<PAGE>   1

                                  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, 2001.

                                       OR

[ ]     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934

        FOR THE TRANSITION FROM _______ TO ________.

                        COMMISSION FILE NUMBER 000-26175

                           DISCOVERY INVESTMENTS, INC.
             (Exact name of registrant as specified in its charter)

                Nevada                                            88-0409151
    -------------------------------                          -------------------
    (State or other jurisdiction of                           (I.R.S. Employer
     incorporation or organization)                          Identification No.)

  6767 W. Tropicana Avenue, Suite 207
           Las Vegas, Nevada                                         89103
----------------------------------------                           ----------
(Address of principal executive offices)                           (Zip Code)

Issuer's telephone number: (702) 248-1047

                                       N/A
                 ----------------------------------------------
                 (Former name, former address and former fiscal
                      year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]



                                       -1-

<PAGE>   2

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

<TABLE>
<CAPTION>
               Class                    Outstanding at June 30, 2001
               -----                    ----------------------------
<S>                                     <C>
        Common Stock, par value                   2,100,000
        $.001 per share
</TABLE>

Transitional Small Business Disclosure Format: Yes [ ]   No [X]




                                      -2-
<PAGE>   3

                                     PART I

                              FINANCIAL INFORMATION

Item I.   Financial Statements

                           DISCOVERY INVESTMENTS, INC.
                          (A Development Stage Company)

                                FINANCIAL REPORTS

                                  JUNE 30, 2001
                                DECEMBER 31, 2000



                                      -3-
<PAGE>   4

                           DISCOVERY INVESTMENTS, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                                    CONTENTS

<TABLE>
<S>                                                                        <C>
INDEPENDENT AUDITOR'S REPORT ON THE
FINANCIAL STATEMENTS                                                       1
FINANCIAL STATEMENTS

   Balance Sheets                                                          2

   Statements of Income                                                    3

   Statements of Stockholders' Equity                                      4

   Statements of Cash Flows                                                5

   Notes to Financial Statements                                         6-8
----------------------------------------------------------------------------
</TABLE>



                                      -4-
<PAGE>   5

                          INDEPENDENT AUDITOR'S REPORT

        To the Board of Directors
        Discovery Investments, Inc.
        Las Vegas, Nevada

        I have audited the accompanying balance sheet of Discovery Investments,
        Inc. (A Development Stage Company) as of June 30, 2001 and December 31,
        2000 and the related statements of income, stockholders' equity, and
        cash flows for the three months ended June 30, 2001, the six months
        ended June 30, 2001 and the year ended December 31, 2000 and the period
        September 10, 1996 (date of inception) through June 30, 2001. These
        financial statements are the responsibility of the Company's management.
        My responsibility is to express an opinion on these financial statements
        based on my audit.

        I conducted my audit in accordance with generally accepted auditing
        standards. Those standards require that I plan and perform the audit to
        obtain reasonable assurance about whether the financial statements are
        free of material misstatement. An audit includes examining, on a test
        basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles
        used and significant estimates made by management, as well as evaluating
        the overall financial statement presentation. I believe that my audit
        provides a reasonable basis for my opinion.

        In my opinion, the financial statements referred to above present
        fairly, in all material respects, the financial position of Discovery
        Investments, Inc. (A Development Stage Company) as of June 30, 2001 and
        December 31, 2000 and the results of its operations and cash flows for
        the three months ended June 30, 2001, the six months ended June 30,
        2001, the year ended December 31, 2000 and the period September 10, 1996
        (date of inception) through June 30, 2001, in conformity with generally
        accepted accounting principles.

        The accompanying financial statements have been prepared assuming that
        the Company will continue as a going concern. As discussed in Note 4 to
        the financial statements, the Company has no operations and has no
        established source of revenue. This raises substantial doubt about its
        ability to continue as a going concern. Management's plan in regard to
        these matters is also described in Note 4 and Note 10. The financial
        statements do not include any adjustments that might result from the
        outcome of this uncertainty.

        Kyle L. Tingle
        Certified Public Accountant

        August 13, 2001
        Henderson, Nevada



                                      -5-
<PAGE>   6

                           DISCOVERY INVESTMENTS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                                 BALANCE SHEETS
                                   (RESTATED)

                                     ASSETS

<TABLE>
<CAPTION>
                                                           June 30,        December 31,        December 31,
                                                               2001                2000                1999
                                                        -----------        ------------        ------------
<S>                                                     <C>                 <C>                 <C>
CURRENT ASSETS                                          $         0         $         0         $         0
                                                        -----------         -----------         -----------

          Total current assets                          $         0         $         0         $         0
                                                        -----------         -----------         -----------

                Total assets                            $         0         $         0         $         0
                                                        ===========         ===========         ===========

                                  LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
    Short term notes payable                            $   100,000         $   100,000         $         0
    Accounts payable                                         98,660              93,792                   0
    Interest payable                                        267,000             186,000              25,000
    Officers advances (Note 5)                               17,576              16,501              15,654
                                                        -----------         -----------         -----------

          Total current liabilities                     $   483,236         $   396,293         $    40,654
                                                        -----------         -----------         -----------

LONG TERM DEBT                                          $ 1,500,000         $ 1,500,000         $ 1,500,000

          Total liabilities                             $ 1,983,236         $ 1,896,293         $ 1,540,654
                                                        -----------         -----------         -----------

STOCKHOLDERS' EQUITY
    Common stock: $0.001 par value;
       authorized 25,000,000 shares;
       issued and outstanding:
       2,100,000 shares at December 31, 1999;                                                         2,100
       2,100,000 shares at December 31, 2000                                      2,100
       2,100,000 shares at June 30, 2001                      2,100
    Additional Paid In Capital                                    0                   0                   0
    Accumulated deficit during development stage         (1,985,336)         (1,898,393)         (1,542,754)
                                                        -----------         -----------         -----------
          Total stockholders' equity                    $(1,983,236)        $(1,896,293)        $(1,540,654)
                                                        -----------         -----------         -----------

                Total liabilities and

                stockholders' equity                    $         0         $         0         $         0
                                                        ===========         ===========         ===========
</TABLE>



See Accompanying Notes to Financial Statements.



                                      -6-
<PAGE>   7

                           DISCOVERY INVESTMENTS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                              STATEMENTS OF INCOME
                                   (RESTATED)

<TABLE>
<CAPTION>
                                                   Three Months Ended                       Six Months Ended
                                            -------------------------------         -------------------------------
                                               June 30,            June 30,            June 30,             June 30,
                                                   2001                2000                2001                2000
                                            -----------         -----------         -----------         -----------
                                                                (unaudited)                             (unaudited)
<S>                                         <C>                 <C>                 <C>                 <C>
Revenues                                    $         0         $         0         $         0         $         0
Cost of revenue                                       0                   0                   0                   0
                                            -----------         -----------         -----------         -----------
         Gross profit                       $         0         $         0         $         0         $         0
General, selling and
  administrative expenses                         4,868                   0               5,943             100,000
                                            -----------         -----------         -----------         -----------

         Operating (loss)                   $    (4,868)        $         0         $    (5,943)        $  (100,000)

Nonoperating income (expense)
  Interest expense                          $   (40,500)        $   (40,500)        $   (81,000)        $  (180,000)
                                            -----------         -----------         -----------         -----------

         Net (loss)                         $   (45,368)        $   (40,500)        $   (86,943)        $  (180,000)
                                            ===========         ===========         ===========         ===========

         Net (loss) per share, Basic
         and diluted (Note 2)               $     (0.02)        $     (0.02)        $     (0.04)        $     (0.09)
                                            ===========         ===========         ===========         ===========

         Average number of shares
         of common stock outstanding          2,100,000           2,100,000           2,100,000           2,100,000
                                            ===========         ===========         ===========         ===========
</TABLE>



See Accompanying Notes to Financial Statements.



                                      -7-
<PAGE>   8

                           DISCOVERY INVESTMENTS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                              STATEMENTS OF INCOME
                                   (RESTATED)

<TABLE>
<CAPTION>
                                                                                   Sept 10, 1996
                                             Year Ended          Year Ended       (inception) to
                                           December 31,        December 31,             June 30,
                                                   2000                1999                 2001
                                           ------------        ------------       --------------
<S>                                        <C>                 <C>                 <C>
Revenues                                    $         0         $         0         $         0

Cost of revenue                                       0                   0                   0
                                            -----------         -----------         -----------

         Gross profit                       $         0         $         0         $         0

General, selling and
  administrative expenses                       194,639           1,515,654           1,713,468
                                            -----------         -----------         -----------

         Operating (loss)                   $  (194,639)        $(1,515,654)        $(1,713,468)

Nonoperating income (expense)
  Interest expense                             (161,000)            (25,000)           (226,500)
                                            -----------         -----------         -----------

         Net (loss)                         $  (355,639)        $(1,540,654)        $(1,939,968)
                                            ===========         ===========         ===========

         Net (loss) per share, Basic
         and diluted (Note 2)               $     (0.17)        $     (0.73)        $     (0.92)
                                            ===========         ===========         ===========

         Average number of shares
         of common stock outstanding          2,100,000           2,100,000           2,100,000
                                            ===========         ===========         ===========
</TABLE>



See Accompanying Notes to Financial Statements.



                                      -8-
<PAGE>   9

                           DISCOVERY INVESTMENTS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                                   (RESTATED)

<TABLE>
<CAPTION>
                                                                                                            Accumulated
                                                                                                             (Deficit)
                                                         Common Stock                   Additional            During
                                                -------------------------------           Paid-In           Development
                                                  Shares               Amount             Capital              Stage
                                                -----------         -----------         -----------         -----------
<S>                                             <C>                 <C>                 <C>                 <C>
Sale of 2,100,000 shares, Sept. 10, 1996          2,100,000         $     2,100         $         0         $         0

Net (loss), December 31, 1996                                                                                    (2,100)
                                                -----------         -----------         -----------         -----------

Balance, December 31, 1996                        2,100,000         $     2,100         $         0         $    (2,100)

Net (loss), December 31, 1997                                                                                         0
                                                -----------         -----------         -----------         -----------

Balance, December 31, 1997                        2,100,000         $     2,100         $         0         $    (2,100)

Net (loss), December 31, 1998                                                                                         0
                                                -----------         -----------         -----------         -----------

Balance, December 31, 1998                        2,100,000         $     2,100         $         0         $    (2,100)

March 15, 1999, changed from no
   par value to $0.001                                                   (2,079)              2,079

March 15, 1999, forward stock
   100:1                                                                  2,079              (2,079)

Net (loss), December 31, 1999                                                                                (1,540,654)
                                                -----------         -----------         -----------         -----------

Balance, December 31, 1999                        2,100,000         $     2,100         $         0         $(1,542,754)

Net (loss), December 31, 2000                                                                                  (355,639)
                                                -----------         -----------         -----------         -----------

Balance, December 31, 2000                        2,100,000         $     2,100         $         0         $(1,898,393)

Net (loss), June 30, 2001                                                                                       (86,943)

Balance, June 30, 2001                            2,100,000         $     2,100         $         0         $(1,985,336)
                                                ===========         ===========         ===========         ===========
</TABLE>



See Accompanying Notes to Financial Statements.



                                      -9-
<PAGE>   10

                           DISCOVERY INVESTMENTS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                            STATEMENTS OF CASH FLOWS
                                   (RESTATED)

<TABLE>
<CAPTION>
                                                         Three Months Ended                   Six Months Ended
                                                      June 30,          June 30,          June 30,          June 30,
                                                          2001              2000              2001              2000
                                                     ---------         ---------         ---------         ---------
                                                                      (unaudited)                          (unaudited)
<S>                                                  <C>               <C>               <C>               <C>
Cash Flows From Operating Activities

  Net (loss)                                         $ (45,368)        $ (40,500)        $ (86,943)        $(180,000)

  Adjustments to reconcile net (loss) to cash
  (used in) operating activities:
  Changes in assets and liabilities
  Increase in accounts payable and
      accrued expenses                                  45,368            40,500            85,868            80,000
  Officer advances                                           0                 0             1,075                 0
                                                     ---------         ---------         ---------         ---------

       Net cash (used in) operating
          activities                                 $       0         $       0         $       0         $(100,000)
                                                     ---------         ---------         ---------         ---------

Cash Flows From Investing Activities                 $       0         $       0         $       0         $       0
                                                     ---------         ---------         ---------         ---------

Cash Flows From Financing Activities

       Issuance of common stock                      $       0         $       0         $       0         $       0
       Proceeds from notes payable                           0                 0                 0           100,000
                                                     ---------         ---------         ---------         ---------

       Net cash provided by financing
          activities                                 $       0         $       0         $       0         $ 100,000
                                                     ---------         ---------         ---------         ---------

       Net increase (decrease) in cash
          and cash equivalents                       $       0         $       0         $       0         $       0

Cash and cash equivalents,
  beginning of period                                        0         $       0                 0                 0
                                                     ---------         ---------         ---------         ---------

Cash and cash equivalents, end of period             $       0         $       0         $       0         $       0
                                                     =========         =========         =========         =========
</TABLE>



See Accompanying Notes to Financial Statements.



                                      -10-
<PAGE>   11

                           DISCOVERY INVESTMENTS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                            STATEMENTS OF CASH FLOWS
                                   (RESTATED)

<TABLE>
<CAPTION>
                                                                                           Sept. 10, 1996
                                                       Year Ended          Year Ended      (inception) to
                                                     December 31,         December 31,           June 30,
                                                             2000                1999                2001
                                                      -----------         -----------      --------------
<S>                                                   <C>                 <C>                 <C>
Cash Flows From Operating Activities

  Net (loss)                                          $  (355,639)        $(1,540,654)        $(1,985,336)
  Adjustments to reconcile net (loss) to cash
  (used in) operating activities:
  Changes in assets and liabilities
  Increase in accounts payable and
      accrued expenses                                    254,792              25,000             365,660
  Officer advances                                            847              15,654              17,576
                                                      -----------         -----------         -----------

       Net cash (used in) operating activities        $  (100,000)        $(1,500,000)        $(1,602,100)
                                                      -----------         -----------         -----------

Cash Flows From Investing Activities                  $         0         $         0         $         0
                                                      -----------         -----------         -----------

Cash Flows From Financing Activities

       Issuance of common stock                       $         0         $         0         $     2,100
       Proceeds from notes payable                        100,000           1,500,000           1,600,000
                                                      -----------         -----------         -----------

       Net cash provided by financing
          activities                                  $   100,000         $ 1,500,000         $ 1,602,100
                                                      -----------         -----------         -----------

       Net increase (decrease) in cash
          and cash equivalents                        $         0         $         0         $         0

Cash and cash equivalents,
  beginning of period                                           0                   0                   0
                                                      -----------         -----------         -----------

Cash and cash equivalents, end of period              $         0         $         0         $         0
                                                      ===========         ===========         ===========
</TABLE>



See Accompanying Notes to Financial Statements.



                                      -11-
<PAGE>   12

                           DISCOVERY INVESTMENTS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                       JUNE 30, 2001 AND DECEMBER 31, 2000

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of business:

Discovery Investments, Inc. ("Company") was organized September 10, 1996 under
the laws of the State of Nevada. The Company currently has no operations and, in
accordance with Statement of Financial Accounting Standard (SFAS) No. 7,
"Accounting and Reporting by Development Stage Enterprises," is considered a
development stage company.

A summary of the Company's significant accounting policies is as follows:

Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Cash

For the Statements of Cash Flows, all highly liquid investments with maturity of
three months or less are considered to be cash equivalents. There were no cash
equivalents as of June 30, 2001 and December 31, 2000 and 1999.

Income taxes

Income taxes are provided for using the liability method of accounting in
accordance with SFAS No. 109 "Accounting for Income Taxes." A deferred tax asset
or liability is recorded for all temporary differences between financial and tax
reporting. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax basis. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effect of
changes in tax laws and rates on the date of enactment.

Reporting on costs for start-up activities

Statement of Position 98-5 ("SOP 98-5), "Reporting on the Costs of Start-Up
Activities" which provides guidance on the financial reporting of start-up and
organization costs, requires most costs of start-up activities and organization
costs to be expensed as incurred. With the adoption of SPO 98-5, there has been
little to no effect on the Company's financial statements.

Year End

The Company originally selected March 31 for its fiscal year end. Prior to the
Mutual Rescission Agreement and Mutual Release (see Note 9) the Company changed
its fiscal year end to December 31.



                                      -12-
<PAGE>   13

                           DISCOVERY INVESTMENTS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                       JUNE 30, 2001 AND DECEMBER 31, 2000

NOTE 2. NOTES PAYABLE

As of June 30, 2001, the Company had a short term note payable of:

12% Note Payable to Interlochen Enterprises, Inc. dated January 28, 2000,
interest due quarterly, principal payable on demand                    $ 100,000
                                                                       =========

NOTE 3. CONVERTIBLE DEBT

On December 10, 1999, the Company, subject to the closing of the Plan and
Agreement of Reorganization, the Company issued six (6) three-year 10 Percent
Convertible Debentures to various parties in the aggregate amount of $1,500,000,
dated as of November 1, 1999 which closed on December 20, 1999. The terms and
conditions are summarized as follows:

(1)     All debentures of this issue rank equally and ratably without priority
        over one another.

(2)     Provided that the Company becomes obligated, the holder or holders of
        this Debenture may at any time prior to the maturity hereof (except
        that, if the Company has called the debenture for redemption, the right
        to convert shall terminate at the close of business on the second
        business day prior to the day fixed as the date for such redemption),
        convert the principal amount hereof into the Company's common stock at
        the conversion ratio of $5 of debenture principal for one share of
        common stock. To convert the debenture, the holder or holders hereof
        must surrender the same at the office of the Company, together with a
        written instrument of transfer in a form satisfactory to the Company,
        properly completed and executed and with a written notice of conversion.

(3)     If the Company at any time pays to the holders of its common stock a
        dividend in common stock, the number of shares of common stock issuable
        upon the conversion of the debenture shall be proportionally increased,
        effective at the close of business on the recorded date for
        determination of the holders of the common stock entitled to the
        dividend.

(4)     If the Company at any time subdivides or combines in a larger or smaller
        number of share its outstanding shares of common stock, then the number
        of shares of common stock issuable upon the conversion of the debenture
        shall be proportionally increased in the case of a subdivision and
        decrease in the case of a combination, effective in either case at the
        close of business on the date that the subdivision or combination
        becomes effective.

(5)     If the Company is recapitalized, consolidate with or merged into any
        other corporation, or sells or conveys to any other corporation all or
        substantially all of its property as an entity, provision shall be made
        as part of the terms of the recapitalization consolidation merger, sale,
        or conveyance so that the holder or holders of the debenture may
        receive, in lieu of the common stock otherwise issuable to them upon
        conversion hereof, at the same conversion ratio, the same kind and
        amount of securities or assets as may be distributable upon the
        recapitalization, consolidation, merger, sale, or conveyance with
        respect to the common stock.



                                      -13-
<PAGE>   14

                           DISCOVERY INVESTMENTS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                       JUNE 30, 2001 AND DECEMBER 31, 2000

NOTE 2. CONVERTIBLE DEBT (CONTINUED)

(6)     In lieu of issuing any fraction of a share upon the conversion of the
        debenture, the Company shall pay to the holder hereof for any fraction
        of a share otherwise issuable upon the conversion cash equal to the same
        fraction of the ten current per share market price of the common stock.

(7)     In the event Company fails to make any payment of principal and
        interest, said failure to pay shall constitute a default under the terms
        of the debenture and, subject to the terms and conditions contained in
        the debenture, the entire unpaid principal and interest shall be due an
        payable. No debenture holder may institute any suit or proceeding for
        the enforcement of the payment of principal or interest unless the
        holders of more than 25 percent in amount of all outstanding debentures
        of the issue join in the suit or proceeding. In the event the Company
        and the shareholders of LLO-Gas, Inc. do not enter into a business
        combination which closes on or before December 31, 1999, an individual
        debenture holder may institute any suit or proceeding in the event of
        default.

(8)     Company and LLO-Gas, Inc. may at any time prepay in whole or in part,
        the principal amount, plus accrued interest lot he date of prepayment,
        of all outstanding debentures of this issue, upon 30 days written notice
        by certified or registered mail to the registered owners of all
        outstanding debentures.

(9)     Except for debenture number 1 and 2, for which John Castellucci is
        obligated for an amount equal to $150,000, the debenture is the
        obligation of Company and LLO-Gas, Inc. only, and no recourse shall be
        had for the payment of any principal or interest thereof against any
        shareholder, officer or director of Company and LLO-Gas, Inc., either
        directly or through Company and LLO-Gas, Inc., by virtue of any statute
        for the enforcement of any assessment or otherwise.

<TABLE>
<S>                                                                  <C>
        Three Year 10% Convertible Note Number 1 payable to
            Interlochen Enterprises, Inc. dated as of
            November 1, 1999, interest due quarterly,
            principal due October 31, 2002                           $  250,000

        Three Year 10% Convertible Note Number 2 payable to
            Meridian Enterprises, Inc. dated as of November
            1, 1999, interest due quarterly, principal due
            October 31, 2002                                            250,000

        Three Year 10% Convertible Note Number 3 payable to
            CRS Financial Corp., Ltd. dated as of November
            1, 1999, interest due quarterly, principal due
            October 31, 2002                                            250,000

        Three Year 10% Convertible Note Number 4 payable to
            CRS Financial Corp., Ltd. dated as of November
            1, 1999, interest due quarterly, principal due
            October 31, 2002                                            250,000

        Three Year 10% Convertible Note Number 5 payable to
            CRS Financial Corp., Ltd. dated as of November
            1, 1999, interest due quarterly, principal due
            October 31, 2002                                            250,000

        Three Year 10% Convertible Note Number 6 payable to
            CRS Financial Corp., Ltd. dated as of November
            1, 1999, interest due quarterly, principal due
            October 31, 2002                                            250,000
                                                                     -----------
                                                                     $1,500,000
                                                                     ===========
</TABLE>



                                      -14-

<PAGE>   15

                           DISCOVERY INVESTMENTS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                       JUNE 30, 2001 AND DECEMBER 31, 2000

NOTE 3. STOCKHOLDERS' EQUITY (CONTINUED)

Common stock

The authorized common stock of the Company consists of 25,000,000 shares with
par value of $0.001. On September 15, 1996, the Company authorized and issued
21,000 shares of its no par value common stock in consideration of $2,100 in
cash.

On March 15, 1999, the State of Nevada approved the Company's amended Articles
of Incorporation, which increased its capitalization from 25,000 common shares
to 25,000,000 common shares. The no par value was changed to $0.001 per share.
Also, on March 15, 1999, the Company's shareholders approved a forward split of
its common stock at one hundred shares for one share of the existing shares. The
number of common stock shares outstanding increased from 21,000 to 2,100,000.
Prior period information has been restated to reflect the stock split.

The Company has not authorized any preferred stock.

Pledge

John Castellucci entered into a Pledge Agreement with M. Mehdi Mostaedi on or
about December 16, 1999, subject to the closing of the Plan and Agreement of
Reorganization on December 20, 1999 (see Note 9), wherein John Castellucci
collaterally pledged 2,000,000 shares of his common stock of the Company to M.
Mehdi Mostaedi. A mutual rescission occurred (see Note 9) and said rescission is
subject to the rights, if any, that M. Mehdi Mostaedi may have under said
collateral pledge agreement. Upon full performance by John Castellucci and
LLO-Gas, Inc., or either, said shares of common stock will be retired and
restored to the status of authorized and unissued shares. The pledge holder
under the collateral pledge agreement holds as collateral certain shares of
LLO-Gas, Inc. as additional substituted collateral, under the collateral pledge
agreement.

To the extent that any shares of stock issued to John Castellucci have not been
restored to the Company as part of the mutual rescission, the Company deems said
shares to be treasury shares. Treasury shares do not carry voting rights or
participate in distribution, may not be counted as outstanding shares for any
purpose and may not be counted as assets of the Company for purposes of
computing amounts available for distributions. Upon physical delivery of said
certificates to Pacific Stock Transfer Company, the Company's transfer agent,
said shares will be canceled, retired and restored to the status of authorized
and unissued shares in accordance with law.

Net loss per common share

Net loss per share is calculated in accordance with SFAS No. 128, "Earnings Per
Share." The weighted-average number of common shares outstanding during each
period is used to compute basic loss per share. Diluted loss per share is
computed using the weighted averaged number of shares and dilutive potential
common shares outstanding. Dilutive potential common shares are additional
common shares assumed to be exercised.

Basic net loss per common share is based on the weighted average number of
shares of common stock outstanding of 2,100,000 during 2001, 2000, 1999, and
since inception. As of June 30, 2001 and December 31, 2000 and 1999 and since
inception, the Company had no dilutive potential common shares.



                                      -15-
<PAGE>   16
                           DISCOVERY INVESTMENTS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                       JUNE 30, 2001 AND DECEMBER 31, 2000

NOTE 4. INCOME TAXES

There is no provision for income taxes for the period ended June 30, 2001, due
to the net loss and no state income tax in Nevada, the state of the Company's
domicile and operations. The Company's total deferred tax asset as of June 30,
2001 is as follows:

<TABLE>
<S>                                                <C>
               Net operating loss carry forward    $ 1,985,336
               Valuation allowance                 $(1,985,336)
                                                   ------------
               Net deferred tax asset              $         0
</TABLE>

The net federal operating loss carry forward will expire between 2016 and 2020.
This carry forward may be limited upon the consummation of a business
combination under IRC Section 381.

NOTE 5. GOING CONCERN

The Company's financial statements are prepared in accordance with generally
accepted accounting principles applicable to a going concern. This contemplates
the realization of assets and the liquidation of liabilities in the normal
course of business. Currently, the Company does not have significant cash of
other material assets, nor does it have operations or a source of revenue
sufficient to cover its operation costs and allow it to continue as a going
concern. It is the intent of the Company to seek a merger with an existing,
operating company. Until that time, the stockholders, officers, and directors
have committed to advancing the operating costs of the company. Do to the
unusual nature described in Notes 8 and 9, subsequent to the balance sheet date,
the Company filed for protection under Chapter 11 of the Bankruptcy Code. See
Note 10 for description of the Plan of Reorganization.

NOTE 6. RELATED PARTY TRANSACTIONS

The Company neither owns nor leases any real or personal property. An officer of
the corporation provides office services without charge. Such costs are
immaterial to the financial statements and accordingly, have not been reflected
therein. The officers and directors for the Company are involved in other
business activities and may, in the future, become involved in other business
opportunities. If a specific business opportunity becomes available, such
persons may face a conflict in selecting between the Company and their other
business interest. The Company has not formulated a policy for the resolution of
such conflicts.

NOTE 7. WARRANTS AND OPTIONS

There are no warrants or options outstanding to acquire any additional shares of
common stock of the Company.

NOTE 8. LITIGATION

(a)     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., in the Superior Court of the State of California, County
        of Los Angeles (Case Number BC 225568). Until August 10, 2000, John
        Castellucci was 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 John Castellucci), alleges that John
        Castellucci breached his fiduciary duty to West Star and engaged in a
        series of



                                      -16-
<PAGE>   17

                           DISCOVERY INVESTMENTS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                       JUNE 30, 2001 AND DECEMBER 31, 2000

NOTE 8. LITIGATION (CONTINUED)

        unauthorized transactions for his personal benefit. The plaintiff also
        alleges that John Castellucci made certain fraudulent statements to the
        West Star Board of Directors, which inducted 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, Inc.

        On April 26, 2000, West Star dismissed the entire action as to all
        parties with prejudice. West Star had sought general and special damages
        of $3.5 million against John D. Castellucci, the imposition of a
        constructive trust on the Company's facilities which were purchased from
        ARCO (the "ARCO Facilities"), an order compelling the Company to return
        the ARCO Facilities, an accounting, and the cost of the suit,
        prejudgment interest, attorneys' fees and such other relief as the court
        may deem just and proper.

(b)     In December 1999, M. Mehdi Mostaedi loaned LLO-Gas, Inc. $150,000.
        LLO-Gas, Inc. and John Castellucci 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 was secured with a pledge of 2,000,000 shares of
        the Company's common stock owned by John Castellucci pursuant to a
        Pledge Agreement dated December 20, 1999 between John Castellucci and M.
        Mehdi Mostaedi. The pledge holder currently hold John Castellucci's
        shares in LLO-Gas, Inc. as collateral for the obligation.

        On April 11, 2000, M. Mehdi Mostaedi filed a lawsuit against the Company
        and John Castellucci in the Superior Court of the State of California,
        West District, Santa Monica, California (Case Number SC 016250),
        alleging breach of contract and default under the Mostaedi Note. M.
        Mehdi 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 filed an
        answer to the complaint. On or about August 17, 2000, M. Mehdi Mostaedi
        filed a request to enter the default against the Company (and John
        Castellucci). On May 31, 2001, Judgment was entered, after default, by
        the Court, in favor of M. Mehdi Mostaedi and against John D. Castellucci
        and Company (LLO-Gas, Inc. and the Doe Defendants were dismissed).
        Judgment was for the principal sum of $150,000, interest through May 31,
        2001 of $13,610.96, attorneys' fees of $3,290.00 for a total of
        $166,900.96, with costs of $267.00. The Company disputes the existence
        of the obligation and no notice of entry of judgment has been served
        upon the Company. M. Mehdi Mostaedi may be required to file a proof of
        claim in the Chapter 11 proceeding to have any rights adjudicated.

(c)     On October 17, 2000, Yuri Zaloznyy ("Zaloznyy") sued John Castellucci,
        the Company, LLO-Gas, Inc., and others, in an adversary proceeding in
        the United States Bankruptcy Court, Central District of California, San
        Fernando Valley Division.

        Zaloznyy seeks general and special damages from all defendants for
        breach of contract, fraud, breach of fiduciary duty, conversion,
        constructive trust, fraudulent or void conveyance, specific performance,
        dissolution of certain of the defendants, and damages. The Company has
        filed an answer to the complaint,



                                      -17-
<PAGE>   18

                           DISCOVERY INVESTMENTS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                       JUNE 30, 2001 AND DECEMBER 31, 2000

NOTE 8. LITIGATION (CONTINUED)

        severing itself from all other defendants to include John Castellucci
        and LLO-Gas, Inc. The Company believes that it has meritorious defenses
        and affirmative defenses to the lawsuit.

(d)     On September 1, 2000, the Company filed a lawsuit against John
        Castellucci and Does 1 through 5, inclusive, in the Superior Court of
        the State of California, West District, Santa Monica, California (Case
        Number SC062993). The complaint was for cancellation of shares and of
        any share certificates issued to John Castellucci. On August 10, 2000,
        the Company and John Castellucci had entered into a Mutual Rescission
        Agreement and Mutual Release. Pursuant to said Mutual Rescission
        Agreement and Mutual Release, John Castellucci, the record holder of
        9,900,000 shares of stock of the Company, evidenced by certificate
        number 160, was to surrender for cancellation said shares.

        The California Superior Court, on October 25, 2000, ordered that John
        Castellucci shall surrender for cancellation certificate number 160 to
        the Company or to the Company's transfer agent for cancellation and that
        said shares are to be restored to authorized but unissued status. It was
        further ordered that if Castellucci did not surrender for cancellation
        said certificate number 160 or cause said certificate to be surrendered,
        the Company may forthwith issue instructions to its transfer agent that
        said shares of stock are no longer to been deemed issued and
        outstanding, that said shares are to be restored to authorized but
        unissued status, and that the number of issued and outstanding shares of
        stock of the Company appearing on the Company's stockholder records are
        to be reduced by said 9,900,000 shares. Further, the California Superior
        Court determined that John Castellucci be deemed to not to have any
        right, title and interest in the 9,900,000 shares evidenced by
        certificate number 160. A copy of the order of the California Superior
        Court was delivered to the Company's transfer agent and said shares have
        been canceled. (See Note 3 above.)

(e)     At all times relevant, there have been no reports by any officer or
        director of the Company or any person who directly or indirectly is the
        beneficial owner of more than 10% of any class of equity securities of
        the Company registered under the Securities Act of 1934, as amended,
        filed with the Securities and Exchange Commission. Further, since the
        reporting provisions of 16(a) of the Securities Exchange Act of 1934, as
        amended, are designed to ensure the prompt disclosure of holdings, there
        are no provisions allowing the late filing of an ownership report and
        there is no extension of time for the filing of an ownership report. The
        California Superior Court was informed that there have been no reports
        filed with the Securities and Exchange Commission as it relates to the
        shares issued to John Castellucci and the shares held by a pledge holder
        as it relates to M. Mehdi Mostaedi or by M. Mehdi Mostaedi.

NOTE 9. MUTUAL RESCISSION AGREEMENT AND MUTUAL RELEASE

On December 10, 1999, the Company entered into a Plan and Agreement of
Reorganization with LLO-Gas, Inc. and John Castellucci. On December 20, 1999,
there was a closing under the Plan and Agreement of Reorganization and LLO-Gas,
Inc. became a wholly owned subsidiary of the Company and there was a change of
control of the Company. Between December 20, 1999 and August 11, 2000,
differences of opinion as to matters of fact and as to matters of law have
arisen by and between certain of the shareholders of the Company, who were
shareholders prior to the closing, and between the Company, John Castellucci and
LLO-Gas, Inc. In addition, on June 7, 2000, LLO-Gas, Inc. filed a Voluntary 27.
Petition under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy
Court, Central District of California, San Fernando Valley Division, case number
SV 00- 15398-AG. Said Chapter 11 Bankruptcy is currently pending and effects
LLO-Gas, Inc. Predicated upon the



                                      -18-
<PAGE>   19

                           DISCOVERY INVESTMENTS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                       JUNE 30, 2001 AND DECEMBER 31, 2000

NOTE 9. MUTUAL RESCISSION AGREEMENT AND MUTUAL RELEASE (CONTINUED)

differences of matters of fact and matter of law, the parties entered into a
Mutual Rescission Agreement and Mutual Release.

The Mutual Rescission Agreement and Mutual Release provides, inter alia, that
the Company consents and agrees to rescind that certain Plan and Agreement of
Reorganization with John Castellucci consenting and agreeing to the rescission.
The parties mutually agreed, pursuant to said Mutual Rescission Agreement and
Mutual Release to forgo all rights and benefits provided to each other under the
Plan and Agreement of Reorganization, as consideration for the rescission, ab
initio, of the closing described therein.

NOTE 10. SUBSEQUENT EVENTS

On August 8, 2001, the Company filed Chapter 11 proceeding under the Bankruptcy
Code (title 11, United States Code) with the United States Bankruptcy Court,
District of Nevada. The Company will file a motion to confirm a Plan of
Reorganization ("Plan"). Chapter 11 allows the Company to reorganize or
liquidate pursuant to this plan. Under the plan, the Company intends to raise
funds through shareholder loans and issuance of authorized, unissued stock.
These funds will be used to pay administrative claims from the filing and create
a "pot distribution" that will be shares by the impaired creditors of the
Company. The Company intends to continue operations after acceptance of the Plan
of Reorganization.



                                      -19-
<PAGE>   20

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

        The Company currently is contemplating the filing of a Chapter 11
proceeding under the Bankruptcy Act (See Item 5(a) below).

        The Company is now dependent upon its officers to meet any de minimis
costs which may occur. Kimberly Lynn Jack, an officer and director of the
Company, has agreed to provide the necessary funds, without interest, for the
Company to comply with the Securities Exchange Act of 1934, as amended; provided
that she is an officer and director of the Company when the obligation is
incurred. All advances are interest-free.

        In addition, since the Company has no current operating history nor any
revenues or earnings from operations, with no significant assets or financial
resources, the Company will in all likelihood sustain operating expenses without
corresponding revenues, at least until the consummation of a business
combination. This may result in the Company incurring a net operating loss which
will increase continuously until the Company can consummate a business
combination with a profitable business opportunity and consummate such a
business combination.

        This discussion may contain certain forward looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Actual
results could differ materially from those forward-looking statements. The
factors that may cause actual results to differ materially is that the Company
has no arrangement, agreement or understanding with




                                      -20-
<PAGE>   21

respect to engaging in a merger with, joint venture with or acquisition of, a
private or public company and that there can be no assurance that the Company
will be successful in identifying and evaluating suitable business opportunities
or including a business combination.

Item III. Qualitative and Quantitative Disclosures About Market Risk

        The Company has neither considered or conducted any research concerning
qualitative and quantitative market risk.

                                     PART II

                                OTHER INFORMATION

Item 1 - Legal Proceedings

        (a) On February 29, 2000, West Star Energy Group, Inc. ("West Star")
sued John D. Castellucci, the Company and its wholly-owned operating subsidiary,
LLO-Gas, Inc., in the Superior Court of the State of California, County of Los
Angeles (Case Number BC 225568). Until August 10, 2000, John D. Castellucci was
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
John D. Castellucci), alleges that John D. 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 John D. 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, Inc.

        On April 26, 2000, West Star dismissed the entire action as to all
parties with prejudice. West Star had sought general and special damages of $3.5
million against John D. Castellucci, the imposition of a constructive trust on
the Company's facilities which were purchased from ARCO (the "ARCO Facilities"),
an order compelling the Company to return the ARCO Facilities, an accounting,
and the costs of the suit, prejudgment interest, attorneys' fees and such other
relief as the court may deem just and proper.

        (b) In December 1999, M. Mehdi Mostaedi loaned LLO-Gas, Inc. $150,000.
LLO-Gas, Inc. and John D. Castellucci 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




                                      -21-
<PAGE>   22

due and payable as to principal and interest on February 16, 2000. The Mostaedi
Note was secured with a pledge of 2,000,000 shares of the Company's common stock
owned by John D. Castellucci pursuant to a Pledge Agreement dated December 20,
1999 between John D. Castellucci and M. Mehdi Mostaedi.

        On April 11, 2000, M. Mehdi Mostaedi filed a lawsuit against the Company
and John D. Castellucci in the Superior Court of the State of California, West
District, Santa Monica, California (Case Number SC 016250), alleging breach of
contract and default under the Mostaedi Note. M. Mehdi Mostaedi sought 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 had been served with the
complaint but did not filed an answer to the complaint. On or about August 17,
2000, M. Mehdi Mostaedi filed a request to enter the default against the Company
(and John D. Castellucci). On May 31, 2001, Judgment was entered, after default,
by the Court, in favor of M. Mehdi Mostaedi and against John D. Castellucci and
Company (LLO-Gas, Inc. and the Doe defendants were dismissed). Judgment was for
the principal sum of $150,000, interest through May 31, 2001 of $13,610.96,
attorneys' fees of $3,290.00 for a total of $166,900.96, with costs of $267.00.
The Company disputes the existence of the obligation and no notice of entry of
judgment has been served upon the Company. M. Mehdi Mostaedi may be required to
file a proof of claim in the Chapter 11 proceeding (See Item 5) to have any
rights adjudicated.

Item 2 - Changes in the Rights of the Company's Security Holders ..........None

Item 3 - Defaults by the Company on its Senior Securities .................None

Item 4 - Submission of Matter to Vote of Security Holders .................None

Item 5 - Other Information


        On August 8, 2001, the Company filed a proceeding under Chapter 11 of
the Bankruptcy Code in the United States Bankruptcy Court, District of Nevada,
case number 01-18156 rcj, 300 Las Vegas Boulevard South, Las Vegas, Nevada
89106. Said bankruptcy proceeding was required predicated upon the Company's
present lack of operations, assets or financial



                                      -22-
<PAGE>   23

resources to defend against those creditors claiming potential obligations or
contingent obligations from the Company, in connection with the period of time
that LLO-Gas, Inc. was a wholly-owned operating subsidiary of the Company.

        In furtherance of the filing of the Chapter 11 proceeding, the Company
prepared a Disclosure Statement and Plan of Reorganization ("Plan") which was
furnished along with a ballot, prior to the commencement of a Chapter 11
proceeding, in connection with a selected solicitation by the Company of
consents and acceptances by certain creditors and interest holders to the Plan.
The majority shareholders of the Company, who are also directors, have approved
the Plan and the Company is the proponent of the Plan. The Plan is intended to
treat the claims of the Company's creditors and the interests of the
shareholders and to reorganize the Company's business affairs. It is believed by
the Company that the Bankruptcy Court will approve the Plan and the Company will
file a motion for an order confirming the Plan. The Motion will be served upon
all impaired creditors and shareholders who reject the Plan and on the Office of
the United States Trustee. The Company will cause to the circulated to all
creditors and interested parties, along with the Plan, a copy of the Form
10-KSB/Amendment No. 1 filed with the Securities and Exchange Commission which
contains a description of the business and year end financial statements.

        The implementation of the Plan was contingent upon the commencement of a
proceeding under Chapter 11 of the Bankruptcy Act. If the Court finds that the
disclosure statement is adequate and the Plan and the solicitation otherwise
complies with all statutory requirements, the Plan will be confirmed. It is
intended by the Company that the Plan be deemed to be a so-called "cram-down"
proceeding.

        The only sources of money and property available to pay creditors of the
Company, under the Plan, will be funds derived from shareholder loans and the
issuance of 100,000 shares of authorized and unissued stock. Upon the funding of
the shareholder loan, the Company will have sufficient funds to pay its Chapter
11 administrative claims in full and otherwise perform under the Plan. All
remaining loan funds will be allocated to the impaired creditors as a "pot
distribution," a single fund of monies for the creditors to share pro-rata,
along with a pro-rata share of 100,000 shares of common stock of the Company
which is unregistered. No monies or shares will be allocated to the class of
shareholders. The creditors shall not be entitled to receive any additional
funds, and the remaining unpaid amount for each creditor's claim will be deemed
discharged.



                                      -23-
<PAGE>   24

        As a condition of receiving shares, each creditor who receives shares
must agree that said shares are being acquired for investment purposes only and
not with a view towards resale or redistribution in violation of state and
federal securities laws, including the Securities Act of 1933, as amended.
Acceptance of the shares by the creditor, under the Plan, and the failure to
return said shares within ten (10) days after mailing by the transfer agent or a
designated disbursing agent shall be deemed acceptance of the investment intent.
Any shares returned will be returned to the Company for cancellation and any
creditor who returns said shares will be considered to have received its full
entitlement under the Plan despite the return. The creditors can expect payment
within 60 days after the Plan has been confirmed by the Company.

Item 6 - Exhibits and Reports on Form 8-K

        None.

                                   SIGNATURE

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


Dated: August 14, 2001                 DISCOVERY INVESTMENTS, INC.
                                       (Registrant)


                                       By: /s/ Kimberly Lynn Jack
                                          --------------------------------------
                                          Kimberly Lynn Jack
                                          President




                                      -24-