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UNITED STATES
SECURITY AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the year ended December 31, 1999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT
OF 1934 (NO FEE REQUIRED)
For the transition period
Commission File Number: 0-6541
DISCOVERY OIL, LTD.
(Exact name of registrant as specified in its charter)
DELAWARE 83-0207909
(State of Incorporation or Organization) (IRS Employer ID Number)
6127 RAMIREZ CANYON ROAD, MALIBU, CA 90265
(Address of Principal Executive Offices)
(310) 457-1967
(Registrant's Telephone Number)
Securities Registered Under Section 12 (b) of the Act:
COMMON STOCK, $.01 PAR VALUE, PREFERRED STOCK, $1.00 PAR VALUE
(Title of Class)
Securities Registered Under Section 12 (g) of the Act:
NONE
(Title of Class)
Indicate by check mark 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 for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES NO (X)
Indicate by check mark if disclosure of delinquent filers in response 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 III or any amendment to this Form
10-K. (X)
The registrant's Common Stock held by non-affiliates of the registrant is
currently not trading. The aggregate market value August 17, 2000 was nil. As
of August 17, 2000, there were 9,313,352 shares of the registrant's common stock
outstanding. There were no shares of the registrant's preferred stock
outstanding.
1
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business 3
Item 2. Properties 3
Item 3. Legal Proceedings 3
Item 4. Submission of Matters to a Vote of Security Members 3
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 4
Item 6. Selected Financial Data 4-5
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Item 8. Financial Statements 6-15
Item 9. Changes in and Disagreements with Accountants 16
PART III
Item 10. Directors and Executive Officers of the Registrant 16
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial Owners and Management 16
Item 13. Certain Relationships and Related Transactions 17
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 17
Signature Page 17
Exhibit 27 Financial Data Schedule 18
2
DISCOVERY OIL, LTD.
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1999
PART I
Item 1 - BUSINESS
Discovery Oil, LTD. (hereinafter "the Company") 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 minimal income from the production of oil from several
small wells near the city of Signal Hill, California. As of December 31, 1997,
the Company was basically inactive, The Company occupies a small office of
approximately 600 square feet.
Item 2 - PROPERTIES
None
Item 3 - LEGAL PROCEEDINGS
None
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no shareholders' meetings during 1999.
3
DISCOVERY OIL, LTD.
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1999
PART II
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 1999 and 1998 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, 1999
- ----------------------- -------------------------------------------
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 1999 or 1998.
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,
----------------------------------------------------------------
1995 1996 1997
(Unaudited) (Unaudited) (Unaudited) 1998 1999
----------- ----------- ----------- ----------- -----------
Net Revenues $ 3,024 $ 18,651 $ 18,065 $ 2,298 $ 1,369
Net income (loss) (26,858) (7,466) (5,930) (18,755) (17,005)
Per share (.003) (.001) (.001) (.002) (.002)
Cash dividends
per share -0- -0- -0- -0- -0-
4
DISCOVERY OIL, LTD.
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1999
Item 6 - SELECTED FINANCIAL DATA (CONTINUED)
The following data should be read in conjunction with the Company's financial
statements and the notes thereto:
Year Ended December 31,
----------------------------------------------------------------
1995 1996 1997
(Unaudited) (Unaudited) (Unaudited) 1998 1999
----------- ----------- ----------- ----------- -----------
Current Assets $ 42 $ 2,957 $ 1,133 $ 10 $ 897
Current Liabilities 376,751 387,131 391,238 408,870 426,762
----------- ----------- ----------- ----------- -----------
Working Capital (376,709) (384,174) (390,105) (408,860) (425,865)
Total Assets 42 2,957 1,133 10 897
Long-term debt -0- -0- -0- -0- -0-
Stockholders'
Equity (Deficit) (376,709) (384,175) (390,105) (408,860) (425,865)
Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company incurred a net loss of $17,005 in 1999 compared to a net loss of
$18,755 for 1998. The majority of the loss for 1999 was attributed to interest
expense accrued on a related party note and general administrative expenses.
The Company's liabilities for 1999 increased by $17,892 due to additional
shareholder advances and accrued interest on related party notes. The Company's
only asset is a cash balance of $897. Cash activity for the year was minimal
and consisted primarily of advances from a shareholder, minimal revenues and
payment of general administrative expenses.
Item 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The company's financial statements appear following Part II of the report.
5
DISCOVERY OIL, LTD.
FINANCIAL STATEMENTS
December 31, 1999 and 1998
Williams & Webster, P.S.
Certified Public Accountants
Bank of America Financial Center
W. 601 Riverside, Suite 1940
Spokane, WA 99201
(509) 838-5111
DISCOVERY OIL, LTD.
DECEMBER 31, 1999 AND 1998
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statement of Stockholders' Equity 4
Statements of Cash Flows 5
NOTES TO THE FINANCIAL STATEMENTS 6
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, 1999 and 1998 and the related statements of operations,
stockholders' equity 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide 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, 1999 and 1998 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has losses from operations, has generated
little revenue in the past years, 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.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
June 30, 2000
7
Discovery Oil, Ltd.
Balance Sheets
December 31, December 31,
1999 1998
------------ ------------
ASSETS
CURRENT ASSETS
Cash $ 897 $ 10
------------ ------------
Total Current Assets 897 10
------------ ------------
TOTAL ASSETS $ 897 $ 10
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Related party payable $ 177,355 $ 179,460
Interest payable to related party 249,407 229,410
------------ ------------
Total Current Liabilities 426,762 408,870
------------ ------------
COMMITMENTS AND CONTINGENCIES - -
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $1.00 par value;
5,000,000 shares authorized,
no shares 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 (514,365) (497,360)
------------ ------------
Total Stockholders' Equity (Deficit) (425,865) (408,860)
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 897 $ 10
============ ============
The accompanying notes are an integral part of these financial statements.
8
Discovery Oil, Ltd.
Statement of Operations
Year Ended Year Ended
December 31, December 31,
1999 1998
------------ ------------
REVENUES $ 1,369 $ 2,298
------------ ------------
GENERAL AND ADMINISTRATIVE EXPENSES
Bank charges 120 120
Fees 2,500 -
Office and administration 460 721
------------ ------------
Total Expenses 3,080 841
------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (19,997) (20,212)
Gain on sale of property 4,703 -
------------ ------------
Total Other Income (Expense) (15,294) (20,212)
------------ ------------
LOSS BEFORE TAXES (17,005) (18,755)
INCOME TAXES - -
------------ ------------
NET LOSS $ (17,005) $ (18,755)
============ ============
BASIC AND DILUTED 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.
9
Discovery Oil, Ltd.
Statement of Stockholders' Equity
Common Stock
---------------------- Discount Accum-
Number of on Common ulated
Shares Amount Stock Deficit Total
---------- ---------- ---------- ---------- ----------
Balance,
December 31, 1997 9,313,352 $ 93,134 $ (4,634) $(478,605) $(390,105)
Net loss for the year
ending December 31, 1998 - - - (18,755) (18,755)
---------- ---------- ---------- ---------- ----------
Balance,
December 31, 1998 9,313,352 93,134 (4,634) (497,360) (408,860)
Net loss for the year
ending December 31, 1999 - - - (17,005) (17,005)
---------- ---------- ---------- ---------- ----------
Balance,
December 31, 1999 9,313,352 $ 93,134 $ (4,634) $(514,365) $(425,865)
========== ========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
10
Discovery Oil, Ltd.
Statement of Cash Flows
Year Ended Year Ended
December 31, December 31,
1999 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (17,005) $ (18,755)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Increase in interest payable 19,997 20,213
------------ ------------
Net cash provided by operating activities 2,992 1,458
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES: - -
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in related
party payable (2,105) (2,581)
------------ ------------
Net cash used by financing activities (2,105) (2,581)
------------ ------------
Net increase (decrease) in cash 887 (1,123)
Cash, beginning of period 10 1,133
------------ ------------
Cash, end of period $ 897 $ 10
============ ============
Supplemental cash flow disclosures:
Income taxes paid $ - $ -
============ ============
Interest paid $ - $ -
============ ============
The accompanying notes are an integral part of these financial statements.
11
DISCOVERY OIL, LTD.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
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, 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 minimal income from the production of oil from several
small wells near the city of Signal Hill, California. As of December 31, 1997,
the Company was basically inactive. 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 net
losses of $17,005 and $18,755 for the years ended December 31, 1999 and 1998,
respectively, and had minimal revenues. The future of the Company is dependent
upon its ability to obtain financing and upon future successful explorations 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.
12
DISCOVERY OIL, LTD.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
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, 1999, the Company had cumulative net operating losses of
approximately $510,000. 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.
13
DISCOVERY OIL, LTD.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
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 is accrued.
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, 1999, 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 years
ended December 31, 1998 and 1999.
NOTE 4 - RELATED PARTY NOTE PAYABLE
In August of 1987, the 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, 1999 and 1998 equal $177,355 and $179,460,
respectively, and are as follows:
14
DISCOVERY OIL, LTD.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 4 - RELATED PARTY NOTE PAYABLE (CONTINUED)
Rate 1999 1998
------ ---------- ----------
1987 Advances 10.21% $ 21,122 $ 23,227
1988 Advances 11.32% 146,233 146,233
1989 Advances 12.87% 10,000 10,000
---------- ----------
Total $ 177,355 $ 179,460
The interest payable as of December 31, 1999 and 1998 on these transactions was
$249,407 and $229,410 respectively.
NOTE 5 - YEAR 2000 ISSUES
Like other companies, Discovery Oil, Ltd. could be adversely affected if the
computer systems of the Company, its suppliers or customers use do not properly
process and calculate date-related information and data from the period
surrounding and including January 1, 2000. This is commonly known as the "Year
2000" issue. Additionally, this issue could impact non-computer systems and
devices such as production equipment and elevators, etc. Any costs associated
with Year 2000 compliance are expensed when incurred. At this time, there have
been no known adverse conditions caused by the year 2000 issue.
15
DISCOVERY OIL, LTD.
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1999
Item 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
In March 2000, the Company retained the certified public accounting firm of
Williams and Webster, P.S. of Spokane, Washington as independent auditors for
the 1999 and 1998 financial statements. There were no independent auditors
prior to Williams and Webster, P.S. since Coopers & Lybrand in 1985
PART III
Item 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name of Executive
Officers and
Directors and Principal Occupation, Five-Year Business
Positions Held Age History and Directorships
- ----------------------------- --- --------------------------------------------
Andrew V. Ippolito 62 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.
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 - EXECUTIVE COMPENSATION
None
Item 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Andrew V. Ippolito, owns 1,978,275 or 21.3% of the outstanding shares.
16
DISCOVERY OIL, LTD.
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1999
Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A shareholder of the Company, Andrew V. Ippolito, has advanced cash to the
Company totaling $177,355 as of December 31, 1999.
PART IV
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 - Exhibit 27, Financial Data Schedule is 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 Date: August 18, 2000
- ---------------------------------------- --------------------------
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 Date: August 18, 2000
- ---------------------------------------- --------------------------
President and Director