[Federal Register Volume 85, Number 47 (Tuesday, March 10, 2020)]
[Notices]
[Pages 13965-13966]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-04797]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 33810; File No. 811-08387]


Waterside Capital Corporation

March 4, 2020.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice.

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    Notice of an application for an order under section 8(f) of the 
Investment Company Act of 1940 (the ``Act'') declaring that the 
applicant has ceased to be an investment company.
    Applicant: Waterside Capital Corporation.
    Filing Dates: The application was filed on January 18, 2018, and 
amended on June 4, 2018, October 30, 2018, June 12, 2019, August 26, 
2019, December 20, 2019, and February 26, 2020.
    Hearing or Notification of Hearing: An order granting the request 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicant with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on March 30, 2020 and should be accompanied by proof of service on 
applicant, in the form of an affidavit or, for lawyers, a certificate 
of service. Pursuant to rule 0-5 under the Act, hearing requests should 
state the nature of the writer's interest, any facts bearing upon the 
desirability of a hearing on the matter, the reason for the request, 
and the issues contested. Persons who wish to be notified of a hearing 
may request notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street NE, Washington, DC 20549-1090. Applicant: c/o Jolie Kahn, Esq., 
12 E 49th Street, 11th Floor, New York, NY 10017.

FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel, at 
(202) 551-3038, or Daniele Marchesani, Assistant Chief Counsel, at 
(202) 551-6821 (Division of Investment Management, Chief Counsel's 
Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's website by searching for the file number, or for an 
applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling (202) 551-8090.

Summary of the Application

    1. Applicant was incorporated under the laws of the Commonwealth of 
Virginia on July 13, 1993 and is registered under the Act as a closed-
end investment company. It operated as a small business investment 
company under a license from the Small Business Administration (the 
``SBA'') and was internally managed.\1\
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    \1\ Applicant's outstanding shares of common stock are traded on 
the Pink[supreg] Open Market.
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    2. On March 30, 2010, the SBA notified applicant that its account 
had been transferred to liquidation status and that its outstanding 
debentures plus accrued interest were due and payable within fifteen 
days of the notification. Applicant did not have sufficient liquid 
assets to make that payment and the SBA repurchased the debentures 
under a note agreement with applicant (the ``Note Agreement'').
    3. On May 24, 2012, the SBA delivered to applicant a notice of an 
event of default for failure to meet the principal repayment schedule 
under the Note Agreement (the ``Notice''). Under the terms of the 
Notice and the Note Agreement, the SBA maintained a continuing right to 
terminate the Note Agreement and appoint a receiver to manage 
applicant's assets.
    4. On November 20, 2013, the SBA filed a complaint in the United 
States District Court for the Eastern District of Virginia (the 
``District Court'') seeking, among other things, receivership for 
applicant and a judgment in the amount outstanding under the Note 
Agreement plus continuing interest. On May 28, 2014, the District Court 
entered an order (the ``Order'') that appointed the SBA as receiver of 
applicant. The SBA designated a principal agent to act on its behalf as 
the receiver (the ``Receiver''). The Order authorized the Receiver to 
act for the purpose of marshaling and liquidating in an orderly manner 
all of applicant's assets (the ``Receivership''). The Order also served 
to enter judgment against applicant for its liability in excess of 
$11,000,000 to the SBA.
    5. Applicant effectively stopped conducting an active business upon 
the appointment of the SBA as Receiver. Over the course of the 
Receivership, the activity of applicant was limited to the liquidation 
of applicant's assets by the Receiver and the payment of the proceeds 
to the SBA and for the expenses of the Receivership. Effective March 
20, 2017, the SBA revoked the license that it had granted to applicant.
    6. On June 28, 2017, the District Court entered an order that 
terminated the Receivership and discharged all claims and obligations 
of applicant other than

[[Page 13966]]

the judgment held by the SBA (the ``Final Order''). Before the District 
Court entered the Final Order, the Receiver provided notice to all 
shareholders of applicant. The Receiver also initiated separate 
contacts with the largest shareholders of applicant in an attempt to 
identify a shareholder willing to assume responsibility for the control 
of applicant on behalf of applicant's shareholders. Roran Capital, LLC 
(``Roran'') was the only shareholder willing to assume such control.\2\ 
At the direction of the Receiver, the Final Order stated that ``Control 
of Waterside shall be unconditionally transferred and returned to its 
shareholders c/o Roran Capital, LLC (``Roran'') upon notification of 
entry of this Order.'' In reliance on and in compliance with the Final 
Order, Roran appointed Zindel Zelmanovitch as the director and officer 
of applicant.\3\
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    \2\ As of the Final Order, Roran owned 51,000 shares of 
applicant's common stock, representing 2.7% of the issued and 
outstanding shares of common stock of applicant at that time.
    \3\ Because of the liability exposure inherent in serving on the 
board of a public company, applicant's lack of financial resources, 
and applicant's loss of its SBIC license, applicant states that 
Roran was unable to locate any qualified individuals to serve on the 
board of directors. Zindel Zelmanovitch agreed to serve as director. 
Zindel Zelmanovitch is the father of Yitzhak Zelmanovitch, the 
managing member of Roran. Applicant states that Zindel Zelmanovitch 
has not been compensated for any of his services as a director or 
officer of applicant.
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    7. In July 2017, Roran purchased from the SBA applicant's 
outstanding judgment owed to the SBA. On May 16, 2019, Roran forgave 
the entire principal amount and interest due under the judgment 
payable.
    8. On September 19, 2017, applicant entered into a convertible loan 
agreement with Roran (the ``Loan Agreement'') with loans advanced under 
the terms of a convertible promissory note (the ``Note'').\4\ The 
purpose of Roran's loans to the applicant, including subsequent ones 
under amendments to the Loan Agreement, has been to pay for applicant's 
reasonable operational expenses to third party service providers, 
consisting solely of expenses such as legal, accounting, transfer agent 
and edgarization costs, all at the actual cost for such services.\5\ 
Roran agreed to fund reasonable expenses of applicant so long as 
progress was being made to reorganize applicant and to identify either 
(a) a new business to enter into; or, (b) an active business with which 
to merge or otherwise acquire.
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    \4\ The Note bears interest at 12% per annum and has a maturity 
date of June 19, 2020. Roran has the right to convert all or any 
portion of the Note into shares of applicant's common stock at a 
conversion price equal to 60% of the share price. Roran was not 
compensated, and will not be compensated, for its efforts during and 
after the Receivership. It will, however, be reimbursed for all 
ordinary and necessary expenses incurred on behalf of applicant, and 
it will be repaid all amounts it loans to applicant.
    \5\ Applicant states that for the fiscal year ended June 30, 
2019 and all times after the most recent fiscal year, it had no 
assets, other than cash on hand which the applicant used to pay 
incurred expenses.
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    9. Applicant states that it is and hold itself out as being engaged 
primarily in the business of seeking either (i) a new business to enter 
into; or, (ii) merger or acquisition candidates which would benefit 
from operating as a public entity; however, applicants represent that 
until the Application is approved, no such transaction is feasible. 
Applicant also states that it is not currently a party to any 
litigation or administrative proceedings.
    10. Applicant represents that, if the requested order is granted, 
its shares of common stock will continue to be quoted on the 
Pink[supreg] Open Market.

Applicant's Legal Analysis

    1. Section 8(f) of the Act provides that whenever the Commission, 
upon application or its own motion, finds that a registered investment 
company has ceased to be an investment company, the Commission shall so 
declare by order and upon the taking effect of such order, the 
registration of such company shall cease to be in effect.
    2. Section 3(a)(1)(A) of the Act defines an ``investment company'' 
as any issuer that ``is or holds itself out as being engaged primarily, 
or proposes to engage primarily, in the business of investing, 
reinvesting, or trading in securities.'' Section 3(a)(1)(C) of the Act 
defines an ``investment company'' as any issuer that ``is engaged or 
proposes to engage in the business of investing, reinvesting, owning, 
holding, or trading in securities, and owns or proposes to acquire 
investment securities having a value exceeding 40 per centum of the 
value of such issuer's total assets (exclusive of Government securities 
and cash items) on an unconsolidated basis.'' \6\
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    \6\ Section 3(a)(2) of the Act defines ``investment securities'' 
as ``all securities except (A) Government securities, (B) securities 
issued by employees' securities companies, and (C) securities issued 
by majority-owned subsidiaries of the owner which (i) are not 
investment companies, and (ii) are not relying on the exception from 
the definition of investment company in paragraph (1) or (7) of 
subsection (c).''
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    3. Section 3(b)(1) of the Act provides that ``[n]otwithstanding 
paragraph (1)(C) of subsection (a), none of the following persons is an 
investment company within the meaning of this title: (1) Any issuer 
primarily engaged, directly or through a wholly owned subsidiary or 
subsidiaries, in a business or businesses other than that of investing, 
reinvesting, owning, holding, or trading in securities.'' Rule 3a-1 
under the Act states that ``[n]otwithstanding section 3(a)(1)(C) of the 
Act, an issuer will be deemed not to be an investment company under the 
Act, provided, that: (a) No more than 45 percent of the value (as 
defined in section 2(a)(41) of the Act) of such issuer's total assets 
(exclusive of Government securities and cash items) consists of, and no 
more than 45 percent of such issuer's net income after taxes (for the 
last four fiscal quarters combined) is derived from, securities other 
than: (1) Government securities; (2) securities issued by employees' 
securities companies; (3) securities issued by majority-owned 
subsidiaries of the issuer (other than subsidiaries relying on the 
exclusion from the definition of investment company in section 3(b)(3) 
or (c)(1) of the Act) which are not investment companies; and (4) 
securities issued by companies: (i) Which are controlled primarily by 
such issuer; (ii) through which such issuer engages in a business other 
than that of investing, reinvesting, owning, holding or trading in 
securities; and (iii) which are not investment companies; (b) the 
issuer is not an investment company as defined in section 3(a)(1)(A) or 
3(a)(1)(B) of the Act and is not a special situation investment 
company; and (c) the percentages described in paragraph (a) of this 
section are determined on an unconsolidated basis, except that the 
issuer shall consolidate its financial statements with the financial 
statements of any wholly-owned subsidiaries.''
    4. Applicant states that it is no longer an investment company as 
defined in section 3(a)(1)(A) or section 3(a)(1)(C). Applicant states 
that its business is: (a) To enter into a new business; or, (b) to 
merge with, or otherwise acquire, an active business which would 
benefit from operating as a public entity. Applicant states that its 
historical development, its public representations, the activities of 
its director and officer, its lack of assets and income support this 
assertion. Applicant states that it is thus qualified for an order of 
the Commission pursuant to section 8(f) of the Act.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-04797 Filed 3-9-20; 8:45 am]
 BILLING CODE 8011-01-P