-----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, HunVQF86tsBPtLe/AdsFQoWHfTmDo5zE9vPYCMYyIXcoGFqDP94MNqIoqVSQwjSq WrbWKjJRc1LEuhcpknqEeQ== 0001092306-04-000266.txt : 20040414 0001092306-04-000266.hdr.sgml : 20040414 20040414152154 ACCESSION NUMBER: 0001092306-04-000266 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040414 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: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-26175 FILM NUMBER: 04732909 BUSINESS ADDRESS: STREET 1: 6767 W. TROPICANA AVENUE STREET 2: SUITE 207 CITY: LAS VEGAS STATE: NV ZIP: 89103 BUSINESS PHONE: 866-351-5099 MAIL ADDRESS: STREET 1: 12405 SO. VENICE BLVD. STREET 2: UNIT 223 CITY: LOS ANGELES STATE: CA ZIP: 90066 10KSB 1 form10ksb.txt FORM 10-KSB Commission File No. 000-26175 U.S. SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-KSB /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended: December 31, 2003 / / 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/ Check if the registrant is an accelerated filer (as defined in Rule 12b2 of the Securities Exchange Act or 1934). Yes / / No /X/ As of December 31, 2003, there were 27,170,383 shares of the registrant's Common Stock, $.001 par value, outstanding. The aggregate market value of shares of Common Stock held by non-affiliates of the registrant, as of the last business day of registrant's most recent quarter is $3,488.356, and as of April 12, 2004 is $4,019,193. State the registrant's revenues for the December 31, 2003 fiscal year: $-0-. TABLE OF CONTENTS PAGE Item 1. Description of Business. . . . . . . . . . . . . . Item 2. Description of Property. . . . . . . . . . . . . . Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . Item 4. Submission of Matter to Vote of Security Holders . . . . . . . . . . . . . . . Item 5. Market for Common Registrant Equity and Related Stockholder Matter . . . . . . . . . Item 6. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . Item 7. Financial Statements . . . . . . . . . . . . . . . Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . Item 8A. Controls and Procedures . . . . . . . . . . . . . Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act. . . . . . . . . Item 10. Executive Compensation . . . . . . . . . . . . . . Item 11. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . Item 12. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . Item 14. Controls and Procedures. . . . . . . . . . . . . . Item 15. Principal Accountant Fees and Services . . . . . . Signatures . . . . . . . . . . . . . . . . . . . . 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 and was not active until October 26, 1999. On December 10, 1999, the Company entered into a Plan and Agreement of Reorganization with LLO-Gas, Inc. and John Castellucci. On October 26, 1999, LLO-Gas had acquired certain ARCO facilities and a so-called 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, there was a closing under the Plan 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 10, 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 effected LLO-Gas, Inc. and not the Company. On August 10, 2000, the Company entered into a Mutual Rescission Agreement and Mutual Release with John Castellucci which provided, inter alia, that the Company consents and agrees to rescind said Plan with John Castellucci consenting and agreeing to the rescission. The parties mutually agreed to forego all rights and benefits provided to each other thereunder. On August 9, 2001, the Company filed a voluntary petition under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court, District of Nevada, Case Number BK-S-01-18156-RCJ. On September 24, 2001, the Bankruptcy Court confirmed the Disclosure Statement and Plan of Reorganization submitted by the Company and the Company was thereafter released from Bankruptcy. On April 29, 2002, the Company entered into a Plan and Agreement of Reorganization 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 Common Stock. On October 5, 2002, there was a closing under the Plan and Bycom became a wholly owned subsidiary of the Company and there was a change of control. Bycom was engaged in multimedia applications for internet-based business. Utilizing business search tools and databases, Bycom intended to be able to locate and access global business information for a fee, or was to act as an "out-source provider" of information. Bycom is currently inactive. On September 4, 2002, the Company completed a transaction set out in a Plan and Agreement of Reorganization dated June 13, 2002, pursuant to which the Company acquired all of the outstanding shares of Cavio Corporation, a Washington corporation, ("Cavio") in exchange for 14 million share of Common Stock. Due to poor market condition and the Company's inability to seek adequate financing from third parties to properly finance the operations of Cavio, on December 2, 2002 the Company's Board of Directors approved, subject to receiving the approval of a majority of the shareholders, to unwind the acquisition of Cavio in cancellation of the shares of Common Stock issued. On December 2, 2002, the Company unanimously approved the disposition of its interest in Cavio and thereafter received the consent of a majority of the outstanding shares of the Company Common Stock. The Company determined that the effective date for the divestiture to be June 30, 2003. Currently, the Company has no revenues or earnings from operations, with no significant assets or financial resources. Accordingly, the Company will in all likelihood continue to sustain operating expenses without corresponding revenues at least, until the consummation of a new 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 Securities Exchange Act of 1934, as amended ("the 1934 Act") 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 anticipates that the selection of a business opportunity in which to participate may be complex and extremely risky. Due to general economic conditions, rapid technological advances being made in some industries and shortages of available capital, Donald Bell 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 and providing liquidity (subject to restrictions of applicable statutes), for all shareholders. 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 or shareholders of the Company will pay these charges with 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. ACQUISITION OF OPPORTUNITIES In implementing a structure for a particular business acquisition, the Company may acquire stock or assets of an existing business. On the consummation of a transaction, it is possible that the present management and shareholders of the Company will no longer be in control of the Company. In addition, the Company's director 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. 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. 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. 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-KSB (or 10-K, as applicable). The Company has been informed that the Securities and Exchange Commission is considering whether to propose amendments to the Form 8-S and the Form 8-K. The proposed amendments may define the Company as a shell and may expand the definition of a shell company to be broader than a company with no or nominal operations/assets or assets consisting of cash and cash equivalents, the amendments may prohibit the use of a From S-8 (a form used by a corporation to register securities issued to an employee, director, officer, consultant or advisor, under certain circumstances), and may revise the Form 8-K to require a shell company to include current Form 10 or Form 10-SB information, including audited financial statements, in the filing on Form 8-K that the shell company files to report the acquisition of the business opportunity. If the proposed amendments are adopted, the Company will not acquire or merge with any entity which cannot comply with the then applicable rules. 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 employees. For the year ended December 31, 2003, none of the officers and directors anticipates devoting more than ten (10%) percent of his or her time to Company activities. The Company's current President has agreed to allocate a portion of his time to the activities of the Company, without compensation. Item 2. DESCRIPTION OF PROPERTY. The Company presently occupies office space supplied by a shareholder of the Company at 6767 W. Tropicana Avenue, Suite 207, Las Vegas, Nevada 89103. 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. There is no pending or threatened legal proceedings against the Company. Item 4. SUBMISSION OF MATTER TO VOTE OF SECURITY HOLDERS. Except for Company's obtaining of the written consent of the majority of the outstanding shares of Common Stock in connection with the divestiture of Cavio, there have been no matters submitted to the vote of the Company's security holders. On December 2, 2002, the Company obtained said written consent of these owning 25,648,155 shares of Common Stock that represented 66.6% of the issued and outstanding 38,499,583 shares of Common Stock. Item 5. MARKET FOR COMMON COMPANY EQUITY AND RELATED STOCKHOLDER MATTER. (A) MARKET PRICE. The Company's Common Stock is currently traded in the Over the Counter 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 ---- ---- -------- ------- ------ 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 11/30/01 0.505 0.505 0.505 0.505 12/31/01 0.15 0.15 0.15 0.15 01/31/02 0.21 0.21 0.21 0.21 02/28/02 0.55 0.55 0.40 0.40 03/31/02 0.297 0.30 0.297 0.30 04/30/02 0.328 0.30 0.328 0.328 05/31/02 0.61 0.61 0.58 0.61 06/30/02 1.24 1.28 1.24 1.28 07/31/02 1.06 1.06 1.01 1.01 08/31/02 0.69 0.70 0.68 0.70 09/30/02 0.45 0.51 0.45 0.51 10/31/02 0.30 0.35 0.27 0.35 11/30/02 0.13 0.16 0.12 0.16 12/31/02 0.06 0.06 0.05 0.05 01/31/03 0.11 0.11 0.11 0.11 02/28/03 0.081 0.081 0.08 0.08 03/31/03 0.059 0.06 0.059 0.06 04/30/03 0.074 0.075 0.074 0.075 05/31/03 0.068 0.068 0.068 0.068 06/30/03 0.062 0.062 0.062 0.062 07/31/03 0.07 0.07 0.07 0.07 08/31/03 0.083 0.083 0.083 0.083 09/30/03 0.155 0.155 0.11 0.11 10/31/03 0.08 0.10 0.08 0.10 11/30/03 0.119 0.119 0.119 0.119 12/31/03 0.20 0.20 0.20 0.20 01/31/04 0.21 0.235 0.21 0.235 02/29/04 0.32 0.35 0.32 0.35 03/31/04 0.31 0.33 0.31 0.33 On April 12, 2004, the ask for the Common Stock of the Company was $0.53 and the bid for the Common Stock of the Company was $0.48. The last trade was on April 12, 2004 at $0.53. 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 transaction. 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 operating history of at least one year or a market apitalization 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 listing. (B) HOLDERS. As of December 31, 2003, there were forty six (46) active holders of record (including Cede and Co.) of the Company's Common Stock. As of December 31, 2003, the Company issued 2,670,000 in consideration of the cancellation of indebtedness owed by the Company. As of the date hereof and as of December 31, 2003, giving effect to the issuance of the 2,670,000 shares and the cancellation of 14,000,000 shares of Common Stock issued for Cavio, the Company had issued and outstanding 27,170,383 shares. All of the issued and outstanding shares of the Company's Common Stock were issued in accordance with exemption from registration afforded by the Securities Act of 1933, as amended. As of the date hereof, 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 circumstances, 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 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 cash dividends to date and has no plans to do so in the immediate future. Item 6. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OR PLAN OF OPERATION. The following discussion should be read in conjunction with The Company's financial statements and the related notes that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect The Company's plans, estimates and beliefs. The Company's actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this annual report. GENERAL. The Company no longer has an operating business that it can pursue. Accordingly, the Company is seeking to either identify a suitable business opportunity or enter into a suitable business combination. Until it secures a suitable business opportunity or combination, it will operate as a "shell check" company. RESULTS OF OPERATIONS. FISCAL YEAR ENDED DECEMBER 31, 2003 COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 2002. As of December 31, 2003, the Company had no assets as compared to having assets of $467,621 as of December 31, 2002, said assets were of discontinued operations. As of December 31, 2003, the Company had current liabilities of $15,000 as compared to having current liabilities of $68,622, after the elimination of the current liabilities of $2,319,298 applicable to the unwound transaction with Cavio. The Company incurred a net loss of $80,000 from continuing operations for the fiscal year ended December 31, 2003 compared to a net loss of $21,266 for the year end December 31, 2002, after the elimination of the loss applicable to the unwound transaction with Cavio. On the Statement of Income, the net loss for 2003 is $1,771,739, but this figure includes the net loss of continuing operations as well as the loss from discontinued operations of $1,851,739. The net loss from continuing operations is due primarily to costs associated with actively seeking an acquisition of a suitable business opportunity. Due to the continued losses and lack of revenues, there is substantial doubt about the Company's ability to continue as a going concern. The Company had 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. The prior consolidated financial statements included the accounts of the Company and its wholly owned subsidiaries as at December 31, 2002 and for the period from May 5, 2002 to December 31, 2002. In July 2001, the FASB issued 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 and recognized apart from 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 will not be amortized into results of operations, but instead would be reviewed for impairment and written down and charged to results of operations only in the periods in which the recorded value of goodwill and certain intangibles is more than its fair value. During the fourth quarter, the Company performed its annual impairment review for goodwill. As described in Note 5, the Company acquired the shares of stock in Bycom Media, Inc. As of December 31, 2002, the Company had recorded a non-cash charge of $5,520,183 resulting from the acquisition of Bycom Media, Inc. due to the lack of development of any software as was originally expected from this acquisition. In addition, as of December 31, 2002, the Company also recorded a non-cash charge of $11,562,707 from the acquisition of Cavio Corporation. As described in Note 11, the Company has disposed of Cavio Corporation and it is recorded as a discontinued operation. LACK OF REVENUES. At this time, the Company's ability to generate any revenues continues to be uncertain. The auditor's report on the December 31, 2003 financial statements contains an additional explanatory paragraph, which identifies issues that raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustment that might result from the outcome of this uncertainty. EXPENSES. The Company anticipates general administrative and operations expenses for the year ended December 31, 2004 to be approximately $75,000. The Company will be dependent upon loans or proceeds from the sale of its securities for the near future. Once the Company locates a suitable business opportunity or business combination, it may seek to obtain equity and/or debt financing from third parties to facilitate and complete the acquisition of such a business opportunity or a suitable business combination. The Company may also issue shares of Common Stock as consideration for the acquisition of a suitable business opportunity or a suitable business combination. LIQUIDITY AND CAPITAL RESOURCES. The Company's financial statements have been prepared on the basis of a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has suffered recurring losses and has not generated profitable operations since inception. The continuance of the Company as a going concern is dependent on obtaining financing from third parties. The Company is currently relying on its existing cash reserves to fund its continuing operating expenses and to fund the identification and evaluation of a suitable business opportunity or business combination. As of December 31, 2003 and December 31, 2002, its cash and cash equivalent balances were $0 and $0 respectively. The Company anticipates that it will require additional financing in order to continue seeking a suitable business opportunity or business combination. The Company would likely seek to secure any additional financing necessary through a private placement of its shares of Common Stock. PLAN OF OPERATION FOR THE 12 MONTHS ENDING DECEMBER 31, 2003. The Company will continue to seek a new business opportunity or business combination over the 12 month period ending December 31, 2004. Once a business opportunity or business combination has been identified, the Company will investigate and evaluate the business opportunity or business combination. Should the Company wish to pursue any specific business opportunity or business combination, it will have to comply with all applicable corporate and securities laws in order to complete the acquisition of or merger with any such business opportunity. CASH REQUIREMENTS. There is substantial doubt about the Company's ability to continue as a going concern due to the losses incurred since inception, stockholders' deficiency, and lack of revenues. The Company anticipates that it may require financing from unrelated third parties in order to continue seeking a suitable business opportunity or business combination. The Company anticipates that it will have sufficient capital to fund its ongoing operations until that time. However, the Company may be required to raise additional financing for a particular business combination or business opportunity. The Company would likely seek to secure any additional financing necessary through a private placement of our Common Stock. PRODUCT RESEARCH AND DEVELOPMENT. The Company does not anticipate that it will expend any significant monies on research and development over the next twelve months. PURCHASE OF SIGNIFICANT EQUIPMENT. The Company does not intend to purchase any significant equipment through December 31, 2004, unless it identifies a suitable business opportunity or business combination that may require it to invest in such equipment. EMPLOYEES. Over the twelve months ending December 31, 2004, the Company anticipates no increase in the number of employees. The Company will retain new employees only if it identifies and completes the acquisition of a business opportunity or enters into a business combination. Such an increase on the number of employees may significantly increase the Company's monthly burn rate and such increase in the monthly burn rate depends on the number of employees the Company ultimately retains, if any. ACCOUNTING PRONOUNCEMENTS. In October 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No. 121, "Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to be Disposed of," but retains many of its fundamental provisions. Additionally, this statement expands the scope of discontinued operations to include more disposal transactions. SFAS No. 144 was adopted by the Company for the fiscal year ended December 31, 2003. As disclosed in Note 4 to the Company's Consolidated Financial Statements, the adoption of this standard had a material effect on the Company's financial statements. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." This Statement requires that a liability for costs associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. This pronouncement is effective for exit or disposal activities that are initiated after December 31, 2002. In December 2002, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for Stock-Based Compensation, Transition and Disclosure." SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the pro-forma effect in interim financial statements. The transition and annual disclosure requirements of SFAS No. 148 are effective for fiscal years ended after December 15, 2002. The interim disclosure requirements are effective for interim periods beginning after December 15, 2002. The Company believes that the adoption of this standard will have no material impact on its financial statements. In November 2002, the FASB issued Interpretation No. 45 (FIN 45), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. The Interpretation expands on the accounting guidance of FAS 5, Accounting for Contingencies, FAS 57, Related Party Disclosures, and FAS 107, Disclosures about Fair Value of Financial Instruments, and incorporates without change the provisions of FIN 34, Disclosure of Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statement No. 5, which is being superseded. FIN 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees, such as standby letters of credit. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. FIN 45 will be effective to the Company on a prospective basis to guarantees issued or modified after December 31, 2002. The Company believes that the adoption of this standard will have no material impact on its financial statements. In January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN 46"). Under that interpretation, certain entities known as "Variable Interest Entities" ("VIE") must be consolidated by the "primary beneficiary" of the entity. The primary beneficiary is generally defined as having the majority of the risks and rewards arising from the VIE. For VIE's in which a significant (but not majority) variable interest is held, certain disclosures are required. FIN 46 requires disclosure of Variable Interest Entities in financial statements issued after January 31, 2003, if it is reasonably possible that as of the transition date: (1) the Company will be the primary beneficiary of an existing VIE that will require consolidation or, (2) the Company will hold a significant variable interest in, or have significant involvement with, an existing VIE. Any VIEs created after January 31, 2003, are immediately subject to the consolidation guidance in FIN 46. The measurement principles of this interpretation will be effective for the Company's 2003 financial statements. The Company does not have any entities that require disclosure or new consolidation as a result of adopting the provisions of FIN 46. In November 2002, the "EITF" reached a consensus on EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." EITF 00-21 establishes criteria for whether revenue on a deliverable can be recognized separately from other deliverables in a multiple deliverable arrangement. The criteria consider whether the delivered item has stand-alone value to the customer, whether the fair value of the delivered item can be reliably determined and the rights of returns for the delivered item. EITF 00-21 is effective for revenue agreements entered into in fiscal years beginning after June 15, 2003 with early adoption permitted. The Company believes that the adoption of this standard will have no material impact on its financial statements. Item 7. FINANCIAL STATEMENTS. Consolidated Financial Statements of: DISCOVERY INVESTMENTS INC. Year ended: December 31, 2003 (Audited - See Notes to Financial Statements) Page Independent Accountant's Report to the Shareholders' 2 Consolidated Balance Sheets 3 Consolidated Statements of Operations and Deficit 4 Consolidated Statements of Shareholders' Equity 5 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7- 12 Wm. Andrew Campbell C.A. Tel.: (416) 363 -6273 56 Temperance Street, 6th. Floor, Fax: (416) 363 - 9982 Toronto, Ontario M5H 3V5 REPORT OF INDEPENDENT PUBLIC ACCOUNTANT To the Shareholders' and Board of Directors of Discovery Investments Inc. I have audited the accompanying consolidated balance sheets of Discovery Investments Inc. (a Development Stage Company) as at December 31, 2003, and the related consolidated statements of operations and deficit and cash flows for the year then ended. These consolidated 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. I conducted my audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform an audit to obtain reasonable assurance whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 of my opinion. In my opinion, these financial statements referred to above present fairly, in all material respects the financial position of the company as at December 31, 2003 the results of its operations and cash flows for the year then ended in accordance with generally accepted accounting principles accepted in the United States. The Comparative figures for the year ended December 31, 2002 were prepared by another auditor who expressed an opinion dated June 13, 2003 without reservation. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2 to the financial statements, effective September 24, 2001, the Company completed its reorganization after seeking protection Bankruptcy Signed: "Wm. Andrew Campbell C.A." Chartered Accountant Toronto, Canada, March 27, 2004 F-2
DISCOVERY INVESTMENTS INC. (A DEVELOPMENT STAGE COMPANY) Consolidated Balance Sheets As at December, 2003 and 2002 ASSETS 2003 2002 ================ ================= CURRENT ASSETS: Assets of discontinued operations $ - $ 467,621 ---------------- ----------------- - 467,621 $ - $ 467,621 ================ ================= LIABILITIES CURRENT LIABILITIES: Bank overdraft $ - $ 62 Accounts payable and accrued liabilities 15,000 4,847 Due to related parties (note 7) - 63,693 Liabilities for discontinued operations - 2,319,298 ---------------- ----------------- TOTAL LIABILITIES 15,000 2,387,900 ---------------- ----------------- SHAREHOLDERS EQUITY SHARE CAPITAL (Note 8) 158,040 38,500 DEFICIT (Page 4) (173,040) (1,958,779) ---------------- ---------------- (15,000) (1,920,279) ---------------- ---------------- $ - $ 467,621 ================ ================
Approved on behalf of the Board: (Signed) " Donald K. Bell" , Director - ----------------------------------------------------------------------------- F-3
DISCOVERY INVESTMENTS INC. (A DEVELOPMENT STAGE COMPANY) Consolidated Statements of Operations and Deficit For the Years Ended December 31, 2003 and 2002 2003 2002 ================== ================= COST AND EXPENSES: General, selling and administrative $ 80,000 $ 21,266 --- -------------- --- -------------- 80,000 21,266 --- -------------- === ============== INCOME (LOSS) BEFORE THE UNDER NOTED ITEMS: (80,000) (21,266) Gain (loss) from discontinued operations 1,851,739 (1,865,677) --- -------------- --- -------------- NET INCOME (LOSS) $ 1,771,739 $ (1,886,943) === ============== === ============== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 24,499,583 23,540,679 === ============== === ============== BASIC AND FULLY DILUTED EARNINGS (LOSS) PER SHARE $ 0.10 $ (0.08) === ============== === ==============
F-4
DISCOVERY INVESTMENTS INC. (A DEVELOPMENT STAGE COMPANY) Consolidated Statements of Shareholders' Equity December 31, 2003 Additional Additional Common Stock Paid-In Paid-In =========================================== === =============================== === ================ === =============== Shares Amount Capital Capital =========================================== === =============== === =========== === ================ === =============== (Deficit) Total =========================================== === =============== === =========== === ================ === =============== Balance, December 31, 2000 7,350,000 $7,350 $(1,903,643) $(1,896,293) =========================================== === =============== === =========== === ================ === =============== =========================================== === =============== === =========== === ================ === =============== Issuance of common stock, pursuant to bankruptcy order, issued November 29, 2001 349,583 $350 $(250) $100 =========================================== === =============== === =========== === ================ === =============== Net Income, December 31, 2001 $1,844,157 $1,844,157 =========================================== === =============== === =========== === ================ === =============== Balance, December 31, 2001 7,699,583 $7,700 $(59,836) $(52,136) =========================================== === =============== === =========== === ================ === =============== =========================================== === =============== === =========== === ================ === =============== Issuance of common stock on acquisition of Bycom Media Inc. on May 5, 2002 16,800,000 $16,800 $(12,000) $4,800 =========================================== === =============== === =========== === ================ === =============== =========================================== === =============== === =========== === ================ === =============== Issuance of common stock on acquisition of Cavio Corporation September 4, 2002. 14,000,000 $14,000 =========================================== === =============== === =========== === ================ === =============== Net (Loss) for the year ended December 31, 2002 $(1,866,943) $(1,866,943) =========================================== === =============== === =========== === ================ === =============== Balance, December 31, 2002 38,499,583 $38,500 $(1,958,779) $(1,920,179) =========================================== === =============== === =========== === ================ === =============== =========================================== === =============== === =========== === ================ === =============== Cancellation of shares issued on the Cavio acquisition (14,000,000) $(14,000) $14,000 $(100) =========================================== === =============== === =========== === ================ === =============== =========================================== === =============== === =========== === ================ === =============== Issued to settle debt December 2003 2,670,800 133,540 0 133,540 =========================================== === =============== === =========== === ================ === =============== Net Income for the year ended December 31, 2003 1,771,739 1,771,739 =========================================== === =============== === =========== === ================ === =============== Balance, December 31, 2003 27,170,383 $158,040 $(173,040) $(15,000) =========================================== === =============== === =========== === ================ === =============== See Accompanying Notes to Consolidated Financial Statements.
F-5
DISCOVERY INVESTMENTS INC. (A DEVELOPMENT STAGE COMPANY) Consolidated Statements of Cash Flows For the Years Ended December 31, 2003 and 2002 2003 2002 ================= ================= CASH PROVIDED BY (USED IN): OPERATING ACTIVITIES- NET INCOME (LOSS) FOR THE YEAR $ 1,771,739 $ (1,886,943) Item not requiring a current outlay of cash (Gain) loss from discontinued operations (1,851,739) 1,865,677 -- -------------- -- -------------- (80,000) (21,266) -- -------------- -- -------------- CHANGES IN WORKING CAPITAL COMPONENTS- Accounts payable and accrued liabilities 10,153 7,573 Due to related parties 69,785 13,693 -- -------------- -- -------------- CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (62) - -- -------------- -- -------------- FINANCING ACTIVITIES- Issuance of shares - - -- -------------- -- -------------- CASH PROVIDED BY FINANCING ACTIVITIES - - -- -------------- -- -------------- INCREASE (DECREASE) IN CASH DURING YEAR 62 - (BANK INDEBTEDNESS), BEGINNING OF YEAR (62) - -- -------------- -- -------------- CASH, END OF YEAR $ - $ (62) == ============== == ==============
F-6 DISCOVERY INVESTMENTS INC. (A Development Stage Company) Notes to Consolidated Financial Statements, December 31, 2003 and 2002 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES 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. 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. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 at September 30, 2002 and for the period from May 5, 2002 to September 30, 2002. 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 December 31, 2003 and December 31, 2002 and 2001. 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. 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. F-7 DISCOVERY INVESTMENTS INC. (A Development Stage Company) Notes to Consolidated Financial Statements, December 31, 2003 and 2002 3. 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 has been reflected in the accompanying December 31, 2002 financial statements. The Company's post-reorganization balance sheet as of September 24, 2001 becomes 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 ================================================= ====================== ======================= ====================
F-8 DISCOVERY INVESTMENTS INC. (A Development Stage Company) Notes to Consolidated Financial Statements, December 31, 2003 and 2002 The following proforma statements of operations reflect the results of operations as if the reorganization had been effective December 31, 2000.
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 $(110,332) $0 $(110,332) extraordinary item ================================================= ====================== ======================= ==================== 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.
4. REORGANIZATION ITEMS Reorganization Items consisted of the following for the period ended December 31, 2003 and years ended December 31, 2002 and 2001:
============================= ========================= ============================ =============================== December 31, 2003 December 31, 2002 December 31, 2001 ============================= ========================= ============================ =============================== Professional Fees $65,000 $20,000 $30,858 ============================= ========================= ============================ ===============================
F-9 DISCOVERY INVESTMENTS INC. (A Development Stage Company) Notes to Consolidated Financial Statements, December 31, 2003 and 2002 5. 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 is engaged in multimedia applications for internet-based businesses. Utilizing business search tools and databases, Bycom will be able to locate and access global business information. Bycom intends to use its technology in order to enter into various business combinations with entities that offer products or services that are susceptible to internet marketing. As an alternative, Bycom will also sell, for a fee, this information and will act as an "out-source provider" of information. As an "out-source provider," the information will be cost-effective for the user. This is because the customer typically lacks the technology expertise, capital, personnel or ability to bear the time to market and operating risk to install, maintain and monitor business information. Bycom for itself and for its customers will provide personnel who are readily available to respond to technical issues and marketing issues, and who can assist in developing and implementing the effective use of the business search tools and data base. The Company has recorded the excess of the purchase price over the net book value of Bycom as goodwill on consolidation. 6. SHAREHOLDERS' EQUITY Common Shares 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. 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 Corporation. 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). In the fourth quarter of 2003, 2,670,800 shares were issued at $0.05 per share to settle advances from officers and certain trade payables. The Company has not authorized any preferred stock. F-10 DISCOVERY INVESTMENTS INC. (A Development Stage Company) Notes to Consolidated Financial Statements, December 31, 2003 and 2002 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 years ended December 31, 2003 and 2002 was 24,499,583, and 23,540,670, respectively, and 9,387,759 since inception. As of September 30, 2003 and December 31, 2002 and since inception, the Company had no dilutive potential common shares. 7. INCOME TAXES There is no provision for income taxes for the period ended September 30, 2003, 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, 2003 is as follows: ================================================== ============================ Net operating loss carry forward $3,634 ================================================== ============================ Valuation allowance $(3,634) ================================================== ============================ Net deferred tax asset $0 ================================================== ============================ 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 carry forwards were reduced by the $1,984,489. 8. 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. 9. 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. F-11 DISCOVERY INVESTMENTS INC. (A Development Stage Company) Notes to Consolidated Financial Statements, December 31, 2003 and 2002 10. WARRANTS AND OPTIONS There are no warrants or options outstanding to acquire any additional shares of common stock of the Company. 11. SUBSEQUENT EVENTS AND SIGNIFICANT TRANSACTIONS Acquisition of Cavio Corporation On June 13, 2002, the Company entered into a Plan and Agreement of Reorganization with Cavio Corporation, a Washington corporation ("Cavio") whereby the Company will acquire all of the outstanding shares of Cavio in exchange for 14,000,000 shares of the Company. Following closing of this transaction, which occurred on August 28, 2002, Cavio became a wholly owned subsidiary of the Company. Cavio offers a suite of authentication products, including its enterprise middleware which uses public key infrastructure (PKI) and secure token-based technology to authenticate and manage personal identities for a wide variety of applications. Founded in 1998 to authenticate individuals for global trade transactions, Cavio revolutionizes electronic transaction processing with a comprehensive transaction and authentication solution that successfully integrates traditional business principles and leading edge technology. Cavio authentication and transaction technology will enable real-time authentication of individuals anytime, anywhere, via the Internet, point-of-sale, security kiosk, and mobile devices. Effective April 1, 2003 the Cavio transaction was unwound and the 14,000,000 shares were cancelled. The Company has examined several possible corporate acquisitions, however no formal agreements have been consummated as of the date of the issuance of these financial statements. Increase in authorized capital 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. Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. On October 7, 2003, the accounting firm of Kyle L. Tingle, LLC, CPA resigned from the audit responsibilities of the Company. On October 8, 2003, the Company engaged Wm. Andrew Campbell, Chartered Accountant, as its successor accountant. During the Company's two most recent fiscal years and any subsequent interim period prior to the resignation of Kyle L. Tingle, the Company (or someone on its behalf) had not consulted with Wm. Andrew Campbell, or any other auditor, regarding any accounting or audit concerns. During the Company's two most recent fiscal years, the Company is not aware of any disagreements with its former accountant, whether resolved or not resolved, on any matter of accounting principals or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to said accountant's satisfaction, would have caused it to make reference to the subject matter of the disagreements(s) in connection with its report. During the period covered by the most recent audit report and for the prior periods covered by said report, the Company had recurring losses from operations, a working capital deficit and an accumulated deficit which raised and resulted in the former accountant qualifying his opinion to indicate that this raised substantial doubt about the Company's ability to continue as a going concern. Item 8A. CONTROLS AND PROCEDURES. EVALUATION OF DISCLOSURE ON CONTROLS AND PROCEDURES. Based on an evaluation of our disclosure controls and procedures as of the end of the period covered by this annual report, our president and treasurer have determined that the Company's current disclosure controls and procedures are effective. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING. There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) or any other factors during the fiscal year ended December 31, 2003, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting. Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. On December 2, 2002, Donald Bell was appointed as the sole director and the then directors, Paul Mann, Michael Kinley and Terry Laferte, (and officers) resigned. 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 sole director may file vacancies. The officers serve at the pleasure of the Board of Directors. Information as to the director and officer of the Company is as follows: NAME AGES POSITION Donald Bell 40 President/Director The principal occupation and business experience for Donald Bell as follows: Donald Bell has worked within the investment community for the past 15 years. Mr. Bell served as an investment adviser with Pacific International Securities Inc. of Vancouver B.C. and, most recently, as Vice President of corporate finance and business development for a publicly traded mining and resource company. Mr. Bell's management experience began in 1985 shortly after completing his formal education as well as several sales and marketing seminars related to the auto industry. At the age of 22, Mr. Bell was awarded top salesman of the year at a major auto dealer in greater Vancouver, and then followed through to become one of two sales managers responsible for 12 sales personnel as well as several other duties in a management capacity. Mr. Bell is 38 years old and currently resides in Calgary Alberta where he is married with two children. Mr. Bell's experience and contacts in the investment and banking communities throughout North America, Europe and Asia as well as his sold work ethic will prove an asset to any project he is involved in. 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. There are no agreements or understandings for any officer or director of the Company to resign at the request of another person and Donald Bell is not 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 10-KSB of reporting person delinquencies in response to Item 405 of Regulation S-B. Item 10. EXECUTIVE COMPENSATION. For the periods ended December 31, 2002 and December 31, 2003, none of the Company's officers and/or directors received any compensation for their respective services rendered unto the Company, nor have they received such compensation in the past. Donald Bell has 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. 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. The Company intends to adopted a code of ethics that will applies to the Company's principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. Upon adoption, the Company will disclose the code of ethics in a Form 8-K, or such other applicable form. The code of ethics will also be posted on the investor relations section of the Company's website if the Company establishes a website. The Company intends to satisfy the disclosure requirements under Item 10 of Form 8-K regarding an amendment to, or waiver from, a provision of the code of ethics by posting such information on the website, if established. 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. Name and Amount and Address of Nature of Title Beneficial Beneficial Number Percent of Class Owner Owner of Shares of Class ________________________________________________________________ Common C. Philip Yeandle Direct 18,135,000 67.0% 35 Church St. Suite 206 Toronto, Ontario Canada M5E 113 Common Donald Bell Direct 1,452,000 5.5% 247 Bay Street Suite 911 Toronto, Ontario Canada M5H 2R7 Total 19,587,000 72.0% (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 the sole director and officer of the Company. Name and Address of Amount Title Beneficial Beneficial Percent of Class Owner Owner of Class ___________________________________________________ Common Donald Bell 1,452,000 5.5% 247 Bay Street Suite 911 Toronto, Ontario Canada M5H 2R7 Common All Officers and 1,452,000 5.5% Directors as a Group (one [1] 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. Donald Bell and C. Philip Yeandle have agreed to provide the necessary funds, without interest, for the Company to comply with the 1934 Act provided that Donald Bell is an officer and director of the Company when the obligation is incurred and C. Philip Yeandel is a majority shareholder. All advances will be interest-free. Item 13. EXHIBITS AND REPORTS ON FORM 8-K. There are no reports on Form 8-K incorporated herein by reference. The following documents are filed as part of this report: 31.1 Certification of Chief Executive Officer 31.2 Certification of Chief Financial Officer, and 32.1 Sarbones-Oxley, Section 906 Certifications-CEO 32.2 Sarbones-Oxley, Section 906 Certifications-CFO Item 14. CONTROLS AND PROCEDURES See Item 8A above. Item 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES AUDIT FEES. Audit fees consist of fees billed for professional services rendered for the audit of the Company's consolidated financial statements and the review of the interim statements. The total fees billed for Kyle L. Tingle, prior to his resignation for the prior two fiscal years was $7,500 and Wm. Andrew Campbell for the current fiscal year was $1,000. OTHER. There were no audit related services and no fees billed for professional services for tax compliance, tax advice and tax planning for the fiscal year ended December 31, 2002 and December 31, 2003. 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 undersigned, thereunto duly authorized. Date: April 14, 2004 DISCOVERY INVESTMENTS, INC. By: /s/ DONALD BELL ___________________________ Donald Bell President EX-23 3 ex23-1.txt EXHIBIT 23.1 EXHIBIT 23.1 Wm. Andrew Campbell Chartered Accountant 56 Temperance Street Sixth Floor Toronto, Ontario M5H 3V5 416.363.6273 416.363.9982 (fax) To Whom It May Concern: The firm of Wm. Andrew Campbell, Chartered Accountant, hereby consents to the inclusion of his report of March 27, 2004, accompanying the audited financial statements of Discovery Investments, Inc., as at December 31, 2003, in the Form 10KSB. Very truly yours, /s/ WM. ANDREW CAMPBELL _______________________ Wm. Andrew Campbell EX-31 4 ex31-1.txt EXHIBIT 31.1 EXHIBIT 31.1 CERTIFICATIONS I, Donald Bell, certify that: 1. I have reviewed this Form 10-KSB 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 registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) 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 registrant 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 registrant, including its consolidated subsidiaries, 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 registrant'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 based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant'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 registrant'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 registrant's internal control over financial reporting. Date: April 14, 2004 /s/ DONALD BELL ___________________________________ Donald Bell President and sole Director EX-31 5 ex31-2.txt EXHIBIT 31.2 EXHIBIT 31.2 CERTIFICATIONS I, Donald Bell, certify that: 1. I have reviewed this Form 10-KSB 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 registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) 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 registrant 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 registrant, including its consolidated subsidiaries, 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 registrant'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 based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant'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 registrant'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 registrant's internal control over financial reporting. Date: April 14, 2004 /s/ DONALD BELL ___________________________________ Donald Bell Chief Financial Officer EX-32 6 ex32-1.txt EXHIBIT 32.1 EXHIBIT 32.1 SECTION 1350 CERTIFICATIONS CERTIFICATION 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 Form 10-KSB of Discovery Investments Inc. (the "Company") on Form 10-KSB for the period ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Donald Bell, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based on my knowledge: 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. Date: April 14, 2004 /s/ DONALD BELL ______________________________________ Donald Bell President and sole Director A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN THE ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO DISCOVERY INVESTMENTS INC. AND WILL BE RETAINED BY DISCOVERY INVESTMENTS INC. AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. EX-32 7 ex32-2.txt EXHIBIT 32.2 EXHIBIT 32.2 SECTION 1350 CERTIFICATIONS CERTIFICATION 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 Form 10-KSB of Discovery Investments Inc. (the "Company") on Form 10-KSB for the period ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Donald Bell, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based on my knowledge: 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. Date: April 14, 2004 /s/ DONALD BELL ______________________________________ Donald Bell Chief Financial Officer A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN THE ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO DISCOVERY INVESTMENTS INC. AND WILL BE RETAINED BY DISCOVERY INVESTMENTS INC. AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. -----END PRIVACY-ENHANCED MESSAGE-----