|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 June 30, 2004



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

(IRS Employer Identification Number)

incorporation or organization)



6127 Ramirez Canyon Road

Malibu, CA

(Address of principal executive offices)



90265

(Zip Code)



(310) 457-1967

(Registrants Telephone Number, Including Area Code)

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



APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ ] 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 August 18, 2004, the registrant had outstanding 20,245,921 shares of par value $0.001 common stock.

Transitional Small Business Disclosure format (check one):  Yes [  ]  No [X]



SEC 2334 (3-03)

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

1

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Discovery Oil Ltd

Form 10-QSB

Table of Contents





|Part I  Financial Information                                                                    |    
|------------------------------------------------------------------------------------------------- | ---
|                                                                                                  |    
|Item 1. Financial Statements (Unaudited)                                                          |    
|                                                                                                  |    
|Balance Sheet at June 30, 2004 (Unaudited)                                                        | 3  
|Statements of Operations For the Six Month Periods Ended June 30, 2004 and 2003 (Unaudited)       | 4  
|Statement of Stockholder's Equity (Deficit)                                                       | 5  
|Statements of Cash Flows For the Six Month Periods Ended June 30, 2004 and 2003 (Unaudited)       | 6  
|Notes to Financial Statements (Unaudited)                                                         | 7  
|                                                                                                  |    
|                                                                                                  |    
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations     | 9  
|                                                                                                  |    
|                                                                                                  |    
|Item 3.  Controls and Procedures                                                                  | 10 
|                                                                                                  |    
|Part II  Other Information                                                                       |    
|                                                                                                  |    
|Item 1.  Legal Proceedings                                                                        | (a)
|                                                                                                  |    
|Item 2.  Changes in Securities and Use of Proceeds                                                | (a)
|                                                                                                  |    
|Item 3. Defaults Upon Senior Securities                                                           | (a)
|                                                                                                  |    
|Item 4. Submission of Matters to a Vote of Security Holders                                       | (a)
|                                                                                                  |    
|Item 5. Other Information                                                                         | (a)
|                                                                                                  |    
|Item 6. Exhibits and Reports on Form 8-K                                                          | 11 
|                                                                                                  |    
|Signature Page                                                                                    | 12 
|                                                                                                  |    
|Index to Exhibits                                                                                 | 13 
|(a) There are no issues requiring disclosure for these items and they have therefore been omitted



2

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PART I - FINANCIAL INFORMATION



ITEM 1:  FINANCIAL STATEMENTS



|DISCOVERY OIL, LTD.                            |                                |                                 |                                          |          
|---------------------------------------------- | ------------------------------ | ------------------------------- | ---------------------------------------- | ---------
|BALANCE SHEETS                                 |                                |                                 |                                          |          
|                                               |                                |                                 |                                          |          
|                                               |                                |                                 |                                          |          
|                                               |                                |                                 |                                          |          
|                                               |                                |                                 |                                          |          
|ASSETS                                         |                                |                                 |                                          |          
|                                               | CURRENT ASSETS                 |                                 |                                          |          
|                                               |                                | Cash                            | $                                        | 486      
|                                               |                                |                                 | Total Current Assets                     |          
|                                               |                                |                                 |                                          |          
|                                               | TOTAL ASSETS                   | $                               | 486                                      | $        
|                                               |                                |                                 |                                          |          
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |                                |                                 |                                          |          
|                                               |                                |                                 |                                          |          
|                                               | CURRENT LIABILITIES            |                                 |                                          |          
|                                               |                                | Accounts payable                | $                                        | 22,509   
|                                               |                                | Related party payable           |                                          | 3,855    
|                                               |                                | Advances payable                |                                          | 7,000    
|                                               |                                | State tax liability             |                                          | 22,613   
|                                               |                                |                                 | Total Current Liabilities                |          
|                                               |                                |                                 |                                          |          
|                                               | COMMITMENTS AND CONTINGENCIES  |                                 | -                                        |          
|                                               |                                |                                 |                                          |          
|                                               | STOCKHOLDERS' EQUITY (DEFICIT) |                                 |                                          |          
|                                               |                                | Common stock, $0.001 par value; |                                          |          
|                                               |                                |                                 | 200,000,000 shares authorized,           |          
|                                               |                                |                                 | 20,245,921 shares issued and outstanding |          
|                                               |                                | Additional paid-in capital      |                                          | 607,575  
|                                               |                                | Accumulated deficit             |                                          | (683,313)
|                                               |                                |                                 | Total Stockholders' Equity (Deficit)     |          
|                                               |                                |                                 |                                          |          
|                                               | TOTAL LIABILITIES AND          |                                 |                                          |          
|                                               |                                | STOCKHOLDERS' EQUITY (DEFICIT)  | $                                        | 486      



See accompanying condensed notes to these interim financial statements.

2

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|DISCOVERY OIL, LTD.           |                                     |                          |            |                    |            |                   |            |            
|----------------------------- | ----------------------------------- | ------------------------ | ---------- | ------------------ | ---------- | ----------------- | ---------- | -----------
|STATEMENTS OF OPERATIONS      |                                     |                          |           
|                              |                                     |                          |            |                    |            |                   |            |            
|                              |                                     |                          |            |                    |            |                   |            |            
|                              |                                     |                          |            | Three Months Ended |            | Six  Months Ended
|                              |                                     |                          |            | June 30,           |            | June 30,          |            | June 30,   
|                              |                                     |                          |            | 2004               |            | 2003              |            | 2004       
|                              |                                     |                          |            | (unaudited)        |            | (unaudited)       |            | (unaudited)
|                              |                                     |                          |            |                    |            | (restated)        |            |            
|REVENUES                      |                                     |                          |            |                    |            |                   |            |            
|                              | Royalty income                      | $                        | 7,343      | $                  | 6,435      | $                 | 11,311     | $          
|                              |                                     |                          |            |                    |            |                   |            |            
|OPERATING EXPENSES            |                                     |                          |            |                    |            |                   |            |            
|                              | State tax expense                   |                          | 710        |                    | 611        |                   | 1,420      |            
|                              | General and administrative expenses |                          | 17,676     |                    | 3,594      |                   | 22,047     |            
|                              |                                     | Total operating expenses |            | 18,386             |            | 4,205             |            | 23,467     
|                              |                                     |                          |            |                    |            |                   |            |            
|INCOME (LOSS) FROM OPERATIONS |                                     | (11,043)                 |            | 2,230              |            | (12,156)          |            | 2,226      
|                              |                                     |                          |            |                    |            |                   |            |            
|INCOME TAX EXPENSE            |                                     | -                        |            | -                  |            | -                 |            | -          
|                              |                                     |                          |            |                    |            |                   |            |            
|NET INCOME (LOSS)             | $                                   | (11,043)                 | $          | 2,230              | $          | (12,156)          | $          | 2,226      
|                              |                                     |                          |            |                    |            |                   |            |            
|NET LOSS PER COMMON SHARE,    |                                     |                          |            |                    |            |                   |            |            
|                              | BASIC AND DILUTED                   | $                        | nil        | $                  | nil        | $                 | nil        | $          
|                              |                                     |                          |            |                    |            |                   |            |            
|WEIGHTED AVERAGE NUMBER       |                                     |                          |            |                    |            |                   |            |            
|                              | OF COMMON SHARES OUTSTANDING,       |                          |            |                    |            |                   |            |            
|                              | BASIC AND DILUTED                   |                          | 20,245,921 |                    | 20,245,921 |                   | 20,245,921 |            





See accompanying condensed notes to these interim financial statements.





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|DISCOVERY OIL, LTD.                         |                                 |            |            |              |        |         |         |             |           |              
|------------------------------------------- | ------------------------------- | ---------- | ---------- | ------------ | ------ | ------- | ------- | ----------- | --------- | -------------
|STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) |                                 |            |            |              |        |         |        
|                                            |                                 |            |            |              |        |         |         |             |           |              
|                                            |                                 |            |            |              |        |         |         | Additional  |           |              
|                                            |                                 |            |            | Common Stock |        | Paid-in |         | Accumulated |           | Stockholders'
|                                            |                                 |            |            | Shares       |        | Amount  |         | Capital     |           | Deficit      
|Balance, December 31, 2001                  |                                 |            |            |              |        |         |         |             |           |              
|                                            | as presented previously         |            | 20,039,971 | $            | 20,041 | $       | 563,961 | $           | (590,623) | $            
|                                            |                                 |            |            |              |        |         |         |             |           |              
|Correction for state taxes not              |                                 |            |            |              |        |         |         |             |           |              
|                                            | properly accrued                |            | -          |              | -      |         | -       |             | (16,461)  |              
|                                            |                                 |            |            |              |        |         |         |             |           |              
|Balance, December 31, 2001                  |                                 |            |            |              |        |         |         |             |           |              
|                                            | as restated                     |            | 20,039,971 |              | 20,041 |         | 563,961 |             | (607,084) |              
|                                            |                                 |            |            |              |        |         |         |             |           |              
|Issuance of common stock                    |                                 | 205,950    |            | 206          |        | 43,614  |         | -           |           | 43,820       
|                                            |                                 |            |            |              |        |         |         |             |           |              
|Net loss for the year ended,                |                                 |            |            |              |        |         |         |             |           |              
|                                            | December 31, 2002               |            | -          |              | -      |         | -       |             | (57,312)  |              
|                                            |                                 |            |            |              |        |         |         |             |           |              
|Balance, December 31, 2002                  |                                 | 20,245,921 |            | 20,247       |        | 607,575 |         | (664,396)   |           | (36,574)     
|                                            |                                 |            |            |              |        |         |         |             |           |              
|Net loss for the year ended,                |                                 |            |            |              |        |         |         |             |           |              
|                                            | December 31, 2003               |            | -          |              | -      |         | -       |             | (6,761)   |              
|                                            |                                 |            |            |              |        |         |         |             |           |              
|Balance, December 31, 2003                  |                                 | 20,245,921 |            | 20,247       |        | 607,575 |         | (671,157)   |           | (43,335)     
|                                            |                                 |            |            |              |        |         |         |             |           |              
|Net loss for the six months                 |                                 |            |            |              |        |         |         |             |           |              
|                                            | ended June 30, 2004 (unaudited) |            | -          |              | -      |         | -       |             | (12,156)  |              
|Balance, June 30, 2004 (unaudited)          |                                 | 20,245,921 | $          | 20,247       | $      | 607,575 | $       | (683,313)   | $         | (55,491)     



See accompanying condensed notes to these interim financial statements.



---

|DISCOVERY OIL, LTD.                          |                                                      |                                                  |       |          |                 
|-------------------------------------------- | ---------------------------------------------------- | ------------------------------------------------ | ----- | -------- | ----------------
|STATEMENTS OF CASH FLOWS                     |                                                      |                                                  |       |          |                 
|                                             |                                                      |                                                  |       |          |                 
|                                             |                                                      |                                                  |       |          |                 
|                                             |                                                      |                                                  |       |          | Six Months Ended
|                                             |                                                      |                                                  |       |          | June 30,        
|                                             |                                                      |                                                  |       |          | 2004            
|                                             |                                                      |                                                  |       |          | (unaudited)     
|                                             |                                                      |                                                  |       |          |                 
|                                             |                                                      |                                                  |       |          |                 
|CASH FLOWS FROM OPERATING ACTIVITIES:        |                                                      |                                                  |       |          |                 
|                                             | Net income (loss)                                    |                                                  | $     | (12,156) | $               
|                                             | Adjustments to reconcile net loss to net cash        |                                                  |       |          |                 
|                                             | provided (used) by operating activities:             |                                                  |       |          |                 
|                                             |                                                      | Accounts receivable                              |       |          | -               
|                                             |                                                      | Accounts payable                                 |       |          | 2,500           
|                                             |                                                      | State tax liability                              |       |          | 1,420           
|                                             |                                                      | Net cash provided (used) by operating activities |       |          | (8,236)         
|                                             |                                                      |                                                  |       |          |                 
|CASH FLOWS PROVIDED BY INVESTING ACTIVITIES: |                                                      |                                                  | -     |          | -               
|                                             |                                                      |                                                  |       |          |                 
|CASH FLOWS PROVIDED BY FINANCING ACTIVITIES: |                                                      |                                                  |       |          |                 
|                                             |                                                      | Advances payable                                 |       |          | 7,000           
|                                             |                                                      | Related party payable proceeds                   |       |          | -               
|                                             |                                                      | Net cash provided by financing activities        |       |          | 7,000           
|                                             |                                                      |                                                  |       |          |                 
|                                             | Net increase (decrease) in cash and cash equivalents |                                                  |       | (1,236)  |                 
|                                             |                                                      |                                                  |       |          |                 
|Cash at beginning of period                  |                                                      |                                                  | 1,722 |          | -               
|                                             |                                                      |                                                  |       |          |                 
|Cash at end of period                        |                                                      | $                                                | 486   | $        | 4,131           
|                                             |                                                      |                                                  |       |          |                 
|                                             |                                                      |                                                  |       |          |                 
|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

June 30, 2004



NOTE 1 - BASIS OF PRESENTATION



The financial statements have been prepared in accordance with generally accepted accounting principles for the interim financial information with the instructions to Form 10-QSB and Item 310 of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Companys management, all adjustments (consisting of only normal accruals) considered necessary for a fair presentation have been included.



For further information refer to the financial statements and notes thereto included in the Companys Annual Report on Form 10-KSB for the year ended December 31, 2003.





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 June 30, 2004, the Company has a deficit of $683,313 and has negative cash flows from operations. 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.





NOTE 3 - COMMITMENTS AND CONTIGENCIES



In connection with its previous purchase of its 12.5% non-operating working interest in six oil wells, the Company entered into an operating agreement with the majority owner and operator of the wells. This agreement, modeled after agreements standard and customary to the oil industry, commits the Company to pay its share of joint interest operating costs incurred in the operation, maintenance and potential future development of the wells. Oil prices are extremely volatile and instances may occur where the Company's revenues from oil sales are less than its corresponding production expenses. In addition, oil well repair and maintenance activities may interrupt oil sale revenue and add to overall operation costs.



Domestic oil operations are also subject to extensive federal regulation and potential interruption or termination by governmental authorities on account of environmental and other regulatory considerations. The recent trend towards stricter standards in environmental legislation and regulation may continue, and this could increase the overall costs to the Company.





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DISCOVERY OIL, LTD.

Condensed Notes to Interim Financial Statements

June 30, 2004



NOTE 4  CORRECTION OF AN ERROR



Subsequent to the issuance of the original financial statements for the year ended December 31, 2002, management discovered that accounting for certain transactions was incorrect and incomplete. The correction necessary to fairly restate the financial statements for years prior to 2002 was the recording of a previously unrecorded state tax liability of approximately $16,460.

The financial statements for the three and six months ended June 30, 2003 were also corrected due to an understatement of state tax expense in the amounts of $611 and $1,222, respectively. The effects of the restatement were to decrease net income by $611 in the three months ended March 31, 2003 and increase the accumulated deficit by $611 and to decrease net income by $1,222 in the six months ended June 30, 2003 and increase the accumulated deficit by $1,222. This correction had no material effect upon the loss per share reported in 2003.



NOTE 5  STATE TAX LIABILITY



In the six months ended June 30, 2004, the Companys state tax liability increased by $710. See Note 4.





NOTE 6  ADVANCES PAYABLE



In the six months ended June 30, 2004, the Company was loaned $7,000 from an unrelated party. This advance is uncollateralized, bears 8% interest and is payable upon demand.

































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



General



Discovery Oil, Ltd. (the Company, Registrant, or Discovery Oil), was originally organized under the laws of the State of Wyoming in 1964.  The Company 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.  In 1988 the Company filed a petition in Bankruptcy pursuant to Chapter 11 of the Bankruptcy code in the United States Bankruptcy Court.  On July 10, 1996, the Court entered its order and Final Decree, confirming the execution of the Companys reorganization plan and concluding all proceedings and jurisdiction of the bankruptcy.



The Company has a non-operating working interest in six producing oil wells having proved reserves.  The working interest grants the Company a 12.5% working interest, or a 9.32% net revenue interest after underlying royalty payments, in the oil produced and marketed from each well.  The oil wells are near the city of Signal Hill, California; the Company maintains an office in Malibu, California.



The financial statements are presented on the basis that the Company is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time.  The Company has incurred operating losses for several years and has a stockholders deficit.  These conditions raise substantial doubt as to the Companys ability to continue as a going concern.  The Companys financial statements for the year ended December 31, 2003, were audited by the Companys independent certified public accountants, whose report includes an explanatory paragraph stating that the financial statements have been prepared assuming the Company will continue as a going concern and that the Company has incurred operating losses since its inception that raise substantial doubt about its ability to continue as a going concern.



This report contains both historical and prospective statements concerning the Company and its operations.  Prospective statements (known as "forward-looking statements") may or may not prove true with the passage of time because of future risks and uncertainties.  The Company cannot predict what factors might cause actual results to differ materially from those indicated by prospective statements.



Results of Operations



For the six month period ended June 30, 2004 compared to the six month period ended June 30, 2003.



For the  six months ended June 30, 2004, the Company had a net loss of $12,156 compared to a net gain of $2,226 during the comparable period in the previous year.  Oil revenue increased from $10,007 during the first six months of 2003 to $11,311 during the same period in 2004.  The increase in revenue was due to a slight increase in oil production.  General and administrative expenses during this period increased from $6,559 in 2003 to $22,047 in 2004.



9

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Financial Condition and Liquidity



During the six month period ended June 30, 2004, the Company generated a loss of $12,156 from operating activities.  Management plans to fund future short-term operating needs through profits from its oil producing properties and advances from related party shareholders, although there can be no assurances that oil production profits and advances from related parties will be sufficient to fund the Companys operations.



The Companys management hopes to acquire an interest in a business opportunity presented to it by persons or entities who or which desire the perceived advantages of an Exchange Act registered corporation.  There are no assurances, however, that management will be successful in its plans in acquiring such interests.



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 financial 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.













































10

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PART II - OTHER INFORMATION





ITEM 1. LEGAL PROCEEDINGS



NONE



ITEM 2. CHANGES IN SECURITIES



NONE



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



NONE



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY

HOLDERS



NONE



ITEM 5. OTHER INFORMATION



NONE



ITEM 6. EXHIBITS AND REPORTS ON FORM 8K.



(a) Exhibits



Exhibit 31.1  Certification required by Rule 13a-14(a) or Rule 15d-14(a).



Exhibit 32.1  Certification required 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.





(b) Reports on Form 8K.  The company filed no Forms 8K during the period covered by this report.























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: August 19, 2004



Andrew V. Ippolito

President, Director and

Chief Financial Officer























































12

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|INDEX TO EXHIBITS                                                                                                                                                                                                                | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|Exhibit 31.1  Certification required by Rule 13a-14(a) or Rule 15d-14(a).

Exhibit 32.1  Certification Required 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. | 
|                                                                                                                                                                                                                                 | 













































































13