UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019MARCH 31, 2020

OR

COMMISSION FILE NUMBER 814-01137

STHEALTH CAPITAL INVESTMENT CORP.
(Exact name of registrant as specified in its charter) 

212-601-2769

212-601-2769

(Issuer’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of November 12, 2019,May 15, 2020, the Company had 3,874,1883,894,191 shares of its common stock, $0.001 par value per share, outstanding.

STHEALTH CAPITAL INVESTMENT CORP.
FORM 10-Q
FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30, 2019MARCH 31, 2020

INDEX

14

Item 6. Exhibits

14

SIGNATURES

15

EXHIBIT INDEX 

15

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

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StHealth Capital Investment Corp.
Condensed Consolidated Balance Sheets

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

StHealth Capital Investment Corp.
Condensed Consolidated Statements of Operations
(Unaudited)

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

StHealth Capital Investment Corp.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)

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

 StHealth Capital Investment Corp.
Statements of Changes in Net Assets
(Unaudited)

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

StHealth Capital Investment Corp.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

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

StHealth Capital Investment Corp.
Notes to Condensed Consolidated Financial Statements
For the ninethree months ended September 30,March 31, 2020 and 2019 and 2018
(Unaudited)

Note 1. Nature of the Business

StHealth Capital Investment Corp. (formerly First Capital Investment Corporation and Freedom Capital Corporation) (the “Company”), was incorporated under the general corporation laws of the State of Maryland on June 19, 2014. The Company is a non-diversified, closed-end management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”), and that intends to elect to be treated for federal income tax purposes, and intends to qualify annually thereafter, as a regulated investment company (“RIC”), under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

Note 2. Summary of Significant Accounting Policies

Basis of Presentation: The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial information and with the instructions for Form 10Q and Article 10 of Regulation SX. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For a more complete discussion of significant accounting policies and certain other information, the Company’s interim unaudited consolidated financial statements should be read in conjunction with its audited consolidated financial statements as of and for the year ended December 31, 20182019 included in the Company’s annual report on Form 10K for the year ended December 31, 2018.2019. Operating results for the three and nine months ended September 30, 2019March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.2020. The DecemberMarch 31, 2018 consolidated2020 balance sheet and consolidated schedule of investments are derived from the Company’s audited consolidated financial statements as of and for the year ended December 31, 2018.2019. The Company is considered an investment company under GAAP and follows the accounting and reporting guidance applicable to investment companies under Accounting Standards Codification, or ASC, Topic 946, Financial Services—Investment Companies. 

Valuation of Portfolio Investments: The Company intends to determine the net asset value of its investment portfolio each quarter. The board of directors also reviews and approves the valuation for each period end. Securities that are publicly traded will be valued at the reported closing price on the valuation date. Securities that are not publicly-traded will be valued at fair value as determined in good faith by the Company’s board of directors - in accordance with ASC Topic 820 – Fair Value Measurements and Disclosures (“ASC Topic 820”).  ASC Topic 820 defines fair value, establishes a framework used to measure fair value, and requires disclosures for fair value measurements, including the categorization of financial instruments into a three-level hierarchy based on the transparency of valuation inputs.  ASC Topic 820 requires disclosure of the fair value of financial instruments for which it is practical to estimate such value. In connection with that determination, the Company expects that the Adviser will provide the Company’s board of directors with portfolio company valuations which are based on relevant inputs, including, but not limited to, indicative dealer quotes, values of like securities, recent portfolio company financial statements and forecasts, and valuations prepared by third-party valuation services.

Recently Issued or Adopted Accounting Standards: In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to recognize on the balance sheet a right-of-use asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases. The standard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. The new guidance is effective for 10-Q periods beginning after December 15, 2018, and interim periods therein. The Company has evaluated the impact of the adoption of this standard had on the consolidated financial statements and related disclosures and determined the effect was not material. 

Note 3. Going Concern

For the ninethree months ended September 30, 2019,March 31, 2020, the Company incurred a net lossdecrease in net assets resulting from operations of $326,607$891,653 and have an accumulated deficit of $7,022,375.$8,057,978. These circumstances raise substantial doubt as to the Company’s ability to continue as a going concern. Currently, the Company has launched a capital raising program led by a Broker Dealer acting as the Dealer Manager and arranging a syndicate of several additional Broker Dealers who will also sell our securities. From February to November 2019,During the three months ended March 31, 2020, the Company issued 3,033,56120,000 shares of its common stock and received gross proceeds of approximately $5,691,000 for an average share$50,000, at a price of $1.88.$2.50 per share. There were 10% commission cost and therefore net proceeds in cash were approximately $5,122,000.$45,000. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.concern

Note 4. Compensation of the Advisor

On August 7, 2018, the Company held theits 2018 10-QAnnual Meeting of shareholders at which meeting the new Investment Advisory and Administrative Services Agreement by and between the Company and StHealth Capital Advisors was approved,approved.

The Company will pay the Adviser a fee for its services under the New Advisory Agreement consisting of two components — a base management fee and an incentive fee based on the Company’s performance. The cost of both the base management fee payable to the Adviser and any incentive fees it earns will ultimately be borne by the Shareholders.

Base Management Fee. The base management fee will be payable quarterly in arrears and will be calculated at a 10-Qan annual rate of 2.0% of the Company’s average monthly gross assets during such period. The base management fee may or may not be taken in whole or in part at the discretion of the Adviser. All or any part of the base management fee not taken as to any quarter will be deferred without interest and may be taken in such other quarter as the Adviser shall determine. The base management fee for any partial month or quarter will be appropriately prorated.

During the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, the base management fee was accrued for but unpaid to the advisor in the amounts of $37,000$19,618 and $25,167,$6,500, respectively.

Incentive Fee. Under the New Advisory Agreement, the incentive fee consists of two parts. The first part, which the Company refers to as the subordinated incentive fee on interest or dividend income, will be calculated and payable quarterly in arrears based upon the Company’s “pre-incentive fee net investment income” for the immediately preceding quarter. The subordinated incentive fee on interest or dividend income will be subject to a quarterly hurdle rate, or the rate of return that must be met before incentive fees are payable to the Adviser, expressed as a rate of return on adjusted capital for the most recently completed calendar quarter, of 0.496% (2.0% 10-Qized)annualized), subject to a “catch up” feature. For this purpose, “pre-incentive fee net investment income” means interest income, dividend income and any other income (including any other fees, other than fees for providing managerial assistance, such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during the calendar quarter, minus the Company’s operating expenses for the quarter (including the base management fee, expenses reimbursed to the Adviser under the New Advisory Agreement and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero-coupon securities), accrued income that the Company has not yet received in cash. Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. The calculation of the subordinated incentive fee on interest or dividend income for each quarter is as follows:

The second part of the incentive fee, which the Company refers to as the incentive fee on capital gains, will be determined and payable in arrears as of the end of each quarter (or upon termination of the New Advisory Agreement). This fee will equal 20.0% of the Company’s incentive fee capital gains, which will equal the Company’s realized capital gains on a cumulative basis from inception, calculated as of the end of the applicable period, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gains incentive fees. Incentive fees not paid at the end of the calendar year in which they were earned will accrue until such time when the management chooses to pay them.

No incentive fee was earned for the ninethree months ended September 30, 2019March 31, 2020 and 2018.2019.

Note 5. Expense Reimbursement

The Company’s primary operating expenses will be the payment of advisory fees and other expenses under the New Advisory Agreement approved at the Shareholder’s Meeting on August 7, 2018, interest expense from financing facilities and other expenses necessary for its operations. Its investment advisory fee will compensate the Adviser for its work in identifying, evaluating, negotiating, executing, monitoring and servicing the Company’s investments. The Company will bear all other expenses of its operations and transactions, including (without limitation) fees and expenses relating to:

Subject to the limitations on reimbursement of the Adviser, the Corporation, either directly or through reimbursement to the Adviser, shall bear all other costs and expenses of its operations and transactions, including expenses deemed to be “organization and offering expenses” of the Corporation for purposes of Conduct Rule 2310(a)(12) of the Financial Industry Regulatory Authority, such expenses, exclusive of commissions, the dealer manager fee and any discounts, are hereinafter referred to as “Organization and Offering Expenses”; corporate and organizational expenses relating to offerings of shares of Common Stock, subject to limitations included in the Investment Advisor Agreement.

During the ninethree months ended September 30,March 31, 2020 and 2019, $10,034 and 2018, $0 was paid to the advisor for Organizationexpense reimbursement, respectively. $10,034 related party outside services fees are included in general and Offering expenses.administrative expenses on the face of statements of operations.

Note 6. Capital Raising

During the ninethree months ended September 30, 2019,March 31, 2020, the Company issued 3,005,06120,000 shares of its common stock and received gross proceeds of approximately $5,634,000$50,000, at an averagea price of $1.87$2.50 per share. There were 10% commission cost and therefore net cash proceeds in cashto the Company were approximately $5,071,000.$45,000.

Note 7. Investments

During the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, the Company deployed approximately $900,000$1,060,000 and $1,100,000$0 in proceeds from its public offering in several investments in portfolio companies, respectively, which are described below: