SEC Company Response from HG Holdings, Inc. (STLY) (CIK 0000797465) (STLY) — Apr 17, 2020
HG Holdings, Inc. (STLY) (CIK 0000797465)
Date: April 17, 2020 · CIK: 0000797465 · Accession: 0001437749-20-007913
AI Filing Summary & Sentiment
Letter
Division of Investment Management Securities & Exchange Commission 100 F Street, NE Washington, DC 20549-0213 Re: HG Holdings, Inc.
Dear Ms. Plesset and Mr. Marcinkus:
We are writing on behalf of our client, HG Holdings, Inc. (“HG Holdings” or the “Company”), in response to the Staff’s request for a written analysis of the Company’s status under the Investment Company Act of 1940, as amended (“Investment Company Act”). We have set forth below the analysis of the Company as a continuing “transient” investment company under Rule 3a-2 of the Investment Company Act and the related guidance, as well as the Company’s intention to rely on Rule 3a-1 of the Investment Company Act following the conclusion of its rights offering.
Background
A. Sale of the Furniture Business
HG Holdings was formerly Stanley Furniture Company, Inc. (“Stanley”). Stanley, whose original predecessor was founded in 1924, operated as a furniture manufacturer and then a leading design, marketing and distribution resource in the wood residential furniture market until the sale of its furniture business. In 2016, the Company began searching for a purchaser for its operating assets in an attempt to preserve the value of its assets for its shareholders.
On March 2, 2018, the Company sold substantially all of its assets to Churchill Downs LLC (“Buyer”). The consideration for the sale consisted primarily of cash in the amount of approximately $10.8 million and a subordinated promissory note in the principal amount of approximately $7.4 million (“Buyer Promissory Note”). The Company agreed to accept the Buyer Promissory Note as part of the consideration in order to achieve a higher selling price for its assets, and thereby continue to preserve value for the shareholders. As discussed further below, the Buyer subsequently encountered numerous difficulties in connection with payment of the amounts due to the Company under the Buyer Promissory Note.
Atlanta | Austin | Baltimore | Brussels | Charlotte | Charlottesville | Chicago | Houston | Jacksonville | London
Los Angeles | New York | Norfolk | Pittsburgh | Raleigh | Richmond | Tysons Corner | Washington, D.C. | Wilmington
February 20, 2020
Page 2
Following the sale of its furniture business, the Company’s assets consisted primarily of the cash proceeds from the sale and the Buyer Promissory Note. In connection with the sale, the Company’s Board adopted a resolution, as contemplated by Rule 3a-2 of the Investment Company Act of 1940, as amended (“Investment Company Act”), confirming the intent of the Company to be engaged primarily, as soon as reasonably possible, in a business other than that of investing, reinvesting, owning, holding or trading in securities. In addition, in connection with the sale, the Company publicly disclosed that its Board would evaluate alternatives for use of the cash proceeds, including the acquisition of non-furniture related assets that would allow the Company potentially to derive benefits from its net operating loss carryforwards.
B. Search for Suitable Acquisition Targets
Since the sale of its furniture business, the Company has actively pursued alternatives for using the cash proceeds for acquisitions of non-furniture related assets. The Company has consistently focused on potential acquisitions of operating companies that are not investment companies, and acted with the bona fide intent that each operating company would be either (i) a majority-owned subsidiary within the meaning of Section 2(a) (24) of the Investment Company Act or (ii) controlled primarily by the Company, within the meaning of Rule 3a-1 of the Investment Company Act.
In 2018, the Company’s executive officers (and only employees) reviewed information on 68 potential acquisitions, and submitted letters of intent on three potential transactions. One of the letters of intent related to the bankruptcy of the parent company of a label printing company and, in the fall of 2018, the Company submitted a stalking horse bid to acquire the assets of the label printing company out of bankruptcy. Although the stalking horse bid was not selected by the court, in December 2018, the Company participated in multiple rounds of bidding in the bankruptcy court auction for these assets. Ultimately, the Company was narrowly outbid by a strategic buyer.
Undeterred, throughout 2019, HG Holdings continued to pursue its acquisition strategy previously laid out to shareholders. The Company reviewed 23 potential acquisitions and submitted one letter of intent. The letter of intent involved a feather and down cushions subsidiary out of the bankruptcy estate of the parent company. While the Company was the leading bidder for the standalone subsidiary, the bankruptcy court awarded the deal to a bidder whose purchase price included the assets of both the parent company and its subsidiary. Despite the Company’s best efforts (91 potential transactions reviewed and 4 letters of intent since the sale of substantially all of its assets in March 2018), it was able to close on only one transaction, HC Government Realty Trust, Inc. (“HC Realty”), which is discussed in detail below.
February 20, 2020
Page 3
C.
HC Realty
1. HG Holdings’ Ownership Position
HC Realty is a real estate investment trust that holds single-tenant properties leased entirely to the United States Government for occupancy by federal agencies. In May 2018, the Company executed a confidentiality agreement with respect to HC Realty, received confidential information and began its due diligence. From August through October 2018, the Company’s executive officers engaged in discussions with HC Realty regarding a recapitalization plan, which was presented to the HC Realty Board in several variant structures during this timeframe.
At the end of October 2018, a term sheet was executed, but in December 2018, the Chief Executive Officer and external manager of HC Realty proposed a revised transaction involving the repurchase of insider shares and a restructuring of HC Realty’s management. This proposed revision to the structure led to numerous discussions and lengthy negotiations between the parties. In February 2019, a preliminary fairness opinion was delivered, but HC Realty’s Chief Executive Officer and external manager expressed a desire to revise the structure once again.
HG Holdings worked on the deal for almost ten months and, on March 19, 2019, the Company closed on the transaction. The Company purchased 300,000 shares of HC Realty’s common stock for $3,000,000 and 200,000 shares of HC Realty’s Series B Cumulative Convertible Preferred Stock (“Series B Preferred Stock”) for $2,000,000. As a result of these purchases, the Company currently owns approximately 16.4% of the as-converted equity interest of HC Realty. Concurrent with the purchase of the common stock and Series B Preferred Stock, the Company also entered into a loan agreement with HC Realty’s operating partnership for $2,000,000.
On December 16, 2019, the Company filed a Form S-1 in connection with the rights offering. As set forth in the Registration Statement, amended January 21, 2020 and February 14, 2020, the Company intends to use the proceeds of the rights offering to provide additional cash for acquisitions, including purchasing additional Series B Preferred Stock, common stock and/or debt of HC Realty. The Company anticipates that these purchases will result in the Company owning (i) at least 25% of the HC Realty common stock on an as-converted basis, resulting in the Company being presumed to control HC Realty within the meaning of Section 2(a)(9) of the Investment Company Act, and (ii) a sufficient number of shares such that HC Realty is controlled primarily by the Company within the meaning of Rule 3(a)-1 of the Investment Company Act. However, as discussed further below, the Company has been part of a control group that exercises a controlling influence over the management and policies of HC Realty since acquiring the HC Realty stock in March 2019.
February 20, 2020
Page 4
2. Controlling Influence Over HC Realty
Although the Company’s current 16.4% as-converted equity ownership does not, standing alone, give it presumptive control within the meaning of Section 2(a)(9), since the closing in March 2019, the Company has been part of a control group that exercises a controlling influence over the management and policies of HC Realty. HC Realty was never intended to be, and has never been, a passive investment for the Company. The Company’s investment strategy for HC Realty has always been to increase its equity ownership and actively manage HC Realty at the executive and board levels.
First, HG Holdings, through its executive officers and directors, has maintained a controlling role in the management of HC Realty as a result of the substantial overlap between the senior management and Boards of Directors of the two companies:
●
Steven A. Hale, II - Chairman of the Board and Chief Executive Officer, HG Holdings
Chairman of the Board and Chief Executive Officer, HC Realty
●
Bradley G. Garner - Principal Financial and Accounting Officer, HG Holdings
Board of Directors, HC Realty
●
Matthew A. Hultquist - Board of Directors, HG Holdings
Board of Directors and SVP of Acquisitions, HC Realty
Mr. Hale and Mr. Garner are the only two employees of HG Holdings. Mr. Hale and Mr. Hultquist are two of the three directors for HG Holdings and, together with Mr. Garner, three of the five directors for HC Realty. Accordingly, these gentlemen occupy the most senior executive positions at both HG Holdings and HC Realty and constitute the majority of both Boards of Directors.
Second, the control group exercises a controlling influence over the management and policies of HC Realty through the Series B Preferred Stock, the holders of which have the right to elect a majority of the directors of HC Realty. Set forth below are the current holders of the Series B Preferred Stock and the number of shares held:
The Vanderbilt University
500,000
HG Holdings, Inc.
200,000
Investor #31
250,000
Hale Medical Office Building Fund, LP
130,000
Investor #5
25,000
Investor #6
25,000
Investor #7
25,000
Investor #8
12,500
Investor #9
12,500
TOTAL
1,180,000
1 The other holders of the Series B Preferred Stock include foundations and family office partnerships. We have withheld the names of these holders for reasons of confidentiality, but would be happy to provide their identity to the Staff verbally.
February 20, 2020
Page 5
Mr. Hale is the founder of Hale Partnership Capital Management, LLC (“HPCM”), a SEC-registered investment adviser. HPCM serves as investment adviser to the Hale Medical Office Building Fund, LP (11% of the outstanding Series B Preferred Stock), as well as the Vanderbilt University holdings (42.4% of outstanding Series B Preferred Stock). Accordingly, Mr. Hale has discretionary authority to vote 630,000 shares of Series B Preferred Stock. In addition, in October 2019, Mr. Hale entered into voting agreements with the remaining holders of the Series B Preferred Stock, with the exception of HG Holdings. Accordingly, through discretionary authority and the voting agreements, Mr. Hale has the authority to vote 980,000 shares of Series B Preferred Stock (83% of the outstanding Series B Preferred Stock). The Company holds the right to vote the remaining shares.
D. Timing of the Rights Offering
Shortly following the sale of its furniture business, the Company indicated to shareholders that its Board was considering a rights offering to raise additional cash for acquisition purposes.2 The Company’s executive officers and Board have been delayed in pursuing a rights offering due to uncertainties relating to the Buyer’s ability to perform under the terms and conditions of the Buyer Promissory Note issued to the Company as part of the purchase price.
The Buyer encountered substantial difficulties in 2018 and 2019 in its business that had the following effects on the Buyer Promissory Note: (i) the Buyer was in default under its first senior credit facility during portions of the three months ending September 30, 2018; (ii) in September 2018, the Buyer sold a portion of the assets purchased from the Company to raise additional cash to solve its liquidity need3 and repaid its first senior credit facility in November 2018; (iii) in February 2019, the Buyer entered into a second senior credit facility with a second senior lender; (iv) in the second quarter of 2019, the Company recorded an impairment loss on the Buyer Promissory Note as it believed it would not be able to collect the amount due; (v) in August 2019, the Buyer defaulted under its second senior credit facility and repayments to its second senior lender resulting in the Company delivering a notice of default to the Buyer; and (vi) in October 2019, the Company agreed to enter into a Forbearance Agreement with the Buyer relating to the August notice of default.
2 See Annual Report on Form 10-K of the Company filed with the Commission on March 23, 2018 at p. 4.
3 A portion of the Buyer Promissory Note issued to the Company was assigned in connection with this sale in September 2018. In relation to events that occurred after this date, we refer herein to the Buyer Promissory Note and the subordinated promissory note issued in connection with the assignment as the “Buyer and Assigned Promissory Notes.” In connection with the assignment, the Buyer Promissory Note was amended and restated. The Buyer Promissory Note was also amended and restated in connection with the Buyer entering into its second senior credit facility in February 2019.
February 20, 2020
Page 6
These series of facts and circumstances resulted in uncertainties with respect to the Buyer’s ability to perform under the terms of the Buyer Promissory Note (and its amendments), and made it impractical to pursue a rights offering earlier due to the difficulty in determining an appropriate exercise price for the subscription rights, as well as the obligation under the Securities Act of 1933, as amended, to update a prospectus for material developments occurring during the course of an offering.
Continuing Status as a Transient Investment Company
It is important to note at the outset that the Company has never been in the business of investing, reinvesting, owning, holding, or trading in securities. The securities of HC Realty and the Buyer and Assigned Promissory Notes are the only securities owned by the Company. The Company maintains its cash in checking and savings accounts, choosing to refrain from using it to acquire additional securities, even on a short-term basis, such as Treasuries, certificates of deposit or money-market funds. Moreover, the Company did not “invest” in the Buyer Promissory Note; it was issued solely as part of the consideration for the sale of substantially all the assets of the furniture business in March 2018.4 However, even assuming the Buyer and Assigned Promissory Notes are “investment securities,” we believe that the Company is exactly the type of transient investment company that Rule 3a-2 of the Investment Company Act and the related no-action letters and Commission orders were intended to cover.
The Commission adopted Rule 3a-2 in order to temporarily relieve certain issuers that are in transition to a non-investment company business from regulation under the Investment Company Act.5 The rule provides a one-year safe harbor for a company to comply with an exemption or exclusion under the Investment Company Act provided that the company has a bona fide intent to b
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CORRESP 1 filename1.htm stly20200416_corresp.htm [McGuireWoods Letterhead] CONFIDENTIAL TREATMENT REQUESTED February 20, 2020 Delivery via E-Mail Rochelle Plesset David Marcinkus Division of Investment Management Securities & Exchange Commission 100 F Street, NE Washington, DC 20549-0213 Re: HG Holdings, Inc. Dear Ms. Plesset and Mr. Marcinkus: We are writing on behalf of our client, HG Holdings, Inc. (“HG Holdings” or the “Company”), in response to the Staff’s request for a written analysis of the Company’s status under the Investment Company Act of 1940, as amended (“Investment Company Act”). We have set forth below the analysis of the Company as a continuing “transient” investment company under Rule 3a-2 of the Investment Company Act and the related guidance, as well as the Company’s intention to rely on Rule 3a-1 of the Investment Company Act following the conclusion of its rights offering. Background A. Sale of the Furniture Business HG Holdings was formerly Stanley Furniture Company, Inc. (“Stanley”). Stanley, whose original predecessor was founded in 1924, operated as a furniture manufacturer and then a leading design, marketing and distribution resource in the wood residential furniture market until the sale of its furniture business. In 2016, the Company began searching for a purchaser for its operating assets in an attempt to preserve the value of its assets for its shareholders. On March 2, 2018, the Company sold substantially all of its assets to Churchill Downs LLC (“Buyer”). The consideration for the sale consisted primarily of cash in the amount of approximately $10.8 million and a subordinated promissory note in the principal amount of approximately $7.4 million (“Buyer Promissory Note”). The Company agreed to accept the Buyer Promissory Note as part of the consideration in order to achieve a higher selling price for its assets, and thereby continue to preserve value for the shareholders. As discussed further below, the Buyer subsequently encountered numerous difficulties in connection with payment of the amounts due to the Company under the Buyer Promissory Note. Atlanta | Austin | Baltimore | Brussels | Charlotte | Charlottesville | Chicago | Houston | Jacksonville | London Los Angeles | New York | Norfolk | Pittsburgh | Raleigh | Richmond | Tysons Corner | Washington, D.C. | Wilmington February 20, 2020 Page 2 Following the sale of its furniture business, the Company’s assets consisted primarily of the cash proceeds from the sale and the Buyer Promissory Note. In connection with the sale, the Company’s Board adopted a resolution, as contemplated by Rule 3a-2 of the Investment Company Act of 1940, as amended (“Investment Company Act”), confirming the intent of the Company to be engaged primarily, as soon as reasonably possible, in a business other than that of investing, reinvesting, owning, holding or trading in securities. In addition, in connection with the sale, the Company publicly disclosed that its Board would evaluate alternatives for use of the cash proceeds, including the acquisition of non-furniture related assets that would allow the Company potentially to derive benefits from its net operating loss carryforwards. B. Search for Suitable Acquisition Targets Since the sale of its furniture business, the Company has actively pursued alternatives for using the cash proceeds for acquisitions of non-furniture related assets. The Company has consistently focused on potential acquisitions of operating companies that are not investment companies, and acted with the bona fide intent that each operating company would be either (i) a majority-owned subsidiary within the meaning of Section 2(a) (24) of the Investment Company Act or (ii) controlled primarily by the Company, within the meaning of Rule 3a-1 of the Investment Company Act. In 2018, the Company’s executive officers (and only employees) reviewed information on 68 potential acquisitions, and submitted letters of intent on three potential transactions. One of the letters of intent related to the bankruptcy of the parent company of a label printing company and, in the fall of 2018, the Company submitted a stalking horse bid to acquire the assets of the label printing company out of bankruptcy. Although the stalking horse bid was not selected by the court, in December 2018, the Company participated in multiple rounds of bidding in the bankruptcy court auction for these assets. Ultimately, the Company was narrowly outbid by a strategic buyer. Undeterred, throughout 2019, HG Holdings continued to pursue its acquisition strategy previously laid out to shareholders. The Company reviewed 23 potential acquisitions and submitted one letter of intent. The letter of intent involved a feather and down cushions subsidiary out of the bankruptcy estate of the parent company. While the Company was the leading bidder for the standalone subsidiary, the bankruptcy court awarded the deal to a bidder whose purchase price included the assets of both the parent company and its subsidiary. Despite the Company’s best efforts (91 potential transactions reviewed and 4 letters of intent since the sale of substantially all of its assets in March 2018), it was able to close on only one transaction, HC Government Realty Trust, Inc. (“HC Realty”), which is discussed in detail below. February 20, 2020 Page 3 C. HC Realty 1. HG Holdings’ Ownership Position HC Realty is a real estate investment trust that holds single-tenant properties leased entirely to the United States Government for occupancy by federal agencies. In May 2018, the Company executed a confidentiality agreement with respect to HC Realty, received confidential information and began its due diligence. From August through October 2018, the Company’s executive officers engaged in discussions with HC Realty regarding a recapitalization plan, which was presented to the HC Realty Board in several variant structures during this timeframe. At the end of October 2018, a term sheet was executed, but in December 2018, the Chief Executive Officer and external manager of HC Realty proposed a revised transaction involving the repurchase of insider shares and a restructuring of HC Realty’s management. This proposed revision to the structure led to numerous discussions and lengthy negotiations between the parties. In February 2019, a preliminary fairness opinion was delivered, but HC Realty’s Chief Executive Officer and external manager expressed a desire to revise the structure once again. HG Holdings worked on the deal for almost ten months and, on March 19, 2019, the Company closed on the transaction. The Company purchased 300,000 shares of HC Realty’s common stock for $3,000,000 and 200,000 shares of HC Realty’s Series B Cumulative Convertible Preferred Stock (“Series B Preferred Stock”) for $2,000,000. As a result of these purchases, the Company currently owns approximately 16.4% of the as-converted equity interest of HC Realty. Concurrent with the purchase of the common stock and Series B Preferred Stock, the Company also entered into a loan agreement with HC Realty’s operating partnership for $2,000,000. On December 16, 2019, the Company filed a Form S-1 in connection with the rights offering. As set forth in the Registration Statement, amended January 21, 2020 and February 14, 2020, the Company intends to use the proceeds of the rights offering to provide additional cash for acquisitions, including purchasing additional Series B Preferred Stock, common stock and/or debt of HC Realty. The Company anticipates that these purchases will result in the Company owning (i) at least 25% of the HC Realty common stock on an as-converted basis, resulting in the Company being presumed to control HC Realty within the meaning of Section 2(a)(9) of the Investment Company Act, and (ii) a sufficient number of shares such that HC Realty is controlled primarily by the Company within the meaning of Rule 3(a)-1 of the Investment Company Act. However, as discussed further below, the Company has been part of a control group that exercises a controlling influence over the management and policies of HC Realty since acquiring the HC Realty stock in March 2019. February 20, 2020 Page 4 2. Controlling Influence Over HC Realty Although the Company’s current 16.4% as-converted equity ownership does not, standing alone, give it presumptive control within the meaning of Section 2(a)(9), since the closing in March 2019, the Company has been part of a control group that exercises a controlling influence over the management and policies of HC Realty. HC Realty was never intended to be, and has never been, a passive investment for the Company. The Company’s investment strategy for HC Realty has always been to increase its equity ownership and actively manage HC Realty at the executive and board levels. First, HG Holdings, through its executive officers and directors, has maintained a controlling role in the management of HC Realty as a result of the substantial overlap between the senior management and Boards of Directors of the two companies: ● Steven A. Hale, II - Chairman of the Board and Chief Executive Officer, HG Holdings Chairman of the Board and Chief Executive Officer, HC Realty ● Bradley G. Garner - Principal Financial and Accounting Officer, HG Holdings Board of Directors, HC Realty ● Matthew A. Hultquist - Board of Directors, HG Holdings Board of Directors and SVP of Acquisitions, HC Realty Mr. Hale and Mr. Garner are the only two employees of HG Holdings. Mr. Hale and Mr. Hultquist are two of the three directors for HG Holdings and, together with Mr. Garner, three of the five directors for HC Realty. Accordingly, these gentlemen occupy the most senior executive positions at both HG Holdings and HC Realty and constitute the majority of both Boards of Directors. Second, the control group exercises a controlling influence over the management and policies of HC Realty through the Series B Preferred Stock, the holders of which have the right to elect a majority of the directors of HC Realty. Set forth below are the current holders of the Series B Preferred Stock and the number of shares held: The Vanderbilt University 500,000 HG Holdings, Inc. 200,000 Investor #31 250,000 Hale Medical Office Building Fund, LP 130,000 Investor #5 25,000 Investor #6 25,000 Investor #7 25,000 Investor #8 12,500 Investor #9 12,500 TOTAL 1,180,000 1 The other holders of the Series B Preferred Stock include foundations and family office partnerships. We have withheld the names of these holders for reasons of confidentiality, but would be happy to provide their identity to the Staff verbally. February 20, 2020 Page 5 Mr. Hale is the founder of Hale Partnership Capital Management, LLC (“HPCM”), a SEC-registered investment adviser. HPCM serves as investment adviser to the Hale Medical Office Building Fund, LP (11% of the outstanding Series B Preferred Stock), as well as the Vanderbilt University holdings (42.4% of outstanding Series B Preferred Stock). Accordingly, Mr. Hale has discretionary authority to vote 630,000 shares of Series B Preferred Stock. In addition, in October 2019, Mr. Hale entered into voting agreements with the remaining holders of the Series B Preferred Stock, with the exception of HG Holdings. Accordingly, through discretionary authority and the voting agreements, Mr. Hale has the authority to vote 980,000 shares of Series B Preferred Stock (83% of the outstanding Series B Preferred Stock). The Company holds the right to vote the remaining shares. D. Timing of the Rights Offering Shortly following the sale of its furniture business, the Company indicated to shareholders that its Board was considering a rights offering to raise additional cash for acquisition purposes.2 The Company’s executive officers and Board have been delayed in pursuing a rights offering due to uncertainties relating to the Buyer’s ability to perform under the terms and conditions of the Buyer Promissory Note issued to the Company as part of the purchase price. The Buyer encountered substantial difficulties in 2018 and 2019 in its business that had the following effects on the Buyer Promissory Note: (i) the Buyer was in default under its first senior credit facility during portions of the three months ending September 30, 2018; (ii) in September 2018, the Buyer sold a portion of the assets purchased from the Company to raise additional cash to solve its liquidity need3 and repaid its first senior credit facility in November 2018; (iii) in February 2019, the Buyer entered into a second senior credit facility with a second senior lender; (iv) in the second quarter of 2019, the Company recorded an impairment loss on the Buyer Promissory Note as it believed it would not be able to collect the amount due; (v) in August 2019, the Buyer defaulted under its second senior credit facility and repayments to its second senior lender resulting in the Company delivering a notice of default to the Buyer; and (vi) in October 2019, the Company agreed to enter into a Forbearance Agreement with the Buyer relating to the August notice of default. 2 See Annual Report on Form 10-K of the Company filed with the Commission on March 23, 2018 at p. 4. 3 A portion of the Buyer Promissory Note issued to the Company was assigned in connection with this sale in September 2018. In relation to events that occurred after this date, we refer herein to the Buyer Promissory Note and the subordinated promissory note issued in connection with the assignment as the “Buyer and Assigned Promissory Notes.” In connection with the assignment, the Buyer Promissory Note was amended and restated. The Buyer Promissory Note was also amended and restated in connection with the Buyer entering into its second senior credit facility in February 2019. February 20, 2020 Page 6 These series of facts and circumstances resulted in uncertainties with respect to the Buyer’s ability to perform under the terms of the Buyer Promissory Note (and its amendments), and made it impractical to pursue a rights offering earlier due to the difficulty in determining an appropriate exercise price for the subscription rights, as well as the obligation under the Securities Act of 1933, as amended, to update a prospectus for material developments occurring during the course of an offering. Continuing Status as a Transient Investment Company It is important to note at the outset that the Company has never been in the business of investing, reinvesting, owning, holding, or trading in securities. The securities of HC Realty and the Buyer and Assigned Promissory Notes are the only securities owned by the Company. The Company maintains its cash in checking and savings accounts, choosing to refrain from using it to acquire additional securities, even on a short-term basis, such as Treasuries, certificates of deposit or money-market funds. Moreover, the Company did not “invest” in the Buyer Promissory Note; it was issued solely as part of the consideration for the sale of substantially all the assets of the furniture business in March 2018.4 However, even assuming the Buyer and Assigned Promissory Notes are “investment securities,” we believe that the Company is exactly the type of transient investment company that Rule 3a-2 of the Investment Company Act and the related no-action letters and Commission orders were intended to cover. The Commission adopted Rule 3a-2 in order to temporarily relieve certain issuers that are in transition to a non-investment company business from regulation under the Investment Company Act.5 The rule provides a one-year safe harbor for a company to comply with an exemption or exclusion under the Investment Company Act provided that the company has a bona fide intent to b