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 [Fee Required]
For the fiscal year ended December 31, 1996 or
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from ________ to _______
Commission file number 33-47921-A
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Texas Equipment Corp.
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(Exact name of registrant as specified in its charter)
Nevada 62-1459870
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
110 Greene St, Ste 800, New York, New York 10012
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (212) 334-6700
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
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Securities registered under Section 12(g) of the Exchange Act;
(Title of class)
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<PAGE>
Indicate by check and 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|
Indicate by check mark if there is no disclosure of delinquent filers
in pursuant to Item 405 of Regulation S-K is not contained in this form, 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 Form
10-K or any amendment to this Form 10-K. Yes |_| No |X|
State issuer's revenues for its most recent fiscal year. $ 28,094,196
State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid and
asked price, as of a specified date within 60 days prior to the date of filing
$4,196,803: As of April 11, 1997.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. 24,704,886
<PAGE>
PART I
Item 1. Business.
The registrant is a Nevada corporation that was originally named Hard
Funding, Inc. and has 25,000,000 shares of Common Stock, par value $0.001, (the
"Common Stock") authorized. Hard Funding, Inc. was incorporated in August of
1990. On November 8, 1993, Hard Funding, Inc. completed a public offering of
9,775 shares of Common Stock. The registrant was formed for the purpose of
acquiring through the issuance of Common Stock operating assets. From the
registrant's formation until February, 1996, the registrant did not conduct
operations.
In February, 1996, the registrant exchanged 4,000,000 shares of its
Common Stock for all of the issued and outstanding equity shares of Marinex
Multimedia Corporation, a New York corporation ("Marinex"). In connection with
the acquisition of Marinex, the registrant changed its name to Marinex
Multimedia Corporation. Marinex produces a CD-ROM magazine, Trouble & Attitude,
and produces two internet sites, www.bizmag.com ("BIZMAG") and
www.theeastvillage.com. ("VILLAGE"). BIZMAG is a website magazine related to the
entertainment industry, providing interviews of celebrities, downloadable movie
trailers, celebrity sound bites and music videos, weekly entertainment columns,
lectures, and reviews, as well as reports of box office revenues and television
ratings.
VILLAGE is a "Cybersoap" whose story is updated daily.
In the Spring and Summer of 1996, the registrant raised approximately
$3,225,000 in two Regulation S offerings. The first raised $2,525,000 through
the issuance of 2,525,000 shares of Common Stock and the second raised an
additional $700,000 by issuing 507,246 shares of Common Stock.
In September of 1996, the registrant issued 16,850,000 shares of Common
Stock in exchange for all of the capital stock of Texas Equipment Co., Inc., a
Texas corporation ("TEC"). Upon the acquisition of TEC, the registrant changed
its name to Texas Equipment Corporation. At the time of the acquisition, TEC
operated three John Deere dealerships in Southwest Texas. (Unless the context
otherwise indicates, the "Company" shall refer to the registrant and its two
wholly owned subsidiaries, TEC and Marinex.)
As of March 25, 1997, TEC employed 96 people: 11 in sales; 40 in
service; 19 in parts; 10 in set-up; and two in administration. Management of the
Company believes that Marinex employed two people at March 31, 1997. See Item 3.
Legal Proceedings
Texas Equipment Co., Inc.
TEC was incorporated in 1987 to operate John Deere dealerships at three
locations in Southwest Texas, namely, Seminole, Plains, and Pecos. Although the
dealership is franchised by John Deere for Commercial and Consumer Equipment,
more than 90% of TEC's revenues are derived from selling, servicing, and leasing
new and used agricultural equipment and parts with new equipment primarily being
manufactured by John Deere. In January 1997, TEC acquired three dealerships in
the Texas Panhandle, namely, Hereford, Dimmitt, and Friona, dealerships that are
also oriented toward agricultural sales.
John Deere, which has manufactured agricultural equipment since 1837,
believes its worldwide sales of agricultural equipment during recent years have
been greater than any other business enterprises's sales of agricultural
equipment. This full line of agricultural equipment includes tractors; tillage,
soil preparation, seeding, and harvesting machinery; sprayers; hay and mowing
equipment; and integrated farming technology. In particular John Deere
manufactures large-size agricultural equipment, particularly tractors over 100
horsepower, self propelled combines and self-propelled cotton pickers. John
Deere has products that utilize satellite technology which evaluates a
customer's field and alters John Deere equipment's operational characteristics,
such as speed of harvesting equipment, that increase the efficiency of
harvesting.
Store Operations and Marketing
The three stores in Southwest Texas sell to farmers principally engaged
in peanut and cotton farming while the three stores located in the Texas
Panhandle sell to farmers principally engaged in wheat, corn, other grain, and,
to a lesser extent, cotton farming. Management of TEC believes that farmers
purchasing new equipment in the Southwest
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<PAGE>
Texas stores typically farm about 2,000 acres, and those in the Texas panhandle
farm somewhat larger acreage. Those farming significantly smaller acreages are
the primary market for TEC's used equipment.
In addition to being a John Deere dealer, TEC is also a dealer for
other manufacturers of agricultural equipment. TEC's other principal dealerships
are Amadas, which manufactures large threshing equipment used in peanut farming,
and KMC, also a provider of equipment used in peanut farming. TEC's management
believes that it is the largest dealer of Amadas equipment in the world. TEC
does lease or rent some equipment, leases being for a term of one year or more
with rentals occurring during planting and harvesting seasons. Presently, TEC
does not maintain a separate rental or lease fleet. TEC prearranges financing
for virtually all of the purchases of equipment.
Each of TEC's six stores supports the sale of new equipment with part
sales, equipment service and the sale of used equipment, principally acquired
through trade ins. Each store has a sales area, parts area and service bays.
These buildings are surrounded by several acres where new and used equipment is
displayed and stored. Each store is staffed by highly trained service
technicians. Although the technicians may make repairs at a customer's farm, the
farming equipment's size requires specialized bays and hoists, and the farming
equipment's technology, particularly onboard computers, requires specialized
diagnostics that can often only be performed at the dealership's location
TEC's sales are subject to seasonal fluctuations. Sales are slowest
after planting is completed in mid May and before harvesting commences in
mid-August. There is some decrease in sales after harvesting is complete but
this decrease is mitigated by those engaging in soil maintenance activities. The
acquisition of the Texas Panhandle stores operates to lengthen TEC's selling
season.
TEC markets principally by arranging equipment financing. The equipment
used on large farms commonly costs in excess of $100,000. By providing
financing, TEC facilitates the equipment's sale. The financing is provided
principally through John Deere Credit and Agricredit Acceptance. TEC's credit
risk is limited to the finance company's receivable, and TEC typically requires
a 20% down payment. The finance company withholds from TEC one percent of the
amount financed, but when the total amount withheld exceeds between three and
four percent of the receivables outstanding, the excess is remitted to the
Company.
Floor Plan Financing
John Deere and Deere Credit Services offer 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 Credit Services
changes periodically, are currently six to eight months. Deere Credit Services
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. After the interest-free period, the Company
generally shifts its financing to Deere Credit Services to obtain a lower
interest rate.
For equipment from suppliers other than Deere, the Company primarily
finances its inventory through its line of credit at Agricredit Acceptance.
Financing also may be available through floor plan financing programs provided
by the suppliers, which may be financed by such suppliers themselves or through
third party lenders, depending on which option provides the Company with the
most favorable terms.
Competition
Management of TEC believes that its principal competition comes from
other John Deere dealers. While there are Case International dealerships
competing in the markets in which TEC operates, management of the Company
believes that the quality of John Deere equipment and the equipment's ability to
hold its resale value gives the John Deere equipment a competitive advantage.
John Deere is, however, encouraging consolidation of dealerships and
permitting the public financing of those entities. Accordingly, the Company
anticipates that the markets in which TEC operates to be changing, perhaps
radically, and TEC anticipates additional competition from large dealerships,
including John Deere dealerships, that may have significantly greater financial,
information system and personnel resources than those of TEC and that are intent
on increasing market share.
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Product Warranties
Product warranties for new equipment and parts are provided by the
supplier. The term and scope of these warranties vary greatly by supplier and by
product. The Company does not provide additional warranties to retail purchasers
of new equipment. John Deere and other vendors pay the Company for each's
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 transferrable and
has not yet expired. Typically, the Company does not provide additional
warranties on used equipment.
Environmental Standards and Government 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 incompliance 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 financial liability to the Company and
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 expenditures. 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.
Marinex Multimedia
Marinex Multimedia was formed to sell entertainment media to users of
personal computers. Personal computers can be equipped to play CD-ROMS or access
material on the Internet. In addition to text and photographs, CD-ROMs and
Internet material can make available to personal computers videos and sound and
interactive games.
Marinex's efforts are oriented toward magazines delivered on CD-ROM or
via the Internet. In addition to text and photographs, the media could deliver a
variety of sound, music and videos. The CD-ROM, Trouble & Attitude, was marketed
toward 18-44 years old as was the Internet magazine. In addition, developed and
produced a cybersoap on the Internet whose story line was updated daily.
The CD-ROM has been produced sporadically. It was originally produced
in 1995 and successfully produced revenues. After the filing of litigation
against the Company, the Company became aware that an issue of Trouble &
Attitude had been distributed to several bookstores, including national chains
such as Barnes &Noble. The copyright is for 1997 by Trouble & Attitude, Inc., an
entity that management is unaware is affiliated with the Company. Although the
address on the cover is the Company's address, there is a reference to an e-mail
address of [email protected]. The inside front cover prominently refers to
www.theeastvillage.com. Management of the Company anticipates that the legal
issues raised by the publication, among others, will become part of the issues
involved in the litigation filed by a director of the Company against the
Company. See Item 3. Legal Proceedings; Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operation - Liquidity and Capital
Resources.
Producers of sites on the internet can derive revenues from two
sources, subscriptions and advertising, and management believes that
subscriptions on the Internet are not likely since so much material on the
internet can be obtained without cost.
Marinex has received minimal advertising revenues from the Internet.
Recent reports indicate that total revenues from advertising on the internet for
1996 were $300,000,000, a five fold increase from 1995. The firm generating the
largest amount of advertising on the Internet, received approximately
$24,000,000 in 1996 from advertising revenues.
Management of the Company is reviewing whether is a business that can
be conducted profitably or whether it should be sold or closed.
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Item 2. Properties.
The Company is headquartered in New York City where the Company rents a
loft from the Soho Building, located at 110 Greene Street, New York, NY. Rent is
$3,750 per month. The lease expires in September of 1997 and the Company has
renewal options.
The following table sets forth the size of TEC's locations: 1
<TABLE>
<CAPTION>
Total Building Office and Service and
Location Acreage Space* Showroom* Parts Storage* Setup*
- ------------------ ------- -------------- ---------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Seminole 13.94 50,000 9,875 14,000 26,125
Plains 6.025 21,000 2,200 8,600 10,800
Pecos 1.32 12,800 1,000 5,500 5,500
Hereford 10.97 26,700 3,900 12,000 10,800
Dimmitt 10.02 35,500 5,400 11,200 18,900
Friona 5.0 18,000 4,100 5,600 8,300
</TABLE>
* In square feet
The Friona store is rented for $2,500 per month. The remaining stores are owned
by TEC.
Item 3. Legal Proceedings.
On March 17, 1997, the registrant was served with a complaint filed on
March 8, 1997, by Jonathan Braun, Charles Platkin and Marinex Multimedia
Corporation ("Marinex") in the United States District Court for the Southern
District Court of New York against the registrant, TEC, Paul Condit, Paul Condit
II, John Condit, Jeffrey Condit, Michael Killman and Charles Barkley. Marinex is
a wholly owned subsidiary of the registrant, and Jonathan Braun is a director of
the registrant as well as an officer and director of Marinex. Charles Platkin is
a former director of the registrant and is a director and officer of Marinex.
Michael Killman is a principal in the accounting firm of Killman Murrell & Co.,
the registrant's independent auditor. Charles Barkley was counsel to the
registrant. The civil action relates to the exchange of shares between the
registrant and TEC whereby TEC became a wholly owned subsidiary of the
registrant. Paul Condit is the registrant's president, and Paul Condit II, John
Condit, and Jeffrey Condit were owners of all of the issued and outstanding
equity of TEC, each now owning approximately 22.7% of the registrant's Common
Stock. The action alleges that: (I) TEC, Paul Condit, Paul Condit II, John
Condit, Jeffrey Condit, Michael Killman, and Charles committed fraud against
Marinex; (ii) Texas Equipment, Paul Condit, Paul Condit II, John Condit, Jeffrey
Condit, and Michael Killman negligently made false representations to Marinex;
(iii) Paul Condit II, John Condit and Jeffery Condit committed a breach of
contract against the plaintiffs; and (iv) Charles Barkley committed a breach of
fiduciary duty, breach of duty of loyalty, negligence and legal malpractice
against the plaintiffs. The action seeks unspecified damages not less than
$930,000, including fees and expenses. The registrant believes this action is
without merit and intends to vigorously defend against these claims. While the
registrant believes these claims are without merit and are, in addition, subject
to numerous procedural defenses, the final outcome of this action is unknown.
Item 4. Submission of matters to a Vote of Security Holders.
Not applicable
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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 ask quotations for each quarter of the 1996 is as follows:
1995 Closing Bid Closing Ask
high low high low
Marrch31 7.00 6.00 10.00 9.00
June 28 7.00 7.00 9.00 9.00
September 29 7.00 7.00 9.00 9.00
December 29 7.00 7.00 9.00 9.00
1996 Closing Bid Closing Ask
high low high low
March 29 8.00 7.00 9.00 9.00
June 28 10.00 5.25 11.00 6.25
September 30 6.75 1.00 8.25 3.00
December 31 3.625 2.125 3.625 2.625
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, 1997, there were approximately 300 holders of
record of the Company's common stock. The Company has not paid any dividends,
redeemed, repurchased or otherwise retired any of its capital stock.
Item 6. Selected Financial Data.
Year Ended December 31,
1996 1995 1994
Net Sales $28,094,196 $25,031,608 $20,964,570
Gross Profit 4,092,807 3,383,351 2,917,714
Net Income 736,351 253,399 58,631
Net Income per share $0.00 $0.02 $0.04
Total Assets 11,612,258 9,624,708
Long-term Debt 1,005,762 1,195,378
Dividends 0.00 0.00 0.00
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
Fiscal 1996 Compared to Fiscal 1995
The acquisition by the Company of TEC is accounted as though TEC
acquired the Company through a purchase. Accordingly, the consolidated balance
sheet reflects the net expenses incurred by Marinex through September of 1996.
The Company's Consolidated Statement of Operations reflects the expenses of
Marinex incurred
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<PAGE>
in the fourth quarter of 1996.
The net expenses of Marinex for 1996 were approximately $1,063,000.
Revenues for Marinex were less than $100,000 for the 1996 fiscal year,
principally reflecting sales of Trouble & Attitude as well as a fee paid by a
distributor upon termination of a distribution arrangement. Revenues from the
internet locations were less than $10,000 for the fiscal year ended December 31,
1996. Production and advertising expenses together with salaries paid to Messrs.
Braun and Platkin constituted the majority of expenses incurred by Marinex.
Revenues for TEC increased to approximately $28,000,000 in 1996 from
approximately $25,000,000 in 1995, an increase of more than 12%. These revenues
reflect sales solely from three Southwest Texas stores and the increase derives
from improved economic conditions in the area, maturation of the Plains, Texas
store, and increased sales of equipment related to peanut farming. The slightly
improved margins in 1996, reflecting a different product mix, resulted in an
almost 21% increase in gross profit, from $3,383,351 in 1995 to $4,092,807 in
1996.
TEC's selling general and administrative costs decreased from
$2,935,899 in 1995 to $2,645,231 in 1996, principally as a result of lower
commission compensation to Mr. Paul Condit, the Company's president. Because of
increased gross profit and decreased selling, general and administrative costs,
gross profit before income tax for TEC increased almost 270%, from $416,693 in
1995 to $1,534,646, earnings per share for the Company increasing from $0.02 to
$0.04 per share.
Fiscal 1995 Compares to Fiscal 1994
Net income for TEC and the Company increased in 1995 to $253,399 from
$58,631 in 1994. Gross profit increased almost 16% in 1995 from 1994 although
revenues increased more than 19%. In 1995, the Company's results were favorably
affected by a decline in commission expense as a percentage of revenue and a
decline in office administrative expense.
Liquidity and Capital Resources
The Company's agricultural operations have sufficiently funded those
operations. Proceeds from the Company's sale of stock enabled TEC to acquire the
stores in the Panhandle of Texas. Throughout the year, those financing equipment
purchased from TEC typically hold back three to four percent of the amount
financed, thus decreasing cash flow during the year. A significant portion of
this holdback is usually recaptured after the end of each calendar year,
however.
The effect of litigation filed by Messrs. Braun and Platkin on the
Company's liquidity cannot yet be determined, although the Company believes that
the claims are spurious. In addition, on January 24, 1997, at the instruction of
Charles Platkin, $625,000 of the Company's money was wired to a checking account
of a Mr. Paul F. Condzal, believed by the Company to be an attorney. The Company
anticipates that this act, among similar acts, will be the subject of part of
its response to the litigation filed by Messrs. Braun and Platkin.
Item 8. Financial Statements and Supplementary Data.
The Company's consolidated balance sheet as of December 31, 1996 and
1995, and the related consolidates statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996 are included under Item 14 hereof.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable
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PART III
Item 10. Directors and Executive Officers of the Registrant.
The following persons are the directors and executive officers of the
Company and have served in such capacities since the formation of the Company.
Name Age Position
Paul Condit 63 President, Director,
Chief Financial Officer
John T. Condit 32 Secretary/Treasurer, Director
Jonathan Braun 45 Director,
President of Marinex Multimedia
All directors and officers of the Company are elected annually to serve
for one year or until their successors are duly elected and qualified.
Paul Condit, 63, 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 23 years. Mr. Condit owned and operated a predecessor
company and has managed Texas Equipment since its inception in 1987.
John Condit, 32, serves as a Director and Chief Financial Officer of
Texas Equipment and will serve as Secretary of the Company. He obtained a BBA
degree from Texas Tech University in 1986. For the past five years, he has been
President of Domicile Property Management, Inc., a real estate acquisition and
management firm, in San Antonio, Texas.
Jonathan Braun, 45, a former journalist, has over 20 years experience
in public relations and consulting and has served as his Chairman of the Board
since its inception in January 1995. From 1992 until establishing Marinex
Multimedia Corporation in 1995, Mr. Braun has been engaged in the public
relations and consulting business through a company called Marinex, Inc., a
Delaware corporation. That company has been dissolved. In March 1997, Mr. Braun
filed a lawsuit against the Company that is adverse to the Company. See Item 3.
Legal Proceedings.
Item 11. Executive Compensation.
<TABLE>
<CAPTION>
Fiscal Annual Compensation Other
Name/Position Year Salary($) Bonus($) Compensation($)
<S> <C> <C> <C>
Paul Condit, President 1996 $26,000
1995 $29,630 $180,260
John Condit 1995 0 0
Jonathan Braun(1), Director 1996 $240,000
1995 $26,667
</TABLE>
(1) Mr Braun also 100,000 stock options exercisable at $4.00 per share subject
to shareholder approval
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Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding the
beneficial ownership of the Company's common stock as of October 1, 1996 by
(I)each person who is known by the Company to own beneficially more than five
percent (5%) of the Company' outstanding common stock; (ii) each of the
Company's officers and directors; and (iii) all directors and officers of the
Company as a group.
Name of Shares of Common Approximate
Beneficial Stock Beneficially Percentage
Owner Owned Owned
John T. Condit 5,616,666 22.7%
c/o Domicile Property Management
601 Howard Streets
San Antonio, TX 78212
Paul J. Condit II 5,616,666 22.7%
c/o Domicile Property Management
601 Howard Streets
San Antonio, TX 78212
Jeffrey E. Condit 5,616,666 22.7%
c/o Domicile Property Management
601 Howard Streets
San Antonio, TX 78212
Jonathan Braun 1,140,000 4.6%
70 Huntsville Road
Katonah, NY 105361.
John T. Condit, Paul J. Condit II and Jeffrey E. Condit are brothers
and are the sons of Mr. Paul Condit, the Company's President, Chief Executive
Officer and a Director. Mr. Braun has an Option to Acquire up to 25% of the
issued and outstanding shares of one of the Company's subsidiaries, Marinex
Multimedia Corporation, a New York corporation, upon the happening on certain
events asset forth in the Acquisition Agreement which is included as an exhibit
to this filing.
Item 13. Certain Relationships and Related Transactions.
The Company was incorporated in the State of Nevada as "Hard Funding,
Inc." on August 14, 1990 as a Nevada Corporation to be a "blank check"
corporation whose sole business was to purchase, merge with or acquire a
business or assets from another company. Hard Funding, Inc. filed a Registration
Statement with the Atlanta Regional office of the United States Securities and
Exchange Commission (the"Commission") on Form SB-2, which registration statement
was declared effective as of October 26, 1993. Pursuant thereto, Hard Funding
published a prospectus dated October 26, 1993 (the "Prospectus") with respect to
certain of its securities. On November 8, 1993, the Company completed its
initial public offering by selling to its underwriter, Westminster Securities
Corporation, all 8,500 shares plus the over allotment shares, for a total of
9,775 shares. As a result of the initial public offering, the Company received
net offering proceeds, after deducting offering expenses, in the amount of
$34,327. An additional 340 shares were issued to the underwriter as a portion of
the underwriting compensation. On February 12, 1996, Hard Funding acquired
Marinex through a process generally referred to as a "reverse merger." Hard
Funding, with its 510,115 shares outstanding, caused 4,000,000 shares of its
authorized but unissued shares to Be issued to the shareholders of Marinex in
exchange for all of the outstanding shares of Marinex. As a result of the
acquisition, the officers and directors of Hard Funding resigned and were
replaced by the officers and directors of Marinex Multimedia Corporation;
namely, Mr. Jonathan Braun and Mr. Charles Platkin. Messrs. Braun and Platkin
remain as officers and directors of the multimedia subsidiary and Mr. Braun
remains a director of the Company. Both Messrs. Braun and Platkin own shares in
the Company. As of September 17, 1996, the Company acquired a second subsidiary,
Texas Equipment Co., Inc., by
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issuing 16,850,000 shares of its authorized but unissued stock to Messrs. John
Condit, Paul Condit, II and Jeffrey Condit in exchange for all of the
outstanding shares of that Company. As a result of the transaction, Mr. Platkin
resigned as an officer and director of the Company although he remains as an
officer and director of the multimedia subsidiary. Mr. Paul Condit and Mr. John
Condit were elected members of the Board of Directors and as officers. Messrs.
John Condit, Paul Condit, II and Jeffrey Condit are the sons of the Company's
President and CEO, Mr. Paul Condit. The Condit family now controls 68.2% of the
outstanding common stock of the Company.
Messrs. Braun & Platkin had employment agreements with the Company that
were dated June 1, 1996. The term of each agreement is for five years and calls
for an annual salary of $240,000. The annual base salary for each increases at
not less than 10% per year, such increase to take effect on the anniversary date
of the agreement. The agreement permits the Company to terminate agreement if
the employee is convicted of a felony related to the Company's business.
These agreements were canceled upon the Company's acquisition by TEC,
and, management believes Messrs. Braun and Platkin entered into employment
agreements with Marinex. Management believes these agreements to be essentially
the same as those entered into with the Company. The Company paid Messrs. Braun
and Platkin $240,000 in 1996 as salary.
In addition, the Company paid at the closing of the TEC acquisition
$100,000 in preexisting debt believed by management to be loans to the Company
by Messrs. Braun and Platkin or both.
In consideration of cancellation of the existing employment agreement,
Messrs. Braun and Platkin received the right to acquire, in certain
circumstances, 25% each or a total of 50% of Marinex. These circumstances
include any sale of a 10% interest in Marinex, any sale or spin out of TEC, and
others.
John Condit, or his brothers, who are 5% stockholders, or their
affiliates guarantee approximately $535,000 of TEC's debt at December 31, 1996.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Financial Statements
The following financial statements are included herewith:
Page
----
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8
(b) Reports on Form 8-K
Form 8-K filed on March 31, 1997
(c) Exhibits
3(a) Articles of Incorporation
3(b) By-Laws
10(a) Acquisition Agreement for Texas Equipment Co., Inc.
10(b) Subscription Agreement with Varna Management
10(c) Subscription Agreement with Alstro Holdings
10(d) Subscription Agreement with Varna Management
10(e) Option Agreement with Jonathan Braun
10(f) Option Agreement with Charles Platkin
11
<PAGE>
10(g) Option Agreement with Charles Barkley
10(h) Employment Agreement with Jonathan Braun
10(i) Employment Agreement with Charles Platkin
10(j) Contract with John Deere Company
21(a) List of Subsidiaries
23 Consent of Accountants(filed herewith)
27 financial Data Schedule(filed herewith)
12
<PAGE>
TABLE OF CONTENTS
Page
----
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders' Equity F-6
Consolidated Statements of Cash Flow F-7
Notes to Consolidated Financial Statements F-9
F-1
<PAGE>
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 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. 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 1995, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
KILLMAN, MURRELL AND COMPANY, P.C.
Odessa, Texas
February 12, 1997
F-2
<PAGE>
TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
ASSETS
<TABLE>
<CAPTION>
1995 1996
------------ ---------------
CURRENT ASSETS
<S> <C> <C>
Cash and Temporary Cash Investments $ 250,031 $ 2,661,058
Accounts Receivable -
Trade 213,777 872,815
Employees and Other 14,051 204,649
Inventories, at the lower of cost (principally specific
identification and average cost) or market value - Note 2 6,439,238 5,380,188
Prepaid Expenses - 12,500
-------------- -------------
TOTAL CURRENT ASSETS 6,917,097 9,131,210
----------- ------------
LAND, BUILDINGS AND EQUIPMENT, at cost - Note 3 2,182,355 2,111,369
Less Accumulated Depreciation (737,475) (866,927)
----------- ------------
NET LAND, BUILDINGS AND EQUIPMENT 1,444,880 1,244,442
----------- ------------
OTHER ASSETS
Finance Receivables - Note 4 693,674 731,028
Cash Surrender Value of Insurance 228,550 129,156
Other Assets 73,585 23,945
Goodwill, net of accumulated amortization of $41,318
and $54,031, respectively 149,380 136,667
Stockholders' Receivables - Note 11 117,542 215,810
----------- ------------
TOTAL OTHER ASSETS 1,262,731 1,236,606
---------- ------------
TOTAL ASSETS $9,624,708 $11,612,258
========== ===========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
(Continued)
F-3
<PAGE>
TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
DECEMBER 31, 1995 AND 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1995 1996
------------ -------------
CURRENT LIABILITIES
<S> <C> <C>
Notes Payable - Note 8 $ 300,000 $ 300,000
Current Maturities of Long-Term Debt - Note 9 271,447 396,022
Accounts Payable Trade -
John Deere Company 3,096,801 2,190,355
Other 436,952 437,564
Accrued Expenses - Note 10 308,226 753,271
Customer Deposits - 79,500
Deferred Tax Liability - Note 7 377,300 159,800
---------- ------------
TOTAL CURRENT LIABILITIES 4,790,726 4,316,512
---------- ------------
LONG-TERM DEBT, net of current maturities - Note 9 1,195,378 1,005,762
DEFERRED TAX LIABILITY - Note 7 152,000 107,200
COMMITMENTS AND CONTINGENCIES -
Notes 4, 6, 12 and 13 - -
------------- ---------------
TOTAL LIABILITIES 6,138,104 5,429,474
---------- ------------
STOCKHOLDERS' EQUITY
Preferred Stock, No Par Value. Authorized 3,000,000; Issued
and Outstanding 596,305 in 1995 596,305 -
Common Stock, No Par Value. Authorized 1,000,000; Issued
and Outstanding 100,000 100,000 -
Common Stock, $.001 Par Value. Authorized 25,000,000;
Issued and Outstanding 24,704,886 - 24,705
Paid in Capital - 2,534,952
Retained Earnings 2,886,776 3,623,127
---------- ------------
3,583,081 6,182,784
Less Treasury Shares - 40,000 Shares of Common
Stock, at cost (96,477) -
----------- ---------------
TOTAL STOCKHOLDERS' EQUITY 3,486,604 6,182,784
---------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,624,708 $11,612,258
========== ===========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-4
<PAGE>
TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
-------------- -------------- ----------------
<S> <C> <C> <C>
REVENUES $20,964,570 $25,031,608 $28,094,196
COST OF REVENUES 18,046,846 21,648,257 24,001,389
----------- ----------- -----------
GROSS PROFIT 2,917,724 3,383,351 4,092,807
------------ ------------ ------------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
Commissions, Salaries, and
Employee Benefits 1,647,859 1,821,616 1,460,247
Amortization and Depreciation 173,418 181,080 152,942
Collection and Bad Debt Expense 84,998 139,505 111,394
Marinex Operating Expenses - - 217,400
Other Operating Expenses 873,578 793,698 1,147,146
------------ ------------ ------------
Total Selling, General and
Administrative Expenses 2,779,853 2,935,899 3,089,129
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest Income 187,720 181,008 175,465
Interest Expense (237,212) (243,122) (127,151)
Other Income 14,680 31,355 38,756
------------- ------------- -------------
INCOME BEFORE INCOME TAXES 103,059 416,693 1,090,748
INCOME TAXES - Note 7 44,428 163,294 354,397
------------- ------------ ------------
NET INCOME $ 58,631 $ 253,399 $ 736,351
============= ============ ===========
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 16,850,000 16,850,000 18,662,666
============ =========== ==========
EARNINGS PER SHARE $. .00 $ .02 $ .04
=============== ============== =============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-5
<PAGE>
TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
TOTAL
STOCK-
PREFERRED STOCK COMMON STOCK PAID IN RETAINED TREASURY HOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SHARES EQUITY
------ ------ ------ ------ ---------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 224,910 $224,910 100,000 $100,000 $ - $2,574,746 $(96,477) $2,803,179
Stock Bonus Plan Issuance 200,089 200,089 - - - - - 200,089
Net Income - - - - - 58,631 - 58,631
-------- -------- ------- -------- ------------ ---------- ---------- -----------
Balance, December 31, 1994 424,999 424,999 100,000 100,000 - 2,633,377 (96,477) 3,061,899
Stock Bonus Plan Issuance 171,306 171,306 - - - - -
171,306
Net Income - - - - - 253,399 - 253,399
-------- -------- ------- -------- ------------ ----------- --------- -----------
Balance, December 31, 1995 596,305 596,305 100,000 100,000 - 2,886,776 (96,477) 3,486,604
Acquisition of Parent - Note 12
September 17, 1996 (596,305) (596,305) 26,604,886 (75,295) 2,534,952 - 96,477 1,959,829
Net Income - - - - - 736,351 - 736,351
-------- --------- ---------- -------- ------------ ----------- -------- -----------
Balance, December 31, 1996 $ - $ - 24,704,886 $ 24,705 $2,534,952 $3,623,127 $ - $6,182,784
========== ========= ========== ======== ========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements
F-6
<PAGE>
TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------ ---------- ------------
CASH FLOW FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net Income $ 58,631 $ 253,399 $ 736,351
Adjustments to Reconcile Net Income
to Net Cash from Operating Activities
Amortization and Depreciation 173,418 181,080 163,553
Loss on Disposal of Assets 11,728 - 3,502
Deferred Taxes (92,800) 1,200 (262,300)
Increase in Finance Receivable (97,073) (200,850) (37,354)
Increase in Preferred Stock 200,089 171,306 -
Changes in Current Assets and Liabilities
(Increase) Decrease in Accounts Receivable 445,455 57,331 (849,636)
(Increase) Decrease in Inventories 1,002,860 (436,056) 1,059,050
Increase (Decrease) in Accounts Payable (2,179,130) 696,425 (905,834)
Increase (Decrease) in Accrued Liabilities (14,835) (44,839) 445,045
Increase (Decrease) in Customer Deposits 52,368 (54,966) 79,500
(Increase) in Prepaid Expenses - - (12,500)
(Increase) Decrease in Other Assets (80,540) 10,300 49,640
----------- ----------- ---------
NET CASH FLOW PROVIDED
(USED) BY OPERATING
ACTIVITIES (519,829) 634,330 469,017
---------- ---------- ---------
CASH FLOW FROM INVESTING ACTIVITIE4S
Purchases of Land, Buildings and Equipment (152,895) (421,224) (126,126)
Proceeds from Sale of Equipment 47,214 - 46,500
(Increase) Decrease in Cash Surrender Value
of Life Insurance (28,579) (27,564) 99,394
(Increase) Decrease in Stockholders' Receivables (66,999) 983 27,454
----------- ------------ ---------
NET CASH FLOWS (USED) BY
INVESTING ACTIVITIES $ (201,259) $ (447,805) $ 47,222
---------- ---------- ---------
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
(Continued)
F-7
<PAGE>
TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
-------------- ------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES
<S> <C> <C> <C>
Proceeds from Note Borrowings $ 2,048,243 $ 1,203,569 $ 775,149
Repayments of Note Borrowings (1,150,704) (1,648,526) (840,190)
Capital Contribution and Issuance
of Common Stock - - 1,959,829
--------------- --------------- ----------
NET CASH FLOW PROVIDED (USED) BY
FINANCING ACTIVITIES 897,539 (444,957) 1,894,788
------------ ------------ ----------
NET INCREASE (DECREASE) IN CASH 176,451 (258,432) 2,411,027
CASH AT THE BEGINNING OF THE PERIOD 332,012 508,463 250,031
------------ ------------ ----------
CASH AT THE END OF THE PERIOD $ 508,463 $ 250,031 $2,661,058
============ =========== ==========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash Paid During the Period For:
Interest Expense $ 238,576 $ 199,549 $ 135,260
============ =========== ==========
Income Taxes $ 225,533 $ 33,240 $ 143,918
============ =========== ==========
SUPPLEMENTAL SCHEDULE OF
NONCASH ACTIVITIES
Transfer of Assets to Officer
Prior to Merger $ - $ - $ (125,722)
Change in Officer Payable - - 125,722
--------------- -------------- ----------
$ - $ - $ -
=============== ============== =============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-8
<PAGE>
TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 1: NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
These consolidated financial statements include the accounts of Texas Equipment
Corporation (a Nevada Corporation, formerly Marinex Multimedia Corporation and
Hard Funding, Inc.) and its wholly-owned subsidiaries ("TEXQ"), Texas Equipment
Co., Inc., ("TEC")and Marinex Multimedia Corporation ("Marinex").
TEC, a Texas corporation, is a retailer of John Deere and other agricultural
equipment with its headquarters in Seminole, Texas. TEC's market area is
approximately one thousand (1,000) square miles surrounding Seminole, Texas,
which includes large tracts of lands in the South Plains of Texas and in Eastern
New Mexico. In excess of ninety percent (90%) of equipment sales are made to
customers participating in agriculture; therefore, TEC has a concentration of
customers in a geographic area and in a single industry and is tied to a sole
supplier (John Deere) for a significant portion of its new equipment purchases.
Marinex, a New York Corporation, is a multimedia organization engaged in the
business of the creation of digital content including a CD-ROM magazine and
entertainment sites on the world wide web.
The summary of significant accounting policies of TEXQ is presented to assist in
understanding TEXQ's consolidated financial statements. The consolidated
financial statements and notes are representations of TEXQ's management, who is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
Subsidiary and Principles of Consolidation
The consolidated financial statements include the accounts of Texas Equipment
Corporation and its wholly owned subsidiaries, Texas Equipment Co., Inc. and
Marinex Multimedia Corporation. All significant intercompany balances and
transactions have been eliminated in consolidation.
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 and disclosure of
contingent 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.
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.
Buildings and Equipment
Depreciation of buildings and equipment is provided principally on the
straight-line method using estimated useful lives ranging from five to forty
years.
Major renewals and betterments are added to the property accounts while the cost
of repairs and maintenance is charged to operating expenses in the period
incurred. Cost of assets retired or otherwise disposed of and the applicable
accumulated depreciation are removed from the accounts, and the resultant gain
or loss, if any, is reflected in operations.
(Continued)
F-9
<PAGE>
TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 1: NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED):
Cash Surrender Value of Insurance
The insurance policies carried on the lives of current and former officers of
TEC had a face value of $1,800,000 at December 31, 1995 and 1996. Borrowings
against the cash surrender values as of these dates were $170,104 and $89,371,
respectively.
Goodwill Amortization
TEC's goodwill is being amortized on a straight-line basis over a period of
fifteen (15) years.
Finance Receivables
TEC has entered into retail finance agreements with two credit corporations
whereby TEC's customers can finance selected purchases from TEC, and TEC
guarantees a portion of the financed balance. A portion of the financed balance
is not remitted to TEC but is held by the finance companies to insure the
payment of amounts financed. At such time as the amounts are repaid to the
credit corporation, the withheld amounts may be remitted to TEC. The finance
receivables are recognized as income when the loans are funded by the credit
corporations. TEC has traditionally experienced less than a one percent loss on
credit sales; therefore, TEC has elected not to provide a reserve for loss
associated with the finance receivables.
John Deere Payable
John Deere Company provides various inventory financing arrangements for its
dealers, and, at times the payment terms extended beyond a twelve month period;
however, all amounts due the John Deere Company are reflected as current
liabilities since the debt was incurred to acquire inventory.
Income Taxes
TEXQ records income tax expense using the liability method of accounting for
deferred income taxes. Under the liability method, deferred tax assets and
liabilities are recognized for the expected future tax consequences of temporary
differences between the financial statement and income tax bases of TEXQ's
assets and liabilities. An allowance is recorded when it is more likely than not
that any or all of a deferred tax asset will not be realized. The provision for
income taxes includes taxes currently payable plus the net change during the
year in deferred tax assets and liabilities recorded by TEXQ.
Concentration of Credit Risk and Contingencies
TEC places its cash and temporary cash investments with high credit quality
financial institutions. At times such investments may be in excess of FDIC
insurance limits. At December 31, 1995 and 1996, the deposits exceeding FDIC
insurance limits were $758,000 and $2,184,000, respectively.
(Continued)
F-10
<PAGE>
TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 1: NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED):
Concentration of Credit Risk and Contingencies (Continued)
TEC grants credit, generally with collateral, to its customers, which are
located in TEC's market area which is approximately one thousand (1,000) square
miles surrounding Seminole, Texas, including the South Plains of Texas and
Eastern New Mexico. Management believes that its billing and collection policies
are adequate to minimize potential credit risks.
TEXQ and TEC are defendants in various legal proceedings arising in connection
with its business. In management's opinion the financial position of TEC will
not be materially affected by the final outcome of these legal proceedings.
Fair Value of Financial Instruments
Unless otherwise indicated, the fair values of all reported assets and
liabilities which represent financial instruments (none of which are held for
trading purposes) approximate the carrying values of such amounts. The accounts
receivable and accounts payable are due within thirty days, the interest rates
on notes payable and long-term debt approximate market interest rates, and TEC
is paid a current rate of interest on the finance receivables.
Earnings Per Share
The computation of net earnings per share is based on the weighted average
number of shares outstanding for each period, after giving retroactive effect to
equity transactions related to the merger. The per share computation did not
consider the outstanding stock options due to the anti-dilutive effect of
assuming the exercise of the stock options.
Cash Flow Statement
TEXQ considers cash and temporary cash investments as cash equivalents for
purposes of the statement of cash flows. Temporary cash investments are
certificates of deposit with original maturities of three months or less.
NOTE 2: INVENTORIES
At December 31, 1995 and 1996, inventories consisted of:
1995 1996
------------- ------------
New Equipment $3,301,682 $2,243,220
Used Equipment 1,426,894 1,390,872
Parts 1,710,662 1,746,096
---------- ----------
$6,439,238 $5,380,188
========== ==========
Substantially all of the inventories are pledged as security for accounts
payable to John Deere or various notes payable.
F-11
<PAGE>
TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 3: LAND, BUILDINGS AND EQUIPMENT
At December 31, 1995, and 1996, land, buildings and equipment consisted of:
1995 1996
------------- ------------
Land and Buildings $1,146,818 $1,143,227
Vehicles 435,548 348,272
Furniture and Fixtures 383,032 397,009
Equipment and Tools 216,957 222,861
----------- -----------
2,182,355 2,111,369
Less Accumulated Depreciation (737,475) (869,927)
----------- -----------
$1,444,880 $1,241,442
========== ==========
Depreciation Expense $ 168,366 $ 150,840
========== ==========
NOTE 4: FINANCE RECEIVABLES
At December 31, 1995 and 1996, TEC's finance receivables were as follows:
1995 1996
---------- ---------
John Deere Credit $462,817 $491,022
Agricredit Acceptance 230,857 240,006
-------- --------
$693,674 $731,028
======== ========
The applicable outstanding financed balances for each program were as follows:
1995 1996
------------ -----------
John Deere Credit $24,459,979 $28,039,216
Agricredit Acceptance 5,144,230 4,410,478
------------ -----------
$29,604,209 $32,449,694
=========== ===========
In accordance with credit agreements, these finance companies withhold one
percent (1%) of each financed contract accepted from TEC. When the finance
company experiences a loss on a contract, the loss is charged against TEC's
finance receivable. TEC's credit risk is limited to the finance receivables;
however, on an annual basis, the finance receivable is compared to the total
outstanding credit balances and if the finance receivable is greater than the
required amount (3% to 4% of outstanding credit balance), the overage may be
remitted to TEC.
F-12
<PAGE>
TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 5: EMPLOYEE BENEFIT PLANS
Effective January 1, 1993, TEC adopted its "Stock Bonus Plan" (the "Plan").
Contributions to the Plan are at the discretion of the employer subject to
certain limitations imposed by the federal tax code. The Plan covers
substantially all full time employees, and the covered employees become vested
in the employer's contribution at the rate of twenty percent (20%) per year
after three years of service. TEC's shareholders authorized the issuance of
preferred stock in 1993 for the exclusive use in funding the Plan. Contributions
to the Plan aggregated $200,089, $171,306, and $4,549 in 1994, 1995, and 1996,
respectively.
In March, 1994, TEC 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 for to limit the
overall exposure to TEC. The specific stop loss is $20,000 per employee at
December 31, 1995 and 1996. The expense associated with the health benefit plan
aggregated $18,142, $120,341 and $86,663 for 1994, 1995, 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 TEC are
discretionary, and TEC has made no contributions to the 401(k) Plan from
inception to December 31, 1996.
NOTE 6: DEALER AGREEMENTS
TEC has entered into the following dealer agreements with the John Deere
Company:
o John Deere Agricultural Dealer Agreement
o John Deere Commercial Products Dealer Agreement
o John Deere Lawn and Garden Dealer Agreement
o John Deere Lawn and Grounds Care Sales Center Agreement
o John Deere Agricultural Dealer Leasing Agreement
o John Deere Agricultural Dealer Finance Agreement
These dealer agreements can be, in general, terminated by the death of the major
shareholder of TEC, a change in contolling shareholder of TEC, close out or sale
of a substantial portion of TEC's business, default by TEC under any chattel
mortgage or other security agreement with the John Deere Company, TEC receiving
a written termination notice from John Deere Company at least one hundred eighty
(180) days prior to the effective date of notification, or mutual consent of TEC
and John Deere Company.
For the years ended December 31, 1994, 1995 and 1996, sales of John Deere new
equipment, parts and warranty services aggregated 46%, 55% and 46% of total
revenue, respectively.
(Continued)
F-13
<PAGE>
TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
NOTE 6: DEALER AGREEMENTS (CONTINUED)
In addition, TEC has the following dealer agreements in effect:
o Farm Plan - FPC Financial
o K-Imports, Inc.
o Wil-Rich, a division of TIC United Corp.
o Yetter Manufacturing Company
o Hardi Inc.
o NEDA Financial, Ltd., L.P.
o West Texas Lee Co., Inc.
o AGCO Marketing Group
These agreements include various provisions, including the guaranty of payment
by TEC and termination clauses. The agreement with FPC Financial (the "Farm
Plan") provides TEC a method to collect accounts receivables for parts, service
and small whole good sales in three days; however, TEC has guaranteed the
repayment to FPC Finance for its customers included under the merchant
authorized and special guaranty farm plan programs. At December 31, 1995 and
1996, TEC was contingently liable under these programs in the amount of $109,752
and $93,940, respectively.
NOTE 7: INCOME TAXES
At December 31, 1994, 1995 and 1996, the income tax expense (benefit) consists
of the following components:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ----------- ----------
<S> <C> <C> <C>
Current $137,228 $162,094 $616,697
Deferred (92,800) 1,200 (262,300)
-------- --------- --------
Total Income Expense $ 44,428 $163,294 $354,397
======== ======== ========
</TABLE>
The following reconciles income tax expense reported in the statements of
operations to income taxes that would be obtained by applying the statutory tax
rate (34%) to income before income taxes:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ---------
<S> <C> <C> <C>
Expected Income Tax Expense
at 34% $35,040 $141,676 $370,854
Officers' Insurance 4,597 8,677 4,301
Penalties and Other 4,791 12,941 (20,758)
------- --------- ---------
$44,428 $163,294 $354,397
======= ======== ========
</TABLE>
(Continued)
F-14
<PAGE>
TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 7: INCOME TAXES (CONTINUED)
The deferred tax liability in the accompanying balance sheets consists of the
following components:
<TABLE>
<CAPTION>
1995 1996
--------- ----------
<S> <C> <C>
Current
Inventories $430,300 $159,800
Other Deferred Liabilities 32,600 -
Other Deferred Assets (85,600) -
--------- -----------
Total Current 377,300 159,800
-------- --------
Long-Term
Accumulated Depreciation 55,600 42,500
Goodwill Amortization 50,800 46,500
Other 45,600 18,200
--------- --------
Total Long-Term 152,000 107,200
-------- --------
Total $529,300 $267,000
======== ========
</TABLE>
NOTE 8: NOTES PAYABLE
A summary of notes payable at December 31, 1995, and 1996 is as follows:
<TABLE>
<CAPTION>
1995 1996
-------- ------
<C> <C> <C>
11.25% note payable to a bank, payable on demand $300,000 $300,000
or if no demand is made then $100,000 principal ======== ========
reduction at March 26, 1997, secured by equipment,
vehicles, and company stock
</TABLE>
(Continued)
F-15
<PAGE>
TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 9: LONG-TERM DEBT
A summary of long-term debt at December 31, 1995, and 1996 is as follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<C> <C> <C>
9.9% note payable to a credit corporation, $ 6,427 $ -
payable in two installments of $5,700 before
November 1, 1993 and monthly installments of
$1,102 including interest due June 1, 1996, secured
by equipment
9.9% note payable to a credit corporation, 5,876 -
payable in monthly installments of $4,439 including
interest due January 1, 1996, secured by
equipment
10.9% note payable to a credit corporation, - 72,519
payable in annual installments of $18,477, including
interest, due March 1, 2001, secured by equipment
8.4% note payable to a credit corporation, payable in 26,044 13,634
monthly installments of $619, including interest, due
December 1, 1998, secured by equipment
10.9% note payable to a credit corporation, - 40,605
payable in annual installments of $24,067,
including interest, due March 1, 1999, secured by
equipment
12% note payable to an individual, payable in monthly 30,397 26,643
installments of $600, including interest due on March 1,
2002, secured by company stock
12% note payable to an individual, payable in monthly 33,466 29,802
installments of $600, including interest, due on
January 1, 2003, secured by company stock
</TABLE>
(Continued)
F-16
<PAGE>
TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 9: LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<C> <C> <C>
10.5% note payable to individuals, payable in five annual $ 5,000 $ -
installments of $5,000, plus interest, due December 1,
1997, secured by real estate
3.0% note payable to a credit corporation, payable in 5,790 -
monthly installments of $490, including interest,
due January 14, 1997, secured by vehicle
8.5% note payable to a credit corporation, payable in 1,232 -
monthly installments of $417, due on April 15, 1996,
secured by vehicle
8.9% note payable to a credit corporation, payable in 7,111 -
monthly installments of $622, including interest,
due on January 15, 1997, secured by vehicle
8.9% note payable to a credit corporation, payable in - 159,085
annual installments of $90,312, including interest,
due March 1, 1999, secured by equipment
9.2% note payable to a credit corporation, payable in 13,027 9,472
annual installments of $147,127, including interest,
due March 20, 1999, secured by equipment
10% note payable to a bank, payable in monthly 23,089 9,257
installments of $1,450, including interest, due
August 1, 1999, secured by real estate
Base rate (11.00% in 1996) note payable to a bank, 275,135 180,282
payable in monthly installments of $10,000, including
interest, due June 16, 1998, secured by real estate,
inventory, and accounts receivable
10.9% note payable to a credit corporation, - 74,180
payable in semi-annual installments of $21,139, including
interest, due June 15, 1998, secured by equipment
</TABLE>
(Continued)
F-17
<PAGE>
TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 9: LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<C> <C> <C>
8.0% note payable to a credit corporation, payable in $ 53,010 $ -
monthly installments of $1,394, including interest,
due September 1, 1999, secured by equipment
8.4% variable rate note payable to a credit corporation, 5,001 2,369
payable in monthly installments of $246, including
interest, due October 1, 1999, secured by equipment
1% over Prime (7.95% at 1996) variable interest 425,245 397,521
rate note payable to an individual, payable in monthly
installments of $5,000, including interest, due
September 28, 2012, secured by real estate
10.4% note payable to a credit corporation, payable in 2,905 -
monthly installments of $742, including interest,
due August 20, 1999, secured by equipment
8.4% note payable to a credit corporation, payable in 8,365 4,692
monthly installments of $353, including interest, due
March 1, 1998, secured by equipment
10% note payable to an individual, payable in annual 4,000 2,000
installments of $2,000, including interest, due
October 19, 1998, secured by real estate
10% note payable to an individual, payable in annual 10,000 -
payments of $11,200, including interest, due
December 15, 1996, secured by real estate
11.4% note payable to a credit corporation, 60,000 -
payable in monthly payments of $1,563, including
interest, due January 1, 2008, secured by equipment
10% note payable to a credit corporation, 94,000 90,000
payable in annual installments of $13,400, including
interest, due February 1, 2002, secured by real
estate
</TABLE>
(Continued)
F-18
<PAGE>
TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 9: LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<C> <C> <C>
9.9% note payable to a credit corporation, $ 7,579 $ 3,976
payable in monthly installments of $5,812, including
interest, due June 1, 1999, secured by equipment
9.9% note payable to a credit corporation, payable in 79,890 66,778
annual installments of $21,020, including interest,
due September 20, 2002, secured by equipment
11.4% note payable to a credit corporation, 7,048 -
payable in monthly installments of $540, including
interest, due October 1, 1997, secured by equipment
11.4% note payable to a credit corporation, 7,775 -
payable in monthly installments of $393, including
interest, due October 1, 1997, secured by equipment
11.9% note payable to a credit corporation, 31,494 -
payable in monthly installments of $920, including
interest, due June 15, 1999, secured by equipment
11.9% note payable to a credit corporation, 20,719 4,981
payable in monthly installments of $802, including
interest, due June 1, 1998, secured by equipment
10.15% note payable to a credit corporation, payable in 26,385 21,399
monthly installments of $620, including interest, due
June 1, 2000, secured by equipment
11.4% note payable to a credit corporation, 8,662 6,320
payable in monthly installments of $286, including
interest, due December 15, 1998, secured by equipment
11.4% note payable to a credit corporation, 12,049 4,673
payable in monthly installments of $397, including
interest, due December 15, 1998, secured by equipment
</TABLE>
(Continued)
F-19
<PAGE>
TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 9: LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<C> <C> <C>
9.9% note payable to a credit corporation, payable in $ - $ 31,649
annual installments of $9,663, including interest,
due April 20, 2000, secured by equipment
10.9% note payable to a credit corporation, - 35,200
payable in annual installments of $10,858, including
interest, due April 1, 2001, secured by equipment
10.4% note payable to a credit corporation, - 25,376
payable in monthly installments of $1,736, including
interest, due April 1, 2001, secured by equipment
Borrowings against the cash surrender value 170,104 89,371
of life insurance policies
1,466,825 1,401,784
Less Current Maturities (271,447) (396,022)
--------- ---------
$1,195,378 $1,005,762
</TABLE>
Aggregate maturities of long-term debt for the five years ending in the year
2001 are as follows:
Years Ending
December 31,
1997 $ 396,022
1998 312,367
1999 209,475
2000 108,832
2001 73,480
Thereafter 301,608
----------
$1,401,784
==========
F-20
<PAGE>
TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 10: ACCRUED EXPENSES
Accrued expenses were comprised of the following:
1995 1996
------------ -----------
Salaries and Commissions $ 48,852 $ 41,998
Interest 53,131 48,522
Income Taxes 166,082 615,000
State Taxes 24,687 36,000
Payroll Taxes 9,026 3,694
Other 6,448 8,057
--------- ---------
$308,226 $753,271
======== ========
NOTE 11: STOCKHOLDERS' RECEIVABLE
At times the stockholders purchase equipment, parts and repair services from TEC
at TEC's normal profit margins. In addition, prior to the merger of TEC and
TEXQ, formerly Marinex Multimedia Corporation, certain assets were transferred
to the stockholders.
NOTE 12: MERGER
Hard Funding, Inc. was organized on August 14, 1990, as a Nevada corporation
whose sole purpose was to purchase, merge with or acquire other businesses or
assets of other businesses. On February 12, 1996, Hard Funding, Inc. acquired
Marinex Multimedia Corporation and changed its name to Marinex Multimedia
Corporation.
Then, on September 17, 1996, all of the outstanding stock of TEC was acquired by
Marinex Multimedia Corporation. Marinex Multimedia Corporation subsequently
changed its name to Texas Equipment Corporation.
NOTE 13: STOCK OPTION AGREEMENT
In accordance with "Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation", and pursuant to the merger agreement
on September 17, 1996, TEXQ issued a stock option for 250,000 common voting
shares at an option price of one dollar ($1) in consideration of professional
fees in connection with the merger valued at $150,000. The option is valid for a
period of five years. Upon payment of the exercise price of one dollar ($1),
TEXQ shall cause 250,000 shares to be issued from the authorized but unissued
capital stock of TEXQ. TEXQ agreed to reserve sufficient shares at all times
during the life of the option. The effect on the 1996 Statement of Operations
would have been a decrease in net income of $99,000 and an earnings per share
amount of $0.03.
F-21
<PAGE>
TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 14: BUSINESS SEGMENT REPORTING
The Company has two (2) primary business segments which are:
- Agricultural Equipment Sales
- Multimedia Content Provider
The following summarizes the operations by business segment:
<TABLE>
<CAPTION>
Year Ended
December 31, 1996
--------------------------------------------
1995 1996
--------------- ---------------
<S> <C> <C>
REVENUE
Agricultural Equipment Sales $25,031,608 $28,094,196
Multimedia Content Provider - -
OPERATING PROFIT (LOSS)
Agricultural Equipment Sales $3,383,351 $4,092,807
Multimedia Content Provider - $(217,400)
CAPITAL EXPENDITURES
Agriculture Equipment Sales $421,224 $37,117
Multimedia Content Provider - $115,625
DEPRECIATION
Agriculture Equipment Sales $168,367 $140,229
Multimedia Content Provider - $10,611
IDENTIFIABLE ASSETS
Agriculture Equipment Sales $9,624,708 $10,793,233
Multimedia Content Provider - $819,025
</TABLE>
NOTE 15: QUARTERLY FINANCIAL DATA (UNAUDITED) FOR 1996
<TABLE>
<CAPTION>
For the Period Income (Loss) Before Net Income Net Income
Ended Revenues Income Taxes (Loss) (Loss) Per Share
-------------- ----------- -------------------- ---------- ----------------
<S> <C> <C> <C> <C>
December
(3 Months) $8,586,482 $427,865 $304,565 $.02
September
(3 Months) $5,754,814 $(136,477) $(92,877) $(.01)
June
(6 Months) $13,752,900 $799,360 $524,663 $.03
</TABLE>
F-22
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Texas Equipment Corporation.
-----------------------------
By: /s/ Paul J. Condit
-----------------------------
Paul J. Condit, President
Date: April 14, 1997
-----------------------------
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
/s/ Paul J. Condit Director April 14, 1997
- ------------------
Paul J. Condit
/s/ John T. Condit Director April 14, 1997
- ------------------
John T. Condit
Director April 14, 1997
Jonathan Braun
13
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation of our report dated February 12,
1997, which is incorporated in this Annual Report on Form 10-K.
Killman, Murrell & Co.
April 15, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,061,058
<SECURITIES> 0
<RECEIVABLES> 1,077,464
<ALLOWANCES> 0
<INVENTORY> 5,380,188
<CURRENT-ASSETS> 9,131,210
<PP&E> 1,244,442
<DEPRECIATION> 140,229
<TOTAL-ASSETS> 11,612,258
<CURRENT-LIABILITIES> 4,316,512
<BONDS> 0
0
0
<COMMON> 24,705
<OTHER-SE> 6,158,079
<TOTAL-LIABILITY-AND-EQUITY> 11,612,258
<SALES> 28,094,196
<TOTAL-REVENUES> 28,094,196
<CGS> 24,001,389
<TOTAL-COSTS> 3,089,129
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 127,151
<INCOME-PRETAX> 1,090,748
<INCOME-TAX> 354,397
<INCOME-CONTINUING> 736,351
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 736,351
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
