity-to-asset ratio and approved the Company's acquisition of the Amarillo
dealership.

         In addition to Deere, the Company is an authorized dealer at various
stores for suppliers of other equipment. The terms of such arrangements vary,
but most of the dealership agreements contain termination provisions allowing
the supplier to terminate the agreement after a specified notice period (usually
180 days), upon a change of control, and in the event of Mr. Paul Condit's
death.

FLOOR PLAN FINANCING

         Having adequate wholegoods and parts inventories at the Company's
agricultural equipment stores is important to meeting its customer needs and is
critical to achieving sales objectives. Accordingly, the 



                                       7
<PAGE>   8

Company attempts to maintain at each store, or have readily available at other
stores in its network, sufficient inventory to satisfy anticipated customer
needs. Inventory levels fluctuate throughout the year and tend to increase
before the primary agricultural sales seasons. The cost of financing its
inventory is an important factor affecting the Company's results of operations.

         Deere and Deere Credit offer new equipment floor plan financing to
Deere dealers for extended periods, to enable dealers to carry representative
inventories of equipment and to encourage the purchase of goods by dealers in
advance of seasonal retail demand. Deere charges variable market rates of
interest at or over the prime rate on balances outstanding after any
interest-free periods and retains a security interest in the inventories, which
it inspects periodically. The interest-free periods, which Deere changes
periodically, are currently four to twelve months. The interest rates for new
Deere equipment at year-end ranged from prime plus 50 basis point, or 8.25%, to
prime plus 300 basis points, or 10.75%, depending upon the length of time the
Company has the new equipment. Generally, the Company is not required to
purchase new equipment until it is sold.

         Deere also provides financing for used equipment accepted in trade,
repossessed equipment, and approved equipment from other suppliers, and receives
a security interest in such equipment. The used equipment floor plan rate
charged by Deere is currently prime plus 300 basis points, or 10.75%; however,
from September 1998 to February 1999 under Deere's disaster relief program,
Deere provided the Company with a floor plan annual rate of 4.5%. To the extent
available, after the interest-free period under the Deere used equipment floor
plan, the Company may shift its financing to its Deere Credit wholesale line of
credit to obtain a lower interest rate. The rate charged by Deere Credit's
wholesale line of credit is currently a defined prime rate, which as of December
31,1998, resulted in an applicable interest rate of 7.75%.

          The Company finances equipment from manufacturers other than Deere
through its lines of credit, which total $2.8 million, at three other finance
companies: Agricredit Acceptance Company ("Agricredit"), Equipment Dealers
Credit Company ("EDCO") and Transamerica Distributor Financing ("Transamerica").
The Company has financing available through floor plan financing programs for
equipment from manufacturers other than Deere, which may be financed by such
manufacturers themselves or through third party lenders, depending on which
option provides the Company with the most favorable terms. At December 31, 1998
the Company's Agricredit and EDCO lines of credit provided for interest at the
rate of prime plus 150 basis points, or 9.25%, and the Company's Transamerica
line of credit provided for interest at the rate of prime plus 75 basis points,
or 8.5%.

CUSTOMER FINANCING OPTIONS

          Financing options for customer purchases support the sales activities
of the Company. Significant financing sources for purchases by the Company's
customers are through programs offered by Deere and Agricredit. Generally, the
Company grants extended payment terms to only a few of its customers, who could
not qualify for the above financing.

          Deere's credit subsidiaries provide and administer financing for
retail purchases and leases of new and used equipment, primarily through Deere
Credit. Under Deere's retail financing plan the security interest is retained by
Deere Credit in the equipment financed. A small portion of the customer
financing provided by Deere is recourse to the Company. Deere retains a finance
reserve for amounts that the Company may be obligated to pay Deere, by retaining
1% of the face amount of each contract financed under the Company's two dealer
accounts until the finance reserve reaches the lesser of 3% of the total dollar
amount of contracts outstanding or $600,000 for each dealer account. In the
event a customer defaults in paying Deere and there is a deficiency in the
amount owed to Deere, the Company has the option of paying the amount due under
its recourse obligations or using a portion of its finance reserve. The



                                       8
<PAGE>   9

Company's liability is capped at the amount of the finance reserve for each
dealer account, which, as of December 31, 1998, was approximately $491,646 and
$190,859 for its two finance reserve accounts.

          Under Deere's equipment leasing plan the security interest is retained
by Deere Credit in the equipment leased. A small portion of the customer lease
provided by Deere is recourse to the Company. Deere retains a lease reserve for
amounts that the Company may be obligated to pay Deere, by retaining 1% of the
face amount of each lease contract under the Company's two dealer lease accounts
until the lease reserve reaches 3% of the total dollar amount of lease contracts
outstanding for each dealer account. In the event a customer defaults in paying
Deere and there is a deficiency in the amount owed to Deere, the Company has the
option of paying the amount due under its recourse obligations or using a
portion of its lease reserve. The Company's liability is capped at the amount of
the lease reserve for each dealer account, which, as of December 31, 1998, was
approximately $162,915 and $1,963 for its two lease reserve accounts.

          Deere Credit reviews the reserve account balances with the Company
annually and if the reserve balances exceed the minimum requirements, Deere pays
the difference to the Company. The Company has traditionally experienced a loss
rate against such reserves of less than 0.5% of its total retail finance and
lease contracts portfolio.

          Agricredit, through a joint venture with the Company established in
September 1997, also provides financing to the Company's customers. The
financing provided under the joint venture by Agricredit to its customers is
non-recourse to the Company. Prior to September 1997 a portion of the customer
financing provided by Agricredit was recourse to the Company. The Company's
liability is limited to the portion withheld by Agricredit, which was $139,737
at December 31, 1998.

PRODUCT WARRANTIES

          The manufacturer generally provides product warranties for new
equipment and parts. The term and scope of these warranties vary greatly by
manufacturer and by product. The Company does not provide additional warranties
to retail purchasers of new equipment. The manufacturer (such as Deere) pays the
Company for repairs to equipment under warranty. The Company generally sells
used equipment "as is" and without manufacturer's warranty, although
manufacturers sometimes provide limited warranties if the manufacturer's
original warranty is transferable and has not yet expired. Typically, the
Company does not provide additional warranties on used equipment; however, the
Company is exploring other opportunities to market extended warranties to its
customers.

COMPETITION

         The Company's agricultural retail equipment stores compete with
distributors of equipment from suppliers other than Deere, including Agco
Corporation, Case Corporation, Caterpillar Inc., and New Holland N.V., a
subsidiary of Fiat. The Company also competes with approximately 46 additional
Deere agricultural dealerships located in the West Texas Panhandle and Eastern
New Mexico. These Competing Deere agricultural dealers are located in close
proximity to one or more of the Company's stores. In addition to the other
manufacturer's dealers, the Company competes with independent used equipment
dealers in its market area. Competition among all new and used retail equipment
dealers is primarily based on price, value, reputation, quality, and design of
the products offered by the dealer, the customer service and equipment servicing
provided by the dealer, and the accessibility of the stores. The Company
believes that its Deere dealership network, broad product lines, ability to
expand product support, and superior quality Deere products have enabled it to
compete effectively.



                                       9
<PAGE>   10

ENVIRONMENTAL AND GOVERNMENTAL REGULATIONS

         The Company's operations are subject to numerous federal, state, and
local rules and regulations, including laws and regulations designed to protect
the environment and to regulate the discharge of materials into the environment,
primarily relating to its service operations. Based on current laws and
regulations, the Company believes that it is in compliance with such laws and
regulations and that its policies, practices, and procedures are designed to
prevent unreasonable risk of environmental damage or violation of environmental
laws and regulations and any resulting material financial liability to the
Company. The Company is not aware of any federal, state, or local laws or
regulations that have been enacted or adopted, the compliance with which would
have a material adverse effect on the Company's results of operations or would
require the Company to make any material capital expenditure. No assurance can
be given that future changes in such laws or regulations or changes in the
nature of the Company's operations or the effects of activities of prior
occupants or activities at neighboring facilities will not have an adverse
impact on the Company's operations.

EMPLOYEES

         As of December 31, 1998, the Company employed 152 persons: 29 in sales;
78 in service; 37 in parts; and 8 in corporate administration. The Company has
no contracts or collective bargaining agreements with labor unions and has never
experienced work stoppages. The Company considers its relations with employees
to be satisfactory.

EXECUTIVE OFFICERS

         The following persons are the current executive officers of the
Company:

<TABLE>
<CAPTION>
        Name               Age                   Position
        ----               ---                   --------

<S>                        <C>     <C>
Paul Condit                65      President, Director, Chief Executive Officer

John T. Condit             34      Secretary, Treasurer, Director

E.A. Milo Mattorano        53      Vice President, Chief Financial Officer
</TABLE>

         Paul J. Condit is President, Chief Executive Officer and a director. He
has a B.S. degree from Oklahoma State University and has been in the farm
equipment business for over 26 years. Mr. Condit owned and operated a
predecessor company and has managed the Company and served the Company in his
current capacities since its inception in 1987, before which time Mr. Condit
owned and operated Condit Equipment Company for approximately fifteen years.

         John T. Condit, the son of Paul J. Condit, serves as a Director and
Secretary of the Company and served the Company in his current capacities since
its inception in 1987. He obtained a BBA degree from Texas Tech University in
1986. Since May 1988 he has been President of Domicile Property Management,
Inc., a real estate acquisition and management firm, in San Antonio, Texas.

         E.A. Milo Mattorano has served as the Company's Chief Financial Officer
and a Vice President since December 1997. Prior to joining the Company, from
January 1995 until December 1997, Mr. Mattorano served as Vice President and
Chief Financial Officer of Axcess, Inc. (Formally Lasertechnics, 



                                       10
<PAGE>   11

Inc.), a manufacturer of laser markers and plastic card printers. From October
1989 to December 1994, Mr. Mattorano served as Executive Vice President of
Finance of Insilco Corporation, a conglomerate of manufacturing companies in
various industries. Mr. Mattorano is a CPA and worked in the audit department of
Deloitte & Touche for six years from 1974 to 1980. Mr. Mattorano is a graduate
of Adams State College with a degree in Business Administration and Accounting.

ITEM 2.  PROPERTIES.

         The Company is headquartered in Seminole, Texas at its Deere dealer
store located at 1305 Hobbs Highway, Seminole, Texas 79360. The following table
sets forth the size of the Company's store locations:

<TABLE>
<CAPTION>
   Location              Acreage          Space*       Showroom*   Parts Storage*   Shop*
   --------              -------          ------       ---------   --------------   -----
<S>                      <C>              <C>          <C>         <C>              <C>   
Seminole, TX              13.94           50,000         9,875        14,000        26,125
                                 
Artesia, NM              14.295           10,898         2,250         3,948         4,700
                                 
Tornillo, TX              15.63           28,000         2,500        12,000        13,500
                                 
Plains, TX                6.025           21,000         2,200         8,600        10,200
                                 
Hereford, TX              10.97           26,700         3,900        12,000        10,800
                                 
Dimmitt, TX               10.02           35,500         5,400        11,200        18,900
                                 
Amarillo, TX               9.26           15,660         1,600         6,310         7,750
                                 
Friona, TX                  5.0           18,000         4,100         5,600         8,300
                                 
Pecos, TX (1)              1.32           12,800         1,000         5,900         5,900
</TABLE>                         
                         
* In square feet
(1) Locations closed in 1997

         The Company owns all of its store locations subject to bank mortgages,
which at December 31, 1998 were approximately $3.9 million.

ITEM 3. LEGAL PROCEEDINGS.

The Company is a party to routine litigation in the ordinary course of business,
but no currently pending litigation is believed by the Company to be material to
its business or financial condition.

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

         There were no matters submitted to a vote of stockholders during the
fourth quarter of the 1998 fiscal year.



                                       11
<PAGE>   12


                                     PART II

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

         Prior to the date hereof, there has been a limited and sporadic trading
market for the Company's Common Stock, which presently trades on the NASD
Bulletin Board under the symbol "TEXQ." After its initial public offering in
1993, there was very little trading until the first quarter of 1996. According
to information furnished by the National Quotation Bureau, the high and low bid
and high and low asked quotations for each quarter during the 1997 and 1998
fiscal years are as follows:

<TABLE>
<CAPTION>
                                                  Bid                          Asked
                                                  ---                          -----
          1997                           High           Low             High            Low
          ----                           ----           ---             ----            ---
<S>                                <C>                  <C>             <C>            <C> 
          March 31                 $     2.25           0.56            2.50           0.63
          June 30                        0.78           0.53            0.94           0.66
          September 30                   0.75           0.28            1.00           0.34
          December 31                    0.75           0.25            0.81           0.28

          1998
          ----                        
          March 31                       0.81           0.38            0.88           0.44
          June 30                        0.50           0.31            0.59           0.40
          September 30                   0.47           0.28            0.53           0.31
          December 31                    0.41           0.19            0.44           0.22
</TABLE>

These market quotations represent inter-dealer prices, without retail markup,
mark down or commission and do not necessarily represent actual transactions. As
of March 15, 1999, there were approximately 760 holders of record of the
Company's Common Stock. During the 1997 and 1998 fiscal years the Company has
not paid any dividends or redeemed, repurchased or otherwise retired any of its
Common Stock, except for 250,000 share which were cancelled in 1997, and would
currently be prohibited from paying cash dividends under the terms of its lines
of credit and Deere dealership agreements. The Company presently intends to
retain all earnings for the operation and development of its business and does
not anticipate paying cash dividends on its Common Stock in the foreseeable
future.

ITEM 6. SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>
                                                                  Years Ended December 31, (1)
                                                                  ----------------------------
                                             1998             1997            1996             1995            1994
                                             ----             ----            ----             ----            ----
<S>                                       <C>              <C>             <C>              <C>             <C>        
Net Sales                                $ 67,998,233     $ 58,366,746    $ 28,094,196     $ 25,031,608    $ 20,964,570
Gross Profit                                9,898,702        7,825,628       4,092,807        3,383,351       2,917,724
Net Income From
   Continuing Operations                      952,635          815,370         883,155          253,399          58,631
Net Income Per Share
   From Continuing Operation                     0.04             0.03            0.05             0.02            0.00
Net Income                                    952,635          274,972         736,351          253,399          58,631
Net Income Per Share                             0.04             0.01            0.04             0.02            0.00
Total Assets                               47,845,617       28,528,585      11,612,258        9,624,708       9,047,139
Long-term Debt                              4,665,409        3,796,689       1,005,762        1,195,378       1,438,888
Dividends                                        0.00             0.00            0.00             0.00            0.00
</TABLE>



                                       12
<PAGE>   13


(1)      Financial data for all periods prior to September 1996 give pro forma
         effect to the business combination with TECI at that date and reflect
         only the operations of and financial condition of TECI. Such financial
         data does not reflect the operations or financial condition of Marinex,
         which conducted only limited development stage activities before its
         operations were discontinued in 1997.

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

         The September 1996 acquisition by the Company of TECI has been
accounted for as though TECI acquired the Company through a reverse acquisition.
In September 1997, the operations of Marinex were discontinued, and as a result,
Marinex operations in 1996 and 1997 have been accounted for as "discontinued
operations." The following discussion and financial analysis is of the
continuing operation of the Company and the Company's TECI subsidiary only.

         As a specialty retailer, the Company distributes, sells, services,
rents and finances equipment for the agricultural industry. The Company's
primary supplier of new equipment and parts is Deere & Company ("Deere"). The
Company operates the largest network of Deere agricultural equipment dealers in
Texas and is one of the largest in the United States. The Company's stores are
located in Northern and Southern Panhandle of West Texas and in Eastern New
Mexico.

         The Company's growth in recent years has been due to the acquisition of
agricultural equipment dealers in its operating area and implementation of its
operating model. The increase in sales from acquired stores has offset the
decrease in comparable store revenues (stores with full year revenues for 1997
and 1998). The decrease in comparable store revenue was the result of increased
competition from other Deere dealers in the Northern Panhandle market area and
unfavorable market conditions caused by the severe drought during 1998. The
acquisitions are primarily the result of consolidation trends among agricultural
equipment dealers and the ability of the Company to leverage its expertise in
acquisitions. In October 1998 the Company acquired the Amarillo store, which had
unaudited total revenues of approximately $14 million for its twelve months
ended September 30, 1998. However, the Company believes that these sales were
higher than are sustainable because of the prior owner's high-volume,
lower-margin strategy which to some extent drew sales from dealerships in the
Northern Panhandle, including certain dealerships operated by the Company.
Accordingly, annual sales contributions from this store on an on-going basis,
operating in conjunction with the Company's network of dealerships in West
Texas, are expected to average approximately $7 million a year.

         The Company generates its revenues from sales of new and used equipment
(wholegoods), sales of parts and service, and the rental of equipment. The
Company's highest gross margins have historically been generated from its parts
and service revenues. One of the Company's operating strategies is to increase
the demand for parts and service by establishing, and then increasing, the base
of wholegoods held by its customers. Due to product warranty time frames and
usage patterns by customers, there generally is a time lag between wholegoods
sales and the generation of significant parts and service revenues from such
sales. As a result of this time lag, increases in parts and service revenues do
not necessarily coincide with increases in wholegoods sales. In addition, due to
differences in gross margins between wholegoods sales and parts and service,
gross margins percentages (gross profit as a percentage of sales) may decline as
the Company builds wholegoods market share.

         Typically, farmers purchase agricultural equipment immediately prior to
planting or harvesting crops, which, prior to fiscal 1998, occurred primarily
during the Company's second and fourth quarters. As 



                                       13
<PAGE>   14

a result, sales of agricultural equipment were generally lower in the first and
third quarters. In 1998, the Company acquired two additional stores, one in the
Northern Panhandle and the other in Tornillo, Texas. Because of the current
store locations, there was an overlap in the growing seasons in 1998, which had
the effect of leveling out quarterly sales and inventory requirements. In 1998,
the Company recorded approximately 24% of its sales in each of the first and
second quarters and approximately 26% in each of the third and fourth quarters.
If the Company acquires operations in geographical areas other than where it
currently has operations, it may be affected by other seasonal or equipment
buying trends.

         The Company requires cash primarily for financing its inventories of
wholegoods and replacement parts, acquisitions of additional retail locations
and capital expenditures. Historically, the Company has met these liquidity
requirements primarily through cash flow generated from operating activities,
floor plan financing and borrowings under credit agreements with Deere, Deere
Credit, Agricredit, EDCO, Transamerica and commercial banks. Floor Plan
financing from Deere and Deere Credit represents the primary source of financing
for wholegoods inventories, particularly for equipment supplied by Deere. All
lenders receive a security interest in the inventory financed.

         Deere and Deere Credit offer floor plan financing to the Company and
other Deere dealers for extended periods and with varying interest-free periods,
depending on the type of equipment, to enable dealers to carry representative
inventories of equipment and to encourage the purchase of goods by dealers in
advance of seasonal retail demand. Down payments are not required and interest
may not be charged for a substantial part of the period for which inventories
are financed. Variable market rates of interest based on the prime rate are
charged on balances outstanding after any interest-free periods, which are
generally four to twelve months. Deere also provides financing to dealers on
used equipment accepted in trade and approved equipment from other suppliers.

         The Company's strategic plan of internal growth along with growth
through acquisitions resulted in the Company completing four acquisitions during
fiscal 1997 and two in fiscal 1998. The results of operations of these
acquisitions are included in the Company's results of operations only for the
periods after their applicable acquisitions dates.


RESULTS OF OPERATIONS

1998 Compared to 1997

REVENUES

         Revenues increased approximately $9,600,000, or 16%, to $67,998,223 for
1998 from $58,366,746 for 1997. Of this increase in revenues, the July 1997
acquisition of a dealership in Artesia, New Mexico, with a full year of revenue,
accounted for approximately $6,600,000. The dealership acquisitions in Tornillo,
Texas in June 1998 and in Amarillo, Texas in October 1998, accounted for
approximately $5,500,000 of the increase. In addition, comparable store revenue
at the Company's Seminole and Plains, Texas stores increased by approximately
$5,300,000. Higher non-Deere equipment sales into the cotton and peanut industry
were the primary contributor to the increase in revenue at these two stores. The
increase in revenues at these stores was offset in part by a decrease in
comparable store revenues of $7,800,000 at the Company's three stores in the
Northern Panhandle (Dimmitt, Friona and Hereford, Texas). This decrease in
revenue was the result of competition from other Deere dealers in the area and
unfavorable market conditions caused by the severe 1998 drought.



                                       14
<PAGE>   15

         Sales of wholegoods increased approximately $6,200,000, or 13%, to
$54,329,663 for 1998 from $48,093,480 for 1997. The increase in wholegoods sales
in 1998 was due to the factors discussed in the preceding paragraph.

         Parts and service revenue increased approximately $3,400,000, or 33%,
to $13,668,560 for 1998 from $10,273,266 for 1997. Of this increase, $3,300,000
was due to the acquisitions discussed above. Comparable store parts and service
revenues did not materially change.

GROSS MARGINS

Gross profit increased approximately $2,073,000, or 26%, to $9,898,702 for 1998
from $7,825,628 for 1997. The Company's highest gross margins are derived from
its parts and service revenues. This increase was due to the increase in gross
profit as a percentage of total revenues from 13.4% in 1997 to 14.5% and the
increase in sales in 1998. The increase in gross margin percentage was the
result of a 0.5% increase in wholegoods gross margins, which was due to higher
margins received on the increase in non-Deere equipment sales, and because of
higher parts and service revenue as a percentage of total revenue, which
increased from 17.6% in 1997 to 20.1% in 1998.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE

         Selling, general, and administrative expense as a percentage of total
revenues increased from 10.0% for 1997 to 11.6% for 1998. This increase is due
primarily to the decrease in comparable store sales of $7,800,000 without a
corresponding decrease in operating expenses and an increase in comparable
administrative expenses of $510,000 as described below.

         Total selling, general, and administrative expense increased
approximately $2,054,000, from $5,826,836 for 1997 to $7,880,552 for 1998. Store
acquisitions account for approximately $1,191,000 of this increase. The
remaining increase was the result of increases in comparable store operating
expenses of approximately $353,000, which was due to higher repair and
maintenance costs of approximately $71,000, higher employee medical and workers
compensation benefits of approximately $162,000, higher training and warranty
costs of approximately $91,000, and a net increase in the aggregate of all other
operating expenses of approximately $29,000. In addition, administrative
expenses increased approximately $510,000, which was due to new employee
salaries, benefits and year-end bonuses of approximately $340,000, an increase
in travel expense of approximately $41,000, and a net increase in the aggregate
of all other administrative expenses of approximately $129,000.

INTEREST EXPENSE

         Interest expense increased approximately $331,000, or 108%, from
$306,897 for 1997 to $638,116 for 1998. The increase was due primarily to the
higher levels of floor plan payables associated with higher inventory levels,
because of weaker demand for used equipment and the debt associated with the
acquisitions in Tornillo and Amarillo, Texas.

INTEREST INCOME

         Interest income decreased approximately $10,000, or 4%, from $252,132
for 1997 to $242,628 for 1998. This income was earned in connection with the
financing of customer purchases and the finance receivable reserve. The amount
the Company will earn depends on the interest rates charged by competitors,
lending policies of Deere Credit and Agricredit and prevailing market
conditions. In 1998, interest rates were very competitive, and Deere provided
lower bonus interest rates for a longer period in 1998 than 1997, which resulted
in a decrease in interest income compared to the increase in equipment sales.



                                       15
<PAGE>   16

NON-CASH GUARANTEE FEE

         The non-cash guarantee fee was $154,724 in 1998 and $288,211 in 1997.
This fee is recorded in connection with the personal guarantee by three major
shareholders and one executive officer of the Company of approximately $30
million of accounts payable to Deere, and of a $3.9 million bank credit
facility. Guarantee fees related to such arrangements were paid in the form of
five-year options of 874,162 in 1997 and 3,063,833 in 1998 to acquire the
Company's Common Stock with an option price of $0.375 and $0.50, respectively.

NET INCOME FROM CONTINUING OPERATIONS

         Net income from continuing operations increased approximately $137,000,
or 17%, from $815,370 for 1997 to $952,635 for 1998. This increase in income
from continuing operations was due primarily to approximately $990,000 in
operating income from acquisitions offset by a decrease in operating income from
comparable stores of $461,000, the increase in interest expense of $331,000, the
increase in administrative and other expenses of approximately $239,000, a
decrease in non-cash guarantee fees of $133,000 and a decrease in income tax
expense of $45,000.

         Earnings per share from continuing operations (both basic and diluted)
increased to $.04 in 1998 from $.03 in 1997, primarily as the result of the
increase in net income.

         The Company recognized a loss on the discontinuation of its Marinex
business operations of $540,398 in 1997, net of income tax benefit of $278,000.
Accordingly, net income for 1997 was $274,972 (resulting in earnings per share
of $0.01 on both a basic and diluted basis) compared to net income of $952,635
in 1998 (resulting in earnings per share of $0.04 on both a basic and diluted
basis).

1997 Compared to 1996

REVENUES

         Revenues increased approximately $30,273,000, or 108%, from $28,094,196
for 1996 to $58,366,746 for 1997. Of this increase in revenues, $26,813,375 was
due to the Company's January 1997 acquisition of three John Deere dealerships in
the Texas Panhandle. The July 1997 acquisition of a dealership in Artesia, New
Mexico accounted for $2,452,281 of the increase and the remaining increase of
approximately $947,000 was primarily related to an increase in peanut equipment
sales at the Company's Seminole, Texas dealership.

         Sales of wholegoods increased approximately $25,085,000, or 109%, from
$23,008,352 for 1996 to $48,093,480 for 1997. The increase in wholegoods sales
in 1997 was due to the factors discussed in the preceding paragraph. Wholegoods
sales at the acquired stores also increased in the aggregate by more than
$6,000,000 from their aggregate sales for the year prior to acquisition.
Management believes that this increase was the result of the Company's marketing
strategy, which focuses on increased market share, customer relationship
training of its sales force, and close attention given to each customer in its
selling areas.

         Parts and service revenue increased approximately $5,187,000, or 102%,
from $5,085,844 for 1996 to $10,273,266 for 1997. Of this increase, $5,318,091
was due to the acquisitions discussed above.



                                       16
<PAGE>   17

GROSS PROFIT

         Gross profit increased approximately $3,733,000, or 91%, from
$4,092,807 for 1996 to $7,825,628 for 1997. Gross profit as a percentage of
total revenues for 1997 and 1996 were 13.5% and 14.5%, respectively. This
decrease was primarily the result of lower margins on revenues of the acquired
stores, which was expected, in the first year of operation following the
acquisition. In addition, the Company's highest gross margins are derived from
its parts and service revenues. For these periods, the modest shift in revenue
mix between wholegoods sales (81.9% of total revenues in 1996 compared to 82.4%
of total revenues in 1997) and parts and service revenues (18.1% of total
revenues in 1996 compared to 17.6% of total revenues in 1997) contributed to
this decrease in margins.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE

         Selling, general, and administrative expense as a percentage of total
revenues decreased from 10.2% for 1996 to 10% for 1997. This modest decrease was
the result primarily of operating efficiencies realized from operating a greater
number of stores. In addition, in 1997 the Company expensed nonrecurring legal
fees of approximately $323,462 in connection with litigation between the Company
and principals of Marinex, the discontinued company, and the Company's former
legal and accounting firms. This litigation was settled without any significant
additional cost to the Company. Total selling, general, and administrative
expense increased approximately $2,955,000, from $2,871,729 for 1996 to
$5,826,836 for 1997. The increase was primarily due to the operations acquired
during 1997.

INTEREST EXPENSE

         Interest expense increased approximately $180,000, or 141%, from
$127,151 for 1996 to $306,897 for 1997. The increase was due primarily to the
increased levels of floor plan payables associated with higher inventory levels
and the additional debt associated with the acquisitions in the Texas Panhandle
and Eastern New Mexico.

INTEREST INCOME

         Interest income increased approximately $76,000, or 44%, from $175,465
for 1996 to $252,132 for 1997. This income was earned in connection with the
financing of customer purchases. The amount the Company will earn depends on the
interest rates charged by competitors, lending policies of Deere Credit and
Agricredit and prevailing market conditions. In 1997, interest rates were very
competitive which resulted in a relatively smaller increase in interest income
compared to the increase in equipment sales.

NON-CASH GUARANTEE FEE

         In 1997 the Company recorded a non-cash charge of $288,211 in
connection with the personal guarantee by four shareholders of the Company of
approximately $15 million of accounts payable to Deere & Company, and of $3.3
million credit facility at the Company's bank. Guarantee fees related to such
arrangements were paid in the form of five-year options to acquire up to 874,162
shares of Common Stock with an option price of $0.375.

NET INCOME

         Net income from continuing operations decreased modestly, approximately
$68,000, or 7.7%, from $883,115 for 1996 to $815,370 for 1997. This decrease was
primarily the result of the non-cash guarantee charge of $288,211 and
nonrecurring litigation expenses of $323,462, offset by approximately $544,000
in 



                                       17
<PAGE>   18

higher income from continuing operations before these charges. This increase
in income from continuing operations was due primarily to approximately $697,000
in such income from continuing operations related to the 1997 acquisitions.

         Earnings per share from continuing operations (both basic and diluted)
decreased to $.03 from $.05 when comparing 1997 to 1996, primarily as the result
of an increase in weighted average outstanding shares from approximately 19.5
million to 24.7 million, in 1996 and 1997, respectively and a small decrease in
net income.

         The Company recognized a loss on the discontinuation of its Marinex
business operations of $540,398 in 1997, net of income tax benefit of $278,000,
and a loss from discontinued operations of $146,764 in 1996, net of income tax
benefit of $70,636. Accordingly, net income for 1997 was $274,972 (resulting in
earnings per share of $0.01 on both a basic and diluted basis) compared to net
income of $736,351 in 1996 (resulting in earnings per share of $0.04 on both a
basic and diluted basis).

LIQUIDITY AND CAPITAL RESOURCES

       The Company requires cash primarily for financing its inventories of
wholegoods and replacement parts, acquisitions of additional dealerships and
capital expenditures. Historically, the Company has met these liquidity
requirements primarily through cash flow generated from operations, floor plan
financing, and borrowings under credit agreements with Deere, Deere Credit,
Agricredit, EDCO, Transamerica and commercial banks. Floor plan financing from
Deere and Deere Credit represents the primary source of financing for wholegoods
inventories, particularly for equipment supplied by Deere. All lenders receive a
security interest in the inventory financed. Deere and Deere Credit offer floor
plan financing to Deere dealers for extended periods and with varying
interest-free periods, depending on the type of equipment and to encourage the
purchase of wholegoods by dealers in advance of seasonal retail demand. Down
payments are not required and interest may not be charged for a portion of the
period for which inventories are financed. Variable market rates of interest,
based on the prime rate, are charged on balances outstanding following any
interest-free periods, which range from four to twelve months. Deere also
provides financing to dealers on used equipment accepted in trade and approved
equipment from other manufactures. All of the other financing companies
mentioned above provides financing for new and used equipment using variable
market rates of interest based on the prime rate. (See "Item 1 Business - Floor
Plan Financing")

       Cash and cash equivalents increased to $494,132 at December 31, 1998 from
$104,750 at December 31, 1997. Operating activities from continuing operations
used net cash of $690,792 in 1998 primarily because of the decrease in accounts
receivable of $1,070,513 and the increase in floor plan payables of $7,806,716
offset by the increase in inventory of $11,322,551, which is entirely related to
the downturn in the agricultural used equipment markets in the second half of
1998. Investing activities used cash of $1,281,376 in 1998 primarily for fixed
assets and inventory acquired in connection with the acquisition of two John
Deere dealership in 1998. These acquisitions were partially financed by the
assumption of approximately $576,000 in long-term debt and the assumption of
approximately $6,912,000 in Deere floor plan debt. The Company's expenditures
for fixed assets and inventory are expected to increase as it implements its
business plan to acquire additional John Deere dealerships, subject to the
availability of debt or equity financing, of which there can be no assurance.

EFFECTS OF INFLATION

         Inflation has not had a material impact upon operating results and the
Company does not expect it to have such an impact in the future. To date, in
those instances in which the Company has experienced cost 



                                       18
<PAGE>   19

increases; it has been able to increase selling prices to offset such increases
in cost. There can be no assurance, however, that the Company's business will
not be affected by inflation or that it can continue to increase its selling
prices to offset increased costs and remain competitive.

SEASONALITY

         Typically, farmers purchase agricultural equipment immediately prior to
planting or harvesting crops, which, prior to fiscal 1998, occurred primarily
during the Company's second and fourth quarters. As a result, sales of
agricultural equipment were generally lower in the first and third quarters. In
1998, the Company acquired two additional stores, one in the Northern Panhandle
and the other in Tornillo, Texas. Because of the current store locations, there
was an overlap in the growing seasons in 1998, which had the effect of leveling
out quarterly sales and inventory requirements. In 1998, the Company recorded
approximately 24% of its sales in each of the first and second quarters and
approximately 26% in each of the third and fourth quarters. If the Company
acquires operations in geographical areas other than where it currently has
operations, it may be affected by other seasonal or equipment buying trends.

IMPACT OF THE YEAR 2000 ISSUE

         The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.

         The Company's management information system software was acquired from
Deere. The Company also pays Deere a monthly maintenance fee for software and
hardware changes and upgrades. In formal discussions with Deere, the Company has
determined that the modifications designed to address Year 2000 Issues have been
completed on several of the dealer programs (including related hardware) as well
as Deere's in-house software, and that over 90 percent of Deere's systems
identified as being mission critical have been tested and verified as being Year
2000 compliant. Deere has informed the Company that their goal has been to have
all remaining mission critical and non-mission critical systems compliant by
October 31, 1999. However, if such modifications are not completed on a timely
basis, the Company believes that the impact will not be material, since several
modifications and revisions to its hardware and software have already been
completed. The cost associated with the Year 2000 Issue as it relates to such
management information system software and hardware is borne by Deere as part of
its computer systems support to its dealers. The existence of embedded
technology is by nature difficult to identify. While the Company believes that
all other significant systems are Year 2000 compliant, the Company plans to
continue testing its operating equipment.

         The Company has made a preliminary review of both its information
technology (most of which, as discussed above, is Deere supplied) and its
non-information technology systems to determine whether they are Year 2000
compliant. We have not identified any other material systems, which are not Year
2000 compliant. The Company has received oral assurances of Year 2000 compliance
from many of the third parties with whom it has relationships.

         The Company believes that operations will not be significantly
disrupted even if third parties other than Deere with whom we have relationships
are not Year 2000 compliant. The Company believes that all other external
service suppliers, such as manufacturers, suppliers and financial institutions
(other than Deere) do not provide critical services that would affect the
Company's ability to conduct its business. We believe that we will not be
required to make any material expenditures to address the Year 2000 problem as
it relates to our existing systems. However, uncertainty exists concerning the
potential costs and 



                                       19
<PAGE>   20

effects associated with any Year 2000 compliance, and we intend to continue to
make efforts to ensure that third parties with whom we have relationships are
Year 2000 compliant. Therefore, we cannot be certain that unexpected Year 2000
compliance problems of either the Company or our vendors, customers and service
providers would not materially and adversely affect our business, financial
condition or operating results. We will continue to consider the likelihood of a
material business interruption due to the Year 2000 issue, and, if necessary,
implement appropriate contingency plans.

         Although no assurances can be given as to the Company's compliance,
particularly as it relates to third-parties, based upon Deere's progress to
date, the Company does not expect the consequences of any of the Company's or
Deere's unanticipated or unsuccessful modifications to have a material adverse
effect on its financial position or results of operations. However, the failure
to correct a material Year 2000 problem could result in the interruption of
certain normal business activities and operations. The Company's most reasonable
and likely worst case scenario is that the Year 2000 noncompliance of a critical
third party, such as an energy supplier, could cause the supplier to fail to
deliver, with the result that delivery of equipment and product support is
interrupted at each of our stores. The Company believes that such a disruption
in the ability to provide product and services to our customer would not result
in significant loss of sales and profits.

CERTAIN IMPORTANT FACTORS

         In addition to the matters discussed above, there are several important
factors that could cause the Company's future results to differ materially from
those anticipated by the Company or which are reflected in any forward-looking
statement which may be made by or on behalf of the Company. Some of these
important factors (but not necessarily all such important factors) include the
following:

     o    The overall success of Deere and the Company's other suppliers;

     o    The availability and terms of floor plan financing and customer
          financing;

     o    The incentive and discount programs provided by Deere and the
          Company's other suppliers, and their promotional and marketing
          efforts;

     o    The introduction of new and innovative products by the Company's
          suppliers;

     o    The manufacture and delivery of competitively-priced, high quality
          equipment and parts by the Company's suppliers in quantities
          sufficient to meet the requirements of the Company's customers on a
          timely basis;

     o    General economic conditions, including agricultural industry cycles,
          interest rate fluctuations, economic recessions, customer business
          cycles, and customer confidence in the economy;

     o    The length of the crop growing season and winter and spring weather
          conditions in West Texas and Eastern New Mexico, and the confidence of
          the Company's agricultural customers in the farm economy;

     o    Risks associated with expansion, including the management of growth;
          and

     o    Continued availability of key personnel.



                                       20
<PAGE>   21

ITEM 7A. QUANATATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         At December 31, 1998, approximately 77% of the Company's debt
obligations (includes short and long-term equipment and bank financing) have
variable interest rates. Accordingly, the Company's net income and after tax
cash flow are affected by changes in interest rates. Assuming the current level
of borrowings at variable rates and assuming a two percentage point increase in
the 1998 average interest rate under these borrowings, (which average rate was
approximately 9.5%) it is estimated that the Company's 1998 interest expense
would have increased by approximately $166,000 resulting in a decrease in the
Company's 1998 net income and after tax cash flow of approximately $108,000. In
the event of an adverse change in interest rates, management would likely take
actions to mitigate its exposure. Because of the uncertainty of the actions that
would be taken and their possible effects, this analysis assumes no such
actions. Further this analysis does not consider the effects of the change in
the level of overall economic activity that could exist in such an environment.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The Company's consolidated balance sheet as of December 31, 1998 and
1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1998 are included under Item 14 hereof.


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

         On October 30, 1997, the Company's independent accountant, Killman,
Murrell & Co., resigned. Throughout most of 1997, the Company had been in
litigation with several parties in connection with the September 1996 business
combination with TECI.

         In a letter to the Securities and Exchange Commission ("Commission")
dated October 30, 1997, Mr. Killman indicated that Killman, Murrell & Co.
resigned as principal accountants and auditors of the Company. In such
resignation letter, Mr. Killman stated, and the Company concurs, that, in
connection with the audits of the two fiscal years ending December 31, 1996, and
the subsequent interim periods through October 30, 1997, there were no
disagreements with the Company on any matters of accounting principles, or
practices, financial statement disclosures, or auditing scope or procedures,
which disagreements, if not resolved, would have caused the accounting firm to
make references in connection with its opinion to the subject matter of the
disagreement. Mr. Killman further stated, and the Company concurs, that the
audit report for the years ended December 31, 1995 and 1996 did not contain any
adverse opinion or disclaimer of opinion, nor was such report qualified or
modified as to uncertainty, audit scope or accounting principles.

         Nonetheless, Mr. Killman indicated in the same letter to the Commission
that the firm resigned because "we believe that the current internal control
structure of TEC is not adequate to develop reliable financial statements." The
Company strongly disagrees with this statement and believes that the internal
control structure had not changed in any material respect from the preceding
1995 and 1996 fiscal years, for which the financial statements audited by
Killman, Murrell & Co. had never been qualified.



                                       21
<PAGE>   22

         The Company believes the accounting process is critical for a number of
its constituencies as well as management control. These constituencies include
its stockholders and Deere & Company, and the Company's rapid growth requires
heightened attention to all aspects of its accounting system and processes,
including internal control. While the Company believes its systems, including
internal controls, are adequate, the registrant is actively improving its
accounting systems, including its internal controls. It hired a chief financial
officer and controller in December 1997, and during 1997 the Company retained an
operations consultant to examine the Company's processes, including its
accounting processes.

         On November 3, 1997, the registrant engaged the firm of Mazars &
Guerard, LLP as its independent accountants. Mazars & Guerard, LLP had
previously audited the Company's discontinued Marinex operations.

         Effective September 1, 1998, the Company appointed Ernst & Young LLP as
its independent auditors for the fiscal year ending December 31, 1998, to
replace the firm of Mazars & Guerard, LLP (formerly Mazars and Company of New
York).

In connection therewith, the Company reported in its Form 8-K, and Mazars &
Guerard, LLP concurred, there had been no disputes between management and the
auditors and the auditors' reports for fiscal year 1997 contained no adverse
opinion or disclaimer of opinion, and was not qualified or modified as to
uncertainty, audit scope, or accounting principles, and during the registrant's
1997 fiscal year (the only year for which it served as auditor) and the
subsequent interim period to September 1, 1998 there were no disagreements with
the accountants on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved, would have caused the accounting firm to make references in
connection with its opinion to the subject matter of the disagreement.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

        The directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>
            Name           Age                Position
            ----           ---                --------

<S>                        <C>     <C>
   Paul J. Condit          65      President, Director, Chief Executive Officer

   John T. Condit          34      Secretary, Treasurer, Director

   E.A. Milo Mattorano     53      Vice President, Chief Financial Officer

   Robert T. Maynard       63      Director

   James D. Arnold         30      Director

   Mickey L. Ray           48      Director
</TABLE>

         Paul J. Condit is President, Chief Executive Officer and a Director. He
has a B.S. degree from Oklahoma State University and has been in the farm
equipment business for over 26 years. Mr. Condit has served the Company and its
Subsidiary, TECI, in his current capacities since its inception in 1987, before
which time Mr. Condit owned and operated Condit Equipment Company for a total of
fifteen years.



                                       22
<PAGE>   23


         John Condit, the son of Paul J. Condit, serves as a Director and
Secretary of the Company and served the Company in his current capacities since
its inception in 1987. He obtained a BBA degree from Texas Tech University in
1986. Since May 1988 he has been President of Domicile Property Management,
Inc., a real estate acquisition and management firm, in San Antonio, Texas.

         E.A. Milo Mattorano has served as the Company's Chief Financial Officer
and a Vice President since December 15, 1997. Prior to joining the Company, from
January 1995 until December 1997, Mr. Mattorano served as Vice President and
Chief Financial Officer of AXCESS Inc. (formerly Lasertechnics, Inc.), a
manufacturer of laser markers and plastic card printers. From October 1989 to
December 1994, Mr. Mattorano served as Executive Vice President of Finance of
Insilco Corporation, a conglomerate of manufacturing companies in various
industries. Mr. Mattorano is a CPA and worked in the audit department of
Deloitte & Touche for six years from 1974 to 1980. Mr. Mattorano is a graduate
of Adams State College with a degree in Business Administration and Accounting.

         Robert T. Maynard Currently serves on the Board of AMADAS Industries,
Inc. and East Carolina University Education Foundation. Mr. Maynard worked for
Deere for 37 years: from 1984 to 1996, he served as the Vice President and
Division Manager of Deere's Atlanta Division; from 1969 to 1984, Mr. Maynard
served as Vice President and General Manager for 12 years in Deere's Industrial
Equipment Co. in Moline, Illinois and 3 years in Deere's Memphis, Tennessee
operation. Prior to 1969, he worked at various positions for Deere. Mr. Maynard
graduated from East Carolina University with a BS degree in Business
Administration.

         James D. Arnold has served as the Assistant Vice Chancellor of Texas
Tech University since September 1997. From 1995 to 1997, Mr. Arnold was the
Assistant Director of Development for the University of Texas at Austin. From
1993 to 1995, he was the Director of Institutional Advancement for Texas Tech
Health Science Center at Odessa. Mr. Arnold worked for Dell Computer Corporation
from 1991 to 1993 as a senior Account Representative. Mr. Arnold graduated with
a BS degree in Business Administration from the University of Texas at Austin in
1991 and received a Master of Education in 1993 from Texas Tech University.

         Mickey L. Ray is the principal owner of Mickey Ray & Associates, an
insurance and financial planning and consulting service in Midland, Texas. Mr.
Ray is a CPA and was a partner in Ray, Davis & Ray Associates from 1978 until
1985, at which time he formed Mickey Ray & Associates. Prior to 1978, Mr. Ray
was a controller for The O'Connor-Braman Interest, an oil and gas operation, and
a controller for National City Lines, Inc., a Fortune Transportation company. A
graduate of Texas Tech in 1972 with a BBA degree in accounting, Mr. Ray has
served on a number of community, civic and professional boards and is a former
Mayor for the City of Seminole.

Compliance with Section 16(a) of The Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") requires each director and executive officer of the Company, and each
person who owns more than 10% of a registered class of the Company's equity
securities to file by specific dates with the Securities and Exchange Commission
(the "SEC") initial reports of ownership and reports of change in ownership of
Common Stock and other equity securities of the Company. Officers, directors and
10% stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file. The Company is required to report
in this report any failure of its directors and executive officers to file by
the relevant due date any of these reports during the Company's fiscal year.



                                       23
<PAGE>   24

To the Company's knowledge, all Section 16(a) filing requirements applicable to
the Company's executive officers, directors, and 10% stockholders were complied
with.

ITEM 11. EXECUTIVE COMPENSATION.

Summary Compensation Table

         The following table sets forth certain information regarding
compensation paid by the Company during the last three fiscal years to each of
the executive officers of the Company and its subsidiaries who served during the
fiscal year ended December 31, 1998 (the "Named Executive Officers").

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
 
                                                    ANNUAL COMPENSATION                            LONG-TERM COMPENSATION
                                                    -------------------                            ----------------------
NAME AND PRINCIPAL                                                                  OTHER ANNUAL   NUMBER OF SECURITIES
POSITION                             YEAR         SALARY              BONUS         COMPENSATION   UNDERLYING OPTIONS (#)
--------                             ----         ------              -----         ------------   ----------------------
<S>                                  <C>         <C>                <C>             <C>                  <C>    
Paul J. Condit                       1998        $120,101           $110,000        $         --         765,958
President and Chief Executive        1997         120,101                 --                  --         218,540
Officer                              1996          43,535            180,260                  --              --

John T. Condit                       1998           5,390                 --                  --         765,959
Secretary, Treasurer                 1997              --                 --                  --         218,540
and Director                         1996              --                 --                  --              --


E.A. Milo Mattorano                  1998         140,101             10,000                  --              --
Vice President and Chief             1997           5,384(1)              --                  --         300,000
Financial Officer                    1996              --                 --                  --              --
</TABLE>

         (1)      Mr. Mattorano began employment on December 15, 1997.

Employment Contracts with Executive Officers

         The Company and E.A. Milo Mattorano are parties to an employment
agreement, which provides for an indefinite period of employment at a minimum
annual base salary of $140,000, subject to increase by the Board of Directors.
The agreement also provides for the payment to Mr. Mattorano of up to one times
his annual salary in the event he is terminated after a change in control (as
defined in the employment agreement) and, if he is terminated without cause the
agreement provides for the payment of 25% of his annual salary. The employment
agreement also provides for cash bonuses of (i) $5,000 for each additional Deere
dealership that is purchased by the Company; (ii) up to $15,000 based on the
increase in net income in fiscal year 1998 compared to fiscal year 1997; and
(iii) one half of one percent of new capital received by the Company. In
addition, 300,000 Common Stock options were also granted at an exercise price of
$0.50 under this agreement. The agreement also contains confidentiality and
non-competition provisions.

         The Company has no other written employment contracts with its
officers.



                                       24
<PAGE>   25

Option Grants

         The following table sets forth information relating to stock option
grants made by the Company to each of the Named Executive Officers of the
Company during the fiscal year ended December 31, 1998. The Company has no plans
that provide for the granting of stock appreciation rights.

                              OPTION GRANTS IN 1998

<TABLE>
<CAPTION>
                                                                                          Potential Realizable Value
                                                                                           At Assumed Annual Rates
                                                                                         Of Stock Price Appreciation
                                  Individual Grants                                             For Option Term
-------------------------------------------------------------------------------------------------------------------
           (a)              (b)              (c)              (d)              (e)       (g)         (h)           
-------------------------------------------------------------------------------------------------------------------
                            Number of      Percent of
                            Securities    Total Options
                            Underlying     Granted to        Exercise or
                             Options      Employees in       Base Price      Expiration
           Name              Granted       Fiscal Year        ($/share)         Date           5%           10%
------------------------- ------------- ---------------- ------------------ ------------ ------------- -------------
<S>                         <C>                <C>              <C>            <C>            <C>          <C>     
Paul J. Condit              123,401(1)         4%               0.50           3/31/03         $ 6,022      $ 23,757
Paul J. Condit              156,808(1)         5%               0.50           6/30/03               0        16,299
Paul J. Condit              231,256(1)         7%               0.50           9/30/03           4,276        35,676
Paul J. Condit              254,494(1)         8%               0.50          12/31/03               0           836

John T. Condit              123,401(1)         4%               0.50           3/31/03           6,022        23,757
John T. Condit              156,808(1)         5%               0.50           6/30/03               0        16,299
John T. Condit              231,256(1)         7%               0.50           9/30/03           4,276        35,676
John T. Condit              254,494(1)         8%               0.50          12/31/03               0           836

EA Milo Mattorano               --             --                --              --                 --            --
</TABLE>

         (1)      Represents five-year options granted on a quarterly basis in
                  connection with the personal guarantee by Mr. Paul J. Condit
                  and Mr. John T. Condit of the Company's floor plan with Deere
                  and bank debt at an exercise price determined by the Board to
                  be in excess of fair market value at the date of grant.
                  Potential Realizable Values are calculated based upon the
                  closing price on the date of award, which was $0.43, $0.38,
                  $0.41 and $.031, respectively for the four quarterly awards.

Aggregate Option Exercises and Fiscal Year-End Option Value

     The following table sets forth information relating to the exercise of
common stock options by each of the Named Executive Officers of the Company,
during the fiscal year ended December 31, 1998 and the value of such
individuals' unexercised common stock options as of December 31, 1998.



                                       25
<PAGE>   26


                     AGGREGATE OPTION EXERCISES IN 1997 AND
                         DECEMBER 31, 1998 OPTION VALUES
<TABLE>
<CAPTION>

                                                                  NUMBER OF SECURITIES
                                                                       UNDERLYING               VALUE OF UNEXERCISED
                                                                  UNEXERCISED OPTIONS AT      IN-THE-MONEY OPTIONS AT
                                                                   DECEMBER 31, 1998           DECEMBER 31, 1998(1)
                                                                   -----------------           --------------------
                                                                           #                             $
                                NUMBER OF                             EXERCISABLE/                 EXERCISABLE/
                                 SHARES        VALUE REALIZED         ------------                 ------------
                                ACQUIRED       --------------        UNEXERCISABLE                 UNEXERCISABLE 
NAME                           ON EXERCISE                           -------------                 ------------- 
----                           -----------                          
                                    #
<S>                            <C>                 <C>             <C>           <C>             <C>         <C>
Paul J. Condit                    --               --              984,499         --             $   -      $   -

John T. Condit                    --               --              984,499         --                 -          -

E.A. Milo Mattorano               --               --               75,000      225,000               -          -
</TABLE>


         (1) Based upon the closing bid price of $0.31 at December 31, 1998

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT.

         The following table sets forth the number of shares of Common Stock
beneficially owned as of March 15, 1999 for (a) each person known by the Company
to be the beneficial owner of more than 5% of the Company's Common Stock (the
only outstanding securities of the Company), (b) each current director of the
Company, (c) each of the Named Executive Officers of the Company and (d) all
directors and executive officers as a group. Except as otherwise indicated, the
persons or entities set forth in the table below have sole investment and voting
power with respect to all shares shown as beneficially owned, subject to
community property laws, where applicable. The business address of each director
and each current executive officer is c/o Texas Equipment Corporation, 1305
Hobbs Highway, P.O. Box 790, Seminole, Texas, 79360.

<TABLE>
<CAPTION>
                                  NAME AND ADDRESS              AMOUNT AND NATURE OF                   
         TITLE OF CLASS          OF BENEFICIAL OWNER            BENEFICIAL OWNERSHIP     PERCENT OF CLASS
         --------------          -------------------            --------------------     ----------------
<S>                              <C>                            <C>                      <C>
         Common Stock            Paul J. Condit                        984,499(1)              3.8%

         Common Stock            John T. Condit                      4,001,166(1)             15.5%

         Common Stock            Paul J. Condit II.                  6,601,165(1)             25.6%

         Common Stock            Jeffery E. Condit                   6,601,165(1)             25.6%

         Common Stock            All directors and
                                 executive officers as
                                 a group (6 persons)                 5,060,665                19.6%
</TABLE>

         (1) Includes, in each case, the right to acquire 984,499 shares of
Common Stock pursuant to options.



                                       26
<PAGE>   27


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         In 1997 and 1998 the Company recorded a non-cash charge of $288,211 and
$154,724, respectively in connection with the personal guarantee by the Condit
family of approximately $30 million of accounts payable to Deere & Company, and
of a $3.9 million credit facility at the Company's bank. These required
guarantee arrangements were paid in the form of five-year options to acquire up
to 874,162 and 3,063,833 shares of Common Stock with an option price of $0.375
and $0.50 in 1997 and 1998, respectively. These options were paid pursuant to a
continuing agreement, which contemplates a guarantee fee, payable in stock
options of up to 6% of the average outstanding guaranteed balance. The Company
believes that this transaction was made on terms no less favorable to the
Company than could have been obtained from an unaffiliated third party.

                                     PART IV

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

(a) Financial Statements

    The following financial statements are included herewith:

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----

<S>                                                                         <C>
       Independent Auditors' Report - Ernst & Young, LLP                    F-2
       Independent Auditors' Report - Mazars & Guerard, LLP                 F-3
       Independent Auditors' Report - Killman Murrell and Company, P.C.     F-4
       Consolidated Balance Sheets                                          F-5
       Consolidated Statements of Operations                                F-7
       Consolidated Statements of Stockholders' Equity                      F-8
       Consolidated Statements of Cash Flows                                F-9
       Notes to Consolidated Financial Statements                           F-11
</TABLE>

(b) Reports on Form 8-K

         Form 8-K filed on September 1, 1998 reporting a change of Certifying
Accountants



                                       27

<PAGE>   28

(c) Exhibits

<TABLE>
<CAPTION>
         Item No.                          Item                                   Method of Filing
         --------                          ----                                   ----------------
         <S>         <C>                                                 <C>    
           3(a)       Articles of Incorporation......................    Incorporated  by reference to Exhibit 3(a) to
                                                                         the Company's 1996 Form 10-K
           3(b)       By-Laws........................................    Incorporated  by reference to Exhibit 3(b) to
                                                                         the Company's 1996 Form 10-K
           10(a)      Acquisition Agreement for Texas                    Incorporated  by reference to Exhibit 3(a) to
                        Equipment Co. Inc............................    the Company's 1996 Form 10-K
           10(j)      Contract with John Deere & Company.............    Incorporated  by reference to Exhibit 3(j) to
                                                                         the Company's 1996 Form 10-K
           10(k)      Contract with John Deere & Company.............    Incorporated  by reference  to Exhibit  10(k)
                                                                         to the Company's 9/30/1998 Form 10-Q
            21        List of Subsidiaries...........................    (filed herewith)
           23(a)      Consent of Killman, Murrell &
                         Company, P.C................................    (filed herewith)
           23(b)      Consent of Mazars & Guerard, LLP...............    (filed herewith)
            27        Financial Data Schedule........................    (filed herewith)
</TABLE>



                                       28
<PAGE>   29


                                   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.

Date: March 29, 1999

                                      TEXAS EQUIPMENT CORPORATION

                                      By: /s/ Paul J. Condit
                                         ------------------------------------
                                         Paul J. Condit
                                         President and Chief Executive Officer

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

<TABLE>
<CAPTION>
           Signature                             Title                             Date
           ---------                             -----                             ----
<S>                              <C>                                            <C>
/s/ Paul J. Condit               Chairman of the Board, President, Chief
-------------------------------  Executive Officer and Director         
Paul J. Condit                   (principal executive officer)                  March 29, 1999

/s/ John T. Condit               Director and Secretary                         March 29, 1999
-------------------------------
John T. Condit

/s/ E.A. Milo Mattorano          Vice President, Chief Financial Officer, 
-------------------------------  and Chief Accounting Officer (principal  
E.A. Milo Mattorano              financial and accounting officer)              March 29, 1999
                                 
/s/ Robert T. Maynard            Director                                       March 29, 1999
-------------------------------
Robert T. Maynard

/s/ James D. Arnold              Director                                       March 29, 1999
-------------------------------
James D. Arnold

/s/ Mickey L. Ray                Director                                       March 29, 1999
-------------------------------
Mickey L. Ray
</TABLE>




<PAGE>   30

                  TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                       THREE YEARS ENDED DECEMBER 31, 1998


<TABLE>
<CAPTION>
                        INDEX                                                    PAGE
                        -----                                                    ----
<S>                                                                              <C>
INDEPENDENT AUDITORS' REPORT - Ernst & Young, LLP                                 F-2

INDEPENDENT AUDITORS' REPORT - Mazars & Guerard, LLP                              F-3

INDEPENDENT AUDITORS' REPORT - Killman Murrell and Company, P.C.                  F-4

CONSOLIDATED BALANCE SHEETS                                                       F-5

CONSOLIDATED STATEMENTS OF OPERATIONS                                             F-7

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY                                   F-8

CONSOLIDATED STATEMENTS OF CASH FLOWS                                             F-9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                       F-11
</TABLE>

                                      F-1

<PAGE>   31


                         REPORT OF INDEPENDENT AUDITORS



To the shareholders and Board of Directors
Texas Equipment Corporation and Subsidiaries


         We have audited the consolidated balance sheet of Texas Equipment
Corporation and Subsidiaries as of December 31, 1998 and the related
consolidated statement of operations, stockholders' equity, and cash flow for
the year then ended. 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 audit.

         We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Texas Equipment
Corporation and Subsidiaries as of December 31, 1998, and the results of their
operations and their cash flow for the year then ended in conformity with
generally accepted accounting principles.





                                                         Ernst & Young LLP
Dallas, Texas
February 19, 1999


                                      F-2
<PAGE>   32



                          INDEPENDENT AUDITOR'S REPORT



To the shareholders and Board of Directors
Texas Equipment Corporation and Subsidiaries


         We have audited the consolidated balance sheet of Texas Equipment
Corporation and Subsidiaries as of December 31, 1997 and the related
consolidated statement of operations, stockholders' equity, and cash flow for
the year then ended. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Texas Equipment
Corporation and Subsidiaries as of December 31, 1997, and the results of its
operations and its cash flow for the year then ended in conformity with
generally accepted accounting principles.





                                                Mazars & Guerard, LLP.
                                                Certified Public Accountants

New York, New York
March 7, 1998


                                      F-3

<PAGE>   33



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

                       BOARD OF DIRECTORS AND STOCKHOLDERS

Texas Equipment Corporation
1305 Hobbs Highway
Seminole, Texas 79360

We have audited the accompanying consolidated balance sheets of Texas Equipment
Corporation and Subsidiaries as of December 31, 1996, and the related
consolidated statement of operations, stockholders' equity, and cash flow for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Texas Equipment
Corporation and Subsidiaries as of December 31, 1996, and the result of its
operations and its cash flow for the year then ended, in conformity with
generally accepted accounting principles.



KILLMAN, MURRELL AND COMPANY, P.C.

Odessa, Texas
February 12, 1997

                                      F-4

<PAGE>   34







                  TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS





                                     ASSETS


<TABLE>
<CAPTION>
                                                                           December 31,
                                                               ---------------------------------
                                                                   1998                 1997
                                                               ------------         ------------
<S>                                                            <C>                  <C>         
CURRENT ASSETS
          Cash and cash equivalents                            $    494,132         $    104,750
          Accounts receivable (less allowance for
              doubtful accounts of $ 109,945  and
              $ 76,000 for 1998 and 1997, respectively)             486,845              185,821
          Other receivables                                         594,177            1,965,714
          Inventories                                            39,241,714           21,039,882
                                                               ------------         ------------

               TOTAL CURRENT ASSETS                              40,816,868           23,296,167

PROPERTY AND EQUIPMENT, NET                                       5,725,916            4,027,731

FINANCE RECEIVABLES                                                 987,120              836,967

RECEIVABLES FROM OFFICER                                            142,290               92,618

GOODWILL, net of accumulated
           Amortization of $79,456
           and  $66,743 for 1998 and 1997, respectively             111,242              123,955

OTHER ASSETS                                                         62,181              151,147
                                                               ------------         ------------

                                                               $ 47,845,617         $ 28,528,585
                                                               ============         ============
</TABLE>

                                      F-5
                 See notes to consolidated financial statements

<PAGE>   35



                  TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS


                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                         December 31,
                                                                  ---------------------------
                                                                      1998           1997
                                                                  ------------   ------------
<S>                                                               <C>            <C>         
Current Liabilites

   Floor plan payables                                            $ 30,139,947   $ 15,235,375
          Accounts payable                                             877,391        810,254
          Accrued liabilities                                          380,778        454,396
          Income tax liability                                         648,544        422,503
          Current maturities of
            long-term debt                                           2,836,641        830,327
                                                                  ------------   ------------

TOTAL CURRENT LIABLITIES                                            34,883,301     17,752,855

Long-term debt, net of
   current maturities                                                4,665,409      3,796,689

Deferred tax liability                                                 233,074        233,074

Commitments and Contigencies                 

Stockholders' equity

Common stock, $.001 par value
    authorized 50,000,000, issued
    and outstanding 24,824,808 in 1998
    and 24,549,808 in 1997                                              24,823         24,548
Additional capital                                                   3,188,276      2,823,320
Retained earnings                                                    4,850,734      3,898,099
                                                                  ------------   ------------

               TOTAL STOCKHOLDERS' EQUITY                            8,063,833      6,745,967
                                                                  ------------   ------------

                                                                  $ 47,845,617   $ 28,528,585
                                                                  ============   ============
</TABLE>

                                      F-6
                 See notes to consolidated financial statements


<PAGE>   36



                  TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                        Years ended December 31,
                                                               -----------------------------------------
                                                                   1998          1997           1996
                                                               ------------   -----------   ------------
<S>                                                            <C>            <C>           <C>         
REVENUES                                                       $ 67,998,233  $ 58,366,746   $ 28,094,196

COST OF SALES                                                    58,099,531    50,541,118     24,001,389
                                                               ------------  ------------   ------------

GROSS PROFIT                                                      9,898,702     7,825,628      4,092,807

SELLING,GENERAL AND
  ADMINISTRATIVE EXPENSES                                         7,880,552     5,826,836      2,871,729
LITIGATION EXPENSES                                                      --       323,462             --
                                                               ------------  ------------   ------------
INCOME FROM OPERATIONS                                            2,018,150     1,675,330      1,221,078

OTHER INCOME (EXPENSE) 
  Interest income                                                   242,628       252,132        175,465
     Non-cash guarantee fee                                        (154,724)     (288,211)            --
     Interest expense                                              (638,116)     (306,897)      (127,151)
     Other income                                                    12,687        55,518         38,756
                                                               ------------  ------------   ------------
INCOME FROM CONTINUING
 OPERATIONS BEFORE TAXES                                          1,480,625     1,387,872      1,308,148
 
INCOME TAX EXPENSE                                                  527,990       572,502        425,033
                                                               ------------  ------------   ------------
INCOME FROM CONTINUING OPERATIONS                                   952,635       815,370        883,115

DISCONTINUED OPERATIONS
    Loss on discontinued operations less income tax benefit
    of $278,000 in 1997 and $ 70,636 in 1996                             --      (540,398)      (146,764)
                                                               ------------  ------------   ------------
NET INCOME                                                     $    952,635  $    274,972   $    736,351
                                                               ============  ============   ============

NET INCOME (LOSS) PER SHARE
    Basic
    - Continuing operations                                    $        .04  $        .03   $        .05
    - Discontinued operations                                            --          (.02)          (.01)
                                                               ------------  ------------   ------------
            Total                                              $        .04  $        .01   $        .04
                                                               ============  ============   ============
    Diluted
    - Continuing operations                                    $        .04  $        .03   $        .05
    - Discontinued operations                                            --          (.02)          (.01)
                                                               ------------  ------------   ------------
            Total                                              $        .04  $        .01   $        .04
                                                               ============  ============   ============

NUMBER OF SHARES USED IN COMPUTATION
    Basic                                                        24,686,178    24,695,641     19,499,936
                                                               ============  ============   ============
    Diluted                                                      24,921,308    24,823,766     19,531,186
                                                               ============  ============   ============
</TABLE>

                                      F-7
                 See notes to consolidated financial statements


<PAGE>   37
 


                  TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998



<TABLE>
<CAPTION>
                                                                                                     Total
                                          Common       Stock         Additional     Retained      Stockholders'
                                          Shares       Amount         Capital       Earnings         Equity
                                        ----------   -----------     ----------    -----------    -------------
<S>                                     <C>          <C>             <C>           <C>            <C>          
BALANCE, DECEMBER 31, 1995              16,850,000   $    16,850     $  504,351    $ 2,886,776    $   3,407,977

Sale of common stock, net                7,949,808         7,948      2,030,508             --        2,038,456
Net income                                      --            --             --        736,351          736,351
                                        ----------   -----------     ----------    -----------    -------------

BALANCE, DECEMBER 31,1996               24,799,808        24,798      2,534,859      3,623,127        6,182,784

Stock options issued                            --            --        288,211             --          288,211
Litigation settlement                     (250,000)         (250)           250             --               --
Net income                                      --            --             --        274,972          274,972
                                        ----------   -----------     ----------    -----------    -------------

BALANCE, DECEMBER 31, 1997              24,549,808        24,548      2,823,320      3,898,099        6,745,967

Stock options issued - guarantee fee            --            --        154,724             --          154,724
Convertible debt discount                       --            --        123,319             --          123,319
Stock issued                               275,000           275         86,913             --           87,188
Net income                                      --            --             --        952,635          952,635
                                        ----------   -----------     ----------    -----------    -------------

BALANCE, DECEMBER 31, 1998              24,824,808   $    24,823     $3,188,276    $ 4,850,734    $  8 ,063,833
                                        ==========   ===========     ==========    ===========    =============
</TABLE>


                                      F-8
                 See notes to consolidated financial statements


<PAGE>   38



                  TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>
                                                                               Years ended December 31,
                                                                      ---------------------------------------
                                                                          1998          1997          1996
                                                                      ------------  ------------   ----------
<S>                                                                   <C>           <C>            <C>       
OPERATING ACTIVITIES
    Net income                                                        $    952,635  $    274,972   $  736,351
     Adjustment to reconcile net income to net cash 
      provided by continuing operating activities:
         Discontinued operations                                                --       540,398      146,764
         Amortization and depreciation                                     454,109       363,101      163,553
         Loss on disposal of assets                                             --            --        3,502
         Common stock issued                                                34,688            --           --
         Deferred taxes                                                         --       125,874     (262,300)
         Guarantee fee                                                     154,724       288,211           --
CHANGES IN ASSETS AND LIABILITIES, 
    net of effects of business acquired or discontinued:
         Accounts receivable                                             1,070,513    (1,092,899)    (849,636)
         Receivables from affiliates                                            --        18,828           --
         Inventories                                                   (11,322,551)  (10,517,926)   1,059,050
         Prepaid expenses                                                       --        12,500      (12,500)
         Floor plan payable                                              7,806,716     8,175,890     (906,446)
         Accounts payable                                                   67,137       372,690          612
         Accrued liabilities                                               (73,617)      272,625       64,314
         Finance receivable                                               (150,153)     (105,939)     (37,354)
         Income tax liability                                              226,041      (388,297)     460,231
         Other assets                                                       88,966         1,954      149,034
CASH PROVIDED BY (USED IN) CONTINUING
                                                                      ------------  ------------   ----------
     OPERATING ACTIVITIES                                                 (690,792)   (1,658,018)     715,175

CASH USED IN DISCONTINUED OPERATIONS                                            --      (540,398)    (146,764)
                                                                      ------------  ------------   ----------

    NET CASH PROVIDED BY (USED IN)                   
         OPERATING ACTIVITIES                                             (690,792)   (2,198,416)     568,411
                                                                      ------------  ------------   ----------
CASH FLOWS PROVIDED BY (USED IN)
    INVESTING ACTIVITIES
         Purchases of land, buildings and equipment                       (399,150)     (558,554)    (126,126)
         Store Acquisitions                                               (832,554)   (2,512,761)          -- 
         Stockholders' receivables                                         (49,672)      123,192       27,454
         Proceeds from sale of equipment                                        --            --       46,500
                                                                      ------------  ------------   ----------
    NET CASH FLOWS USED IN
        INVESTING ACTIVITIES                                            (1,281,376)   (2,948,123)     (52,172)
                                                                      ------------  ------------   ----------
</TABLE>


                                      F-9
                 See notes to consolidated financial statements

<PAGE>   39


                  TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                               Years ended December 31,
                                                                      ---------------------------------------
                                                                          1998          1997          1996
                                                                      ------------  ------------   ----------
<S>                                                                   <C>           <C>            <C>       
CASH FLOW PROVIDED BY (USED IN)     
  FINANCING ACTIVITIES
        Proceeds from note borrowings                                 $  8,628,174  $  3,836,657   $  775,149
        Repayments of note borrowings                                   (6,266,624)   (1,246,426)    (840,190)
        Sale of common stock                                                    --            --    1,959,829
                                                                      ------------  ------------   ----------
    NET CASH FLOW PROVIDED BY
        FINANCING ACTIVITIES                                             2,361,550     2,590,231    1,894,788
                                                                      ------------  ------------   ----------

NET INCREASE (DECREASE) IN CASH                                            389,382    (2,556,308)   2,411,027

CASH AND CASH EQUIVALENTS AT THE   
  BEGINNING OF THE PERIOD                                                  104,750     2,661,058      250,031
                                                                      ------------  ------------   ----------

CASH AND CASH EQUIVALENTS AT THE END   
  OF THE PERIOD                                                       $    494,132  $    104,750   $2,661,058
                                                                      ============  ============   ==========

SUPPLEMENTAL DISCLOSURES OF
  CASH FLOW INFORMATION
       Cash paid during the period for:
         Interest expense                                             $    638,116  $    360,028   $  135,260

         Income taxes                                                 $    352,350  $    134,502   $  143,918
</TABLE>


                                      F-10
                 See notes to consolidated financial statements


<PAGE>   40



                  TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       THREE YEARS ENDED DECEMBER 31, 1998


NOTE 1:  BUSINESS

The consolidated financial statements of Texas Equipment Corporation ("the
Company") ("TEC") (a Nevada Corporation, formerly Marinex Multimedia Corporation
and Hard Funding, Inc.) include wholly-owned subsidiaries Texas Equipment Co.,
Inc., ("TECI"), Marinex Multimedia Corporation ("Marinex") (the Discontinued
Company) and New Mexico Implement Company, Inc. ("NMIC"). TEC was acquired by
Marinex with TEC being the successor entity on September 17, 1996. The
acquisition has been accounted for as a reverse acquisition as discussed herein.

The Company, is a retailer of agricultural equipment primarily supplied by Deere
& Company ("Deere") and other equipment with its headquarters in Seminole,
Texas. TECI's market area represents West Texas, the Texas Panhandle and Eastern
New Mexico. In excess of ninety percent (90%) of equipment sales are made to
customers participating in agriculture; therefore, the Company has a
concentration of customers in a geographic area in a single industry and is
dependent upon Deere for a significant portion of its new and used equipment
purchases.

During 1997, the Company implemented a plan to discontinue the operations of
Marinex, a New York corporation, engaged in the business of the creation of
digital content including a CD-ROM magazine and entertainment site on the
worldwide web. Accordingly, all such financial data related to Marinex has been
presented as discontinued operations.


NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

         The consolidated financial statements include the accounts of the
         Company and its wholly-owned subsidiaries. Intercompany items and
         transactions have been eliminated in consolidation.

CASH AND EQUIVALENTS

         The Company classifies highly liquid temporary investments with an
         original maturity of three months or less when purchased as cash
         equivalents.

INVENTORIES

         Inventories are stated at the lower of cost or market value. Cost is
         determined using the specific identification method for new and used
         agricultural equipment and average cost for parts.

PROPERTY AND EQUIPMENT

         Property and equipment are stated at cost. Maintenance and repairs are
         charged to expense as incurred. Major betterments and improvements,
         which extend the useful life of the related item, are capitalized and
         depreciated. Depreciation is provided for over the estimated useful
         lives of the individual assets using accelerated and straight-line
         methods.


                                      F-11



<PAGE>   41

                  TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       THREE YEARS ENDED DECEMBER 31, 1998


NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

REVENUE RECOGNITION

         Revenue on equipment and parts sales is recognized upon delivery of
         product to customers. Rental and service revenue is recognized at the
         time such services are provided.

FINANCE RECEIVABLES

         The Company has entered into retail finance and lease agreements with
         two credit corporations whereby the Company customers can finance or
         lease selected purchases from the Company and the Company guarantees a
         portion of the leased or financed balance. The security interest is
         retained by the credit corporations in the equipment leased or
         financed. A small portion of the customer contract is recourse to the
         Company. The credit corporations review the reserve balances with the
         Company annually and if the reserve balance exceed certain minimum
         requirements, the difference is paid to the Company. The finance
         receivables are recognized as income when the credit corporations fund
         the loans. The Company has traditionally experienced a loss rate
         against such finance and lease reserves of less than 0.5% of its total
         retail contracts and lease portfolio. In 1998 the Company has provided
         a reserve for loss of $109,945 associated with all of its receivables.
         The Company receives interest income on the finance receivable held by
         the finance Company.

FLOOR PLAN PAYABLES

         Deere provides various inventory-financing arrangements for its
         dealers. The terms of these arrangements generally include a
         four-to-twelve-month interest-free term followed by a term during which
         interest is charged. Payoff of the floor plan generally occurs at the
         earlier of sale of the equipment or in accordance with the terms of the
         financing arrangements. All amounts owed to Deere are guaranteed by the
         majority stockholders of the Company and are collateralized by
         inventory.

ACCOUNTING FOR INCOME TAXES

         The Company accounts for income taxes under the liability method, which
         requires the recognition of deferred tax assets and liabilities for the
         expected impact of the differences between the financial statements and
         tax basis of assets and liabilities.

                                      F-12

<PAGE>   42


                  TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       THREE YEARS ENDED DECEMBER 31, 1998



NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

CONCENTRATION OF CREDIT RISK CONTINGENCIES

         The Company places its cash and temporary cash investments with highly
         creditworthy financial institutions.

         The Company grants credit, generally with collateral, to its customers,
         which are located in the Company's market area. Management believes
         that its billing and collection policies are adequate to minimize
         potential credit risk.

ACCOUNTING 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 at the date of the financial statements and the reported
         amounts of revenues and expenses during the reporting period. Actual
         results could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

         The carrying amounts reported in the balance sheet for cash,
         receivables, and accrued expenses approximate fair value based on the
         short-term maturity of these instruments.

EARNING (LOSS) PER SHARE

         In February 1997, The Financial Accounting Standards Board issued
         Statement of Financial Accounting Standards No. 128, "Earnings Per
         Share" (FAS No. 128). All earnings per share amounts for all periods
         have been presented, and as appropriate, restated to conform to FAS No.
         128.

RECLASSIFICATION

         Certain prior year amounts have been reclassified to conform to current
         year presentation.

RECAPITALIZATION

         In September 1996 the Company acquired TECI, and issued 16,850,000
         shares of common stock in exchange for all of the capital stock of
         TECI. The Company had no significant operations prior to September 1996
         through its Marinex subsidiary, and the TECI shareholders received 68%
         of the outstanding shares. Accordingly, the transaction has been
         accounted for as a reverse acquisition by TECI. The capital structure
         of TEC has been recapitalized to account for the equity structure
         subsequent to the acquisition, as if TECI had been the issuer of the
         common stock for all periods presented. Accordingly the preferred stock
         originally issued and outstanding by TECI prior to the acquisition has
         not been presented since such preferred stock is now accounted for as
         part of the 16,850,000 shares of Common Stock outstanding.

                                      F-13

<PAGE>   43


                  TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       THREE YEARS ENDED DECEMBER 31, 1998


NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

DEALERSHIP AGREEMENTS

         The Company has entered into agreements with Deere, which authorize the
         Company to act as an authorized dealer of Deere agricultural equipment.
         The dealer agreements continue until terminated by Deere or the Company
         in accordance with certain specified provisions.

         The Company is required to meet certain performance criteria and equity
         ratios, to maintain suitable facilities, to actively promote the sale
         of Deere equipment, to fulfill warranty obligations, and to maintain
         stores only in the authorized locations. The Company's principal
         stockholders are also required to maintain certain voting control and
         ownership interests. The agreement also contains certain provisions 
         that must be complied with in order to retain the Company's dealership
         agreements in the event of certain changes in control, as defined, or
         the death of the chief executive officer of the Company.

         Deere is obligated to make available to the Company a floor plan and
         other financing programs that it offers to other dealers, provide
         promotional and marketing materials, and authorize the Company to use
         Deere trademarks and trade names.

         Sales of Deere related new equipment and parts aggregate to 52%, 45%
         and 47% of the total sales for the years ended December 31, 1998, 1997
         and 1996, respectively.

 ACCOUNTING FOR LONG-LIVED ASSETS

         The Company has adopted Statement of Financial Accounting Standards No.
         121, "Accounting For The Impairment Of Long-Lived Assets And For
         Long-Lived Assets To Be Disposed Of". The Company reviews long-lived
         assets, certain identifiable assets and any goodwill related to those
         assets for impairment whenever circumstances and situations change such
         that there is an indication that the carrying amounts may not be
         recoverable. At December 31, 1998 the Company believes that there has
         been no impairment of its long-lived assets.

STOCK BASED COMPENSATION

         The Company accounts for employee stock options in accordance with APB
         Opinion No. 25, "Accounting For Stock Issued To Employees" and has
         adopted the disclosure-only option under SFAS No. 123, as of December
         31, 1998.

NOTE 3:  BUSINESS SEGMENT DATA FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 
         1996


DESCRIPTION OF THE TYPES OF PRODUCTS AND SERVICES FROM WHICH EACH REPORTABLE
SEGMENT DERIVES ITS REVENUES

The Company has two reportable segments: wholegoods and product support.
Distribution of these products and services are made directly to customers
through eight Deere dealerships located in West Texas, Texas Panhandle and
Eastern New Mexico. Wholegoods represents agricultural equipment that can be
sold either as an individual item or as part of a series of machines to perform
certain farming operations. Product support represents replacement parts for
equipment and the service of the agricultural equipment on-site or at the dealer
location.


                                      F-14


<PAGE>   44


                  TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       THREE YEARS ENDED DECEMBER 31, 1998


NOTE 3: BUSINESS SEGMENT DATA FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 
        1996 (CONT'D)


MEASUREMENT OF SEGMENT PROFIT OR LOSS AND SEGMENT ASSETS

The Company evaluates performance and allocates resources based on profit or
loss from operations before income taxes. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies. Inter-segment sales and profits are
insignificant.

FACTORS MANAGEMENT USED TO IDENTIFY THE COMPANY'S REPORTABLE SEGMENTS

The Company's reportable segments are business units that offer different
products or services. The reportable segments are each managed separately
because they each distribute distinct products and services in the initial and
after-market environment.

<TABLE>
<CAPTION>
      YEAR ENDED DECEMBER 31, 1998                                        Product
                                                          Wholegoods      Support
                                                         ------------  ------------
<S>                                                      <C>           <C>         
      Sales and revenues from external customers         $ 54,329,666  $ 13,668,567
      Depreciation expense                                    142,773       286,311
      Segment operating profit                              2,265,984     1,088,973
      Segment assets:     
          Property, plant and equipment                       970,343     4,626,463
          Inventory                                        34,932,560     4,309,154
                                                         ------------  ------------

      YEAR ENDED DECEMBER 31, 1997
      Sales and revenues from external customers           48,093,473    10,273,273
      Depreciation expense                                    132,788       210,310
      Segment operating profit                              2,012,984       763,140
      Segment assets:
          Property, plant and equipment                       546,344     3,352,367
          Inventory                                        16,649,319     4,390,563
                                                         ------------  ------------

      YEAR ENDED DECEMBER 31, 1996
      Sales and revenues from external customers           23,008,441     5,085,755
      Depreciation expense                                     58,379        92,461
      Segment operating profit                                945,570       526,797
      Segment assets:
          Property, plant and equipment                       286,181       841,467
          Inventory                                         3,634,092     1,746,096
                                                         ------------  ------------
</TABLE>


                                      F-15
<PAGE>   45


                  TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       THREE YEARS ENDED DECEMBER 31, 1998


NOTE 3: BUSINESS SEGMENT DATA FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 
        1996 (CONT'D)



RECONCILIATION OF SEGMENT INFORMATION TO THE CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
      REVENUE                                                                DECEMBER 31,
      -------                                                                ------------
                                                               1998              1997               1996
                                                           ------------      ------------       ------------
<S>                                                        <C>               <C>                <C>         
      Total external revenues for reportable segments      $ 67,998,233      $ 58,366,746       $ 28,094,196

                                                           ------------      ------------       ------------
             Total consolidated revenue                      67,998,233        58,366,746         28,094,196
                                                           ------------      ------------       ------------
      OPERATING PROFIT
      ----------------
      Total profit for reportable segments                    3,354,957         2,776,124          1,472,367
      Unallocated amounts:
             Administrative expense                          (1,336,807)       (1,100,794)          (251,289)
             Other income                                        12,687            55,518             38,756
             Interest expense                                  (638,116)         (306,897)          (127,151)
             Interest income                                    242,628           252,132            175,465
             Non-cash guarantee fee                            (154,724)         (288,211)                --
                                                           ------------      ------------       ------------
             Total consolidated income before taxes           1,480,625         1,387,872          1,308,148
                                                           ------------      ------------       ------------
      ASSETS
      ------
      Total assets for reportable segments                   44,838,520        24,938,593          6,507,836
      Other assets                                            3,007,097         3,589,992          5,104,422
                                                           ------------      ------------       ------------
             Total consolidated assets                       47,845,617        28,528,585         11,612,258
                                                           ------------      ------------       ------------
      OTHER SIGNIFICANT ITEMS
      -----------------------
      Depreciation expense                                      429,084           343,098            150,840
      Other depreciation and amortization                        25,025            20,003             12,713
                                                           ------------      ------------       ------------
             Total depreciation and amortization                454,109           363,101            163,553
                                                           ------------      ------------       ------------
</TABLE>

NOTE 4:  DISCONTINUED OPERATIONS

In the second quarter of 1997 the Company implemented a plan to discontinue the
operations of Marinex, which included the complete liquidation of Marinex's
assets. As of December 31, 1997 Marinex was liquidated and accordingly there
were no assets or liabilities recorded. A reclassification of $818,398 and
$217,400 of expenses recorded in selling, general and administrative expenses
for the year ended December 31, 1997 and 1996 were made to discontinued
operations, such amount has been presented net of income tax benefits of
$278,000 and $70,636 for 1997 and 1996, respectively.



                                      F-16
<PAGE>   46

                  TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       THREE YEARS ENDED DECEMBER 31, 1998


NOTE 5:  ACQUISITIONS

On June 15, 1998, the Company signed an agreement to purchase the assets
(building, land, equipment and inventory) of Romney Implement Company, which
operated a Deere dealership in Tornillo, Texas (in the El Paso metropolitan
area), for approximately $3,082,000. The Company assumed approximately
$1,679,000 of indebtedness payable to Deere, assumed other Romney indebtedness
of approximately $408,000, new bank loan for $571,000, cash of $177,000 and
issued a three year 10% Convertible Note to the principals of Romney Implement
Company for approximately $247,000. (See Note 11 for details of the Convertible
Note).

On October 9, 1998, the Company signed an agreement to purchase the assets
(building, land, equipment and inventory) of Texas Tractor Co., which operated a
Deere dealership in the Amarillo, Texas metropolitan area, for approximately
$5,537,000. The Company assumed approximately $5,233,000 of indebtedness payable
to Deere and approximately $168,000 under bank note payable, paid cash of
approximately $83,000 and issued 150,000 shares of the Company's Common Stock,
which had a market value at closing of approximately $53,000.

In January 1997, the Company acquired the assets of three John Deere franchise
stores in two separate purchase agreements. In July 1997, the Company acquired a
fourth John Deere franchise store. The terms of each purchase agreement are
summarized as follows:

         a)   The building, land, equipment and inventory of one store were
         purchased for approximately $1,316,000. The Company paid approximately
         $452,000 cash, assumed approximately $564,000 payable to Deere and new
         bank debt of $300,000.

         b)   The building, land, equipment and inventory of two stores were
         purchased for approximately $5,140,000. The Company paid approximately
         $398,000 cash, a note to the seller for $258,000, assumed approximately
         $3,476,000 of indebtedness payable to Deere and new bank debt of
         approximately $1,008,000.

         c)   The building, land, equipment and inventory of the store acquired
         in July 1997 was purchased for approximately $1,261,000. The Company
         assumed approximately $829,000 of indebtedness payable to Deere, paid 
         approximately $144,000 cash, new bank debt of approximately $212,000 
         and a note payable to seller of $76,000.

The acquisition of the above stores has been accounted for as a purchase and
accordingly, the assets acquired and liabilities assumed have been recorded at
their estimated fair values.

The following information summarizes the unaudited pro-forma results of
operations of the Company for the years ended December 31, 1998 and 1997 as if
the aforementioned acquisitions had occurred on January 1, of the year sale
occurred and included such adjustments, which are directly attributable to the
acquisition. This information should not be considered indicative of future
results of operations or the results that would have been obtained had the
acquisitions actually occurred on January 1, of the year presented.



                                      F-17
<PAGE>   47


                  TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       THREE YEARS ENDED DECEMBER 31, 1998


NOTE 5:  ACQUISITIONS (CONT'D)

<TABLE>
<CAPTION>
                                                       1998           1997
                                                    (Unaudited)    (Unaudited)
                                                    ------------   ------------
<S>                                                 <C>            <C>         
             Revenue                                $ 81,768,629   $ 75,301,454
                                                    ============   ============

             Net income                             $    966,205   $    329,200
                                                    ============   ============

             Net income per share - Basic
                 And Diluted                        $       0.04   $       0.01
                                                    ============   ============
</TABLE>


NOTE 6:  INVENTORIES

At December 31, 1998 and 1997, inventories consisted of:

<TABLE>
<CAPTION>
                                                        1998           1997
                                                    ------------   ------------
<S>                                                 <C>            <C>         
             New equipment                          $ 19,830,691   $ 12,019,361
             Used equipment                           15,101,869      4,629,958
             Parts                                     4,309,154      4,390,563
                                                    ------------   ------------
                                                    $ 39,241,714   $ 21,039,882
                                                    ============   ============
</TABLE>

Substantially all the inventories are pledged as security for the floor plan
payables to Deere.


NOTE 7:  PROPERTY AND EQUIPMENT

At December 31, 1998 and 1997, land, building and equipment consisted of:

<TABLE>
<CAPTION>
                                                        1998           1997
                                                    ------------   ------------
<S>                                                 <C>            <C>         
             Land and buildings                     $  4,288,128   $  2,936,826
             Vehicles                                  1,096,286        781,128
             Furniture and fixtures                    1,192,120        932,025
             Equipment and tools                         748,155        544,382
                                                    ------------   ------------
                                                       7,324,689      5,194,361
             Less accumulated depreciation            (1,598,773)    (1,166,630)
                                                    ------------   ------------

                                                    $  5,725,916   $ 4 ,027,731
                                                    ============   ============
</TABLE>


Depreciation of buildings and equipment is recorded principally on the
straight-line method using estimated useful lives from five to forty years.
Substantially all land, buildings and equipment are pledged as security for bank
loans.


                                      F-18
<PAGE>   48

                  TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       THREE YEARS ENDED DECEMBER 31, 1998


NOTE 8:  FINANCE RECEIVABLES

At December 31, 1998 and 1997, the Company's finance receivables were as
follows:

<TABLE>
<CAPTION>
                                                      1998       1997
                                                    ---------  ---------
<S>                                                 <C>        <C>         
           Deere Credit                             $ 847,383  $ 697,228
           Agricredit Acceptance                      139,737    139,739
                                                    ---------  ---------

                                                    $ 987,120  $ 836,967
                                                    =========  =========
</TABLE>

The applicable outstanding financed balances were as follows:

<TABLE>
<CAPTION>
                                                        1998         1997
                                                    ------------ ------------
<S>                                                 <C>          <C>         
           Deere Credit                             $ 54,582,626 $ 36,446,398
           Agricredit Acceptance                       8,278,553    6,361,318
                                                    ------------ ------------

                                                    $ 62,861,179 $ 42,807,716
                                                    ============ ============
</TABLE>

The Company provides financing to its customers through programs offered by
Deere Credit and Agricredit Acceptance Corporation ("Agricredit").

Deere credit provide and administer financing for retail purchases and leases of
new and used equipment. Under Deere's retail financing and lease plans, Deere
Credit retains the security interest in the equipment financed. A small portion
of the customer financing and lease contract provided by Deere is recourse to
the Company. Deere retains a finance and lease reserve for amounts that the
Company may be obligated to pay Deere, by retaining 1% of the face amount of
each contract financed or leased under the Company's two dealer accounts. The
finance reserve is capped at the lesser of 3% of the total dollar amount of the
finance contracts outstanding or $600,000 for each dealer account. The lease
reserve is capped at 3% of the total dollar amount of lease contracts
outstanding for each dealer account. In the event a customer defaults in paying
Deere and there is a deficiency in the amount owed to Deere, the Company has the
option of paying the amount due under its recourse obligations or using a
portion of its finance or lease reserves. The Company's liability is capped at
the amount of the reserves for each dealer account, which, as of December 31,
1998, were $491,646 and $190,859 for its two finance reserve accounts and
$162,915 and $1,963 for its two lease reserve accounts.

Deere Credit reviews the reserve account balances with the Company annually and
if the reserve balances exceed the minimum requirements, Deere pays the
difference to the Company. The Company has traditionally experienced a loss rate
against such reserves of less than 0.5% of its total retail finance and lease
contracts portfolio.

Agricredit, through a joint venture with the Company established in September
1997, also provides financing to the Company's customers. The financing provided
under the joint venture by Agricredit to its


                                      F-19
<PAGE>   49


                  TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       THREE YEARS ENDED DECEMBER 31, 1998


NOTE 8:  FINANCE RECEIVABLES (CONT'D)

customers is non-recourse to the Company. At December 31, 1998 the portfolio
amount under the joint venture was $6,934,491. Prior to September 1997
$1,344,062 of the customer financing provided by Agricredit was recourse to the
Company. The Company's liability is limited to the portion withheld by
Agricredit, which was $139,737 at December 31, 1998.

NOTE 9:  INCOME TAXES

Significant components of income taxes are as follows for the years ended
December 31, 1998, 1997 and 1996:

<TABLE>
<CAPTION>
                                               1998           1997             1996
                                            ----------      ----------       ---------
<S>                                         <C>             <C>              <C>      
        Current                             $  527,990      $  267,085       $ 616,697
        Deferred                                    --          27,417        (262,300)         
                                            ----------      ----------       ---------

        Total income tax expenses           $  527,990      $  294,502       $ 354,397
                                            ==========      ==========       =========
</TABLE>

Income tax expense (benefit) allocated to continuing and discontinued operations
is as follows:

<TABLE>
<CAPTION>
                                               1998           1997             1996
                                            ----------      ----------       ---------
<S>                                         <C>             <C>              <C>      
        Continuing operations               $  527,990      $  572,502       $ 425,033
        Discontinued operations                     --        (278,000)        (70,636)
                                            ----------      ----------       ---------

        Total income tax expenses           $  527,990      $  294,502       $ 354,397
                                            ==========      ==========       =========
</TABLE>

A reconciliation of income tax from continuing operations computed at the U.S.
federal statutory tax rate to the Company's effective income tax rate is as
follows:

<TABLE>
<CAPTION>
                                                              1998   1997   1996
                                                              ----   ----   ----
<S>                                                           <C>    <C>    <C>      
        Tax at federal statutory rate                           34%    34%    34%
        State and local taxes , net of federal benefit           3      3      3
        Other                                                    1      2     --
                                                              ----   ----   ----
                                                                38%    39%    37%
                                                              ====   ====   ====
</TABLE>

The significant components of the Company's deferred tax liabilities are as
follows:

<TABLE>
<CAPTION>
                                                    1998       1997
                                                 ----------  ---------
<S>                                              <C>         <C>      
        Deferred tax liabilities:
              Depreciation                       $  135,649  $  49,632
              LIFO inventory reserve                     --     54,924
              Intangible assets                      37,822     42,145
              Other                                  59,603     86,373
                                                 ----------  ---------
        Total deferred tax liabilities           $  233,074  $ 233,074
                                                 ==========  =========
</TABLE>



                                      F-20
<PAGE>   50

                  TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       THREE YEARS ENDED DECEMBER 31, 1998


NOTE 10: LONG-TERM DEBT

Long term debt consisted of the following:

<TABLE>
<CAPTION>
                                                                                           1998              1997
                                                                                        -----------       -----------
<S>                                                                                     <C>               <C>
       Bank loan due October 1, 2002, bearing interest at 9.5%, payable in
       monthly installments of $24,500 collateralized by land and
       buildings..................................................................      $ 1,972,133       $ 2,071,209

       Bank loan due July 30, 2008, bearing interest at 9.5%, payable in monthly
       installments of $7,393 collateralized by land and
       buildings..................................................................          552,791                --

       Bank line of credit due August 31, 1999....................................        1,458,388                --

       Equipment financed by Deere, Agricredit or EDCO due in Various amounts
       through May 1, 2003, interest at various rates from 4.9% to 12%,
       collateralized by the equipment............................................        1,954,184         1,229,169

       Convertible note payable (see note 11).....................................          158,965                --

       Various notes payable, collateralized by buildings, equipment, land due
       in various amounts through December 31, 2005, interest at various rates
       from 8.5% to 12%...........................................................        1,405,589         1,326,638
                                                                                        -----------       -----------
                                                                                          7,502,050         4,627,016
       Less current portion.......................................................        2,836,641           830,327
                                                                                        -----------       -----------

                                                                                        $ 4,665,409       $ 3,796,689
                                                                                        ===========       ===========
</TABLE>

Aggregate maturities of long-term debt are as follows:

<TABLE>
                             <S>                      <C>         
                             December 31, 1999        $  2,836,641
                                          2000           1,327,246
                                          2001             838,421
                                          2002           1,827,652
                                          2003             235,645
                                   Thereafter              436,445
</TABLE>

The Company has unused bank and equipment credit lines available as of December
31, 1998 of $1,300,000.


                                      F-21
<PAGE>   51


                  TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       THREE YEARS ENDED DECEMBER 31, 1998


NOTE 10: LONG-TERM DEBT (CONT'D)

Deere, the Company's principal supplier of wholegoods and parts, has
subordinated the debt due to themselves with regard to the collateral of
non-Deere wholegoods and parts for the above bank loan and credit line.

The three majority shareholders of the Company and the President have guaranteed
the indebtedness payable to the bank, Deere, and Agricredit (floor plan
payable). During 1998 and 1997, these individuals have received stock options as
a fee for such guarantee (see Note 12). The fee recorded for the year ended
December 31, 1998 and 1997 was $154,724 and $288,211, respectively.

NOTE 11: CONVERTIBLE NOTE PAYABLE

On June 15, 1998, the Company issued a three year 10% Convertible Note to the
principals of Romney Implement Company for $246,638. Principal and interest are
convertible into the Company's Common Stock over a three year period with
conversion prices at the lesser of $1 or market price (as defined) in the first
year, the lesser of market price or $1.50 in the second year and the lesser of
market price or $2 the third year. If at any time during each of the three years
market price equals or exceed the conversion price, the entire note will convert
into Common Stock. The Company has assigned a value of $123,319 to the
conversion feature of the note. This value is being amortized ratably as an
interest rate adjustment over the life of the note or until conversion. Assuming
the note is not converted until maturity, the effective yield is approximately
23%. On each anniversary of the note, one third of the note will be converted in
the Common Stock.

NOTE 12: STOCKHOLDERS' EQUITY

The capital structure presented represents the retroactive effect of
recapitalizing the Company as the successor entity of the transaction accounted
for as though it were a reverse acquisition with Marinex on September 17, 1996
with 16,850,000 shares of Common Stock outstanding.

Prior to the acquisition, TECI had a two equity structure comprised of common
stock and no par value, non-voting preferred stock, which was issued pursuant to
a "Stock Bonus Plan". Contributions to the Stock Bonus Plan aggregated $200,089
and $171,306 in 1994 and 1995, respectively. Such contributions have been
expensed in the year incurred since the plan is a defined benefit contribution
plan. Pursuant to a separate letter agreement by the selling shareholders of
TECI, as part of the acquisition by Marinex of TECI, the funding of the Stock
Bonus Plan was performed by allocations from the selling shareholders of TECI
16,850,000 shares of Common Stock. Effective January 1, 1997, the Company
amended and restated the Stock Bonus Plan into an Employee Stock Ownership Plan,
so as to enable its eligible employees to acquire an interest in capital stock
of the Company. Contributions to the ESOP may be made at the discretion of the
Company; however, no contributions have been made in 1997 or 1998.

During February 1996, prior to the transaction with TECI, the Company sold
3,032,246 shares of Common Stock; net proceeds were $2,967,500. An additional
300,000 shares were issued to financial consultants relating to the raising of
such equity.

Pursuant to the acquisition of TECI by the Company in 1996 another 4,615,562
shares were deemed to have been issued to the shareholders of Marinex.

During July 1997, two shareholders returned a total of 250,000 shares of common
stock pursuant to a settlement agreement discussed hereafter in Note 15.


                                      F-22
<PAGE>   52

                  TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       THREE YEARS ENDED DECEMBER 31, 1998


NOTE 12: STOCKHOLDERS' EQUITY (CONT'D)

During December 1997, the Company granted 300,000 stock options to an officer of
the Company exercisable at $.50 per share for a period of five years. The
options vest over four years. These stock options were issued pursuant to an
employment agreement.

During December 1997, the Company granted 874,162 fully vested stock options to
the guarantors of the floor plan payable and bank loans, who are majority
shareholders of the Company, exercisable at $.375 per share for a period of five
years. An expense of $288,211 has been recorded as a guarantee fee for such
options during the year ended December 31, 1997.

During 1998, the Company granted 3,063,833 fully vested stock options to the
guarantors (majority shareholders and officer of the Company) of the floor plan
payable and bank loans, exercisable at $.50 per share for a period of five
years. An expense of $154,724 has been recorded as a guarantee fee for such
options during the year ended December 31, 1998.

During March 1998, the Company issued 125,000 shares of its Common Stock in a
lawsuit settlement. (see Note 15)

During October 1998, the Company issued 150,000 shares of its Common Stock to
the principal of Texas Tractor Co. in connection with the acquisition of the
Amarillo Deere dealership. (see Note 5)

Under the Company's amended dealership agreement with Deere, the Company is
required to maintain an equity-to-asset ratio, as defined, of at least 30% at
all times on and after the earlier of December 31, 2000, 120 days following any
completion of a public offering by the Company involving gross proceeds of at
least $20,000,000 and immediately following any further expansion of the
Company's agricultural area of responsibility under its Deere dealership
agreements. Without Deere's prior written consent, the Company is prohibited
from making Deere agricultural dealership acquisitions, initiating new business
activity, paying dividends, repurchasing its capital stock, or making any other
distributions to stockholders if the Company's equity-to-asset ratio is below
30%, or if such ratio will fall below 30% as a result of such action, unless
waived by Deere. If such ratio falls below 25%, Deere may elect to terminate the
dealer agreements with one year's advance written notice, although the Company
has 180 days to cure this default.

NOTE 13: EMPLOYEE BENEFIT PLANS

In March 1994, TECI adopted a flexible health benefit plan (a cafeteria plan)
which covers substantially all full time employees on the 90th day following
commencement of employment. The health benefit plan is a minimum funded plan
with specific and aggregate stop loss insurance provided to limit the overall
exposure to TECI. The specific stop loss is $20,000 per employee. The expense
associated with the health benefit plan aggregated $357,336, $236,995 and
$120,341 for 1998, 1997 and 1996, respectively.

On September 20, 1994, TEC adopted the "TEXAS EQUIPMENT COMPANY, INC. 401 (k)
PLAN" (The "401(k) Plan") which covers all employees that have attained the age
of twenty-one (21) years and have one year of service. Contributions by TECI are
discretionary, and TECI has made no contributions to the 401(k) Plan since
inception.


                                      F-23
<PAGE>   53


                  TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       THREE YEARS ENDED DECEMBER 31, 1998



NOTE 14: ACCOUNTING FOR EMPLOYEE STOCK OPTIONS

For disclosure purposes, the fair value of employee stock options is estimated
on the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for stock options granted during the
year ended December 31, 1997: annual dividends of $0; expected volatility of
50%; risk-free interest rate of 7%; and expected life of five years. The
weighted average fair value of stock options granted during the years ended
December 31, 1998 and 1997 were $.43 and $.38, respectively. For purposes of pro
forma disclosure, the estimated fair value of the options is amortized to
expense over the option's vesting period. The Company's pro forma effect on 1998
and 1997 operations is as follows:

<TABLE>
<CAPTION>
                                                                  1998           1997
                                                                ---------      ---------
<S>                                                             <C>            <C>      
         Net Income
               As reported                                      $ 952,634      $ 274,972
               Pro forma                                        $ 924,171      $ 273,877

         Net income per share (basic and diluted)
               As reported                                      $    0.04      $    0.01
               Pro forma                                        $    0.04      $    0.01
</TABLE>

NOTE 15: LITIGATION

In July 1997, the Company settled litigation, which was initiated in March 1997,
with the two controlling shareholders of Marinex prior to the acquisition of
TECI. The settlement required the two shareholders to return a total of 250,000
shares of common stock to the Company, cancel their employment agreements with
the Company and retain ownership of a total of 2,030,000 shares of common stock
in the Company until the Marinex operations liquidated. The Company has a
specified period of time to contest the resolution of all outstanding Marinex
matters in order to prevent the two shareholders from selling the remaining
2,030,000 shares of common stock. The 250,000 shares of common stock returned to
the Company have been cancelled and returned to the treasury.

In February 1998, the Company settled litigation with a business consultant
pursuant to the acquisition agreement between Marinex and TECI, whereby the
consultant received 125,000 shares of common stock. The issuance of the shares
was originally accounted for as part of the acquisition of TECI by Marinex;
therefore, no additional amounts were recorded in 1998.


                                      F-24
<PAGE>   54


                  TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       THREE YEARS ENDED DECEMBER 31, 1998



NOTE 16:          INCOME FROM CONTINUING OPERATIONS PER SHARE

The following is a reconciliation of the numerator and denominator underlying
the income from continuing operations per share calculations:

<TABLE>
<CAPTION>
                                                                      Year ended December 31, 1998
                                                               -----------------------------------------
                                                                 Income          Shares        Per Share
                                                               (Numerator)   (Denominator)      Amount
                                                               -----------   -------------     ---------
<S>                                                            <C>              <C>            <C>      
       Income from continuing operations available to 
       common stockholders'                                    $   952,635      24,686,178     $    0.04

       Effect of dilutive securities:
          Incremental shares of assumed conversion of
          Debt and exercise of options                                  --         235,130            --
                                                               -----------   -------------     ---------
       Diluted income from continuing operations
          Available to common shareholders' and
          Assumed conversions                                  $   952,635      24,921,308     $    0.04
                                                               ===========   =============     =========
</TABLE>

<TABLE>
<CAPTION>
                                                                      Year ended December 31, 1997
                                                               -----------------------------------------
                                                                 Income          Shares        Per Share
                                                               (Numerator)   (Denominator)      Amount
                                                               -----------   -------------     ---------
<S>                                                            <C>              <C>            <C>      
       Income from continuing operations available to
       common stockholders'                                    $   815,370      24,695,641     $    0.03

       Effect of dilutive securities:
          Incremental shares of assumed conversions of
          Options                                                       --         128,125            --
                                                               -----------   -------------     ---------
       Diluted income from continuing operations
          Available to common shareholders' and
          Assumed conversions                                  $   815,370      24,823,766     $    0.03
                                                               ===========   =============     =========
</TABLE>


<TABLE>
<CAPTION>
                                                                      Year ended December 31, 1996
                                                               -----------------------------------------
                                                                 Income          Shares        Per Share
                                                               (Numerator)   (Denominator)      Amount
                                                               -----------   -------------     ---------
<S>                                                            <C>              <C>            <C>      

       Income from continuing operations available to 
       common stockholders'                                    $   883,115      19,499,936     $    0.05

       Effect of dilutive securities:
          Incremental shares of assumed conversions of
          Options                                                       --          31,250            --
                                                               -----------   -------------     ---------
       Diluted income from continuing operations
          Available to common shareholders' and
          Assumed conversions                                  $   833,115      19,531,186     $    0.05
                                                               ===========   =============     =========
</TABLE>



                                      F-25

<PAGE>   55
                              INDEX TO EXHIBITS


<TABLE>
<CAPTION>
         Item No.                          Item                                   Method of Filing
         --------                          ----                                   ----------------
         <S>         <C>                                                 <C>    
           3(a)       Articles of Incorporation......................    Incorporated  by reference to Exhibit 3(a) to
                                                                         the Company's 1996 Form 10-K
           3(b)       By-Laws........................................    Incorporated  by reference to Exhibit 3(b) to
                                                                         the Company's 1996 Form 10-K
           10(a)      Acquisition Agreement for Texas                    Incorporated  by reference to Exhibit 3(a) to
                        Equipment Co. Inc............................    the Company's 1996 Form 10-K
           10(j)      Contract with John Deere & Company.............    Incorporated  by reference to Exhibit 3(j) to
                                                                         the Company's 1996 Form 10-K
           10(k)      Contract with John Deere & Company.............    Incorporated  by reference  to Exhibit  10(k)
                                                                         to the Company's 9/30/1998 Form 10-Q
            21        List of Subsidiaries...........................    (filed herewith)
           23(a)      Consent of Killman, Murrell &
                         Company, P.C................................    (filed herewith)
           23(b)      Consent of Mazars & Guerard, LLP...............    (filed herewith)
            27        Financial Data Schedule........................    (filed herewith)
</TABLE>