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RE: mi2g - fud, lies and libel
From: <vesselen.mironov () hush ai>
Date: Tue, 20 Jul 2004 19:50:22 -0700
-----BEGIN PGP SIGNED MESSAGE----- Hash: SHA1 - --Tuesday, Thor Larholm tlarholm () pivx com wrote to full-disclosure () lists netsys com (EP>>From: Eric Paynter (EP>> (EP>>Or maybe it's also a hoax? (TL> (TL> http://www.mi2g.com/cgi/mi2g/press/200704.php ,,,its amuzing to notice the biggest liar of him all thor larholm from the pivx penny stock companies...he who point the fingers at the mig2 to cover his own lyes and fuds hehehehe,,, we notice our norgweign hero thor in his wunderful press notificacions **For the last two years, Unpatched was the pre-eminent place on the Internet where system administrators and Independent Third Party Security Researchers from around the world came to review and share information about vulnerabilities in Internet Explorer. muahhaa,,,it is webmaster thor collecion bugtrag notificions that pix concince our thor to join its penny company in xchange for shares to promote there pennies not the powerful work of the thor or his masters and no place to make this impressing visits it claims **About 1 in 10 potential vulnerabilities that were submitted to PivX for review actually passed the test for suitable posting on the Unpatched page. Unpatched achieved its initial purpose says PivXs Larholm bwahahaha,,,out trustworthy hero thor claims it must be submmission to the penny company pivx for put on the webmaster thors collecion page of bugtraq notifcations, hehehe **PivX has made a significant investment in time and money on Unpatched lol,,hear is a beer thor our hero, sit at computer and what the bugtraqs then see something copy it and past it onto the milion dollars page hehehehe 1 dollar beer of course significant for penny company **it has become an invaluable resource to system administrators worldwide who are trying to stay abreast of the heretofore free security research that PivX aaah yes it is big big time resources it for system admin everywheres to see the informacions third time after bugtraqs and other listings and it all the free researchers of pivx....the thor hero sitting with his payment beer in one of his hands for the dollar **Thor Larholm, Senior Security Researcher at PivX and the man who has been responsible for the establishment and maintenance of the Unpatched page on a pro bono basis for the last two years. but no no no it is now free but we make big investments in to the collecsion of bugtraqs before,,,hehe we not sure what we are saying or meaning,, we still just penny company no money help help **As of March 31, 2004, the Company had an accumulated deficit of $3, 040,192. At March 31, 2004, the Company had cash on hand of $780,128 and working capital of approximately $307,736. The Company needs additional capital to market Qwik-Fix Pro and provide necessary infrastructure as a public company help help no money **Revenues $ 24,000 Net income (loss) (435,312) money plleese pleese **On September 6, 2003, the Company entered into an employment agreement with its senior security researcher. Under the terms of the agreement the Company granted 232,500 shares of Company's common stock. The shares vest 20% on December 31, 2003, with the remainder 80% vesting equally over the next two anniversary dates of the agreement. The shares were valued at $150,000 based on estimated fair market value of the Company's shares of common stock at the time of grant. The value of the shares is being expensed ratably over the vesting period. During the three months ended March 31, 2004, $15,000 was expensed, however the shares have yet to be issued. The Company has recorded a $45,000 cumulative liability in accrued liabilities on the accompanying balance sheet at March 31, 2004. At December 31, 2003, the Company accrued $30,000 related to the future issuance of common stock **As of March 31, 2004, we had working capital of $307,736. Because of our exclusive focus on product and market development during the first quarter of 2004, financial results show a loss of $1,711,035 **We will require additional capital of at least $3,000,000 to execute on our plan of operations discussed in this report Should we be unable to raise the required funds, our ability to finance our continued growth will be materially adversely affected. no more money in the bank no more money in the ba ha ha ha hank Security Researchers at PivX Solutions offers a Reprieve to Microsoft in an effort to increase Internet Security - --------------------------------------------------------------------- - ----------- Date posted in ITsecurity.com: 16 October, 2003 October 14, 2003 Newport Beach, CA : Microsoft has just released a new patch MS03-040 , which renders several IE vulns obsolete. PivX has been extensively testing the efficacy of the vulns reported to be fixed and we can report that MS03-040 is doing the job it was intended to. Lets just hope users are diligent in applying the patch and implementing other appropriate layers of security, says Rob Shively CEO of PivX. Recently, we have seen a sea change in Microsofts commitment to rid its IE browser of the vulns that PivX Solutions and other third party researchers have identified. Given Microsofts recent positive actions, together with the current rise in attacks against IE, we have agreed to give Microsoft a good faith reprieve and have taken down our Unpatched page. (www.pivx.com /larholm/unpatched) This was done in both a spirit of cooperation and for the good of the Internet as a whole. As the ubiquitous browser that is utilized to access the Internet, we all depend on IE too much to have crooks, social deviants, malcontents and crackers messing with our lifestyles and our livelihoods. ENOUGH IS ENOUGH! adds Shively For the last two years, Unpatched was the pre-eminent place on the Internet where system administrators and Independent Third Party Security Researchers from around the world came to review and share information about vulnerabilities in Internet Explorer. Information on the page included the severity of vulnerabilities, temporary fixes and workarounds, test cases and proof of concepts. About 1 in 10 potential vulnerabilities that were submitted to PivX for review actually passed the test for suitable posting on the Unpatched page. Unpatched achieved its initial purpose says PivXs Larholm, It was created, updated and maintained in an effort to raise awareness of some of the inherent and dynamic flaws that the security research community discovered in Internet Explorer. Moreover its end goal was to provide legitimate parties, including system admins, the knowledge of where they were vulnerable to attacks and provide some temporary mitigation actions that they could take until Microsoft released a patch or a Service Pack. PivX has made a significant investment in time and money on Unpatched, and now that it has served its purpose of raising awareness of a problem and given that it has helped to usher in many solutions, workarounds and a review of the status quo, we felt it was time to re-evaluate its effectiveness. And, based on Microsofts communications, which included their willingness to create meaningful solutions, and their recent actions to fix the current problems, we have given them this good faith reprieve It was entirely a PivX management decision to take Unpatched down, says Shively, based on the state of affairs, notably the 25 days it took to create LovSan/MSBlaster, as compared to the 295+ days or so it took to create Code Red, the 200+ days for the creation of Nimda, and the 100 days it took to develop Slammer (see a pattern here?) The time that it takes for people to develop exploits against vulnerabilities has declined significantly over the last year or two. This gives vendors like MS even less time to develop and distribute patches and for system admins to deploy them before the exploits attack. This reprieve will allow MS time to develop and review their test cases, patches and Service Packs in a more normal, predictable and managable manner. In addition, PivX Solutions has a two-fold approach to assisting with the realities of the current situation. First, we are available to consult with system administrators to assist them in developing and implementing appropriate security policies and measures to mitigate the potential of security attacks. Secondly, we are developing a mitigation utility tool that will act as a Qwik Fix to many of the IE vulns that MS is working on patching presently. This utility will buy Microsoft more time to develop, test and release patches. says Chief Technical Officer, Geoff Shively. The industry needs to understand that nobody asked us to take Unpatched down. For the reasons described above, we have taken this proactive step in an effort to be a larger part of a long-term solution. After all, that is a critical part of our business, Solutions...its also part of our company name...so we are putting it into action to see if this will contribute in a meaningful way towards the solution of a problem. opines Thor Larholm, Senior Security Researcher at PivX and the man who has been responsible for the establishment and maintenance of the Unpatched page on a pro bono basis for the last two years. With as many as 20,000 daily visitors to the Unpatched page, it has become an invaluable resource to system administrators worldwide who are trying to stay abreast of the heretofore free security research that PivX and other third party researchers have done. The bad guys will have to find other ways to discover vulnerabilities that they think they can exploit in Internet Explorer. We are here to help make the Internet and our clients more secure, we are not researching to assist those attempting to compromise systems and to take the Internet down says CEO Shively. PivX hopes that this action will spur others in the security research community to join with them in being part of the solution and that this will usher in a new form of collaboration between responsible security researchers and Microsoft To see the new Unpatched go to: www.pivx.com /larholm/unpatched. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 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, 2004 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from ________________ to _______________ 000-33625 (Commission file number) PIVX SOLUTIONS, INC. (Exact name of small business issuer as specified in its charter) NEVADA 87-0618509 (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 24 CORPORATE PLAZA, SUITE 180, NEWPORT BEACH, CALIFORNIA 92660 (Address of principal executive offices) (949) 720-4627 (Issuer's telephone number) DRILLING, INC., 1981 EAST MURRAY HOLIDAY ROAD, SALT LAKE CITY, UTAH 84117 (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 [ ] The number of shares of common stock outstanding as of May 24, 2004 was 21,796,260. Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] - --------------------------------------------------------------------- - ----------- PIVX SOLUTIONS, INC. INDEX Page Number ------ PART I. FINANCIAL INFORMATION F-1 Item 1. Financial Statements F-1 Consolidated Balance Sheet as of March 31, 2004 (unaudited) F-1 Consolidated Statements of Operations for the three months ended March 31, 2004 and 2003 (unaudited) F-2 Consolidated Statement of Stockholders' Equity (deficit) for the the three months ended March 31, 2004 (unaudited) F-3 Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and 2003 (unaudited) F-4 Notes to Consolidated Financial Statements (unaudited) F-5 Item 2. Management's Discussion and Analysis or Plan of Operations 14 Item 3. Controls and Procedures 18 PART II. OTHER INFORMATION 19 Item 2. Change in Securities and Small Business Issuer Purchases of Equity Securites 19 Item 4. Submission of Matters to a Vote of Security Holders 19 Item 6. Exhibits and Reports on Form 8-K 19 SIGNATURES 20 - --------------------------------------------------------------------- - ----------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PIVX SOLUTIONS, INC. (FORMERLY DRILLING, INC.) CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) March 31, 2004 - --------------------------------------------------------------------- - ----------- ASSETS Current assets: Cash $ 780,128 Accounts receivable 24,000 Other current assets 5,600 - - ---------- Total current assets 809,728 Deferred offering costs 25,000 Property and equipment, net accumulated depreciation of $37,500 32,298 - - ----------- Total assets $ 867,026 ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 103,339 Accrued liabilities 130,979 Accrued employment contracts 267,674 - - ----------- Total current liabilities 501,992 Convertible note due to shareholder 10,000 - - ----------- Total liabilities 511,992 - - ----------- Stockholders' equity: Preferred stock, 10,000,000 shares authorized; none outstanding -- Common stock, $0.001 par value; 100,000,000 shares authorized; 21,796,260 shares issued and outstanding 21,796 Additional paid-in capital 3,392,180 Deferred compensation (18,750) Accumulated deficit (3,040,192) - - ----------- Total stockholders' equity 355,034 - - ----------- Total liabilities and stockholders' equity $ 867,026 ============ The accompanying notes are an integral part of these consolidated financial statements. F-1 - --------------------------------------------------------------------- - ----------- PIVX SOLUTIONS, INC. (FORMERLY DRILLING, INC.) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Three Months Ended March 31, 2004 March 31, 2003 ------------- - - -------------- Consulting revenue $ 24,000 $ 331,453 ------------ - - ------------- Selling, general, and administrative expenses 421,093 250,727 Research and development 26,814 15,900 ------------ - - ------------- Total operating expenses 447,907 266,627 ------------ - - ------------- Operating income (loss) (423,907) 64,826 Merger-related fees (1,287,490) -- Other income 362 23 ------------ - - ------------- Net income (loss) $ (1,711,035) $ 64,849 ============= ============= Basic earnings (loss) per share: Net income (loss) per common share $ (0.10) $ 0.00 ============= ============= Basic weighted average number of common shares Outstanding 16,726,901 14,505,092 ============= ============= Diluted earnings (loss) per share: Net income (loss) per common share $ (0.10) $ 0.00 ============= ============= Diluted weighted average number of common shares Outstanding 16,726,901 15,285,092 ============= ============= The accompanying notes are an integral part of these consolidated financial statements. F-2 - --------------------------------------------------------------------- - ----------- PIVX SOLUTIONS, INC. (FORMERLY DRILLING, INC.) CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) THREE MONTHS ENDED MARCH 31, 2004 (UNAUDITED) Common Stock ------------ Additional Deferred Accumulated Shares Amount Paid- in Capital Compensation Deficit Total ------------ ------------ --- - --------- ------------ ------------ ------------ Balances at January 1, 2004 15,216,868 $ 15,217 $ 1, 146,412 $ -- $(1,329,157) $ (167,528) Stock issued for cash, net of offering costs (see Note 4) 733,642 734 916,623 -- -- 917,357 Stock issued for services 54,250 54 57,446 -- -- 57,500 Allocation of deferred offering costs -- -- (25,000) -- -- (25,000) Fair value of options issued to directors -- -- 25,000 (25,000) -- -- Amortization of options issued to directors -- -- -- 6,250 -- 6,250 Value of stock retained for merger- related expenses -- -- 1, 277,490 -- -- 1,277,490 Common stock retained by Drilling shareholders 5,791,500 5,792 (5,792) -- -- -- Net loss -- -- -- -- (1,711,035) (1,711,035) ------------ ------------ --- - --------- ------------ ------------ ------------ Balances at March 31, 2004 21,796,260 $ 21,796 $ 3, 392,180 $ (18,750) $(3,040,192) $ 355,034 ============ ============ ============ ============ ============ ============ The accompanying notes are an integral part of these consolidated financial statements. F-3 - --------------------------------------------------------------------- - ----------- PIVX SOLUTIONS, INC. (FORMERLY DRILLING, INC.) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended March 31, 2004 March 31, 2003 -------------- -------------- Cash flows from operating activities: Net income (loss) $(1,711,035) $ 64,849 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation expense 3,901 4,677 Non-cash merger-related expenses 1,277,490 -- Stock issued for services 57,500 -- Amortization of deferred compensation 6,250 20,000 Changes in operating assets and liabilities: Accounts receivable 8,000 (65,144) Prepaid and other 4,200 27,330 Accounts payable 64,297 (12,129) Accrued liabilities 44,029 (158,610) Accrued employment contracts 9,922 23,241 ------------ ------------ Net cash used in operating activities (235,446) (95,786) ------------ ------------ Cash flows from investing activities- Purchases of property and equipment (4,366) (19,320) Cash flows from financing activities- Proceeds from issuance of common stock 917,357 25,000 Net change in cash 677,545 (90,106) Cash, beginning of period 102,583 125,946 ------------ ------------ Cash, end of period $ 780,128 $ 35,840 ============ ============ Supplemental disclosures for cash flow information Cash paid during the year for: Income taxes $ 800 $ -- Non-cash financing activity: Value of stock and warrants issued in connection with private placement $ 425,206 $ -- Value of shares retained for merger-related expenses $ 1,277,490 $ -- The accompanying notes are an integral part of these consolidated financial statements. F-4 - --------------------------------------------------------------------- - ----------- PIVX SOLUTIONS, INC. (FORMERLY DRILLING, INC.) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1 - Basis of Presentation and Significant Accounting Policies BASIS OF ACCOUNTING AND CHANGE IN REPORTING ENTITY PivX Solutions, Inc. ("PivX"), acquired by Drilling, Inc. ("Drilling") on March 10, 2004, is a network security solutions company providing security consulting services and security software products to a variety of businesses and governmental agencies, including but not limited to Microsoft, Boeing, GMAC, NIST and Sony. PivX is in the Beta stage of development of a security software tool Qwik-Fix Pro(TM), which will enable businesses to maintain proactive security on Microsoft Windows- based computers and servers. Management expects to release a commercial version of Qwik-Fix Pro(TM) in June 2004. On May 10, 2004, Drilling, Inc. changed its name to PivX Solutions, Inc. PivX and Drilling will be collectively known as the "Company". On March 10, 2004, PivX completed the initial closing of a reverse acquisition of Drilling, pursuant to which Drilling will acquire all of the outstanding membership interests of PivX in exchange for a controlling interest in Drilling. Pursuant to the Securities Purchase Agreement and Plan of Reorganization dated March 10, 2004 by and among Drilling, PivX and the members of the PivX, Drilling issued 1.55 shares of its common stock for each of PivX's membership interests transferred to Drilling by each member at the initial closing. As of the initial closing, PivX's members transferred 9,898, 250 membership interests (representing approximately 99.0% of PivX's total membership interests outstanding) to Drilling in exchange for 15, 342,289 shares of common stock of Drilling. The remaining 101,750 will be exchanged with approximately 157,712 shares of Drilling's common stock upon the remaining members consenting to the issuance. In connection with the acquisition of PivX by Drilling, the PivX shareholders will obtain approximately 73% of the outstanding common stock of Drilling. For accounting purposes the acquisition was accounted for as a reverse acquisition, whereby the assets of PivX are reported at their historical cost. The assets and liabilities of Drilling would have been recorded at fair value, but no assets or liabilities existed at the date of acquisition. No goodwill was recorded in connection with the reverse acquisition. The reverse acquisition resulted in a change in reporting entity of Drilling for accounting and reporting purposes to that of PivX. FINANCIAL STATEMENT PREPARATION The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities Exchange Commission ("SEC") regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America. The financial statements and related notes of PivX for the years ended December 31, 2003 and 2002 are expected to filed with the SEC on form 8-K filed by June 8, 2004. F-5 - --------------------------------------------------------------------- - ----------- PIVX SOLUTIONS, INC. (FORMERLY DRILLING, INC.) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of results for the interim periods presented. Preparing financial statements requires management to make estimates and assumptions that affect the amounts that are reported in the condensed consolidated financial statements and accompanying disclosures. Although these estimates are based on management's best knowledge of current events and actions that the Company may undertake in the future, actual results may be different from the estimates. The results of operations for the three months ended March 31, 2004, are not necessarily indicative of the results to be expected for any future period or the full fiscal year. QUARTERLY PRO FORMA INFORMATION The required quarterly pro forma financial results are displayed as if the acquisition between the Company and Drilling took place at January 1, 2003. The pro forma results for the three months ending March 31, 2004 and March 31, 2003 are listed below: 2004 2003 ---- ---- Revenues $ 24,000 $ 331,453 Net income (loss) (435,312) 62,974 Earnings (loss) per share (0.02) 0.00 Weighted average shares outstanding 21,118,258 20,034,092 LIQUIDITY AND CAPITAL RESOURCES The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation as a going concern. The Company incurred a net loss of $1,711,035, of which $1,277,490 was a non-recurring, non-cash transaction related to reverse acquisition, for the three months ended March 31, 2004. As of March 31, 2004, the Company had an accumulated deficit of $3,040,192. At March 31, 2004, the Company had cash on hand of $780,128 and working capital of approximately $307,736. The Company needs additional capital to market Qwik-Fix Pro and provide necessary infrastructure as a public company. These conditions raise substantial doubt as to our ability to continue as a going concern. During the three months ended March 31, 2004, the Company raised net proceeds of $917,357 through the sale of 733,642 shares of common stock. Total proceeds raised for the period ended May 4, 2004 net of costs are $1,566,865 on sales of 890,264 shares of common stock. The Company requires additional capital and management has no firm commitments for financing. There are no assurances that management will be successful in its plans. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. PRINCIPLES OF CONSOLIDATION The condensed consolidated financial statements include the accounts of the Company. All significant inter-company accounts and transactions have been eliminated. CONCENTRATION OF CREDIT RISK The Company maintains cash balances at a financial institution in excess of the $100,000 FDIC insurance level. F-6 - --------------------------------------------------------------------- - ----------- PIVX SOLUTIONS, INC. (FORMERLY DRILLING, INC.) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SOFTWARE DEVELOPMENT COSTS Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, " states that all costs incurred in connection with the development of software subsequent to technological feasibility should be capitalized until such time that the software is available to customers. The Company believes its current process for developing software is essentially completed concurrent with the establishment of technological feasibility and, as such, no costs have been capitalized to date. DEFERRED OFFERING COSTS Direct costs incurred in connection with the Company's private placement offering are capitalized (see Note 4). The Company is netting these expenses ratably against the proceeds over the period in which the proceeds are received. In the event the private placement offering is unsuccessful, the Company will charge these costs to operations. PATENTS AND TRADEMARKS Patents and trademarks are recorded at cost and amortized using the straight- line method over the estimated useful lives of the related assets ranging from three years. To date amounts incurred were not significant. PROPERTY, PLANT AND EQUIPMENT Property and equipment are recorded at cost. Significant renewals and betterments, which extend the life of the related assets, are capitalized. Maintenance and repairs are charged to expense as incurred. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the related assets, ranging from three to seven years. Assets, which have a separable life, are depreciated over the life of those assets. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operations. IMPAIRMENT OF LONG-LIVED ASSETS The Company adopted SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144 supersedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS 144 requires that if events or changes in circumstances indicate that the cost of long-lived assets or asset groups may be impaired, an evaluation of recoverability would be performed by comparing the estimated future undiscounted cash flows associated with the asset to the asset's carrying value to determine if a write-down to market value would be required. Long-lived assets or asset groups that meet the criteria in SFAS 144 as being held for disposal by sale are reflected at the lower of their carrying amount or fair market value, less costs to sell. F-7 - --------------------------------------------------------------------- - ----------- PIVX SOLUTIONS, INC. (FORMERLY DRILLING, INC.) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FAIR VALUE OF FINANCIAL INSTRUMENTS The Company has financial instruments whereby the fair value of the financial instruments could be different than that recorded on a historical basis in the accompanying balance sheet. The Company's financial instruments consist of accounts receivable, accounts payable and accrued liabilities. The carrying amounts of the Company's financial instruments generally approximate their fair values as of March 31, 2004. REVENUE RECOGNITION For the periods presented, the Company's revenues were derived under consulting contracts. The revenues from the contracts are recognized as the services are completed. In cases whereby the Company did not track the hours under the project, revenues were recorded at the completion of the contract. Upon the Company's release of its software in 2004, the Company will recognize software license fee revenue in accordance with the provisions of Statement of Position SOP 97-2 "Software Revenue Recognition," as amended by SOP 98-9, "Software Revenue Recognition, With Respect to Certain Transactions." Software license fees will be charged for licenses for security software to be delivered to customers for in-house applications. Revenues from single-element software license agreements will be recognized upon installation and acceptance of the software. Revenues from software arrangements involving multiple elements will be allocated to the individual elements based on their relative fair values. If services are considered essential to the functionality of the software product, both the software product revenue and service revenue will be recognized using the percentage of completion method in accordance with the provisions of SOP 81-1, "Accounting for Performance of Construction Type and Certain Production Type Contracts." Maintenance and rights to unspecified upgrades to licenses will be reported ratably. Contract revenues will be recognized based on labor hours incurred to date compared to total estimated labor hours for the contract. Contract costs will include all direct labor, direct material and indirect costs related to contract performance. Selling, general and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are recorded in the period in which such losses become probable based on the current contract estimates. ACCOUNTING FOR STOCK-BASED COMPENSATION The Company has not adopted a fair value-based method of accounting for stock-based compensation plans for employees and non-employee directors. The Company will use the intrinsic value-based approach, and supplement disclosure of the pro forma impact on operations and per share information using the fair value-based approach as required by SFAS No. 148 "Accounting for Stock-Based Compensation - Transition and Disclosure". Stock-based compensation issued to non-employees and consultants are measured at fair value in accordance with SFAS No. 123. Common stock purchase options and warrants issued to non-employees and consultants will be measured at fair value using the Black-Scholes valuation model. The following table compares the net income (loss) and income (loss) per share as reported to the pro forma amounts that would be reported had compensation expense been recognized for our stock-based compensation plans on a fair value basis for the quarterly periods ended March 31, 2004 and 2003: F-8 - --------------------------------------------------------------------- - ----------- PIVX SOLUTIONS, INC. (FORMERLY DRILLING, INC.) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) March 31, March 31, --------- --------- 2004 2003 ---- ---- Net income (loss) as reported $ (1,711, 035) $ 64,849 Add: Stock based employee compensation expense included in reported net income, net of tax (6, 250) - Deduct: Stock-based employee compensation expense determined under fair value based on method for all awards, net of tax 15, 156 4,500 Pro forma net income (loss) $ (1,719, 941) $ 60,349 ================= ================= Earnings per share, as reported: Basic $ (0.10) $ 0.00 ================= ================= Diluted $ (0.10) $ 0.00 ================= ================= Pro forma earnings per share: Basic $ (0.10) $ 0.00 ================= ================= Diluted $ (0.10) $ 0.00 ================= ================= The fair value of the options at the date of grant was estimated using the Black-Scholes option pricing model with the following assumptions: the three months ended March 31, 2004, expected life of six years, interest rate of 3.10%, volatility of 75% and zero dividend yield; the three months ended March 31, 2003, expected life of six years, interest rate of 3.13%, volatility of 69% and zero dividend yield. The estimated fair value of the options granted is subject to the assumptions made and if the assumptions changed, the estimated fair value could be significantly different. SIGNIFICANT CUSTOMERS During the quarter ended March 31, 2004, revenues from one customer accounted for 100% of total revenues. During the quarter ended March 31, 2003, revenues another customer accounted for 100% of total revenues. PER SHARE INFORMATION The Company presents basic earnings (loss) per share ("EPS") and diluted EPS on the face of all statements of operations. Basic EPS is computed as net income (loss) divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants, and other convertible securities which are exercisable during or after the reporting period. In the event of a net loss, such incremental shares are not included in EPS since their effects are anti-dilutive. Effects of outstanding options, which were excluded in weighted average dilutive shares outstanding because of the net loss during the three months ended March 31, 2004, were 824,815 shares. Incremental shares included in dilutive EPS for the three months ended March 31, 2003 resulting from outstanding options during the reporting period were 780,000 shares. NEW ACCOUNTING PRONOUNCEMENTS In November 2002, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 45, GUARANTORS' ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS ("FIN 45"). FIN 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also requires that at all times a company issues a guarantee, a company must recognize an initial liability for the fair market value of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The initial recognition and measurement provisions of FIN 45 apply on a prospective basis to guarantees issued or modified after December 31, 2002. The FIN 45 effect on the Company's condensed consolidated financial statement is insignificant as of March 31, 2004. F-9 - --------------------------------------------------------------------- - ----------- PIVX SOLUTIONS, INC. (FORMERLY DRILLING, INC.) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) In December 2002, the FASB issued SFAS No. 148, ACCOUNTING FOR STOCK- BASED COMPENSATION-TRANSITION AND DISCLOSURE ("SFAS 148") which addresses financial accounting and reporting for recording expenses for the fair value of stock options. SFAS 148 provides alternative methods of transition for a voluntary change to fair value-based method of accounting for stock- based employee compensation. Additionally, SFAS No. 148 requires more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. The provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002, with early application permitted in certain circumstances. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The Company has elected to continue to apply the intrinsic value-based method of accounting as allowed by APB No. 25 for employee stock-based compensation. In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 amends SFAS 133 to clarify the definition of a derivative and incorporate many of the implementation issues cleared as a result of the Derivatives Implementation Group process. This statement is effective for contracts entered into or modified after June 30, 2003 and should be applied prospectively after that date. SFAS No. 149 will have an insignificant effect on the Company's condensed consolidated financial statements. In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY, ("SFAS 150"). SFAS No. 150 establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. In accordance with SFAS No. 150, financial instruments that embody obligations for the issuer are required to be classified as liabilities. SFAS No. 150 shall be effective for financial instruments entered into or modified after May 31, 2003. SFAS No. 150 had no significant effect on the Company during the three months ended March 31, 2004. Note 2 - Commitments EMPLOYMENT CONTRACTS In previous years the Company entered into employment agreements with four of its employees. Under the terms of these agreements, the Company is obligated to pay a combined yearly salary of $624,000. Two of these agreements are subject to a 6% cost of living increase. Two of the agreements have a term of five years and include a severance pay of two years based on the current salary. The agreements issued 852,500 shares of common stock which have vesting periods from one to three years. In addition, one of the employees was granted options to purchase 930,000 shares of common stock. The options are exercisable at approximately $0.32 and vest over a three-year period. As of March 31, 2004, amounts due on these employment agreements were $267,674 and are included on the accompanying condensed consolidated balance sheet. INVESTMENT BANKING AGREEMENT On October 6, 2003, the Company entered into an agreement with an investment- banking firm. The services performed under the agreement were for assisting the Company in identifying and negotiating the acquisition of a public shell and to assist the Company in raising up to $5 million in equity capital in a private placement. In connection with the agreement, the Company issued the F-10 - --------------------------------------------------------------------- - ----------- PIVX SOLUTIONS, INC. (FORMERLY DRILLING, INC.) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) investment bankers 155,000 shares of common stock valued at $100,000 upon the execution of the agreement as compensation. The shares were non-refundable. The value of the shares were allocated evenly between the two major services performed. In connection with the $50,000 allocated to obtaining the shell company, the amount was expensed upon the issuance of the shares. In connection with the $50,000 allocated to assisting the Company in raising capital, the amount was capitalized as a deferred offering cost as it was a direct cost of the private placement described in Note 4. The private placement began in March 2004 and will probably complete by the end of June 2004. The deferred offering costs will be charged against additional paid-in-capital equally in the 1st and 2nd quarter of 2004 as that is the period when the proceeds are expected from the private placement. At March 31, 2004, the Company has $25,000 in deferred offering costs recorded on the balance sheet. In addition, the Company was required to issue the investment banker 3% of the fully diluted common stock post merger. Subsequent to March 31, 2004, the investment banker waived the 3% fee due to the time delays and resulting hardship to the company . Since the merger was effected, management recorded the fair value of the shares that were waived in the amount of $1,277,490 as a merger-related expense. In addition under the investment banking contract, the Company is required to issue to the investment banker a 10% funding fee and warrants to purchase common stock 10% of the common stock sold under any private placements or fundings while the contract is in effect. These fees are due unless the fees paid to another placement agent are in excess of the 10%. OPERATING/CAPITAL LEASE Subsequent to March 31, 2004, the Company entered into a new lease agreement in an adjacent building. Upon entering into the new lease the Company terminated the previous agreement, which had been month to month. The new lease requires the Company to make monthly rental payments between $14,792 and $20,339 and is for a period of three and a half years expiring on approximately November 30, 2007. Included in the new lease agreement was furniture and fixtures that the Company was taking possession of. The Company has yet to determine the fair value of the furniture and fixtures. Upon determination of the fair value of the furniture and fixtures, the Company will allocate the total payments under the lease between the furniture and fixtures and the rental of the building. The portion allocated to the furniture and fixtures will be capitalized and treated as a capital lease. The Company plans on occupying the new space between June 1 and June 15 of 2004. Note 3 - Convertible note In July 2003, the Company issued a $20,000 note payable to an investor to fund operations. Initially the note was due on demand and beared interest at 15%. Effective October 20, 2003, the investor and the Company agreed the note would be due on April 20, 2004. Under the terms of the agreement the investor had the option to convert the note into common stock at prices ranging from $0.52 to $0.65 per share of common stock based on certain criteria. In addition, if the investor converted the note to shares of common stock the investor would receive options to purchase 31,000 shares of common stock for prices ranging from $0.52 to $0.65. If the investor did not convert the note by April 20, 2004, the Company was liable to pay the $20,000, any accrued interest and issue 15,500 shares of common stock as additional interest compensation. In December 2003, the Company paid $10,000 toward the note and interest of $1,000. In accordance with Emerging Issued Task Force No 00-27, the Company accounted for the value of the options and the fair value of the deemed beneficial conversion feature as a reduction to the face value of the convertible note with the offset to additional paid in capital. This amount was amortized as F-11 - --------------------------------------------------------------------- - ----------- PIVX SOLUTIONS, INC. (FORMERLY DRILLING, INC.) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) additional interest expense upon the issuance of the convertible note as the holder had the option to convert the note into common stock immediately. The options and beneficial conversion feature were valued at $20,000 and expensed during the year ended December 31, 2003. At March 31, 2004, total amounts due to this investor including accrued interest were $10,625. Around April 20, 2004 the investor demanded payment of the note, accrued interest and the issuance of 7,750 shares. Subsequent to that demand an employee of the Company obtained the note from the shareholder in a private transaction. The employee immediately converted the note at $0.65 per share resulting in the issuance of approximately 16,346 shares of common stock. In addition the Company issued the employee warrants to purchase 31,000 shares of common stock at $0.65. The warrants vest immediately and expire in one year from the date of the amended contract which is October 20, 2003. Note 4 - Shareholder's Equity PREFERRED STOCK Subsequent to March 31, 2004, the Company was authorized to issue 10, 000,000 shares of preferred stock. The preferred stock will be available in an amount adequate to provide for the Company's future needs. The additional shares will be available for issuance from time to time by the Company at the discretion of the board of directors with such rights, preferences and privileges as the board may determine. STOCK ISSUED FOR SERVICES
From time to time the Company issued common stock to consultants and
directors for services performed. During the period ending March 31, 2004, the Company issued a total of 54,250 shares of common stock valued at $57,500. The Company did not issue any shares of common stock for services during the period ending March 31, 2003. On September 11, 2002, the Company entered into an employment agreement with its president and chief operating officer. Under the terms of the agreement, the Company issued 620,000 shares of Company's common stock, which vest over the period of one year. The shares were valued at $80, 000 based on estimated fair market value of the Company's common stock at the time of grant. The value of the shares were recorded as compensation expense and expensed ratably over the vesting period of one year. During the three months ended March 31, 2003, $20,000 was expensed. On September 6, 2003, the Company entered into an employment agreement with its senior security researcher. Under the terms of the agreement the Company granted 232,500 shares of Company's common stock. The shares vest 20% on December 31, 2003, with the remainder 80% vesting equally over the next two anniversary dates of the agreement. The shares were valued at $150,000 based on estimated fair market value of the Company's shares of common stock at the time of grant. The value of the shares is being expensed ratably over the vesting period. During the three months ended March 31, 2004, $15,000 was expensed, however the shares have yet to be issued. The Company has recorded a $45,000 cumulative liability in accrued liabilities on the accompanying balance sheet at March 31, 2004. At December 31, 2003, the Company accrued $30,000 related to the future issuance of common stock. F-12 - --------------------------------------------------------------------- - ----------- PIVX SOLUTIONS, INC. (FORMERLY DRILLING, INC.) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) COMMON STOCK OFFERINGS During the periods ending March 31, 2004 and 2003, the Company issued 733,642 and 50,000 shares of common stock for net cash proceeds of $917, 357 and $25,000, respectively. See below for discussion of private placement during the period ended March 31, 2004 and subsequent. During the three months ended March 31, 2004, the Company offered up to 2,500,000 shares of post acquisition common stock of Drilling at $2.00 or up to $5 million. This offering was initially open from February 17, 2004 to April 30, 2004 but has been extended to May 31, 2004. Through March 31, 2004, the Company issued 698,510 shares of common stock resulting in proceeds of $888,378, net cash payments of $121,142 to the placement agent; issuance of 193,750 shares of common stock fairly valued at $387, 500 and the granting of warrants to purchase 50,476 shares of common stock fairly valued at $37,706. The Company has issued 890,264 shares of common stock since the inception of the offering through May 4, 2004 resulting in proceeds of $1,566,865, net of cash payments to the placement agent of $213,663; issuance of 193,750 share of common stock fairly valued at $387,500, granting of warrants to purchase 89,026 shares of common stock valued at $66,503. As of March 31, 2004, amounts due to the placement agreement included in accrued liabilities were $19,454. The Company entered into an agreement with a placement agent where as the placement agent receives 12% of proceeds directly generated, 5% of common shares placed by the placement issued as restricted common stock and warrants to purchase the equivalent of 10% of common stock placed by the placement agent. The warrants will be exercisable at $2.00 per share, vest immediately and expire in five years. In addition to the above offering, the Company issued 22,666 pre-acquisition membership interests (48,222 shares post-acquisition) for cash totalling $28,979. STOCK OPTION/STOCK ISSUANCE PLAN On April 23, 2003, the Company entered into an amended and restated Stock Option/Stock Issuance Plan (the "Plan"). Under the terms of the Plan employees, non-employee members of the board of directors and consultants are eligible. The maximum number of shares that can be issued under the Plan are1,395,000. As of March 31, 2004, there have been no options issued under the Plan. The Plan terminates upon the earliest; (i) the expiration of the ten-year period measured from the date of the Board of Directors acceptance; (ii) the date on which all shares available for issuance under the Plan shall have been issued as vested shares; (iii) or the termination of all outstanding options in connection with a corporate transaction. OPTIONS During the three months ended March 31, 2004, the Company issued options to purchase a total of 77,500 shares of common stock to two non-employee directors. The options are exercisable at $0.65, vest in one year and expire in five years from the vesting date. In connection with these grants, the Company recorded compensation expense of $25,000, which will be amortized over the vesting period of the options. During the three months ended March 31, 2004, the Company expensed $6,250 and the remaining $18,750 is recorded on the accompanying condensed consolidated balance sheet as deferred compensation. As of March 31, 2004, the Company has other options to purchase 978,387 shares of common stock at prices ranging from $0.32 to $0.65 and warrants to purchase 21,505 shares of common stock at an exercise price of $1.61. Subsequent to March 31, 2004, the Company entered employment agreements with certain key personnel, which provide for grant of an aggregate of 384,000 shares, which vest on each anniversary date, over three (3) years. The options have an exercise price of $2.000 expire five (5) years from the vesting date. F-13 - --------------------------------------------------------------------- - ----------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS OVERVIEW We are a network security solutions company providing security software and consulting services to a variety of businesses and governmental agencies. We offer software and consulting services specifically tailored to meet the individual needs of our customers as well as classroom seminars for coding engineers and managers focused on developing secure software. Our primary security software is called Qwik-Fix(TM). Qwik-Fix(TM) is designed to pro-actively prevent known and unknown software vulnerabilities in Microsoft Windows and Internet Explorer from being exploited by hackers, virus writers and worm writers. Qwik-Fix(TM) is simple to use, easy to download and install. Qwik-Fix(TM) is dynamic in that it serves as a proactive fix to known and unknown vulnerabilities until Microsoft releases a periodic monthly cumulative patch or a new Service Pack. Qwik- Fix(TM) is currently offered to subscribers for personal use at no charge. Qwik-Fix Pro(TM) is currently in beta stage, being tested for commercial use. To date, we have not generated revenues from software licenses. We expect to release Qwik-Fix Pro(TM) in June 2004. We were incorporated under the laws of the State of Nevada on April 24, 1975. Prior to the reverse acquisition described below, our corporate name was Drilling, Inc. Other than seeking and investigating potential assets, properties or businesses to acquire, we had no business operations since inception and were considered a development stage company as defined in Statement of Financial Accounting Standards No. 7. Pursuant to a Securities Purchase Agreement and Plan of Reorganization dated March 10, 2004 by and among Drilling, Inc., Pivx Solutions, LLC, a California limited liability company ("Pivx Sub") and the members of Pivx Sub, Drilling, Inc. has acquired 99% of the total membership interests of Pivx Sub outstanding. We expect to acquire the remaining Pivx Sub membership interests outstanding in subsequent closings. Drilling issued 1.55 shares of its common stock for each Pivx membership interest transferred to Drilling. Since the members of Pivx Sub acquired a majority of the issued and outstanding shares of Drilling, Inc. and the Pivx Sub management team and board of directors became the management team and board of directors of Drilling, Inc., according to FASB Statement No. 141 - "Business Combinations," this acquisition has been treated as a recapitalization for accounting purposes, in a manner similar to reverse acquisition accounting. In accounting for this transaction: o Pivx Sub is deemed to be the purchaser and surviving company for accounting purposes. Accordingly, its net assets are included in the balance sheet at their historical book values and the results of operations of Pivx Sub have been presented for the comparative prior period; o Control of the net assets of Drilling, Inc. was acquired effective March 25, 2004. This transaction has been accounted for as a purchase of the assets and liabilities of Drilling, Inc. by Pivx Sub. The historical cost of the net liabilities assumed was $0. o Because Drilling, Inc. had no business at the date of acquisition, no goodwill was recorded in connection with the transaction. o Merger-related expenses were charged to operations since the excess of fair value of the merger services provided exceeded the fair value of the net assets acquired of Drilling, Inc. The above is considered a one-time critical accounting policy. As a result of the transaction described above we changed our name from Drilling, Inc. to PivX Solutions, Inc. 14 - --------------------------------------------------------------------- - ----------- CRITICAL ACCOUNTING POLICIES REVENUE RECOGNITION Upon the release of our Qwik-Fix Pro software expected in June 2004, we will recognize software license fee revenue in accordance with the provisions of Statement of Position SOP 97-2 "Software Revenue Recognition, " as amended by SOP 98-9, "Software Revenue Recognition, With Respect to Certain Transactions." Software license fees will be charged for licenses for security software to be delivered to customers for in-house applications. Revenues from single-element software license agreements will be recognized upon installation and acceptance of the software. Revenues from software arrangements involving multiple elements will be allocated to the individual elements based on their relative fair values. If services are considered essential to the functionality of the software product, both the software product revenue and service revenue will be recognized using the percentage of completion method in accordance with the provisions of SOP 81-1, "Accounting for Performance of Construction Type and Certain Production Type Contracts." Maintenance and rights to unspecified upgrades to licenses will be reported ratably. Provisions for estimated losses on uncompleted contracts will be recorded in the period in which such losses become probable based on the contract estimates. We will evaluate our revenue recognition practices carefully to ensure compliance with accounting principles generally accepted in the United States. STOCK-BASED COMPENSATION We issue common stock, and common stock purchase options and warrants for compensation in the normal course of our business. We estimate the value of services rendered based on the fair value of the equity consideration issued to service providers. Historically, we used cash proceeds from private placements as a determination of the fair value of common stock issued for services. Prior to becoming a public company, we used the minimum value method of for stock options and warrants, since there is stock volatility as a private company. For common stock issued for services, we will use market quotations after the completion of our current private placement, which offered at $2.00 per share. We have not adopted SFAS No. 123, fair value accounting for employee stock options. For options issued to employees, we will continue to use APB No. 25, with complementary disclosure of pro forma effects. Options and warrants issued to non-employees will be accounted for using the fair value method, using the Black Scholes valuation model. Warrants issued in connection of our private placement, will reported net of the proceeds received. During the three months ended March 31, 2004, we fairly valued merger-related expenses resulting from common stock which was to be issued by us to our investment banker. The investment banking firm waived its 3% merger fee in connection with the reverse acquisition. We determined that since the reverse acquisition transaction had closed, a charge to operations equal to the original agreed upon fee of 3% was appropriate at a price of $2.00 per share was necessary to comply with accounting principles generally accepted in the United States. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-QSB, have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation as a going concern. We have incurred a net loss of $1,711,035 for the three months ended March 31, 2004 of which $1,287,490 consisted of a non-recurring, non- cash transaction related to the above-described reverse acquisition. As of March 31, 2004, we had an accumulated deficit of $3,040,192. At March 31, 2004, we had cash on hand of $780,128. We need additional capital to market Qwik-Fix Pro and provide necessary infrastructure as a public company These conditions raise substantial doubt as 15 - --------------------------------------------------------------------- - ----------- to our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern. PLAN OF OPERATIONS Since our inception, our revenues have primarily been generated from our security consulting services. In the last quarter of 2003, we elected to change the primary focus of our business model from a purely professional services-oriented firm to a product-oriented firm, with a focus on providing Proactive Threat Mitigation(TM) software products and services to the enterprise, government, education and end user markets. We have yet to generate revenues from the licensing of our software, but by providing proactive solutions which protect computer users from worms, viruses and malware before they are attacked (rather than reactively in the manner of AntiVirus, Firewall and Intrusion Detection solutions), we believe our software products will have a competitive advantage in the network and desktop security market. We are leveraging our expert domain knowledge to create proactive solutions that effectively address today's increasing and omni-present problems of worms and viruses. Qwik-Fix Pro(TM), our flagship software product, is currently in beta test and is expected to be available for shipment to the market in July, 2004. An earlier version of the product, called Qwik-Fix, was tested in a free download beta release starting in October, 2003 and was downloaded by thousands of users around the world. This product successfully demonstrated the concept behind Proactive Threat Mitigation software by protecting against many worms and viruses well before they were developed and released on the Internet. A brief list of worms and viruses that were protected against during the beta period included: Bagle, Bizex, MyDoom, Doom Juice, Netsky, Blaster and the recent Sasser and it many variants. Qwik-Fix Pro is an engineered and tested software product which extends that concept with a breadth of additional protections, improved user interface, and a management console which provides tools for management and reporting of an enterprise installation of the product. Qwik-Fix Pro also provides significant benefit to enterprises by reducing the urgency of distributing software patches across the network, allowing IT staff the extra time necessary to thoroughly regression test releases from Microsoft in order to ensure that they do not interfere with the performance of their network or applications. Qwik-Fix Pro will be sold on a subscription basis, with discounts based on numbers of seats, and length of contract. We will also provide discounts to educational institutions. While industry trends are highly favorable, we have no revenue history for a product of Qwik- Fix Pro's type. Therefore, market acceptance of our software remains untested. In addition to Qwik-Fix Pro, additional revenues will result from our service offerings in the areas of computer forensics, security quality assurance, vulnerability alerts and network scans. We expect that approximately 20% of our revenues will result from services. These services will serve both to provide a revenue stream, and an on-going source of access to real-world business problems, resulting in continued critical input into our product development plans. Expense growth will be primarily in the areas of sales and marketing, security research, product development and customer service. We have started building a direct sales effort in North America in addition to developing channel partners and alliances. We have added senior staff to direct these efforts. Significant additional resources will be devoted to both hiring new staff and to marketing programs to support both direct sales and partner channels. We will pursue revenue opportunities outside of North America through partners and distributors in those regions. We are currently in discussions related to distribution opportunities in China, Japan, Europe and Latin and South America. We will also continue an aggressive investment in security research, expanding on our existing research capabilities, which provide the core of the value of Qwik-Fix Pro. We also expect this investment to lead to future product development opportunities. We believe our product development staff will grow, but more slowly than sales and marketing or research. Customer service personnel will grow in number as the penetration of Qwik-Fix Pro increases. 16 - --------------------------------------------------------------------- - ----------- We recognize that the market pressures which validate the opportunity for Qwik-Fix Pro are apparent to others and therefore we expect to experience direct competition in the marketplace, though we are not aware of any product in the market today which delivers the same or similar capability as Qwik-Fix Pro. We also expect to compete to some extent with anti-virus vendors, as they also claim to provide desktop computer security protection. We will move into new offices on June 1, 2004. The 7,200 square foot fully furnished space in an office park in Newport Beach, CA is subleased over a term of 30 months. In addition to leasing the space, we have taken sole legal possession of the furnishings with a replacement cost of approximately $100,000 as a condition of the sublease. We are also in the process of acquiring computer equipment and a new telephone system that will cost us approximately $250,000. We expect to pay for this new equipment by obtaining lease lines of credit at market rates. LIQUIDITY AND CASH RESOURCES As of March 31, 2004, we had working capital of $307,736. Because of our exclusive focus on product and market development during the first quarter of 2004, financial results show a loss of $1,711,035, which includes $1,287,490 consisting of a non-recurring, non-cash transaction related to the above-described reverse acquisition. During the first quarter of 2004, we raised $1,009,520 in gross proceeds from a private placement sale of 504,760 shares of our common stock. We have used the net proceeds of the offering to hire additional product developers and engineers and for working capital. We will require additional capital of at least $3,000,000 to execute on our plan of operations discussed in this report. We plan to use this capital to hire additional developers and security researchers and to increase our sales and marketing efforts. We plan to obtain the additional working capital through additional private placement sales of our equity securities. However, as of the date of this report, we have no commitments for the sale of our securities nor can there be any assurance that such funds will be available on commercially reasonable terms, if at all. Should we be unable to raise the required funds, our ability to finance our continued growth will be materially adversely affected. CASH POSITION AND USES OF CASH Our cash and cash equivalents position as of March 31, 2004 was $780, 128. During the three months ended March 31, 2004, we used $235,446 in cash in our operating activities, as compared to $95,786 for the three months ended March 31, 2003. We continue to use cash in operations, and we have increased our expenditures compared to the prior year as we continue to grow. During the three months ended March 31, 2004, our financing activities provided cash in the amount of $917,357, as compared to $25,000 for the three months ended March 31, 2003. The significant increase is due to the sale of our common stock in private placement offerings in the first quarter of 2004. 17 - --------------------------------------------------------------------- - ----------- OFF-BALANCE SHEET ARRANGEMENTS We do not have any off-balance sheet financing arrangements. FORWARD LOOKING STATEMENTS We make written and oral statements from time to time in this Quarterly Report regarding our business and prospects, such as projections of future performance, statements of management's plans and objectives, forecasts of market trends, and other matters that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Statements containing the words or phrases "will likely result," "are expected to," "will continue, " "is anticipated," "estimates," "projects," "believes," "expects," "anticipates, " "intends," "target," "goal," "plans," "objective," "should" or similar expressions identify forward-looking statements, which may appear in documents, reports, filings with the Securities and Exchange Commission, news releases, written or oral presentations made by officers or other representatives made by us to analysts, stockholders, investors, news organizations and others, and discussions with management and other representatives of us. For such statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Our future results, including results related to forward-looking statements, involve a number of risks and uncertainties including our ability to obtain development financing as and when need; the market's acceptance of our products; the successful development and deployment of our software; changes in government regulation; our present financial condition; increased competition and overall economic conditions. No assurance can be given that the results reflected in any forward-looking statements will be achieved. Any forward-looking statement made by or on behalf of us speaks only as of the date on which such statement is made. Our forward-looking statements are based upon assumptions that are sometimes based upon estimates, data, communications and other information from suppliers, government agencies and other sources that may be subject to revision. Except as required by law, we do not undertake any obligation to update or keep current either (i) any forward-looking statement to reflect events or circumstances arising after the date of such statement, or (ii) the important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or which are reflected from time to time in any forward- looking statement which may be made by or on behalf of us. ITEM 3. CONTROLS AND PROCEDURES As required by SEC rules, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures at the end of the period covered by this report. This evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer. Based on this evaluation, these officers have concluded that the design and operation of our disclosure controls and procedures are effective. There were no changes in our internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. 18 - --------------------------------------------------------------------- - ----------- PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES During the three months ended March 31, 2004, we sold unregistered shares of our securities in the following transactions: On March 25, 2004, we issued 15,342,289 shares of our common stock to the members of Pivx Sub in connection with the reverse acquisition. These issuances were made pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933 (the "Securities Act") and Rule 506 of Regulation D. During the first quarter of 2004, we sold 504,760 shares of common stock in a private placement financing for gross proceeds of $1,009,520. Falcon Capital acted as a placement agent for this offering and received a finders fee of $121,142, 193,750 shares of our common stock and a warrant to purchase 50,476 shares of our common stock. These issuances were made only to "accredited investors" residing in Europe pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933 (the "Securities Act") and Rule 506 of Regulation D. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Effective March 26, 2004, our board of directors approved a resolution authorizing us to seek stockholder approval to amend and restate our articles of incorporation. Effective April 20, 2004, the holders of a majority of the outstanding shares of our common stock entitled to vote thereon executed a written consent in accordance with Section 78.320(2) of the Nevada Revised Statutes and Section 10 of Article II of our Bylaws, as amended, approving and adopting an amendment to our articles of incorporation regarding: (i) the change of our corporate name from "Drilling, Inc." to "PivX Solutions, Inc.;" (ii) the authorization of 10,000,000 shares of preferred stock, whereby our board of directors is authorized to establish, from the authorized shares of preferred stock, one or more classes or series of shares, to designate each such class and series, and to fix the rights and preferences of each such class and series, and (iii) the update of the address for the Corporation's agent for service of process in Nevada and the removal of provisions not otherwise required to be located in the articles of incorporation under Nevada law. This amendment to our articles of incorporation became effective on May 10, 2004. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits REGULATION S-B NUMBER EXHIBIT 3.1 Certificate of Amended and Restated Articles of Incorporation of PivX Solutions, Inc. (formerly known as Drilling, Inc.) 3.2 Amended and Restated Bylaws of PivX Solutions, Inc. (formerly known as Drilling, Inc.) 31.1 Rule 13a-14(a) Certification of Chief Executive Officer 31.2 Rule 13a-14(a) Certification of Chief Financial Officer 32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 19 - --------------------------------------------------------------------- - ----------- (b) Reports on Form 8-K On April 9, 2004, we filed a Current Report on Form 8-K under Items 1, 2,5, 7 and 9 announcing that on March 25, 2004, we were the subject of a reverse acquisition by Pivx Solutions, LLC, a California corporation. On April 20, 2004, we filed a Current Report on Form 8-K under Item 4 announcing that on April 16, 2004, our Board of Directors approved a change in auditors. Our Board of Directors approved the dismissal of Pritchett Siler & Hardy PC as our independent public accountants and the selection of McKennon Wilson & Morgan, LLP. as their replacement. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PIVX SOLUTIONS, INC. May 24, 2004 By: /s/ Robert N. Shively ------------------- - ----------- Robert N. Shively Chief Executive Officer 20 - --------------------------------------------------------------------- - ----------- Exhibit 3.1 CERTIFICATE OF AMENDED AND RESTATED ARTICLES OF INCORPORATION OF DRILLING, INC. Pursuant to the provisions of Sections 78.385 and 78.403 of the Nevada Revised Statutes, as amended, the undersigned does hereby declare and certify that: 1. He is the duly elected and acting President of Drilling, Inc., a corporation duly organized and existing under the laws of the State of Nevada (the "Corporation."), and he has been authorized to execute this certificate by resolution of the Corporation's board of directors. 2. The Articles of Incorporation of the Corporation were originally filed by the Secretary of State on the 24th day of April, 1975 under the name Domi Associates, Inc. 3. The board of directors of this Corporation duly adopted resolutions on March 26, 2004, proposing to amend and restate the Articles of Incorporation, declaring said amendment and restatement to be advisable and in the best interests of this Corporation and its stockholders and authorizing the appropriate officers of this Corporation to solicit the consent of the stockholders therefore, which resolution setting forth the proposed amendment and restatement is as follows: RESOLVED, that the Articles of Incorporation of this Corporation be amended and restated as follows: ARTICLE I The name of the Corporation is: PivX Solutions, Inc. ARTICLE II The name of the corporation's resident agent is GKL Resident Agents/Filings, Inc., and the street address of the said resident agent where process may be served is 1000 East William Street, Suite 204, Carson City, Nevada 89701. ARTICLE III The nature of the business and the objects and purposes proposed to be transacted, promoted or carried on by the Corporation to engage in any lawful activity. To do any and all things necessary, suitable and proper for the accomplishment of any of the purposes, the fulfillment of any of the obligations, or the furtherance of any of the powers hereinbefore set forth, either alone or in association, partnership, or joint venture with other persons, firms, or corporations, and to do every other act or acts, thing or things, incidental or appurtenant to, growing out of, or connected with, the aforesaid business or powers, any part or parts thereof, provided the same be not inconsistent with the laws under which Corporation is organized. - --------------------------------------------------------------------- - ----------- The above and foregoing statement of purposes shall be construed as a statement of both purposes and powers and shall not be construed as limiting in any way the powers conferred upon corporations generally by the laws of the State of Nevada. ARTICLE IV The aggregate number of shares which the corporation shall have authority to issue is 100,000,000 shares of common stock, $0.001 par value per share (the "Common Stock"), and 10,000,000 shares of preferred stock, $0.001 par value per share, undesignated as to series (the "Preferred Stock"). To the furthest extent allowed by Sections 78.195 and 78.1955 of the Nevada Revised Statutes, as amended, the Board of Directors is authorized to establish, from the authorized shares of Preferred Stock, one or more classes or series of shares, to designate each such class and series, and to fix the rights and preferences of each such class and series. Without limiting the authority of the Board of Directors granted hereby, each such class or series of Preferred Stock shall have such voting powers (full or limited or no voting powers), such preferences and relative, participating, optional or other special rights, and such qualifications, limitations or restrictions as shall be stated and expressed in the resolution or resolutions providing for the issue of such class or series of Preferred Stock as may be adopted from time to time by the Board of Directors prior to the issuance of any shares thereof. All stock when issued shall be deemed fully paid and non-assessable. No cumulative voting, on any matter to which Stockholders shall be entitled to vote, shall be allowed for any purpose. Unless authorized by the Corporation's board of directors, stockholders shall not have pre-emptive rights to acquire unissued shares of the stock of this Corporation. ARTICLE V The number of directors of the Corporation shall be established in accordance with the Bylaws of the Corporation. ARTICLE VI The capital stock of Corporation, after the fixed consideration thereof has been paid or performed, shall not be subject to assessment, and Stockholders of Corporation shall not be individually liable for the debts and liabilities of Corporation, and the Articles of Incorporation shall never be amended as to the aforesaid provisions. ARTICLE VII This Corporation shall have perpetual existence. ARTICLE VIII The Board of Directors shall have the power and authority to make, alter, or amend the Bylaws; to fix the amount, in cash or otherwise, to be reserved as working capital; and to authorize and cease to be executed the mortgages and liens upon the property and franchises of Corporation. ARTICLE IX Except as otherwise provided in Sections 35.230, 90.660, 91.250, 452.200, 452.270, 668.045 and 694A.030 of the Nevada Revised Statutes, as amended, a director or officer shall not be individually liable to the Corporation or its stockholders or creditors for any damages as a result of any act or failure to act in his capacity as a director or officer unless it is proven that: (a) his act or failure to act constituted a breach of his fiduciary 2 - --------------------------------------------------------------------- - ----------- duties as a director or officer; and (b) his breach of those duties involved intentional misconduct, fraud or a knowing violation of the law. ARTICLE X This Corporation shall not be governed by, nor shall the provisions of Sections 78.378 through and including 78.3793 and Section 78.411 through and including 78.444 of the Nevada Revised Statutes, as amended, in any way whatsoever affect the management, operation or be applied to Corporation. This Article X may only be amended by a majority vote of not less than 90% of the then issued and outstanding shares of Corporation. A quorum of outstanding shares for voting on an Amendment to this Article X shall not be met unless 95% or more of the issues and outstanding shares are present at a properly called and noticed meeting of the Stockholders. The super-majority set forth in this Article X only applies to any attempted amendment to this Article. 4. The vote by which the stockholders holding shares in the Corporation entitling them to exercise at least a majority of the voting power, or such greater proportion of the voting power as may be required in the case of a vote by classes or series, or as may be required by the provisions of the articles of incorporation have voted in favor of the foregoing amendment is at least a majority. 5. This Certificate of Amended and Restated Articles of the Corporation shall become effective on May 10, 2004. IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amended and Restated Articles of Incorporation this 6th day of May, 2004. /S/ ROBERT SHIVELY - ------------------ Robert Shively, President 3 - --------------------------------------------------------------------- - ----------- Exhibit 3.2 AMENDED AND RESTATED BYLAWS OF DRILLING, INC. A NEVADA CORPORATION ARTICLE I OFFICES Section 1. PRINCIPAL OFFICES. The principal office shall be in the City of Newport Beach, State of California. Section 2. OTHER OFFICES. The board of directors may at any time establish branch or subordinate offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. PLACE OF MEETINGS. Meetings of stockholders shall be held at any place within or without the State of Nevada designated by the board of directors. In the absence of any such designation, stockholders' meetings shall be held at the principal executive office of the corporation. Section 2. ANNUAL MEETINGS. The annual meetings of stockholders shall be held at a date and time designated by the board of directors. At such meetings, directors shall be elected and any other proper business may be transacted by a plurality vote of stockholders. Section 3. SPECIAL MEETINGS. A special meeting of the stockholders, for any purpose or purposes whatsoever, unless prescribed by statute or by the articles of incorporation, may be called at any time by the president and shall be called by the president or secretary at the request in writing of a majority of the board of directors, or at the request in writing of stockholders holding shares in the aggregate entitled to cast not less than a majority of the votes at any such meeting. The request shall be in writing, specifying the time of such meeting, the place where it is to be held and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president or the secretary of the corporation. The officer receiving such request forthwith shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Sections 4 and 5 of this Article II, that a meeting will be held at the time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 3 shall be construed as limiting, fixing or affecting the time when a meeting of stockholders called by action of the board of directors may be held. - --------------------------------------------------------------------- - ----------- Section 4. NOTICE OF STOCKHOLDERS' MEETINGS. All notices of meetings of stockholders shall be sent or otherwise given in accordance with Section 5 of this Article II not less than ten (10) nor more than sixty (60) days before the date of the meeting being noticed. The notice shall specify the place, date and hour of the meeting and (i) in the case of a special meeting the general nature of the business to be transacted, or (ii) in the case of the annual meeting those matters which the board of directors, at the time of giving the notice, intends to present for action by the stockholders. The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees which, at the time of the notice, management intends to present for election. If action is proposed to be taken at any meeting for approval of (i) contracts or transactions in which a director has a direct or indirect financial interest, (ii) an amendment to the articles of incorporation, (iii) a reorganization of the corporation, (iv) dissolution of the corporation, or (v) a distribution to preferred stockholders, the notice shall also state the general nature of such proposal. Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any meeting of stockholders shall be given either personally or by first- class mail or telegraphic or other written communication, charges prepaid, addressed to the stockholder at the address of such stockholder appearing on the books of the corporation or given by the stockholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent by mail or telegram to the corporation's principal executive office, or if published at least once in a newspaper of general circulation in the county where this office is located. Personal delivery of any such notice to any officer of a corporation or association or to any member of a partnership shall constitute delivery of such notice to such corporation, association or partnership. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. In the event of the transfer of stock after delivery or mailing of the notice of and prior to the holding of the meeting, it shall not be necessary to deliver or mail notice of the meeting to the transferee. If any notice addressed to a stockholder at the address of such stockholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the stockholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the stockholder upon written demand of the stockholder at the principal executive office of the corporation for a period of one year from the date of the giving of such notice. An affidavit of the mailing or other means of giving any notice of any stockholders' meeting shall be executed by the secretary, assistant secretary or any transfer agent of the corporation giving such notice, and shall be filed and maintained in the minute book of the corporation. 2 - --------------------------------------------------------------------- - ----------- Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 6. QUORUM. The presence in person or by proxy of the holders of a majority of the shares entitled to vote at any meeting of stockholders shall constitute a quorum for the transaction of business, except as otherwise provided by statute or the articles of incorporation. The stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. Section 7. ADJOURNED MEETING AND NOTICE THEREOF. Any stockholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at such meeting, either in person or by proxy, but in the absence of a quorum, no other business may be transacted at such meeting. When any meeting of stockholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at a meeting at which the adjournment is taken. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. Section 8. VOTING. Unless a record date set for voting purposes be fixed as provided in Section 1 of Article VIII of these bylaws, only persons in whose names shares entitled to vote stand on the stock records of the corporation at the close of business on the business day next preceding the day on which notice is given (or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held) shall be entitled to vote at such meeting. Any stockholder entitled to vote on any matter other than elections of directors or officers, may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, but, if the stockholder fails to specify the number of shares such stockholder is voting affirmatively, it will be conclusively presumed that the stockholder's approving vote is with respect to all shares such stockholder is entitled to vote. Such vote may be by voice vote or by ballot; provided, however, that all elections for directors must be by ballot upon demand by a stockholder at any election and before the voting begins. When a quorum is present or represented at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the articles of incorporation a different vote is required in which case such express provision shall govern and control the decision of such question. Every stockholder of record of the corporation shall be entitled at each meeting of stockholders to one vote for each share of stock standing in his name on the books of the corporation. 3 - --------------------------------------------------------------------- - ----------- Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT STOCKHOLDERS. The transactions at any meeting of stockholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, not present in person or by proxy, signs a written waiver of notice or a consent to a holding of the meeting, or an approval of the minutes thereof. The waiver of notice or consent need not specify either the business to be transacted or the purpose of any regular or special meeting of stockholders, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 4 of this Article II, the waiver of notice or consent shall state the general nature of such proposal. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall also constitute a waiver of notice of such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters not included in the notice if such objection is expressly made at the meeting. Section 10. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action which may be taken at any annual or special meeting of stockholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. All such consents shall be filed with the secretary of the corporation and shall be maintained in the corporate records. Any stockholder giving a written consent, or the stockholder's proxy holders, or a transferee of the shares of a personal representative of the stockholder of their respective proxy holders, may revoke the consent by a writing received by the secretary of the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the secretary. Section 11. PROXIES. Every person entitled to vote for directors or on any other matter shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the secretary of the corporation. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder's attorney in fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless revoked by the person executing it, prior to the vote pursuant thereto, by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by, or attendance at the meeting and voting in person by the person executing the proxy; provided, however, that no such proxy shall be valid after the expiration of six (6) months from the date of such proxy, unless coupled with an interest, or unless the person executing it specifies therein the length of time for which it is to continue in force, which in no case shall exceed seven (7) years from the date of its execution. Subject to the above and the provisions of Section 78.355 of the Nevada General Corporation Law, any proxy duly executed is not revoked and continues in full force and effect until an instrument revoking it or a duly executed proxy bearing a later date is filed with the secretary of the corporation. 4 - --------------------------------------------------------------------- - ----------- Section 12. INSPECTORS OF ELECTION. Before any meeting of stockholders, the board of directors may appoint any persons other than nominees for office to act as inspectors of election at the meeting or its adjournment. If no inspectors of election are appointed, the chairman of the meeting may, and on the request of any stockholder or his proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting on the request of one or more stockholders or proxies, the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment by the board of directors before the meeting, or by the chairman at the meeting. The duties of these inspectors shall be as follows: (a) Determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) Receive votes, ballots, or consents; (c) Hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) Count and tabulate all votes or consents; (e) Determine the election result; and (f) Do any other acts that may be proper to conduct the election or vote with fairness to all stockholders. ARTICLE III DIRECTORS Section 1. POWERS. Subject to the provisions of the Nevada General Corporation Law and any limitations in the articles of incorporation and these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. Without prejudice to such general powers, but subject to the same limitations, it is hereby expressly declared that the directors shall have the power and authority to: (a) Select and remove all officers, agents, and employees of the corporation, prescribe such powers and duties for them as may not be inconsistent with law, with the articles of incorporation or these bylaws, fix their compensation, and require from them security for faithful service. 5 - --------------------------------------------------------------------- - ----------- (b) Change the principal executive office or the principal business office from one location to another; cause the corporation to be qualified to do business in any other state, territory, dependency, or foreign country and conduct business within or without the State; designate any place within or without the State for the holding of any stockholders' meeting, or meetings, including annual meetings; adopt, make and use a corporate seal, and prescribe the forms of certificates of stock, and alter the form of such seal and of such certificates from time to time as in their judgment they may deem best, provided that such forms shall at all times comply with the provisions of law. (c) Authorize the issuance of shares of stock of the corporation from time to time, upon such terms as may be lawful, in consideration of money paid, labor done or services actually rendered, debts or securities cancelled, tangible or intangible property actually received. (d) Borrow money and incur indebtedness for the purpose of the corporation, and cause to be executed and delivered therefor, in the corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations, or other evidences of debt and securities therefor. Section 2. NUMBER OF DIRECTORS. The number of directors which shall constitute the whole board shall not be less than one (1) nor more than nine (9). The exact number of authorized directors shall be set by resolution of the board of directors, within the limits specified above. The maximum or minimum number of directors cannot be changed, nor can a fixed number be substituted for the maximum and minimum numbers, except by a duly adopted amendment to the articles of incorporation or by an amendment to this bylaw. Section 3. QUALIFICATION, ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall be elected at each annual meeting of the stockholders to hold office until the next annual meeting, but if any such annual meeting is not held or the directors are not elected at any annual meeting, the directors may be elected at any special meeting of stockholders held for that purpose, or at the next annual meeting of stockholders held thereafter. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified or until his earlier resignation or removal or his office has been declared vacant in the manner provided in these bylaws. Directors need not be stockholders. Section 4. RESIGNATION AND REMOVAL OF DIRECTORS. Any director may resign effective upon giving written notice to the chairman of the board, the president, the secretary or the board of directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation, in which case such resignation shall be effective at the time specified. Unless such resignation specifies otherwise, its acceptance by the corporation shall not be necessary to make it effective. The board of directors may declare vacant the office of a director who has been declared of unsound mind by an order of a court or convicted of a felony. Any or all of the directors may be removed without cause of such removal is approved by the affirmative vote of a majority of the outstanding shares entitled to vote. No reduction of the authorized number of directors shall have the effect of removing any director before his term of office expires. 6 - --------------------------------------------------------------------- - ----------- Section 5. VACANCIES. Vacancies in the board of directors, may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director. Each director so elected shall hold office until the next annual meeting of the stockholders and until a successor has been elected and qualified. A vacancy in the board of directors exists as to any authorized position of directors which is not then filled by a duly elected director, whether caused by death, resignation, removal, increase in the authorized number of directors or otherwise. The stockholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election by written consent shall require the consent of a majority of the outstanding shares entitled to vote. If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective. If after the filling of any vacancy by the directors, the directors then in office who have been elected by the stockholders shall constitute less than a majority of the directors then in office, any holder or holders of an aggregate of five percent or more of the total number of shares at the time outstanding having the right to vote for such directors may call a special meeting of the stockholders to elect the entire board. The term of office of any director not elected by the stockholders shall terminate upon the election of a successor. Section 6. PLACE OF MEETINGS. Regular meetings of the board of directors shall be held at any place within or without the State of Nevada that has been designated from time to time by resolution of the board. In the absence of such designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board shall be held at any place within or without the State of Nevada that has been designated in the notice of the meeting or, if not stated in the notice or there is not notice, at the principal executive office of the corporation. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in such meeting can hear one another, and all such directors shall be deemed to be present in person at such meeting. Section 7. ANNUAL MEETINGS. Immediately following each annual meeting of stockholders, the board of directors shall hold a regular meeting for the purpose of transaction of other business. Notice of this meeting shall not be required. Section 8. OTHER REGULAR MEETINGS. Other regular meetings of the board of directors shall be held without call at such time as shall from time to time be fixed by the board of directors. Such regular meetings may be held without notice, provided the notice of any change in the time of any such meetings shall be given to all of the directors. Notice of a change in the determination of the time shall be given to each director in the same manner as notice for special meetings of the board of directors. Section 9. SPECIAL MEETINGS. Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board or the president or any vice president or the secretary or any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at his or her address as it is shown upon the records of the corporation. In case such notice is mailed, it shall be deposited in the United States mail at least four (4) days prior to the time of the holding of the meeting. In case such notice is delivered 7 - --------------------------------------------------------------------- - ----------- personally, or by telephone or telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours prior to the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated to either the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose of the meeting nor the place if the meeting is to be held at the principal executive office of the corporation. Section 10. QUORUM. A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn as hereinafter provided. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the board of directors, subject to the provisions of Section 78.140 of the Nevada General Corporation Law (approval of contracts or transactions in which a director has a direct or indirect material financial interest), Section 78.125 (appointment of committees), and Section 78.751 (indemnification of directors). A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting. Section 11. WAIVER OF NOTICE. The transactions of any meeting of the board of directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum be present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting or an approval of the minutes thereof. The waiver of notice of consent need not specify the purpose of the meeting. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Notice of a meeting shall also be deemed given to any director who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. Section 12. ADJOURNMENT. A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place. Section 13. NOTICE OF ADJOURNMENT. Notice of the time and place of holding an adjourned meeting need not be given, unless the meeting is adjourned for more than twenty-four (24) hours, in which case notice of such time and place shall be given prior to the time of the adjourned meeting, in the manner specified in Section 8 of this Article III, to the directors who were not present at the time of the adjournment. Section 14. ACTION WITHOUT MEETING. Any action required or permitted to be taken by the board of directors may be taken without a meeting, if all members of the board shall individually or collectively consent in writing to such action. Such action by written consent shall have the same force and effect as a unanimous vote of the board of directors. Such written consent or consents shall be filed with the minutes of the proceedings of the board. 8 - --------------------------------------------------------------------- - ----------- Section 15. FEES AND COMPENSATION OF DIRECTORS. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement of expenses, as may be fixed or determined by resolution of the board of directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation for such services. Members of special or standing committees may be allowed like compensation for attending committee meetings. ARTICLE IV COMMITTEES Section 1. COMMITTEES OF DIRECTORS. The board of directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of one or more directors, to serve at the pleasure of the board. The board may designate one or more directors as alternate members of any committees, who may replace any absent member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the board, shall have all the authority of the board, except with regard to: (a) the approval of any action which, under the Nevada General Corporation Law, also requires stockholders' approval or approval of the outstanding shares; (b) the filing of vacancies on the board of directors or in any committees; (c) the fixing of compensation of the directors for serving on the board or on any committee; (d) the amendment or repeal of bylaws or the adoption of new bylaws; (e) the amendment or repeal of any resolution of the board of directors which by its express terms is not so amendable or repealable; (f) a distribution to the stockholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the board of directors; or (g) the appointment of any other committees of the board of directors or the members thereof. Section 2. MEETINGS AND ACTION BY COMMITTEES. Meetings and action of committees shall be governed by, and held and taken in accordance with, the provisions of Article III, Sections 6 (place of meetings), 8 (regular meetings), 9 (special meetings and notice), 10 (quorum), 11 (waiver of notice), 12 (adjournment), 13 (notice of adjournment) and 14 (action without meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members, except that the time or regular meetings of committees may be determined by resolutions of the board of directors and notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. The committees shall keep regular minutes of their proceedings and report the same to the board when required. 9 - --------------------------------------------------------------------- - ----------- ARTICLE V OFFICERS Section 1. OFFICERS. The officers of the corporation shall be a president, a secretary and a treasurer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article V. Any two or more offices may be held by the same person. Section 2. ELECTION OF OFFICERS. The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article V, shall be chosen by the board of directors, and each shall serve at the pleasure of the board, subject to the rights, if any, of an officer under any contract of employment. The board of directors at its first meeting after each annual meeting of stockholders shall choose a president, a vice president, a secretary and a treasurer, none of whom need be a member of the board. The salaries of all officers and agents of the corporation shall be fixed by the board of directors. Section 3. SUBORDINATE OFFICERS, ETC. The board of directors may appoint, and may empower the president to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the bylaws or as the board of directors may from time to time determine. Section 4. REMOVAL AND RESIGNATION OF OFFICERS. The officers of the corporation shall hold office until their successors are chosen and qualify. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the board of directors, at any regular or special meeting thereof, or, except in case of an officer chosen by the board of directors, by any officer upon whom such power or removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any such resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. Section 5. VACANCIES IN OFFICES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointments to such office. Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if such an officer be elected, shall, if present, preside at all meetings of the board of directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the board of directors or prescribed by the bylaws. If there is no president, the chairman of the board shall in addition be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 7 of this Article V. 10 - --------------------------------------------------------------------- - ----------- Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction and control of the business and the officers of the corporation. He shall preside at all meetings of the stockholders and, in the absence of the chairman of the board, of if there be none, at all meetings of the board of directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed by the board of directors or the bylaws. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. Section 8. VICE PRESIDENTS. In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors or the bylaws, the president or the chairman of the board. Section 9. SECRETARY. The secretary shall attend all meetings of the board of directors and all meetings of the stockholders and shall record, keep or cause to be kept, at the principal executive office or such other place as the board of directors may order, a book of minutes of all meetings of directors, committees of directors and stockholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors' and committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of stockholders and of the board of directors required by the bylaws or by law to be given, and he shall keep the seal of the corporation in safe custody, as may be prescribed by the board of directors or by the bylaws. 11 - --------------------------------------------------------------------- - ----------- Section 10. CHIEF FINANCIAL OFFICER/TREASURER. Unless otherwise provided by the board of directors, the chief financial officer shall be the treasurer of the Corporation. The treasurer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director. The treasurer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of his transactions as treasurer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the board of directors or the bylaws. If required by the board of directors, the treasurer shall give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS Section 1. ACTIONS OTHER THAN BY THE CORPORATION. The corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, has no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and that, with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. Section 2. ACTIONS BY THE CORPORATION. The corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was 12 - --------------------------------------------------------------------- - ----------- serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys' fees, actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper. Section 3. SUCCESSFUL DEFENSE. To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 and 2, or in defense of any claim, issue or matter therein, he must be indemnified by the corporation against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense. Section 4. REQUIRED APPROVAL. Any indemnification under Sections 1 and 2, unless ordered by a court or advanced pursuant to Section 5, must be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made: (a) By the stockholders; (b) By the board of directors by majority vote of a quorum consisting of directors who were not parties to the act, suit or proceeding; (c) If a majority vote of a quorum consisting of directors who were not parties to the act, suit or proceeding so orders, by independent legal counsel in a written opinion; or (d) If a quorum consisting of directors who were not parties to the act, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion. Section 5. ADVANCE OF EXPENSES. The articles of incorporation, the bylaws or an agreement made by the corporation may provide that the expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding must be paid by the corporation as they are incurred and in advance of the final disposition of the action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the corporation. The provisions of this section do not affect any rights to advancement of expenses to which corporate personnel other than directors or officers may be entitled under any contract or otherwise by law. Section 6. OTHER RIGHTS. The indemnification and advancement of expenses authorized in or ordered by a court pursuant to this Article VI: 13 - --------------------------------------------------------------------- - ----------- (a) Does not exclude any other rights to which a person seeking indemnification or advancement of expenses may be entitled under the articles of incorporation or any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, for either an action in his official capacity or an action in another capacity while holding his office, except that indemnification, unless ordered by a court pursuant to Section 2 or for the advancement of expenses made pursuant to Section 5, may not be made to or on behalf of any director or officer if a final adjudication establishes that his acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and was material to the cause of action. (b) Continues for a person who has ceased to be a director, officer, employee or agent and inures to the benefit of the heirs, executors and administrators of such a person. Section 7. INSURANCE. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise for any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article VI. Section 8. RELIANCE ON PROVISIONS. Each person who shall act as an authorized representative of the corporation shall be deemed to be doing so in reliance upon the rights of indemnification provided by this Article. Section 9. SEVERABILITY. If any of the provisions of this Article are held to be invalid or unenforceable, this Article shall be construed as if it did not contain such invalid or unenforceable provision and the remaining provisions of this Article shall remain in full force and effect. Section 10. RETROACTIVE EFFECT. To the extent permitted by applicable law, the rights and powers granted pursuant to this Article VI shall apply to acts and actions occurring or in progress prior to its adoption by the board of directors. ARTICLE VII RECORDS AND BOOKS Section 1. MAINTENANCE OF SHARE REGISTER. The corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar, if either be appointed and as determined by resolution of the board of directors, a record of its stockholders, giving the names and addresses of all stockholders and the number and class of shares held by each stockholder. Section 2. MAINTENANCE OF BYLAWS. The corporation shall keep at its principal executive office, or if its principal executive office is not in this State at its principal business office in this State, the original or a copy of the bylaws as amended to date, which shall be open to inspection by the stockholders at all reasonable times during office hours. If the principal executive office of the corporation is outside this state and the corporation has no principal business office in this state, the secretary shall, upon the written request of any stockholder, furnish to such stockholder a copy of the bylaws as amended to date. 14 - --------------------------------------------------------------------- - ----------- Section 3. MAINTENANCE OF OTHER CORPORATE RECORDS. The accounting books and records and minutes of proceedings of the stockholders and the board of directors and any committee or committees of the board of directors shall be kept at such place or places designated by the board of directors, or, in the absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form. Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of this corporation and any subsidiary of this corporation. Such inspection by a director may be made in person or by agent or attorney and the right of inspection includes the right to copy and make extracts. The foregoing rights of inspection shall extend to the records of each subsidiary of the corporation. Section 4. ANNUAL REPORT TO STOCKHOLDERS. Nothing herein shall be interpreted as prohibiting the board of directors from issuing annual or other periodic reports to the stockholders of the corporation as they deem appropriate. Section 5. FINANCIAL STATEMENTS. A copy of any annual financial statement and any income statement of the corporation for each quarterly period of each fiscal year, and any accompanying balance sheet of the corporation as of the end of each such period, that has been prepared by the corporation shall be kept on file in the principal executive office of the corporation for twelve (12) months. Section 6. ANNUAL LIST OF DIRECTORS, OFFICERS AND RESIDENT AGENTS. The corporation shall, on or before December 31st of each year, file with the Secretary of State of the State of Nevada, on the prescribed form, a list of its officers and directors and a designation of its resident agent in Nevada. ARTICLE VIII GENERAL CORPORATE MATTERS Section 1. RECORD DATE. For purposes of determining the stockholders entitled to notice of any meeting or to vote or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days prior to the date of any such meeting nor more than sixty (60) days prior to any other action, and in such case only stockholders of record on the date so fixed are entitled to notice and to vote or to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date fixed as aforesaid, except as otherwise provided in the Nevada General Corporation Law. If the board of directors does not so fix a record date: 15 - --------------------------------------------------------------------- - ----------- (a) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. (b) The record date for determining stockholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the board has been taken, shall be the day on which the first written consent is given. (c) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later. Section 2. CLOSING OF TRANSFER BOOKS PROHIBITED. In connection with the determination of stockholders entitled to notice of any meeting or to vote or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any right in respect of any other lawful action, the board of directors shall not close the stock transfer books of the corporation for any reason but shall instead fix a record date for such determination in the manner provided in Section 1 of Article VIII of these bylaws. Section 3. REGISTERED STOCKHOLDERS. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Nevada. Section 4. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the board of directors. Section 5. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The board of directors, except as in the bylaws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances; and, unless so authorized or ratified by the board of directors or within the agency power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or to any amount. Section 6. STOCK CERTIFICATES. A certificate or certificates for shares of the capital stock of the corporation shall be issued to each stockholder when any such shares are fully paid, and the board of directors may authorize the issuance of certificates or shares as partly paid provided that such certificates shall state the amount of the consideration to be paid therefor and the amount paid thereon. All certificates shall be signed in the name of the corporation by the president or vice president and by the treasurer or an 16 - --------------------------------------------------------------------- - ----------- assistant treasurer or the secretary or any assistant secretary, certifying the number of shares and the class or series of shares owned by the stockholder. When the corporation is authorized to issue shares of more than one class or more than one series of any class, there shall be set forth upon the face or back of the certificate, or the certificate shall have a statement that the corporation will furnish to any stockholders upon request and without charge, a full or summary statement of the designations, preferences and relatives, participating, optional or other special rights of the various classes of stock or series thereof and the qualifications, limitations or restrictions of such rights, and, if the corporation shall be authorized to issue only special stock, such certificate must set forth in full or summarize the rights of the holders of such stock. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. No new certificate for shares shall be issued in place of any certificate theretofore issued unless the latter is surrendered and cancelled at the same time; provided, however, that a new certificate may be issued without the surrender and cancellation of the old certificate if the certificate thereto fore issued is alleged to have been lost, stolen or destroyed. In case of any such allegedly lost, stolen or destroyed certificate, the corporation may require the owner thereof or the legal representative of such owner to give the corporation a bond (or other adequate security) sufficient to indemnify it against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 7. DIVIDENDS. Dividends upon the capital stock of the corporation, subject to the provisions of the articles of incorporation, if any, may be declared by the board of directors at any regular or special meeting pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the articles of incorporation. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserves in the manner in which it was created. Section 8. FISCAL YEAR. The fiscal year of the corporation shall be fixed by resolution of the board of directors. Section 9. SEAL. The corporate seal shall have inscribed thereon the name of the corporation, the year of its incorporation and the words "Corporate Seal, Nevada." Section 10. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The chairman of the board, the president, or any vice president, or any other person authorized by resolution of the board of directors by any of the foregoing designated officers, is authorized to vote on behalf of the corporation any and all shares of any other corporation or corporations, foreign or domestic, standing in the name of the corporation. The authority herein granted to said officers to vote or represent on behalf of the corporation any and all shares held by the corporation in any other corporation or corporations may be exercised by any such officer in person or by any person authorized to do so by proxy duly executed by said officer. 17 - --------------------------------------------------------------------- - ----------- Section 11. CONSTRUCTION AND DEFINITIONS. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Nevada General Corporation Law shall govern the construction of the bylaws. Without limiting the generality of the foregoing, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. ARTICLE IX AMENDMENTS Section 1. AMENDMENT BY STOCKHOLDERS. New bylaws may be adopted or these bylaws may be amended or repealed by the affirmative vote of a majority of the outstanding shares entitled to vote, or by the written assent of stockholders entitled to vote such shares, except as otherwise provided by law or by the articles of incorporation. Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the stockholders as provided in Section 1 of this Article, bylaws may be adopted, amended or repealed by the board of directors. 18 - --------------------------------------------------------------------- - ----------- C E R T I F I C A T E O F S E C R E T A R Y I, the undersigned, do hereby certify: 1. That I am the duly elected and acting secretary of Drilling, Inc., a Nevada corporation; and 2. That the foregoing Amended and Restated Bylaws, comprising eighteen (18) pages, constitute the Bylaws of said corporation as duly adopted by the board of directors of said corporation by a Unanimous Written Consent dated as of March 26, 2004. IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of said corporation this 26th day of March 2004. /S/ KENNETH DILL - ------------------------ Kenneth Dill, Secretary 19 - --------------------------------------------------------------------- - ----------- EXHIBIT 31.1 CERTIFICATIONS I, Robert N. Shively, Chief Executive Officer of PivX Solutions, Inc., certify that: 1. I have reviewed this Quarterly Report on Form 10-QSB of PivX Solutions, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) for the small business issuer and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated Subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report; and c) disclosed in this report any changes in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: May 24, 2004 /S/ ROBERT N. SHIVELY ----------------------- - ----------- Robert N. Shively Chief Executive Officer - --------------------------------------------------------------------- - ----------- EXHIBIT 31.2 CERTIFICATIONS I, Kenneth Dill, Chief Financial Officer of PivX Solutions, Inc., certify that: 1. I have reviewed this Quarterly Report on Form 10-QSB of PivX Solutions, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated Subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report; and c) disclosed in this report any changes in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: May 24, 2004 /S/ KENNETH DILL ------------------ - ----------- Kenneth Dill Chief Financial Officer - --------------------------------------------------------------------- - ----------- EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of PivX Solutions, Inc. (the "Company") on Form 10-QSB for the quarter ending March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Robert N. Shively, as Chief Executive Officer, and Kenneth Dill, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge, that: (1) The report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. May 24, 2004 By: /S/ ROBERT N. SHIVELY ----------------------- - ----------- Robert N. Shively Chief Executive Officer By: /S/ KENNETH DILL ----------------------- - ----------- Kenneth Dill Chief Financial Officer vxrulezuluze -----BEGIN PGP SIGNATURE----- Note: This signature can be verified at https://www.hushtools.com/verify Version: Hush 2.4 wkYEARECAAYFAkD92fQACgkQqtVWFYxfAHFwMQCdFvl+RFU0lWh9bhCLgMEzrneiSuEA n1Cv3KLPCebc2ilclV8k4UtHSiDN =ufgP -----END PGP SIGNATURE----- Concerned about your privacy? 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