-----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, Jq+cT8P8ugCPCYAKExeyw+YAXniSGkZ2TEO4wRrtqjBhebTcJgYteyjT9ERDFDOM sgKTrSiVPOLiujv36spJfQ== 0001019687-04-002636.txt : 20041122 0001019687-04-002636.hdr.sgml : 20041122 20041122162414 ACCESSION NUMBER: 0001019687-04-002636 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041122 DATE AS OF CHANGE: 20041122 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: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-26175 FILM NUMBER: 041161033 BUSINESS ADDRESS: STREET 1: 12405 SO. VENICE BLVD. STREET 2: UNIT 223 CITY: LOS ANGELES STATE: CA ZIP: 90066 BUSINESS PHONE: 866-351-5099 MAIL ADDRESS: STREET 1: 12405 SO. VENICE BLVD. STREET 2: UNIT 223 CITY: LOS ANGELES STATE: CA ZIP: 90066 10QSB 1 discovery_10q-093004.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-QSB ------------------------ (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2004 ------------------- -OR- [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from __________to __________. Commission file number 000-26175 --------- DISCOVERY INVESTMENTS INC. -------------------------- (Exact name of small business issuer as specified in its charter) NEVADA 88-0409151 ------ ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 5/F, GUOWEI BUILDING, 73 XIANLIE MIDDLE ROAD GUANGZHOU, GUANGDONG, THE PEOPLE'S REPUBLIC OF CHINA ---------------------------------------------------- (Address of principal executive offices) 86-20-8432-7909 --------------- (Issuer's telephone number) 6767 W. TROPICANA AVE., SUITE 207, LAS VEGAS, NV 89103 ------------------------------------------------------ (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes[X] No [ ] Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [X] No [ ] The number of shares of common stock outstanding as of November 19, 2004 is 99,999,997. Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X] DISCOVERY INVESTMENTS, INC. INDEX PAGE NUMBER ----------- PART I. FINANCIAL INFORMATION 3 Item 1. Financial Statements 3 Consolidated Balance Sheet as of September 30, 2004 (unaudited) 3 Consolidated Statements of Income for the three months and nine months ended September 30, 2004 and 2003 and from September 10, 1996 (inception) through September 30, 2004 (unaudited) 4 Consolidated Statements of Cash Flows for the nine months ended September 30, 2004 and 2003, and from September 10, 1996 (inception) through September 30, 2004 (unaudited) 5 Notes to Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis or Plan of Operation 12 Item 3. Controls and Procedures 14 PART II. OTHER INFORMATION 15 Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 16 2 PART I. - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DISCOVERY INVESTMENTS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2004 (UNAUDITED) Sept. 30, 2004 Dec. 31, 2003 -------------- ------------- ASSETS CURRENT ASSETS Cash $ 0 $ 0 Goodwill $ 0 $ 0 Assets of discontinued operations $ 0 $ 0 Total current assets $ 0 $ 0 ---------- ---------- TOTAL ASSETS $ 0 $ 0 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Bank overdraft $ 0 $ 0 Accounts payable $ 0 $ 54,847 Officers' advances $ 49,050 $ 63,693 Liabilities of discontinued operations $ 0 $ 0 ---------- ---------- Total current liabilities $ 49,050 $ 118,540 ---------- ---------- TOTAL LIABILITIES $ 49,050 $ 118,540 ---------- ---------- STOCKHOLDERS' EQUITY *30,259,007 shares at September 30, 2004 $ 228,040 $ 24,500 Retained Earnings $(277,090) $(143,040) TOTAL STOCKHOLDERS' EQUITY $ (49,050) $(118,540) ---------- ---------- Total liabilities and stockholders' equity $ 0 $ 0 ========== ========== See Accompanying Notes to Consolidated Financial Statements. 3 DISCOVERY INVESTMENTS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF INCOME SEPTEMBER 30, 2004 (UNAUDITED)
Sept 10, 1996 Three Months Ended Nine Months Ended (Inception) to Sept. 30, Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2004 2003 2004 2003 2004 ------------- ------------- ------------- ------------- ------------- Revenues $ 0 $ 0 $ 0 $ 0 $ 0 Cost of revenue $ 0 $ 0 $ 0 $ 0 $ 0 ------------- ------------- ------------- ------------- ------------- Gross profit $ 0 $ 0 $ 0 $ 0 $ 0 General, selling and administrative expenses $ 8,524 $ 15,000 $ 144,913 $ 65,000 1,970,151 ------------- ------------- ------------- ------------- ------------- Net operating income (loss) $ (8,524) $ (15,000) $ (144,913) $ (65,000) $ (1,970,151) ------------- ------------- ------------- ------------- ------------- Non operating income (expense) $ (8,524) $ (15,000) $ 0 $ 0 $ (284,753) Net (Loss) before extraordinary item $ (8,524) $ (15,000) $ (144,913) $ (65,000) $ (2,254,904) ------------- ------------- ------------- ------------- ------------- Reorganization items $ 0 $ 0 $ 0 $ 0 $ (30,858) Net (Loss) from continuing operations $ 0 $ (15,000) $ (144,913) $ (65,000) $ (2,285,762) ------------- ------------- ------------- ------------- ------------- Extraordinary gain on pre-petition debt discharge $ 0 $ 0 $ (144,913) $ (65,000) $ (300,445) ------------- ------------- ------------- ------------- ------------- Gain (Loss) from discontinued operations $ 0 $ 0 $ 0 $ 2,539,282 $ (1,865,677) ------------- ------------- ------------- ------------- ------------- Net income (loss) $ (8,524) $ (15,000) $ (144,913) $ 2,474,282 $ (2,166,122) ------------- ------------- ------------- ------------- ------------- Net income (loss) per share basic and diluted (Note 2) $ 0 $ 0 $ (0.006) $ 0.10 $ (0.2356) ============= ============= ============= ============= ============= Average number of shares of common stock outstanding 30,259,007 26,888,207 25,503,966 24,499,583 8,916,401 ============= ============= ============= ============= =============
See Accompanying Notes to Consolidated Financial Statements. 4 DISCOVERY INVESTMENTS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS SEPTEMBER 30, 2004 (UNAUDITED) Nine Months Ended September 10, 1996 (inception) to Sept. 30, 2004 Sept. 30, 2003 Sept. 30, 2004 Cash Flows From Operating Activities Net income (loss) $ (144,913) $ (65,000) $ (276,889) Impairment of Intangible Asset 0 0 4,800 Extraordinary gain on pre-petition debt discharge 0 0 (1,985,347) Professional fees 0 0 65,858 Changes in assets and liabilities Increase in accounts payable and accrued expenses (pre-petition) (54,847) 35,000 421,913 Increase in accounts payable and accrued expenses (post-petition) 0 0 4,909 Increase in officer advances (pre-petition) 0 30,000 17,576 Increase in officer advances (post-petition) (49,050) 0 13,970 ------------ ------------ ------------ Net cash provided by (used in) operating activities before reorganization activities (248,810) 0 1,735,010 ------------ ------------ ------------ (Decrease) in Cash Resulting from Reorganization Items: Pre-petition claims paid pursuant to plan 0 0 (19,142) Professional fees paid 0 0 (65,858) ------------ ------------ ------------ Net cash (used in) reorganization activities 0 0 0 ------------ ------------ ------------ Net cash (used in) operating activities 0 0 (1,650,010) Cash Flows From Investing Activities 248,810 0 0 Cash Flows From Financing Activities Issuance of common stock 0 0 50,010 Proceeds from notes payable 0 0 1,600,000 ------------ ------------ ------------ Net cash provided by financing activities 248,810 0 1,650,010 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 0 0 0 Cash and cash equivalents, beginning of period 0 0 0 Cash and equivalents, end of period 0 0 0 Supplemental Schedule of Non-Cash Investing and Financing Activities Discharge of short term notes payable 0 0 0 Discharge of long term notes payable 0 0 Issuance of shares on acquisition of Bycom Media 4,800 4,800 4,800 Issuance of shares on acquisition of Bycom Media 0 14,000 0
See Accompanying Notes to Consolidated Financial Statements. 5 DISCOVERY INVESTMENTS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2004 (UNDAUDITED) 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. As of September 30,2004, the Company had no operations and, in accordance with Statement of Financial Accounting Standard (SFAS) No. 7, "ACCOUNTING AND REPORTING BY DEVELOPMENT STAGE ENTERPRISES," was considered a development stage company. On August 9, 2001 ("Petition Date"), the Company filed a voluntary petition for Chapter 11 protection pursuant to the United States Bankruptcy Code. As of that date, The United States Bankruptcy Court for the District of Nevada ("Bankruptcy Court") assumed jurisdiction over the assets of the Company. On September 24, 2001, the Bankruptcy Court confirmed the Disclosure Statement and Plan of Reorganization (the "Plan") submitted by the Debtors. On September 24, 2001 the Plan became effective. A summary of the Company's significant accounting policies is as ---------------------------------------------------------------- follows: -------- Basis of Presentation --------------------- The Company implemented guidance provided by the American Institute of Certified Public Accountants Statement of Position 90-7 "Financial Reporting By Entities in Reorganization Under the Bankruptcy Code" ("AICPA SOP 90-7") as of September 30, 2001. Accordingly, the Company's financial statements for the periods prior to September 30, 2001 are not comparable to financial statements presented on or subsequent to September 30, 2001. These consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Bycom Media Inc., as of September 30, 2004. 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 Consolidated 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 September 30, 2004. 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 SOP 98-5, there has been little to no effect on the Company's consolidated financial statements. 6 DISCOVERY INVESTMENTS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2004 (UNDAUDITED) Year end -------- The Company originally selected March 31 for its fiscal year end. In 2000, the Company changed its fiscal year end to December 31. NOTE 2. RESTRUCTURING ITEMS Pursuant to the Disclosure Statement and Plan of Reorganization becoming effective September 24, 2001, all general unsecured claims were discharged in exchange for cash payments totaling $50,000. An impaired interest holder-shareholder paid $30,858 for the Chapter 11 administrative claims. The remaining $19,142 was distributed to the Class One impaired creditors on a pro-rata basis, along with a pro-rata share of unregistered common stock, not to exceed 100,000 shares, of the Debtor. The discharge of debt was reflected in the December 31, 2001 financial statements. The Company's post-reorganization balance sheet as of September 24, 2001 became the opening balance sheet for the reorganized Company, as reflected in the following table: Adjustments to Record the Plan or Reorganization Balance Sheet Debt Discharge Balance Sheet ------------- -------------- ------------- ASSETS $ 0 $ 0 $ 0 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 19,182 $ 30,858 $ 50,000 Liabilities Subject to Compromise Short term notes payable $ 100,000 $ (100,000) $ 0 Accounts payable 82,160 (82,160) 0 Interest payable 284,753 (284,753) 0 Officer's advances 17,576 (17,576) 0 Notes payable 1,500,000 (1,500,000) 0 Total Liabilities Subject to Compromise $ 1,984,489 $(1,984,489) $ 0 Total Liabilities $ 2,003,671 $(1,953,631) $ (50,000) Stockholders' Equity Common stock $ 2,100 $ 0 $ 2,100 Accumulated Deficit (2,005,771) (1,953,631) (52,100) Total Stockholders' Equity $(2,003,671) $(1,953,631) $ (50,000) Total Liabilities and Stockholders' Equity $ 0 $ 0 $ 0 The following proforma statements of operations reflect the results of operations as if the reorganization had been effective December 31, 2000.
7 DISCOVERY INVESTMENTS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2004 (UNDAUDITED) PRO FORMA STATEMENTS OF INCOME For the Year Ended December 31, 2001 As Reported Adjustments Proforma ----------- ----------- -------- Revenues $ 0 $ 0 $ 0 Cost of revenue 0 0 0 Gross profit $ 0 $ 0 $ 0 General, selling and administrative expenses 11,579 0 11,579 Operating Loss $ (11,579) $ 0 $ (11,579) Non-operating income (expense) Interest expense (98,753) 0 (98,753) (Loss) before reorganization items and extraordinary item $ (110,332) $ 0 $ (110,332) Reorganization items (Note 2) (30,858) 30,858(1) 0 (Loss) before extraordinary item $ (141,190) $ 30,858 $ (110,332) Extraordinary gain on pre-petition debt discharge (Note 2) $ 1,985,347 $(1,985,347)(2) $ 0 Net income (loss) $ 1,844,157 $(1,954,489) $ (110,332) Net (loss) per share, Basic and diluted (Note 2) $ (0.87) $ (0.93) $ (0.05) (1) Elimination of effect of reorganization items (2) Elimination of the gain on pre-petition debt discharge.
NOTE 3. REORGANIZATION ITEMS Reorganization Items consisted of the following for the period ended September 30, 2004 and years ended December 31, 2003 and 2002: September 30, 2004 December 31, 2003 December 31, 2002 ------------------ ----------------- ----------------- Professional Fees $35,000 $80,000 $80,000
NOTE 4. ACQUISITION OF BYCOM MEDIA INC. On April 29, 2002, the Company entered into a Plan and Agreement of Reorganization ("the Plan") with Bycom Media, Inc., an Ontario, Canada corporation ("Bycom"). Pursuant to the Plan, the Company acquired all the outstanding shares of Bycom for 4,800,000 shares of Company stock. Bycom became a wholly owned subsidiary of the Company. The closing of the purchase of Bycom occurred on May 5, 2002. Bycom was engaged in multimedia applications for internet-based businesses. Bycom has since discontinued all operations. The Company recorded the excess of the purchase price over the net book value of Bycom as goodwill on consolidation. 8 DISCOVERY INVESTMENTS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2004 (UNDAUDITED) NOTE 5. STOCKHOLDERS' EQUITY Common stock ------------ The authorized common stock of the Company consists of 100,000,000 shares with par value of $0.001. As of September 30, 2004, there were 30,259,007 shares of common stock issued and outstanding. As of January 1, 1999 the authorized common stock of the Company consisted of 25,000 shares. 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. As part of the reorganization explained in Note 2, the Company issued 99,881 shares of stock to the Class One impaired creditors on November 29, 2001. On April 25, 2002, the sole director of the Company adopted a resolution that resulted in a stock dividend. For stockholders of record on May 5, 2002, the Company will issue 2.5 shares for each shares owned. In lieu of issuing a fractional share certificate, the Company shall round up to a full share. On September 4, 2002 14,000,000 shares were issued for the acquisition of Cavio Corportion. In the second quarter of 2003 the Company unwound the transaction and cancelled the 14,000,000 shares. This resulted in approximately 24,499,600 shares outstanding as of June 30, 2003. On April 29, 2002, the Company issued 4,800,000 pursuant to a Plan of Reorganization whereby it acquired all of the outstanding shares of Bycom Media Inc. therefore (Note 4). On July 10, 2002, the State of Nevada approved the Company's amended Articles of Incorporation, which increased its capitalization from 25,000,000 common shares to 100,000,000 common shares. The Company currently does not have any authorized preferred stock, but see Note 10 regarding the Company's plans to amend its articles of incorporation. 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 for the nine months ended September 30, 2004 and 2003 was 25,503,966, and 24,499,583, respectively, for the years ended December 31, 2003 and 2002, 24,499,583 and 23,540,670, respectively, and 8,916,401 since inception. As of September 30, 2004 and December 31, 2003 and 2002 and since inception, the Company had no dilutive potential common shares. NOTE 6. INCOME TAXES There is no provision for income taxes for the period ended June 30, 2004, 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 September 30, 2004 is as follows: Net operating loss carry forward $ 3,634 Valuation allowance $(3,634) Net deferred tax asset $ 0 9 DISCOVERY INVESTMENTS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2004 (UNDAUDITED) The net federal operating loss carry forward will expire in 2020. This carry forward may be limited upon the consummation of a business combination under IRC Section 381. For financial reporting purposes, the Company reported an extraordinary gain in the amount of $1,984,489 resulting from the cancellation of indebtedness that occurred from the bankruptcy discharge on the effective date. Pursuant to Section 1087 of the Internal Revenue Code, this extraordinary gain is excluded from income taxation and certain tax attributes of the Company are eliminated or reduced, up to the amount of such income excluded from taxation. As a result, the Company's net operating loss carryforwards were reduced by the $1,984,489 NOTE 7. GOING CONCERN The Company's consolidated 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. Until the Company has sufficient operations, the officers and directors have committed to advancing the operating costs of the company. NOTE 8. RELATED PARTY TRANSACTIONS The Company neither owns nor leases any real or personal property. The resident agent 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 9. WARRANTS AND OPTIONS There are no warrants or options outstanding to acquire any additional shares of common stock of the Company. NOTE 10. SUBSEQUENT EVENTS On October 15, 2004, Evergreen Asset Group Limited, an International Business Company organized to do business under the laws of the British Virgin Islands ("Evergreen"), completed the closing of a reverse acquisition of the Company pursuant to which the Company acquired all of the outstanding shares of Evergreen capital stock in exchange for a controlling interest in the Company (the "Reorganization"). Pursuant to the Securities Purchase Agreement and Plan of Reorganization dated September 9, 2004, as amended by that certain Amendment No.1 to Securities Purchase Agreement and Plan of Reorganization dated October 8, 2004, by and among the Company, Evergreen and the shareholders of Evergreen (the "Purchase Agreement"), the Company issued an aggregate of 83,500,000 shares of its common stock (representing 83.5% of the Company's capital stock outstanding) in exchange for all of the issued and outstanding shares of Evergreen capital stock transferred to the Company by each Evergreen shareholder at the closing. In addition, certain stockholders agreed to cancel 13,759,010 shares of common stock of the Company held by them. As a result of the Reorganization, Evergreen became a wholly-owned subsidiary of the Company. 10 DISCOVERY INVESTMENTS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2004 (UNDAUDITED) On November 12, 2004, the Company filed a preliminary information statement with the SEC in connection with resolutions by adopted by the board of directors of the Company approving: (a) an amendment to the Company's articles of incorporation to: (i) change the Company's name to "China Evergreen Environmental Corporation"; (ii) increase the authorized number of shares of common stock to 200,000,000; (iii) authorize 50,000,000 shares of preferred stock, whereby the board of directors of the Company will be authorized to establish, from the authorized shares of preferred stock, one or more classes or series of shares, to designate each such class and series, and to fix the rights and preferences of each such class and series; (iv) delete from the Company's articles of incorporation the first paragraph of former Article XIX regarding indemnification of directors and officers, and (v) update the address for the Company's agent for service of process in Nevada and remove provisions not otherwise required to be located in our articles of incorporation under Nevada law; and (b) amendments to the Company's bylaws to: (i) change Section 3 of Article II regarding the number of authorized directors; and (ii) delete a portion of Section 2 of Article VIII regarding the board of director's authority to change the authorized number of directors. Pursuant to regulations promulgated under the Securities Exchange Act of 1934, as amended, the amended and restated articles of incorporation and the amendments to the bylaws may not be effected until at least 20 calendar days after the information statement is sent or given to the Company's stockholders. The Company anticipates that the amended and restated articles of incorporation will become effective on or after December 13, 2004 upon filing with the Nevada Secretary of State. The Company anticipates that the amendments to the Company's bylaws will become effective on December 13, 2004. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. GENERAL The discussion contained herein contains "forward-looking statements" that involve risk and uncertainties. These statements may be identified by the use of terminology such as "believes," "expects," "may," "should" or anticipates" or expressing this terminology negatively or similar expressions or by discussions of strategy. The cautionary statements made in this Form 10QSB should be read as being applicable to all related forward-looking statements wherever they appear in this Form 10QSB. The Company's actual results could differ materially from those discussed in this report. OVERVIEW As of September 30, 2004, the Company had no assets or operations and could be defined as a "shell" company whose sole purpose was to locate and consummate a merger or acquisition with another public entity or a private entity. On October 15, 2004, Evergreen Asset Group Limited, an International Business Company organized to do business under the laws of the British Virgin Islands, completed the closing of a reverse acquisition of the Company pursuant to which the Company acquired all of the outstanding shares of Evergreen capital stock in exchange for a controlling interest in the Company. Pursuant to the Securities Purchase Agreement and Plan of Reorganization dated September 9, 2004, as amended by that certain Amendment No.1 to Securities Purchase Agreement and Plan of Reorganization dated October 8, 2004, by and among the Company, Evergreen and the shareholders of Evergreen, the Company issued an aggregate of 83,500,000 shares of its common stock (representing 83.5% of the Company's capital stock outstanding) in exchange for all of the issued and outstanding shares of Evergreen capital stock transferred to the Company by the Evergreen shareholders at the closing. In addition, certain stockholders agreed to cancel 13,759,010 shares of common stock held by them. As a result of the Reorganization, Evergreen became a wholly-owned subsidiary of the Company. On November 12, 2004, the Company filed a preliminary information statement with the SEC in connection with resolutions by adopted by the new board of directors of the Company approving: (a) an amendment to the Company's articles of incorporation to: (i) change the Company's name to "China Evergreen Environmental Corporation"; (ii) increase the authorized number of shares of common stock to 200,000,000; (iii) authorize 50,000,000 shares of preferred stock, whereby the board of directors of the Company will be authorized to establish, from the authorized shares of preferred stock, one or more classes or series of shares, to designate each such class and series, and to fix the rights and preferences of each such class and series; (iv) delete from the Company's articles of incorporation the first paragraph of former Article XIX regarding indemnification of directors and officers, and (v) update the address for the Company's agent for service of process in Nevada and remove provisions not otherwise required to be located in our articles of incorporation under Nevada law; and (b) amendments to the Company's bylaws to: (i) change Section 3 of Article II regarding the number of authorized directors; and (ii) delete a portion of Section 2 of Article VIII regarding the board of director's authority to change the authorized number of directors. Pursuant to regulations promulgated under the Securities Exchange Act of 1934, as amended, the amended and restated articles of incorporation and the amendments to the bylaws may not be effected until at least 20 calendar days after the information statement is sent or given to the Company's stockholders. The Company anticipates that the amended and restated articles of incorporation will become effective on or after December 13, 2004 upon filing with the Nevada Secretary of State. The Company anticipates that the amendments to the Company's bylaws will become effective on December 13, 2004. 12 PLAN OF OPERATION As discussed above, Evergreen became a subsidiary of the Company in connection with the reverse acquisition. Evergreen was established in May 2004 as an investment holding company for waste water treatment businesses in the People's Republic of China. Evergreen, through its four majority-owned subsidiaries, Guangdong Xinxinmei Environmental Protection Co., Limited, Beijing Haotai Shiyuan Water Purification Co. Limited, Shangdong Haiyang Shenshi Environmental Protection Co. Limited and Xianyang Beicheng Water Purification Co. Limited, provides waste water turn-key engineering, equipment and chemical trading. In addition, Evergreen has invested in, manages and operates five water treatment facilities through a "BOT arrangement" (Build, Operate and Transfer) with the PRC government. Prior to the reverse acquisition described above, Evergreen raised $4.2 million from sale of a waste water facility. The proceeds from this sale are expected to provide for the working capital needs of the Company. Evergreen maintains an investment program in research and development to improve existing technology and develop new technology that apply to its operations in the waste water treatment business. The Company anticipates continuing its commitment to this research and development investment in the near future. The Company also remains alert to opportunities to profitably divest rather than continue to operate BOT facilities. Divestiture of BOT facilities is an important element of the Company's financing strategy and provides opportunities for returns on investments. The Company has no plan to change the number of employees during the next 12 months. The Company expects to continue to grow by establishing research and development alliances with a number of research institutions in the People's Republic of China to jointly develop new waste water technologies. The Company also plans to subcontract field work to third party contractors. ACCOUNTING FOR GOOD WILL AND OTHER INTANGIBLE ASSETS. In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards "SFAS" No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting, and broadens the criteria for recording intangible assets separate from goodwill. Recorded goodwill and intangibles will be evaluated against these new criteria and may result in certain intangibles being subsumed into goodwill, or alternatively, amounts initially recorded as goodwill may be separately identified an recognized apart form goodwill. SFAS No. 142 requires the use of a non-amortization approach to account for purchased goodwill and certain intangibles. Under a non-amortization approach, goodwill and certain intangibles is more than its fair value. Goodwill is the excess of the acquisition costs of the acquired entity over the fair value of the identifiable net assets acquired. The Company is required to test goodwill and intangible assets that are determined to have an indefinite life for impairments at least annually. The provisions of SFAS No. 142 require the completion of an annual impairment test with any impairments recognized in current earnings. The provisions of SFAS No. 141 and SFAS No. 142 may be applicable to the reverse acquisition of the Company by Evergreen discussed above. The Company has been informed that the transaction with Evergreen will be accounted for as a reverse acquisition with the Company being the surviving registrant. As a result, Evergreen's shareholders will exercise control over the Company. The transaction will be deemed to be a capital transaction where the Company and Bycom are treated as a non-business entity. Therefore, the accounting for the business combination is identical to that resulting from a reverse merger, except no goodwill or other intangible assets will be recorded. For accounting purposes, Evergreen will be treated as the accounting acquirer and, accordingly, will be presented as the continuing entity. At the time of the business combination, the transaction between Bycom and the Company may require restatement to reflect the application of SFAS No. 141 and SFAS No. 142. OFF-BALANCE SHEET ARRANGEMENTS The Company does not have any off-balance sheet arrangements. 13 ITEM 3. CONTROLS AND PROCEDURES As discussed above, the management of Evergreen replaced the management of the Company in connection the closing of the reverse acquisition on October 15, 2004. As required by SEC rules, the Company's new management has conducted an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures at the end of the period covered by this report. This evaluation was carried out with the assistance of previous management of the Company. Based on this evaluation, the new principal executive officer and principal financial officer have concluded that the design and operation of our disclosure controls and procedures are effective. There were no changes in the Company's internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 14 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits REGULATION S-B NUMBER EXHIBIT 10.1 Securities Purchase Agreement and Plan of Reorganization dated September 9, 2004, by and between Discovery Investments, Inc., Evergreen Asset Group Limited and the shareholders of Evergreen Asset Group Limited (incorporated by reference to Exhibit 2.1 to Form 8-K filed on October 21, 2004). 10.2 Amendment No. 1 to Securities Purchase Agreement and Plan of Reorganization dated October 8, 2004, by and between Discovery Investments, Inc., Evergreen Asset Group Limited and the shareholders of Evergreen Asset Group Limited (incorporated by reference to Exhibit 2.1 to Form 8-K filed on October 21, 2004). 31.1 Rule 13a-14(a) Certification of Chief Executive Officer dated November 22, 2004 31.2 Rule 13a-14(a) Certification of Chief Financial Officer and Chief Accounting Officer dated November 22, 2004 32 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, dated November 22, 2004. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter for which this report is filed. 15 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DISCOVERY INVESTMENTS, INC. November 22, 2004 By: /s/ Chong Liang Pu ------------------------------ Chong Liang Pu Chief Executive Officer By: /S/ Ren Cai Ding ------------------------------ Ren Cai Ding Chief Financial Officer 16 EX-31.1 2 discovery_10qex31-1.txt EXHIBIT 31.1 CERTIFICATIONS I, Chong Liang Pu, Chief Executive Officer of Discovery Investments, Inc., certify that: 1. I have reviewed this Quarterly Report on Form 10-QSB of Discovery Investments, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) for the small business issuer and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated Subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report; and c) disclosed in this report any changes in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: November 22, 2004 /s/ Chong Liang Pu --------------------------- Chong Liang Pu Chief Executive Officer EX-31.2 3 discovery_10qex31-2.txt EXHIBIT 31.2 CERTIFICATIONS I, Ren Cai Ding, Chief Financial Officer of Discovery Investments, Inc., certify that: 1. I have reviewed this Quarterly Report on Form 10-QSB of Discovery Investments, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated Subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report; and c) disclosed in this report any changes in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: November 22, 2004 /s/ Ren Cai Ding --------------------------- Ren Cai Ding Chief Financial Officer EX-32 4 discovery_10qex-32.txt EXHIBIT 32 CERTIFICATION OF CEO AND CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Discovery Investments, Inc. (the "Company") on Form 10-QSB for the quarter ending September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Chong Liang Pu, as Chief Executive Officer of the Company, and Ren Cai Ding, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge, respectively, that: (1) The report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. November 22, 2004 By: /s/ Chong Liang Pu ---------------------------------- Chong Liang Pu Chief Executive Officer November 22, 2004 By: /S/ Ren Cai Ding ---------------------------------- Ren Cai Ding Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----