U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-SB12G/A
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
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State or other jurisdiction of IRS Employer ID Number
incorporation or organization
49 Burlington Avenue, Round Lake, New York 12151
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(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)
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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
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
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GENERAL
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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.
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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
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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.
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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
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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
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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.
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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."
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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.
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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."
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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
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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
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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
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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.
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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.
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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.
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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
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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."
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<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.
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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
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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.
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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.
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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.
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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.
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<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.
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<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
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<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.
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<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 27, 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
40
