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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the period ended September 30, 2004

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to             

 

Commission file number 000-25315

 


 

S WIND-UP CORPORATION

(Exact name of Registrant as specified in its Charter)

 


 

Delaware   94-3225290

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification Number)

 

P.O. BOX BD

LOS ALTOS, CA 94023

(Address of Principal Executive Offices including Zip Code)

 

(650) 599-5846

(Registrant’s Telephone Number, Including Area Code)

 


 

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

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

 

As of October 31, 2004, Registrant had 47,109,843 shares of common stock issued and outstanding.

 



Table of Contents

S WIND-UP CORPORATION

 

QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2004

 

TABLE OF CONTENTS

 

        Page No.

PART I. FINANCIAL INFORMATION    
Item 1.   Financial Statements:    
    Statement of Net Assets in Liquidation, September 30, 2004 (unaudited) and December 31, 2003   3
    Statement of Changes in Net Assets in Liquidation, for the three and nine months ended September 30, 2004 (unaudited)   4
    Consolidated Statements of Operations, for the three and nine months ended September 30, 2003 (unaudited)   5
    Consolidated Statements of Cash Flows for the nine months ended September 30, 2003   6
    Notes to Consolidated Financial Statements (unaudited)   7
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   10
Item 3.   Quantitative and Qualitative Disclosures About Market Risk   12
Item 4.   Controls and Procedures   12
PART II. OTHER INFORMATION    
Item 1.   Legal Proceedings   13
Item 2.   Use of Proceeds   13
Item 6.   Exhibits and Reports on Form 8-K   13
    SIGNATURES   14
    CERTIFICATIONS   15

 

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PART I FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

S WIND-UP CORPORATION

 

STATEMENT OF NET ASSETS IN LIQUIDATION

(In thousands)

 

    

September 30,

2004


  

December 31,

2003


     (unaudited)     
ASSETS              

Cash and cash equivalents

   $ 1,451    $ 6,065

Accounts receivable

     —        34

Amount due from shareholder

     —        —  

Amount due from Group 1 Software, Inc.

     —        1,635

Other assets

     —        33
    

  

Total assets

   $ 1,451    $ 7,767
    

  

LIABILITIES              

Accounts payable and accrued liabilities

   $ —      $ 1,147

Accrued costs of liquidation

     205      1,280

Commitments and contingencies

     —        —  
    

  

Total liabilities

     205      2,427
    

  

Net assets in liquidation

   $ 1,246    $ 5,340
    

  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

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S WIND-UP CORPORATION

 

UNAUDITED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION

(In thousands)

 

    

Three months ended

September 30, 2004


  

Nine months ended

September 30, 2004


 

Net increase (decrease) in net assets in liquidation:

               

Interest income

   $ 4    $ 23  

Refunds of utility and state tax payments

     47      63  

Reimbursement of class action legal fees by insurance carrier

     150      150  

Amount due from shareholder

     —        100  

Amount due from Group 1

     —        281  

Initial distribution to stockholders

     —        (4,711 )
    

  


Net increase (decrease) in net assets in liquidation

     201      (4,094 )

Net assets in liquidation, beginning of period

     1,045      5,340  
    

  


Net assets in liquidation, September 30, 2004

   $ 1,246    $ 1,246  
    

  


 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

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S WIND-UP CORPORATION

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands, except per share data)

 

    

Three Months Ended

September 30, 2003


   

Nine Months Ended

September 30, 2003


 

Revenue:

                

License

   $ 4,104     $ 11,984  

Service

     3,573       10,692  
    


 


Total revenue

     7,677       22,676  
    


 


Cost of revenue:

                

License

     569       1,624  

Service

     1,189       4,071  
    


 


Total cost of revenue

     1,758       5,695  
    


 


Gross profit

     5,919       16,981  

Operating expenses:

                

Sales and marketing

     3,392       11,330  

Research and development

     2,148       6,628  

General and administrative

     1,710       4,001  

Restructuring costs (credit)

     —         (5 )
    


 


Total operating expenses

     7,250       21,954  
    


 


Loss from operations

     (1,331 )     (4,973 )

Interest income (expense), net

     (204 )     (2,994 )

Other income (expense), net

     (208 )     (140 )
    


 


Net loss before income taxes

     (1,743 )     (8,107 )

Provision for income taxes

     82       413  
    


 


Net loss

   $ (1,825 )   $ (8,520 )
    


 


Basic and diluted net loss per share

   $ (0.04 )   $ (0.18 )
    


 


Shares used in computing basic and diluted net loss per share

     47,110       46,742  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

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S WIND-UP CORPORATION

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

 

    

Nine Months Ended

September 30, 2003


 
  

Cash flows from operations:

        

Net loss

   $ (8,520 )

Adjustments to reconcile net loss to net cash used in operating activities:

        

Depreciation and amortization

     1,999  

Amortization of warrant cost

     1,715  

Accrued interest on short-term loan

     143  

Net loss on disposal of property and equipment

     200  

Gain from sale and collection of officer and shareholder notes

     (612 )

Minority interest in earnings of subsidiary

     (131 )

Changes in operating assets and liabilities:

        

Accounts receivable

     1,652  

Other current assets

     1,345  

Other assets

     629  

Accounts payable

     (873 )

Accrued liabilities

     (1,073 )

Deferred revenue

     191  

Other long-term liabilities

     (4 )
    


Net cash used in operating activities

     (3,339 )
    


Cash flows from investing activities:

        

Purchase of property and equipment

     (32 )

Net proceeds from sale of property and equipment

     97  

Proceeds from the sale and collection of officer and shareholder notes

     1,485  

Purchase of minority interest

     (300 )
    


Net cash provided by investing activities

     1,250  
    


Cash flows from financing activities:

        

Payments of principal under capital lease obligations

     (1,364 )

Restricted cash

     775  

Proceeds from short-term debt

     7,000  

Payments of short-term debt

     (7,143 )

Repurchase of warrants

     (500 )

Proceeds from exercise of stock options and warrants

     69  
    


Net cash used in financing activities

     (1,163 )
    


Effect of exchange rate changes

     (73 )
    


Net decrease in cash and cash equivalents

     (3,325 )
    


Cash and cash equivalents, beginning of the period

     9,711  
    


Cash and cash equivalents, end of the period

   $ 6,386  
    


Supplemental disclosure of cash flow information:

        

Cash payments for interest

   $ 245  

Cash payments for taxes

   $ 320  

Supplemental disclosure of non-cash investing and financing activity:

        

Equipment acquired under capital leases

   $ 11  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

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S WIND-UP CORPORATION

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands, except where noted)

 

References in this quarterly report to “S Wind-up,” “we,” “our” and “us” refer to S Wind-up Corporation and its subsidiaries, unless the context otherwise requires.

 

NOTE 1. SALE OF SUBSTANTIALLY ALL ASSETS, ACCOUNTING BASIS AND SUMMARY OF SIGNIFICANT ACCOUNTING BASIS POLICIES

 

Liquidation Basis of Accounting and Sale of Substantially all Assets

 

The accompanying consolidated financial statements of S Wind-up Corporation (formerly Sagent Technology, Inc.) have been prepared without audit (except for the balance sheet information as of December 31, 2003, which is derived from our audited financial statements). Certain information and note disclosures normally included in financial statements have been omitted. These financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2003.

 

We have made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America. Significant assumptions inherent in the preparation of the accompanying financial statements include, but are not limited to, accrued costs of liquidation and commitments and contingencies. Actual results could differ from those estimates.

 

On April 15, 2003, we entered into a definitive asset purchase agreement (the “Asset Purchase Agreement”) to sell substantially all of our assets to Group 1 Software, Inc. (“Group 1”).

 

On October 1, 2003, the asset sale contemplated by the Asset Purchase Agreement was consummated.

 

Effective with the closing, we received $13.0 million in the form of $5.6 million in cash and the assumption of $7.4 million in secured loans and accrued interest payable to Group 1 under a bridge loan. Under the terms of the Asset Purchase Agreement, we retained approximate $1.5 million in cash, certain other assets and liabilities for outstanding litigation and approximately $1.2 million of accrued compensation payable to key officers. In addition, pursuant to the terms of the Asset Purchase Agreement, Group 1 withheld $4.0 million of the purchase price pending final resolution of the net book value of assets and liabilities acquired and appropriate indemnification claims (the “purchase price adjustment”), which was finalized at $2.0 million, resulting in an adjusted purchase price of $15.0 million. On March 10, 2004, we received $1.6 million of the final $2.0 million of cash proceeds; the remaining $0.4 million in cash was being withheld for potential contingency claims. On July 2, 2004, we received $0.3 million as final payment from Group 1.

 

Our remaining assets consist primarily of cash.

 

Pursuant to the plan of dissolution, which was approved by stockholders on September 30, 2003, since October 1, 2003, our operations have been limited to winding-up our business and affairs, selling our remaining assets and discharging our known liabilities. We plan to distribute any remaining assets to our stockholders, all in accordance with the plan of dissolution. As a result, we changed our basis of accounting to the liquidation basis as of October 1, 2003. Under the liquidation basis of accounting, assets and liabilities are reflected at the estimated amounts to be paid or received; however actual costs could differ from those estimates. Distributions ultimately made to stockholders upon liquidation will differ from the “net assets in liquidation” recorded in the accompanying Statement of Net Assets in Liquidation as a result of future operations, and adjustments, if any, to estimated costs of liquidation. The accompanying historical statements of operations for the three and nine months ended and cash flows for the nine months ended September 30, 2003 have been presented on a going concern basis comparable to prior periods, which assumes the realization of assets and the liquidation of liabilities in the normal course of business.

 

It is our intention to settle our outstanding obligations and sell our remaining assets as expeditiously as possible. Final dissolution and related distributions to stockholders will occur upon obtaining final resolution on any remaining liquidation issues.

 

Pursuant to the plan of dissolution, we filed Articles of Dissolution with the Secretary of State of the State of Delaware on April 15, 2004. We also filed Articles of Amendment to change our name from Sagent Technology, Inc. to S Wind-up Corporation, effective April 15, 2004.

 

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Principles of Consolidation

 

The consolidated financial statements include the accounts of S Wind-up and its wholly-owned subsidiaries, Qualitative Marketing Software, Inc. (QMS) and Sagent Benelux, and its former wholly-owned subsidiaries, Sagent de Brazil, Sagent Australia Pty Ltd, Sagent de Mexico, Sagent U.K., Ltd., Sagent Technology GmbH, Sagent France, S.A., Sagent Technology Japan KK, and Sagent Asia/Pacific Pte Ltd. through the time the subsidiary was sold or liquidated. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Examples of such estimates include, but are not limited to, the accounting for contingencies and accrued costs of liquidation, which represents the estimate of costs to be incurred during dissolution. Our current estimated range of loss related to some of the contingencies is based on claims for which we can estimate the amount and range of loss. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include all highly liquid investments purchased with an original or remaining maturity of less than three months at the date of purchase. Our cash and cash equivalents at September 30, 2004 consisted of deposits and money market funds maintained with major financial institutions.

 

Concentration of Credit Risk

 

Financial instruments that potentially subject us to concentrations of credit risk are comprised principally of cash and cash equivalents. We invest excess cash through banks, primarily in highly liquid securities, and have investment policies and procedures that are reviewed periodically to minimize credit risk.

 

NOTE 2. ACCRUED LIABILITIES

 

Accrued liabilities consist of the following:

 

    

September 30,

2004


  

December 31,

2003


     (unaudited)     

Officer compensation and benefits

   $ —      $ 1,117

Other

     —        30
    

  

Total

   $ —      $ 1,147
    

  

 

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NOTE 3. LEGAL PROCEEDINGS

 

Legal Proceedings

 

From time to time, we have been subject to pending or threatened litigation. While most recent litigation matters have been resolved, pending or future litigation could be costly and could upon resolution, have a material adverse affect on our financial position.

 

In January 2004, Consolidated Freightways Corp. trustee filed a complaint against us to avoid and recover certain preferential transfers. Payments totaling $12 have been alleged in the complaint. In June 2004, we entered into a Settlement Agreement which called for us to pay $9 in full settlement of all claims. The $9 was paid on July 1, 2004.

 

Guarantees

 

Prior to the sale of our assets to Group 1, we entered into standard indemnification provisions within our software license agreements with our customers and technology partners. Pursuant to these provisions, we historically offered to indemnify, defend and hold harmless the indemnified party for losses suffered or incurred by the indemnified party in connection with any U.S. patent, copyright or other intellectual property infringement claim by any third party with respect to our products. The term of these indemnification provisions was generally perpetual any time after execution of the license agreement. The maximum potential amount of future payments that we could be required to make under these indemnification provisions was unlimited. We have, in the past, incurred costs to defend intellectual property lawsuits.

 

We have agreements in place with our directors and officers whereby we indemnify them for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have a tail director and officer insurance policy, which may enable us to recover a portion of any future amounts paid.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The Management’s Discussion and Analysis of Financial Condition and Results of Operations contains “forward looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on a number of assumptions by us about the future, usually based on current conditions. These assumptions may or may not prove to be correct and, as a result, our own forward-looking statements may also be inaccurate. On the other hand, based on what we know today and what we expect in the future, we believe that the forward-looking statements we make in this report are reasonable. In most cases, when we use words like “believe,” “expect,” “estimate,” “anticipate,” “project,” “plan,” or “predict” to describe something which has not yet occurred, we are making a forward-looking statement. These forward-looking statements involve risks and uncertainties. These risks and uncertainties include that we may have underestimated the amount of our obligations and liabilities, risks associated with our liquidation and dissolution, including without limitation, settlement of our liabilities and obligations, costs incurred in connection with carrying out the plan of liquidation and dissolution and any potential additional expense, discharge of contingent liabilities, and the winding up and dissolution of the Corporation.

 

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements. You should not place undue reliance on our forward-looking statements, as they are not guarantees of future results or distributions and represent our expectations only as of the date they are made.

 

Upon the sale of substantially all of our operating assets to Group 1 on October 1, 2003, most of our employees resigned and accepted employment with Group 1 and we ceased operations. We cannot list here all of the risks and uncertainties that could cause our actual future financial results to differ materially our present expectations or projections regarding estimated distribution to stockholders but we can identify many of them. For example, our future results could be affected by the cost of satisfying currently known liabilities, the need to satisfy unanticipated liabilities that might arise in the future, the expenses of dissolving and winding up our business, and the price at which S Wind-up stock may be held or sold. It is important to remember that forward-looking statements speak only as of the date when they are made and we do not promise that we will publicly update or revise those statements whenever conditions change or future events occur. Accordingly we do not recommend that any person seeking to evaluate our Company should place undue reliance on any forward-looking statements in this report.

 

The following discussion and analysis should be read in conjunction with our financial statements and in Note 3, Legal Proceedings.

 

Critical Accounting Policies and Estimates

 

Our discussion and analysis of our historical and liquidation based financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and judgments, including those related to accrued costs of liquidation and commitments and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our historical and liquidation based consolidated financial statements:

 

Contingent Liabilities

 

We have been subject to legal proceedings and claims in the past in the ordinary course of our business. While all such prior legal proceedings have been resolved, we may in the future be subject to legal disputes, which, even if not meritorious, could result in the expenditure of significant financial resources.

 

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Accrued Costs of Liquidation and Effects of Change to Liquidation Basis

 

Pursuant to the plan of dissolution, which was approved by stockholders on September 30, 2003, since October 1, 2003, our operations have been limited to winding-up our business and affairs, selling our remaining assets and discharging our known liabilities. We plan to distribute any remaining assets to our stockholders in accordance with the plan of dissolution. As a result, we changed our basis of accounting to the liquidation basis as of October 1, 2003. Under the liquidation basis of accounting, assets and liabilities are reflected at the estimated amounts to be paid or received; however actual costs could differ from those estimates. Distributions ultimately made to stockholders upon liquidation will differ from the “net assets in liquidation” recorded in the accompanying Statement of Net Assets in Liquidation as a result of future operations, the sale proceeds ultimately received by us and adjustments, if any, to estimated costs of liquidation. The accompanying historical statements of operations for the three and nine months ended and cash flows for nine months ended September 30, 2003 have been presented on a going concern basis comparable to prior periods, which assumes the realization of assets and the liquidation of liabilities in the normal course of business.

 

It is our intention to settle our outstanding obligations as expeditiously as possible. Final dissolution and related distributions to stockholders will occur upon obtaining final resolution on all liquidation issues.

 

At September 30, 2004, the following represents the estimated costs of liquidation (in thousands):

 

    

September 30,

2004


     (unaudited)

Officer compensation and benefits

   $ —  

Legal, audit and tax services

   $ 134

Other estimated costs of liquidation

     71
    

Total

   $ 205
    

 

Comparison of our Changes in Net Assets in Liquidation for the Three Months Ended September 30, 2004 compared to our Results of Operations for the Three Months Ended September 30, 2003

 

This financial review should be read in conjunction with the accompanying consolidated financial statements and notes. On October 1, 2003, we completed the sale of substantially all of our operating assets to Group 1 and ceased preparing our financial statements on a going concern basis under generally accepted accounting principles. Accordingly, changes in net assets in liquidation for the three months ended September 30, 2004 are not comparable to the results of operations for the three months ended September 30, 2003. Effective October 1, 2003 we adopted the liquidation basis of accounting which is described in detail in Note 1 to the accompanying consolidated financial statements. In the current fiscal year we had no operations. Therefore, there is no discussion of operations in this financial review.

 

Liquidity and Capital Resources

 

As of September 30, 2004, our net assets in liquidation were $1.2 million, including primarily cash and cash equivalents of $1.5 million. During the quarter ended September 30, 2004, we extinguished $0.1 million of our accounts payable and accrued costs of liquidation. We also recorded $4 of interest income, $47 of utility and state tax refunds and reimbursement of class action legal fees by insurance carrier of $150.

 

Outstanding Liabilities

 

At September 30, 2004, we had $205 in accrued costs of liquidation. Our cash is being used to pay our outstanding liabilities and obligations, and to establish a reserve for future liabilities and expenses. Any cash not used to satisfy liabilities and expenses will be distributed to stockholders. It is our intention to settle our outstanding obligations as expeditiously as possible. Final dissolution of the Company and related distributions to our stockholders will occur upon obtaining final resolution of all liquidation issues.

 

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Item 3. Qualitative and Quantitative Disclosures about Market Risk

 

We are exposed to certain market risks, including the effects of adverse changes in interest rates. Our exposure to such changes results from cash deposits managed by Bank of America and Banc of America Investment Services, Inc. As of December 31, 2003 and September 30, 2004, we have no financial instruments in place to manage the impact of changes in interest rates. We estimate that a 1% increase or decrease in interest rates would have impacted our income from these assets by less than $60,000 for the year ended December 31, 2003 and $14,500 for the three months ended September 30, 2004.

 

Item 4. Controls and Procedures

 

As of October 1, 2003, S Wind-up Corporation sold substantially all of its assets and began the orderly dissolution and liquidation of its assets. As S Wind-up currently has no on-going operations, chief executive officer, principal financial officers, principal accounting officer or employees, it is unable to perform the evaluation of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e).

 

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S WIND-UP CORPORATION

 

PART II OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, we have been subject to pending or threatened litigation. While most recent litigation matters have been resolved (see Note 3), pending or future litigation could be costly and could upon resolution, have a material adverse affect on our financial position.

 

Item 2. Use of Proceeds

 

None

 

Item 6. Exhibits and Reports on Form 8-K

 

(a) Exhibits

 

None

 

(b) Reports on Form 8-K

 

None

 

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SIGNATURES

 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

/s/ Irv H. Lichtenwald


   Date: November 2, 2004
Irv H. Lichtenwald, Director     

 

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CERTIFICATIONS

 

As of October 1, 2003, S Wind-up Corporation. (the “Company”) sold substantially all of its assets and began the orderly dissolution and liquidation of its remaining assets. As the Company currently has no ongoing operations, chief executive officer, principal financial officers, principal accounting officer or employees, it is unable to make the certifications required under Sections 302 and 906 of the Sarbanes-Oxley Act.

 

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