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<SEC-DOCUMENT>/in/edgar/work/20000918/0001065949-00-000191/0001065949-00-000191.txt : 20000923
<SEC-HEADER>0001065949-00-000191.hdr.sgml : 20000923
ACCESSION NUMBER:		0001065949-00-000191
CONFORMED SUBMISSION TYPE:	10SB12G
PUBLIC DOCUMENT COUNT:		5
FILED AS OF DATE:		20000918

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			HOUSTON OPERATING CO
		CENTRAL INDEX KEY:			0001083220
		STANDARD INDUSTRIAL CLASSIFICATION:	 [7389
]		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			0630
</COMPANY-DATA>

		FILING VALUES:
			FORM TYPE:		10SB12G
			SEC ACT:		
			SEC FILE NUMBER:	000-31553
			FILM NUMBER:		724389
</FILING-VALUES>

			BUSINESS ADDRESS:	
				STREET 1:		P O BOX 444
				STREET 2:		49 BURLINGTON AVE.
				CITY:			ROUND LAKE
				STATE:			NY
				ZIP:			12151
				BUSINESS PHONE:		5188997393
</BUSINESS-ADDRESS>

				MAIL ADDRESS:	
					STREET 1:		P O BOX
					STREET 2:		49 BURLINGTON AVE.
					CITY:			ROUND LAKE
					STATE:			NY
					ZIP:			12151
</MAIL-ADDRESS>
</FILER>
</SEC-HEADER>
<DOCUMENT>
<TYPE>10SB12G
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>FORM 10SB12(G)
<TEXT>

                    U. S. Securities and Exchange Commission

                             Washington, D.C. 20549


                                   Form 10-SB
                                File No.:___________

                                 CIK: 0001083220

                   GENERAL FORM FOR REGISTRATION OF SECURITIES
                            OF SMALL BUSINESS ISSUERS

        Under Section 12(b) or (g) of the Securities Exchange Act of 1934


                            HOUSTON OPERATING COMPANY
                 (Name of Small Business Issuer in its charter)


Delaware                                          76-0307819
- -------------------------------                   ----------------------
State or other jurisdiction of                    IRS Employer ID Number
incorporation or organization

                49 Burlington Avenue, Round Lake, New York 12151
                -------------------------------------------------
              (Address of principal executive offices) (Zip Code)

                    Issuer's telephone number: (518) 899-7393


           Securities to be registered under Section 12(b) of the Act:

Title of each class              Name of each exchange on which
to be so registered              each class is to be registered

                                 Not Applicable


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

                                  Common Stock
                                (Title of class)


                                       1
<PAGE>


                                TABLE OF CONTENTS

                                     PART I


Page

Item 1.        Business........................................................3

Item 2.        Management's Discussion and Analysis of Financial Condition and
               Results of Operations..........................................24

Item 3.        Properties.....................................................26

Item 4.        Security Ownership of Certain Beneficial Owners and Management.26

Item 5.        Directors and Executive Officers of the Registrant.............27

Item 6.        Executive Compensation.........................................32

Item 7.        Certain Relationships and Related Transactions.................33

Item 8.        Description of Securities......................................34

                                     PART II

Item 1.        Market for Registrant's Common Stock and Security
               Holder Matters.................................................36

Item 2.        Legal Proceedings..............................................36

Item 3.        Changes in and Disagreements with Accountants on   Accounting and
               Financial Disclosure...........................................36

Item 4.        Recent Sales of Unregistered Securities........................36

Item 5.        Indemnification of Directors and Officers......................37

                                    PART F/S

Signature Page................................................................38

Index to Financial Statements ................................................39

Index to Exhibits.............................................................40

                                       2
<PAGE>
PART I

ITEM 1.  DESCRIPTION OF BUSINESS.
         ------------------------
GENERAL
- --------

        The Company was formed in Delaware on August 31, 1989 as a wholly  owned
subsidiary  of  Normandy  Oil  &  Gas  Company,  Inc.  Pursuant  to  a  Plan  of
Reorganization  for Cambridge Oil Company  ("Cambridge")  in Bankruptcy Case No.
88-01859-H5-11  (Chapter 11) in the U.S.  District Court,  Southern  District of
Texas, Houston Division, the Bankruptcy Court entered an Order on April 19, 1990
which approved the Plan.  Houston Oil Company was specifically  formed to effect
the transactions of the Plan.

        The aggregate number of authorized  shares Houston Operating Company has
authority to issue is 60,000,000,  of which  50,000,000  shares are common stock
having a par value of $.001 per  share,  5,000,000  shares are  preferred  stock
having a par value of $.001 per share and 5,000,000  shares are preference stock
having a par value of $.001 per share.  At August 31,  1989,  Houston  Operating
Company had not engaged in any  business  operations  other than  organizational
activities.  At August 31,  1989,  Houston  Operating  Company  had no assets or
liabilities,  and no income had been  received  and no costs had been  incurred,
other than organization costs.

        The Plan calls for issuance of four types of  securities:  participation
rights,  warrants  (class A and  class B),  common  stock of  Houston  Operating
Company,  and Normandy common shares for which Houston  Operating Company common
shares may be  exchanged.  A unit  consists  of one share of  Houston  Operating
Company common stock, one class A warrant and one class B warrant.

        Participation  rights were issued to common shareholders of Cambridge at
a rate of one  right  for each 80 shares of  presently  issued  and  outstanding
common stock.  Each right entitled the holder to acquire one unit at an exercise
price of $1.00. The  participation  rights were exercisable for a period of nine
months following the effective date and are represented by a certificate  issued
to the Cambridge  shareholders,  setting  forth the terms of such  participation
rights.

        In  addition to the  issuance of units on exercise of the  participation
rights,  units were also issued to  unsecured  creditors at the rate of one unit
for each $10.00 in claims and one unit was issued to preferred  shareholders  in
exchange for each $100.00 in par value of preferred stock.

                                       3
<PAGE>

        Under the Plan,  Houston issued  approximately two million eight hundred
thousand shares to shareholders and creditors of the Bankrupt debtor,  Cambridge
Oil Company.  Although the Company was formed under the Plan,  the Company could
not  continue  operations  without  significant  capital  funding  and when such
funding was not achieved,  the Company operations were suspended.  No operations
were conducted after 1990 until 1998.

        In  1998  a  large  shareholder,  Richard  W.  Morrell,  of 35  Caroline
Corporation  (a New  York  corporation)  purchased  control  of the  Company  to
complete a share  exchange with  shareholders  of 35 Caroline  Corporation.  The
Company  business  was  proposed to be engaging in recovery and return of leased
automobiles for auto leasing companies.  An SB-2 Registration was filed with the
SEC but was abandoned. Due to accounting problems in consolidating the financial
statements  and  difficulties  in  completing  the purchase  agreement and share
exchange,  the Share  Exchange was  rescinded  in 1999,  with the result that 35
Caroline Corporation was no longer a subsidiary.

         The Company has no operations and has had no operations in the last two
years.  35  Caroline  Corporation  was  intended  to  be a  subsidiary  and  had
operations,  but due to the  recission  of the  share  exchange,  no  operations
occurred in Houston Operating Company.

        The Company is an inactive company and its only current business plan is
to seek,  investigate,  and, if  warranted,  acquire one or more  properties  or
businesses,   and  to  pursue  other  related  activities  intended  to  enhance
shareholder  value.  The  acquisition of a business  opportunity  may be made by
purchase, merger, exchange of stock, or otherwise, and may encompass assets or a
business  entity,  such as a corporation,  joint venture,  or  partnership.  The
Company has no capital, and it is unlikely that the Company will be able to take
advantage of more than one such  business  opportunity.  The Company  intends to
seek opportunities demonstrating the potential of long-term growth as opposed to
short-term earnings.

        At the  present  time  the  Company  has  not  identified  any  business
opportunity  that it plans to pursue,  nor has the Company reached any agreement
or  definitive  understanding  with any person  concerning an  acquisition.  The
Company  is filing  Form 10-SB on a  voluntary  basis in order to become a 12(g)
registered  company under the  Securities  Exchange Act of 1934. As a "reporting
company,"  the Company may be more  attractive to a private  acquisition  target
because it may be listed to trade its shares on the OTCBB.

        It is anticipated that the Company's officers and directors will contact
broker-dealers  and other persons with whom they are acquainted who are involved
in corporate finance matters to

                                       4
<PAGE>


advise them of the  Company's  existence  and to determine  if any  companies or
businesses   they  represent  have  an  interest  in  considering  a  merger  or
acquisition with the Company. No assurance can be given that the Company will be
successful in finding or acquiring a desirable business opportunity,  given that
no funds that are  available  for  acquisitions,  or that any  acquisition  that
occurs will be on terms that are favorable to the Company or its stockholders.

        The  Company's  search will be directed  toward  small and  medium-sized
enterprises which have a desire to become public corporations and which are able
to satisfy,  or anticipate in the reasonably  near future being able to satisfy,
the minimum asset  requirements in order to qualify shares for trading on NASDAQ
or  a  stock   exchange   (See   "Investigation   and   Selection   of  Business
Opportunities").   The  Company  anticipates  that  the  business  opportunities
presented to it will (i) be recently organized with no operating  history,  or a
history of losses attributable to under-capitalization or other factors; (ii) be
experiencing financial or operating  difficulties;  (iii) be in need of funds to
develop a new product or service or to expand into a new market; (iv) be relying
upon an untested product or marketing concept;  or (v) have a combination of the
characteristics   mentioned  in  (i)  through  (iv).  The  Company   intends  to
concentrate its acquisition efforts on properties or businesses that it believes
to be  undervalued.  Given the above factors,  investors  should expect that any
acquisition candidate may have a history of losses or low profitability.

        The  Company  does not  propose to  restrict  its search for  investment
opportunities  to  any  particular  geographical  area  or  industry,  and  may,
therefore,  engage in  essentially  any  business,  to the extent of its limited
resources. This includes industries such as service, finance, natural resources,
manufacturing, high technology, product development, medical, communications and
others. The Company's  discretion in the selection of business  opportunities is
unrestricted,  subject  to the  availability  of  such  opportunities,  economic
conditions, and other factors.

        As a consequence  of this  registration  of its  securities,  any entity
which has an interest in being  acquired  by, or merging  into the  Company,  is
expected to be an entity that desires to become a public company and establish a
public trading market for its  securities.  In connection  with such a merger or
acquisition, it is highly likely that an amount of stock constituting control of
the  Company  would be issued  by the  Company  or  purchased  from the  current
principal shareholders of the Company by the acquiring entity or its affiliates.
If stock is purchased  from the current  shareholders,  the  transaction is very
likely to result in  substantial  gains to them relative to their purchase price
for such stock.  In the Company's  judgment,  none of its officers and directors
would thereby become an "underwriter" within the meaning of the Section 2(11) of
the  Securities Act of 1933, as amended.  The sale of a controlling  interest by
certain  principal  shareholders  of the Company  could occur at a time when the
other shareholders of the Company remain subject to restrictions on the transfer
of their shares.

                                       5
<PAGE>

        Depending upon the nature of the  transaction,  the current officers and
directors  of the Company may resign  management  positions  with the Company in
connection with the Company's acquisition of a business  opportunity.  See "Form
of Acquisition,"  below, and "Risk Factors - The Company - Lack of Continuity in
Management."  In  the  event  of  such  a  resignation,  the  Company's  current
management would not have any control over the conduct of the Company's business
following the Company's combination with a business opportunity.

        It is anticipated that business opportunities will come to the Company's
attention from various  sources,  including its officer and director,  its other
stockholders,   professional   advisors  such  as  attorneys  and   accountants,
securities  broker-dealers,   venture  capitalists,  members  of  the  financial
community,  and others who may present unsolicited proposals. The Company has no
plans,  understandings,  agreements, or commitments with any individual for such
person to act as a finder of opportunities for the Company.

        The  Company  does not  foresee  that it would  enter  into a merger  or
acquisition  transaction  with any business with which its officers or directors
are currently affiliated.  Should the Company determine in the future,  contrary
to foregoing expectations,  that a transaction with an affiliate would be in the
best  interests of the Company and its  stockholders,  the Company is in general
permitted by Colorado law to enter into such a transaction if:

1. The material facts as to the relationship or interest of the affiliate and as
to the  contract  or  transaction  are  disclosed  or are  known to the Board of
Directors, and the Board in good faith authorizes the contract or transaction by
the affirmative vote of a majority of the disinterested  directors,  even though
the disinterested directors constitute less than a quorum; or

                                       6
<PAGE>

2. The material facts as to the relationship or interest of the affiliate and as
to the contract or  transaction  are disclosed or are known to the  stockholders
entitled to vote  thereon,  and the  contract  or  transaction  is  specifically
approved in good faith by vote of the stockholders; or

3. The  contract or  transaction  is fair as to the Company as of the time it is
authorized, approved or ratified, by the Board of Directors or the stockholders.

INVESTIGATION AND SELECTION OF BUSINESS OPPORTUNITIES
- ------------------------------------------------------

        To a large  extent,  a decision to  participate  in a specific  business
opportunity may be made upon  management's  analysis of the quality of the other
company's  management  and  personnel,  the  anticipated  acceptability  of  new
products  or  marketing  concepts,  the  merit  of  technological  changes,  the
perceived  benefit the Company will derive from becoming a publicly held entity,
and numerous other factors which are difficult,  if not  impossible,  to analyze
through the  application of any objective  criteria.  In many  instances,  it is
anticipated that the historical  operations of a specific  business  opportunity
may not necessarily be indicative of the potential for the future because of the
possible need to shift marketing approaches substantially, expand significantly,
change product emphasis,  change or substantially  augment  management,  or make
other  changes.  The  Company  will be  dependent  upon the owners of a business
opportunity to identify any such problems  which may exist and to implement,  or
be primarily  responsible for the implementation  of, required changes.  Because
the Company may  participate in a business  opportunity  with a newly  organized
firm or with a firm  which is  entering  a new  phase of  growth,  it  should be
emphasized that the Company will incur further risks, because management in many
instances  will not have proved its  abilities  or  effectiveness,  the eventual
market for such company's  products or services will likely not be  established,
and such company may not be profitable when acquired.

        It is  anticipated  that the Company will not be able to diversify,  but
will essentially be limited to one such venture because of the Company's limited
financing.  This lack of  diversification  will not permit the Company to offset
potential losses from one business opportunity against profits from another, and
should be  considered an adverse  factor  affecting any decision to purchase the
Company's securities.

                                       7
<PAGE>

        It is emphasized that management of the Company may effect  transactions
having a potentially adverse impact upon the Company's  shareholders pursuant to
the   authority  and   discretion  of  the  Company's   management  to  complete
acquisitions  without  submitting  any  proposal to the  stockholders  for their
consideration.  Holders of the Company's  securities  should not anticipate that
the  Company  necessarily  will  furnish  such  holders,  prior to any merger or
acquisition, with financial statements, or any other documentation, concerning a
target  company  or its  business.  In some  instances,  however,  the  proposed
participation in a business opportunity may be submitted to the stockholders for
their   consideration,   either  voluntarily  by  such  directors  to  seek  the
stockholders' advice and consent or because state law so requires.

        The analysis of business  opportunities  will be  undertaken by or under
the supervision of the Company's President,  who is not a professional  business
analyst. See "Management." Although there are no current plans to do so, Company
management might hire an outside  consultant to assist in the  investigation and
selection of business opportunities, and might pay a finder's fee. Since Company
management  has no current plans to use any outside  consultants  or advisors to
assist in the investigation and selection of business opportunities, no policies
have been adopted regarding use of such consultants or advisors, the criteria to
be used in selecting such consultants or advisors,  the services to be provided,
the term of service,  or  regarding  the total  amount of fees that may be paid.
However,  because of the limited resources of the Company, it is likely that any
such fee the  Company  agrees  to pay  would  be paid in stock  and not in cash.
Otherwise,  the Company  anticipates that it will consider,  among other things,
the following factors:

1. Potential for growth and  profitability,  indicated by new  technology,
anticipated market expansion, or new products;

2. The Company's  perception of how any particular business  opportunity will be
received by the investment community and by the Company's stockholders;

3. Whether,  following  the business  combination,  the  financial  condition of
the business opportunity  would be, or would have a significant  prospect in the
foreseeable  future of  becoming  sufficient  to enable  the  securities  of the
Company  to  qualify  for  listing on an  exchange  or on a  national  automated
securities quotation system, such as NASDAQ, so as to permit the trading of such
securities to be exempt from the requirements of Rule 15c2-6 recently adopted by
the  Securities  and  Exchange  Commission.  See "Risk  Factors - The  Company -
Regulation of Penny Stocks."

                                       8
<PAGE>

4. Capital  requirements  and anticipated  availability of required funds, to be
provided  by the  Company or from  operations,  through  the sale of  additional
securities,  through  joint  ventures  or  similar  arrangements,  or from other
sources;

5. The extent to which the business opportunity can be advanced;

6.  Competitive  position  as compared to other  companies  of similar  size and
experience  within the  industry  segment as well as within  the  industry  as a
whole;

7. Strength and diversity of existing  management,  or management prospects that
are scheduled for recruitment;

8. The  cost of  participation  by the  Company  as  compared  to the  perceived
tangible and intangible values and potential; and

9. The accessibility of required management expertise, personnel, raw materials,
services, professional assistance, and other required items.

    In regard to the  possibility  that the shares of the Company  would qualify
for listing on NASDAQ,  the current  standards include the requirements that the
issuer of the  securities  that are sought to be listed have total  assets of at
least $4,000,000 and total capital and surplus of at least $2,000,000. Many, and
perhaps most, of the business  opportunities that might be potential  candidates
for a  combination  with the  Company  would  not  satisfy  the  NASDAQ  listing
criteria.

     No one of the factors  described above will be controlling in the selection
of a business  opportunity,  and management  will attempt to analyze all factors
appropriate to each  opportunity and make a determination  based upon reasonable
investigative  measures  and  available  data.  Potentially  available  business
opportunities  may occur in many  different  industries and at various stages of
development,  all of which will make the task of comparative  investigation  and
analysis  of  such  business  opportunities  extremely  difficult  and  complex.
Potential  investors  must  recognize  that,  because of the  Company's  limited
capital  available for  investigation  and  management's  limited  experience in
business analysis,  the Company may not discover or adequately  evaluate adverse
facts about the opportunity to be acquired.

                                       9
<PAGE>

      The  Company is unable to predict  when it may  participate  in a business
opportunity.  It expects,  however,  that the analysis of specific proposals and
the selection of a business opportunity may take several months or more.

       Prior to making a decision to participate in a business opportunity,  the
Company  will  generally  request  that it be provided  with  written  materials
regarding the business  opportunity  containing  such items as a description  of
products,   services  and  company  history;   management   resumes;   financial
information; available projections, with related assumptions upon which they are
based; an explanation of proprietary products and services; evidence of existing
patents,  trademarks, or services marks, or rights thereto; present and proposed
forms of compensation to management;  a description of transactions between such
company and its affiliates during relevant periods; a description of present and
required  facilities;  an  analysis  of  risks  and  competitive  conditions;  a
financial  plan  of  operation  and  estimated  capital  requirements;   audited
financial  statements,  or  if  they  are  not  available,  unaudited  financial
statements,   together  with  reasonable   assurances  that  audited   financial
statements  would be able to be produced within a reasonable  period of time not
to  exceed  60 days  following  completion  of a merger  transaction;  and other
information deemed relevant.

       As part of the Company's investigation,  the Company's executive officers
and directors may meet personally  with management and key personnel,  may visit
and inspect material facilities,  obtain independent analysis or verification of
certain information provided,  check references of management and key personnel,
and take other reasonable investigative measures, to the extent of the Company's
limited financial resources and management expertise.

       It is  possible  that the range of business  opportunities  that might be
available  for  consideration  by the Company  could be limited by the impact of
Securities and Exchange  Commission  regulations  regarding purchase and sale of
"penny stocks." The regulations  would affect,  and possibly impair,  any market
that might develop in the Company's  securities  until such time as they qualify
for listing on NASDAQ or on another  exchange  which would make them exempt from
applicability of the "penny stock" regulations. See "Risk Factors - - Regulation
of Penny Stocks."

                                       10
<PAGE>
        Company  management  believes that various types of potential  merger or
acquisition  candidates might find a business combination with the Company to be
attractive.  These include  acquisition  candidates  desiring to create a public
market for their shares in order to enhance liquidity for current  shareholders,
acquisition  candidates  which have long-term  plans for raising capital through
the public sale of securities and believe that the possible prior existence of a
public  market  for  their  securities  would  be  beneficial,  and  acquisition
candidates  which  plan  to  acquire   additional  assets  through  issuance  of
securities rather than for cash, and believe that the possibility of development
of a public market for their  securities  will be of assistance in that process.
Acquisition  candidates which have a need for an immediate cash infusion are not
likely  to find a  potential  business  combination  with the  Company  to be an
attractive alternative.

        There  are no  loan  arrangements  or  arrangements  for  any  financing
whatsoever relating to any business opportunities.

FORM OF ACQUISITION
- --------------------

        It is  impossible  to  predict  the  manner  in which  the  Company  may
participate in a business opportunity.  Specific business  opportunities will be
reviewed  as well as the  respective  needs and  desires of the  Company and the
promoters of the opportunity and, upon the basis of that review and the relative
negotiating  strength of the Company and such promoters,  the legal structure or
method deemed by management to be suitable will be selected.  Such structure may
include, but is not limited to leases,  purchase and sale agreements,  licenses,
joint ventures and other contractual arrangements.  The Company may act directly
or indirectly through an interest in a partnership, corporation or other form of
organization.  Implementing such structure may require the merger, consolidation
or  reorganization  of the Company with other  corporations or forms of business
organization,  and although it is likely, there is no assurance that the Company
would  be  the  surviving  entity.  In  addition,  the  present  management  and
stockholders  of the Company  most likely will not have control of a majority of
the voting shares of the Company following a reorganization transaction. As part
of such a  transaction,  the  Company's  existing  directors  may resign and new
directors may be appointed without any vote by stockholders.

        It is likely  that the  Company  will  acquire  its  participation  in a
business opportunity through the issuance of common stock or other securities of
the Company. Although the terms of any such

                                       11
<PAGE>

transaction   cannot  be   predicted,   it  should  be  noted  that  in  certain
circumstances  the criteria for  determining  whether or not an acquisition is a
so-called  "tax free"  reorganization  under the Internal  Revenue Code of 1986,
depends  upon the  issuance to the  stockholders  of the  acquired  company of a
controlling  interest  (i.e.  80% or more) of the common  stock of the  combined
entities  immediately  following  the  reorganization.  If  a  transaction  were
structured to take  advantage of these  provisions  rather than other "tax free"
provisions  provided  under the Internal  Revenue Code,  the  Company's  current
stockholders  would retain in the  aggregate 20% or less of the total issued and
outstanding shares. This could result in substantial  additional dilution in the
equity  of  those  who  were   stockholders   of  the  Company   prior  to  such
reorganization.  Any such  issuance  of  additional  shares  might  also be done
simultaneously  with a sale or transfer  of shares  representing  a  controlling
interest  in the  Company  by the  current  officers,  directors  and  principal
shareholders. (See "Description of Business - General").

        It is anticipated that any new securities  issued in any  reorganization
would  be  issued  in  reliance  upon  exemptions,  if any are  available,  from
registration  under  applicable  federal  and  state  securities  laws.  In some
circumstances,  however, as a negotiated element of the transaction, the Company
may agree to register  such  securities  either at the time the  transaction  is
consummated,  or under certain conditions or at specified times thereafter.  The
issuance of substantial  additional securities and their potential sale into any
trading  market  that  might  develop  in the  Company's  securities  may have a
depressive effect upon such market.

         The Company will  participate in a business  opportunity only after the
negotiation  and  execution of a written  agreement.  Although the terms of such
agreement  cannot  be  predicted,  generally  such an  agreement  would  require
specific  representations and warranties by all of the parties thereto,  specify
certain events of default,  detail the terms of closing and the conditions which
must be satisfied by each of the parties thereto prior to such closing,  outline
the manner of bearing costs if the transaction is not closed, set forth remedies
upon default, and include miscellaneous other terms.

        As a  general  matter,  the  Company  anticipates  that it,  and/or  its
officers and principal  shareholders will enter into a letter of intent with the
management,  principals or owners of a prospective business opportunity prior to
signing a binding agreement. Such a letter of intent will set forth the terms of

                                       12
<PAGE>

the proposed  acquisition but will not bind any of the parties to consummate the
transaction.  Execution  of a letter of intent  will by no means  indicate  that
consummation  of an acquisition is probable.  Neither the Company nor any of the
other  parties  to the  letter  of  intent  will  be  bound  to  consummate  the
acquisition unless and until a definitive  agreement  concerning the acquisition
as described  in the  preceding  paragraph is executed.  Even after a definitive
agreement  is  executed,  it is  possible  that  the  acquisition  would  not be
consummated  should  any  party  elect to  exercise  any right  provided  in the
agreement to terminate it on specified grounds.

        It  is  anticipated  that  the   investigation   of  specific   business
opportunities   and  the   negotiation,   drafting  and  execution  of  relevant
agreements,  disclosure documents and other instruments will require substantial
management time and attention and substantial  costs for accountants,  attorneys
and others.  If a decision  is made not to  participate  in a specific  business
opportunity,  the costs theretofore incurred in the related  investigation would
not be  recoverable.  Moreover,  because  many  providers  of goods and services
require  compensation  at the time or soon  after  the goods  and  services  are
provided, the inability of the Company to pay until an indeterminate future time
may make it impossible to procure goods and services.

        In all probability,  upon completion of an acquisition or merger,  there
will be a change in control  through  issuance of  substantially  more shares of
common stock.  Further,  in conjunction  with an  acquisition  or merger,  it is
likely that  management may offer to sell a controlling  interest at a price not
relative to or reflective of any value of the shares sold by management,  and at
a price which could not be achieved by individual shareholders at the time.

INVESTMENT COMPANY ACT AND OTHER REGULATION
- --------------------------------------------

        The Company may  participate  in a business  opportunity  by purchasing,
trading or selling  the  securities  of such  business.  The  Company  does not,
however,  intend to  engage  primarily  in such  activities.  Specifically,  the
Company intends to conduct its activities so as to avoid being  classified as an
"investment  company" under the Investment  Company Act of 1940 (the "Investment
Act"),  and  therefore  to  avoid  application  of the  costly  and  restrictive
registration  and other  provisions of the Investment  Act, and the  regulations
promulgated thereunder.

                                       13
<PAGE>

        Section  3(a)  of the  Investment  Act  contains  the  definition  of an
"investment  company," and it excludes any entity that does not engage primarily
in the business of investing, reinvesting or trading in securities, or that does
not engage in the business of investing,  owning, holding or trading "investment
securities"  (defined as "all  securities  other than  government  securities or
securities of  majority-owned  subsidiaries")  the value of which exceeds 40% of
the value of its total assets  (excluding  government  securities,  cash or cash
items).  The Company  intends to implement  its business  plan in a manner which
will  result  in the  availability  of this  exception  from the  definition  of
"investment company." Consequently, the Company's participation in a business or
opportunity  through the  purchase  and sale of  investment  securities  will be
limited.

        The  Company's  plan of  business  may  involve  changes in its  capital
structure,  management,  control and business,  especially  if it  consummates a
reorganization  as  discussed  above.  Each of these areas is  regulated  by the
Investment Act, in order to protect purchasers of investment company securities.
Since the Company will not register as an investment company,  stockholders will
not be afforded these protections.

        Any  securities  which the Company  might  acquire in  exchange  for its
common stock are expected to be  "restricted  securities"  within the meaning of
the  Securities  Act of 1933, as amended (the "Act").  If the Company  elects to
resell such securities, such sale cannot proceed unless a registration statement
has been  declared  effective by the  Securities  and Exchange  Commission or an
exemption from registration is available. Section 4(1) of the Act, which exempts
sales of securities  not involving a  distribution,  would in all  likelihood be
available to permit a private  sale.  Although  the plan of  operation  does not
contemplate resale of securities acquired,  if such a sale were to be necessary,
the Company would be required to comply with the provisions of the Act to effect
such resale.

        An  acquisition  made by the  Company  may be in an  industry  which  is
regulated or licensed by federal,  state or local  authorities.  Compliance with
such regulations can be expected to be a time-consuming and expensive process.

COMPETITION
- ------------

        The Company expects to encounter substantial  competition in its efforts
to  locate  attractive   opportunities,   primarily  from  business  development
companies,  venture  capital  partnerships  and  corporations,  venture  capital
affiliates  of  large  industrial  and  financial  companies,  small  investment
companies,   and  wealthy   individuals.   Many  of  these  entities  will  have
significantly greater experience, resources and managerial capabilities than the
Company and will  therefore be in a better  position  than the Company to obtain
access to  attractive  business  opportunities.  The Company also will  possibly
experience competition from other public "blank check" companies,  some of which
may have more funds available than does the Company.

                                       14
<PAGE>

NO RIGHTS OF DISSENTING SHAREHOLDERS
- -------------------------------------

        The  Company  does not  intend  to  provide  Company  shareholders  with
complete  disclosure   documentation  including  audited  financial  statements,
concerning a possible  target  company prior to  acquisition,  because  Colorado
Business Corporation Act vests authority in the Board of Directors to decide and
approve  matters  involving   acquisitions  within  certain  restrictions.   Any
transaction  would be  structured  as an  acquisition,  not a  merger,  with the
Registrant  being the parent company and the acquiree being merged into a wholly
owned subsidiary.  Therefore,  a shareholder will have no right of dissent under
Colorado law.

NO TARGET CANDIDATES FOR ACQUISITION
- -------------------------------------

        None of the Company's Officers,  Directors,  promoters,  affiliates,  or
associates  have had any  preliminary  contact or  discussion  with any specific
candidate for acquisition. There are no present plans, proposals,  arrangements,
or  understandings  with any  representatives  of the owners of any  business or
company regarding the possibility of an acquisition transaction.

ADMINISTRATIVE OFFICES
- -----------------------

        The  Company  currently  maintains  a mailing  address at 49  Burlington
Avenue,  Round Lake, New York 12151 which is the office address of its Secretary
and  Director,  Richard W.  Morrell.  The  Company's  telephone  number is (518)
899-7393.  Other than this  mailing  address,  the  Company  does not  currently
maintain  any other  office  facilities,  and does not  anticipate  the need for
maintaining office facilities at any time in the foreseeable future. The Company
pays no rent or other fees for the use of this mailing  address.

                                       15
<PAGE>

EMPLOYEES
- ----------

        The  Company is an  inactive  company and  currently  has no  employees.
Management of the Company expects to use consultants,  attorneys and accountants
as necessary,  and does not anticipate a need to engage any full-time  employees
so long as it is seeking and  evaluating  business  opportunities.  The need for
employees  and their  availability  will be  addressed  in  connection  with the
decision  whether  or  not  to  acquire  or  participate  in  specific  business
opportunities. There is no current plan under which, remuneration may be paid to
or  accrued  for  the  benefit  of,  the  Company's  officers  prior  to,  or in
conjunction with, the completion of a business acquisition for services actually
rendered,  and the Company has adopted a resolution  and policy which  precludes
payment of any  compensation  or finder's  fees to officers  or  directors.  See
"Executive   Compensation"   and  under  "Certain   Relationships   and  Related
Transactions."

RISK FACTORS
- -------------

1.  Conflicts of Interest.  Certain  conflicts of interest may exist between the
Company and its officers and directors.  They have other  business  interests to
which they  devote  their  attention,  and may be  expected to continue to do so
although  management time should be devoted to the business of the Company. As a
result,  conflicts  of  interest  may arise that can be  resolved  only  through
exercise of such judgment as is consistent with fiduciary duties to the Company.
See "Management," and "Conflicts of Interest."

        It is  anticipated  that  Company's  officers and directors may actively
negotiate or otherwise  consent to the purchase of a portion of his common stock
as a condition  to, or in  connection  with,  a proposed  merger or  acquisition
transaction.  In this  process,  the  Company's  officers  may  consider his own
personal  pecuniary  benefit  rather than the best  interests  of other  Company
shareholders, and the other Company shareholders are not expected to be afforded
the  opportunity  to  approve  or  consent  to  any  particular   stock  buy-out
transaction. See "Conflicts of Interest."

2. Need For Additional  Financing.  The Company has very limited funds, and such
funds  may  not  be  adequate  to  take  advantage  of  any  available  business
opportunities.  Even if the Company's funds prove to be sufficient to acquire an
interest in, or complete a transaction with, a business opportunity, the Company
may not have enough capital to exploit the opportunity.  The ultimate success of
the Company may depend upon its ability to

                                       16
<PAGE>

raise additional  capital.  The Company has not  investigated the  availability,
source,  or terms that might govern the  acquisition  of additional  capital and
will  not  do so  until  it  determines  a need  for  additional  financing.  If
additional capital is needed, there is no assurance that funds will be available
from any source or, if available,  that they can be obtained on terms acceptable
to the Company.  If not available,  the Company's  operations will be limited to
those that can be financed with its modest capital.

3.  Regulation of Penny Stocks.  The Company's  securities,  when  available for
trading,  will be subject to a  Securities  and  Exchange  Commission  rule that
imposes special sales practice  requirements upon  broker-dealers  who sell such
securities to persons other than established  customers or accredited investors.
For purposes of the rule, the phrase  "accredited  investors"  means, in general
terms, institutions with assets in excess of $5,000,000, or individuals having a
net worth in excess of  $1,000,000  or  having  an annual  income  that  exceeds
$200,000 (or that, when combined with a spouse's income, exceeds $300,000).  For
transactions  covered  by the  rule,  the  broker-dealer  must  make  a  special
suitability  determination for the purchaser and receive the purchaser's written
agreement  to the  transaction  prior to the  sale.  Consequently,  the rule may
affect the ability of broker-dealers  to sell the Company's  securities and also
may affect the ability of purchasers  in this offering to sell their  securities
in any market that might develop therefore.

       In addition,  the Securities and Exchange Commission has adopted a number
of rules to regulate  "penny  stocks." Such rules  include Rules 3a51-1,  15g-1,
15g-2,  15g-3,  15g-4,  15g-5,  15g-6,  15g-7,  and 15g-9  under the  Securities
Exchange  Act of 1934,  as amended.  Because the  securities  of the Company may
constitute "penny stocks" within the meaning of the rules, the rules would apply
to the Company and to its  securities.  The rules may further affect the ability
of owners of Shares to sell the  securities  of the  Company in any market  that
might develop for them.

        Shareholders should be aware that,  according to Securities and Exchange
Commission,  the  market  for penny  stocks has  suffered  in recent  years from
patterns of fraud and abuse. Such patterns include (i) control of the market for
the  security  by one or a few  broker-dealers  that are  often  related  to the
promoter or issuer; (ii) manipulation of prices through prearranged  matching of
purchases and sales and false and misleading press releases; (iii) "boiler room"
practices involving high-pressure sales

                                       17
<PAGE>

tactics and unrealistic price projections by inexperienced  sales persons;  (iv)
excessive  and  undisclosed   bid-ask   differentials  and  markups  by  selling
broker-dealers;  and  (v)  the  wholesale  dumping  of the  same  securities  by
promoters and  broker-dealers  after prices have been  manipulated  to a desired
level,  along with the  resulting  inevitable  collapse of those prices and with
consequent investor losses. The Company's management is aware of the abuses that
have occurred historically in the penny stock market.  Although the Company does
not  expect to be in a  position  to dictate  the  behavior  of the market or of
broker-dealers who participate in the market,  management will strive within the
confines of practical  limitations to prevent the described  patterns from being
established with respect to the Company's securities.

4.Lack of Operating  History.  The Company was formed in August 1989 as a wholly
owned  subsidiary  of Normandy  Oil & Gas  Company,  Inc.  Pursuant to a Plan of
Reorganization  for Cambridge Oil Company in Bankruptcy Case No.  88-01859-H5-11
(Chapter 11) in the U.S.  District Court,  Southern  District of Texas,  Houston
Division, the Bankruptcy Court entered an Order on April 19, 1990 which approved
the Plan. Houston Oil Company was specifically formed to effect the transactions
of the Plan. The Company never had any substantial  operations because of a lack
of capital. Due to the special risks inherent in the investigation, acquisition,
or involvement in a new business opportunity,  the Company must be regarded as a
new or start-up venture with all of the unforeseen  costs,  expenses,  problems,
and difficulties to which such ventures are subject.

5. No Assurance  of Success or  Profitability.  There is no  assurance  that the
Company  will  acquire a  favorable  business  opportunity.  Even if the Company
should become involved in a business opportunity,  there is no assurance that it
will  generate  revenues or profits,  or that the market price of the  Company's
common stock will be increased thereby.

6. Possible  Business - Not  Identified  and Highly  Risky.  The Company has not
identified and has no  commitments to enter into or acquire a specific  business
opportunity  and  therefore  can disclose the risks and hazards of a business or
opportunity that it may enter into in only a general manner, and cannot disclose
the risks and hazards of any specific  business or opportunity that it may enter
into. An investor can expect a potential business opportunity to be quite risky.
The Company's  acquisition of or  participation  in a business  opportunity will
likely be highly  illiquid  and could  result in a total loss to the Company and
its stockholders if the business or opportunity  proves to be unsuccessful.  See
Item 1 "Description of Business."

                                       18
<PAGE>

7. Type of Business  Acquired.  The type of  business to be acquired  may be one
that desires to avoid  effecting  its own public  offering and the  accompanying
expense, delays, uncertainties, and federal and state requirements which purport
to protect  investors.  Because of the  Company's  limited  capital,  it is more
likely than not that any  acquisition  by the Company will involve other parties
whose  primary  interest  is the  acquisition  of control  of a publicly  traded
company.   Moreover,   any  business   opportunity  acquired  may  be  currently
unprofitable or present other negative factors.

8. Impracticability of Exhaustive Investigation. The Company's limited funds and
the lack of full-time  management will likely make it impracticable to conduct a
complete and  exhaustive  investigation  and analysis of a business  opportunity
before the Company  commits its capital or other resources  thereto.  Management
decisions,  therefore, will likely be made without detailed feasibility studies,
independent analysis, market surveys and the like which, if the Company had more
funds  available to it,  would be  desirable.  The Company will be  particularly
dependent in making decisions upon information provided by the promoter,  owner,
sponsor,  or  others  associated  with  the  business  opportunity  seeking  the
Company's participation.  A significant portion of the Company's available funds
may be  expended  for  investigative  expenses  and other  expenses  related  to
preliminary aspects of completing an acquisition transaction, whether or not any
business opportunity investigated is eventually acquired.

9. Lack of Diversification.  Because of the limited financial resources that the
Company  has, it is  unlikely  that the Company  will be able to  diversify  its
acquisitions or operations.  The Company's  probable  inability to diversify its
activities  into  more  than one area  will  subject  the  Company  to  economic
fluctuations within a particular business or industry and therefore increase the
risks associated with the Company's operations.

10.  Reliance upon  Financial  Statements.  The Company  generally  will require
audited financial  statements from companies that it proposes to acquire.  Given
cases where audited financials are not available,  the Company will have to rely
upon  interim  period  unaudited  information  received  from target  companies'
management that has not been verified by outside auditors.  The lack of the type
of independent  verification  which audited financial  statements would provide,
increases the risk that the Company,  in evaluating an  acquisition  with such a
target company, will not have the benefit of full and accurate information about
the  financial  condition  and recent  interim  operating  history of the target
company. This risk increases the prospect that the acquisition of such a company
might  prove to be an  unfavorable  one for the  Company  or the  holders of the
Company's securities.

         Moreover,  the Company will be subject to the  reporting  provisions of
the Securities  Exchange Act of 1934, as amended (the "Exchange  Act"), and thus
will be required to furnish certain information about significant  acquisitions,
including  audited  financial  statements  for any  business  that it  acquires.
Consequently,  acquisition  prospects that do not have, or are unable to provide
reasonable  assurances  that they will be able to obtain,  the required  audited
statements  would  not  be  considered  by the  Company  to be  appropriate  for
acquisition  so long  as the  reporting  requirements  of the  Exchange  Act are
applicable.  Should  the  Company,  during  the time it  remains  subject to the
reporting  provisions of the Exchange Act,  complete an acquisition of an entity
for which audited  financial  statements prove to be  unobtainable,  the Company
would  be  exposed  to  enforcement  actions  by  the  Securities  and  Exchange
Commission (the  "Commission")  and to corresponding  administrative  sanctions,
including  permanent  injunctions  against the Company and its  management.  The
legal and other costs of  defending a Commission  enforcement  action would have
material,  adverse consequences for the Company and its business. The imposition
of  administrative  sanctions  would  subject  the  Company to  further  adverse
consequences.

                                       19
<PAGE>

         In addition, the lack of audited financial statements would prevent the
securities  of the Company from becoming  eligible for listing on NASDAQ,  or on
any existing stock exchange.  Moreover, the lack of such financial statements is
likely to  discourage  broker-dealers  from  becoming or  continuing to serve as
market  makers in the  securities  of the  Company.  Without  audited  financial
statements,  the Company  would almost  certainly be unable to offer  securities
under a registration  statement  pursuant to the Securities Act of 1933, and the
ability of the Company to raise  capital  would be  significantly  limited until
such financial statements were to become available.

11. Other  Regulation.  An acquisition  made by the Company may be of a business
that is  subject  to  regulation  or  licensing  by  federal,  state,  or  local
authorities.  Compliance with such  regulations and licensing can be expected to
be  a   time-consuming,   expensive  process  and  may  limit  other  investment
opportunities of the Company.

12. Dependence upon Management; Limited Participation of Management. The Company
currently has only two individuals who are serving as its officers and directors
on a part time basis.  The Company will be heavily  dependent upon their skills,
talents,  and  abilities to implement its business  plan,  and may, from time to
time, find that the inability of the officers and directors to devote their full
time  attention  to the  business of the Company  results in a delay in progress
toward implementing its business plan. See "Management."  Because investors will
not be able to evaluate  the merits of  possible  business  acquisitions  by the
Company, they should critically assess the information  concerning the Company's
officers and directors.

13. Lack of  Continuity in  Management.  The Company does not have an employment
agreement  with  its  officers  and  directors,  and as a  result,  there  is no
assurance they will continue to manage the Company in the future.  In connection
with  acquisition of a business  opportunity,  it is likely the current officers
and directors of the Company may resign  subject to compliance  with Section 14f
of the Securities  Exchange Act of 1934. A decision to resign will be based upon
the identity of the business opportunity and the nature of the transaction,  and
is  likely to occur  without  the vote or  consent  of the  stockholders  of the
Company.

14. Indemnification of Officers and Directors. Colorado Revised Statutes provide
for the indemnification of its directors, officers, employees, and agents, under
certain  circumstances,  against  attorney's fees and other expenses incurred by
them in any  litigation  to  which  they  become  a  party  arising  from  their
association  with or activities on behalf of the Company.  The Company will also
bear  the  expenses  of  such  litigation  for any of its  directors,  officers,
employees,  or agents,  upon such person's promise to repay the Company therefor
if it is ultimately determined that any such person shall not have been entitled
to  indemnification.  This  indemnification  policy could result in  substantial
expenditures by the Company which it will be unable to recoup.

15.  Director's  Liability  Limited.  Delaware Revised Statutes exclude personal
liability  of its  directors  to the Company and its  stockholders  for monetary
damages for breach of fiduciary duty except in certain specified  circumstances.
Accordingly,  the Company will have a much more limited right of action  against
its directors than otherwise  would be the case.  This provision does not affect
the liability of any director under federal or applicable state securities laws.

                                       20
<PAGE>

16. Dependence upon Outside Advisors.  To supplement the business  experience of
its officers and directors,  the Company may be required to employ  accountants,
technical experts, appraisers,  attorneys, or other consultants or advisors. The
selection of any such advisors will be made by the Company's  President  without
any input from  stockholders.  Furthermore,  it is anticipated that such persons
may be engaged on an "as needed" basis  without a continuing  fiduciary or other
obligation to the Company.  In the event the President of the Company  considers
it  necessary  to hire  outside  advisors,  he may elect to hire persons who are
affiliates, if they are able to provide the required services.

17.  Leveraged  Transactions.  There is a possibility  that any acquisition of a
business  opportunity  by the Company may be  leveraged,  i.e.,  the Company may
finance the  acquisition of the business  opportunity  by borrowing  against the
assets of the  business  opportunity  to be acquired,  or against the  projected
future revenues or profits of the business opportunity.  This could increase the
Company's exposure to larger losses. A business  opportunity  acquired through a
leveraged  transaction  is profitable  only if it generates  enough  revenues to
cover the  related  debt and  expenses.  Failure  to make  payments  on the debt
incurred to purchase  the  business  opportunity  could  result in the loss of a
portion or all of the assets  acquired.  There is no assurance that any business
opportunity  acquired through a leveraged  transaction will generate  sufficient
revenues to cover the related debt and expenses.

18. Competition. The search for potentially profitable business opportunities is
intensely  competitive.  The  Company  expects  to  be  at a  disadvantage  when
competing  with  many  firms  that  have  substantially  greater  financial  and
management  resources  and  capabilities  than the  Company.  These  competitive
conditions  will  exist  in  any  industry  in  which  the  Company  may  become
interested.

19. No Foreseeable  Dividends.  The Company has not paid dividends on its common
stock and does not anticipate paying such dividends in the foreseeable future.

20.  Loss of Control by Present  Management  and  Stockholders.  The Company may
consider an  acquisition in which the Company would issue as  consideration  for
the business  opportunity  to be acquired an amount of the Company's  authorized
but  unissued  common  stock that  would,  upon  issuance,  represent  the great
majority of the voting  power and equity of the  Company.  The result of such an
acquisition would be that the acquired

                                       21
<PAGE>

company's  stockholders  and  management  would  control  the  Company,  and the
Company's  management  could be replaced by persons unknown at this time. Such a
merger would result in a greatly reduced  percentage of ownership of the Company
by its current shareholders. In addition, the Company's major shareholders could
sell  control  blocks  of stock at a  premium  price to the  acquired  company's
stockholders.

21. No Public Market Exists.  There is no public market for the Company's common
stock,  and no  assurance  can be given  that a market  will  develop  or that a
shareholder ever will be able to liquidate his investment  without  considerable
delay, if at all. If a market should develop,  the price may be highly volatile.
Factors  such as those  discussed  in this  "Risk  Factors"  section  may have a
significant impact upon the market price of the securities offered hereby. Owing
to the low price of the  securities,  many brokerage firms may not be willing to
effect  transactions  in the  securities.  Even if a  purchaser  finds a  broker
willing  to  effect  a  transaction  in these  securities,  the  combination  of
brokerage commissions, state transfer taxes, if any, and any other selling costs
may exceed the selling price. Further, many lending institutions will not permit
the use of such securities as collateral for any loans.

22.  Rule 144  Sales.  All of the  outstanding  shares of common  stock  held by
present officers and directors are "restricted securities" within the meaning of
Rule 144 under the  Securities  Act of 1933, as amended.  As restricted  shares,
these shares may be resold only pursuant to an effective  registration statement
or  under  the  requirements  of Rule 144 or other  applicable  exemptions  from
registration  under the Act and as required under  applicable  state  securities
laws.  Rule  144  provides  in  essence  that a person  who has held  restricted
securities for one year may, under certain conditions,  sell every three months,
in brokerage  transactions,  a number of shares that does not exceed the greater
of 1.0% of a company's  outstanding  common stock or the average  weekly trading
volume  during the four calendar  weeks prior to the sale.  There is no limit on
the amount of restricted securities that may be sold by a nonaffiliate after the
restricted  securities  have been held by the owner for a period of two years. A
sale under Rule 144 or under any other exemption from the Act, if available,  or
pursuant  to  subsequent  registration  of  shares of  common  stock of  present
stockholders, may have a depressive effect upon the price of the common stock in
any market that may develop.


                                       22
<PAGE>


23. Blue Sky Considerations.  Because the securities  registered  hereunder have
not been registered for resale under the blue sky laws of any state, the holders
of such shares and persons  who desire to  purchase  them in any trading  market
that might develop in the future,  should be aware that there may be significant
state  blue-sky  law  restrictions  upon the  ability of  investors  to sell the
securities and of purchasers to purchase the securities.  Some jurisdictions may
not under  any  circumstances  allow the  trading  or  resale of  blind-pool  or
"blank-check" securities.  Accordingly,  investors should consider the secondary
market for the Company's securities to be a limited one.

24. Blue Sky  Restrictions.  Many states  have  enacted  statutes or rules which
restrict or prohibit the sale or resale of securities of "blank check" companies
to residents so long as they remain without specific business companies.  To the
extent any current  shareholders or subsequent  purchaser from a shareholder may
reside in a state  which  restricts  or  prohibits  resale of shares in a "blank
check" company, warning is hereby given that the shares may be "restricted" from
resale as long as the company is a shell company.

        At the date of this registration statement, the Company has no intention
of offering further shares in a private offering to anyone.  Further, the policy
of the Board of  Directors  is that any future  offering  of shares will only be
made after an acquisition  has been made and can be disclosed in appropriate 8-K
filings.

        In the event of a  violation  of state laws  regarding  resale of "blank
check" shares the Company could be liable for civil and criminal penalties which
would be a substantial  impairment to the Company.  At date of this registration
statement, all shareholders' shares bear a "restrictive legend," and the Company
will examine each shareholders'  resident state laws at the time of any proposed
resale of shares now outstanding to attempt to avoid any  inadvertent  breach of
state laws.

                                       23
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS OR
         PLAN OF OPERATIONS.
         -------------------

LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------

        The  Company  remains in an inactive  stage and,  since  inception,  has
experienced  significant  liquidity  problems  and has no capital  resources  or
stockholder's  equity. The Company has no current assets in the form of cash and
no total assets but has current liabilities totaling $454.

        The Company will carry out its plan of business as discussed  above. The
Company  cannot  predict  to what  extent  its  lack of  liquidity  and  capital
resources will impair the  consummation of a business  combination or whether it
will incur  further  operating  losses  through any  business  entity  which the
Company may eventually acquire.

        During the period from August 31, 1989 (inception)  through December 31,
1999  the  Company  has  engaged  in  no  significant   operations   other  than
organizational   activities,   acquisition  of  capital  and   preparation   for
registration of its securities under the Securities Act of 1933, as amended.  An
attempt was made to merge with 35 Caroline  Corp. in 1999,  which was rescinded.
No revenues  were  received by the Company  during this period.  The Company has
incurred  losses since  inception and no revenues.  The net loss is ($1,000) for
year ended  December 31, 1999.  Such losses will  continue  unless  revenues and
business can be acquired by the Company.  There is no assurance that revenues or
profitability will ever be achieved by the Company.

RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1999 COMPARED TO 1998
- --------------------------------------------------------------------

        The Company had no revenues in 1999 or 1998. The Company incurred $1,000
in expenses in 1999 as compared to $1,093 in expenses in 1998.

        The net loss in 1999 was  ($1,000) as compared to ($1,093) in 1998.  The
losses in 1999 and 1998 were as a result of miscellaneous expenses. The net loss
per share each year was less than ($.01) per share.

                                       24
<PAGE>

RESULTS OF  OPERATIONS - SIX MONTHS ENDED JUNE 30, 2000  COMPARED TO SAME PERIOD
IN 1999.
- --------------------------------------------------------------------------------

        The Company had no income in the six month period ended June 30, 2000 or
1999 but  incurred  expenses of $(474) for 2000 and $546 for 1999 in the period.
The loss for the six month period was ($474) in 2000 and ($546) in 1999.

        For the current fiscal year, the Company anticipates incurring a loss as
a result of legal and accounting expenses, expenses associated with registration
under the Securities Exchange Act of 1934, and expenses associated with locating
and evaluating  acquisition  candidates.  The Company  anticipates  that until a
business  combination is completed with an  acquisition  candidate,  it will not
generate  revenues other than interest income,  and may continue to operate at a
loss after completing a business combination,  depending upon the performance of
the acquired business.

NEED FOR ADDITIONAL FINANCING
- ------------------------------

        The Company does not have capital  sufficient to meet the Company's cash
needs,   including  the  costs  of  compliance  with  the  continuing  reporting
requirements  of the  Securities  Exchange Act of 1934. The Company will have to
seek  loans or equity  placements  to cover  such cash  needs.  In the event the
Company is able to complete a business  combination during this period,  lack of
its  existing  capital  may  be a  sufficient  impediment  to  prevent  it  from
accomplishing  the  goal of  completing  a  business  combination.  There  is no
assurance,  however,  that without funds it will ultimately  allow registrant to
complete a business combination.  Once a business combination is completed,  the
Company's needs for additional financing are likely to increase substantially.

        No commitments to provide  additional funds have been made by management
or  other  stockholders.  Accordingly,  there  can  be  no  assurance  that  any
additional  funds  will be  available  to the  Company  to allow it to cover its
expenses as they may be incurred.

        Irrespective of whether the Company's cash assets prove to be inadequate
to meet the Company's  operational  needs,  the Company might seek to compensate
providers of services by issuances of stock in lieu of cash.

                                       25
<PAGE>

YEAR 2000 ISSUES
- ----------------

        Year 2000 problems result  primarily from the inability of some computer
software to properly store,  recall,  or use data after December 31, 1999. These
problems may affect many  computers  and other  devices  that  contain  embedded
computer chips. The Company's  operations,  however,  do not rely on information
technology  (IT) systems.  Accordingly,  the Company does not believe it will be
material affected by Year 2000 problems.

        The  Company  relies on non-IT  systems  that may suffer  from Year 2000
problems,  including  telephone systems and facsimile and other office machines.
Moreover,  the Company  relies on  third-parties  that may suffer from Year 2000
problems that could affect the Company's operations,  including banks, oil field
operators,  and  utilities.  In light  of the  Company's  substantially  reduced
operations, the Company does not believe that such non-IT systems or third-party
Year 2000 problems will affect the Company in a manner that is different or more
substantial  than such problems  affect other  similarly  situated  companies or
industry  generally.  Consequently,  the Company  does not  currently  intend to
conduct a readiness  assessment  of Year 2000  problems or to develop a detailed
contingency plan with respect to Year 2000 problems that may affect the Company.

ITEM 3.  DESCRIPTION OF PROPERTY.
         ------------------------

        The Company has no property.  The Company does not currently maintain an
office or any other facilities.  It does currently maintain a mailing address at
49 Burlington Avenue, Round Lake, New York 12151, which is the office address of
its Secretary and Director, Richard W. Morrell. The Company pays no rent for the
use of this mailing  address.  The Company does not believe that it will need to
maintain an office at any time in the  foreseeable  future in order to carry out
its plan of operations described herein.

ITEM 4.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT.
         -----------

        The  following  table sets  forth,  as of the date of this  Registration
Statement, the number of shares of common stock owned of record and beneficially
by  executive  officers,  directors  and  persons  who hold  5.0% or more of the
outstanding  common stock of the Company.  Also  included are the shares held by
all executive officers and directors as a group.

                                       26
<PAGE>
                                                 NUMBER OF SHARES      OWNERSHIP
SHAREHOLDERS BENEFICIAL OWNERS                                        PERCENTAGE
- --------------------------------------------------------------------------------
J.R. Nelson                                       5,000,000           64%
President, Chairman and Director
6521 W. Calhoun Place
Littleton, CO  80123

Richard W. Morrell                                2,513,345           33%
Secretary and Director
49 Burlington Avenue
Round Lake, NY  12151


All directors and executive                       7,513,345           97%
officers as a group (2 persons)

Each principal  shareholder has sole investment power and sole voting power over
the shares.

ITEM 5.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
         -------------------------------------------------------------

        The directors and executive  officers  currently serving the Company are
as follows:

Name                     Age                   Position Held              Tenure
- --------------------------------------------------------------------------------
J.R. Nelson              59                    President, Chairman
                                               and Director               Annual
Richard W. Morrell       60                    Secretary, Treasurer
                                               and Director               Annual


        The  directors  named above will serve until the next annual  meeting of
the Company's stockholders.  Thereafter,  directors will be elected for one-year
terms at the annual stockholders' meeting. Officers will hold their positions at
the pleasure of

                                       27
<PAGE>

the board of directors, absent any employment agreement, of which none currently
exists or is contemplated.  There is no arrangement or understanding between the
directors and officers of the Company and any other person pursuant to which any
director or officer was or is to be selected as a director or officer.

        The  directors  and officers of the Company will devote such time to the
Company's  affairs on an "as needed" basis, but less than 20 hours per month. As
a result,  the actual  amount of time which  they will  devote to the  Company's
affairs is unknown and is likely to vary substantially from month to month.

BIOGRAPHICAL INFORMATION

        J.R. NELSON, age 59, was appointed as President, Chairman and a Director
of Houston  Operating  Company as of August 28, 2000. Mr. Nelson received a B.A.
Degree in  Communications  with an  English  minor  and  additional  courses  in
Psychology. Until 1983 Mr. Nelson was an officer and director of J.R. Nelson and
Associates, Inc., a technical recruiting company with over 250 employees that he
cofounded  in 1971.  After  selling  his  ownership  in 1983,  he has since been
self-employed as a business  consultant.  Mr. Nelson is an executive officer and
director of Azonic Corporation, a blank check company.

        RICHARD W. MORRELL,  age 60, has been  Secretary and Director of Houston
Operating  Company  since  early 1999.  He was  Chairman,  President,  and Chief
Financial Officer of 35 Caroline Corporation since 1989. Mr. Morrell has been in
the  automobile  rental and  transport  business  since 1976,  and in 1989,  Mr.
Morrell  formed 35 Caroline  Corporation.  Mr.  Morrell has experience as a bond
trader on Wall Street,  and he received a Bachelor of Arts degree from Montclair
State University in Montclair, New Jersey. Additionally, Mr. Morrell serves as a
Director of Surf & Stream Campground.

        Management  will devote  minimal time to the  operations of the Company,
and any time spent will be devoted to screening and assessing and, if warranted,
negotiating to acquire business opportunities.

        None  of  the  Company's   officers   and/or   directors   receives  any
compensation for their  respective  services  rendered to the Company,  nor have
they received such compensation in the past. They all have agreed to act without
compensation  until authorized by the Board of Directors,  which is not expected
to occur  until  the  Company  has  generated  revenues  from  operations  after
consummation of a merger or  acquisition.  As of the date of filing this report,
the Company has no funds available to pay officers or directors.  Further,  none
of the  officers or  directors  is  accruing  any  compensation  pursuant to any
agreement with the Company. No retirement, pension, profit sharing, stock option
or insurance programs or other similar programs have been adopted by the Company
for the benefit of its employees.

                                       28
<PAGE>

        The  Company  has adopted a  resolution  and policy  whereby no officer,
director,  or principal  shareholder  will receive any additional  stock or cash
compensation  for their  services to the Company,  relating to an acquisition or
business combination.

        It is possible  that  persons  associated  with  management  may refer a
prospective  merger or  acquisition  candidate to the Company.  In the event the
Company  consummates  a  transaction  with any entity  referred by associates of
management,  it is possible that such an associate will be compensated for their
referral in the form of a finder's fee. It is anticipated  that this fee will be
either in the form of  restricted  common stock issued by the Company as part of
the  terms  of the  proposed  transaction,  or  will  be in  the  form  of  cash
consideration.  However,  if such  compensation  is in the  form of  cash,  such
payment will be tendered by the  acquisition  or merger  candidate,  because the
Company has insufficient cash available.  The amount of such finder's fee cannot
be  determined  as of the date of filing  this  report,  but is  expected  to be
comparable to  consideration  normally paid in like  transactions.  No member of
management  nor any  principal  shareholder,  of the  Company  will  receive any
finders fee,  either  directly or  indirectly,  as a result of their  respective
efforts to implement the Company's business plan outlined herein.

        The  Company  has  adopted  a  policy  that  its  affiliates,  principal
shareholders,  and  management  shall not be issued further common shares of the
Company, as finders fees or other compensation.


PREVIOUS "BLANK CHECK" OFFERINGS
- ---------------------------------

        Richard W.  Morrell  has not been  involved in any prior  public  "blank
check" offerings.  Management has no "blank check" offerings  contemplated or in
registration  for any other company.  Management  may however,  be involved with
other companies in the future which seek mergers or acquisitions.

        Mr.  Nelson has never been an  executive  officer or director of a blank
check or "blind pool" company which conducted a public offering. Mr. Nelson has,
however,  been an executive officer and director of several  non-reporting blank
check  companies  (those not  required to file  reports  with the SEC),  and his
experience is detailed below.


1.      WILLOW RUN CORPORATION  ("WLLO") - Organized 1995 in Wyoming, Mr. Nelson
        and other  shareholders of WLLO sold shares of WLLO amounting to control
        of WLLO in a private  transaction  for an  aggregate  total of $150,000.
        Otherwise,  no  officer,  director  or  shareholder  of WLLO,  nor their
        respective  affiliates,  sold any stock or received any  compensation or
        other payments from WLLO or in connection  with any  acquisition   later
        made.  Mr. Nelson was not an officer and director of WLLO following such
        stock sale. WLLO subsequently  changed its name to Action Sports,  Inc.,
        and later to United Sports International,  Inc.com, and its common stock
        is quoted on the OTC  Bulletin  Board  under the symbol  WSOX and trades
        sporadically.  WLLO is not at this time a reporting  company and has not
        filed a registration statement with the SEC.

                                       29
<PAGE>

2.      DIVERSIFIED  CAPITAL,   INC.  ("DIVE")  -  Organized  1995  in  Wyoming.
        Effective  on July 7,  1998,  DIVE  acquired  ATC Group  LLC, a Maryland
        limited liability company,  by merger. In the merger, DIVE issued to the
        members  of ATC Group,  LLC a total of  6,200,000  common and  2,066,667
        preferred  shares.  DIVE changed its name to ATC Group, Inc. and then to
        its current  name,  TEK  DigiTel  Corporation,  and its common  stock is
        quoted on the OTC  Bulletin  Board under the symbol TEKI and is actively
        traded. DIVE is not at this time a reporting company and has not filed a
        registration  statement  with the SEC. Mr.  Nelson was not an officer or
        director  of DIVE  following  consummation  of the  merger.  Neither Mr.
        Nelson nor any other officer, director or shareholder of DIVE, nor their
        respective  affiliates,  sold any stock or received any  compensation or
        other payments in connection with the acquisition of ATC Group, LLC.

3.      PROPAINT SYSTEMS, INC. ("PROP") - Organized 1995 in Nevada. Effective on
        June 26, 1998,  PROP acquired APC Telecom,  Inc., a federally  chartered
        Canadian company, in a stock-for-stock  exchange. In the exchange,  PROP
        issued to the  shareholders  of APC  Telecom,  Inc. a total of 5,000,000
        common and 5,000,000  preferred shares.  PROP  subsequently  changed its
        name to APC  Telecommunications,  Inc.  and later to its  current  name,
        Innofone.com,  Incorporated,  and its common  stock is quoted on the OTC
        "pink sheets" under the symbol INNF and trades sporadically. PROP is not
        at this  time a  reporting  company  and has  not  filed a  registration
        statement  with the SEC.  Mr.  Nelson was not an officer or  director of
        PROP following consummation of the exchange.  Neither Mr. Nelson nor any
        other officer,  director or  shareholder  of PROP, nor their  respective
        affiliates,  sold  any  stock  or  received  any  compensation  or other
        payments in connection with the acquisition of APC Telecom, Inc.

4.      BLAZOON SYSTEMS,  INC. ("BLZO") - Organized 1996 in Colorado.  Effective
        on February 26, 1999,  BLZO acquired  Diverse  Capital  Corp., a Florida
        corporation, in a stock-for-stock exchange. In the exchange, BLZO issued
        to the  shareholders of Diverse  Capital Corp. a total 1,235,000  common
        and 625,000  preferred shares.  BLZO subsequently  reincorporated to the
        State of Nevada  and  changed  its name to USA  Digital,  Inc.,  and its
        common stock is quoted on the OTC Bulletin  Board under the symbol UDIG.
        BLZO is subject to the  reporting  requirements  of the  Securities  and
        Exchange Act of 1934.  Mr. Nelson was not an officer or director of BLZO
        following consummation of the exchange. Neither Mr. Nelson nor any other
        officer,   director  or  shareholder  of  BLZO,  nor  their   respective
        affiliates,  sold  any  stock  or  received  any  compensation  or other
        payments in connection with the acquisition made by BLZO.

5.      BORAXX TECHNOLOGIES, INCORPORATED ("BORX") - Organized 1996 in Colorado.
        Mr. Nelson and another shareholder of BORX sold shares of BORX amounting
        to control of BORX in a private  transaction  for an aggregate  total of
        $25,000 in cash. Otherwise, no officer, director or shareholder of BORX,
        nor  their  respective  affiliates,  sold  any  stock  or  received  any
        compensation or other payments in connection with any acquisition  made.
        Mr. Nelson was an officer and director of BORX for a few weeks following
        such stock  sale and then  resigned  those  offices.  BORX  subsequently
        changed its name to QUAD X  Sports.com,  Inc.,  and its common  stock is
        quoted  on the OTC  "pink  sheets"  under  the  symbol  QXXX and  trades
        sporadically.


                                       30
<PAGE>
INDEMNIFICATION OF OFFICERS AND DIRECTORS
- ------------------------------------------

        As permitted by Delaware Revised Statutes, the Company may indemnify its
directors and officers  against  expenses and liabilities  they incur to defend,
settle,  or satisfy any civil or criminal action brought against them on account
of their being or having been Company  directors or officers unless, in any such
action,  they are  adjudged  to have  acted  with  gross  negligence  or willful
misconduct.  Insofar  as  indemnification  for  liabilities  arising  under  the
Securities  Act of 1933 may be  permitted  to  directors,  officers  or  persons
controlling the Company  pursuant to the foregoing  provisions,  the Company has
been informed that, in the opinion of the  Securities  and Exchange  Commission,
such  indemnification  is against public policy as expressed in that Act and is,
therefore, unenforceable.

EXCLUSION OF LIABILITY
- -----------------------

        The Delaware Business  Corporation Act excludes  personal  liability for
its directors for monetary  damages based upon any violation of their  fiduciary
duties  as  directors,  except  as to  liability  for any  breach of the duty of
loyalty,  acts or  omissions  not in good  faith  or which  involve  intentional
misconduct  or a knowing  violation  of law,  acts in  violation of the Delaware
Business  Corporation Act, or any transaction from which a director  receives an
improper personal benefit.  This exclusion of liability does not limit any right
which a director may have to be  indemnified  and does not affect any director's
liability under federal or applicable state securities laws.

CONFLICTS OF INTEREST
- ----------------------

        The  officers  and  directors of the Company will not devote more than a
portion of their time to the  affairs of the  Company.  There will be  occasions
when the time  requirements of the Company's  business conflict with the demands
of their other  business and investment  activities.  Such conflicts may require
that the Company attempt to employ additional  personnel.  There is no assurance
that the services of such persons will be available or that they can be obtained
upon terms favorable to the Company.

        Conflicts of Interest - General.  Certain of the officers and  directors
of the Company may be directors and/or principal shareholders of other companies
and,  therefore,  could face  conflicts  of interest  with  respect to potential
acquisitions.  In  addition,  officers  and  directors of the Company may in the
future  participate  in  business  ventures  which  could be deemed  to  compete
directly with the Company.  Additional conflicts of interest and non-arms length
transactions may also arise in the future in the event the Company's officers or
directors  are  involved  in the  management  of any firm with which the Company
transacts  business.  The Company's Board of Directors has adopted a policy that
the Company will not seek a merger with, or acquisition  of, any entity in which
management  serve as officers  or  directors,  or in which they or their  family
members own or hold a  controlling  ownership  interest.  Although  the Board of
Directors  could  elect to change this  policy,  the Board of  Directors  has no
present intention to do so. In addition, if the Company and other companies with
which the Company's  officers and directors are  affiliated  both desire to take
advantage of a potential business  opportunity,  then the Board of Directors has
agreed that said  opportunity  should be  available  to each such company in the
order in which  such  companies  registered  or became  current in the filing of
annual reports under the Exchange Act subsequent to January 1, 1997.

        The Company's officers and directors may actively negotiate or otherwise
consent to the purchase of a portion of their common stock as a condition to, or
in  connection  with,  a  proposed  merger  or  acquisition  transaction.  It is
anticipated that a substantial  premium over the initial cost of such shares may
be paid by the purchaser in conjunction with any sale of shares by the Company's
officers and directors which is made as a condition to, or in connection with, a
proposed merger or acquisition transaction.  The fact that a substantial premium
may be paid to the  Company's  officers and  directors  to acquire  their shares
creates a potential  conflict of interest for them in satisfying their fiduciary
duties to the Company and its other shareholders.  Even though such a sale could
result in a substantial  profit to them, they would be legally  required to make
the  decision  based upon the best  interests  of the Company and the  Company's
other shareholders, rather than their own personal pecuniary benefit.

                                       31
<PAGE>

ITEM 6.  EXECUTIVE COMPENSATION.
         -----------------------

                    SUMMARY COMPENSATION TABLE OF EXECUTIVES
                    ----------------------------------------

                           Annual Compensation                 Awards
- --------------------------------------------------------------------------------

Name and Principal   Year  Salary  Bonus  Other Annual Restricted    Securities
Position                   ($)     ($)    Compensation Stock Award(s) Underlying
                                          ($)                          Options/
                                                                        SARs (#)
- --------------------------------------------------------------------------------

J.R. Nelson,         1999      0     0         0           0              0
President,           1998      0     0         0           0              0
Director
================================================================================
Richard W. Morrell,  1999      0     0         0           0              0
Secretary,           1998      0     0         0           0              0
Treasurer
Director (formerly President)
- --------------------------------------------------------------------------------


                             Directors' Compensation
                             -----------------------

Name                  Annual     Meeting  Consulting    Number     Number of
                      Retainer   Fees     Fees/Other    of         Securities
                      Fee ($)    ($)      Fees ($)      Shares     Underlying
                                                        (#)        Options
                                                                   SARs(#)
- --------------------------------------------------------------------------------
A. Director              0         0        0            0              0
   J.R. Nelson

B. Director
   Richard W. Morrell    0         0        0            0              0


        Option/SAR Grants Table (None)

        Aggregated Option/SAR Exercises in Last Fiscal Year an FY-End Option/SAR
value (None)

        Long Term Incentive Plans - Awards in Last Fiscal Year (None)

        No officer or director has received  any other  remuneration  in the two
year  period  prior to the filing of this  registration  statement.  There is no
current plan in  existence,  to pay or accrue  compensation  to its officers and
directors for services related to seeking business  opportunities and completing
a merger or  acquisition  transaction,  and the  Board  has  adopted a policy to
preclude such payments.  See "Certain  Relationships and Related  Transactions."
The Company has no stock option, retirement, pension, or profit-sharing programs
for the  benefit of  directors,  officers or other  employees,  but the Board of
Directors may recommend adoption of one or more such programs in the future.

                                       32
<PAGE>

ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
        ----------------------------------------------

        In the two years prior to the date of this Registration  Statement,  the
sole share  issuance by the Company was to J.R.  Nelson,  who was  appointed  as
President and director,  a total of 5,000,000 shares of common stock for a total
of $1,000 in cash. The shares were issued in July 2000.  Certificates evidencing
the common stock issued by the Company to this person have all been stamped with
a restrictive legend, and are subject to stop transfer orders by the Company.

        A  Share  Exchange   Agreement  between  the  Company  and  35  Caroline
Corporation was entered in December 1998,  concurrent with a purchase of control
of Registrant  from Harvey V. Risien,  Jr., by the principal  shareholder  of 35
Caroline Corporation, Richard W. Morrell.

        The Share Exchange Agreement with 35 Caroline  Corporation  shareholders
was  rescinded  on June 19, 1999  concurrent  with an  amendment to the purchase
agreement  with Harvey V. Risien,  Jr. under which he had agreed to sell control
of Houston  Operating  Company  (2,469,417)  shares to Richard W.  Morrell.  Mr.
Morrell completed the purchase control from Mr. Risien.

        No officer,  director,  or  affiliate  of the Company has or proposes to
have any  direct or  indirect  material  interest  in any asset  proposed  to be
acquired  by the Company  through  security  holdings,  contracts,  options,  or
otherwise.

        The Company has adopted a policy under which any  consulting or finder's
fee that may be paid to a third party or affiliate  for  consulting  services to
assist management in evaluating a prospective business opportunity would be paid
in stock  or in cash.  Any  such  issuance  of stock  would be made on an ad hoc
basis.  Accordingly,  the Company is unable to predict whether or in what amount
such a stock issuance might be made.

        There is no current plan in existence, nor will the Company adopt a plan
to pay or accrue compensation to its officers and directors for services related
to  seeking  business  opportunities  and  completing  a merger  or  acquisition
transaction.  The Board of  Directors  has adopted a  resolution  to establish a
policy which  precludes  officers or directors  from  compensation  for services
related to seeking  business  opportunity and completing a merger or acquisition
transaction for the Company.  Under the Resolution and policy,  no cash,  stock,
bonus,  or option  compensation  or awards  will be offered or  approved  by the
Company in conjunction with change of control, or a business  combination of any
type. There will be no finder's fees of any type, cash, stock, bonus, or options
paid to any officer or director or principal  shareholders as part of or related
to or resulting from an acquisition transaction.

                                       33
<PAGE>

        Although  management has no current plans to cause the Company to do so,
it is possible that the Company may enter into an agreement  with an acquisition
candidate requiring the sale of all or a portion of the common stock held by the
Company's  current  stockholders  to the  acquisition  candidate  or  principals
thereof,  or to other individuals or business entities,  or requiring some other
form of payment to the Company's current  stockholders,  or requiring the future
employment  of specified  officers  and payment of salaries to them.  It is more
likely  than  not  that  any  sale  of  securities  by  the  Company's   current
stockholders  to an  acquisition  candidate  would  be at a price  substantially
higher than that  originally paid by such  stockholders.  Any payment to current
stockholders  in the context of an  acquisition  involving  the Company would be
determined  entirely by the largely  unforeseeable  terms of a future  agreement
with an unidentified business entity.

        Repayment of the outstanding  debts of the Company will undoubtedly be a
criteria which will be required to be satisfied by any target  company.  This of
course will require cash to be provided  for such  repayment of debts.  The cash
would  have  to be  provided  either  by the  target  company,  or by a  private
placement to new investors concurrent with the target company  transaction.  The
requirement of cash  availability to pay old debt can be, and often is, a factor
which discourages,  impairs,  or precludes the Company from either  negotiations
with a target company, or completion of a transaction with a target company.

        There are currently no plans, proposals, arrangements, or understandings
with  respect to the sale or issuance of  additional  securities  by the Company
prior to the  location  of an  acquisition  or merger  candidate.  The Board has
adopted a resolution and policy whereby no additional issuances of share will be
made until an arrangement or contract has been made with a target company.

ITEM 8.  DESCRIPTION OF SECURITIES.
         -------------------------
COMMON STOCK
- -------------

        The  Company's  Articles  of  Incorporation  authorize  the  issuance of
60,000,000  shares,  of which  50,000,000  shares are common  stock having a par
value of $.001 per share.  Each record holder of common stock is entitled to one
vote for each share held on all matters  properly  submitted to the stockholders
for their vote. Cumulative voting for the election of directors is not permitted
by the Articles of Incorporation.

        Holders  of  outstanding  shares of common  stock are  entitled  to such
dividends as may be declared  from time to time by the Board of Directors out of
legally  available  funds;  and,  in the event of  liquidation,  dissolution  or
winding up of the  affairs of the  Company,  holders  are  entitled  to receive,
ratably,  the  net  assets  of  the  Company  available  to  stockholders  after
distribution  is made to the  preferred  stockholders,  if  any,  who are  given
preferred rights upon liquidation. Holders of outstanding shares of common stock
have no  preemptive,  conversion  or  redemptive  rights.  All of the issued and
outstanding shares of common stock are, and all unissued shares when offered and
sold will be, duly

                                       34
<PAGE>

authorized,  validly issued,  fully paid, and nonassessable.  To the extent that
additional  shares of the  Company's  common  stock  are  issued,  the  relative
interests of then existing stockholders may be diluted.

PREFERRED STOCK
- ----------------

        The  Company's  Articles  of  Incorporation  authorize  the  issuance of
5,000,000  shares of preferred  stock.  The Board of Directors of the Company is
authorized to issue the preferred  stock from time to time in classes and series
and is further  authorized to  established  such classes and series,  to fix and
determine  the  variations  in the relative  rights and  preferences  as between
series, to fix voting rights, if any, for each class or series, and to allow for
the conversion of preferred stock into common stock. No preferred stock has been
issued by the Company. Preferred stock may be utilized in making acquisitions.

PREFERENCE STOCK
- ----------------

        The  Company's  Articles  of  Incorporation  authorize  the  issuance of
5,000,000  shares of preference  stock. The Board of Directors of the Company is
authorized to issue the preferred  stock from time to time in classes and series
and is further  authorized to  established  such classes and series,  to fix and
determine  the  variations  in the relative  rights and  preferences  as between
series, to fix voting rights, if any, for each class or series, and to allow for
the conversion of preferenced  stock into common stock. No preference  stock has
been  issued  by the  Company.  Preference  stock  may  be  utilized  in  making
acquisitions.

SHAREHOLDERS
- -------------

        Each  shareholder has sole  investment  power and sole voting power over
the shares owned by such shareholder.

        No  shareholder  has entered into or delivered  any lock up agreement or
letter agreement regarding their shares or options thereon. Under Delaware laws,
no lock up  agreement is required  regarding  the  Company's  shares as it might
relate to an acquisition.

TRANSFER AGENT
- ---------------

        The Company has engaged  Mountain Share  Transfer,  Inc. of 1625 Abilene
Drive, Broomfield, Colorado 80020 as its transfer agent.

REPORTS TO STOCKHOLDERS
- ------------------------

        The Company plans to furnish its stockholders  with an annual report for
each fiscal year  containing  financial  statements  audited by its  independent
certified  public  accountants.  In the event the Company enters into a business
combination with another company,  it is the present  intention of management to
continue  furnishing  annual  reports to  stockholders.  The Company  intends to
comply with the periodic reporting  requirements of the Securities  Exchange Act
of  1934  for so  long  as it is  subject  to  those  requirements,  and to file
unaudited quarterly reports and annual reports with audited financial statements
as required by the Securities Exchange Act of 1934.

                                       35
<PAGE>
                                    PART II
                                    -------

ITEM 1. MARKET PRICE AND DIVIDENDS ON THE  REGISTRANT'S COMMON  EQUITY AND OTHER
        SHAREHOLDER  MATTERS
        --------------------

        No public trading market exists for the Company's  securities and all of
its  outstanding  securities are  restricted  securities as defined in Rule 144.
There were four  hundred  twenty nine (429)  holders of record of the  Company's
common stock on December 31, 1999.  No dividends  have been paid to date and the
Company's  Board  of  Directors  does not  anticipate  paying  dividends  in the
foreseeable future.

ITEM 2.  LEGAL PROCEEDINGS
         -----------------

        The Company is not a party to any pending legal proceedings, and no such
proceedings are known to be contemplated.

        No director, officer or affiliate of the Company, and no owner of record
or beneficial  owner of more than 5.0% of the securities of the Company,  or any
associate of any such director, officer or security holder is a party adverse to
the Company or has a material  interest  adverse to the Company in  reference to
any litigation.

ITEM 3.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
         ----------------------------------------------

         Not applicable.

ITEM 4.  RECENT SALES OF UNREGISTERED SECURITIES.
         ----------------------------------------

        During the past three  years,  the Company has sold its common  stock to
the persons listed in the table below in transactions summarized as follows:


NAME AND ADDRESS             DATE OF                   NUMBER OF       PRICE
- -----------------            PURCHASE  CONSIDERATION   SHARES ISSUED   PER SHARE
                             --------  -------------   -------------   ---------
J.R. Nelson                  July 2000    $1,000         5,000,000       $.0002
6521 W. Calhoun Place
Littleton, CO  80123


                                       36
<PAGE>

        Each of the sales  listed above was made for cash or services as listed.
All  of the  listed  sales  were  made  in  reliance  upon  the  exemption  from
registration  offered by Section 4(2) of the Securities Act of 1933, as amended.
Based upon  Subscription  Agreements  completed by each of the subscribers,  the
Company had reasonable  grounds to believe  immediately prior to making an offer
to the private investors,  and did in fact believe, when such subscriptions were
accepted, that such purchasers (1) were purchasing for investment and not with a
view to distribution, and (2) had such knowledge and experience in financial and
business  matters that they were capable of  evaluating  the merits and risks of
their investment and were able to bear those risks. The purchasers had access to
pertinent  information enabling them to ask informed questions.  The shares were
issued without the benefit of registration. An appropriate restrictive legend is
imprinted  upon  each  of  the  certificates   representing  such  shares,   and
stop-transfer  instructions have been entered in the Company's transfer records.
All such sales  were  effected  without  the aid of  underwriters,  and no sales
commissions were paid.

        All of the investors were  sophisticated and were known by principals in
the Company to have  business  investment  experience.  The  Company  provided a
personal  interview  with a  principal  in the  Company  for each  investor  who
explained the business plan, and provided  copies of any documents  requested by
an investor.  Each  subscriber  executed a  subscription  agreement in which the
subscriber acknowledged  a) an  understanding  of the  investment  risks,  b) an
understanding  of the  nature  of the  securities  as  being  unregistered,  and
restricted  from  transfer  c) an  ability  to hear  economic  risk of loss  and
illiquidity, and d) an investment intent and not a purchase for redistribution.

        On  May 6, 2000, J.R. Nelson  subscribed for a total of 5,000,000 shares
of stock for  $1,000 in cash.  The  purchase  was  completed  in July  2000.  In
addition, Mr. Nelson paid $10,000 to the Company's auditor for the Audit Reports
for the year ended December 31, 1999.

        The Company  relied upon Sec. 4(2) of the  Securities Act of 1933 for an
exemption for the sale of the stock. The shares are restricted  pursuant to Rule
144.

ITEM 5.  INDEMNIFICATION OF DIRECTORS AND OFFICERS
         -----------------------------------------

        The Delaware Revised Statutes provide that the Company may indemnify its
officers and  directors for costs and expenses  incurred in connection  with the
defense of actions, suits, or proceedings where the officer or director acted in
good faith and in a manner he reasonably  believed to be in the  Company's  best
interest  and is a party by reason  of his  status as an  officer  or  director,
absent a finding of negligence or misconduct in the performance of duty.

                                       37
<PAGE>


                                   SIGNATURES:
                                   -----------
Pursuant to the  requirements  of Section 12 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.

DATED:  September 18, 2000



                                  HOUSTON OPERATING COMPANY
                                  -------------------------



                                                   by:/s/J.R. Nelson
                                                   ------------------------
                                                   J.R. Nelson, President


                                                   by:/s/Richard W. Morrell
                                                   ------------------------
                                                   Richard W. Morrell,
                                                   Secretary, Treasurer



                                     Directors:


                                                   by: /s/J.R. Nelson
                                                   ------------------------
                                                   J.R. Nelson

                                                   by: /s/Richard W. Morrell
                                                   ------------------------
                                                   Richard W. Morrell
                                       38
<PAGE>


                          INDEX TO FINANCIAL STATEMENTS



                            HOUSTON OPERATING COMPANY
                              FINANCIAL STATEMENTS

                            December 31, 1999 & 1998

Cover Page                                                            F-1

Auditors Report                                                       F-2

Balance Sheet                                                         F-3

Statement of Income                                                   F-4

Statement of Stockholders'  Equity                                    F-5

Statement of Cash Flows                                               F-6

Notes to Financial Statements                                         F-7 - 9

                                       39
<PAGE>



                              FINANCIAL STATEMENTS






                           HOUSTON OPERATING COMPANY



                                       F-1


<PAGE>
OPPENHEIM & OSTRICK, C.P.A.'s                          Telephone (310) 839-3930
4256 Overland Avenue, Culver City, California 90230         Fax  (310) 839-3776




                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Houston Operating Company
Round Lake, NY

We have audited the accompanying  balance sheet of Houston  Operating Company as
of December 31, 1999 and 1998 and the related statement of income, stockholders'
equity and cash flows for the years  ended  December  31,  1999 and 1998.  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  the  audits  in  accordance  with  generally   accepted  auditing
standards.  These 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 the 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 Houston Operating Company as of
December 31, 1999 and 1998 and the results of its  operation  and its cash flows
for the years ended  December  31, 1999 and 1998 in  conformity  with  generally
accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial  statements,  under Going concern  included in Summary of  Significant
Accounting Policies, the Company's only purpose is to find an acquisition to add
value to its present  shareholders.  These  conditions raise  substantial  doubt
about its ability to continue as a going concern.  Management's  plans regarding
those  matters also are  described in Note 1. The  financial  statements  do not
include any adjustments that might result from the outcome of this uncertainty.

/s/Oppenheim & Ostrick

Culver City, California
July 21, 2000

                                       F-2
- --------------------------------------------------------------------------------

Glenn Oppenheim, C.P.A.                              American Institute of CPA's
An Accountancy Corporation                                  SEC Practice Section
                                              Private Companies Practice Section

Gil Ostrick, C.P.A.                                  California Society of CPA's
<PAGE>

                            HOUSTON OPERATING COMPANY
                                  BALANCE SHEET

                                     ASSETS

                                                  (AUDITED)          (UNAUDITED)
                                                  DECEMBER 31,          JUNE 30,
                                                 1999       1998           2000
                                             -----------------------------------
CURRENT ASSETS:

  CASH                                      $       0    $     546    $       0
                                              -------      -------      -------

          TOTAL CURRENT ASSETS              $       0    $     546    $       0
                                              =======      =======      =======


                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

  LOANS PAYABLE - STOCKHOLDER               $     454    $   9,530    $     928
  COMMITMENTS AND CONTINGENCIES                     0            0            0
                                              -------      -------      -------

         TOTAL CURRENT LIABILITIES                454        9,530          928
                                              -------      -------      -------

STOCKHOLDERS' EQUITY:

  CAPITAL STOCK $.001 PAR VALUE, AUTHORIZED
    50,000,000 SHARES, ISSUED AND OUT-
    STANDING 2,795,171 SHARES                   2,795        2,795        2,795
  ADDITIONAL PAID-IN CAPITAL                   38,350       28,820       38,350
  ACCUMULATED DEFICIT                         (41,599)     (40,599)     (42,073)
                                              -------      -------      -------
                                                 (454)      (8,984)        (928)
                                              -------      --------     -------

         TOTAL STOCKHOLDERS' EQUITY         $       0    $     546    $       0
                                              =======      =======      =======



                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                       F-3


<PAGE>
<TABLE>
<CAPTION>
                            HOUSTON OPERATING COMPANY
                               STATEMENT OF INCOME

<S>                              <C>            <C>          <C>           <C>
                                         (AUDITED)                  (UNAUDITED)
                                         YEAR ENDED              SIX MONTHS ENDED
                                        DECEMBER 31,                  JUNE 30,
                                     1999         1998           2000          1999
                                   -------        -----          -----        -----
REVENUES                         $       0     $       0     $      0      $      0

OPERATING EXPENSES                   1,000         1,093          474           546
                                   -------       -------      -------        ------

LOSS BEFORE TAXES                   (1,000)       (1,093)        (474)         (546)
                                   -------       -------      -------        ------

NET LOSS                         $  (1,000)    $  (1,093)   $    (474)     $   (546)
                                   =======       =======      =======        =======

BASIC EARNINGS PER SHARE         $    (.01)    $    (.01)   $    (.01)     $   (.01)
                                   =======       =======      =======        ======

WEIGHTED NUMBER OF SHARES
  OUTSTANDING                    2,795,171     2,795,171    2,795,171     2,795,171
                                 =========     =========    =========     =========




                  SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENT


                                       F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                            HOUSTON OPERATING COMPANY
                        STATEMENT OF STOCKHOLDERS' EQUITY

<S>                           <C>         <C>       <C>        <C>         <C>
                                  COMMON STOCK       PAID-IN     RETAINED
                               SHARES     AMOUNTS    CAPITAL     EARNINGS     BALANCE
                              -----------------------------------------------------------
BALANCE, DECEMBER 31, 1997    2,795,171   $ 2,795   $ 28,820   $ (38,874)   $  (7,259)

NET LOSS                              0         0          0      (1,725)      (1,725)
                              ---------    ------    -------    --------    ---------

BALANCE, DECEMBER 31, 1998    2,795,171     2,795     28,820     (40,599)      (8,984)

CONVERSION OF LOAN PAYABLE
  TO PAID-IN CAPITAL                  0         0      9,530           0        9,530

NET LOSS                              0         0          0      (1,000)      (1,000)
                              ---------     -----    -------    --------    ---------

BALANCE, DECEMBER 31, 1999    2,795,171     2,795     38,350     (41,599)        (454)

NET LOSS (UNAUDITED)                  0         0          0        (474)        (474)
                              ---------     -----    -------    --------    ---------

BALANCE JUNE 30, 2000
  (UNAUDITED)                 2,795,171  $  2,795  $  38,350   $ (42,073)   $    (928)
                              =========    ======    =======     =======      =======




                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                       F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                            HOUSTON OPERATING COMPANY
                      CONSOLIDATED STATEMENT OF CASH FLOWS

<S>                                       <C>          <C>          <C>          <C>

                                                   (AUDITED)              (UNAUDITED)
                                                  YEAR ENDED            SIX MONTHS ENDED
                                                  DECEMBER 31,               JUNE 30,
                                               1999        1998        2000          1999
                                               ----        ----        ----          ----

CASH FLOWS FROM OPERATING ACTIVITIES:

  NET LOSS                                $   (1,000) $   (1,093)   $   (474)    $    (546)

  CHANGES IN OPERATING ASSETS AND
    LIABILITIES                                    0           0           0             0
                                             -------     -------      ------       -------

          NET CASH USED BY OPERATING
          ACTIVITIES                          (1,000)     (1,093)       (474)         (546)
                                             -------     -------      ------       -------

CASH FLOWS FROM FINANCING ACTIVITIES:

  PROCEEDS FROM (REPAYMENT OF) LOANS
    PAYABLE - STOCKHOLDER                        454       1,499         474             0
                                             -------     -------      ------       -------

          NET CASH PROVIDED BY
          FINANCING ACTIVITIES                   454       1,499           0             0
                                             -------     -------      ------       -------

          NET INCREASE (DECREASE) IN CASH       (546)        406           0          (546)

          CASH, BEGINNING OF PERIOD              546         140           0           546
                                             -------     -------      ------       -------

          CASH, END OF PERIOD              $       0   $     546    $      0     $       0
                                             =======     =======      ======       =======

SUPPLEMENTAL DISCLOSURES OF NON-CASH FLOW INFORMATION:
  INVESTING AND FINANCING ACTIVITIES:

    CONVERSION OF LOAN PAYABLE TO CAPITAL
      CONTRIBUTED BY PAYMENT TO STOCK-
      HOLDER PERSONALLY IN LIEU OF RE-
      PAYMENT THROUGH THE COMPANY          $   9,530   $       0    $      0     $   9,530
                                             =======     =======      ======       =======


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  CASH PAID DURING THE PERIOD FOR INTEREST $       0   $       0    $      0     $       0
                                             =======     =======      ======       =======

  CASH PAID DURING THE PERIOD FOR INCOME
    TAXES                                  $       0   $       0    $      0     $       0
                                             =======     =======      ======       =======


                  SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENT

                                       F-6

</TABLE>
<PAGE>
                            HOUSTON OPERATING COMPANY
                          NOTES TO FINANCIAL STATEMENTS
                    FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

(1)      Summary of Significant Accounting Policies:

          Company Background:
               Houston Operating Company (`The Company or HOC") was incorporated
               under the laws of the State of Delaware on August 31,  1989.  The
               Company was formed to act as  successor  to a debtor under a plan
               of  reorganization  dated April 21, 1990.  Under the terms of the
               plan,  the Company  issued  approximately  2.8 million  shares of
               common stock.

               On October 31,  1994,  an  individual  acquired  2,511,345 of the
               outstanding  shares of the Company which represents  common stock
               ownership of approximately  89.8% of the Company.  The balance of
               the shares 283,326 are owned by public shareholders.

               In  December  1998,  another  individual  (the  buyer)  agreed to
               acquire from the seller  2,469,417  shares of common stock of the
               Company (the "shares") which  represents  approximately  88.4% of
               the  outstanding  shares  of  common  stock of the  Company.  The
               consideration  was $1 in cash and an agreement on the part of the
               buyers  to  contribute  to the  Company  all  of the  outstanding
               capital stock of 35 Caroline Corporation;  all of the outstanding
               common stock of Surf and Stream Corporation and all of the rights
               of a certain property controlled by Surf and Stream.

          Other Agreement:
               If the  buyers  do not  complete  the  contribution  of the above
               assets described above by April 15, 1999 the selling  shareholder
               has  the  option  to  sell  his  remaining  41,298  shares  or an
               additional 1.4% of common stock to the buyer for $75,000.

               The deal  between  the buyer  (and  other  shareholders)  and the
               seller was for the  operating  companies of the buyer to go pubic
               via reverse acquisitions with the Houston Operating Company, Inc.
               When  the  buyer   decided  not  to  proceed  with  the  business
               acquisition of 35 Caroline  Corporation and its related  entities
               in April 1999 the transaction was modified as follows:  The buyer
               paid the selling  shareholder of the Houston  Operating  Company,
               Inc.  $75,000 plus  repayment of the loan payable  stockholder of
               $9,530 in exchange for 41,298 shares of common  stock.  In effect
               the buyer had purchased  2,511,345  shares of the company and the
               buyer's assets described earlier were returned to the buyers. The
               net  result  was the  buyer  paid  approximately  $84,530  to the
               selling  shareholder   personally  (as  opposed  to  the  Houston
               Operating  Company,  Inc.)  and in return  received  89.8% of the
               sellers common stock ownership in the Houston Operating  Company,
               Inc.

          Transaction to purchase control of company:
               In May 2000, the 89.8%  shareholder of HOC has the option to sell
               all but  50,000  of his  approximately  2.5  million  shares  for
               $10.00.  The option for the 2,461,345 of the seller's shares will
               become exercisable  contingent upon the Houston Operating Company
               registration  statement  being submitted to the NASDAQ (after SEC
               approval) and written confirmation  (approval) for trading on the
               OTC Bulletin Board within 45 days. Once trading is approved,  the
               buyer  will pay  $50,000  by  certified  check to the  seller for
               purchasing the 2,461,345 shares.

                      See accompanying accountants' report

                                       F-7
<PAGE>
                            HOUSTON OPERATING COMPANY
                          NOTES TO FINANCIAL STATEMENTS
                    FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

(1)      Summary of Significant Accounting Policies (Cont'd):

          Transaction to purchase control of company (cont'd):
               Effective  May  2000,  there  is  also a  subscription  agreement
               offering  5 million  shares of common  stock of HOC in return for
               $1,000 by the buyer.  The soon to be issued  stock for $5 million
               in  common  shares  and the  $1,000  are  currently  in an escrow
               account  and the  transaction  to issue  the  shares  for cash is
               expected to close July 31, 2000.

               If  Houston  Operating  Company  has  not  completed  the  merger
               (reverse  acquisition)  on or before  June 1, 2001,  the  Company
               (HOC) can  repurchase  the 5 million  shares of common  stock for
               $1,000.

          Financial Disclosures:
               The company has had no revenues or  continuing  operations  since
               bankruptcy  in 1990,  the only costs  incurred  and some  general
               administrative  expenses  like transfer  agents fees and,  office
               expenses like postage,  franchise taxes,  and occasionally  legal
               fees.   According  to  the  Company's  attorney,   there  are  no
               liabilities  or contingent  liabilities  including  environmental
               issues known at this time.  The company had a June 30 fiscal year
               which was changed when the first agreement was signed in December
               1998 to December 31, the fiscal year of 35 Caroline  Corporation.
               The Company (HOC) had audited financial  statements  through June
               30, 1995. HOC had been exempt from public reporting  requirements
               due to its inactivity.

          Significant Accounting Policies:
               The Company is inactive and has no assets or  liabilities  except
               for monies loaned by principal  shareholders  (the seller and the
               buyer involved in  transactions  described  earlier).  Therefore,
               there  is  no   significant   accounting   policies   or   recent
               pronouncement  issued  by the  American  Institute  of  Certified
               Public  Accountants  that would impact the financial  position or
               results of operations  of the Company  including the earnings per
               share calculations  pronouncements of the AICPA and the SEC Staff
               Accounting  Bulletin No. 98 which  requires the  presentation  of
               both basic and diluted earnings per share (if applicable).  Basic
               earnings per share is computed using the weighted  average number
               of shares outstanding during each period reported.

          Income Taxes:
               No income tax loss  carryforwards or related  valuation  reserves
               are  disclosed  since  the buyer  will  most  likely be unable to
               utilize such carryforwards under current tax laws.

          Unaudited Quarterly Information:
               The financial information included herein as of June 30, 2000 and
               for the six  months  ended June 30,  1999 and 2000 is  unaudited.
               However,  such information reflects all adjustments necessary for
               a  fair  presentation  of  the  financial  position,  results  of
               operation and cash flows for the interim period.

                      See accompanying accountants' report

                                       F-8

<PAGE>
                            HOUSTON OPERATING COMPANY
                          NOTES TO FINANCIAL STATEMENTS
                    FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

(1)      Summary of Significant Accounting Policies (Cont'd):

          Going Concern:
               The Company's financial  statements have been prepared on a going
               concern basis since its only purpose is to find an acquisition to
               add value to its present shareholders.  The principal shareholder
               has the financial means to fund the normal  expenses  required to
               achieve that goal.

(2)      Capitalization:

          The Company's Articles of Incorporation  authorized the issuance of up
          to 50,000,000  shares of common stock,  5,000,000 shares of preference
          stock, and 5,000,000 shares of preferred  stock.  Currently  2,795,171
          shares of common  stock,  par value  $.001 per  share,  are issued and
          outstanding.  No preference  stock or preferred stock has been issued.
          The  issuance  of the  preference  and  preferred  stock and the terms
          thereof, is at the discretion of the Company's Board of Directors.

          There  are  currently  429  recorded  shareholders  of  the  Company's
          outstanding   common  stock.  All  are  U.S.  residents  who  obtained
          ownership under the plan of reorganization in April 1990.

          The Company owes its current principal  shareholder for money advanced
          to  pay  incidental   expenses  as  described  earlier.   The  selling
          shareholder  in April 1999  exercised his option to sell his remaining
          41,298 shares of common stock in return for receiving  $75,000 in cash
          and to pay off his  shareholder's  loan of $9,530.  The money received
          was outside the Company as an individual selling all his shares to the
          buyer (an  individual  representing  the buyers'  property  and common
          shares.) Subsequently,  the new shareholder (December, 1988 buyer) has
          loaned the Company $928 as of June 30, 2000.

(3)      Commitments and Contingencies:

          There are no  leases,  agreements  or  representations  by  attorney's
          except as described earlier under financial  disclosures  mentioned in
          Note 1 as part of the Company's  background and history and the recent
          agreement to acquire HOC.

                      See accompanying accountants' report
                                      F-9



<PAGE>
                                INDEX TO EXHIBITS
SK#


3.1  Articles of Incorporation *

3.2  Bylaws *

10.1 Amendment No. 1 to Amended Stock Purchase Agreement

10.2 Disclosure  Statement of Cambridge Oil Company,  Debtor in Possession,  and
     Normandy Oil and Gas Company, Inc. and its wholly owned subsidiary, Houston
     Operating Company, Successor to the Debtor Under the Plan

10.3 Order Confirming Debtor's Plan of Reorganization

27.1 Financial Data Schedule


*Previously Filed on Form SB-2, file #333-75743, April 6, 1999.



                                       40
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>AMENDMENT NO.1 TO AMENDED STOCK PRCHS AGR
<TEXT>

                               35 CAROLINE CORP.            518-899-7393
                                    BOX 444            FAX  518-899-7394
AUTO TRANSPORT                ROUND LAKE, NY 12151
================================================================================

                                 AMENDMENT NO.1

                                       to

                        AMENDED STOCK PURCHASE AGREEMENT

     AMENDMENT  NO. 1, dated as of November 18,  1998,  by and among 35 CAROLINE
CORPORATION, a New York corporation ("Caroline"), RICHARD W. MORRELL ("Morrell")
and HARVEY RISIEN, JR. ("Risien").

     Reference is made to that certain AMENDED STOCK PURCHASE  AGREEMENT,  dated
November  18, 1998,  by and among  Caroline,  Morrell and Risien (the  "Original
Agreement").  Each capitalized term used herein and not otherwise defined herein
shall bear the meaning  ascribed  to said term In the  Original  Agreement.  All
section and paragraph references shall be to the Original Agreement.

     WHEREAS,  pursuant to the Original  Agreement Morrell  purchased  2,469,417
shares of common stock of Houston Operating Company ("Houston") from Risien; and

     WHEREAS,   the  Original   Agreement  provided  that  at  closing  all  the
outstanding  stock of the Caroline (the "Caroline  Stock") was to be transferred
to Houston; and

     WHEREAS,  as part of the  transaction,  Risien  retained  41,928  shares of
Houston  (the  "Retained  Stock")  and had put option of the  Retained  Stock to
Morrell for $1,789 per share; and

                                        1


<PAGE>

     WHEREAS,  it was the intent of the  parties  that  Morrell be  required  to
transfer,  or cause to be  transferred  to Houston  the  Caroline  Stock only if
Risien did not  exercise  the put option and that If Risien did exercise the put
option and that if Risien did  exercise  the put  option,  then  Morrell had the
option of retaining the Caroline Stock or transferring same to Houston; and

     WHEREAS, Risien's only interest in having the Caroline Stock contributed to
Houston was to enhance  Houston's  value if he  continued  to have a  continuing
stock interest in Houston -- i.e. if he did not exercise the put option; and

     WHEREAS, Risien did not intend to make the other shareholders of Houston or
Houston third party  beneficiaries  of his agreement  with Caroline and Morrell;
and

     WHEREAS, the Original Contract did not property reflect the parties' intent
in these regards: and

     WHEREAS,  since the date of the Original  Contract Morrell has continued to
operate Caroline for the interests of the Caroline shareholders.

     NOW, THEREFORE, The parties hereto hereby agree as follows:

1. Paragraph 1.3 shall be amended to read in its entirety as follows:

     1.3 CLOSING. The purchase and sale of the HOC Common Stock shall take place
at the offices of Barton & Schneider,  L.L.P., 700 N. St. Mary's Suite 1825, San
Antonio,  Texas  78025,  or such other  location  as agreed by the  parties,  on
November 30,  1998,  or at such other time and place as the Seller and the Buyer
mutually agree upon


                                        2
<PAGE>
location as agreed by the parties,  on November 30, 1998,  or at such other time
and place as the Seller and the Buyer mutually agree upon in writing (which time
and place are  designated  as the  "Closing").  At the Closing the Seller  shall
deliver to the Buyer certificates  representing the HOC Common Stock which Buyer
is purchasing  together with a stock power  transferring the HOC Common Stock to
Buyer against delivery of the Purchase Price as follows:

          (a)  At the  Closing to Seller,  a check for  $1,000  made  payable to
               Seller;

          (b)  At the  Closing  to the  Seller,  a  Promissory  Note from HOC to
               Seller in the  amount  of $8,530 on terms set forth in  paragraph
               4.3 hereof; and

          (c)  If (but only if) Seller does not  exercise  his option to require
               Buyer to purchase  Sellers  remaining  Common  Stock  pursuant to
               paragraph  4.3  hereof,  on or before  April 21, 1999 to Houston,
               certificates representing all of the outstanding capital stock of
               Caroline  together with a stock power  transferring  the stock to
               Houston.

2.   A new paragraph 2.17 Shall be added and read in its entirety as follows:

     2.17 NO THIRD PARTY BENEFICIARIES. Seller does not intend to benefit in any
third parties  through the  contingent  requirement  that Buyer  contribute  the
certificates  representing  all of the outstanding  capital stock of Caroline to
Houston.

3. The  parties  hereto  acknowledge  that Risien has timely  exercised  the put
option and that,  accordingly,  Morrell is not obligated to contribute (or cause
to be contributed)  the Caroline Stock to Houston.

4. Except as modified hereby, all of the terms of the Original


                                        3
<PAGE>

Agreement remain in full force and effect.

     IN WITNESS  WHEREOF,  the parties have caused this Amendment to be executed
this 29th day of June, 1999.


                                   35 CAROLINE CORP.

                                   By:/s/Richard W. Morrell
                                   Richard W. Morrell, President

                                   /s/Richard W. Morrell
                                   Richard W. Morrell

                                   /s/Harvey V. Risien, Jr.
                                   Harvey V. Risien, Jr.
















                                       4

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>DISCLOSURE STATEMENT
<TEXT>

                                                  United States District Court
                                                  Southern District of Texas
                                                            FILED
                                                         SEP 21 1989
                                                  Jesse E. Clark, Clerk


                         UNITED STATES BANKRUPTCY COURT
                       FOR THE SOUTHERN DISTRICT OF TEXAS
                                HOUSTON DIVISION

In Re:

CAMBRIDGE OIL COMPANY              )
     AKA NEW CAMBRIDGE CORPORATION )    Case No. 88-01859-H5-11
     a Delaware Corporation,       )         (Chapter 11)
                                   )
                    Debtor         )
- ---------------------------------- )



                 DISCLOSURE STATEMENT OF CAMBRIDGE OIL COMPANY,
          DEBTOR IN POSSESSION, AND NORMANDY OIL AND GAS COMPANY, INC.
           AND ITS WHOLLY OWNED SUBSIDIARY, HOUSTON OPERATING COMPANY
                     SUCCESSOR TO THE DEBTOR UNDER THE PLAN

DATED:                                                 FILED BY:


                              DISCLOSURE STATEMENT


     This Disclosure Statement  ("Statement") has been prepared by Cambridge Oil
Company,  ("  Debtor"),  and  Normandy  Oil and Gas Company and its wholly owned
subsidiary,  Houston Operating Company,  which together constitute the Successor
to Debtor under the Plan ("Successor"). The United States District Court for the
Southern District of Texas,  Houston Division in Bankruptcy ("Court") located in
Houston,  Texas has approved this Statement which approval does not constitute a
determination  on the  merits of the Plan of  Reorganization  ("Plan")  attached
hereto as Exhibit 1 and described in this Disclosure Statement.  The approval of
the  Statement  means  that the  Court  has found  that the  Statement  contains
adequate  information  to permit a creditor or  shareholder  of Debtor to make a
reasonably informed decision in exercising their right to vote upon the Plan.

<PAGE>
                                  INTRODUCTION

     Debtor filed its  voluntary  Chapter 11 petition with the Court on February
29, 1988.  On September 21, 1989,  Debtor and the  Successor  filed the Plan and
Statement.   The  Statement  analyzes  the  proposed  distribution  to  Debtor's
creditors and shareholders  under the Plan and in liquidation.  The Statement is
being mailed to all known  creditors,  partners,  and shareholders of the Debtor
for the purpose of disclosing that information which the Court has determined is
material,  important and necessary for such creditors and shareholders to arrive
at a reasonably  informed  decision in  exercising  their right to vote upon the
Plan. The Statement describes various transactions  contemplated under the Plan.
A copy of the Plan is  attached  hereto as Exhibit 1. You are urged to study the
Plan in full  and to  consult  your  counsel  about  the  Plan  and its  impact,
including  possible tax  consequences,  upon your legal rights.  Please read the
Statement and the Plan carefully before voting on the Plan.

                         BRIEF EXPLANATION OF CHAPTER 11

     Chapter 11 is the principal  reorganization  Chapter of the Bankruptcy Code
("Code").  Pursuant  to  Chapter  11,  the  Debtor's  business  affairs  may  be
reorganized for the benefit of its creditors,  shareholders and other interested
parties.  Formulation  and  confirmation  of the Plan is the principal means for
satisfying  the claims and  interests of the  creditors  and  shareholders  in a
Chapter 11 case.  Attempts at  collection  of  pre-petition  claims  against the
Debtor, and any attempts to foreclose upon the property

                                        2


<PAGE>

of the Debtor, are stayed during the pendency of the reorganization process.

     The Court has scheduled a hearing on Confirmation of the Plan. The date and
time  of said  hearing  is set  forth  in the  Bankruptcy  Court's  Order  which
accompanies this Statement.  The confirmation  hearing will be held at 515 Rusk,
Fourth Floor,  Room ___,  Houston,  Texas. At the hearing,  the Bankruptcy Court
will  consider  whether  the Plan  satisfies  the  various  requirements  of the
Bankruptcy  Code. If the Court orders  Confirmation of the Plan, the Debtor will
be discharged pursuant to 11 U.S.C.  Section 1141 (d) from all prepetition debts
except as provided in the Plan.  Confirmation  makes the Plan  binding  upon the
Successor and the Debtor,  all stockholders of the Debtor,  all creditors of the
Debtor and all other parties in interest.

                 SOLICITATION OF ACCEPTANCES OR REJECTIONS FROM

                           CREDITORS AND SHAREHOLDERS

     By  transmission  of  this  Statement,  Debtor  and the  Successor  solicit
acceptance or rejection of the Plan from all parties,  persons,  or entities who
are  members of the  various  Classes as defined in the Plan.  Each Class  whose
rights are in some way  impaired by the Plan  constitutes  a separate  Class for
voting and  distribution  purposes  under the Plan. The Plan can be confirmed by
the Court and therefore  become binding on all creditors and shareholders if the
Plan is accepted  by: (i)  two-thirds  (2/3) in dollar  amount and a majority in
number of the allowed  creditor claims in each impaired Class who cast a vote to
accept or reject the Plan,

                                        3

<PAGE>

and (ii) by the  holders  of at least  two-thirds  (2/3) of the total  number of
shares of Common and  Preferred  Stock of the Debtor  voting to accept or reject
the Plan.  However,  the Bankruptcy Code provides that the Plan may be confirmed
by the Court  notwithstanding  the fact that an  impaired  Class or Classes  has
failed to accept the Plan so long as at least one  impaired  Class has  accepted
the  Plan.  Finally,  the Plan can only be  confirmed  by the Court if the Court
finds the Plan meets the standards for confirmation as set forth in Section 1129
(a) of the Bankruptcy Code.

     A ballot is being  transmitted to all impaired  creditors and  shareholders
for the purpose of voting on the Plan.  The ballot may be completed and returned
by mail to: Cambridge Oil Company, 6200 Savoy, Suite 740, Houston,  Texas 77036.
If an improperly  executed or  unexecuted  ballot is returned or if no ballot is
returned  at all, it will not be counted as a vote to accept or reject the Plan,
provided  however,  that if a ballot is filed and it fails to  designate  either
acceptance  or rejection of the Plan,  such ballot shall be deemed to accept the
Plan.

                       OFFER OF SECURITIES UNDER THE PLAN

     The  Plan  contemplates  that  upon  its  confirmation,  securities  of the
Successor shall be issued to certain of the Debtor's  creditors and shareholders
under the Plan.  Recipients of  securities  of the Successor  under the Plan are
urged to review the following carefully:

THE OFFER OF  SECURITIES  AS  PROVIDED  IN THE PLAN  SHALL  CONSTITUTE  A PUBLIC
OFFERING AS PROVIDED IN SECTION 1145(c) OF THE BANKRUPTCY


                                        4

<PAGE>

CODE [11 U.S.C.  SECTION  1145(c)].  A  REGISTRATION  STATEMENT  RELATING TO THE
SECURITIES  TO BE ISSUED  UNDER THE PLAN WILL NOT BE FILED  WITH  UNITED  STATES
SECURITIES AND EXCHANGE  COMMISSION.  THE ISSUANCE  SECURITIES UNDER THE PLAN IS
EXEMPT  FROM  REGISTRATION  WITH  THE  UNITED  STATES  SECURITIES  AND  EXCHANGE
COMMISSION  AS PROVIDED  IN SECTION  1145(a) OF THE  BANKRUPTCY  CODE [11 U.S.C.
SECTION  1145(a)].  THIS  STATEMENT HAS NOT BEEN APPROVED OR  DISAPPROVED BY THE
SECURITIES  AND  EXCHANGE  COMMISSION  NOR HAS THE  COMMISSION  PASSED  UPON THE
ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.



UNTIL FORTY 40) DAYS AFTER THE FIRST  DISTRIBUTION OF SECURITIES UNDER THE PLAN,
ALL DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES TO BE DISTRIBUTED UNDER THE
PLAN SHALL AT THE TIME OF OR PRIOR TO THE TRANSACTION DELIVER TO THE PURCHASER A
COPY OF THIS STATEMENT. THE DELIVERY OF THE STATEMENT SHALL NOT IMPLY THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE DEBTOR OR THE SUCCESSOR SINCE THE DATE
HEREOF.

NO DEALER,  SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR MAKE ANY  REPRESENTATIONS  (PARTICULARLY AS TO THE FUTURE VALUE OF SECURITIES
TO BE ISSUED UNDER THE PLAN) OTHER THAN THOSE CONTAINED IN THIS  STATEMENT.  ANY
INFORMATION OR REPRESENTATION  NOT HEREIN CONTAINED,  IF GIVEN OR MADE, MUST NOT
BE RELIED UPON.

                                        5

<PAGE>


PURSUANT TO SECTION 1125 (E) OF THE BANKRUPTCY CODE [11 U.S.C. SECTION 1125 E)],
ANY PERSON INCLUDING THE DEBTOR, THE SUCCESSOR AND THEIR ATTORNEYS, ACCOUNTANTS,
EMPLOYEES,  OFFICERS AND DIRECTORS THAT SOLICITS OR  PARTICIPATES  IN GOOD FAITH
AND IN COMPLIANCE  WITH THE  APPLICABLE  PROVISIONS OF THE  BANKRUPTCY  CODE [11
U.S.C.  SECTION  101 ST  SEQ] IN THE  OFFER  OF  SECURITIES  UNDER  THE  PLAN OF
REORGANIZATION  DESCRIBED  HEREIN  SHALL  NOT  BE  LIABLE  ON  ACCOUNT  OF  SUCH
SOLICITATION  OR  PARTICIPATION  FOR VIOLATION OF ANY  APPLICABLE  LAW, RULE, OR
REGULATION  ENACTED BY THE  UNITED  STATES OR ONE OF ITS  STATES  GOVERNING  THE
OFFER, ISSUANCE, SALE, OR PURCHASE OF SECURITIES.

THIS  STATEMENT  MAY NOT BE RELIED UPON FOR ANY PURPOSE  OTHER THAN TO DETERMINE
HOW TO VOTE ON THE  PLAN,  AND  NOTHING  CONTAINED  IN IT  SHALL  CONSTITUTE  AN
ADMISSION  OF ANY FACT OR LIABILITY BY ANY PARTY.  THIS  STATEMENT  SHALL NOT BE
DEEMED CONCLUSIVE ADVICE ON THE TAX OR OTHER LEGAL EFFECTS OF THE REORGANIZATION
ON HOLDERS OF CLAIMS OR INTERESTS.

THE INFORMATION CONTAINED IN THIS STATEMENT, OTHER THAN THE FINANCIAL STATEMENTS
INCLUDED IN EXHIBITS 4 AND 5, HAS NOT BEEN SUBJECT TO AN  INDEPENDENT  AUDIT AND
DEBTOR AND THE  SUCCESSOR ARE UNABLE TO WARRANT THAT THE  INFORMATION  CONTAINED
HEREIN IS  WITHOUT  INACCURACY  HOWEVER,  EVERY  EFFORT HAS BEEN MADE TO PROVIDE
ACCURATE INFORMATION

                 THE DATE OF THE STATEMENT IS SEPTEMBER 21, 1989


                                        6

<PAGE>

                                TABLE OF CONTENTS

I.   HISTORY, BACKGROUND, AND BUSINESS OF DEBTOR

     (A.) HISTORY
     (B.) BUSINESS OF DEBTOR
     (C.) ASSETS AND PROPERTIES OF DEBTOR

          (1)  Oil and Gas Properties
          (2)  Accounts Receivable from Oil and Gas Sales
          (3)  Accounts Receivable from Joint Interest Billings
          (4)  Accounts Receivable from Partnerships
          (5)  Office Furniture and Equipment
          (6)  All Other Assets

     (D.) LITIGATION

          (1)  Huggins
          (2)  Texas Trinity

     (E.) REASON FOR FILING

II.  POST-PETITION EVENTS AND BUSINESS OPERATIONS

III. SUMMARY OF THE PLAN

     (A.) CLASSES OF CLAIMS AND INTERESTS
     (B.) SUMMARY OF TREATMENT OF CLASSES UNDER THE PLAN
     (C.) SUMMARY OF OTHER PROVISIONS OF THE PLAN

          (1)  Means for Execution of the Plan
          (2)  Cram Down
          (3)  General Provisions
          (4)  Provision for Assumption or Rejection of Executory Contracts
          (5)  Retention of Jurisdiction

IV.  CONDITIONS PRECEDENT

V.   VOTING INSTRUCTIONS

VI.  ACCEPTANCE AND CONFIRMATION OF THE PLAN

     (A.) BEST INTERESTS TEST (MINIMUM VALUE)
     (B.) FEASIBILITY

          (1)  Common Stock
          (2)  Cash Payments Immediately After Confirmation and on the Effective
               Date
          (3)  Sources of Funds for Cash Payments
          (4)  Deferred Cash Payments

     (C.) ACCEPTANCE
     (D.) CONFIRMATION WITHOUT ACCEPTANCE BY ALL IMPAIRED CLASSES
     (E.) CLASSIFICATION OF CLAIMS AND INTERESTS
     (F.) CONFIRMATION HEARING
     (G.) EFFECT OF CONFIRMATION
     (H.) EFFECTIVE DATE OF THE PLAN

                                        7

<PAGE>

VII. ALTERNATIVES TO THE PLAN

VIII.DESCRIPTION OF NORMANDY OIL & GAS COMPANY,  INC., HOUSTON OPERATING COMPANY
     AND SECURITIES TO BE ISSUED

     (A.) DESCRIPTION OF NORMANDY

          (1)  Description of Business
          (2)  Customers and Markets
          (3)  Employees
          (4)  Properties and Production
          (5)  Officers and Directors
          (6)  Further Information (10-K)

     (B.) OFFER ISSUANCE AND RESALE OF PLAN  SECURITIES  AND RELATED  SECURITIES
          MATTERS
     (C.) DESCRIPTION OF PLAN SECURITIES

          (1)  Participation Rights
          (2)  Warrants
          (3)  Houston Operating Company Common Stock
          (4)  Normandy Common Stock

IX.  INCOME TAX CONSEQUENCES

X.   EFFECT OF U.S. SECURITIES LAWS

XI.  CONCLUSION
                                    EXHIBITS

     (1)  PLAN OF REORGANIZATION

          Schedule 1 - Warrant Agreement
          Schedule 2 - Series A Participation Rights
          Schedule 3 - Agreement and Undertaking

     (2)  LIQUIDATION ANALYSIS

     (3)  PRO FORMA BALANCE SHEETS AND CASH FLOW PROJECTIONS

     (4)  NORMANDY OIL & GAS SEC FORM 10K FOR THE YEAR ENDED JUNE 30, 1988

     (5)  DEBTOR  AUDITED FINANCIAL  STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
          1988 AND 1987

     (6)  RESERVE REPORT OF INDEPENDENT PETROLEUM ENGINEER AT JANUARY 1, 1989

     (7)  LIST OF CAMBRIDGE WELLS

     (8)  CERTIFICATE OF INCORPORATION OF HOUSTON OPERATING

     (9)  SUMMARY OF DEBTOR'S SCHEDULES REFLECTING POSTPETITION CHANGES

     (10) SUMMARY OF DEBTOR'S TRANSACTIONS SINCE FILING

                                       8

<PAGE>
                  I. HISTORY, BACKGROUND AND BUSINESS OF DEBTOR

(A.) HISTORY

     Cambridge Oil Company maintains its executive offices at 6200 Savoy,  Suite
740,  Houston,  Texas 77036,  telephone  number (713)  975-1272.  The Company is
engaged in the exploration for, and development, production and sale of, oil and
gas. Unless the context otherwise requires, as used herein the term "Company" or
the term "Debtor", respectively,  refers to Cambridge Oil Company, (formerly New
Cambridge Corporation), its predecessors, and its subsidiaries.

     New  Cambridge  Corporation  was  incorporated  in the State of Delaware on
December 6, 1983. The aggregate  number of authorized  shares of Stock which New
Cambridge Corporation had authority to issue was 75,010,000, of which 75,000,000
shares were  designated  as Common Stock and 10,000  shares were  designated  as
Preferred Stock. At December 31, 1983, New Cambridge  Corporation had not issued
any shares of the Common or Preferred Stock.

     New  Cambridge  Corporation  engaged in no business  operations  other than
organizational  activities  from the date of  incorporation  (December  6, 1983)
through  December 31, 1983. At December 31, 1983, New Cambridge  Corporation had
no assets or  liabilities.  No income  had been  received  and no costs had been
incurred through that date.

     On  December  6,  1983,  the  New  Cambridge  Corporation  entered  into an
agreement  and plan of merger and  consolidation  with  Cambridge Oil Company (a
Delaware corporation) for clarity, hereinafter

                                        9

 <PAGE>
referred to as "Old  Cambridge",  and  Oklahoma  Industrial  Energies,  Inc. (an
Oklahoma  corporation)  hereinafter  referred  to as "OlE".  Under  terms of the
merger  and  consolidation,  each  OlE  shareholder  received  one  share of New
Cambridge  Corporation  Common  Stock  for  each  share of  Oklahoma  Industrial
Energies, Inc. Stock and each shareholder of Old Cambridge received 9.008 shares
of New Cambridge Corporation Common Stock for each share of Old Cambridge Common
Stock.  In addition  outstanding  options and warrants to purchase shares of Old
Cambridge Common Stock and all outstanding debentures convertible into shares of
Old  Cambridge  were adjusted to provide for the issuance of 9.008 shares of New
Cambridge  Corporation  Stock  for each  share  of Old  Cambridge  Common  Stock
issuable upon exercise of conversion thereof.

     On February 24,  1984,  Old  Cambridge  Oil Company was merged with OlE. On
this effective date, all the assets and liabilities of Old Cambridge Oil Company
and Oklahoma  Industrial  Energies,  Inc.  were  transferred  into New Cambridge
Corporation in consideration of newly issued stock of New Cambridge Corporation.
New Cambridge Corporation was formed solely for the purpose of this transaction.
Effective  February  24, 1984,  New  Cambridge  Corporation  changed its name to
"Cambridge Oil Company".

     OlE had been in existence since March 1959 but had been basically  inactive
for most of the five years prior to the Merger. During that period, it continued
to own a small number of operating  oil and gas  properties  located in Oklahoma
and Wyoming and a royalty interest in Texas. In addition,  OlE owned an interest
in Sea-Crete

                                       10
<PAGE>

resources of Japan,  Ltd., a company involved in the extraction of minerals from
sea water.

     Since  November,  1977, Old Cambridge had been involved in the  exploration
and drilling for oil and gas,  principally  through public and private  drilling
funds it had sponsored: specifically four public drilling partnerships and three
private   drilling   funds.   Old  Cambridge,   directly  or  through   drilling
partnerships,  had properties in Louisiana, Texas, Illinois, Oklahoma, Ohio, New
York,  Mississippi  and Alabama.  Old  Cambridge  additionally  owned all of the
issued and outstanding capital stock of Camoil Securities, Inc., a broker-dealer
registered with the National Association of Securities Dealers,  Inc., which was
formally dissolved in December of 1984.

     The Board of Directors of OlE decided that it would be in the best interest
of OlE and its  stockholders  to effect a Merger since OlE had been inactive for
some time and had no  full-time  management  personnel.  Because  its  principal
remaining  properties  were oil, and gas  properties,  it was determined  that a
merger  should be  effected  with a company in the oil and gas  business  having
experienced management personnel capable of raising capital. Notwithstanding the
fact that New  Cambridge  had  substantial  indebtedness  after the merger  when
compared  to  OlE's  relatively  debt-free  balance  sheet,  Cambridge  had cash
balances in excess of OlE's cash balances.  The Merger was anticipated to result
in a public  market  for the  stock of New  Cambridge  which  would  enable  the
combined  corporations to raise capital for use in its business and particularly
for the acquisition of oil and gas properties.

                                       11
<PAGE>
     Initially,  the Merged  Companies  Cambridge  Oil.  Company  or  "Company")
managed   and   administered   public   and   private   partnerships   "Drilling
Partnerships") to explore for and develop oil and gas.

     Beginning  with the  relocation  of the  executive  offices  of  Company to
Houston,  Texas in  January,  1984 and the  concurrent  closing  of the New York
office,  the  Company  streamlined  its  administrative   operations  and  began
aggressively  pursuing the  acquisition  and  drilling of prospects  for its own
account.  With drilling costs  substantially  lower than in prior years, the gas
oversupply  on a slow decline,  and the renewed  interest in  exploration,  1984
appeared to be a good year to actively explore for oil and gas.

     Management  recognized  that  past  losses  of the  Company's  predecessors
stemmed from: (1) costs of managing and administering  public drilling programs,
(2) corporate overhead costs being  disproportionate  to existing operations and
revenues,  and (3) increased  amortization rates resulting from high exploration
costs the reserves found. With these problems in mind, the following  objectives
were  established  for the Company:  reduce  corporate  overhead;  diversify the
Company's  capital base by expanding the public market for the securities of the
Company;  plan for the  liquidation  of  non-mortgage  bank  debt;  enhance  the
Company's  presence and reputation in the Houston area;  and increase  reserves,
primarily  through the  generation  of  prospects  by the Company that result in
successful wells. Further, the Company recognized the

                                       12
<PAGE>
need to operate wells to control costs and gain exposure as an operator.

     During  1984,  the Company  began  operating  wells  drilled on  successful
prospects.  The Company  served as operator  for the drilling of six such wells,
three of which  were  completed  as  commercial  gas  wells and one of which was
completed as a commercial oil well.

     During 1985, the Company  participated  in the drilling of thirteen  wells,
twelve of which were drilled and  operated by the  Company.  Four of these wells
were completed as commercial gas producers.

     During 1986, the Company generated,  funded and drilled twenty-three wells,
all of which were drilled and  operated by the  Company,  eighteen of which were
completed as commercial producers. In addition, in 1986 the Company paid off all
remaining bank debt with the exception of $35,000 which was paid in early 1987.

     During 1987, the Company  participated in the drilling of twenty one wells,
fourteen of which were completed as commercial producers,  and acted as Operator
for all but two wells.

     Since filing its Chapter 11 petition on February 29, 1988,  the Company has
not participated in the drilling of any wells.

     Since 1984, the Company has utilized  numerous methods to improve liquidity
and provide a consistent  cash flow. The  acquisition of HMG Associates in 1984,
in exchange for  1,500,000  shares of Common Stock of the Company,  added assets
and cash flow to the Company.  HMG had interests in oil and gas properties in 13
states.

                                       13
<PAGE>

with major producing areas in New York,  Pennsylvania,  West Virginia, Texas and
Louisiana.  HMG owned interests in developed  acreage and in  approximately  200
producing  wells.  Also  acquired  through  HMG  were  additional   interest  in
approximately 65,000 acres of undeveloped acreage located in Arkansas,  Florida,
Kansas, Louisiana, Michigan and Texas.

     HMG experienced an increase in reserves due to successful  drilling efforts
in 1984 but cash flow was  offset by a  decrease  in  ability to sell gas due to
oversupply and falling prices. The Company was approached by the operator of the
majority of the  properties  in which HMG had an  interest,  NRM  Petroleum,  to
acquire HMG. NRM Petroleum could administer  these properties  easily since they
already  owned an interest  in all of the same  properties  as HMG.  The Company
accepted the acquisition offer for all of the HMG properties, both developed and
undeveloped,  on October 10,  1985 with the final sales price of $101,759  based
upon an engineering reserve report dated December 15, 1985.

     Additionally,  Cambridge sold several  undeveloped  properties in Louisiana
and some producing properties in Converse County, Wyoming,  Stonewall and Reagan
Counties in Texas.

     Cambridge also participated with one of its working interest owners,  Arend
Resources & Trading Co., S.A. in the sale of numerous properties operated by the
Company  to  Griffin  Petroleum  Co.,  et al.  Effective  with  August  1,  1987
production,  Arend  Resources & Trading  Co.,  S.A.  and  Cambridge  Oil Company
jointly conveyed working interests in producing properties in Goliad,


                                       14
<PAGE>

Victoria,  Duval and  Hidalgo  Counties,  Texas for  $225,000.  One-half  of the
interests  conveyed were conveyed  from Arend's  interests;  the other half were
conveyed  from  Cambridge's  interests.  One-half of the  proceeds  were applied
against Arend's outstanding joint interest billing balance; the cash received by
the Company was used to clear up  outstanding  liens and some  production  taxes
attributable  to the  properties.  After  Griffin,  et al  receives  net revenue
(defined  as the gross oil and gas  income  received  less all  operating  costs
including  overhead  and  taxes)  equal  to 200% of the  total  purchase  price,
Griffin, et al will reassign 50% of the initial interest conveyed to Griffin, et
al back to Cambridge and Arend.  The Company is of the opinion that Griffin,  et
al will not  receive  net  revenue  equal to 200% of its total  purchase  price.
Accordingly,  the Company  does not  anticipate a  reassignment  of the interest
conveyed to Griffin, et al.

(B.) BUSINESS OF DEBTOR
     ------------------

     The  Company's  principal  products are oil and natural gas. The  principal
markets for such products are those wherein the Company's oil and gas properties
are physically located,  and the methods of distribution of such products are by
sale to the  appropriate  oil  and  gas  gathering  companies  operating  in the
geographic area of the Company's production.

     While  the  Company's  exploration  and  development  operations  have been
conducted in Texas, Louisiana, Oklahoma,  Mississippi,  Alabama, Illinois, Ohio,
New York and Wyoming,  activities since 1984 have been concentrated in the Texas
Gulf Coast.

                                       15

<PAGE>

     The Company's  operations  are subject to all of the risks  inherent in the
exploration for, and development of, oil and gas, including  blowouts,  fire and
other casualties,  which could result in damage to or destruction of oil and gas
formations, producing facilities or property or possible personal injury or loss
of life.  The Company  maintains  insurance  coverage  that is  customary  for a
company of similar size, engaged in similar operations,  but losses may occur as
a result of  uninsurable  risks or in  amounts in excess of  existing  insurance
coverage which could have a material adverse effect upon the Company's condition
if it is not fully insured.  The Company carries substantial  insurance coverage
against  certain  of  these  risks,  but is not  fully  insured  either  because
insurance  is not  available  or because the Company has elected not to purchase
insurance due to prohibitive premium costs.

     The  production  and sale of oil and  natural  gas is  subject  to  various
federal, state and local regulations.  The executive and legislative branches of
the  federal  government  have  periodically  proposed  and  considered  various
programs for development and use of alternative fuels,  energy  conservation and
limitations  on the level of crude oil imports.  Numerous  proposals  are before
Congress and state  legislatures  concerning  regulation and taxation of the oil
and gas industry.  The Company cannot predict which of such  proposals,  if any,
will be enacted into law, and, if any such  proposals or programs are enacted or
adopted, the effect they might have cannot be predicted accurately.

                                       16

<PAGE>
     For  the  past  six  years,   the  natural  gas  industry  has  experienced
instability  primarily  due to a decline  in demand  combined  with  excess  gas
deliverability. Economic conditions and the availability of alternative fuels at
competitive prices are just two of the factors that have affected demand for gas
and created  increased  competition for markets.  Many producers,  pipelines and
distribution  companies  have lowered  their prices in an attempt to maintain or
increase  sales.  Some gas  purchasers  have  implemented a variety of marketing
approaches,   including   gas   "clearinghouses"   designed  as  a  vehicle  for
month-to-month spot sales and various types of special marketing programs, in an
effort to  increase  sales or avoid  additional  take-or-pay  liabilities.  As a
result, the Federal Energy Regulatory  Commission ("FERC" has approved a variety
of special marketing programs and eased restrictions on transportation of gas to
end-users in an effort to respond to conditions in the  marketplace.  The market
for future gas  production  is  unpredictable,  as are the  reactions of FERC or
other agencies to future events.

     The Company's operations are subject to numerous laws and regulations, both
federal and state,  controlling  the discharge of materials into the environment
or  otherwise  relating to the  protection  of the  environment.  These laws and
regulations have not had a material impact on the Company's operations,  but the
Company is unable to predict  whether its future  operations  will be materially
adversely affected thereby.

                                       17
<PAGE>

     The  Company   competes  with  a  large  number  of  major  oil  companies,
independent oil and gas companies, individual operators and drilling programs in
the  exploration  for, and development and production of, oil and gas. Many such
competitors possess and employ financial and personnel  resources  substantially
in excess of those available to the Company and may,  therefore,  be able to pay
greater  amounts for  desirable  leases and to evaluate,  bid for,  purchase and
define a greater number of potential  producing prospects than the Company's own
financial and personnel resources permit.

     As of December 31, 1988,  the Company  employed  three people.  None of the
Company's  employees  are  represented  by a union  or labor  organization.  The
Company  maintains  disability,  medical and  hospital  insurance  plans for its
employees.

(C.) ASSETS AND PROPERTIES OF DEBTOR
     -------------------------------

     The Debtor has filed Amended  Schedules B-l (real property),  B-2 (personal
property) and B-3 (other property). These schedules have been amended to reflect
changes since they were initially filed on May 11, 1988, deleting any properties
disposed   of  through   sale  or   properties   depleted   or   abandoned   for
noncommerciality,  and revising estimates of value. Additionally, the Debtor has
attached  as Exhibit  9, a Summary of the  Debtor's  Schedules  Reflecting  Post
Petition Changes.  The schedules may be reviewed at the United States Bankruptcy
Court Clerk's office, 515 Rusk, Houston,  Texas,  between the hours of 9:00 a.m.
and 4:30 p.m., Monday through Friday.

                                       18
<PAGE>
     Assets and properties of the Debtor consist of the following:

                              HISTORICAL COST          FAIR MARKET   LIQUIDATION
                                 (BOOK VALUE)             VALUE           VALUE
                              --------------------------------------------------
                              12/31/88     6/30/89        6/30/89        6/30/89
                              --------------------------------------------------
Cash                          $78,311      $38,759        $38,759        $38,759

Accounts Receivable:
     Oil & Gas Sales          170,106      235,760        188,608        100,000
     Joint Interest           113,880      161,114        136,947         50,000
     Limited Partnerships     106,647       75,696         50,000         40,000

Oil & Gas Properties        1,586,848    1,423,120        809,202        612,011

Office Furniture,              38,572       34,726         21,230         10,000
     Equipment and Vehicles

All Other Assets               55,516       63,158         61,000         32,500
                           -----------------------------------------------------
     TOTALS                $2,149,880   $2,032,333     $1,305,746       $883,270
                           =====================================================

     In preparing  estimates of fair market and liquidation  values the debtor's
assets,  management  consulted with independent  appraisers,  performed physical
inspections and consulted with its financial and legal advisors. A discussion of
each of the  debtor's  assets and  properties,  together  with the  methods  and
assumptions utilized by management for valuations, is as follows:

(1)  OIL AND GAS PROPERTIES

     The Company's  principal  asset consists of oil and gas reserves which have
been  estimated by Gerald DuPont  Enterprises,  Inc.,  ("DuPont" an  independent
petroleum engineering firm. The following table sets forth as of January 1, 1989
the estimated net  quantities of proved  developed and  undeveloped  oil and gas
reserves  together with estimated net revenues  (discounted at 20%) by field, in
which the Company has an interest and which were capable of  production  at June
30, 1989:

                                       19


<PAGE>


                            PROVED DEVELOPED RESERVES


                          NET OIL         NET GAS              DISCOUNTED
                          RESERVES        RESERVES             NET REVENUE
FIELD                      (BBLS)            (MCF)               (20%)
- ---------------------------------------------------------------------------
Altamont-Bluebell             137                 0              $1,759
North Alkek                     0            29,831              18,205
Baby Face                       0           212,665             110,214
Bucksnag                    1,105            25,606              34,641
East Coletto Creek              0             8,894               4,116
North Fannin                    0           112,946              76,752
Johns                           0             1,196               2,810
Lil Miss                    3,004            38,906              28,829
Maetze                          0            30,208              17,430
West Maetze                     0            19,448              12,839
Power Play                      0           530,446             228,612
Pearsall                    9,109                 0              53,218
Reichert                        0            73,885              48,582
Ric-John                        0             5,172               5,345
Tom M                           0             3,976               2,483
Willmarg                        0           277,581             129,395
                         ---------------------------------------------------
TOTAL PROVED DEVELOPED     13,355         1,370,760            $775,230
                         ===================================================


                           PROVED UNDEVELOPED RESERVES

                          NET OIL         NET GAS              DISCOUNTED
                          RESERVES        RESERVES             NET REVENUE
FIELD                      (BBLS)            (MCF)               (20%)
- ----------------------------------------------------------------------------
North Alkek                     0            23,542           $   2,508
Bucksnag                    1,062            37,253              11,735
Fletcher                        0            45,535               5,189
Lil Miss                    6,070            83,205              28,476
Nichols                         0           117,262              60,978
Ric-John                        0            21,688              18,527
                         ---------------------------------------------------
TOTAL PROVED
UNDEVELOPED                 7,672           328,485           $ 127,413
                         ===================================================

                                 SUMMARY-TOTALS

                          NET OIL         NET GAS              DISCOUNTED
                          RESERVES        RESERVES             NET REVENUE
                           (BBLS)            (MCF)               (20%)
- ----------------------------------------------------------------------------
PROVED DEVELOPED           13,355         1,370,760           $  775,230
PROVED UNDEVELOPED          7,672           328,485              127,413
                         ---------------------------------------------------
     TOTAL                 21,027         1,699,245           $  902,643
                         ===================================================

                                       20


<PAGE>
     A copy of  DuPont's  reserve  estimates  as of January 1, 1989 is  attached
hereto as Exhibit 6. Wells which were not deemed to be capable of  production or
which have been  recommended  for abandonment or have been abandoned at June 30,
1989 are reflected in this exhibit.

     The  estimate  of oil and gas  reserves  were  based on the  most  reliable
information  available  at the  time  of  preparation.  Data  used  in  DuPont's
estimates has been  supplied by the operators of the  properties or is otherwise
accessible through various regulatory  agencies such as the Railroad  Commission
of Texas  and the  Louisiana  Department  of  Conservation.  While  the  reserve
estimates used in the evaluation are believed to be reasonable and correct, they
should be accepted with the understanding that reservoir performance may justify
revision.

     Several methods were used to estimate  reserves for the various  reservoirs
studied.  The  particular  method used for any given sand was  determined by the
quality and quantity of available  data.  More than one method was used wherever
possible in order to increase the degree of accuracy of the final result.

     Where sufficient  production  history was available to determine an average
rate of decline in production,  the actual performance of the reservoir was used
as a basis for predicting  reserves.  Actual production trends were extrapolated
to an  anticipated  point of  abandonment.  This  method can  provide not only a
reasonable  estimate of ultimate  production  but also a fairly  reliable  "life
expectancy" for the well

                                       21


<PAGE>


     Volumetric  Analysis  was based on a  determination  of total volume of oil
and/or gas present in the reservoir and  percentage of that initial volume which
can be expected to be recovered.

     The  recovery  factor is a variable  calculated  for each  reservoir on the
basis of reservoir  pressures and/or water,  oil and gas  saturations.  It is an
expression of the efficiency of producing mechanism of the reservoir.

     The estimate of future net revenues were  established  using average prices
in effect for 1988 with no future  escalations  except in those  instances where
gas sales are being made under the terms of a contract  which includes fixed and
determinable escalations. Where applicable, the effect of the Natural Gas Policy
Act of 1978 was  included in  determining  current  price as of January 1, 1989,
none of the future  escalations  provided for by the Act were  considered  to be
fixed  and  determinable.  Operating  costs,  production  taxes,  royalties  and
overriding  royalties,  and estimated future capital  expenditures were deducted
from the estimates of future  revenues to determine  net  revenues.  These costs
were  estimated  based upon  current  costs,  and were not  adjusted  to reflect
anticipated increases due to inflation or other factors.

     The Company  selected a discount factor of 20% to determine the fair market
value of the  properties.  This  discount  factor was selected for the following
reasons:

                                       22

<PAGE>
     The  undiscounted  net revenues to be received in the future do not include
any provision for the overhead and other costs  associated  with the  management
and adminIstration of the properties.

     The  undiscounted  net revenues to be received in the future do not include
any provision for the time value of money which was estimated at 10%.

     Recent industry  transactions  involving the sale of oil and gas properties
have generally been in the 20-25% discount range.

     To determine the fair market value at June 30, 1989, Mr.  DuPont's  January
1, 1989 estimates of reserve valuation were reduced to reflect production of the
wells during the six months ended June 30, 1989:

               Total Oil & Gas Properties
                   at January 1, 1989,
                   discounted at 20%                          $ 902,643

               Net Revenues for
                   six months ended 6/30/89                    ( 93,441)
                                                            ---------------
               Fair Market Value at 6/30/89                   $ 809,202
                                                            ===============

     The liquidation value of these oil and gas properties  reflects  additional
costs (15%) that  management  expects would be incurred by a Trustee,  including
commissions,  legal and  administrative  fees and trustee's fees in disposing of
the  properties,  and a reduction in proved  undeveloped  reserves to 30% of the
indicated fair market value.

     Additional  information  concerning the Company's oil and gas properties is
included in footnotes to the audited financial  statements included as Exhibit 5
to this Statement.

                                       23


<PAGE>

(2) ACCOUNTS RECEIVABLE FROM OIL AND GAS SALES

     The amount  represents  accounts  receivable earned in the normal course of
business  from the sale of oil and natural gas. At June 30, 1989,  approximately
$125,000 of the amount due Cambridge. for oil and gas sales was in suspense with
the purchaser,  Cokinos  Natural Gas Co., as a result of litigation  between the
Company and William 0. Huggins,  III (See Litigation  (I)(D)(l) for discussion).
Some of these suspended revenues due Cambridge (approximately $55,000) have been
disbursed by Cokinos to Huggins as the result of an agreement  between  them. In
addition,  the amount shown at June 30, 1989 includes  approximately $65,000 due
from North Central Oil  Corporation,  as  reimbursement of costs of drilling and
completing  a  well,  which  is in  dispute  (See  Litigation  (I)  (D)  (2) for
discussion).  Management is currently in the process of recovering both of these
amounts; however, it can not be determined at this time if these efforts will be
successful.

     In determining  the fair market value of accounts  receivable  from oil and
gas sales, the Company has estimated that 80% of the amounts due will ultimately
be collected.  The liquidation values of these accounts  receivable reflects (i)
additional  costs  (10%) that  management  would  expect  would be incurred by a
Trustee  (including  Trustee  fees) in  collecting  the  amounts due and (ii) an
estimate  of the amount  that  might not ever be  collected  should the  company
convert the case to a Chapter 7.

                                       24

<PAGE>

(3)  ACCOUNTS RECEIVABLE FROM JOINT INTEREST BILLINGS

     Accounts  receivable due from working interest owners for expenses incurred
by Debtor in wells  operated by the Debtor.  Amounts which have been  determined
not to be collectable have been excluded.  The primary reason for exclusion were
those  cases  where  the well is no longer  revenue  producing  aid the  working
interest  owner has refused to pay.  In  determining  the fair  market  value of
accounts  receivable from joint interest billings,  the Company has assumed that
85% of the $161,114 due at June 30, 1989 will ultimately be paid.

     The liquidation value represents  management's  estimate of the amount that
might  ultimately  be  collected by a Trustee  (after  Trustee  expenses).  This
estimate is based on the fact that the accounts receivable from working interest
owners consist of amounts due from  individuals  rather than  companies,  making
collection efforts more difficult.

(4)  ACCOUNTS RECEIVABLE FROM LIMITED PARTNERSHIPS

     The Company is the general  partner  for six  limited  partnerships  formed
during  1980-1982.  In  accordance  with the  terms of the  Limited  Partnership
Agreements,  each partnership was dissolved effective February 29, 1988 with the
filing of the general  partner's  Chapter 11  petition.  The general  partner is
responsible to wind-up the affairs of the  partnership  to include,  among other
things:

     (1)  Sale and disposal of partnership assets;
     (2)  Filing of final tax returns with appropriate taxing authorities;


                                       25

<PAGE>


     (3)  Payment of outstanding obligations of the partnership;

     (4)  Distributing  the  remaining   proceeds,   if  any,  to  each  limited
          partnership in accordance with their respective ownership position;

     (5)  Causing  the   partnerships'   accountants  to  file  a  Statement  of
          Dissolution with respect to the final disposition of funds.

     The only significant asset of the individual limited partnerships  consists
of oil and gas properties which are to be sold in accordance with the respective
partnership  agreements.  The  discounted  (20%) value of these  properties,  as
determined by Mr. DuPont, at January 1, 1989, are as follows:

                        PROVED                   PROVED
                        DEVELOPED              UNDEVELOPED
PARTNERSHIP             RESERVES                 RESERVES                  TOTAL
- -----------             --------                 --------                  -----
80-I                    $ 12,416                      $ 0               $ 12,416
80-II                     18,244                   20,484                 38,728
81-I                       1,251                   56,906                 58,157
81-II                     22,679                   20,232                 42,911
82-I                      56,342                        0                 56,342
82-II                     53,957                        0                 53,957
                          ------                        -                 ------
 TOTAL                  $164,889                 $ 97,622               $262,511
                         =======                 ========               ========

     Accounts  receivable  from  limited  partnerships   represent  the  limited
partnership's  share of expenses paid by the general partner  (Debtor) on behalf
of the limited  partnership.  The Company is currently in the process of selling
the  oil and gas  properties  of the  limited  partnerships.  The  partnerships'
ability to pay the amounts due the Company is limited to those proceeds received
from the sale of partnership assets, none of which has been completed.  The fair
market value of these  receivables was based upon  management's  estimate of the
amount that may ultimately be paid (after

                                       26
<PAGE>
partnership costs and expenses) upon final disposition of partnership assets.

     The liquidation  values of these receivables  reflects (1) additional costs
(10% that  management  would  expect  would be incurred by a trustee  (including
trustee  fees) in  collecting  the amounts due and (2) an estimate of the amount
that  might not ever be  collected  should  the  company  convert  the case to a
chapter 7.

(5) OFFICE FURNITURE AND EQUIPMENT

     At August 1,  1989,  management  took a  physical  inventory  of all office
furniture and equipment,  computers, desks, chairs, tables, typewriters,  adding
machines,  etc.  The  fair  market  value of this  equipment  was  estimated  by
management  based on the age and  condition  of  similar  equipment  sold in the
normal course of business over a reasonable time.

     Liquidation values assume the sale, at auction, of the same equipment.

(6) ALL OTHER ASSETS

     Other  assets at  December  31,  1988 and June 30,  1989  consisted  of the
following:

                                   HISTORICAL COST       FAIR MARKET LIQUIDATION
                                     (BOOK VALUE)              VALUE     VALUE
                              --------------------------------------------------
                                 12/31/88       6/30/89        6/30/89   6/30/89
                              --------------------------------------------------
Fannin Gas Gathering              $     0        $     0        $35,000  $31,500
     System
Accounts Receivable Other          28,331         36,543         15,000        0
Prepaid Expenses                   15,161         14,591         10,000        0
Deposits                           10,989         10,989              0        0
Investments in Intuck               1,035          1,035              0        0
Causes of Action                        0              0          1,000    1,000
                              --------------------------------------------------
     TOTALS                       $55,516        $63,158        $61,000  $32,500
                              ==================================================

                                       27
<PAGE>

     The Fannin Gas Gathering  System is a small natural gas pipeline  gathering
system located in Goliad County.  There is disputed ownership with various third
parties as to "actual"  ownership  of the system.  Normandy Oil and Gas Company,
Inc.  is in the  process  of  acquiring  the  claims of  various  unsecured  and
third-party  creditors  as these  claims  relate to the  gathering  system.  The
proposed  acquisition  of claims by Normandy will be reflected by a Motion to be
filed with this court.

     Accounts  receivable  represent  amounts due from various producers who use
the  pipeline to  transport  their gas from the wellhead to a major gas pipeline
system.

     Accounts  Receivable  Other  represents  an  amount  due  from  one  of the
producers who has refused to pay the transportation  fees for the use of the gas
gathering  system under the pretense that the Company does not have the right to
collect such fees. The Company is in the process of addressing this dispute. The
amount that may  ultimately be collected,  if any,  cannot be determined at this
time.

     Prepaid  expenses  consist  primarily  of  prepaid  costs  associated  with
maintenance  agreements and  insurance.  Deposits  consist of rent,  utility and
equipment deposits.

     The  Company  has  available  various  causes  of  action  against a former
attorney and certain working  interest  owners.  The viability of pursuing these
causes is uncertain,  as is the potential  outcome of any litigation  that might
result and amounts that may ultimately be collected.

                                       28

<PAGE>

(D.) LITIGATION

          The Company is presently involved in the following legal actions:

     (1) WILLIAM 0. HUGGINS,  III ET AL,  PLAINTIFFS  V.  CAMBRIDGE OIL COMPANY,
DEFENDANT, filed  on January  5, 1987 in the 135th  Judicial  District  Court of
Goliad County,  Texas,  Cause No.  87-1-6279.  Plaintiffs in their first amended
original  petition,  allege  that the  Company  breached  a  farmout  agreement,
fraudulently  withheld monies due plaintiffs  under the farmout  agreement and a
certain oil and gas lease,  breached a fiduciary  obligation  to  plaintiffs  in
handling the monies due  plaintiffs  and was  negligent  in handling  monies due
plaintiffs.  Plaintiffs  asked for (1)  rescission and  cancellation  of (i) the
farmout agreement; (ii) assignments made pursuant to such agreement, and (iii) a
certain oil and gas lease, (2) actual damages of $436,000, (3) exemplary damages
of $3,000,000  for breach of fiduciary  obligations,  (4)  exemplary  damages of
$1,000,000  for  malice  and (5)  exemplary  damages  of  $1,000,000  for  gross
negligence.

     On  September  23, 1987, a verdict was returned by the jury in favor of the
plaintiffs  terminating  the  farmout  agreement  involved  in  the  litigation,
terminating the  assignments  made pursuant to the farmout  agreement,  awarding
damages of $100,000 and exemplary damages of $1,500,000.

     On October 21, 1987, the Court denied  Cambridge Oil Company's Motion for a
judgment  notwithstanding  the  verdict  and  entered a judgment  based upon the
jury's findings in favor of the plaintiffs. Company counsel filed a motion for a
new trial.

                                       29

<PAGE>

     On January 4, 1988,  the  Company's request  for a new trial was denied and
the  plaintiff  subsequently  filed  a  Writ  of  Execution  to  post  producing
properties of the Company for Sheriff's Sale. The Company subsequently filed for
protection under Chapter 11 of the Bankruptcy Code to prepare it's appeal.

     Counsel was  retained  for the Company to pursue its appeal to the judgment
in the Texas Court of Appeals, 13th Supreme Judicial District in Corpus Christi,
Texas, Appellate Case No. 13-88-00038-CV styled Cambridge Oil Company, Appellant
VS.  William 0.  Huggins  III,  Trustee for William 0.  Huggins  III,  Judith L.
Huggins, and Virginia Huggins May, Appellees.

     An  Agreed  Order  was  entered  by the  Bankruptcy  court on June 6,  1988
allowing the automatic stay under the Chapter 11 to be lifted so as to allow the
state court litigation to proceed through the appeals process.

     The appellate  cause was submitted and oral argument was allowed on October
6, 1988. Cambridge, as Appellant,  cited twenty-two points of error, eighteen of
which were supported by statements,  arguments and authorities pertaining to: 1)
the lack of  evidence to support  monetary  damage  recovery,  2) the absence of
legal or factual basis for any recovery in tort and 3) the  insupportability  of
recision  remedy for non-fraud  "tort";  and four of which were supported by: 1)
statements,  arguments  and  authorities  pertaining  to the contract  claim for
cancellation  and 2)  recision of partial  assignments  to  Cambridge  under the
farmout agreement.

                                       30


<PAGE>

     On October 5, 1987,  Cambridge Oil Company  filed notice of appeal  through
the 13th Court of Appeals of Corpus Christi, Texas. Such appeal was subsequently
withdrawn.

     Texas  Trinity  Energy  Company  additionally  brought a  complaint  to the
Railroad  Commission of Texas alleging  violations  pertaining to the Dreier No.
1-A  Well.  A hearing  was held on  November  18,  1987  (Oil & Gas  Docket  No.
2-91,621)  to: 1) consider  the good faith  claim of title of North  Central Oil
Corporation  and Cambridge Oil Company to an oil and gas lease;  2) determine if
the  Railroad  Commission's  Statewide  Rules 11 and 12 were  violated  by North
Central Oil  Corporation  and  Cambridge  Oil Company  when the subject well was
permitted, drilled and completed; 3) determine whether an exception to Statewide
Rule 37 must be obtained  for the subject  well and to consider  the validity of
the permit issued to drill the well; 4) consider whether all production from the
subject well should be considered  illegal  production and be subject to makeup;
and 5) give North  Central Oil  Corporation  and Cambridge  Oil  Corporation  an
opportunity  to appear and address the  allegation  of false  filing  concerning
failure to inform the Commission that the subject well was to be a directionally
drilled well.

     On March 14,  1988,  the  Commission  issued a Final Order in this  matter,
adopting as finding of fact and  conclusions  of laws that: 1) proper notice was
issued  to  the  appropriate  parties  and  that  the  Railroad  Commission  had
jurisdiction  to decide the matter;  2) that the Dreier No. 1-A Well was drilled
in  violation of Statewide  Rule 11 (d)(3)(B)  but that there was no  deliberate
attempt to


                                       32

<PAGE>

     On October 5, 1987,  Cambridge Oil Company  filed notice of appeal  through
the 13th Court of Appeals of Corpus Christi, Texas. Such appeal was subsequently
withdrawn.

     Texas  Trinity  Energy  Company  additionally  brought a  complaint  to the
Railroad  Commission of Texas alleging  violations  pertaining to the Dreier No.
1-A  Well.  A hearing  was held on  November  18,  1987  (Oil & Gas  Docket  No.
2-91,621)  to: 1) consider  the good faith  claim of title of North  Central Oil
Corporation  and Cambridge Oil Company to an oil and gas lease;  2) determine if
the  Railroad  Commission's  Statewide  Rules 11 and 12 were  violated  by North
Central Oil  Corporation  and  Cambridge  Oil Company  when the subject well was
permitted, drilled and completed; 3) determine whether an exception to Statewide
Rule 37 must be obtained  for the subject  well and to consider  the validity of
the~ permit issued to drill the well; 4) consider  whether all  production  from
the  subject  well should be  considered  illegal  production  and be subject to
makeup;  and 5) give North Central Oil Corporation and Cambridge Oil Corporation
an opportunity  to appear and address the allegation of false filing  concerning
failure to inform the Commission that the subject well was to be a directionally
drilled well.

     On March 14,  1988,  the  Commission  issued a Final Order in this  matter,
adopting as finding of fact and  conclusions  of laws that: 1) proper notice was
issued  to  the  appropriate  parties  and  that  the  Railroad  Commission  had
jurisdiction  to decide the matter;  2) that the Dreier No. 1-A Well was drilled
in  violation of Statewide  Rule 11 (d)(3)(B)  but that there was no  deliberate
attempt to

                                       32


<PAGE>


file false filings or to deceive the  Commission as to the Dreier No. Well being
a  directionally  drilled  well;  3) that the  subject  leases were valid and in
effect  when the Dreier No. 1-A Well was  drilled  and that both the surface and
bottomhole  locations  were at regular  locations;  4) that Texas Trinity Energy
Company now had clear title to the subject  leases;  5) that the  shutting in or
reduction  of  production  of the Dreier No. 1-A Well or the  revocation  of the
previously granted permit for the well would cause the waste of hydrocarbons; it
therefore being mandated that the Dreier No. 1-A Well continue to be produced at
its present levels; 6) that no violation of Statewide Rule 12 had occurred

     An Order Denying Motion for Rehearing was signed by the Commission on April
18,  1988,  denying  Texas  Trinity's  motion to reopen the hearing or otherwise
preserve its complaint at the Commission.

     The Company is currently  entitled under its agreements  with North Central
Oil Corporation to  reimbursement of its costs of drilling and completing of the
well on the affected property from production revenues from this well.

(E.) REASON FOR FILING

     Changing industry economics which generally  adversely affected all oil and
gas producing  companies had a more pronounced effect on smaller operations like
that of Debtor.  The price of oil and  natural  gas the  primary  revenue of the
Debtor) has declined dramatically over the past years, illustrated as follows:

                                       33


<PAGE>

                         Average Oil                        Average Gas
                         Price (BBL)                        Price (MCF)
                         ----------                         -----------
    1984                 $ 29.54                          $ 3.68
    1985                   25.88                            2.73
    1986                   13.88                            1.38
    1987                   13.58                            1.33
    1988                   11.03                            1.12

     In addition, costs and expenses for managing and administer-public drilling
programs,   and  costs  associated  with  producing   properties  were  high  in
relationship to the size of the Company and could not be reduced proportionately
with the decline in revenues.

     As a result,  the debtor incurred losses in each of its four calender years
preceding the Chapter 11 filing as follows:

                                                AMOUNT OF LOSS
                                             ------------------
                       1984            $            (344,074)
                       1985                         (579,040)
                       1986                         (751,771)
                       1987                       (1,178,359)
                                             ------------------
                       Cumulative Total          $(2,853,244)
                                             ==================

     The primary  reason for filing the  Chapter 11  petition;  however,  was to
protect creditors and shareholders from the Huggins judgment, to avoid Execution
by the  Sheriff of Goliad  County on the  company's  producing  properties  as a
result of this Huggins judgment See Litigation (I)(D)(l)for discussion),  and to
give the Company time to prepare its appeal of the Huggins judgment to the Texas
Court of Appeals.

                II. POST-PETITION EVENTS AND BUSINESS OPERATIONS

     Since  filing its Chapter 11 petition the Company has  conducted  business,
for the most part, on a satisfactory  basis in the ordinary course. A summary of
the Debtor's Transactions Since Filing is attached hereto as Exhibit 10.


                                       34
<PAGE>
 Significant  events  and  events  out of the  ordinary  course of  business
include the following:

     (A) Order  Approving  Motion for  Authority to Sell an Oil and Gas Lease to
TXO Production  Corporation Free and Clear of Any Interest, (order granted April
13, 1988) by which the Company  conveyed all of its working interest in and to a
319.9 acre oil and gas lease located in Colorado County,  Texas,  reserving unto
itself a 3-1/3  percent  overriding  royalty  interest  in  accordance  with the
provisions of this order. TXO Production  corporation paid a cash  consideration
of $60,000 for this lease;  $24,000 of this proceeds was used to satisfy in full
the liens and claims of Jack E.  Coffman and Eldon S. West,  III and  $25,202.63
was used to satisfy in full the lien and claim of Kemp Geophysical Corporation.

     (B) As a result  of  actions  taken  by the  State  of  Texas  against  the
Company's  purchasers in July 1988, Cambridge received funds attributable to gas
production from its purchasers in July,  August, and September for only three of
its wells.  As a result of the State of Texas action,  the Company was unable to
pay the severance taxes attributable to the properties with suspended  revenues.
Cambridge filed suit against the State of Texas and various first purchasers and
orders were entered by the Court in early October which released suspended funds
to the Company and the various  involved royalty owners and caused taxes for the
production  months of May 1988 forward to be paid from the suspended  funds held
by the various first  purchasers.  The Company has paid  severance  taxes on all
production income that has been generated post-petition.


                                       35
<PAGE>

     (C) Order  Approving  Motion for Authority to Enter into Farmout  Agreement
With  Indexgeo &  Associates,  Inc.,  (granted  February  13, 1989) by which the
company  farmed out its interest in and to certain oil and gas leases located in
Goliad County, Texas, retaining unto itself an overriding royalty interest equal
to the difference between the lessors royalties under the oil and gas leases and
23.5% of the total net revenue interest in the leases. Additionally, the Company
retained under the farmout agreement a production payment, an overriding royalty
interest  equal to 9.375% of production  commencing  with first  production  and
continuing  until the revenue paid totals $26,000.  In addition,  Billye Stevens
Halbouty as an equity investor in the leases,  received a 6% working interest in
the initial test well which will be paid by Indexgeo. Indexgeo agreed to pay all
costs  associated  with Court  approval for the farmout  motion.  A Supplemental
Order to Debtor's Motion for Authority to Enter Farmout  Agreement with Indexgeo
&  Associates,  Inc.  was  granted on March 20,  1989.  The  Supplemental  Order
provided that out of the overriding  royalty interest retained by the company CT
Associates,  Inc.,  an original  investor in the property that is subject to the
farmout agreement, be assigned a 2.5% overriding royalty interest in the well to
be drilled on the property  subject and that Dr. Samuel Meyer,  another original
investor in the subject property,  be assigned a 1% overriding  royalty interest
in the well to be drilled on the property.

                                       36


<PAGE>

     (D) Order  Approving  Emergency  Motion  for  Authority  to Enter   Farmout
Agreement with Indexgeo and Associates,  Inc., (granted April 1989) by which the
Company and various third parties who have  participation  rights in certain oil
and gas leases located in Goliad County,  Texas,  farmed out its interest in and
to these leases. The Company retained unto itself an overriding royalty interest
equal to its ownership share (22.5%) of a 3.3333% overriding royalty interest in
the leases.

     (E) In conjunction  with that certain Order approving  Motion for Authority
to Enter into Farmout  Agreement with Indexgeo & Associates,  (described in (II)
(D) above),  the Company entered into an Agreed Order Regarding Debtor's Use and
Disposition of Cash Collateral  with CT Associates,  Inc. "CT" (granted July 20,
4989).  The Order  provides  in general  that:  1) CT be  provided a  recordable
conveyance in and to oil and gas leases covered by the farmout (described in (D)
above);  2 the  $85,000  debt owed by the  company  be  reduced,  the  amount of
reduction  being  contingent  on the status and outcome of the initial test well
drilled  under the  farmout  and that CT's  associated  working  interest in the
Hanley No. 1--B Well, a producing gas property in which CT has a secured  claim,
be likewise  reduced on the same pro rata basis;  and 3) that effective with the
entering  of the Order,  the Company  pay to CT amounts  equal to their  working
interest share in the Hanley No 1-B Well, net of CT's share of associated  lease
operating  expenses,  within  fifteen  days of receipt of these  revenues by the
Company and that these  payments be applied to reduce the debt owed to CT by the
Company.

                                       37

<PAGE>

     (F) As the result of litigation  between the Company and William 0. Huggins
III, production revenues for certain of the Company's  properties have been held
in suspense.  Refer to Litigation (I)(D)(1) and Accounts Receivable From Oil and
Gas Sales (I)(C)(2) in this statement for discussion.


                            III. SUMMARY OF THE PLAN


     The following summary of the principal  provisions of the Plan is qualified
in its  entirety by the  reference to the full text of the Plan.  CREDITORS  AND
EQUITY HOLDERS ARE URGED TO REVIEW CAREFULLY THE COMPLETE TEXT OF THE PLAN.

A.   CLASSES OF CLAIMS AND INTERESTS
- ------------------------------------

     The Debtor's  estimate of claims does not include  Priority Claims pursuant
to Section  507(a)(1)  or (a)(3)  which have  arisen in the  ordinary  course of
business during the pendency of the Chapter 11 case,  administrative  in nature,
but  which  have  been and will be paid,  when due,  in the  ordinary  course of
business. The Debtor has not classified these Administrative  Priority Claims or
Expenses,  the  aggregate  at June 30,  1989 being  estimated  at  approximately
$400,000.   These  expenses  include  the  fees  of  counsel,   accountants  and
consultants for the Debtor and unpaid wage claims of employees.  Since such fees
and expenses and any claims pursuant to Section  507(a)(6) will be determined by
the Bankruptcy  Court upon appropriate  application,  and since ongoing services
will be rendered by such professionals and post-petition  claimants,  the amount
estimated for Administrative

                                       38
<PAGE>


Claims is based on the best  information  available to the Debtor and is subject
to change.

     As noted above in Section I (C) Assets and  Properties  of the Debtor,  the
Debtor  has filed  with the  Court  Amended  Schedules  A-l  (creditors  holding
priority),  A-2 (creditors holding security) and A-3 (creditors having unsecured
claims  without  priority).  These  Schedules  have been  amended to reflect any
changes since they were initially  filed on May 11, 1988,  including  additional
claimholders.  A summary of the post petition changes in the Debtor's  Schedules
is reflected in the attached Exhibit 9. These schedules are available for review
as described Section I (C).

     The Plan  divides  the  creditors  and equity  holders  into seven  general
Classes. The Classes are described as follows:

     1.   CLASS A

     Class A Claims consist of the holders of Claims  entitled to priority under
Section 507(a)(7) of the Bankruptcy Code ("Priority Tax Claims"). The holders of
Class A Priority Claims consist primarily of payroll, production, ad valorem and
other tax claims.  The Debtor  estimates  that the  aggregate of Allowed Class A
Priority Claims is approximately $347,000.

     2.   CLASS B

     Class B consists of the Secured Claim of CT Associates,  Inc. (CT).  Debtor
estimates  the amount of the Allowed Class B Secured Claim at $75,000 as of June
30, 1989.


                                       39

<PAGE>


     3.   CLASS C

     Class C Claims  consist  of all other  Secured  Claims,  including  without
limitation,  any oil and gas, operators',  materialmen's,  mechanics' liens. The
Allowed  amount of these Claims will be determined  either by agreement  between
the Debtor  and the  holders  of the Class C Claims or by the  Bankruptcy  Court
pursuant to Section 506(a) of the  Bankruptcy  Code.  Debtor  estimates that the
aggregate amount of Allowed Class B Secured Claims is approximately $31,000.

     4.   CLASS D

     Class  D  Claims  consist  of  unsecured  small  claims,  including  unpaid
royalties, overriding royalties and working interest royalties which are or have
been  reduced  to  $500.   Debtor   estimates  that  Class  D  claims  aggregate
approximately  $30,000.  The debtor  believes it is  impossible  to estimate the
value of those claims which will be reduced by their  holders to Class D claims.
However, assuming all claims less than $5,000 were converted the total amount of
converted claims would aggregate approximately $120,000.

     5.   CLASS E

     Class E Claims  consist  of the  holders  of all  other  unsecured  claims,
including, without limitation,  unpaid royalties,  overriding royalties, working
interest  royalties and other deficiency  claims of secured  creditors and those
arising from the  rejection of executory  contracts and  unexpired  leases.  The
aggregate amount of these Claims is approximately $2,050,000.

                                       40


<PAGE>

     6.   CLASS F

     Class F Claims consist of the holders of existing shares of Preferred Stock
of  Cambridge  Oil  Company  as of 5:00  P.M.  Houston  Texas  time,  on the day
immediately preceding the Confirmation Date.

     7.   CLASS G

     Class G Claims consist of the holders of existing shares of Common Stock of
Cambridge  Oil  Company  as of  5:00  P.M.  Houston,  Texas  time,  on  the  day
immediately preceding the Confirmation Date.

B. SUMMARY OF TREATMENT OF CLASSES UNDER THE PLAN
   ----------------------------------------------

     The Claims and  Interests of the following  Classes are not impaired  under
the Plan and acceptance of the Plan by holders of such Claims is not required.

     1.   CLASS A

     Each holder of an Allowed Class A Claim for Priority Taxes shall be paid in
sixty  equal  monthly  installments,  the  first of  which  shall be paid on the
Effective Date or as soon as practicable thereafter.  The succeeding installment
payments  shall be paid  during  each of the next  fifty-nine  months  after the
Effective Date and the installment  payments shall bear interest at a rate to be
determined by reference to Section 1274(d) of the Internal Revenue Code of 1986,
or based on agreement with each respective taxing authority involved.

     The Claims and  Interests of the following  Classes are impaired  under the
Plan and  acceptance  of the Plan by  holders  of such  Claims or  Interests  is
required.

                                       41


<PAGE>

     2.   CLASS B

     The  holder  of the  Class B Secured  Claim  will  receive a equal to 5.215
percent (5.215%) of the net amount of the rents, income,  production and profits
received by the Debtor from the Mortgaged  Property within fifteen (15) calendar
days of the  Debtor's  receipt  of  same.  The net  amounts  of  rents,  income,
production profits to be remitted to the Secured Claim holder after deduction of
the lease  operating  expenses  attributable  to a seven  percent  (7%)  working
interest. These payments will continue until: (i) the claim is satisfied in full
or (ii) the mortgaged property is deemed longer commercial.

     3.   CLASS C

     Each holder of an Allowed Secured  Materialman's  Lien Claim will be paid a
lump  sum on  the  Effective  Date  or  forty-eight  (48)  monthly  installments
beginning  on the  Effective  Date in full  satisfaction  of their lien claim as
follows:

                                                      Lump       Monthly
                                                       Sum       Payment
Claim Holder and Claim                                Payment    Amount
- ------------------------------------------------------------------------------

Air Equipment Rental
Materialman's lien Burns #1                       $2,716.00      $70.75
Materialman's lien Swickheimer #lD                 1,360.00       35.44
Materialman's lien Collins #1                      1,451.00       37.79

Dowell Schlumberger
Materialman's lien Holland #6                      5,453.88      113.62

Gearhart Industries, Inc.
Materialman's lien Swickheimer #lD                 3,190.00       83.06

Pronto Vacuum Service
Materialman's lien Burns #1                        1,450.00       37.75


                                       42


<PAGE>
Schlumberger Technology Corporation
Materialman's lien Holland #6                      2,250.00       58.06

White's Well Service Materialman's lien Burns #1  11,603.00      302.16

     4.   CLASS D

     All Allowed  Claims  which are or have been reduced to $500 or less will be
paid 75% of the claim amount in cash on the Effective Date or as soon thereafter
as practicable, unless otherwise ordered by the Court.

     5.   CLASS E

     Each holder of an Allowed  Claim of Class E shall  receive on the Effective
Date one Unit,  consisting  of one share of  Houston  Operating  Company  Common
Stock,  one Class A Warrant  and one Class B Warrant  for each $10.00 of allowed
claims.

     6.   CLASS F

     Preferred  Stock shall be cancelled upon the Effective Date. Each holder of
an Allowed  Preferred  Stock  Interest  shall receive on the Effective  Date one
Unit,  consisting of one share of Houston  Operating  Company Common Stock,  one
Class A Warrant and one Class B Warrant for each $100 in par value of  Cambridge
Oil Company Preferred Stock.

     7.   CLASS G

     The Common Stock shall be cancelled upon the Effective Date. Each holder of
an  Allowed  Common  Stock  Interest  shall  receive on the  Effective  Date one
Participation  Right for each 80  shares of  presently  issued  and  outstanding
Cambridge Oil Company Common Stock.

                                       43


<PAGE>


C. SUMMARY OF OTHER PROVISIONS OF THE PLAN.
   ---------------------------------------

     (1)  MEANS FOR EXECUTION OF THE PLAN

     The  Successor  shall acquire all assets  (including  all real property and
personal  property and  interests of any kind) of the Debtor upon  Confirmation.
The  acquisition  shall  be  accomplished  by  the  issuance  of  Common  Stock,
Participation  Rights,  and  Warrants,  or the payment of cash in  exchange  for
Allowed  Claims,  Allowed Secured  Claims,  Allowed  Priority Claims and Allowed
Unsecured  Claims.  Cash payments on the  Effective  Date shall be made from the
Debtor's  cash on hand at the Effective  Date which shall include  proceeds of a
loan of not less  than  $100,000  and not more than  $250,000  to be made to the
Debtor by the Successor on the Effective Date whtch loan shall be secured by all
assets of the debtor.  Deferred cash payments to the holders of Allowed  Secured
and Priority Claims shall be made from cash on hand and income  generated by the
oil and gas  properties  acquired by the  Successor  under the Plan.  Sufficient
funds  shall  be  available  to  fund  all  Plan  payments.  If for  any  reason
insufficient  cash exists to make Plan payments,  the Successor shall contribute
such additional cash as may be necessary.

     (2)  CRAM DOWN

     If all of the applicable  requirements for Confirmation of the Plan are met
as set forth in 11 U.S.C. Section  1129(a)(l)-(ll)  except subparagraph (8), the
proponents of the Plan hereby  request the Court confirm the Plan pursuant to 11
U.S.C.  Section 1129(b)  notwithstanding the requirements of subparagraph (8) as
the Plan is fair and equitable

                                       44


<PAGE>

and does not  discriminate  unfairly  with respect to any  dissenting,  impaired
Class.

     (3)  GENERAL PROVISIONS

     The  Successor  shall be  vested  on  Confirmation  with  ownership  of all
property,  including all rights and causes,  of the Debtor  whether  tangible or
intangible  including  any property  acquired by the  Successor  pursuant to the
exchange of Common Stock,  Participation Rights, Warrants, and cash provided for
in the Plan and  including  the proceeds of the loan to be made to the Debtor on
the Effective Date, and provided however that the Debtor, shall retain the right
to bring any and all causes of action provided for in the Code and the Successor
may initiate suit to enforce such causes of action after  Confirmation  with the
proceeds thereof paid to Successor.

     The  Successor's  purchase of assets in the Plan shall not subject  them to
any liability for any Claim; nor shall their participation in the Plan be deemed
for any reason to be an  assumption by them of any Claim or an admission by them
that they are liable for any Claim.

     The payment of cash and/or the distribution of Common Stock,  Participation
Rights,  and Warrants,  pursuant to the Plan shall be in exchange for all Claims
and/or interests in the Debtor and shall  constitute full  settlement,  release,
discharge,  and  satisfaction  of all such Claims,  interests  and liens against
property of the estate.

     Either  the  Successor  and/or  the  Debtor  may  modify  the Plan prior to
Confirmation,  and after  confirmation only the Successor may modify the Plan in
accordance with 11 U.S.C. Section 1127(b).

                                       45

<PAGE>


     The  entry of the  Order of  Confirmation  shall  release  partners  of the
Limited  Partnerships,  the  Limited  Partnerships  their  successors,  assigns,
employees and agents, their respective successors, assigns, employees and agents
from all actions,  causes of action, suits, debts, claims and demands which they
heretofore,  now or  hereafter  possess  or may  possess,  and their  respective
successors,  assigns,  employees and agents, based upon or in any manner arising
from or related to the Limited Partnerships,  including, without limitation, the
sale of Limited  Partnership  units and the negotiation of the Plan. The Limited
Partnerships  shall  waive and  release  any claims  they may hold  against  the
Debtor.

     No fractional  shares of Common Stock shall be issued pursuant to the Plan.
Fractional shares shall be rounded up to the next whole share.

     Nothing  contained in the Plan shall affect the rights of supplier of goods
or services to oil and gas drilling sites to perfect  mechanics s liens or other
such lien rights  under  applicable  non-bankruptcy  law whether the Claim arose
prior to or after the filing of Debtor's Chapter 11 case

     Notwithstanding  any other  provision of the Plan, a Disputed Claim will be
paid in accordance  with the Plan only after the Court enters its Order allowing
the Disputed Claim as an Allowed Claim such Order has become a Final Order.

     Any  oil  or  gas  revenues  (net  of  applicable  expenses)  suspended  or
interplead  since the  filing  date of the  Chapter  11 case  attributable  to a
Working Interest, Overriding Royalty or Landowner's

                                       46

<PAGE>

Royalty shall be paid to the holder of such interest or royalty on the Effective
Date.

     Any party holding a right of setoff pursuant to 11 U.S.C.  Section 553, may
exercise such right of setoff on and after the Effective Date

     If the  whereabouts of a party who is entitled to receive a distribution of
cash, Common Stock,  Warrants or Participation Rights under the Plan, is unknown
as of the Effective  Date,  the cash,  Common Stock,  Warrants or  Participation
Rights shall be escrowed for a period of six months after the Effective Date. If
at the end of the six-month  period,  said party's  whereabouts  remain unknown,
said party shall forfeit the property  which would have been  distributed  under
the Plan to said party and such escrowed  property shall be returned to the Plan
Successor.

     (4)  PROVISION FOR ASSUMPTION OR REJECTION OF EXECUTORY CONTRACTS

     The Bankruptcy Court gives the Debtor the power, subject to the approval of
the  Bankruptcy  Court,  to assume or reject  executory  contracts and unexpired
leases.  If an executory  contract or an unexpired lease is rejected,  the other
parties to the contract or lease may claim damages by reason of  rejection.  The
Bankruptcy  Court limits such damages in the case of leased real  property.  The
Debtor is not required to make a final  decision  concerning  the  acceptance or
rejection of executory Contract and unexpired lease until thirty days before the
Confirmation Date of the Plan. The Plan expressly  reserves the Debtor's rights,
and the Debtor specifically does not admit that oil and gas leases are executory
contract or unexpired leases within

                                       47
<PAGE>

the meaning of the Bankruptcy Code. Out of caution, however, provisions are made
in the Plan for Oil and Gas Leases to be assumed upon the Effective  Date in the
event  they  are held to be  executory  contracts  unless  Debtor  shall  file a
schedule rejecting specific executory contracts longer than thirty days prior to
the Confirmation Date.

     With  respect to the  operating  agreements  pertaining  to the oil and gas
wells set forth in Exhibit 7 to the Disclosure Statement where the Debtor is the
operator at the date of the  Confirmation  of the Plan,  the Debtor accepts such
operating agreements.

     With  respect to the  operating  agreements  pertaining  to the oil and gas
wells set forth in Exhibit 7 to the Disclosure Statement where the Debtor is not
the operator at the date of the Confirmation of the Plan, the Debtor assumes and
assigns to the  Successor  such  operating  agreements.  Any balances due by the
Debtor to the  operator  of the well shall be paid by setting off  net  revenues
due to the Successor who shall own the interest after Confirmation.

     To the extent  that oil and gas leases to which the Debtor is a party or an
assignee constitute executory contracts, the Debtor assumes and assigns such oil
and gas leases to the Successor. Any unpaid royalties,  overriding royalties and
working interest  royalties  arising from Executory  Contracts assumed are being
paid pursuant to the Plan as Class D and/or Class E claims.

     Subject  to the  reservation  of all such  rights,  the Plan  provides  any
executory  contracts which are described on a schedule filed on or before thirty
days prior to the Confirmation  Date with the Bankruptcy Court will be rejected.
Any party in interest (as defined

                                       48
<PAGE>

in the  Bankruptcy  Code)  may  object to the  assumption  or  rejection  of any
contract or lease.

     (5)  RETENTION OF JURISDICTION

     The Court shall retain exclusive jurisdiction for the following purposes:

     a.   To determine any and all objections to the allowance of Claims, and

     b.   To insure the purposes and intent of the Plan are carried out, and

     c.   To  correct  any  defect,   cure  any   omission,   or  reconcile  any
          inconsistency  in the Plan or the  Order of the Court  confirming  the
          Plan as may be  necessary  to carry out the purposes and intent of the
          Plan, and

     d.   To enforce and interpret the terms and conditions of the Plan, and

     e.   To enter an Order modifying the Plan, and

     f.   To determine disputes raised before or after Confirmation by adversary
          proceedings or contested hearings, and

     g.   To enter an order concluding and dismissing this Chapter 11 case.


                            IV. CONDITIONS PRECEDENT


     This  Plan  is   conditioned   upon  the   Successor   obtaining  at  least
fifty-one percent (51%) of the working interest owners' reserves.

                                       49

<PAGE>

Successor  intends to negotiate  separately  with the  Company's  major  working
interest owners for the  contractual  purchase of their working  interest.  This
condition  is  necessary  because the cost of  administering  and  managing  the
working  interests  is  prohibitive  to  operating  Company  profitably.   While
Successor  will  negotiate  in good faith offer fair market  values for proposed
working interest  acquisitions there are no assurances that negotiations will be
successful.

                             V. VOTING INSTRUCTIONS

     A ballot is enclosed with this Disclosure Statement and sent to all holders
of Allowed Claims and Interests who are impaired who are entitled to vote on the
Plan.  Although the interests of all of the shareholders  will be allowed,  only
those  shareholders  of record at the close of business on  ______________  1989
will be entitled to vote to accept or reject the Plan.  Holders of claims  which
unimpaired are conclusively presumed to have accepted the Plan and are therefore
not  entitled to vote.  If you are a holder of impaired  Claims or  Interests in
more than one class,  you will be sent ballot for each such class and you should
vote all ballots  that  receive.  To vote on the Plan,  indicate on the enclosed
ballot(s) whether you accept or reject the Plan. Return ballots to Debtor at the
following address:                      Sandra K. Bacak
                                        Cambridge Oil Company
                                        6200 Savoy, Ste. 740
                                        Houston, Texas 77036

BALLOTS  MUST BE  RECEIVED  AT THE ABOVE  ADDRESS BY 5:00 P.M.  CENTRAL  TIME ON
_______________, 1989.


                                       50


<PAGE>

     Banks,  brokers,  and  other  nominees  holding  claims  or  Interests  for
beneficial owners are requested to transmit a copy of this Disclosure Statement,
and a  ballot  or  ballots  to such  beneficial  owners  with  instructions  for
returning ballots.

     Each holder of an Allowed  Claim which  would  otherwise  be in Class E may
elect to be a Class D creditor by reducing its claim to $500 and  receiving  75%
of its claims in cash in lieu of the  treatment  to which it would  otherwise be
entitled  under the Plan.  If the election  applies to you,  your ballot will so
indicate. Please read your ballot carefully.  Please note that an election to be
included in the small claims Class D will be deemed to be an  acceptance  of the
Plan.

                   VI. ACCEPTANCE AND CONFIRMATION OF THE PLAN
                     ---------------------------------------


              In order to confirm the plan,  the  Bankruptcy  Code requires that
the Court make a series of determinations  concerning the Plan,  including:  (i)
that the Plan has classified  creditor and equity security holder interests in a
permissible manner; (ii) that the contents of the Plan comply with the technical
requirements  of the Bankruptcy  Code;  (iii) that the Debtor and Successor have
proposed  the  Plan in good  faith;  and  (iv)  that the  debtor  and  successor
disclosures concerning the plan have been adequate and have included information
concerning  all payments  made or promised in  connection  with the Plan and the
bankruptcy  case, as well as the identity,  affiliations  and compensation to be
paid to all officers, directors and other insiders. Debtor and Successor believe
that each of these conditions has been

                                       51

<PAGE>

met,  and will seek  rulings  of the  Court to this  effect  at the  hearing  on
confirmation of the Plan

     The  Bankruptcy  Code also imposes  requirements  of  acceptance of Plan by
creditors  and  holders  of  Interests,  minimum  value  of  distributions,  and
feasibility.  To  confirm  the  Plan,  the  Court  must  find that each of these
conditions  is met.  Thus,  even if  creditors  and holders of  Interests in the
impaired  classes  B,  C,  D,  E, F and G  accept  the  Plan  by  the  requisite
majorities,   the  Court  must  undertake  an  independent   evaluation  of  the
feasibility  of the Plan  before it may  confirm the Plan.  The  conditions  for
minimum value, financial feasibility and acceptances are discussed below.

     A.   BEST INTERESTS TEST (MINIMUM VALUE)

     Notwithstanding  rejection  of the Plan by an  impaired  class of Claims or
interests  under the Plan,  in order to confirm  the Plan,  under  Section  1129
(a)(7) of the Code, the Court may determine that, with respect to each holder of
a claim or interest in such rejecting  impaired class,  the Plan is in the "best
interests"  of each holder of a claim or interest  within such Class.  The "best
interests" test requires that the Court find that the Plan provides to each such
holder of a claim or interest a recovery which has a value at least equal to the
value of the distribution that such holder would receive from the Debtor, if the
Debtor were instead liquidated under Chapter 7 of the Code.

     To calculate what  non-accepting  holders would  receive,  if a Debtor were
liquidated  under Chapter 7, the Bankruptcy Code must first determine the dollar
amount that would be generated upon disposition

                                       52

<PAGE>


of such Debtor's  assets.  The aggregate amount so generated would be reduced by
the costs of  liquidating  such Debtor.  Such costs would be expected to include
the fees of a trustee (as well as those of counsel and other  professionals that
such trustee  would in all  likelihood  employ),  selling  expenses,  and claims
arising  from such  trustee's  rejection  of  obligations  assumed or  otherwise
incurred during the pendency of such Debtor's case.

     Further,  distributions  to unsecured  creditors in a Chapter 7 liquidation
would not occur immediately upon completion of a Debtor's liquidation, but would
be delayed pending  determination  of the aggregate  amount of unsecured  claims
against such Debtor.  Such a determination  would entail  significant  delay and
lost  opportunity  cost even for those  creditors  whose claims were  ultimately
allowed.

     Debtor and Successor  have prepared a liquidation  analysis for the purpose
of  complying  with Section  1129(a)(7)  of the  Bankruptcy  Code and to provide
creditors  and  shareholders  with the  Debtor's  estimate  of the  amount  of a
"liquidation fund" that would result upon a hypothetical  liquidation of Debtor,
effective  December 31, 1989 Debtor and Successor have no reason to believe that
the results would be materially  different if the hypothetical  liquidation were
to occur on the Effective Date.  Debtor and Successor  believe this test will be
satisfactory  as  indicated by the  liquidation  analysis set forth in Exhibit 2
annexed hereto which conclude that unsecured  creditors and  shareholders  would
receive nothing in liquidation.

                                       53


<PAGE>

     B.   FEASIBILITY

     As a  condition  to  confirmation  of a  plan  of  reorganization,  Section
1129(a)(ll)  of the Code  requires  that the  confirmation  is not  likely to be
followed  by a  liquidation  or the need for further  financial  reorganization,
except as proposed in such plan. The essence of the feasibility  requirement for
this Plan is to establish  that  Successor  can and shall make the required Plan
distributions to creditors and stockholders.

     Set out in Exhibit 3 are  consolidated  Pro Forma  Balance  Sheets and Cash
Flow  Projections  for Debtor and Successor on a combined  basis which  indicate
sufficient cash reserves to meet the requirements of the Plan.

     THESE  FINANCIAL   PROJECTIONS  SET  FORTH  IN  THIS  DISCLOSURE  STATEMENT
REPRESENT  A  PREDICTION  OF  FUTURE  EVENTS  BASED ON  CERTAIN  ASSUMPTIONS  OF
MANAGEMENT AND OTHERS SET FORTH IN SUCH PROJECTIONS.  ANTICIPATED  FUTURE EVENTS
MAY OR MAY NOT OCCUR AND THE  PROJECTIONS  MAY NOT BE RELIED UPON AS A GUARANTEE
OR OTHER  ASSURANCE  OF THE  ACTUAL  RESULTS  WHICH WILL  OCCUR.  BECAUSE OF THE
UNCERTAINTIES  INHERENT IN PREDICTIONS  OF FUTURE EVENTS,  THE ACTUAL RESULTS OF
OPERATIONS MAY WELL BE DIFFERENT FROM THOSE  PREDICTED AND SUCH  DIFFERENCES MAY
BE MATERIAL AND ADVERSE.

     THE  FINANCIAL   PROJECTIONS   ARE  INTENDED  TO  ASSESS   FUTURE   ASSETS,
LIABILITIES,  INCOME,  AND CASH  FLOW  AVAILABLE  FOR DEBT  SERVICE  AND ARE NOT
DESIGNED OR INTENDED TO BE USED FOR PURPOSES OF  PROJECTING  THE FUTURE VALUE OF
EITHER COMMON OR Preferred SHARES AND SHOULD NOT BE RELIED UPON FOR THAT.


                                       54

<PAGE>

     Based on the Cash Flow  Projections,  Debtor and Successor believe that the
Plan satisfies the feasibility requirement of the Code.

     C.   ACCEPTANCE

     The Bankruptcy Code requires as a condition to confirmation that each class
of claims or interests  that is impaired under the Plan accept the Plan, or that
the plan be "fair  and  equitable"  as to such  class as  described  below.  The
Bankruptcy Code defines  acceptance of a Plan by a class of claims as acceptance
by holders of  two-thirds in dollar amount and a majority in number of claims of
that class,  but for  confirmation  purpose only those who  actually  vote their
claims to accept or to reject the Plan are counted in tabulating  the results of
the  vote.  The  Bankruptcy  Code  defines  acceptance  of a Plan by a class  of
interests as acceptance by two-thirds in amount of the allowed interests in such
class,  but for that purpose  counts only those claims,  which  actually vote to
accept or reject the Plan.

     Classes of claims and Interests that are not "impaired"  under the Plan are
conclusively  presumed to have accepted the Plan. Thus, Debtor and Successor are
soliciting  acceptances  of the Plan only from those entities who hold claims or
interests in impaired  classes.  A class is  "impaired"  if the  conditions  and
requirements of Bankruptcy Code section 1124 are met. All classes except Class A
are impaired under the Plan.

     D.   CONFIRMATION WITHOUT ACCEPTANCE BY ALL IMPAIRED CLASSES

     The Bankruptcy Code contains  provisions for confirmation of a plan even if
the plan is not accepted by all impaired classes, as long

                                       55

<PAGE>

as at least one impaired  class of claims has  accepted  it.  These  "cram-down"
provisions allow for confirmation of a plan despite the non-acceptance of one or
more impaired  classes of claims or interests are set forth in Section 1129(b of
the Bankruptcy Code.

     If a class of  secured  claims  rejects  the  Plan,  the Plan may  still be
confirmed so long as the Plan does not discriminate  unfairly as to a class, and
is "fair and equitable"  with respect to such class under Section 1129(b) of the
Bankruptcy  Code and applicable  case law Section 1129(b) of the Bankruptcy Code
states that the "fair and equitable" standard requires, among other things, that
the Plan  provide  (i) that the lien  securing  the claim of each  member of the
class is to be left in place and the holders of the claim will receive  deferred
cash  payments  of a present  value  equal to the  lesser of the  amount of such
claims  or the  value of the  collateral  securing  such  claims;  (ii) that the
collateral  securing the claims be sold free of the lien with the lien attaching
to the proceeds and with such lien on the proceeds  being  treated  under one of
the two other standards  described in this  paragraph;  or (iii) a treatment for
the  claim  that  is the  "indubitable  equivalent"  of the  claim.  Debtor  and
Successor  believe that the Plan meets this test and therefore that the Plan can
be  confirmed  even if it is  rejected by holders of Allowed  Secured  Claims in
Classes B and C.

     If a class of  unsecured  claims  rejects  the Plan,  the Plan may still be
confirmed  so long as the Plan is not unfairly  discriminatory  as to that class
and is  "fair  and  equitable"  to such  class.  Under  Section  1129(b)  of the
Bankruptcy Code, a plan is "fair and equitable"

                                       56

<PAGE>

as to a class of unsecured  claims if,  among other  things,  the Plan  provides
that:  (i) each holder of a claim  included in the rejecting  class  receives or
retains on account of that claim property which has a value, as of the Effective
Date, equal to the allowed amount of such claim; or (ii) the holder of any claim
or  Interest  that is junior to the  claims of such  class  will not  receive or
retain any property at on account of such junior  claim or Interest.  Debtor and
Successor  believe  that  the  Plan  meets  this  test  as to  Classes  D and E.
Therefore,  Debtor and Successor believe that the Bankruptcy Court could confirm
the Plan even if it is rejected by one such class of unsecured claims as long as
one impaired class of claims accepts it.

     If either Class F or Class G (Classes of  Interests)  reject the Plan,  the
Plan may still be  confirmed so long as the Plan is "fair and  equitable"  under
applicable case law and provides, that the holder of any interest that is junior
to the  Interests  of such  class will not  receive or retain  under the Plan on
account of such junior interest any property at all. There is no interest junior
to the Common Stock.  However,  the  legislative  history of the Bankruptcy Code
indicates  that the "fair and equitable"  standard  includes other factors which
are found by the Court to be fundamental to "fair and equitable"  treatment of a
dissenting  class.  For example,  a  dissenting  class should be assured that no
senior class receives more than 100% of the allowed amount of its claims. Debtor
and Successor  believe that the Plan meets this test and therefore that the Plan
can be confirmed even if it is rejected by holders of Classes F and G.

                                       57
<PAGE>

     E.   CLASSIFICATION OF CLAIMS AND INTERESTS

     Section 1122 of the Bankruptcy Code requires that a plan of  reorganization
place each  creditor's  claim and each  interest in a class with other claims or
interests  which are  "substantially  similar" The Debtor and Successor  believe
that the  classification  system in the Plan  satisfies  the  Bankruptcy  Code's
standards.

     F.   CONFIRMATION HEARING

     Section  1128(a) of the Code  requires  the Court,  after  notice to hold a
hearing  on  confirmation  of  the  Plan (the   "Confirmation   Hearing").   THE
CONFIRMATION    HEARING    FOR    THIS    PLAN    IS    SCHEDULED    TO    BEGIN
___________________________

     Section  1128(b)  provides  that any party in  interest  of any  Debtor may
object to  confirmation  of the Plan. Any objection to  confirmation of the Plan
must be made in  writing  and  filed  with the  Court,  together  with  proof of
service,  and served by hand or overnight  courier for receipt on or before 5:00
p.m. Central Standard Time at the following addresses:

                                     United States District Court
                                     For the Southern District of Texas
                                     Houston Division in Bankruptcy
                                     811 Rusk
                                     Houston, Texas 77002

     Objections  to  confirmation  of the Plan are governed by  Bankruptcy  Rule
9014.  UNLESS AN OBJECTION TO  CONFIRMATION  IS TIMELY SERVED AND FILED, IT WILL
NOT BE CONSIDERED BY THE Court.

     G.   EFFECT OF CONFIRMATION

     Except as  otherwise  provided in the Plan or  Confirmation  Order,  and in
addition to other consequences of Confirmation as


                                       58


<PAGE>

disclosed herein, entry by the Court of the Confirmation Order will:  constitute
approval of the assumption  and assignment of all executory  contracts or leases
unless previously  rejected pursuant to the Plan;  constitute  authorization for
the  Debtor  to act as a  Disbursing  Agent;  constitute  authorization  for the
Debtor's or Successor's use of funds of the estate to meet any cash  requirement
in the case;  and will act as discharge,  effective as of the Effective  Date of
the Plan,  of the Debtor and  Successor,  of all their  claims that arose at any
time before the entry of the Confirmation Order.

     Except as otherwise  provided in the Plan and the Confirmation  Order, upon
the effective  Date, all property of the Debtor shall vest in Successor free and
clear of all liens, claims and interest of all creditors of and interest holders
in the Debtor.

     H.   EFFECTIVE DATE OF THE PLAN

     The Plan will become effective on the thirtieth day after the date on which
the Confirmation Order becomes final and nonappealable.

                          VII. ALTERNATIVES TO THE PLAN
                           --------------------------

     It is the view of the Debtor that the only feasible alternative to the Plan
as proposed  would be the conversion of the Chapter 11 case to a Chapter 7 case,
and the  subsequent  liquidation  of the Debtor by a duly  appointed  or elected
trustee.  In the event of a  liquidation  under Chapter 7, it is the view of the
Debtor that the following is likely to occur:

                                       59

<PAGE>
 (1) An additional tier of administrative expenses entitled to priority over
general  unsecured claims under Section 507(a)(l) of the Bankruptcy Code will be
incurred. Such administrative expenses will include the trustee's commissions as
well as  professional  fees for the trustee's  accountants,  attorneys and other
professionals likely to be retained by the trustee.

     (2) The  Debtor  believes  that in a Chapter  7  liquidation  the  proceeds
realized at December 31, 1989 from the disposition of assets, including accounts
receivable,  and oil and gas reserves,  (the primary assets of the debtor) would
be  approximately  $750,000.  However,  there would be no recovery for unsecured
creditors  or  shareholders  of the  Debtors  after  payment of  Administrative,
Priority and Secured Claims. Further, it is believed that the liquidation of the
Debtor's  assets would be a long and  expensive  process with no assurance  that
even projected liquidation values would in fact be realized.

     (3) Additional  claims would be asserted against the Debtor with respect to
such matters as termination of leases,  severance payments to employees mandated
by law,  income  and other  taxes  associated  with the sale of  assets  and the
inability of the Debtor to fulfill outstanding contractual commitments and other
items.

     The total of all these  increased  claims  cannot be estimated at this time
with any  reasonable  accuracy,  but could  materially  increase  the claims and
obligations   to  be  satisfied   out  of  the  proceeds  of   liquidation   and
correspondingly  would reduce the funds, if any, available to satisfy the claims
of creditors in the Chapter 11 Case.

                                       60
<PAGE>

     Attached hereto as Exhibit 2 is Debtor's unaudited  Liquidation Analysis as
of December 31, 1989,  which  reflects the estimated  liquidation  values of the
Debtor's  assets.  Liquidation  values  have  been  arrived  at  based  upon the
experience  of  the  Debtor's   management  and  employees,   consultation  with
independent petroleum engineers and an evaluation of the factors believed likely
to have an  impact  on  realization  of the  value  of the  assets  in a  forced
liquidation.

     The Debtor's oil and gas property  liquidation  values are based on reserve
volumes and production schedules audited by Gerald Dupont Enterprises,  Inc., an
independent  petroleum  engineering firm, using oil and gas pricing projected to
be representative of oil and gas market prices at January 1, 1989,  adjusted for
estimated  depletion  since that date.  Liquidation  values were then calculated
using 1) acquisition costs which would result in a   20% discount rate, 2) based
on the inclusion of 100 percent of proved developed  producing reserve value and
30 percent of proved  undeveloped  reserve value and 3) estimated costs (15%) of
liquidating the properties.

     Liquidation  values are necessarily  based upon  assumptions  which may not
prove to be correct, and actual liquidation values could vary from the estimated
values.

     The liquidation analysis does not take into account potential  preferential
or  fraudulent  transfers  which the Debtor or a Chapter 7 trustee may  recover.
However,  the Debtor has made a review of these potential voidable transfers and
believes  that any  potential  recovery  would  have no  material  effect on the
liquidation analysis.

                                       61
<PAGE>


     As set forth in the Liquidation Analysis, there is no realistic possibility
of any  distribution  to  general  creditors  of the  Debtor  in the  event of a
conversion of the Chapter 11 case to a Chapter 7 case.

               VIII. DESCRIPTION OF NORMANDY OIL AND GAS COMPANY,
               ----- --------------------------------------------
           INC., HOUSTON OPERATING COMPANY AND SECURITIES TO BE ISSUED
           -----------------------------------------------------------


A. DESCRIPTION OF NORMANDY
   -----------------------

     (1)  DESCRIPTION OF BUSINESS.
          -----------------------

     Normandy was  incorporated on March 31, 1929 as a New York  corporation and
was formerly  named Servus  Clothes,  Inc. In 1968,  the name of the Company was
changed to Saxony Industries,  Inc. The Company was an inactive corporation from
1972  to  April  1983  when  it was  reactivated  to  engage  in the oil and gas
business. In August, 1984, the name was changed to Normandy Oil and Gas Company,
Inc.

     Normandy's  principal  objective  has been to  acquire  and  manage and gas
assets as cost effectively as possible given the current economic environment of
the industry. Normandy is of the view that it can acquire oil and gas properties
through the  purchase or merger of  financially  distressed  companies  at costs
lower than Normandy would incur by drilling and developing  comparable reserves.
Thus, it drilled no development wells in its last fiscal year. Substantially all
Normandy's acquisition, exploration, and development activities are conducted in
Texas, Louisiana, and Colorado.

     Although Normandy  presently intends to continue its pursuit of potentially
attractive  acquisitions  of  financially-distressed   entities,  such  as  that
contemplated by the Plan, there can be no

                                       62


<PAGE>

assurance  that  Normandy  will  continue  this means of  acquiring  oil and gas
properties in the future.  Future  acquisitions will depend on the relative cost
of acquisitions  compared to the cost of drilling for resources,  the success of
Normandy's  drilling  operations,  the  market  demand  for  oil  and  gas,  the
availability  of  satisfactory  acquisition  candidates  and the cash and credit
facilities  available  to  Normandy.  Due to the  decline in oil and gas prices,
particularly  the recent sharp decline in oil prices in 1986, and the increasing
difficulty in securing  additional credit lines from bank lenders,  Normandy may
have  to  seek  alternative  financing  methods  and may  have  to  curtail  its
acquisition activities if alternative financing is not available.

     (2)  CUSTOMERS AND MARKETS

     Normandy  does not refine or process the oil and  natural gas it  produces.
Normandy's  production is primarily sold to unaffiliated  oil and gas purchasing
companies in the area where it is produced.  Production is transported by trucks
and pipelines.  Crude oil and condensate are sold under short-term  contracts at
competitive  field  prices  posted  by major  purchasers  of crude in the  area.
Natural gas is sold to natural gas pipeline companies  generally under long term
contracts.  Normandy  also  sells  gas on the  spot  market,  which  prices  are
generally below contract prices.  Normandy may sell increasing volumes of gas on
the spot market if no alternative  market exists for its gas. In addition,  many
of Normandy's gas contracts incorporate "market-out" provisions which permit the
gas purchaser to terminate

                                       63

<PAGE>


the  contract  (or reopen  negotiations  on the price set forth  therein) if the
contract  price exceeds  market  prices.  Furthermore,  many of  Normandy's  gas
contracts provide for annual (or more frequent) redeterminations of the purchase
price.

     (3)  EMPLOYEES

     As of June 30, 1988, Normandy had twenty-four full time employees,  of whom
sixteen were located at the Fort Worth office, two located in the Austin office,
and six were field personnel.  From time to time, Normandy utilizes the services
of consulting  geologists,  engineers and lancimen.  It is anticipated  that the
Debtor's remaining  employees will be hired by Normandy and/or Houston Operating
upon the Effective Date. It is also  anticipated  that a bonus of  approximately
two months salary shall be paid to Sandra Bacak and Charles Williams as a result
of services  rendered by them on behalf of the Debtor during the pendency of the
Chapter 11 proceedings  and their  committment  not to leave the Debtor's employ
during the course of the Debtor's Chapter 11 proceeding.

     (4)  PROPERTIES AND PRODUCTION

     Normandy's  properties  are located  exclusively  in Texas,  Louisiana  and
Colorado. Normandy has no foreign operations or properties.

     Normandy's interests in producing and non-producing acreage are in the form
of working  interests,  royalty and overriding  royalty  interests.  The working
interests are subject to royalty and overriding

                                       64
<PAGE>


royalty  interests  either  pre-existing  or  created in  connection  with their
acquisition),  liens incident to operating  agreements,  liens for current taxes
and other  burdens or minor liens,  encumbrances,  easements  and  restrictions.
Normandy believes that none of such burdens  materially  detracts from the value
of such  properties or interferes  with their  operation.  Substantially  all of
Normandy's major productive  properties are collateral  securing existing credit
facilities.  As is  customary  in the  oil  and  gas  industry,  detailed  title
examinations are not made at the time of acquisition of undeveloped  properties.
More thorough investigations are made, including in most cases obtaining a title
opinion,  before  commencement of drilling operations or preparation of division
orders.

<TABLE>
<CAPTION>
     As of June 30, 1988, Normandy's proved reserves were 560,098 barrels of oil
and 6,139,596 mcf of gas. Production revenues of recent years were as follows:

                                                              Year Ended June 30:
<S>                                       <C>            <C>              <C>             <C>            <C>
                                            1984            1985            1986            1987           1988
                                            ----            ----            ----            ----           ----
PRODUCTION:
        Oil (BBLS)                           2,414           2,371           3,195         13,024          30,408
        Natural Gas (MCF                   127,798         230,598         129,137        112,592         404,346

UNIT PRICES AND COSTS:
        Oil (per BBL)                      $ 27.68         $ 26.39         $ 19.26         $14.82          $17.40
        Natural Gas
            (per MCF)                         2.13            2.70            2.24           1.85            1.51

PRODUCTION COSTS PER
        EQUIVALENT BBL:                       4.31            5.74            4.53           5.73            5.15

AMORTIZATION PER
        EQUIVALENT BBL:                       4.17            3.99            4.24           5.13            3.76


</TABLE>
                                       65
<PAGE>


     (5)  OFFICERS AND DIRECTORS

Normandy's officers and directors are as follows:

                                                                 DATE OF
NAME                          AGE      POSITION                  APPOINTMENT
- ----                          ---      --------                  -----------
Frank W. Cole                 63       Director,                 April 1983
                                       Chairman of the Board

Roy T. Rimmer, Jr.            47       Director, President and   September 1986
                                       Chief Executive Officer

Mack S. Cohn                  47       Director                  January 1989

Judy M. Brooks                39       Secretary                 September 1986

William I. Temple             42       Vice President,           June 1987
                                       Operations

     The  directors  of  Normandy  are  elected to serve  until the next  annual
shareholders  meeting or until  their  respective  successors  are  elected  and
qualified.  Normandy  officers  hold  office  until the  meeting of the Board of
Directors  after the next annual  shareholder's  meeting or until removal by the
Board of  Directors.  There  are no  arrangements  or  understandings  among the
officers and directors pursuant to which any of them are elected as officers and
directors.

     The following information is a brief account of the business experience for
the past five years of the individuals listed above.

     Frank W. Cole has been,  for at least  the past  five  years,  the owner of
Frank W. Cole  Engineering,  and oil and gas consulting  firm located in Dallas,
Texas. Mr. Cole has served as chairman of the board of Normandy since April 1983
and served as president from April 1983 to October 1986. Her retired from Amcole
Energy  Corporation,  a publicly  held Utah  corporation  engaged in oil and gas
production and  development,  in July 1982 after acting as president and founder
since 1971 and continued to serve as a director until 1985. Mr. Cole is a

                                       66


<PAGE>


director  and vice  president  of Phoenix  Capital  Corporation.  Mr.  Cole is a
director of Sunbelt Exploration.

     Roy T. Rimmer,  Jr. has served as the  president and a director of Normandy
since  September,  1986. From February 1983 to the present,  Mr. Rimmer has been
the chief executive officer and principal equity owner of two privately-held oil
and gas  companies  based in Fort Worth,  Texas.  Mr. Rimmer was chairman of the
board and  president  from  June  1982 to  February  1986 of Poll  Gas,  Inc.  a
corporation  which operated a gas gathering and  transmission  system located in
Lincoln County,  Oklahoma. In July 1982, Mr. Rimmer became chairman of the board
and president of Amcole Energy  Corporation,  a publicly-held  Utah  corporation
engaged in oil and gas production and development,  and he continue to hold such
positions  until  February  1986.  Mr.  Rimmer is a director and chairman of the
board of Phoenix Capital Corporation.  Mr. Rimmer is president and a director of
Sunbelt Exploration, Inc. Mr. Rimmer is president and a director of Roseland Oil
and Gas, Inc.

     Mr. Mack S. Cohn was elected a director  of Normandy  Oil and Gas  Company,
Inc.  on January 31, 1989 at a Special  Meeting of the Board of  Directors.  Mr.
Cohn will also serve on Normandy's audit  committee.  Mr. Cohn is an officer and
director of Regal Limousine  Service,  a privately held Ft. Worth based company.
He also  serves on the board of  Gamtex,  Inc.  and the Miss  Texas  Scholarship
Pageant. Previously, he has served as an officer of Beth-El Congregation and the
Forth Worth Jaycees. Mr. Cohn graduated from New Mexico Military Institute,  and
attended Texas Christian University.




                                       67
<PAGE>


     Judy M. Brooks has been the corporate secretary of Normandy since September
1986, and is also responsible for supervising all administrative  personnel. Ms.
Brooks was employed by Amcole Energy Corporation from September 1978 to February
1986, where she was the corporate secretary and, after January 1985, responsible
for investor and stockholder relations. Ms. Brooks is secretary, treasurer and a
director of Phoenix Capital Corporation. Ms. Brooks is assistant secretary and a
director of Roseland Oil and Gas, Inc.

     William  I.  Temple,  a  registered  professional  engineer,  has been Vice
President of Operations for Normandy since June 1987, and had previously  been a
consultant to Normandy.  Mr. Temple previously served as founder,  president and
chairman  of  the  board  of  William  I  Temple,  Investments,   Inc.  and  its
subsidiaries  from  January  1979 to  November  1986,  when it was  subsequently
acquired by Normandy.  Mr.  Temple has served in various  positions of authority
with  other  oil  and  gas  companies  involved  in  drilling,  exploration  and
production.  Effective  August 1, 1988, Mr. Temple resigned as Vice President of
Operations but continues to work with Normandy as a consultant.

     (6)  FURTHER INFORMATION

     Set forth as Exhibit 4 is  Normandy's  most recent SEC Form 10K (year ended
June 30, 1988).  Included  within this Exhibit is information  pertinent to the
following:

1. Business;
2. Properties;
3. Legal Proceedings;
4. Submission of Matters to a Vote of Security Holders;
5. Market for the Company's Common Equity
   and Related Stockholder Matters;
6. Selected Financial Data;


                                       68
<PAGE>

7  Management's Discussion and Analysis of
   Financial Condition and Results of Operation;
8. Financial Statements and Supplementary
   Data;
9. Changes in and Disagreements on
   Accounting and Financial Disclosure;
10.Directors and Executive Officers of the
   Company;
11.Executive Compensation;
12.Security Ownership of Certain Beneficial Owners
   and Management;
13.Certain Relationships and Related Transactions

B. DESCRIPTION OF HOUSTON OPERATING COMPANY
- -------------------------------------------

     Houston  Operating  Company is a wholly owned  subsidiary of Normandy Oil &
Gas Corporation. Inc., incorporated in the State of Delaware on August 31, 1989.
The  aggregate  number  of  authorized  shares  Houston  Operating  Company  has
authority to issue is 60,000,000,  of which  50,000,000  shares are Common Stock
having a par value of $.0O1 per  share,  5,000,000  shares are  Preferred  Stock
having a par value of $.0Ol per share and 5,000,000  shares are Preference Stock
having a par value of $.O0l per share.  At August 31,  1989,  Houston  Operating
Company had not engaged in any  business  operations  other than  organizational
activities.  At August 31,  1989,  Houston  Operating  Company  had no assets or
liabilities,  and no income had been  received  and no costs had been  incurred,
other than organizational costs.

     Houston Operating Company was established to effect the transactions of the
Plan.  Prior to  confirmation,  Houston  Operating  Company will issue 2,500,000
shares of its Common Stock to Normandy in  consideration  for the costs incurred
by  Normandy  in  its  organization  and   implementation  of  its  business  as
contemplated by the Plan.

                                       69

<PAGE>

C. DESCRIPTION OF PLAN SECURITIES
- ---------------------------------

     The Plan  calls for  issuance  of four types of  securities:  Participation
Rights,  Warrants  (Class A and  Class B),  Common  Stock of  Houston  Operating
Company,  and Normandy Common Shares for which Houston  Operating Company Common
Shares may be  exchanged.  A Unit  consists  of one share of  Houston  Operating
Company Common Stock, one Class A Warrant and one Class B Warrant.

     Participation  Rights will be issued to Common shareholders of Cambridge at
a rate of one  right  for each 80 shares of  presently  issued  and  outstanding
Common Stock.  Each right entitles the holder to acquire one Unit at an exercise
price of $1.00.  The  Participation  Rights are exercisable for a period of nine
months following the Effective Date and are represented by a certificate  issued
to the Cambridge  shareholders,  setting  forth the terms of such  Participation
Rights.  The  form  of the  Participation  Right  certificate  to be  issued  to
shareholders  is attached to the Plan as Schedule 2 and is  incorporated  in its
entirety by this reference.

     In addition  to the  issuance  of Units,  on exercise of the  Participation
Rights, Units will also be issued to unsecured creditors at the rate of one Unit
for each $10.00 in claims and one Unit in exchange for each $100.00 in par value
of Preferred Stock.

     The following  summarizes the terms and conditions of the securities  which
comprise a Unit:

     (1)  Warrants

     (a) AMOUNT AND DELIVERY TO THE DISBURSING  AGENT On or before the Effective
Date, Houston Operating Company will authorize the


                                       70

<PAGE>

issuance  of  Class A  Common  Stock  purchase  warrants  to  purchase  up to an
aggregate  of 725,000  shares of its Common  Stock,  $.OOl par value and Class B
Common Stock  purchase  warrants to purchase up to additional  725,000 shares of
its Common Stock, $.OOl par value. Authorized Warrants shall be delivered to the
Disbursing Agent on the Effective Date.

     (b)  TERMS  The terms of the  Warrants  are fully set forth in the  Warrant
Agreement attached as Schedule 1 to the Plan, which is controlling of such terms
and is  incorporated  in its  entirety  by this  reference.  Such  terms  may be
summarized, however, as follows:

     (I)  CLASS A WARRANTS Each Class A Warrant may be exercised to purchase one
          share of Houston  Operating  Company  Common Stock at a price of $1.50
          per share during the eighteen  month period  following  the  Effective
          Date  of the  Plan.  Class  A  warrants  may be  redeemed  by  Houston
          Operating  Company  at a price of $.Ol per  warrant  on not less  than
          thirty days prior written  notice at any time  commencing  nine months
          following the Effective Date of the Plan.

     (II) CLASS B WARRANTS Each Class B Warrant  entitles holder to purchase one
          share of Common Stock of Houston Operating Company at a price of $2.00
          per share during the two year period  following the Effective  Date of
          the Plan.  The Class B Warrants are subject to  redemption on the same
          terms as the Class A Warrants.

3. HOUSTON OPERATING COMPANY COMMON SHARES
   ---------------------------------------

     Subject to provisions of the Plan, the rights appurtenant to the holders on
Houston  Operating  Company  Common  Shares  shall  specified in the Articles of
Incorporation of Houston Operating

                                       71
<PAGE>
Company,  attached as Exhibit 8 hereto,  and as set forth in the  Agreement  and
Undertaking  between Houston Operating Company and Normandy attached as Schedule
3 to the Plan,  which are  controlling  of such rights and are  incorporated  in
their  entirety  by this  reference.  Such terms may be  summarized,  however as
follows:

     A.   EXCHANGE  PRIVILEGE - Common Shares of Houston Operating Company shall
          at all  times  during  the  period  commencing  nine  months  from the
          Effective  Date be  subject to  exchange,  at the option of the holder
          during the entire period and also at the option of Normandy during the
          last three years of such period, for Normandy Common Shares.


     B.   EXCHANGE RATIO - Upon exchange,  holders of Houston  Operating Company
          Common Shares will receive  Normandy  Common Shares in an amount equal
          to the lessor of:

              (i) The number of shares of  Normandy  Common  Stock  issuable in
          exchange for Houston  Operating  Company  Common Stock  determined  by
          multiplying the number of shares of Houston  Operating  Company Common
          Stock to be exchanged by a fraction,  the  numerator of which shall be
          the market price per Common share of Houston Operating Company and the
          denominator  of which  shall be the market  price per Common  share of
          Normandy; and

               (ii) The number of shares of Normandy  Common  Stock  issuable in
          exchange for Houston  Operating  Company  Common Stock  determined  by
          multiplying the number of shares of Houston  Operating  Company Common
          Stock to be exchanged by a


                                       72
<PAGE>

          fraction  the  numerator  of which shall be $l.00 per Common  share of
          Houston  Operating Company and the denominator of which shall be $4.0O
          per Common share of Normandy.

4.  DESCRIPTION OF NORMANDY COMMON SHARES
- -----------------------------------------

     Normandy's articles of incorporation  authorize an aggregate of 150,OOO,OOO
shares  of  which  100,000,000  shares  are  Common  Shares,  par  value  $.OOl,
25,000,000  shares are Preferred Stock,  par value $.OOl, and 25,000,000  shares
are Preference Stock, par value $.OOl. Normandy Common Shares have no preemptive
or other subscription  rights, have no conversion rights, and are not subject to
redemption. No personal liability attaches to the ownership thereof. The holders
on  Normandy  Common  Shares  are  entitled  to one vote for each share held and
cumulative  voting for  election  of  directors  or on any other  matters is not
provided for.

     In the event of  liquidation,  dissolution,  or the winding up of Normandy,
either  voluntarily or  involuntarily,  the holders of the outstanding  Normandy
Common  Shares are  entitled to receive a pro rata  portion of the net assets of
Normandy  remaining  after  payment of all  liabilities  and any  Preference  on
Preferred or Preference  Stock of Normandy  which may then be  outstanding.  The
holders of Normandy  Common  Shares are  entitled  to  dividends  when,  and if,
declared by the board of directors from funds legally available thereof, subject
to any Preference on Preferred or Preference Stock of Normandy which may then be
outstanding.  Normandy has not paid a dividend in the past five years, and it is
not anticipated that a dividend will be paid in the foreseeable future.

                                       73
<PAGE>

     The articles of  incorporation  provide  that the shares of  Preferred  and
Preference Stock may be issued in one or more series as designated by resolution
of board of directors, and each such series shall have such rights, preferences,
privileges and powers as shall be determined by the board of directors including
participation in dividends,  participation  in the assets of Normandy  following
liquidation,  the right to convert shares of Preferred or Preference  Stock into
Normandy Common Shares or other securities of Normandy, and the rights to redeem
the Preferred or Preference Stock for cash, securities or other property.  There
are  currently no shares of Normandy  Preferred or  Preference  Stock issued and
outstanding,  and  Normandy has no intention of issuing any shares of such Stock
at the present time.

                           IX. INCOME TAX CONSEQUENCES
                             -----------------------

     The Plan and its tax consequences are complex,  and the tax consequences of
the Plan will depend upon  factual  determinations.  No ruling has been (or will
be, prior to the Effective  Date),  requested from the Internal  Revenue Service
(the  "Service")  regarding the tax  consequences  of the Plan.  BECAUSE THE TAX
CONSEQUENCES  OF  THE  PLAN  ARE  COMPLEX  AND  MAY  VARY  BASED  ON  INDIVIDUAL
CIRCUMSTANCES,   THIS  DISCLOSURE   STATEMENT  RENDERS  NO  ADVICE  ON  THE  TAX
CONSEQUENCES OF THE  IMPLEMENTATION OF THE PLAN TO ANY PARTICULAR  CREDITOR,  TO
THE  DEBTOR,  OR TO  INTEREST  HOLDERS,  EXCEPT  AS SET  FORTH ON THE  PROJECTED
FINANCIAL  INFORMATION SUPPLIED HEREWITH.  EACH CREDITOR IS URGED TO CONSULT HIS
OR HER  TAX  ADVISOR  AS TO THE  TAX  CONSEQUENCES  OF THE  PLAN  TO HIM OR HER,
INCLUDING ANY CONSEQUENCES UNDER STATE AND LOCAL TAX LAWS.

                                       74

<PAGE>
                X. OFFER, ISSUANCE AND RESALE OF PLAN SECURITIES
                          AND RELATED SECURITY MATTERS
                           --------------------------

     The offer and issuance of Plan Securities by Houston  Operating Company and
Normandy  Oil & Gas  Company,  Inc.  as  successor  in  interest  to the debtor,
constitutes  the offer and sale of securities  under the Securities Act of 1933,
as amended (the "1933 Act") and applicable  state  securities laws, and the Plan
securities have not been registered  under the 1933 Act or such state securities
laws,  in reliance on the  exemption  therefrom  provided by Section 1145 of the
Bankruptcy  Code.  None of the Plan  Securities  is being issued  pursuant to an
indenture qualified under the Trust Indenture Act of 1939.

     The Debtor and  Successor  believe that resales of the Plan  Securities  by
most holders may be effected in reliance on the  exemptions  provided by Section
1145 of the Code and Section  4(1) of the  Securities  Act of 1933,  as amended,
without  registration  under  applicable  federal  and  state  securities  laws.
However,  to the extent that a holder is deemed to be an  "underwriter"  as that
term is defined in subsection (b) of Section 1145,  the  exemptions  provided by
that  Section  and  Section  4(1)  would  not be  available  to  resale  of Plan
Securities by such holder.

     BY ITS RECEIPT OF PLAN SECURITY EACH HOLDER SHALL BE DEEMED TO  ACKNOWLEDGE
THAT IT IS RESPONSIBLE FOR ITS COMPLIANCE WITH ALL APPLICABLE  SECURITIES  LAWS.
EACH HOLDER  SHOULD  CONSULT HIS OR HER OWN ATTORNEY AS TO WHETHER ANY RESALE OF
PLAN SECURITIES  REQUIRES  REGISTRATION OF SUCH SECURITIES  UNDER THE SECURITIES
ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES LAWS.


                                       75
<PAGE>

     No market  currently  exists  for any of the Plan  Securities,  except  the
Normandy  Common  Shares.  Houston  Operating  Company has received  preliminary
indications of interest from certain member firms of the National Association of
Securities Dealers,  Inc., of their willingness to make a market in the Warrants
and Common  Shares when issued,  but there is no assurance  that a market in any
such securities will be established or, if established, continue to exist at any
give time in the future. Consequently, holders of the Plan Securities may not be
able to liquidate their position readily or at all.

     In the  event a  market  in  Warrants  or  Common  Shares  develops,  it is
anticipated that quotations will initially appear in the "pink sheets" published
by the National Quotation Bureau. As soon as practicable following the Effective
Date, Houston Operating Company intends to pursue registration of its securities
under section  12(g) of the  Securities  Exchange Act of 1934,  as amended,  and
obtain a listing of its  securities  in the National  Association  of Securities
Dealers,  Inc., Automated Quotation System ("NASDAQ").  In order to register its
securities and obtain a listing on NASDAQ,  Houston Operating  Company,  will be
required to satisfy certain  conditions imposed by regulations of the Securities
and Exchange Commission an~ the National  Association of Securities Dealer, Inc.
Houston  Operating Company cannot predict at this time when it will satisfy such
conditions and obtain registration and listing of its securities on NASDAQ.

                                       76

<PAGE>

                                 XI. CONCLUSION
                                 ---------------

     Debtor and  Successor  believe  that the Plan  provides  the best means for
satisfying  the  claims  of  Debtor's  creditors,  and urge that you cast a vote
accepting the Plan.

CAMBRIDGE OIL COMPANY              AND          NORMANDY OIL & GAS COMPANY, INC.
                                                AND HOUSTON OPERATING COMPANY

Debtor                                          Successor

By:/s/Christine E. Haslett                      By:/s/Roy T. Rimmer, Jr.
Christine E. Haslett,                           Roy T. Rimmer, Jr.
Vice President                                  President

Attorney for Debtor:                            Attorney for Successor:

Richard Fuqua, Esq.                             Mark E. Lehman
1331 Lamar, Suite #1455                         136 South Main Street
Houston, Texas  77010                           Salt Lake City, Utah 841101
(713) 951-2482                                  (801) 532-7858



                                       77



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>ORDER CONFIRMING DEBTOR'S PLAN OF REORGANIZATION
<TEXT>


                                                  UNITED STATES DISTRICT COURT
                                                  SOUTHERN DISTRICT OF TEXAS
                                                       ENTERED
                                                  APR 25 1990
                                                  JESSE E. CLARK, CLERK
                                                  BY DEPUTY  /S/

                     IN THE UNITED STATES BANKRUPTCY COURT
                       FOR THE SOUTHERN DISTRICT OF TEXAS
                                HOUSTON DIVISION

IN RE:                        ss.
                              ss.
CAMBRIDGE OIL COMPANY,        ss.       CASE NO. 88-01859-H5-11
                              ss.            (CHAPTER 11)
     DEBTOR                   ss.


                            ORDER CONFIRMING DEBTOR'S
                             PLAN OF REORGANIZATION

     At Houston in said District came on for hearing Confirmation of the Plan of
Reorganization of Cambridge Oil Company, Debtor-in-possession,  and Normandy Oil
and Gas  Company,  Inc.,  and its wholly  owned  subsidiary,  Houston  Operating
Company,  Successor to the Debtor under the Plan,  filed on September  1989 (the
"Plan") together with the Disclosure Statement  thereto  previously  approved by
this Court, after hearing on Notice, having been transmitted to all creditors as
evidenced by the Certificate of Service dated April 2, 1990; and

     It having been determined, after hearing that:

     the Plan has been accepted by at: least  two-thirds in amount and more than
one-half in number of: the allowed claims impaired by the Plan; and

     the Plan has been accepted by the creditors whose acceptance is required by
law; and

     the provision of Chapter 11 of the Bankruptcy Code have been complied with;
that the Plan has been proposed in good faith not by any means forbidden by law;
and

     the Plan is fair, equitable and feasible; and

     all payments made or promised by Debtor under the Plan for


                                       1
<PAGE>

services  of for costs and  expenses  in, or in  connection  with,  the Plan and
incident to the case,  have been fully disclosed to the Court and are reasonable
or, if to be fixed  after  confirmation  of the  Plan,  will be  subject  to the
approval of the Court; and

     due notice of confirmation  hearing was given to the Debtor,  the creditors
and all other parties in interest; it is therefore

     ORDERED that Debtor's Plan of  Reorganization  is hereby  confirmed;  it is
further

     ORDERED that the Debtor pay to the United  States  Trustee the  appropriate
sum required  pursuant to 28 U.S.C.  ss.1930(a)(6)  on the effective date of the
Plan and provide to the United States Trustee an appropriate affidavit including
all disbursements for the relevant period(s); and

     the  provisions  of said Plan shall be binding upon the Debtor and upon all
creditors  whether  or not  such  creditors  are  affected  by the  Plan or have
accepted it or have filed  proofs of claims and whether or not their claims have
been scheduled or allowed or are allowable; and

     subject to the further  directions of the Court,  the Debtor is directed to
comply  with the  provisions  of the Plan and to take  all  steps  necessary  to
consummate  said Plan,  and all  creditors  all parties in  interest  herein are
directed to take all action required for the consummation of said Plan; and

     all  creditors  of  the  Debtor,   the  persons   participating   in  these
proceedings,  and  all  other  persons,  are  hereby  permanently  enjoined  and
restrained from doing any act or taking any action  interfering  with or tending
to interfere with these proceedings

                                        2
<PAGE>
or with the enforcement or carrying out of the terms and provisions of the Plan,
or with the Orders of this Court relative thereto,  or from asserting,  contrary
to the  provisions of said Plan and of the  Bankruptcy  Code,  any right,  title
interest or claim, including the commencement or prosecution of any action, suit
or proceeding appropriate under the Bankruptcy Code, and such review, if any, in
an appropriate  appellate  court of the United States as may be provided by law;
and

     the property retained by Debtor under  that Plan shall be free and clear of
all claims of  creditors,  whether or not such claims are  provable  and whether
secured or unsecured,  liquidated or unliquidated,  fixed or contingent,  except
such claims as are otherwise expressly provided for in the Plan; and

     all claims for payment of  administrative  expense  incurred to the date of
hearing on the  confirmation  of the Plan  shall be filed not later than  thirty
(30) days from the date of this Order; and

          This Court reserves jurisdiction:

     (a) to entertain such further  proceedings  and to take such further action
as may be necessary and  appropriate in connection with these  proceedings,  the
Plan, the transaction  incident thereto,  and the consummation  thereof, or with
this Order or any further Order of this Court;

     (b) over all matters not as yet  determined  as to which  jurisdiction  was
reserved in any Order previously made and entered by this Court;


                                        3
<PAGE>


     (c) over the assets  dealt with in the Plan and over any and all persons to
whom such assets may be transferred or by whom such assets may be retained, over
all parties in interest to these proceedings, for the purpose of determining any
claims asserted against the Debtor;

     (d) over all matters as to which  jurisdiction  is reserved to the Court by
the Plan or by the Bankruptcy Code; and

     (e) to make from time to time such orders amplifying,  extending, limiting,
or otherwise modifying this Order as the Court may deem proper.


        Dated 4-19, 1990

                                             /s/Karen K. Brown
                                             Karen Brown
                                             United States Bankruptcy Judge




A:10268/D18-0A.8





                                       4

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27.1
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>FDS --
<TEXT>

<TABLE> <S> <C>


<ARTICLE>                     5


<S>                             <C>                         <C>
<PERIOD-TYPE>                   12-MOS                      6-MOS
<FISCAL-YEAR-END>               DEC-31-1999                 DEC-31-2000
<PERIOD-START>                  JAN-01-1999                 JAN-01-2000
<PERIOD-END>                    DEC-31-1999                 JUN-30-2000
<CASH>                          0                           0
<SECURITIES>                    0                           0
<RECEIVABLES>                   0                           0
<ALLOWANCES>                    0                           0
<INVENTORY>                     0                           0
<CURRENT-ASSETS>                0                           0
<PP&E>                          0                           0
<DEPRECIATION>                  0                           0
<TOTAL-ASSETS>                  0                           0
<CURRENT-LIABILITIES>           454                         928
<BONDS>                         0                           0
<PREFERRED-MANDATORY>           0                           0
<PREFERRED>                     0                           0
<COMMON>                        2,795                       2,795
<OTHER-SE>                      (3,249)                     (3,249)
<TOTAL-LIABILITY-AND-EQUITY>    (454)                       (928)
<SALES>                         0                           0
<TOTAL-REVENUES>                0                           0
<CGS>                           0                           0
<TOTAL-COSTS>                   0                           0
<OTHER-EXPENSES>                1,000                       474
<LOSS-PROVISION>                0                           0
<INTEREST-EXPENSE>              0                           0
<INCOME-PRETAX>                 (1,000)                     (474)
<INCOME-TAX>                    0                           0
<INCOME-CONTINUING>             (1,000)                     474
<DISCONTINUED>                  0                           0
<EXTRAORDINARY>                 0                           0
<CHANGES>                       0                           0
<NET-INCOME>                    (1,000)                     474
<EPS-BASIC>                     (.0)                        (.0)
<EPS-DILUTED>                   (.0)                        (.0)


</TABLE>
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