<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C.

                                  FORM 10-QSB

         (Mark One)

[X]     Quarterly report under Section 13 or 15(d) of the Securities
        Exchange Act of 1934

                    For the quarterly period ended    March 31, 2000
                                                   --------------------

[_]     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             000-26175
                                    -------------------------------

                           DISCOVERY INVESTMENTS, INC.
--------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)


              Nevada                                     88-049151
 ---------------------------------           -----------------------------------
   (State or Other Jurisdiction of            (IRS Employer Identification No.)
   Incorporation or Organization)

23805 Stuart Ranch Road, Suite 220, Malibu, California               90265
--------------------------------------------------------------------------------
(Address of Principal Executive Offices)                          (Zip Code)

                                 (310) 456-8494
--------------------------------------------------------------------------------
              (Registrant's Telephone Number, Including Area Code)

     Check whether the Issuer (1) filed all reports to be filed by Section 13 or
15(d) 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 at least the past 90 days.

                        Yes [X]         No [_]

     State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.

               Class                   Outstanding at May 15, 2000
               -----                   ---------------------------

         Common Stock, par                  14,000,000 shares
         value $.001 per share

Transitional Small Business Disclosure Format (check one):

                        Yes [_]         No [X]
<PAGE>

PART I
FINANCIAL INFORMATION

Item 1.       Financial Statements

                          DISCOVERY INVESTMENTS, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                     March 31,       December 31,
                                                                       2000              1999
                                                                  --------------    -------------
                                                                    (unaudited)
                                          ASSETS
<S>                                                                <C>             <C>
CURRENT ASSETS
  Accounts receivable                                              $         801   $       1,137
  Related party receivable                                               366,427         332,938
  Inventories                                                            491,862         455,476
  Prepaid expenses and other                                              23,146          57,569
  Due from officer                                                        99,532          63,000
                                                                   -------------   -------------
      TOTAL CURRENT ASSETS                                               981,768         910,120
                                                                   -------------   -------------
PROPERTY AND EQUIPMENT - net                                           9,322,707       8,562,085
                                                                   -------------   -------------
OTHER ASSETS
  Restricted cash                                                        112,500         112,500
  Financing fees                                                         378,090         413,629
  Franchise fees - net                                                   419,036         443,409
  Other Assets                                                           240,090         156,845
                                                                   -------------   -------------
      TOTAL OTHER ASSETS                                               1,149,716       1,126,383
                                                                   -------------   -------------
                                                                    $ 11,454,191    $ 10,598,588
                                                                   =============   =============


                         LIABILITIES AND STOCKHOLDERS' DEFICIENCY

CURRENT LIABILITIES
  Bank overdraft                                                   $     143,737   $      19,559
  Accounts payable                                                       877,978         733,320
  Interest payable - CSFC                                                138,957            --
  Notes payable - current portion
   Time Out                                                              770,000            --
   ARCO                                                                  118,587            --
   Cameron Farrer                                                        195,000         250,000
   Interlochen Enterprises                                               250,000         150,000
   M. Mehdi Mostaedi                                                     150,000         150,000
   CSFC - current portion                                                265,356         223,486
                                                                   -------------   -------------
    Total notes payable - current portion                              1,748,943         773,486
                                                                   -------------   -------------
     TOTAL CURRENT LIABILITIES                                         2,909,615       1,526,365
                                                                   -------------   -------------

LONG-TERM LIABILITIES
  Notes payable - net of current portion
   ARCO                                                                  279,723            --
   Interlochen Enterprises                                               250,000         250,000
   Meridian Enterprises                                                  250,000         250,000
   CRS Corporation                                                     1,000,000       1,000,000
   CSFC - net of current portion                                       7,499,466       7,559,052
                                                                   -------------   -------------
    TOTAL LONG-TERM LIABILITIES                                        9,279,189       9,059,052
                                                                   -------------   -------------
     TOTAL LIABILITIES                                                12,188,804      10,585,417
                                                                   -------------   -------------
MINORITY INTEREST                                                         34,467          44,230
STOCKHOLDERS' DEFICIENCY
  Common Stock, $.001 par value; authorized 25,000,000 shares;
   issued and outstanding - 14,000,000 shares                             14,000          14,000
  Additional paid-in capital                                             438,100         438,100
  Accumulated Deficit                                                 (1,221,180)       (483,159)
                                                                   -------------   -------------
    TOTAL STOCKHOLDERS' DEFICIENCY                                      (769,080)        (31,059)
                                                                   -------------   -------------
                                                                   $  11,454,191   $  10,598,588
                                                                   =============   =============
</TABLE>

     See accompanying Notes to Consolidated Condensed Financial Statements

                                       2
<PAGE>

                          DISCOVERY INVESTMENTS, INC.
                CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
               FOR THREE MONTHS ENDED MARCH 31, 2000 (unaudited)




SALES                                    $  4,883,403
COST OF SALES                               4,242,691
                                        -------------
     GROSS PROFIT                             640,712
                                        -------------
OPERATING EXPENSES
  Direct operating expense                    532,249
  Royalties                                    56,837
  Marketing                                     5,024
  General and administrative                  434,496
  Depreciation and amortization                71,334
                                        -------------
TOTAL OPERATING EXPENSES                    1,099,940
                                        -------------
LOSS BEFORE OTHER EXPENSES                   (459,228)
                                        -------------
OTHER EXPENSES
  Miscellaneous expense                        (7,681)
  Interest expense                           (271,112)
                                        -------------
     TOTAL OTHER EXPENSES                    (278,793)
                                        -------------
NET LOSS                                 $   (738,021)
                                        =============
WEIGHTED AVERAGE NUMBER OF
     COMMON SHARES                         14,000,000
                                        =============
                                         $      (0.05)
                                        =============

     See accompanying Notes to Consolidated Condensed Financial Statements

                                       3
<PAGE>

                          DISCOVERY INVESTMENTS, INC.
                CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
               FOR THREE MONTHS ENDED MARCH 31, 2000 (unaudited)


CASH FLOWS FROM OPERATING ACTIVITIES
     Net Loss                                                         $(738,021)
     Adjusments to reconcile net income to
         net cash provided by operating activities:
            Depreciation                                                 46,961
            Amortization                                                 59,912
            Minority interest                                            (9,763)
            Interest on notes                                           180,827
     Changes in operating assets and liabilities:

         Receivables                                                        336
         Inventories                                                    (36,386)
         Prepaid expenses                                                34,423
         Other assets                                                   (83,245)
         Accounts payable and accrued expense                           144,658
                                                                     -----------
NET CASH USED IN OPERATING ACTIVITIES                                  (400,298)
                                                                     -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Advances to officer                                                (36,532)
     Advances to affiliate                                              (33,489)
     Acquisition of LLO-Gas, Inc.
     Acquisition of property and equipment                             (807,583)
                                                                     -----------
NET CASH USED IN INVESTING ACTIVITIES                                   (77,604)
                                                                     -----------
CASH FLOWS FROM FINANCING ACTIVITIES
     Proceeds from (repayments of) notes payable                      1,153,724
     Net increase in cash overdraft                                     124,178
                                                                     -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                             1,277,902
                                                                     -----------
INCREASE (DECREASE) IN CASH                                                 -
CASH AND CASH EQUIVALENTS
     Beginning of year                                                      -
                                                                     -----------
     End of year                                                      $     -
                                                                     ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
     Cash paid during the year for:
          Interest                                                    $  69,717
                                                                     ===========

     See accompanying Notes to Consolidated Condensed Financial Statements

                                       4
<PAGE>


                           DISCOVERY INVESTMENTS, INC
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                        THREE MONTHS ENDED MARCH 31, 2000
                                   (UNAUDITED)

1.   BASIS OF PRESENTATION

     The interim consolidated financial statements presented have been prepared
     by Discovery Investments, Inc. (the "Company") without audit and, in the
     opinion of the management, reflect all adjustments of a normal recurring
     nature necessary for a fair statement of (a) the consolidated results of
     operations for the three months ended March 31, 2000, (b) the consolidated
     financial position at March 31, 2000 and (c) the consolidated cash flow for
     the three months ended March 31, 2000. Interim results are not necessarily
     indicative of results for a full year.

     The consolidated balance sheet presented as of December 31, 1999 has been
     derived from the consolidated financial statements that have been audited
     by the Company's independent auditors. The consolidated financial
     statements and notes are condensed as permitted by Form 10-QSB and do not
     contain certain information included in the annual financial statements and
     notes of the Company. The consolidated financial statements and notes
     included herein should be read in conjunction with the financial statements
     and notes included in the Company's Annual Report on Form 10-KSB.

2.   LIQUIDITY

     The Company experienced significant difficulties in operations during the
     first quarter of 2000. As a result, the Company's financial condition is
     imperiled, and its liquidity and capital resources have been largely
     exhausted. This is primarily the result of the dramatic increase in the
     wholesale price for the petroleum during the first quarter, which created
     liquidity problems for the Company as its line of credit and working
     capital were exhausted. As a result of its inability to obtain petroleum
     product, the Company pumped significantly less gas at its facilities during
     March than during January and February, a decline which accelerated during
     the second quarter. Since May 1, 2000, the Company has not been pumping gas
     at any of its facilities. As a result of the liquidity problem, inventory
     at the Company's am/pm mini markets also declined, resulting in decreased
     sales at the mini markets during the same period.

     After the end of the first quarter, the Company received a Notice of
     Termination of am/pm Mini Market Agreement and Contract Dealer Gasoline
     Agreement dated May 22, 2000 (the "ARCO Notice") from Atlantic Richfield
     Company ("ARCO"), advising the Company that ARCO intends to terminate the
     Contract Dealer Agreement dated October 26, 1999, and the am/pm Mini Market
     Agreement dated October 26, 1999 (collectively, the "ARCO Agreements") and
     the franchise relationship between the Company and ARCO, effective at 10:00
     a.m. on June 7, 2000. ARCO claims that the basis for the terminations are
     the Company's failure to sell adequate or any amounts gas at the Company's
     facilities during certain dates in March, April and May; failure to have
     sufficient retail products available for sale to the public at the
     Company's am/pm mini markets on certain dates in March, April and May;
     failure to pay ARCO in a timely manner amounts due to ARCO under the
     existing line of credit and term loan with ARCO, in the aggregate amount of
     $658,520.86, plus late charges; and failure to pay royalties to ARCO with
     respect to the franchised am/pm mini markets. The ARCO Notice also refers
     to certain non-financial breeches of the ARCO Agreements.

     The Company is holding discussions with ARCO regarding these matters, but
     it is not possible to predict the outcome of those discussions.

     After the end of the first quarter, the Company also received a notice of
     default dated May 25, 2000 (the "Credit Suisse Notice"), from counsel to
     Credit Suisse First Boston Specialty Finance LLC, formerly known as
     Convenience Store Finance Company, LLC ("Credit Suisse"), stating that the
     Company is in default under the Loan and Security Agreement dated October
     26, 1999 (the "Credit Suisse Loan Agreement"), pursuant to which Credit
     Suisse loaned the Company $7,800,000 (the "Loan"). Credit Suisse claims
     that the basis for the default is the Company's failure to make monthly
     payments of principal and interest in March, April and May; and certain
     non-financial breeches of the Credit Suisse Loan Agreement, and the related
     promissory notes evidencing the Loan and Deeds of Trust securing the Loan
     (the "Deeds of Trust"), including breeches of various representations and
     warranties contained in the Credit Suisse Loan Agreement. The Credit Suisse
     Notice demands payment of delinquent principal, interest, default interest,
     late charges and servicing fees of $326,128.75, as of May 22, 2000, with
     additional default interest at a rate of $1,076.28 per diem from May 23,
     2000, and attorneys' fees, no later than the end of business on May 31,
     2000. Should the Company fail to make such payments by such time, it is
     Credit Suisse's position that (i) all indebtedness secured by the Deeds of
     Trust may be accelerated and

                                       5
<PAGE>

                           DISCOVERY INVESTMENTS, INC
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                        THREE MONTHS ENDED MARCH 31, 2000
                                   (UNAUDITED)

     become due and payable in full without any further notice to the Company
     and (ii) Credit Suisse may exercise any and all remedies available under
     the Loan, including but not limited to, foreclosing on the Deeds of Trust
     and having a receiver appointed. Additionally, it is Credit Suisse's
     position that the Company's license to collect and retain the rents,
     issues, deposits and profits of the Company's properties encumbered by the
     Deeds of Trust is revoked pursuant to the terms of the Deeds of Trust.

     The Company is holding discussions with Credit Suisse regarding these
     matters, but it is not possible to predict the outcome of these
     discussions.

     The Company is actively pursuing discussions with a third party pursuant to
     which the Company would receive bridge financing to satisfy the obligations
     owing to ARCO and Credit Suisse, pending permanent financing. However,
     there are no definitive agreements in place at this time with any financing
     sources and there can be no assurance that any such agreements will be
     entered into, entered into on terms that are favorable to the Company, or
     consummated in sufficient time to forestall further action by ARCO and
     Credit Suisse. Unless the Company is able to secure bridge financing very
     soon, and satisfy both ARCO and Credit Suisse with respect to their various
     financial and non-financial concerns, the Company may not be able to
     continue operations.


3.   LEGAL PROCEEDINGS

     On February 29, 2000, West Star Energy Group, Inc. ("West Star") sued John
     Castellucci, the Company and its wholly-owned operating subsidiary, LLO-
     Gas, Inc. ("LLO-Gas"), in the Superior Court of the State of California,
     County of Los Angeles (Case No. BC 225568). Mr. Castellucci is President,
     Chief Financial Officer, Secretary, director and the principal shareholder
     of the Company, and President, a director and the principal shareholder of
     West Star. West Star, through its Board of Directors (other than Mr.
     Castellucci), alleges that Mr. Castellucci breached his fiduciary duty to
     West Star and engaged in a series of unauthorized transactions for his
     personal benefit. The Plaintiff also alleges that Mr. Castellucci made
     certain fraudulent statements to the West Star Board of Directors, which
     induced them not to exercise a West Star business opportunity to acquire
     the ARCO Facilities for itself and to consent to the acquisition of the
     ARCO Facilities by LLO-Gas. West Star seeks general and special damages of
     at least $3.5 million against Mr. Castellucci. West Star seeks the
     imposition of a constructive trust on the Company's facilities which were
     purchased from ARCO (the "ARCO Facilities") and an order compelling the
     Company to return the ARCO Facilities, and all proceeds therefrom, to West
     Star. West Star also seeks damages against Mr. Castellucci and the Company
     of at least $3.5 million for unfair competition. In addition, West Star
     seeks an accounting from the defendants. West Star also seeks to recover
     the costs of the suit, prejudgment interest, attorneys' fees and such other
     relief as the court may deem just and proper. The Company has not yet filed
     an answer to the complaint. The Company believes that it has meritorious
     defenses and affirmative defenses to the lawsuit. The parties engaged in
     meaningful settlement negotiations and entered into a non-binding Letter of
     Intent on April 14, 2000. Pursuant to the Letter of Intent and in order to
     facilitate the negotiation of a definitive settlement agreement, the
     plaintiffs dismissed the lawsuit without prejudice. The terms of the
     settlement agreement are presently being negotiated. In view of the
     inherent uncertainties of litigation, the outcome of the settlement
     negotiations, or the litigation itself, cannot be predicted.

     In December 1999, M. Mehdi Mostaedi loaned the Company $150,000. The
     Company and John Castellucci, President, Chief Financial Officer,
     Secretary, Director and the principal shareholder of the Company, jointly
     executed a promissory note dated December 16, 1999 (the "Mostaedi Note") in
     the principal amount of $150,000. The Mostaedi Note bears interest at the
     rate of 9% per annum and was due and payable as to principal and interest
     on February 16, 2000. The Mostaedi Note is secured with a pledge of
     2,000,000 shares of the Company's common stock owned by Mr. Castellucci
     pursuant to a Pledge Agreement dated December 16, 1999 between Messrs.
     Castellucci and Mostaedi. On April 11, 2000, Mr. Mostaedi filed a lawsuit
     against the Company and Mr. Castellucci in the Superior Court of the State
     of California, West District, Santa Monica, California, alleging breach of
     contract and default under the Mostaedi Note. Mr. Mostaedi seeks damages in
     the amount of $150,000, interest on that amount at the rate of 9% from
     December 16, 1999, and costs of the suit. The Company has been served with
     the complaint but has not yet filed an answer to the complaint. The Company
     is seeking to commence settlement discussions with the plaintiff regarding
     the lawsuit.

                                       6
<PAGE>

                           DISCOVERY INVESTMENTS, INC
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                        THREE MONTHS ENDED MARCH 31, 2000
                                   (UNAUDITED)

4.   INVENTORIES

     Inventories are valued at the lower of cost or market. Cost is determined
     on the weighted average method. Inventories consist of the following:

                                    March 31, 2000          December 31, 1999
                                 ------------------       --------------------

     Gasoline                              $ 16,714                   $101,544
     Beer                                    61,936                     36,695
     Tobacco                                 92,964                     82,881
     Food and beverage                      200,273                    202,010
     Non food products                      102,375                     32,346
                                 ------------------       --------------------
                                           $474,262                   $455,476
                                 ==================       ====================

                                       7
<PAGE>

Item 2.  Management's Discussion and Analysis or Plan of Operation

     Certain statements contained in this Quarterly Report on Form 10-QSB that
are not related to historical results, including, without limitation, statements
regarding the Company's business strategy and objectives, future financial
position, possible financing activities, and expectations about future
operations, are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities Act of
1934, as amended, and involve risks and uncertainties. Although the Company
believes that the assumptions on which these forward-looking statements are
based are reasonable, there can be no assurance that such assumptions will prove
to be accurate and actual results could differ materially from those discussed
in the forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to, regulatory policies,
competition from other similar businesses, and market and general economic
factors. All forward-looking statements contained in this Quarterly Report on
Form 10-QSB are qualified in their entirety by this statement.

     Until October 26, 1999, Discovery Investments, Inc. (the "Company") was a
"shell" company with no operations, assets or financial resources. During the
period from inception (September 10, 1996) until October 26, 1999, the Company
sustained operating expenses without corresponding revenues. This resulted in
the Company's incurring a net operating loss, which loss will increase until the
Company can begin operating its new business profitability.

     The Company's business operations commenced on October 26, 1999. Because
the Company's business activities are not diversified, the Company may be
subject to economic fluctuations within its business or industry and therefore
increase the risks associated with the Company's operations.

     For the three months ended March 31, 2000, the Company had total revenue of
$4,883,403, cost of sales of $4,242,691 and total operating expenses of
$1,099,940, resulting in net loss before other expense of $(459,228). In
addition, the Company had total other expense, consisting primarily of interest
expense, in the amount of $(278,793). As a result, the Company had a net loss of
$(738,021), or $(.05) per share, for the three months ended March 31, 2000.

     Since the Company's operations commenced on October 26, 1999, a discussion
of comparative results of operations for the three-month period ended March 31,
1999, is not possible.

     The Company experienced significant difficulties in operations during the
first quarter of 2000. As a result, the Company's financial condition is
imperiled, and its liquidity and capital resources have been largely exhausted.
This is primarily the result of the dramatic increase in

                                       8
<PAGE>

the wholesale price for the petroleum during the first quarter, which created
liquidity problems for the Company as its line of credit and working capital
were exhausted. As a result of its inability to obtain petroleum product, the
Company pumped significantly less gas at its facilities during March than during
January and February, a decline which accelerated during the second quarter.
Since May 1, 2000, the Company has not been pumping gas at any of its
facilities. As a result of the liquidity problem, inventory at the Company's
am/pm mini markets also declined, resulting in decreased sales at the mini
markets during the same period.

     After the end of the first quarter, the Company received a Notice of
Termination of am/pm Mini Market Agreement and Contract Dealer Gasoline
Agreement dated May 22, 2000 (the "ARCO Notice") from Atlantic Richfield Company
("ARCO"), advising the Company that ARCO intends to terminate the Contract
Dealer Agreement dated October 26, 1999, and the am/pm Mini Market Agreement
dated October 26, 1999 (collectively, the "ARCO Agreements") and the franchise
relationship between the Company and ARCO, effective at 10:00 a.m. on June 7,
2000. ARCO claims that the basis for the terminations are the Company's failure
to sell adequate or any amounts gas at the Company's facilities during certain
dates in March, April and May; failure to have sufficient retail products
available for sale to the public at the Company's am/pm mini markets on certain
dates in March, April and May; failure to pay ARCO in a timely manner amounts
due to ARCO under the existing line of credit and term loan with ARCO, in the
aggregate amount of $658,520.86 as of May 22, 2000, plus late charges; and
failure to pay royalties to ARCO with respect to the franchised am/pm mini
markets. The ARCO Notice also refers to certain non-financial breeches of the
ARCO Agreements.

     The Company is holding discussions with ARCO regarding these matters, but
it is not possible to predict the outcome of these discussions.

     After the end of the first quarter, the Company also received a notice of
default dated May 25, 2000 (the "Credit Suisse Notice"), from counsel to Credit
Suisse First Boston Specialty Finance LLC, formerly known as Convenience Store
Finance Company, LLC ("Credit Suisse"), stating that the Company is in default
under the Loan and Security Agreement dated October 26, 1999 (the "Credit Suisse
Loan Agreement"), pursuant to which Credit Suisse loaned the Company $7,800,000
(the "Loan"). Credit Suisse claims that the basis for the default is the
Company's failure to make monthly payments of principal and interest in March,
April and May; and certain non-financial breeches of the Credit Suisse Loan
Agreement, and the related promissory notes evidencing the Loan and Deeds of
Trust securing the Loan (the "Deeds of Trust"), including breeches of various
representations and warranties contained in the Credit Suisse Loan Agreement.
The Credit Suisse Notice demands payment of delinquent principal, interest,
default interest, late charges and servicing fees of $326,128.75, as of May 22,
2000, with additional default interest at a rate of $1,076.28 per diem from May
23, 2000, and attorneys' fees, no later than the end of business on May 31,
2000.

     Should the Company fail to make such payments by such time, it is Credit
Suisse's position that (i) all indebtedness secured by the Deeds of Trust may be
accelerated and become due and payable in full without any further notice to the
Company and (ii) Credit Suisse may exercise any and all remedies available under
the Loan, including but not limited to, foreclosing on the Deeds of Trust and
having a receiver appointed. Additionally, it is Credit Suisse's position that
the Company's license to collect and retain the rents, issues, deposits and
profits of the Company's properties encumbered by the Deeds of Trust is revoked
pursuant to the terms of the Deeds of Trust.

     The Company is holding discussions with Credit Suisse regarding these
matters, but it is not possible to predict the outcome of these discussions.

                               9
<PAGE>

     The Company is actively pursuing discussions with a third party pursuant to
which the Company would receive bridge financing to satisfy the obligations
owing to ARCO and Credit Suisse, pending permanent financing. However, there are
no definitive agreements in place at this time with any financing sources
and there can be no assurance that any such agreements will be entered into,
entered into on terms that are favorable to the Company, or consummated in
sufficient time to forestall further action by ARCO and Credit Suisse. Unless
the Company is able to secure bridge financing very soon, and satisfy both ARCO
and Credit Suisse with respect to their various financial and non-financial
concerns, the Company may not be able to continue operations.

     Assuming the foregoing matters can be resolved to the satisfaction of ARCO
and Credit Suisse, until additional financing is obtained and the Company's
financial situation is stabilized, the Company will not be in a position to
pursue any aspect of its plan of operations for the fiscal year ending December
31, 2000.

     Because the Company's working capital has been exhausted, the Company will
not be able to meet its needs to fund existing operations at its facilities,
assuming the Company is able to recommence full operations. The Company will
have to raise additional capital, either as equity or debt, or a combination of
both, to fund such operations, at least initially. At present, there are no
arrangements or agreements for any such financing. There can be no assurance
that any such financing will be available or, if financing is available, if
it will be on terms that are favorable to the Company.

Item 3. Defaults Upon Senior Securities

     For a discussion of the Company's default under the Credit Suisse Loan
Agreement, see Part I, Item 1, "Management's Discussion and Analysis or Plan of
Operation" above.


PART II
OTHER INFORMATION

Item 1.  Legal Proceedings

     On February 29, 2000, West Star Energy Group, Inc. ("West Star") sued
John Castellucci, the Company and its wholly-owned operating subsidiary,
LLO-Gas, Inc. ("LLO-Gas"), in the Superior Court of the State of California,
County of Los Angeles (Case No. BC 225568). Mr. Castellucci is President, Chief
Financial Officer, Secretary, director and the principal shareholder of the
Company, and President, a director and the principal shareholder of West Star.
West Star, through its Board of Directors (other than Mr. Castellucci), alleges
that Mr. Castellucci breached his fiduciary duty to West Star and engaged in a
series of unauthorized transactions for his personal benefit. The plaintiff also
alleges that Mr. Castellucci made certain fraudulent statements to the West Star
Board of Directors, which induced them not to exercise a West Star business
opportunity to acquire the ARCO Facilities for itself and to consent to the
acquisition of the ARCO Facilities by LLO-Gas.

     West Star seeks general and special damages of at least $3.5 million
against Mr. Castellucci. West Star seeks the imposition of a constructive trust
on the Company's facilities which were purchased from ARCO (the "ARCO
Facilities") and an order compelling the Company to return the ARCO Facilities,
and all proceeds therefrom, to West Star. West Star also seeks damages against
Mr. Castellucci and the Company of at least $3.5 million for unfair competition.
In addition, West Star seeks an accounting from the defendants. West Star also
seeks to recover the costs of the suit, prejudgment interest, attorneys' fees
and such other relief as the court may deem just and proper.

                                       10
<PAGE>

     The Company has not yet filed an answer to the complaint. The Company
believes that it has meritorious defenses and affirmative defenses to the
lawsuit.

     The parties engaged in meaningful settlement negotiations and entered into
a non-binding Letter of Intent on April 14, 2000. Pursuant to the Letter of
Intent and in order to facilitate the negotiation of a definitive settlement
agreement, the plaintiffs dismissed the lawsuit without prejudice. The terms of
the settlement agreement are presently being negotiated. In view of the inherent
uncertainties of litigation, the outcome of the settlement negotiations, or the
litigation itself, cannot be predicted.

     In December 1999, M. Mehdi Mostaedi loaned the Company $150,000. The
Company and John Castellucci, President, Chief Financial Officer, Secretary,
Director and the principal shareholder of the Company, jointly executed a
promissory note dated December 16, 1999 (the "Mostaedi Note") in the principal
amount of $150,000. The Mostaedi Note bears interest at the rate of 9% per annum
and was due and payable as to principal and interest on February 16, 2000. The
Mostaedi Note is secured with a pledge of 2,000,000 shares of the Company's
common stock owned by Mr. Castellucci pursuant to a Pledge Agreement dated
December 16, 1999 between Messrs. Castellucci and Mostaedi. On April 11, 2000,
Mr. Mostaedi filed a lawsuit against the Company and Mr. Castellucci in the
Superior Court of the State of California, West District, Santa Monica,
California, alleging breach of contract and default under the Mostaedi Note. Mr.
Mostaedi seeks damages in the amount of $150,000, interest on that amount at the
rate of 9% from December 16, 1999, and costs of the suit. The Company has been
served with the complaint but has not yet filed an answer to the complaint. The
Company is seeking to commence settlement discussions with the plaintiff
regarding the lawsuit.

Item 4.  Exhibits and Reports on Form 8-K

   (a)   Exhibits

   Exhibit No.         Description
   -----------         -----------

   27            Financial Data Schedule

   (b)   Reports on Form 8-K

     On April 11, 2000, the Company filed a Current Report on Form 8-K with the
Securities and Exchange Commission, with respect to the retention of new
independent auditors.

     On April 18, 2000, the Company filed a Current Report on Form 8-K with the
Securities and Exchange Commission, with respect to litigation commenced against
the Company and John D. Castellucci for breach of contract and default under a
promissory note.

     On May 23, 2000, the Company filed a Current Report on Form 8-K with the
Securities and Exchange Commission, with respect to the Company's first quarter
results and operating condition.

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<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                DISCOVERY INVESTMENTS, INC.

Date:  June 1, 2000             By:   /s/  John D. Castellucci
                                   ---------------------------------------------
                                      President (Principal Executive Officer)
                                      and Chief Financial Officer

                                       12