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|OMB APPROVAL                                                                                        
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-QSB

(Mark One)



[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the quarterly period ended March 31, 2005



or



[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the transition period from _________ to _________



Commission file number 000-06541



DISCOVERY OIL, LTD.

(Exact name of registrant as specified in its charter)



DELAWARE

83-0207909

(State or other jurisdiction of incorporation or organization

(IRS Employer Identification Number)



6127 Ramirez Canyon Road, Malibu, CA

90265

(Address of principal executive offices)

(Zip Code)



(310) 457-1967

(Registrants Telephone Number, Including Area Code)



N/A

(Former name, former address and former fiscal year, if changed since last report)



Check whether the issuer (1) has filed all documents and reports required to be filed by Sections 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 filings for the past 90 days.  Yesþ     No    ̈



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act:



Large accelerated filer  ̈ Accelerated filer  ̈ Non-accelerated filerþ



Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act.):



Yes þ    No ̈



APPLICABLE ONLY TO CORPORATE ISSUERS



State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: At April 30, 2006 the registrant had outstanding 20,245,921 shares of par value $0.001 common stock.



Transitional Small Business Disclosure format (check one):  Yes  ̈    Noþ



SEC 2334 (9-05)

Potential persons who are to respond to the collection of information contained in this form are not required  to  respond unless the  form displays a currently valid OMB control



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Discovery Oil Ltd

Form 10-QSB

Table of Contents





|                                                                                                |   
|----------------------------------------------------------------------------------------------- | --
|Part I  Financial Information                                                                  |   
|                                                                                                |   
|Item 1. Financial Statements (Unaudited)                                                        |   
|                                                                                                |   
|Balance Sheets at March 31, 2006 (Unaudited) and at December 31, 2005 (Audited)                 | 3 
|Statements of Operations For the Three Month Periods Ended March 31, 2006 and 2005 (Unaudited)  | 4 
|Statements of Cash Flows For the  Three Month Periods Ended March 31, 2006 and 2005 (Unaudited) | 5 
|Notes to Condensed Consolidated Financial Statements (Unaudited)                                | 6 
|                                                                                                |   
|                                                                                                |   
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations   | 8 
|                                                                                                |   
|                                                                                                |   
|Item 3.  Controls and Procedures                                                                | 10
|                                                                                                |   
|Part II  Other Information                                                                     |   
|                                                                                                |   
|                                                                                                |   
|Item 6. Exhibits                                                                                | 11
|                                                                                                |   
|Signature Page                                                                                  | 12
|                                                                                                |   
|                                                                                               









2





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PART I - FINANCIAL INFORMATION



ITEM 1: FINANCIAL STATEMENTS



|                                               |                                             |                                 |                                          |             |             |             |             
|---------------------------------------------- | ------------------------------------------- | ------------------------------- | ---------------------------------------- | ----------- | ----------- | ----------- | ------------
|DISCOVERY OIL, LTD.                            |                                             |                                 |                                          |            
|BALANCE SHEETS                                 |                                             |                                 |                                          |            
|                                               |                                             |                                 |                                          |             | March 31,   |             | December 31,
|                                               |                                             |                                 |                                          |             | 2006        |             | 2005        
|                                               |                                             |                                 |                                          |             | (unaudited) |             |             
|ASSETS                                         |                                             |                                 |                                          |             |            
|                                               |                                             |                                 |                                          |             |             |             |             
|                                               | CURRENT ASSETS                              |                                 |                                          |             |            
|                                               |                                             | Cash                            | $                                        | 976         | $           | -          
|                                               |                                             | Prepaid expenses                |                                          | -           |             | -          
|                                               |                                             |                                 | Total Current Assets                     |             | 976         |             | -           
|                                               |                                             |                                 |                                          |             |             |             |             
|                                               | PROPERTY AND EQUIPMENT, NET OF DEPRECIATION | 1,165                           |                                          | 1,066      
|                                               |                                             |                                 |                                          |             |             |             |             
|                                               | TOTAL ASSETS                                | $                               | 2,141                                    | $           | 1,066      
|                                               |                                             |                                 |                                          |             |             |             |             
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |                                             |                                 |                                          |            
|                                               |                                             |                                 |                                          |             |             |             |             
|                                               | CURRENT LIABILITIES                         |                                 |                                          |             |            
|                                               |                                             | Bank overdraft payable          |                                          | -           |             | 865        
|                                               |                                             | Accounts payable                | $                                        | 47,031      | $           | 41,677     
|                                               |                                             | Related party payable           |                                          | 49,175      |             | 42,549     
|                                               |                                             | Advances payable                |                                          | 7,000       |             | 7,000      
|                                               |                                             | State tax liability             |                                          | 25,122      |             | 23,813     
|                                               |                                             |                                 | Total Current Liabilities                |             | 128,328     |             | 115,904     
|                                               |                                             |                                 |                                          |             |             |             |             
|                                               | COMMITMENTS AND CONTINGENCIES               |                                 | -                                        |             | -          
|                                               |                                             |                                 |                                          |             |             |             |             
|                                               | STOCKHOLDERS' EQUITY (DEFICIT)              |                                 |                                          |             |            
|                                               |                                             | Common stock, $0.001 par value; |                                          |             |             |            
|                                               |                                             |                                 | 200,000,000 shares authorized,           |             |             |             |             
|                                               |                                             |                                 | 25,245,921 shares issued and outstanding |             | 25,247      |             | 25,247      
|                                               |                                             | Additional paid-in capital      |                                          | 902,575     |             | 902,575    
|                                               |                                             | Accumulated deficit             |                                          | (1,054,009) |             | (1,042,660)
|                                               |                                             |                                 | Total Stockholders' Equity (Deficit)     |             | (126,187)   |             | (114,838)   
|                                               | TOTAL LIABILITIES AND                       |                                 |                                          |             |            
|                                               |                                             | STOCKHOLDERS' EQUITY (DEFICIT)  | $                                        | 2,141       | $           | 1,066      



See accompanying condensed notes to these interim financial statements.



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|                           |                                     |                          |            |                    |            |             | 
|-------------------------- | ----------------------------------- | ------------------------ | ---------- | ------------------ | ---------- | ----------- | 
|DISCOVERY OIL, LTD.        |                                     |                          |            |                    |           
|STATEMENTS OF OPERATIONS  
|                           |                                     |                          |            |                    |            |             | 
|                           |                                     |                          |            |                    |            |             | 
|                           |                                     |                          |            |                    |            |             | 
|                           |                                     |                          |            | Three Months Ended |           
|                           |                                     |                          |            | March 31,          |           
|                           |                                     |                          |            | 2006               |            | 2005        | 
|                           |                                     |                          |            | (unaudited)        |            | (unaudited) | 
|                           |                                     |                          |            |                    |            |             | 
|REVENUES                   |                                     |                          |            |                    |           
|                           | Royalty income                      | $                        | -          | $                  | -          |            
|                           |                                     |                          |            |                    |            |             | 
|OPERATING EXPENSES         |                                     |                          |            |                    |           
|                           | State tax expense                   |                          | 1,309      |                    | 229        |            
|                           | Rent                                |                          | 3,900      |                    | 3,900      |            
|                           | Accounting and legal expenses       |                          | 4,700      |                    | 5,120      |            
|                           | General and administrative expenses |                          | 1,440      |                    | 3,756      |            
|                           |                                     | Total operating expenses |            | 11,349             |            | 13,005      | 
|                           |                                     |                          |            |                    |            |             | 
|LOSS FROM OPERATIONS       |                                     | (11,349)                 |            | (13,005)           |           
|                           |                                     |                          |            |                    |            |             | 
|LOSS BEFORE TAXES          |                                     | (11,349)                 |            | (13,005)           |           
|                           |                                     |                          |            |                    |            |             | 
|INCOME TAX EXPENSE         |                                     | -                        |            | -                  |           
|                           |                                     |                          |            |                    |            |             | 
|NET LOSS                   | $                                   | (11,349)                 | $          | (13,005)           |           
|                           |                                     |                          |            |                    |            |             | 
|NET LOSS PER COMMON SHARE, |                                     |                          |            |                    |           
|                           | BASIC AND DILUTED                   | $                        | nil        | $                  | nil        |            
|                           |                                     |                          |            |                    |            |             | 
|WEIGHTED AVERAGE NUMBER    |                                     |                          |            |                    |           
|                           | OF COMMON SHARES OUTSTANDING,       |                          |            |                    |            |            
|                           | BASIC AND DILUTED                   |                          | 25,245,921 |                    | 20,245,921 |            















See accompanying condensed notes to these interim financial statements.





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|                                             |                                                      |                                                  |       |          |                    |          |            
|-------------------------------------------- | ---------------------------------------------------- | ------------------------------------------------ | ----- | -------- | ------------------ | -------- | -----------
|DISCOVERY OIL, LTD.                          |                                                      |                                                  |       |          |                   
|STATEMENTS OF CASH FLOWS                     |                                                      |                                                  |       |          |                   
|                                             |                                                      |                                                  |       |          | Three Months Ended
|                                             |                                                      |                                                  |       |          | March 31,         
|                                             |                                                      |                                                  |       |          | 2006               |          | 2005       
|                                             |                                                      |                                                  |       |          | (unaudited)        |          | (unaudited)
|                                             |                                                      |                                                  |       |          |                    |          |            
|CASH FLOWS FROM OPERATING ACTIVITIES:        |                                                      |                                                  |       |          |                   
|                                             | Net gain (loss)                                      |                                                  | $     | (11,349) | $                  | (13,005)
|                                             | Adjustments to reconcile net loss to net cash        |                                                  |       |          |                    |         
|                                             | provided (used) by operating activities:             |                                                  |       |          |                    |         
|                                             |                                                      | Depreciation                                     |       |          | 118                |          | 175        
|                                             |                                                      | Accounts receivable                              |       |          | -                  |          | -          
|                                             |                                                      | Accounts payable                                 |       |          | 5,354              |          | (2,229)    
|                                             |                                                      | Prepaid expenses                                 |       |          | -                  |          | (6,800)    
|                                             |                                                      | Related party payables                           |       |          | 6,626              |          | (2,357)    
|                                             |                                                      | State tax liability                              |       |          | 1,309              |          | 229        
|                                             |                                                      | Net cash provided (used) by operating activities |       |          | 2,058              |          | (23,987)   
|                                             |                                                      |                                                  |       |          |                    |          |            
|CASH FLOWS PROVIDED BY INVESTING ACTIVITIES: |                                                      |                                                  |       |          |                   
|                                             |                                                      | Cash paid for fixed assets                       |       |          | (217)              |          | -          
|                                             |                                                      |                                                  |       |          | (217)              |          | -          
|CASH FLOWS PROVIDED BY FINANCING ACTIVITIES: |                                                      |                                                  |       |          |                   
|                                             |                                                      | Proceeds from bank overdraft payable             |       |          | (865)              |          | -          
|                                             |                                                      | Related party payable proceeds                   |       |          | -                  |          | -          
|                                             |                                                      | Net cash provided by financing activities        |       |          | -                  |          | -          
|                                             |                                                      |                                                  |       |          |                    |          |            
|                                             | Net increase (decrease) in cash and cash equivalents |                                                  |       | 1,841    |                    | (23,987)
|                                             |                                                      |                                                  |       |          |                    |          |            
|Cash at beginning of period                  |                                                      |                                                  | -     |          | 23,987            
|                                             |                                                      |                                                  |       |          |                    |          |            
|Cash at end of period                        |                                                      | $                                                | 1,841 | $        | -                 
|                                             |                                                      |                                                  |       |          |                    |          |            
|                                             |                                                      |                                                  |       |          |                    |          |            
|SUPPLEMENTAL CASH FLOW DISCLOSURES:          |                                                      |                                                  |       |          |                   
|                                             | Income taxes paid                                    |                                                  | $     | -        | $                  | -       
|                                             | Interest paid                                        |                                                  | $     | -        | $                  | -       



See accompanying condensed notes to these interim financial statements.





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DISCOVERY OIL, LTD.

Condensed Notes to Interim Financial Statements

March 31, 2006





NOTE 1 - BASIS OF PRESENTATION



The foregoing unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Regulation S-B as promulgated by the Securities and Exchange Commission (SEC).  Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles in the United States of America for complete financial statements.  These unaudited interim financial statements should be read in conjunction with the Companys audited financial statements for the year ended December 31, 2005.  In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented.  Operating results for the three month period ended March 31, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006.



The preparation of financial statements in accordance with generally accepted accounting principles in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period.  Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Companys financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions and could have a material effect on the reported amounts of the Companys financial position and results of operations.



NOTE 2  GOING CONCERN



The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has suffered material recurring losses from operations since inception. At March 31, 2006, the Company has a deficit of $1,054,009. These factors raise substantial doubt about the Companys ability to continue as a going concern.



The Companys management is currently exploring new business opportunities, which will, if successful, mitigate these factors that raise substantial doubt about the Companys ability to continue as a going concern.  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.





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DISCOVERY OIL, LTD.

Condensed Notes to Interim Financial Statements

March 31, 2006



NOTE 3  STATE TAX LIABILITY



For the three months ended March 31, 2006 the Company estimated its California corporate tax liability to be $25,122.  The Company has not filed a return with the State of California for several years and because of that the Company has been suspended from operating as a corporation in California.  In order to revive its authorized corporation status in California, the Company must file all delinquent tax returns and pay all related California corporate income taxes, penalties and interest.  The Company is currently in negotiations with California to resolve this payable.



NOTE 4  RELATED PARTY PAYABLE



From time to time, Companys president pays expenses on behalf of the Company.  Additionally the Company signed a lease with this executive for the use of office space for $1,300 per month, or $15,600 per year.  The Company also agreed to pay mileage for his travels relating to the Company.  During the three months ended March 31, 2005 the Company reimbursed this executive $2,454 for travel, general and administrative expenses.  The balance due to the executive at March 31, 2006 and 2005 was $49,175 and $6,458, respectively.  This includes both cash loans, payables for expenses paid on behalf of the Company and accrued rent.









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ITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION



General



Our management's discussion and analysis is intended to be read in conjunction with the Company's audited financial statements and notes thereto as published with the Companys Form 10KSB filed with the Securities Exchange Commission on April 17, 2006, and with the reviewed financial statements included herein.  The following statements may be forward-looking in nature and actual results may differ materially.



Plan of Operation



Since the sale of previous interests, Discovery Oil has no revenue and has become a shell company.  The Company is currently search for a new investment opportunity in the oil industry, which would probably take the form of a merger, stock-for-stock exchange or stock-for-assets exchange.  No assurances can be made that we will be successful in locating and negotiating with any possible merger candidates.





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The Company's major shareholders have undertaken to make funds available to the Company in amounts sufficient to enable us to satisfy our reporting and other obligations as a public Company, and to commence, on a limited basis, the process of investigating possible merger and acquisition candidates.



Given our lack of cash or other assets, Discovery Oil will be extremely limited in our attempts to locate potential business situations for investigation.  We do not know when, or if, we may be able to locate investment opportunities or potential merger candidates.  Business opportunities, if any arise, are expected to become available to the Company principally from the personal contacts of our officers and directors.  Although the current focus of management is to find investment opportunities or merger candidates within the oil industry, we will also consider other ventures and reserve the right to evaluate and to enter into any type of business opportunity, in any stage of development, in any location.



We may seek a business opportunity with a firm which only recently commenced operations, or a developing company in need of additional funds for expansion into new products or markets, an entity seeking to develop a new product or service, or an established business which may be experiencing financial or operating difficulties and is in need of additional capital which is perceived to be easier to raise by a public company.  In some instances, a business opportunity may involve the acquisition or merger with a corporation which does not need substantial additional cash but which desires to establish a public trading market for its common stock.



We may purchase assets and establish wholly owned subsidiaries in various businesses or purchase existing businesses as subsidiaries.  We anticipate that the selection of a business opportunity in which to participate will be complex and extremely risky.  Because of general economic conditions, rapid technological advances being made in some industries, and shortages of available capital, management believes that there are numerous firms seeking the benefits of a publicly traded corporation.  Such perceived benefits of a publicly traded corporation may include facilitating or improving the terms on which additional equity financing may be sought, providing liquidity for the principals of a business, creating a means for providing incentive stock options or similar benefits to key employees, providing liquidity (subject to restrictions of applicable statutes) for all shareholders, and other factors.  Potentially available business opportunities may occur in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex.  At the present time, management does not anticipate paying any finder's fee for locating an acquisition prospect.



As part of our investigation of acquisition possibilities, we may meet with executive officers of the business and its personnel, inspect its facilities, obtain independent analysis or verification of the information provided and conduct other reasonable measures, to the extent permitted by the Company's limited resources and management's limited expertise. Generally, we intend to analyze and make a determination based upon all available information without reliance upon any single factor as controlling.  We can give no assurance that we will be able to find suitable a suitable business opportunity which may desire to combine with Discovery Oil.



The Company plans to fund its operations during fiscal year 2006 through advances from related parties, and possibly through the sale of the Company's common stock, although there can be no assurance that the Company would be successful in selling its common stock.  It is anticipated that any revenue from oil sales in 2006 would be negligible as the Company has yet to locate a new investment opportunity.



Liquidity and Capital Resources



As of December 31, 2005, the Company had only $1,066 in assets and liabilities of $115,904, and as of March 31, 2006 (unaudited) the Company had assets of only $2,141 and liabilities of $128,328. If the Company cannot find a new business acceptable to it, it will have to seek additional capital either through the sale of its securities or through loans, advances or capital contributions from its officer. The Company has only incidental ongoing expenses primarily associated with maintaining its corporate status and professional fees associated with accounting and legal costs.



Management anticipates that the Company will incur more costs including legal and accounting fees to locate and complete a merger or acquisition. At the present time, the Company does not have the assets to meet these financial requirements. Additionally, the Company does not have substantial assets to entice potential business opportunities to enter into transactions with the Company.



Since the sale of its previous interests in August 2004, the Company has not generated revenue and it is unlikely that any revenue will be generated until the Company locates a business opportunity with which to acquire or merge. Management of the Company will be investigating various business opportunities. These efforts may cost the Company not only out of pocket expenses for its management but also expenses associated with legal and accounting costs. There can be no guarantee that the Company will receive any benefits from the efforts of management to locate business opportunities.



If and when the Company locates a business opportunity, management of the ompany will give consideration to the dollar amount of that entity's profitable perations and the adequacy of its working capital in determining the terms and onditions under which the Company would consummate such an acquisition. otential business opportunities, no matter which form they may take, will most likely result in substantial dilution for the Company's shareholders as it has only limited capital and no operations.



The Company does not intend to employ anyone in the future, unless its present business operations change. From time to time, Companys president pays expenses on behalf of the Company. Additionally, the Company signed a lease with this executive for the use of office space for $1,300 per month, or $15,600 per year. The Company also agreed to pay mileage for his travels relating to the Company. During the three months ended March 31, 2005 the Company reimbursed this executive $2,454 for travel, general and administrative expenses. The balance due to the executive at March 31, 2006 and 2005 was $49,175 and $6,458, respectively. This includes both cash loans, payables for expenses paid on behalf of the Company and accrued rent.



Results of Operations



For the three months ended

March 31, 2006, the Company had a net loss of $11,349 compared to a net loss for the three months ended March 31, 2005, of $13,005. The Company anticipates losses to remain at the present level or slightly higher until a business opportunity is found. The Company had no revenue for the three months ended March 31, 2006. The Company does not anticipate any revenue until it locates a new business opportunity.



Off Balance-Sheet Arrangements



The Company has no off-balance sheet arrangements as defined in Item 303(c) of the SEC's Regulation S-B.













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ITEM 3. CONTROLS AND PROCEDURES



Based on their most recent evaluation, which was completed within 90 days of the filing of this Form 10-QSB, the Companys president and principle financial officer believes the Companys disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) are effective to ensure that information required to be disclosed by the Company in this report is accumulated and communicated to the Companys management, including its principal officer, as appropriate, to allow timely decisions regarding required disclosure.



There were no significant changes in the Companys internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation and there were no corrective actions with regard to significant deficiencies and material weaknesses.















































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PART II - OTHER INFORMATION







ITEM 6. EXHIBITS.





Exhibit 31.1

Certificationrequired by Rule 13a-14(a) or Rule 15d-14(a) and section 302 of the Sarbanes-Oxley Act of 2002



Exhibit 32.1

Certificationrequired by Rule 13a-14(b) or Rule 15d-14(b) and section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.































































11





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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)





By:/s/Andrew V. Ippolito

Date: May 22, 2006



Andrew V. Ippolito

President, Director and

Chief Financial Officer























































12