-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Tq4meW+11y/QEY99yXGuYclL0NVKYE2jKqX9Wezm90Uee+QTL3wD6OCtRox5QEC2 fasQYMxS+bzpvS+lOT4EUw== 0000950148-01-500968.txt : 20010608 0000950148-01-500968.hdr.sgml : 20010608 ACCESSION NUMBER: 0000950148-01-500968 CONFORMED SUBMISSION TYPE: 10KSB40/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010607 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DISCOVERY INVESTMENTS INC CENTRAL INDEX KEY: 0001083459 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 880409151 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB40/A SEC ACT: SEC FILE NUMBER: 000-26175 FILM NUMBER: 1655697 BUSINESS ADDRESS: STREET 1: 6767 W. TROPICANA AVENUE STREET 2: SUITE 207 CITY: LAS VEGAS STATE: NV ZIP: 89103 BUSINESS PHONE: 7022841047 MAIL ADDRESS: STREET 1: 6767 W. TROPICANA AVENUE STREET 2: SUITE 207 CITY: LAS VEGAS STATE: NV ZIP: 89103 10KSB40/A 1 v73264e10ksb40a.txt FORM 10-KSB/AMENDMENT NO.1 1 Commission File No. 000-26175 U.S. SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-KSB/AMENDMENT NO. 1 /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended: December 31, 2000 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From __ to __ DISCOVERY INVESTMENTS, INC. ----------------------------------------------- (Exact name of registrant as specified in its charter) Nevada 88-0409151 - ------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6767 W. Tropicana Avenue, Suite 207 Las Vegas, Nevada 89103 - ---------------------------------------- ---------------- (Address of principal executive offices) (Zip Code) Issuer's telephone number: (702) 248-1047 Securities to be registered pursuant to Section 12(b) of the Act: none Securities to be registered pursuant to Section 12(g) of the Act: $.001 Common Stock ------------------ (Title of Class) Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part II of this Form 10-K or any amendments to this Form 10-K. /X/ As of December 31, 2000, there were 2,100,000 shares of the Registrant's Common Stock, $.001 par value, outstanding. 2 The aggregate market value of shares of Common Stock held by non-affiliates of the Registrant is $495,000. State the Registrant's revenues for the December 31, 2000 fiscal year: $-0-. EXPLANATORY NOTE: THIS FORM 10-KSB/AMENDMENT NO. 1 IS BEING FILED IN ORDER TO AMEND INFORMATION PREVIOUSLY PROVIDED IN THE SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, FOOTNOTE (1) TABLE LOCATED IN ITEM 11, AMEND THE FINANCIAL STATEMENTS PREVIOUSLY PROVIDED IN ITEM 7, AND INCORPORATE BY REFERENCE CERTAIN EXHIBITS PREVIOUSLY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IN PRIOR FILINGS AND SUPPLY THE AUDITOR'S CONSENT FOR THE FINANCIAL STATEMENTS CONTAINED IN ITEM 7. 3 TABLE OF CONTENTS -----------------
Page ---- Item 1. Description of Business. . . . . . . . . . . . . . 4 Item 2. Description of Property. . . . . . . . . . . . . . 11 Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . 11 Item 4. Submission of Matter to Vote of Security Holders . . . . . . . . . . . . . . . . . 14 Item 5. Market for Common Registrant Equity and Related Stockholder Matter . . . . . . . . . . . . 14 Item 6. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . 18 Item 7. Financial Statements . . . . . . . . . . . . . . . 18 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . 32 Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act. . . . . . . . . 32 Item 10. Executive Compensation . . . . . . . . . . . . . . 33 Item 11. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . 34 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . 36 Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . 38 Signatures . . . . . . . . . . . . . . . . . . . . 38
3. 4 Item 1. Description of Business. Introduction Discovery Investments, Inc. (the "Company") was incorporated on September 10, 1996, under the laws of the State of Nevada to engage in any lawful corporate activity. The Company had been in the development stage until October 26, 1999. Prior to October 26, 1999, the Company could be defined as a "shell" company, whose sole purpose was to locate and consummate a merger or acquisition with a private entity, and the Company did not have any operations. On December 10, 1999, the Company entered into a Plan and Agreement of Reorganization with LLO-Gas, Inc. and John Castellucci. On December 20, 1999, there was a closing under the Plan and Agreement of Reorganization and LLO-Gas, Inc. became a wholly owned subsidiary of the Company and there was a change of control of the Company. During the period from inception (September 10, 1996) until October 26, 1999, the Company sustained operation expenses without corresponding revenues. This resulted in the Company's incurring a net operating loss. On October 26, 1999, LLO-Gas acquired the ARCO Facilities and the Card Lock Facility and commenced operations. LLO-Gas was incorporated in July 1998 under the laws of the State of Delaware. On December 20, 1999, DCIV engaged in a reorganization (the "Reorganization"), pursuant to which LLO-Gas became a wholly-owned subsidiary of DCIV and there was a change of control of DCIV. Between December 20, 1999 and August 11, 2000, differences of opinion as to matters of fact and as to matters of law had arisen by and between certain of the shareholders of the Company, who were shareholders prior to the closing, and between the Company, John Castellucci and LLO-Gas, Inc. On June 7, 2000, LLO-Gas, Inc. filed a Voluntary Petition under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court, Central District of California, San Fernando Valley Division, case number SV 00-15398-AG. On December 1, 2000, the United States Bankruptcy Court converted the pending matter into a Chapter 7 liquidation. Said Chapter 7 Bankruptcy liquidation is currently pending and effects LLO-Gas, Inc. and not the Company. On August 10, 2000, predicated upon the differences of matters of fact and matters of law, the Company entered into a Mutual Rescission Agreement and Mutual Release with John Castellucci. (See Form 10-QSB filed with the Securities and Exchange Commission on August 21, 2000 (incorporated herein by reference)). The Mutual Rescission Agreement and Mutual Release provided, inter alia, that the Company consents and agrees to rescind that certain Plan and Agreement of Reorganization with John Castellucci consenting and agreeing to the rescission. The 4. 5 parties mutually agreed, pursuant to said Mutual Rescission Agreement and Mutual Release to forgo all rights and benefits provided to each other under the Plan and Agreement of Reorganization, as consideration for the rescission, ab initio, of the closing described therein. Giving effect to the recission of the Plan and Agreement of Reorganization, the Company has no revenues or earnings from operations, with no significant assets or financial resources. Accordingly, the Company will in all likelihood sustain operating expenses without corresponding revenues, at least until the consummation of a new business combination. This resulted in the Company incurring a net operating loss which will increase continuously until the Company can consummate a business combination with a profitable business opportunity and consummate such a business combination. Plan of Operation The Company's current purpose is to seek, investigate and, if such investigation warrants, acquire an interest in business opportunities presented to it by persons or firms who or which desire to seek the advantages of a company who has complied with the 1934 Act. The Company has no particular acquisitions in mind and has not entered into any negotiations regarding such an acquisition. None of the Company's officers, directors, promoters or affiliates have engaged in any preliminary contact or discussions with any representative of any other company regarding the possibility of an acquisition or merger between the Company and such other company as of the date of this registration statement. The Company will not restrict its search to any specific business, industry, or geographical location and the Company may participate in a business venture of virtually any kind or nature. This discussion of the proposed business is purposefully general and is not meant to be restrictive of the Company's virtually unlimited discretion to search for and enter into potential business opportunities. Management anticipates that it may be able to participate in only one potential business venture because the Company has nominal assets and limited financial resources. This lack of diversification should be considered a substantial risk to shareholders of the Company because it will not permit the Company to offset potential losses from one venture against gains from another. The Company may seek a business opportunity with entities which have recently commenced operations, or which wish to utilize the public marketplace in order to raise additional capital in order to expand into new products or markets, to develop a new product or service, or for other corporate purposes. The Company may acquire assets and establish wholly owned subsidiaries in various businesses or acquire existing businesses as subsidiaries. 5. 6 The Company anticipates that the selection of a business opportunity in which to participate will be complex and extremely risky. Due to general economic conditions, rapid technological advances being made in some industries and shortages of available capital, management believes that there are numerous firms seeking the benefits of an Issuer who has complied with the 1934 Act. Such benefits may include facilitating or improving the terms on which additional equity financing may be sought, providing liquidity for incentive stock options or similar benefits to key employees, providing liquidity (subject to restrictions of applicable statutes), for all shareholders and other factors. 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. The Company has, and will continue to have, no capital with which to provide the owners of business opportunities with any significant cash or other assets. However, management believes the Company will be able to offer owners of acquisition candidates the opportunity to acquire a controlling ownership interest in an Issuer who has complied with the 1934 Act without incurring the cost and time required to conduct an initial public offering. The owners of the business opportunities will, however, incur significant legal and accounting costs in connection with acquisition of a business opportunity, including the costs of preparing Form 8-K's, 10-K's or 10-KSB's, agreements and related reports and documents. The 1934 Act, specifically requires that any merger or acquisition candidate comply with all applicable reporting requirements, which include providing audited financial statements to be included within the numerous filings relevant to complying with the 1934 Act. Nevertheless, the officers and directors of the Company have not conducted market research and are not aware of statistical data which would support the benefits of a merger or acquisition transaction for the owners of a business opportunity. The analysis of new business opportunities will be undertaken by, or under the supervision of, the officers and directors of the Company, none of whom is a professional business analyst. Management intends to concentrate on identifying preliminary prospective business opportunities which may be brought to its attention through present associations of the Company's officers and directors, or by the Company's shareholders. In analyzing prospective business opportunities, management will consider such matters as the available technical, financial and managerial resources; working capital and other financial requirements; history of operations, if any; prospects for the future; nature of present and expected competition; the quality and experience of management services which may be available and the depth of that management; the potential for 6. 7 further research, development, or exploration; specific risk factors not now foreseeable but which then may be anticipated to impact the proposed activities of the Company; the potential for growth or expansion; the potential for profit; the public recognition of acceptance of products, services, or trades; name identification; and other relevant factors. Officers and directors of the Company expect to meet personally with management and key personnel of the business opportunity as part of their investigation. To the extent possible, the Company intends to utilize written reports and personal investigation to evaluate the above factors. The Company will not acquire or merge with any company for which audited financial statements cannot be obtained within a reasonable period of time after closing of the proposed transaction. Management of the Company, while not especially expe rienced in matters relating to the new business of the Company, will rely upon their own efforts in accomplishing the business purposes of the Company. It is not anticipated that any outside consultants or advisors will be utilized by the Company to effectuate its business purposes described herein. However, if the Company does retain such an outside consultant or advisor, any cash fee by such party will need to be paid by the prospective merger acquisition candidate, as the Company has no cash assets with which to pay such obligation. There have been no contracts or agreements with any outside consultants and none are anticipated in the future. The Company will not restrict its search for any specific kind of firms, but may acquire a venture which is in its preliminary or development stage, which is already in operation, or in essentially any stage of its corporate life. It is impossible to predict at this time the status of any business in which the Company may become engaged, in that such business may need to seek additional capital, may desire to have its shares publicly traded, or may seek other advantages which the Company may offer. However, the Company does not intend to obtain funds in one or more private placements to finance the operation of any acquired business opportunity until such time as the Company has successfully consummated such a merger or acquisition. It is anticipated that the Company will incur nominal expenses in the implementation of its business plan described herein. Because the Company has no capital with which to pay these anticipated expenses, present management of the Company will pay these charges with their personal funds, as interest free loans to the Company or as capital contributions. However, if loans, the only opportunity which management has to have these loans repaid will be from a prospective merger or acquisition candidate. Management has agreed among themselves that the repayment of any loans made on behalf of the Company will not impede, or be made conditional in any manner, to consummation of a proposed transaction. 7. 8 Acquisition of Opportunities In implementing a structure for a particular business acquisition, the Company may become a party to a merger, consolidation, reorganization, joint venture, or licensing agreement with another corporation or entity. It may also acquire stock or assets of an existing business. On the consummation of a transaction, it is probable that the present management and shareholders of the Company will no longer be in control of the Company. In addition, the Company's directors may, as part of the terms of the acquisition transaction, resign and be replaced by new directors without a vote of the Company's shareholders or may sell their stock in the Company. Any terms of sale of the shares presently held by officers and/or directors of the Company will be also afforded to all other shareholders of the Company on similar terms and conditions. Any and all such sales will only be made in compliance with the securities laws of the United States and any applicable state. It is anticipated that any securities issued in any such reorganization would be issued in reliance upon exemption from registration under applicable federal and state securities laws. In some circumstances, however, as a negotiated element of its transaction, the Company may agree to register all or a part of such securities immediately after the transaction is consummated or at specified times thereafter. If such registration occurs, of which there can be no assurance, it will be undertaken by the surviving entity after the Company has successfully consummated a merger or acquisition and the Company is no longer considered a "shell" company. The issuance of substantial additional securities and their potential sale into any trading market which may develop in the Company's securities may have a depressive effect on the value of the Company's securities in the future, if such a market develops, of which there is no assurance. While the actual terms of a transaction to which the Company may be a party cannot be predicted, it may be expected that the parties to the business transaction will find it desirable to avoid the creation of a taxable event and thereby structure the acquisition in a so-called "tax-free" reorganization under Sections 368(a)(1) or 351 of the Internal Revenue Code (the "Code"). In order to obtain tax-free treatment under the Code, it may be necessary for the owners of the acquired business to own 80% or more of the voting stock of the surviving entity. In such event, the shareholders of the Company, would retain less than 20% of the issued and outstanding shares of the surviving entity, which would result in significant dilution in the equity of such shareholders. As part of the Company's investigation, officers and directors of the Company will meet personally with management and key personnel, may visit and inspect material facilities, obtain 8. 9 independent analysis of 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. The manner in which the Company participates in an opportunity will depend on the nature of the opportunity, the respective needs and desires of the Company and other parties, the management of the opportunity and the relative negotiation strength of the Company and such other management. With respect to any merger or acquisition, negotiations with target company management is expected to focus on the percentage of the Company which the target company shareholders would acquire in exchange for all of their shareholdings in the target company. Depending upon, among other things, the target company's assets and liabilities, the Company's shareholders will in all likelihood hold a substantially lesser percentage ownership interest in the Company following any merger or acquisition. The percentage ownership may be subject to significant reduction in the event the Company acquires a target company with substantial assets. Any merger or acquisition effected by the Company can be expected to have a significant dilutive effect on the percentage of shares held by the Company's then shareholders. The Company will participate in a business opportunity only after the negotiation and execution of appropriate written agreements. Although the terms of such agreements cannot be predicted, generally such agreements will require some specific representations and warranties by all of the parties thereto, will specify certain events of default, will detail the terms of closing and the conditions which must be satisfied by each of the parties prior to and after such closing, will outline the manner of bearing costs, including costs associated with the Company's attorneys and accountants, will set forth remedies on default and will include miscellaneous other terms. The Company will not acquire or merge with any entity which cannot provide independent audited financial statements within a reasonable period of time after closing of the proposed transaction. The Company is subject to all of the reporting requirements included in the 1934 Act. Included in these requirements is the affirmative duty of the Company to file independent audited financial statements as part of its Form 8-K to be filed with the Securities and Exchange Commission upon consummation of a merger or acquisition, as well as the Company's audited financial statements included in its annual report on Form 10-K (or 10-KSB, as applicable). If such audited financial statements are not available at closing, or within time parameters necessary to insure the Company's compliance with the requirements of the 1934 Act, or if the audited financial statements provided do not conform to the representations made by 9. 10 the candidate to be acquired in the closing documents, the closing documents will provide that the proposed transaction will be voidable, at the discretion of the present management of the Company. If such transaction is voided, the agreement will also contain a provision providing for the acquisition entity to reimburse the Company for all costs associated with the proposed transaction. Competition The Company will remain an insignificant participant among the firms which engage in the acquisition of business opportunities. There are many established venture capital and financial concerns which have significantly greater financial and personnel resources and technical expertise than the Company. In view of the Company's combined extremely limited financial resources and limited management availability, the Company will continue to be at a significant competitive disadvantage compared to the Company's competitors. Investment Company Act of 1940 Although the Company will be subject to regulation under the Securities Act of 1933, as amended, and the 1934 Act, management believes the Company will not be subject to regulation under the Investment Company Act of 1940 insofar as the Company will not be engaged in the business of investing or trading in securities. In the event the Company engages in business combinations which result in the Company holding passive investment interests in a number of entities, the Company could be subject to regulation under the Investment Company Act of 1940. In such event, the Company would be required to register as an investment company and could be expected to incur significant registration and compliance costs. The Company has obtained no formal determination from the Securities and Exchange Commission as to the status of the Company under the Investment Company Act of 1940 and, consequently, any violation of such Act would subject the Company to material adverse consequences. Employees The Company has no full time or part-time employees. None of the officers and directors anticipates devoting more than ten (10%) percent of his or her time to Company activities. The Company's President and Secretary have agreed to allocate a portion of said time to the activities of the Company, without compensation. These officers anticipate that the business plan of the Company can be implemented by their devoting minimal time per month to the business affairs of the Company and, consequently, conflicts of interest may arise with respect to the limited time commitment by such officers. 10. 11 Item 2. Description of Property. The Company has no properties and at this time has no agreements to acquire any properties. The Company presently occupies office space supplied by an shareholder of the Company at 2980 S. Rainbow Boulevard, Suite 108, Las Vegas, Nevada 89146. This space is provided to the Company on a rent free basis, and it is anticipated that this arrangement will remain until such time as the Company successfully consummates a merger or acquisition. Management believes that this arrangement will meet the Company's needs for the foreseeable future. Item 3. Legal Proceedings. (a) On Febrary 29, 2000, West Star Energy Group, Inc. ("West Star") sued John Castellucci, the Company and its wholly- owned operating subsidiary, LLO-Gas, Inc., in the Superior Court of the State of California, County of Los Angeles (Case Number BC 225568). Until August 10, 2000, John Castellucci was President, Chief Financial Officer, Secretary, director and the principal shareholder of the Company, and President, a director and the principal shareholder of West Star. West Star, through its Board of Directors (other than John Castellucci), alleges that John Castellucci breached his fiduciary duty to West Star and engaged in a series of unauthorized transactions for his personal benefit. The plaintiff also alleges that John Castellucci made certain fraudulent statements to the West Star Board of Directors, which inducted them not to exercise a West Star business opportunity to acquire the ARCO Facilities for itself and to consent to the acquisition of the ARCO Facilities by LLO- Gas, Inc. West Star seeks general and special damages of at least $3.5 million against John Castellucci. West Star seeks the imposition of a constructive trust on the Company's facilities which were purchased from ARCO (the "ARCO Facilities") and an order compelling the Company to return the ARCO Facilities, and all proceeds therefrom, to West Star. West Star also seeks damages against John Castellucci and the Company of at least $3.5 million for unfair competition. In addition, West Star seeks an accounting from the defendants. West Star also seeks to recover the costs of the suit, prejudgment interest, attorneys' fees and such other relief as the court may deem just and proper. John Castellucci and the Company have filed an answer to the complaint. The Company believes that it has meritorious defenses and affirmative defenses to the lawsuit. 11. 12 In view of the inherent uncertainties of litigation, the outcome of the litigation itself, cannot be predicted. (b) In December 1999, M. Mehdi Mostaedi loaned LLO- Gas, Inc. $150,000. LLO-Gas, Inc. and John Castellucci jointly executed a promissory note dated December 16, 1999 (the "Mostaedi Note") in the principal amount of $150,000. The Mostaedi Note bears interest at the rate of 9% per annum and was due and payable as to principal and interest on February 16, 2000. The Mostaedi Note is secured with a pledge of 2,000,000 shares of the Company's common stock, or by substituted shares, owned by John Castellucci pursuant to a Pledge Agreement dated December 20, 1999 between John Castellucci and M. Mehdi Mostaedi. On April 11, 2000, M. Mehdi Mostaedi filed a lawsuit against the Company and John Castellucci in the Superior Court of the State of California, West District, Santa Monica, California (Case Number SC 016250), alleging breach of contract and default under the Mostaedi Note. M. Mehdi Mostaedi seeks damages in the amount of $150,000, interest on that amount at the rate of 9% from December 16, 1999, and costs of the suit. The Company has been served with the complaint but has not filed an answer to the complaint. On or about August 17, 2000, M. Mehdi Mostaedi filed a request to enter the default against the Company (and John Castellucci). The Company believes that said filing of the request to enter the default may constitute a violation of the automatic stay provisions under the Bankruptcy Act since the complaint alleges that the Company is the successor to LLO-Gas, Inc. The Company believes that it may have meritorious defenses and affirmative defenses to the lawsuit in that it was not a party to the Mostaedi Note. At all times relevant, there have been no reports by M. Mehdi Mostaedi filed with the Securities and Exchange Commission. Further, since the reporting provisions of 16(a) of the Securities Exchange Act of 1934, as amended, are designed to ensure the prompt disclosure of holdings, there are no provisions allowing the late filing of an ownership report and there is no extension of time for the filing of an ownership report. (c) On October 17, 2000, Yuri Zaloznyy ("Zaloznyy") sued John Castellucci, the Company, LLO-Gas, Inc., and others, in an adversary proceeding in the United States Bankruptcy Court, Central District of California, San Fernando Valley Division. Zaloznyy seeks general and special damages from all defendants for breach of contract, fraud, breach of fiduciary duty, conversion, constructive trust, fraudulent or void conveyance, specific performance, dissolution of certain of the defendants, and damages. The Company has filed an answer to the complaint, severing itself from all other defendants to include John Castellucci and LLO-Gas, Inc. The Company believes that it has meritorious defenses and affirmative defenses to the lawsuit. 12. 13 In view of the inherent uncertainties of litigation, the outcome of the litigation itself, cannot be predicted. (d) On September 1, 2000, the Company filed a lawsuit against John Castellucci and Does 1 through 5, inclusive, in the Superior Court of the State of California, West District, Santa Monica, California (Case Number SC062993). The complaint was for cancellation of shares and of any share certificates issued to John Castellucci. On August 10, 2000, the Company and John Castellucci had entered into a Mutual Rescission Agreement and Mutual Release. Pursuant to said Mutual Rescission Agreement and Mutual Release, John Castellucci, the record holder of 9,900,000 shares of stock of the Company, evidenced by certificate number 160, was to surrender for cancellation said shares. See Item 5 of the Form 10-QSB filed with the Securities and Exchange Commission on August 21, 2000 (incorporated herein by reference). At all times relevant, there have been no reports by any officer or director of the Company or any person who directly or indirectly is the beneficial owner of more than 10% of any class of equity securities of the Company registered under the Securities Act of 1934, as amended, filed with the Securities and Exchange Commission. Further, since the reporting provisions of 16(a) of the Securities Exchange Act of 1934, as amended, are designed to ensure the prompt disclosure of holdings, there are no provisions allowing the late filing of an ownership report and there is no extension of time for the filing of an ownership report. The California Superior Court was informed that there have been no reports filed with the Securities and Exchange Commission as it relates to certificate number 160. The California Superior Court, on October 25, 2000, ordered that John Castellucci shall surrender for cancellation certificate number 160 to the Company or to the Company's transfer agent for cancellation and that said shares are to be restored to authorized but unissued status. It was further ordered that if Castellucci did not surrender for cancellation said certificate number 160 or cause said certificate to be surrendered, the Company may forthwith issue instructions to its transfer agent that said shares of stock are no longer to been deemed issued and outstanding, that said shares are to be restored to authorized but unissued status, and that the number of issued and outstanding shares of stock of the Company appearing on the Company's stockholder records are to be reduced by said 9,900,000 shares. Further, the California Superior Court determined that John Castellucci be deemed to not to have any right, title and interest in the 9,900,000 shares evidenced by certificate number 160. A copy of the order of the California Superior Court was delivered to the Company's transfer agent and said shares have been cancelled. (e) The Company is currently seeking advice concerning the filing of a bankruptcy petition under Chapter 11 13. 14 of the Bankruptcy Code in the appropriate United States Bankruptcy Court. Concurrently with the filing, the Company believes that it will file both a Plan of Reorganization and a Disclosure Statement with the Company being the proponent of the Plan. The proposed Plan will treat the claims of the Company's creditors and the interest of shareholders and will reorganize the Company's business affairs. The Disclosure Statement will describe the assumptions that underlie the Plan of Reorganization and how the Plan of Reorganization will be executed. The Company has been informed that the Bankruptcy Court will be required to approve the form of the Plan of Reorganization and the Disclosure Statement as an adequate Disclosure Statement, containing enough information to enable the parties affected thereby to make an informed judgment. The Court will be required to confirm the Plan of Reorganization. Item 4. Submission of Matter to Vote of Security Holders. There has been no matters submitted to the Company's security holders. Item 5. Market for Common Company Equity and Related Stockholder Matter. (a) Market Price. The Company's Common Stock is not quoted at the present time. The Company's common stock is currently traded on the OTC Bulletin Board System under the symbol "DCIV." The following table sets forth, for the periods indicated, the high and low closing bid prices for the common stock of the Company as reported on said system (or as may have been previously reported on the Over the Counter Bulletin Board System). The bid prices reflect inter-dealer quotations, do not include retail mark-ups, mark-downs or commissions, and do not necessarily reflect actual transactions.
Date Open High Bid Low Bid Close - ---- ---- -------- ------- ------ 09/30/99 5.625 5.625 5.625 5.625 10/18/99 5.625 6.625 5.50 5.50 11/29/99 5.625 5.625 5.625 5.625 12/27/99 6.00 6.00 6.00 6.00 02/7/00 5.625 5.625 5.625 5.625 02/29/00 5.25 5.25 5.00 5.00 03/23/00 5.00 5.00 5.00 5.00 05/26/00 3.00 3.00 2.00 2.00 06/30/00 0.375 0.375 0.375 0.375 07/31/00 0.25 0.25 0.25 0.25 08/31/00 0.25 0.25 0.25 0.25 09/30/00 0.25 0.25 0.25 0.25
14. 15 10/25/00 0.25 0.25 0.25 0.25 11/30/00 0.625 0.625 0.625 0.625 12/31/00 0.625 0.625 0.625 0.625 01/31/01 0.50 0.50 0.50 0.50 02/28/01 0.50 0.50 0.50 0.50 03/31/01 0.50 0.50 0.50 0.50 On April 12, 2001, the ask for the common stock of the Company was $0.51, and the bid for the common stock of the Company was $.07. The last trade was on March 27, 2001 at $.75. The Securities and Exchange Commission adopted Rule 15g-9, which established the definition of a "penny stock," for purposes relevant to the Company, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (i) that a broker or dealer approve a person's account for transactions in penny stocks; and (ii) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person's account for transactions in penny stocks, the broker or dealer must (i) obtain financial information and investment experience and objectives of the person; and (ii) make a reasonable determination that the transactions in penny stocks are suitable for that person and that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the Commission relating to the penny stock market, which, in highlight form, (i) sets forth the basis on which the broker or dealer made the suitability determination; and (ii) that the broker or dealer received a signed, written agreement from the investor prior to the trans action. Disclosure also has to be made about the risks of investing in penny stock in both public offering and in secondary trading, and about commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. For the initial listing in the NASDAQ SmallCap market, a company must have net tangible assets of $4 million or market capitalization of $50 million or a net income (in the latest fiscal year or two of the last fiscal years) of $750,000, a public float of 1,000,000 shares with a market value of $5 million. The minimum bid price must be $4.00 and there must be 3 market makers. In addition, there must be 300 shareholders holding 100 shares or more, and the company must have an 15. 16 operating history of at least one year or a market capitalization of $50 million. For continued listing in the NASDAQ SmallCap market, a company must have net tangible assets of $2 million or market capitalization of $35 million or a net income (in the latest fiscal year or two of the last fiscal years) of $500,000, a public float of 500,000 shares with a market value of $1 million. The minimum bid price must be $1.00 and there must be 2 market makers. In addition, there must be 300 shareholders holding 100 shares or more. Management intends to strongly consider undertaking a transaction with any merger or acquisition candidate which will allow the Company's securities to be traded without the aforesaid limitations. However, there can be no assurances that, upon a successful merger or acquisition, the Company will qualify its securities for listing on NASDAQ or some other national exchange, or be able to maintain the maintenance criteria necessary to insure continued listing. The failure of the Company to qualify its securities or to meet the relevant maintenance criteria after such qualification in the future may result in the discontinuance of the inclusion of the Company's securities on a national exchange. In such events, trading, if any, in the Company's securities may then continue in the non-NASDAQ over-the-counter market. As a result, a shareholder may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, the Company's securities. (b) Holders. There are thirteen (13) holders of the Company's Common Stock. On September 20, 1996, the Company issued 2,100,000, as adjusted for a forward stock split of its Common Shares, for cash. All of the issued and outstanding shares of the Company's Common Stock were issued in accordance with the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended. As of the date of this registration statement, all of the issued and outstanding shares of the Company's Common Stock held by non-affiliates are eligible for sale under Rule 144 promulgated under the Securities Act of 1933, as amended, subject to certain limitations included in said Rule. In general, under Rule 144, a person (or persons whose shares are aggregated), who has satisfied a one year holding period, under certain circum stances, may sell within any three-month period a number of shares which does not exceed the greater of one percent of the then outstanding Common Stock or the average weekly trading volume during the four calendar weeks prior to such sale. Rule 144 also permits, under certain circumstances, the sale of shares without any quantity limitation by a person who has satisfied a 16. 17 two-year holding period and who is not, and has not been for the preceding three months, an affiliate of the Company. In summary, Rule 144 applies to affiliates (that is, control persons) and nonaffiliates when they resell restricted securities (those purchased from the issuer or an affiliate of the issuer in nonpublic transactions). Nonaffiliates reselling restricted securities, as well as affiliates selling restricted or nonrestricted securities, are not considered to be engaged in a distribution and, therefore, are not deemed to be underwriters as defined in Section 2(11), if six conditions are met: (1) Current public information must be available about the issuer unless sales are limited to those made by nonaffiliates after two years. (2) When restricted securities are sold, generally there must be a one-year holding period. (3) When either restricted or nonrestricted securities are sold by an affiliate after one year, there are limitations on the amount of securities that may be sold; when restricted securities are sold by non- affiliates between the first and second years, there are identical limitations; after two years, there are no volume limitations for resales by non-affiliates. (4) Except for sales of restricted securities made by nonaffiliates after two years, all sales must be made in brokers' transactions as defined in Section 4(4) of the Securities Act of 1933, as amended, or a transaction directly with a "market maker" as that term is defined in Section 3(a)(38) of the 1934 Act. (5) Except for sales of restricted securities made by nonaffiliates after two years, a notice of proposed sale must be filed for all sales in excess of 500 shares or with an aggregate sales price in excess of $10,000. (6) There must be a bona fide intention to sell within a reasonable time after the filing of the notice referred to in (5) above. (c) Dividends. The Company has not paid any dividends to date, and has no plans to do so in the immediate future. 17. 18 Item 6. Management's Discussion and Analysis or Plan of Operation The Company has no current business operations. The Company is dependent upon its officers to meet any de minimis costs which may occur. Kimberly Lynn Jack, an officer and director of the Company, has agreed to provide the necessary funds, without interest, for the Company to comply with the Securities Exchange Act of 1934, as amended, provided that she is an officer and director of the Company when the obligation is incurred. All advances are interest-free. In addition, since the Company has no revenues or earnings from operations, with no significant assets or financial resources, the Company will in all likelihood sustain operating expenses without corresponding revenues, at least until the consummation of a business combination. This may result in the Company incurring a net operating loss which will increase continuously until the Company can consummate a business combination with a profitable business opportunity. There is assurance that the Company can identify such a business opportunity and consummate such a business combination. Item 7. Financial Statements. DISCOVERY INVESTMENTS, INC. (A DEVELOPMENT STAGE COMPANY) CONTENTS
INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS 19 - ------------------------------------------------------------------------------- FINANCIAL STATEMENTS Balance Sheets 20 Statements of Income 21 Statements of Stockholders' Equity 22 Statements of Cash Flows 23 Notes to Financial Statements 24-31 - -------------------------------------------------------------------------------
18. 19 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Discovery Investments, Inc. Las Vegas, Nevada I have audited the accompanying balance sheet of Discovery Investments, Inc. (A Development Stage Company) as of December 31, 2000 and 1999 and the related statements of income, stockholders' equity, and cash flows for the years then ended and the period September 10, 1996 (date of inception) through December 31, 2000. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit. The financial statements of Discovery Investments, Inc. (A Development Stage Company) as of December 31, 1998, were audited by other auditors who has ceased operations and whose report dated January 4, 2000, expressed an unqualified opinion on those statements. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I 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. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Discovery Investments, Inc. (A Development Stage Company) as of December 31, 2000 and 1999 and the results of its operations and cash flows for the years then ended and the period September 10, 1996 (date of inception) through December 31, 2000, 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 4 to the financial statements, the Company has no operations and has no established source of revenue. This raises substantial doubt about its ability to continue as a going concern. Management's plan in regard to these matters is also described in Note 4. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Kyle L. Tingle Certified Public Accountant May 16, 2001 Henderson, Nevada 19. 20 DISCOVERY INVESTMENTS, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS
December 31, December 31, 2000 1999 ------------- ------------ ASSETS CURRENT ASSETS $ 0 $ 0 ------------ ----------- Total current assets $ 0 $ 0 ------------ ----------- Total assets $ 0 $ 0 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Short term notes payable $ 100,000 $ 0 Accounts payable 93,792 0 Interest payable 186,000 25,000 Officers advances (Note 5) 16,501 15,654 ------------ ----------- Total current liabilities $ 396,293 $ 40,654 ------------ ----------- LONG TERM DEBT $ 1,500,000 $ 1,500,000 Total liabilities $ 1,896,293 $ 1,540,654 ------------ ----------- STOCKHOLDERS' EQUITY Common stock: $0.001 par value; authorized 25,000,000 shares; issued and outstanding: 2,100,000 shares at December 31, 1999; 2,100 2,100,000 shares at December 31, 2000 2,100 Additional Paid In Capital 0 0 Accumulated deficit during development stage (1,898,393) (1,542,754) ------------ ----------- Total stockholders' equity $(1,896,293) $(1,540,654) ------------ ----------- Total liabilities and stockholders' equity $ 0 $ 0 ============ ===========
See Accompanying Notes to Financial Statements. 20. 21 DISCOVERY INVESTMENTS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF INCOME
Sept 10, 1996 Year Ended Year Ended Year Ended (inception) to December 31, December 31, December 31, December 31, 2000 1999 1998 2000 ------------ ------------ ------------ ------------- Revenues $ 0 $ 0 $ 0 $ 0 Cost of revenue 0 0 0 0 ----------- ----------- ----------- ----------- Gross profit $ 0 $ 0 $ 0 $ 0 General, selling and administrative expenses 194,639 1,515,654 0 1,712,393 ----------- ----------- ----------- ----------- Operating (loss) $ (194,639) $(1,515,654) $ 0 $(1,710,293) Nonoperating income (expense) Interest expense (161,000) (25,000) 0 (186,000) ----------- ----------- ----------- ----------- Net (loss) $ (355,639) $(1,540,654) $ 0 $(1,898,393) =========== =========== =========== =========== Net (loss) per share, Basic and diluted (Note 2) $ (0.17) $ (0.73) $ 0.00 $ (0.90) =========== =========== =========== =========== Average number of shares of common stock outstanding 2,100,000 2,100,000 2,100,000 2,100,000 =========== =========== =========== ===========
See Accompanying Notes to Financial Statements. 21. 22 DISCOVERY INVESTMENTS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated (Deficit) Common Stock Additional During ----------------------------- Paid-In Development Shares Amount Capital Stage ----------- ----------- ----------- ----------- Sale of 2,100,000 shares, Sept. 10, 1996 2,100,000 $ 2,100 $ 0 $ 0 Net (loss), December 31, 1996 (2,100) ----------- ----------- ----------- ----------- Balance, December 31, 1996 2,100,000 $ 2,100 $ 0 $ (2,100) Net (loss), December 31, 1997 0 ----------- ----------- ----------- ----------- Balance, December 31, 1997 2,100,000 $ 2,100 $ 0 $ (2,100) Net (loss), December 31, 1998 0 ----------- ----------- ----------- ----------- Balance, December 31, 1998 2,100,000 $ 2,100 $ 0 $ (2,100) March 15, 1999, changed from no par value to $0.001 (2,079) 2,079 March 15, 1999, forward stock 100:1 2,079 (2,079) Net (loss), December 31, 1999 (1,540,654) ----------- ----------- ----------- ----------- Balance, December 31, 1999 2,100,000 $ 2,100 $ 0 $(1,542,754) Net (loss), December 31, 2000 (355,639) ----------- ----------- ----------- ----------- Balance, December 31, 2000 2,100,000 $ 2,100 $ 0 $(1,898,393) =========== =========== =========== ===========
See Accompanying Notes to Financial Statements. 22. 23 DISCOVERY INVESTMENTS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS
Sept. 10, 1996 Year Ended Year Ended Year Ended (inception) to December 31, December 31, December 31, December 31, 2000 1999 1998 2000 ------------ ------------ ------------ -------------- Cash Flows From Operating Activities Net (loss) $ (355,639) $(1,540,654) $ 0 $(1,898,393) Adjustments to reconcile net (loss) to cash (used in) operating activities: Changes in assets and liabilities Increase in accounts payable and accrued expenses 254,792 25,000 0 279,792 Officer advances 847 15,654 0 16,501 ----------- ----------- ----------- ----------- Net cash (used in) operating activities $ (100,000) $(1,500,000) $ 0 $(1,602,100) ----------- ----------- ----------- ----------- Cash Flows From Investing Activities $ 0 $ 0 $ 0 $ 0 ----------- ----------- ----------- ----------- Cash Flows From Financing Activities Issuance of common stock $ 0 $ 0 $ 0 $ 2,100 Proceeds from notes payable 100,000 1,500,000 0 1,600,000 ----------- ----------- ----------- ----------- Net cash provided by financing activities $ 100,000 $ 1,500,000 $ 0 $ 1,602,100 ----------- ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents $ 0 $ 0 $ 0 $ 0 Cash and cash equivalents, beginning of period 0 0 0 0 ----------- ----------- ----------- ----------- Cash and cash equivalents, end of period $ 0 $ 0 $ 0 $ 0 =========== =========== =========== ===========
See Accompanying Notes to Financial Statements. 23. 24 DISCOVERY INVESTMENTS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998 NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Nature of business: Discovery Investments, Inc. ("Company") was organized September 10, 1996 under the laws of the State of Nevada. The Company currently has no operations and, in accordance with Statement of Financial Accounting Standard (SFAS) No. 7, "Accounting and Reporting by Development Stage Enterprises," is considered a development stage company. A summary of the Company's significant accounting policies is as follows: Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash For the Statements of Cash Flows, all highly liquid investments with maturity of three months or less are considered to be cash equivalents. There were no cash equivalents as of December 31, 2000, 1999, and 1998. Income taxes Income taxes are provided for using the liability method of accounting in accordance with SFAS No. 109 "Accounting for Income Taxes." A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment. Reporting on costs for start-up activities Statement of Position 98-5 ("SOP 98-5), "Reporting on the Costs of Start-Up Activities" which provides guidance on the financial reporting of start-up and organization costs, requires most costs of start-up activities and organization costs to be expensed as incurred. With the adoption of SPO 98-5, there has been little to no effect on the Company's financial statements. Year End The Company originally selected March 31 for its fiscal year end. Prior to the Mutual Rescission Agreement and Mutual Release (see Note 9) the Company changed its fiscal year end to December 31. 24. 25 DISCOVERY INVESTMENTS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998 NOTE 2. NOTES PAYABLE As of December 31, 2000, the Company had a short term note payable of: 12% Note Payable to Interlochen Enterprises, Inc. dated January 28, 2000, interest due quarterly, principal payable on demand 100,000 ======= NOTE 3. CONVERTIBLE DEBT On December 10, 1999, the Company, subject to the closing of the Plan and Agreement of Reorganization (See Note 9), the Company issued six (6) three-year 10 Percent Convertible Debentures to various parties in the aggregate amount of $1,500,000, dated as of November 1, 1999 which closed on December 20, 1999. The terms and conditions are summarized as follows: (1) All debentures of this issue rank equally and ratably without priority over one another. (2) Provided that the Company becomes obligated, the holder or holders of this Debenture may at any time prior to the maturity hereof (except that, if the Company has called the debenture for redemption, the right to convert shall terminate at the close of business on the second business day prior to the day fixed as the date for such redemption), convert the principal amount hereof into the Company's common stock at the conversion ratio of $5 of debenture principal for one share of common stock. To convert the debenture, the holder or holders hereof must surrender the same at the office of the Company, together with a written instrument of transfer in a form satisfactory to the Company, properly completed and executed and with a written notice of conversion. (3) If the Company at any time pays to the holders of its common stock a dividend in common stock, the number of shares of common stock issuable upon the conversion of the debenture shall be proportionally increased, effective at the close of business on the recorded date for determination of the holders of the common stock entitled to the dividend. (4) If the Company at any time subdivides or combines in a larger or smaller number of share its outstanding shares of common stock, then the number of shares of common stock issuable upon the conversion of the debenture shall be proportionally increased in the case of a subdivision and decrease in the case of a combination, effective in either case at the close of business on the date that the subdivision or combination becomes effective. (5) If the Company is recapitalized, consolidate with or merged into any other corporation, or sells or conveys to any other corporation all or substantially all of its property as an entity, provision shall be made as part of the terms of the recapitalization consolidation merger, sale, or conveyance so that the holder or holders of the debenture may receive, in lieu of the common stock otherwise issuable to them upon conversion hereof, at the same conversion ratio, the same kind and amount of securities or assets as may be distributable upon the recapitalization, consolidation, merger, sale, or conveyance with respect to the common stock. 25. 26 DISCOVERY INVESTMENTS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998 NOTE 2. CONVERTIBLE DEBT (CONTINUED) (1) In lieu of issuing any fraction of a share upon the conversion of the debenture, the Company shall pay to the holder hereof for any fraction of a share otherwise issuable upon the conversion cash equal to the same fraction of the ten current per share market price of the common stock. (2) In the event Company fails to make any payment of principal and interest, said failure to pay shall constitute a default under the terms of the debenture and, subject to the terms and conditions contained in the debenture, the entire unpaid principal and interest shall be due an payable. No debenture holder may institute any suit or proceeding for the enforcement of the payment of principal or interest unless the holders of more than 25 percent in amount of all outstanding debentures of the issue join in the suit or proceeding. In the event the Company and the shareholders of LLO-Gas, Inc. do not enter into a business combination which closes on or before December 31, 1999, an individual debenture holder may institute any suit or proceeding in the event of default. (3) Company and LLO-Gas, Inc. may at any time prepay in whole or in part, the principal amount, plus accrued interest lot he date of prepayment, of all outstanding debentures of this issue, upon 30 days written notice by certified or registered mail to the registered owners of all outstanding debentures. (4) Except for debenture number 1 and 2, for which John Castellucci is obligated for an amount equal to $150,000, the debenture is the obligation of Company and LLO-Gas, Inc. only, and no recourse shall be had for the payment of any principal or interest thereof against any shareholder, officer or director of Company and LLO-Gas, Inc., either directly or through Company and LLO-Gas, Inc., by virtue of any statute for the enforcement of any assessment or otherwise.
Three Year 10% Convertible Note Number 1 payable to Interlochen Enterprises, Inc. dated as of November 1, 1999, interest due quarterly, principal due October 31, 2002 $ 250,000 Three Year 10% Convertible Note Number 2 payable to Meridian Enterprises, Inc. dated as of November 1, 1999, interest due quarterly, principal due October 31, 2002 250,000 Three Year 10% Convertible Note Number 3 payable to CRS Financial Corp., Ltd. dated as of November 1, 1999, interest due quarterly, principal due October 31, 2002 250,000 Three Year 10% Convertible Note Number 4 payable to CRS Financial Corp., Ltd. dated as of November 1, 1999, interest due quarterly, principal due October 31, 2002 250,000 Three Year 10% Convertible Note Number 5 payable to CRS Financial Corp., Ltd. dated as of November 1, 1999, interest due quarterly, principal due October 31, 2002 250,000 Three Year 10% Convertible Note Number 6 payable to CRS Financial Corp., Ltd. dated as of November 1, 1999, interest due quarterly, principal due October 31, 2002 250,000. ---------- $1,500,000 ==========
26. 27 DISCOVERY INVESTMENTS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998 NOTE 3. STOCKHOLDERS' EQUITY (CONTINUED) Common stock The authorized common stock of the Company consists of 25,000,000 shares with par value of $0.001. On September 15, 1996, the Company authorized and issued 21,000 shares of its no par value common stock in consideration of $2,100 in cash. On March 15, 1999, the State of Nevada approved the Company's amended Articles of Incorporation, which increased its capitalization from 25,000 common shares to 25,000,000 common shares. The no par value was changed to $0.001 per share. Also, on March 15, 1999, the Company's shareholders approved a forward split of its common stock at one hundred shares for one share of the existing shares. The number of common stock shares outstanding increased from 21,000 to 2,100,000. Prior period information has been restated to reflect the stock split The Company has not authorized any preferred stock. Pledge John Castellucci entered into a Pledge Agreement with M. Mehdi Mostaedi on or about December 16, 1999, subject to the closing of the Plan and Agreement of Reorganization on December 20, 1999 (see Note 9), wherein John Castellucci collaterally pledged 2,000,000 shares of his common stock of the Company to M. Mehdi Mostaedi. A mutual rescission occurred (see Note 9) and said rescission is subject to the rights, if any, that M. Mehdi Mostaedi may have under said collateral pledge agreement. Upon full performance by John Castellucci and LLO-Gas, Inc., or either, said shares of common stock will be retired and restored to the status of authorized and unissued shares. The pledge holder under the collateral pledge agreement holds as collateral certain shares of LLO-Gas, Inc. as additional substituted collateral, under the collateral pledge agreement. To the extent that any shares of stock issued to John Castellucci have not been restored to the Company as part of the mutual rescission, the Company deems said shares to be treasury shares. Treasury shares do not carry voting rights or participate in distribution, may not be counted as outstanding shares for any purpose and may not be counted as assets of the Company for purposes of computing amounts available for distributions. Upon physical delivery of said certificates to Pacific Stock Transfer Company, the Company's transfer agent, said shares will be canceled, retired and restored to the status of authorized and unissued shares in accordance with law. Net loss per common share Net loss per share is calculated in accordance with SFAS No. 128, "Earnings Per Share." The weighted-average number of common shares outstanding during each period is used to compute basic loss per share. Diluted loss per share is computed using the weighted averaged number of shares and dilutive potential common shares outstanding. Dilutive potential common shares are additional common shares assumed to be exercised. Basic net loss per common share is based on the weighted average number of shares of common stock outstanding of 2,100,000 during 2000, 1999, 1998, and since inception. As of December 31, 2000, 1999, 1998 and since inception, the Company had no dilutive potential common shares. 27. 28 DISCOVERY INVESTMENTS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998 NOTE 4. INCOME TAXES There is no provision for income taxes for the period ended December 31, 2000, due to the net loss and no state income tax in Nevada, the state of the Company's domicile and operations. The Company's total deferred tax asset as of December 31, 2000 is as follows: Net operating loss carry forward $ 1,869,443 Valuation allowance $ (1,869,443) ------------- Net deferred tax asset $ 0 The net federal operating loss carry forward will expire between 2016 and 2020. This carry forward may be limited upon the consummation of a business combination under IRC Section 381. NOTE 5. GOING CONCERN The Company's financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Currently, the Company does not have significant cash of other material assets, nor does it have operations or a source of revenue sufficient to cover its operation costs and allow it to continue as a going concern. It is the intent of the Company to seek a merger with an existing, operating company. Until that time, the stockholders, officers, and directors have committed to advancing the operating costs of the company. NOTE 6. RELATED PARTY TRANSACTIONS The Company neither owns nor leases any real or personal property. An officer of the corporation provides office services without charge. Such costs are immaterial to the financial statements and accordingly, have not been reflected therein. The officers and directors for the Company are involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such persons may face a conflict in selecting between the Company and their other business interest. The Company has not formulated a policy for the resolution of such conflicts. NOTE 7. WARRANTS AND OPTIONS There are no warrants or options outstanding to acquire any additional shares of common stock of the Company. NOTE 8. LITIGATION (a) On February 29, 2000, West Star Energy Group, Inc. ("West Star") sued John Castellucci, the Company and its wholly-owned operating subsidiary, LLO-Gas, Inc., in the Superior Court of the State of California, County of Los Angeles (Case Number BC 225568). Until August 10, 2000, John Castellucci was President, Chief Financial Officer, Secretary, director and the principal shareholder of the Company, and President, a director and the principal shareholder of West Star. West Star, through its Board of Directors (other than John Castellucci), alleges that John Castellucci breached his fiduciary duty to West Star and engaged in a series of 28. 29 DISCOVERY INVESTMENTS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998 NOTE 8. LITIGATION (CONTINUED) unauthorized transactions for his personal benefit. The plaintiff also alleges that John Castellucci made certain fraudulent statements to the West Star Board of Directors, which inducted them not to exercise a West Star business opportunity to acquire the ARCO Facilities for itself and to consent to the acquisition of the ARCO Facilities by LLO-Gas, Inc. West Star seeks general and special damages of at least $3.5 million against John Castellucci. West Star seeks the imposition of a constructive trust on the Company's facilities which were purchased from ARCO (the "ARCO Facilities") and an order compelling the Company to return the ARCO Facilities, and all proceeds therefrom, to West Star. West Star also seeks damages against John Castellucci and the Company of at least $3.5 million for unfair competition. In addition, West Star seeks an accounting from the defendants. West Star also seeks to recover the costs of the suit, prejudgment interest, attorneys' fees and such other relief as the court may deem just and proper. John Castellucci and the Company have filed an answer to the complaint. The Company believes that it has meritorious defenses and affirmative defenses to the lawsuit. (a) In December 1999, M. Mehdi Mostaedi loaned LLO-Gas, Inc. $150,000. LLO-Gas, Inc. and John Castellucci jointly executed a promissory note dated December 16, 1999 (the "Mostaedi Note") in the principal amount of $150,000. The Mostaedi Note bears interest at the rate of 9% per annum and was due and payable as to principal and interest on February 16, 2000. The Mostaedi Note was secured with a pledge of 2,000,000 shares of the Company's common stock owned by John Castellucci pursuant to a Pledge Agreement dated December 20, 1999 between John Castellucci and M. Mehdi Mostaedi. The pledge holder currently holds John Castellucci's shares in LLO-Gas, Inc. as collateral for the obligation. On April 11, 2000, M. Mehdi Mostaedi filed a lawsuit against the Company and John Castellucci in the Superior Court of the State of California, West District, Santa Monica, California (Case Number SC 016250), alleging breach of contract and default under the Mostaedi Note. M. Mehdi Mostaedi seeks damages in the amount of $150,000, interest on that amount at the rate of 9% from December 16, 1999, and costs of the suit. The Company has been served with the complaint but has not filed an answer to the complaint. On or about August 17, 2000, M. Mehdi Mostaedi filed a request to enter the default against the Company (and John Castellucci). The Company believes that said filing of the request to enter the default may constitute a violation of the automatic stay provisions under the Bankruptcy Act since the complaint alleges that the Company is the successor to LLO-Gas, Inc. The Company believes that it may have meritorious defenses and affirmative defenses to the lawsuit in that it was not a party to the Mostaedi Note. (b) On October 17, 2000, Yuri Zaloznyy ("Zaloznyy") sued John Castellucci, the Company, LLO-Gas, Inc., and others, in an adversary proceeding in the United States Bankruptcy Court, Central District of California, San Fernando Valley Division. Zaloznyy seeks general and special damages from all defendants for breach of contract, fraud, breach of fiduciary duty, conversion, constructive trust, fraudulent or void conveyance, specific performance, dissolution of certain of the defendants, and damages. The Company has filed an answer to the complaint, severing itself from all other defendants to include John Castellucci and LLO-Gas, Inc. The Company believes that it has meritorious defenses and affirmative defenses to the lawsuit. 29. 30 DISCOVERY INVESTMENTS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998 NOTE 8. LITIGATION (CONTINUED) (d) On September 1, 2000, the Company filed a lawsuit against John Castellucci and Does 1 through 5, inclusive, in the Superior Court of the State of California, West District, Santa Monica, California (Case Number SC062993). The complaint was for cancellation of shares and of any share certificates issued to John Castellucci. On August 10, 2000, the Company and John Castellucci had entered into a Mutual Rescission Agreement and Mutual Release. Pursuant to said Mutual Rescission Agreement and Mutual Release, John Castellucci, the record holder of 9,900,000 shares of stock of the Company, evidenced by certificate number 160, was to surrender for cancellation said shares. The California Superior Court, on October 25, 2000, ordered that John Castellucci shall surrender for cancellation certificate number 160 to the Company or to the Company's transfer agent for cancellation and that said shares are to be restored to authorized but unissued status. It was further ordered that if Castellucci did not surrender for cancellation said certificate number 160 or cause said certificate to be surrendered, the Company may forthwith issue instructions to its transfer agent that said shares of stock are no longer to been deemed issued and outstanding, that said shares are to be restored to authorized but unissued status, and that the number of issued and outstanding shares of stock of the Company appearing on the Company's stockholder records are to be reduced by said 9,900,000 shares. Further, the California Superior Court determined that John Castellucci be deemed to not to have any right, title and interest in the 9,900,000 shares evidenced by certificate number 160. A copy of the order of the California Superior Court was delivered to the Company's transfer agent and said shares have been cancelled. (See Note 3 above.) (e) At all times relevant, there have been no reports by any officer or director of the Company or any person who directly or indirectly is the beneficial owner of more than 10% of any class of equity securities of the Company registered under the Securities Act of 1934, as amended, filed with the Securities and Exchange Commission. Further, since the reporting provisions of 16(a) of the Securities Exchange Act of 1934, as amended, are designed to ensure the prompt disclosure of holdings, there are no provisions allowing the late filing of an ownership report and there is no extension of time for the filing of an ownership report. The California Superior Court was informed that there have been no reports filed with the Securities and Exchange Commission as it relates to the shares issued to John Castellucci and the shares held by a pledge holder as it relates to M. Mehdi Mostaedi or by M. Mehdi Mostaedi. NOTE 9. MUTUAL RESCISSION AGREEMENT AND MUTUAL RELEASE On December 10, 1999, the Company entered into a Plan and Agreement of Reorganization with LLO-Gas, Inc. and John Castellucci. On December 20, 1999, there was a closing under the Plan and Agreement of Reorganization and LLO-Gas, Inc. became a wholly owned subsidiary of the Company and there was a change of control of the Company. Between December 20, 1999 and August 11, 2000, differences of opinion as to matters of fact and as to matters of law have arisen by and between certain of the shareholders of the Company, who were shareholders prior to the closing, and between the Company, John Castellucci and LLO-Gas, Inc. In addition, on June 7, 2000, LLO-Gas, Inc. filed a Voluntary 27. Petition under Chapter 11 of the Bankruptcy Code in the 30. 31 DISCOVERY INVESTMENTS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998 NOTE 9. MUTUAL RESCISSION AGREEMENT AND MUTUAL RELEASE (CONTINUED) United States Bankruptcy Court, Central District of California, San Fernando Valley Division, case number SV 00- 15398-AG. Said Chapter 11 Bankruptcy is currently pending and effects LLO-Gas, Inc. Predicated upon the differences of matters of fact and matter of law, the parties entered into a Mutual Rescission Agreement and Mutual Release. The Mutual Rescission Agreement and Mutual Release provides, inter alia, that the Company consents and agrees to rescind that certain Plan and Agreement of Reorganization with John Castellucci consenting and agreeing to the rescission. The parties mutually agreed, pursuant to said Mutual Rescission Agreement and Mutual Release to forgo all rights and benefits provided to each other under the Plan and Agreement of Reorganization, as consideration for the rescission, ab initio, of the closing described therein. 31. 32 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. On January 27, 2001, Barry L. Friedman, 1582 Tulita Drive, Las Vegas, Nevada 89127, the principal accountant which had previously been engaged to audit registrant's financial statements, died. Kyle Tingle, CPA, P.O. Box 50141, Henderson, Nevada 89016 has been engaged to audit registrant's financial statements for the fiscal year ended December 31, 2001. The Company does not believe that there will be any disagreements with the findings of Barry L. Friedman. Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act. The members of the Board of Directors of the Company serve until the next annual meeting of the stockholders, or until their successors have been elected. The officers serve at the pleasure of the Board of Directors. Information as to the directors and executive officers of the Company is as follows: Name Ages Position Kimberly Lynn Jack 32 President/Director 1916 East 50th Street Wichita, Kansas 67216 Scott A. Jack 35 Secretary/Treasurer/ 1916 East 50th South Director Wichita, Kansas 67216 Debra S. Hackney 41 Director 5262 S. Madison Wichita, Kansas 67216 The principal occupation and business experience during the last five years for each of the present directors and executive officers of the Company are as follows: Kimberly Lynn Jack, age 32, has been a shareholder of the Company since 1996 and has been its President and a director of the of the Company since 1999 except for the period of time from December 20, 1999 to July 28, 2000. From 1993 to 1997. she was a student and homemaker. From 1997 to the present, she has been a parent-involvement worker for the Wichita, Kansas United School District at Lawrence Elementary, with responsibilities for the identification and resolution of troubled children syndrome and provides counseling to both the parent and child. 32. 33 Scott A. Jack, age 35, has been a shareholder of the Company since 1996 and has been Secretary/Treasurer and a director of the Company since 1999 except for the period of time from December 20, 1999 to July 28, 2000. From 1992 to 1997, he was the owner of Kansas Building Supply, a company which designed and installed, primarily, floor covering. From 1997 to the present, he has been employed by Star Lumber Company as a senior floor covering specialist. Debra S. Hackney, age 41, has been a shareholder of the Company since 1996 and has been a director of the Company since 1999 except for the period of time from December 20, 1999 to July 28, 2000. From 1989 to the present, she has been the facility coordinator and senior construction specialist for Pizza Hut, Inc., with responsibilities involving construction documentation and payments for the company's expansion and dotting program. The officers and directors may be deemed parents and promoters of the Company as those terms are defined by the Securities Act of 1933, as amended. All directors hold office until the next annual stockholders' meeting or until their death, resignation, retirement, removal, disqualification, or until their successors have been elected and qualified. Officers of the Company serve at the will of the Board of Directors. There are no agreements or understandings for any officer or director of the Company to resign at the request of another person and none of the officers or directors are acting on behalf of or will act at the direction of any other person. The Company has checked the box provided on the cover page of this Form to indicate that there is no disclosure in this form of reporting person delinquencies in response to Item 405 of Regulation S-B. Item 10. Executive Compensation. None of the Company's officers and/or directors receive any compensation for their respective services rendered unto 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 this report statement, the Company has no funds available to pay directors. Further, none of the directors are accruing any compensation pursuant to any agreement with the Company. It is possible that, after the Company successfully consummates a merger or acquisition with an unaffiliated entity, 33. 34 that entity may desire to employ or retain one or a number of members of the Company's management for the purposes of providing services to the surviving entity, or otherwise provide other compensation to such persons. However, the Company has adopted a policy whereby the offer of any post-transaction remuneration to members of management will not be a consideration in the Company's decision to undertake any proposed transaction. Each member of management has agreed to disclose to the Company's Board of Directors any discussions concerning possible compensation to be paid to them by any entity which proposes to undertake a transaction with the Company and further, to abstain from voting on such transaction. Therefore, as a practical matter, if each member of the Company's Board of Directors is offered compensation in any form from any prospective merger or acquisition candidate, the proposed transaction will not be approved by the Company's Board of Directors as a result of the inability of the Board to affirmatively approve such a transaction. 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 this registration statement, but is expected to be comparable to consideration normally paid in like transactions. No member of management 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. 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. Item 11. Security Ownership of Certain Beneficial Owners and Management. (a) Security Ownership of Certain Beneficial Owners. The following table sets forth the security and beneficial ownership for each class of equity securities of the Company for any person who is known to be the beneficial owner of more than five percent of the Company. 34. 35
Name and Amount and Address of Nature of Beneficial Beneficial Percent Title of Class Owner Owner of Class - -------------------------------------------------------------------- Common Kimberly Lynn Jack 550,000 26.2% 1916 East 50th Street Wichita, Kansas 67216 Common Scott A. Jack 550,000 26.2% 1916 East 50th South Wichita, Kansas 67216 Common Debra S. Hackney 340,000 16.2% 5262 S. Madison Wichita, Kansas 67216 Common John Castellucci (1) 0% 23805 Stewart Ranch Road Suite 265 Malibu, California 90265 Common All Officers and 1,440,000 68.6% Directors as a Group (three [3] individuals)
- ---------------- (1) John Castellucci entered into a Pledge Agreement with M. Mehdi Mostaedi on or about December 16, 1999, subject to the closing of the Plan and Agreement of Reorganization on December 20, 1999, wherein John Castellucci collaterally pledged 2,000,000 shares of his common stock of the Company to M. Mehdi Mostaedi. The Mutual Rescission Agreement and Release Agreement is subject to the rights, if any, that M. Mehdi Mostaedi may have under said collateral pledge agreement. Upon full performance by John Castellucci and LLO-Gas, Inc., or either, said shares of common stock will be retired and restored to the status of authorized and unissued shares. The pledge holder under the collateral pledge agreement holds as collateral certain shares of LLO-Gas, Inc. as additional or substituted collateral, under the collateral pledge agreement. The Company currently does not treat the 2,000,000 shares as issued and outstanding. 35. 36 (b) Security Ownership of Management. The following table sets forth the ownership for each class of equity securities of the Company owned beneficially and of record by all directors and officers of the Company.
Name and Amount and Address of Nature of Beneficial Beneficial Percent Title of Class Owner Owner of Class - ------------------------------------------------------------------- Common Kimberly Lynn Jack 550,000 26.2% 1916 East 50th Street Wichita, Kansas 67216 Common Scott A. Jack 550,000 26.2% 1916 East 50th South Wichita, Kansas 67216 Common Debra S. Hackney 340,000 16.2% 5262 S. Madison Wichita, Kansas 67216 Common All Officers and 1,440,000 68.6% Directors as a Group (three [3] individuals)
Item 12. Certain Relationships and Related Transactions. There have been no related party transactions, or any other transactions or relationships required to be disclosed pursuant to Item 404 of Regulation S-B. Kimberly Lynn Jack has agreed to provide the necessary funds, without interest, for the Company to comply with the 1934 Act provided that she is an officer and director of the Company when the obligation is incurred. All advances will be interest- free. 36. 37 Item 13. Exhibits and Reports on Form 8-K. EXHIBIT INDEX Exhibit Number Description - -------------- ----------- 2.1 Plan and Agreement of Reorganization dated December 10, 1999 by and between the Company, LLO-Gas, Inc., and John Castellucci (filed as an exhibit to the Company's Current Report on Form 8-K, filed with the Securities and Exchange Commission filed on December 10, 1999). 3.1 Articles of Incorporation (filed as an exhibit to the Company's General Form for Registration of Securities of Small Business Issuers on Form 10-SB, filed with the Securities and Exchange Commission on May 24, 1999). 3.2 Bylaws (filed as an exhibit to the Company's General Form for Registration of Securities of Small Business Issuers on Form 10-SB, filed with the Securities and Exchange Commission on May 24, 1999). 4.1 Form of Stock Certificate (filed as an exhibit to the Company's Annual Report on Form 10-KSB, filed with the Securities and Exchange Commission on April 14, 2000). 23.1 Consent of Kyle Tingle, Certified Public Accountant 99.1 Lock-Up Agreement dated May 3, 1999 by Kimberly Lynn Jack (filed as an exhibit to the Company's General Form for Registration of Securities of Small Business Issuers on Form 10-SB, filed with the Securities and Exchange Commission on May 24, 1999). 99.2 Lock-Up Agreement dated May 3, 1999 by Jack A. Scott (filed as an exhibit to the Company's General Form for Registration of Securities of Small Business Issuers on Form 10-SB, filed with the Securities and Exchange Commission on May 24, 1999). 37. 38 99.3 Lock-Up Agreement dated May 3, 1999 by Debra J. Hackney (filed as an exhibit to the Company's General Form for Registration of Securities of Small Business Issuers on Form 10-SB, filed with the Securities and Exchange Commission on May 24, 1999). The following reports and the following Form 8-Ks are incorporated herein by reference: 1. Form 8-K filed January 4, 2000. 2. Form 8-K filed April 11, 2000; 3. Form 8-K filed April 18, 2000; 4. Form 8-K filed April 23, 2000; 5. Form 10QSB filed August 21, 2000; and 6. Form 10QSB filed November 9, 2000. SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Company has duly caused this registration statement to be signed on its behalf by the under signed, thereunto duly authorized. Date: June 6, 2001 DISCOVERY INVESTMENTS, INC. By: /s/ Kimberly Lynn Jack ------------------------------- Kimberly Lynn Jack President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: June 6, 2001 DISCOVERY INVESTMENTS, INC. By: /s/ Kimberly Lynn Jack ----------------------------- Kimberly Lynn Jack President/Director By: /s/ Scott A. Jack ----------------------------- Scott A. Jack Secretary/Treasurer/Director By: /s/ Debra S. Hackney ----------------------------- Debra S. Hackney Director 38. EX-23.1 2 v73264ex23-1.txt EXHIBIT 23.1 1 EXHIBIT 23.1 KYLE TINGLE, CPA P.O. Box 50141 Henderson, Nevada 89016 (702) 434-8452 (702) 436-4218 fax To Whom It May Concern: June 5, 2001 The firm of Kyle Tingle, Certified Public Accountant consents to the inclusion of his report of May 16, 2001, on the Financial Statements of Discovery Investments, Inc., as at December 31, 2000, in any filings that are necessary now or in the future with the U.S. Securities and Exchange Commission. Very truly yours, /s/ Kyle Tingle Kyle Tingle Certified Public Accountant -----END PRIVACY-ENHANCED MESSAGE-----