Item 1 - BUSINESS
Discovery Oil, LTD. (hereinafter "the Company") was originally organized under the laws of the State of Wyoming in 1964. It became a Delaware corporation through a merger with a wholly owned subsidiary in 1981. Prior to 1992, the Company was involved as a general partner in several limited partnerships for the purpose of drilling oil and gas wells in Ohio, Wyoming, Colorado, Kansas, and Texas. Since 1992, the Company has had occasional income from a 12.5% working interest in several small oil wells near the city of Signal Hill, California.
Item 2
Item 2 - PROPERTIES
The Company does not own any real estate but has an undivided 12.5% working interest in several small oil wells. The Company also maintains a small office in Malibu, California.
Item 3
Item 3 - LEGAL PROCEEDINGS
None.
Item 4
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no shareholders' meetings during 2000.
PART II
Item 5
Item 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The market price of the Company's common stock during each quarter of the years 2000 and 1999 was nil; the Company's common stock was not trading.
(b) Approximate Number of Equity Security Holders
Title Class (1) Number of Record Holders December 31, 2000 - ------------------------ ------------------------------------------- Common stock, par value Approximately 5,859 (1) $.01 per share
(1) Included in the number of shareholders of record are shares held in "nominee" or "street" name.
(c) No dividends were paid by the Company in 2000 or 1999.
Item 6
Item 6 - SELECTED FINANCIAL DATA
The following data should be read in conjunction with the Company's financial statements and the notes thereto:
Selected Income Statement Data: Year Ended December 31, --------------------------------------------------------------- 1996 1997 (Unaudited) (Unaudited) 1998 1999 2000 ----------- ----------- ----------- ----------- ----------- Net Revenues $ 18,651 $ 18,065 $ 2,298 $ 1,369 $ 23,710 Net income (loss) (7,466) (5,930) (18,755) (17,005) (15,496) Per share (.001) (.001) (.002) (.002) (.001) Cash dividends per share -0- -0- -0- -0- -0-
The following data should be read in conjunction with the Company's financial statements and the notes thereto:
Selected Balance Sheet Data: Year Ended December 31, --------------------------------------------------------------- 1996 1997 (Unaudited) (Unaudited) 1998 1999 2000 ----------- ----------- ----------- ----------- -----------
Current Assets $ 2,957 $ 1,133 $ 10 $ 897 $ 0 Current Liabilities 387,131 391,238 408,870 426,762 441,361 Working Capital (384,174) (390,105) (408,860) (425,865) (441,361) Total Assets 2,957 1,133 10 897 -0- Long-term debt -0- -0- -0- -0- -0- Stockholders' Equity (Deficit) (384,174) (390,105) (408,860) (425,865) (441,361)
Item 7
Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenues increased substantially during 2000 compared to 1999. The primary reason for the increase (from $1,369 to $23,710) in revenues was the rise in market prices for oil in 2000. Since the Company has a working interest participation (12.5%) in the wells, and is therefore not the operator, all costs of operating the oil wells are deducted before Discovery Oil, LTD. receives its net check. Thus, during 1999, since the market price of oil was down compared to that of 2000, the Company received very little revenue ($1,369) because of the fixed operating costs. Professional and administrative fees increased significantly during 2000 because the Company reactivated its reporting status with the Securities and Exchange Commission. Income from operations in 2000 was $4,001 compared to a loss from operations in 1999 of $(1,711).
The Company's working interest in the oil properties has been depleted to zero. As of December 21, 2000 the Company had no other assets.
As of December 31, 2000, liabilities consist of $172,457 payable to Andy Ippolito, the president of the Company, along with the related accrued interest of $268,904.
The Company estimates that as of December 31, 2000 it had about $47,175 worth of oil reserves on a discounted future cash flow basis, using a conservative price per barrel of $15.
Item 8
Item 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The company's financial statements appear following Part II of this report.
Item 9
Item 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
DISCOVERY OIL, LTD.
FINANCIAL STATEMENTS
December 31, 2000
Williams & Webster, P.S. Certified Public Accountants Bank of America Financial Center 601 W. Riverside, Suite 1940 Spokane, WA 99201 (509) 838-5111
DISCOVERY OIL, LTD. DECEMBER 31, 2000
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statement of Stockholders' Deficit 4
Statements of Cash Flows 5
NOTES TO THE FINANCIAL STATEMENTS 6
Board of Directors Discovery Oil, Ltd. Malibu, CA 90265
INDEPENDENT AUDITOR'S REPORT ----------------------------
We have audited the accompanying balance sheets of Discovery Oil, Ltd. as of December 31, 2000 and 1999 and the related statements of operations, stockholders' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Discovery Oil, Ltd. as of December 31, 2000 and 1999 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has losses from operations, has negative net worth, and has substantial liabilities. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding this issue are also discussed in Note 2, and include additional capitalization of the Company. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Williams & Webster, P.S.
Williams & Webster, P.S. Certified Public Accountants Spokane, Washington March 5, 2001
DISCOVERY OIL, LTD. BALANCE SHEETS
December 31, December 31, 2000 1999 -------------- -------------- ASSETS
CURRENT ASSETS Cash $ - $ 897 -------------- -------------- Total Current Assets - 897 -------------- --------------
OIL AND GAS PROPERTIES - -
TOTAL ASSETS $ - $ 897 ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIT
CURRENT LIABILITIES Related party payable $ 172,457 $ 177,355 Interest payable to related party 268,904 249,407 -------------- -------------- Total Current Liabilities 441,361 426,762 -------------- --------------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' DEFICIT Preferred stock, $1.00 par value; 5,000,000 shares authorized, no shares issued or outstanding - - Common stock, $0.01 par value; 25,000,000 shares authorized, 9,313,352 shares issued and outstanding 93,134 93,134 Discount on common stock (4,634) (4,634) Accumulated deficit (529,861) (514,365) -------------- -------------- Total Stockholders' Deficit (441,361) (425,865) -------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ - $ 897 ============== ==============
The accompanying notes are an integral part of these financial statements.
DISCOVERY OIL, LTD STATEMENTS OF OPERATIONS
Year Ended Year Ended December 31, 2000 December 31, 1999 ----------------- -----------------
REVENUES $ 23,710 $ 1,369 ----------------- -----------------
GENERAL AND ADMINISTRATIVE EXPENSES Bank charges 158 120 Fees 1,579 2,500 Travel 500 - Tax and license 3,330 - Legal and accounting 7,684 - Office and administration 6,458 460 ----------------- ----------------- Total Expenses 19,709 3,080 ----------------- -----------------
OPERATING INCOME (LOSS) 4,001 (1,711)
OTHER INCOME (EXPENSE) Interest expense (19,497) (19,997) Gain on sale of property - 4,703 ----------------- ----------------- Total Other Income (Expense) (19,497) (15,294) ----------------- -----------------
LOSS BEFORE TAXES (15,496) (17,005)
INCOME TAXES - - ----------------- -----------------
NET LOSS $ (15,496) $ (17,005) ================= =================
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ nil $ nil ================= =================
WEIGHTED AVERAGE NUMBER OF BASIC AND DILUTED COMMON SHARES OUTSTANDING 9,313,352 9,313,352 ================= =================
The accompanying notes are an integral part of these financial statements.
DISCOVERY OIL, LTD STATEMENT OF STOCKHOLDERS' DEFICIT
The accompanying notes are an integral part of these financial statements
DISCOVERY OIL, LTD STATEMENT OF CASH FLOWS
Year Ended Year Ended December 31, 2000 December 31, 1999 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (15,496) $ (17,005) Adjustments to reconcile net loss to net cash provided by operating activities: Increase in interest payable 19,497 19,997 ----------------- ----------------- Net cash provided by operating activities 4,001 2,992 ----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES: - - ----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES: Net decrease in related party payable (4,898) (2,105) ----------------- ----------------- Net cash used by financing activities (4,898) (2,105) ----------------- ----------------- Net increase (decrease) in cash (897) 887
Cash, beginning of period 897 10 ----------------- -----------------
Cash, end of period $ - $ 897 ================= =================
Supplemental cash flow disclosures: Income taxes paid $ - $ - ================ =================
Interest paid $ - $ - ================ =================
The accompanying notes are an integral part of these financial statements
DISCOVERY OIL, LTD NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2000
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Discovery Oil, Ltd. (hereinafter "the Company"), originally organized under the laws of the State of Wyoming in 1964, became a Delaware corporation through a merger with a wholly owned subsidiary in 1981. Prior to 1992, the Company was involved as a general partner in several limited partnerships for the purpose of drilling oil and gas wells in Ohio, Wyoming, Colorado, Kansas, and Texas. Since 1992, the Company has had occasional income from a 12.5% working interest in several small oil wells near the city of Signal Hill, California. The Company does not operate these wells. The Company maintains an office in Malibu, California. The Company's fiscal year end is December 31.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Discovery Oil, Ltd. is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management which is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements.
Accounting Method - ------------------
The Company's financial statements are prepared using the accrual method of accounting.
Use of Estimates - ------------------
The process of preparing financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Accordingly, upon settlement, actual results may differ from estimated amounts.
Going Concern - --------------
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.
As shown in the accompanying financial statements, the Company incurred a net loss of $15,496 for the year ended December 31, 2000, and has a negative net worth. The future of the Company is dependent upon its ability to obtain financing and upon future successful exploration for and profitable operations from the development of oil and gas properties. Management has plans to seek additional capital through a private placement of its common stock. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
DISCOVERY OIL, LTD NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents - ----------------------------
For purposes of its statement of cash flows, the Company considers all short-term debt securities purchased with a maturity of three months or less to be cash equivalents.
Inventories - -----------
At the point the Company obtains inventories, they will be valued at the lower of cost or market. The cost of inventories of crude oil and petroleum products will be determined on the last-in, first-out (LIFO) method.
Impaired Asset Policy - -----------------------
In March 1995, the Financial Accounting Standards Board issued a statement titled "Accounting for Impairment of Long-lived Assets." When the Company acquires assets, in complying with this standard, the Company will review its long-lived assets quarterly to determine if any events or changes in circumstances have transpired which indicate that the carrying value of its assets may not be recoverable. The Company will determine impairment by comparing the undiscounted future cash flows estimated to be generated by its assets to their respective carrying amounts.
Revenues - --------
The Company recognizes royalty income when it is received.
When the Company does produce revenue, sales will be recognized at the point of passage of title specified in the contract.
Provision for Taxes - ---------------------
At December 31, 2000, the Company had cumulative net operating losses of approximately $500,000. No provision for taxes or tax benefit has been reported in the financial statements, as there is not a measurable means of assessing future profits or losses.
Exploration Costs - ------------------
In accordance with generally accepted accounting principles, the Company will expense exploration costs as incurred.
DISCOVERY OIL, LTD NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loss Per Share - ----------------
Loss per share was computed by dividing the net loss by the weighted average number of shares outstanding during the period. The weighted average number of shares was calculated by taking the number of shares outstanding and weighting them by the amount of time that they were outstanding. Basic and diluted loss per share is the same, as there were no common stock equivalents outstanding.
Environmental Expenditures - ---------------------------
The Company will accrue for environmental remediation liabilities when it is probable that such liability exists, based on past events or known conditions, and the amount of such loss can be reasonably estimated. If the Company can only estimate a range of probable liabilities, the minimum, undiscounted expenditure necessary to satisfy the Company's future obligation would be accrued. The Company has no known environmental remediation liabilities at December 31, 2000.
Derivative Instruments - -----------------------
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This standard establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value.
At December 31, 2000, the Company has not engaged in any transactions that would be considered derivative instruments or hedging activities.
NOTE 3 - COMMON STOCK
There was no change in the number of shares issued and outstanding for the year ended December 31, 2000 and 1999.
NOTE 4 - RELATED PARTY TRANSACTIONS
In August of 1987, the Company's board of directors entered into an agreement whereby all advances, accommodations and expenses advanced on behalf of the Company by Mr. Andrew Ippolito, a shareholder, would be repaid at the rate per annum equal to the prime rate plus two percent. Expenses advanced on behalf of the Company by Mr. Ippolito as of December 31, 2000 equal $172,457 and are as follows:
DISCOVERY OIL, LTD NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2000
NOTE 4 - RELATED PARTY NOTE PAYABLE (CONTINUED)
Rate 2000 1999 ----------- ----------- -----------
1987 Advances 10.21% $ 16,224 $ 21,122 1988 Advances 11.32% 146,233 146,233 1989 Advances 12.87% 10,000 10,000 ----------- ----------- ----------- Total $ 172,457 $ 177,355 ========== ===========
The interest payable as of December 31, 2000 and 1999 on these transactions was $268,904 and $249,407, respectively.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Environmental Issues - ---------------------
The Company is engaged in oil and gas exploration and may become subject to certain liabilities as they relate to environmental cleanup of well sites or other environmental restoration procedures as they relate to the drilling of oil and gas wells and the operation thereof. In the Company's acquisition of existing or previously drilled well bores, the Company may not be aware of what environmental safeguards were taken at the time such wells were drilled or during such time the wells were operated.
DISCOVERY OIL, LTD. UNAUDITED SUPPLEMENTAL INFORMATION December 31, 2000
Reserve Quantity Information - ------------------------------
Following is a summary of reserve quantity information for 2000 (oil reserves are stated in barrels):
United States - Proved developed and undeveloped oil reserves:
Beginning of year unknown End of year 31,338
Standardized Measure of Discounted Future Net Cash Flows - ---------------------------------------------------------------
Following is a summary of the standardized measure of discounted future net cash flows and related changes relating to proved oil reserves for 2000:
United States -------------- Future cash inflows* $ 470,072 Future production and development costs* (369,563) Future income tax expenses* (23,504) 10% annual discount for estimated timing of cash flows (29,830) --------------- Standardized measure of discounted future net cash flows $ 47,175 ===============
*Future net cash flows were computed using year-end prices ($15.00 per barrel) and costs, and year-end statutory tax rates (adjusted for permanent differences) that relate to existing proved oil reserves in which the Company has mineral interests.
PART III
Item 10
Item 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name of Executive Officers and Directors and Positions Held Principal Occupation, Five-Year Business History and Directorships Age ---
Andrew V. Ippolito, President and Chairman of the Board of Directors 63 Currently and for the past 25 years, Mr. Ippolito functioned as a business executive, diplomat, Honorary Consul General of Liberia and General Secretary of the Los Angeles Consular Corps, representing more than 86 countries and providing access to international finance and trade markets. Current President, Secretary and Chairman of the Board of Discovery Oil, LTD and co-founder of Sunshine Management International, serving as management and financial consultant to several foreign nations and corporations.
M. Jeanett Ippolito, Secretary and a Director 61 Mrs. Ippolito has been a real estate broker for over 20 years.
The bylaws of the Company provided that the Directors serve until the next annual meeting of shareholders or until their respective successors have been duly elected and qualified. The bylaws also provide that the officers serve at the discretion of the Board of Directors.
Item 11
Item 11 - EXECUTIVE COMPENSATION
None
Item 12
Item 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Andrew V. Ippolito, owns 1,978,275 or 21.3% of the outstanding shares.
Item 13
Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A shareholder of the Company, Andrew V. Ippolito, has advanced cash to the Company totaling $172,457 as of December 31, 2000.
PART IV
Item 14
Item 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements - See index to Financial Statements at page 6 of this report.
(b) Exhibits
No additional exhibits are filed as a part of this report.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Discovery Oil, LTD. ------------------- (Registrant)
/S/ Andrew V. Ippolito April 4, 2001 - ------------------------------- --------------- Andrew V. Ippolito Date President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacities and as of the date indicated.
/S/ Andrew V. Ippolito April 4, 2001 - ------------------------------- --------------- Andrew V. Ippolito Date President and Director