STHEALTH CAPITAL INVESTMENT CORP.
FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2020

INDEXTABLE OF CONTENTS

PART I -– FINANCIAL INFORMATION

Item 1. Financial Statements

StHealth Capital Investment Corp

Three Months Ended March 31, 2021 and 2020

Index to the Condensed Financial Statements

StHealth Capital Investment Corp.
Condensed Balance Sheets

StHealth Capital Investment Corp.
Notes to Unaudited Condensed Financial Statements
For the three monthsThree Months ended March 31, 20202021 and 20192020
(Unaudited)

Note 1.1 - Nature of the Business and Summary of Significant Accounting Policies

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, for which it believes it qualified for as of Significant Accounting PoliciesJanuary 2021 however has not yet filed documents with the IRS.

Basis of Presentation: The accompanying unaudited financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The Company is an investment company, as defined under U.S. GAAP, and applies accounting and reporting guidance in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 946, Financial Services - Investment Companies.

Unaudited Interim Financial Information: These unaudited interim condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America, or GAAP, for("GAAP"). In our opinion, the unaudited interim condensed financial information and with the instructions for Form 10Q and Article 10 of Regulation SX. Accordingly, they do notstatements include all adjustments of a normal recurring nature necessary for the fair presentation of our financial position as of March 31, 2021, our results of operations for the three months ended March 31, 2021 and 2020, and our cash flows for the three months ended March 31, 2021 and 2020. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the information and footnotes required by GAAPresults to be expected 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’syear ending December 31, 2021. These unaudited interim unauditedcondensed financial statements should be read in conjunction with its auditedthe financial statements as of and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 included in2020 filed with the Company’s annual report on Form 10K for the year ended December 31, 2019. Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. The March 31, 2020 balance sheet and schedule of investments are derived from the Company’s audited financial statements as of and for the year ended December 31, 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.SEC.

Net Increase in Net Assets Resulting from Operations per Share: The net increase in net assets resulting from operations per share is calculated based upon the weighted average number of shares of common stock outstanding during the reporting period.

Valuation of Portfolio Investments: The Company intends to determine the net asset value of its investment portfolio each quarter. The boardCompany’s Board of directorsDirectors 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 boardBoard of directorsDirectors - in accordance with ASC Topic 820 – Fair Value Measurements and Disclosures (“ASC Topic 820”).  Under ASC Topic 820, defines fair value establishesis defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework usedand creates a fair value hierarchy in order to measureincrease the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and requiresASC 820-10-50 details the disclosures that are required for items measured at fair value.

The Company may have various financial instruments that must be measured under the new fair value measurements,standard including cash, promissory notes payable. The Company's financial assets and liabilities are measured using inputs from the categorization of financial instruments into a three-level hierarchy based on the transparency of valuation inputs.  ASC Topic 820 requires disclosurethree levels of the fair value of financial instrumentshierarchy. The three levels are as follows:

Cash, security deposit, prepaid expenses, accrued expenses and note payable reported on the balance sheet are estimated by management to approximate fair market value due to their short-term nature.

Revenue Recognition for Interest Income:  Revenue from investment securities such as interest income is recognized as earned on an accrual basis to the extent that such amounts are expected to be collected. Generally, when a loan becomes past due, or if the Company’s qualitative assessment indicates that the Adviserdebtor is unable to service its debt or other obligations, the Company will provideplace the loan on non-accrual status and cease recognizing interest income on that loan for financial reporting purposes until the borrower has demonstrated the ability and intent to pay contractual amounts due. However, the Company will remain contractually entitled to this interest. If interest payments are later received on non-accrual loans, then they are restored to accrual status when past due principal and interest are paid assuming in management’s judgment they are likely to remain current. Realized gains or losses on investments are determined by calculating the difference between the net proceeds from the disposition and the amortized cost basis of the investments, without regard to unrealized gains or losses previously recognized. Realized gains or losses on the sale of investments are calculated using the specific identification method. The Company reports changes in fair value of investments as a component of the net unrealized gain (loss) on investments in the Statements of Operations.

Going Concern, Removal of Qualification: 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 companycondensed financial statements and forecasts, and valuationshave been prepared by third-party valuation services.

Note 3. Going Concern

For the three months ended March 31, 2020, the Company incurred a net decrease in net assets resulting from operations of $891,653 and have an accumulated deficit of $8,057,978. These circumstances raise substantial doubt as to the Company’s ability toassuming that it will continue as a going concern. Currently,As of March 31, 2021 and as of November 18, 2021, the Company has launched a capital raising program led by a Broker Dealer actingdate that our condensed financial statements as the Dealer Managerof and arranging a syndicate of several additional Broker Dealers who will also sell our securities. Duringfor the three months ended March 31, 2020,2021 were published, management reviewed its available cash and projected annual spend for normal operations of the Company. Upon managements’ review it was determined that the available cash for normal operations was in excess of 12 months of anticipated spending for that same period from the date of the filing of this Report. Management believes that its cash and marketable securities available for operations of nearly $1,628,000 and $1,405,000 as of March 31, 2021, and the limited need for operating capital, there is limited risk of it being unable to operate for 12 months from the date this form 10-Q was published. Notwithstanding current book losses management is confident of its portfolio and its future prospects.

New Accounting Pronouncements: The Company’s management reviewed all recently issued accounting standard updates (“ASU’s”) not yet adopted by the Company, issued 20,000 sharesand does not believe the future adoptions of any such ASU’s may be expected to cause a material impact on the Company’s financial condition or the results of its common stock and received gross proceeds of $50,000, at a price of $2.50 per share. There were 10% commission cost and therefore net proceeds in cash were $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 concernoperations.

Note 4.2. Compensation of the Advisor

On August 7, 2018, theThe Company held its 2018 Annual Meeting of shareholders at which meeting the new Investment Advisory and Administrative Services Agreement by and between the Company andpays StHealth Capital Advisors was approved.

The Company will pay the Adviser(“Advisor”) a fee for its services under the investment advisory and administrative services agreement (“New Advisory AgreementAgreement”) 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 AdviserAdvisor 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 an annual rate of 2.0% of the Company’s average monthly gross assetsinvestments 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.Advisor. The base management fee for any partial month or quarter will be appropriately prorated.

During the three months ended March 31, 20202021 and 2019,2020, the base management fee was accrued for the advisorAdvisor in the amounts of $19,618$7,000 and $6,500,$20,000, respectively.  During the three months ended March 31, 2021 and 2020, base management fee is included in management fee – related party on the face of statements of operations.

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,Advisor, expressed as a rate of return on adjusted capital for the most recently completed calendar quarter, of 0.496% (2.0% 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 AdviserAdvisor 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 incentiveIncentive fee was earnedaccrued for the three months ended March 31, 2021 and 2020 amounted to $4,000 and 2019.nil, respectively. During the three months ended March 31, 2021 and 2020, incentive fee is included in management fee – related party on the face of statements of operations.

As of March 31, 2021 and December 31, 2020, the Advisor was owed $179,000 and $168,000, respectively. This is recorded under Accrued expenses – related party in the balance sheets.

Note 5.3. 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. ItsThe investment advisory fee will compensate the AdviserAdvisor 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,Advisor, the Corporation, either directly or through reimbursement to the Adviser,Advisor, 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 three months ended March 31, 2021 and 2020, $70,000 and 2019, $10,034 and $0$10,000 was paid to the advisorAdvisor for expense reimbursement, respectively. $10,034 related party outside servicesDuring the three months ended March 31, 2021, expense reimbursements are included in professional fees on the face of statements of operations. During the three months ended March 31, 2020, expense reimbursements are included in general and administrative expenses on the face of statements of operations.

Note 6.4 - Capital Raising

There were no shares issued during the three months ended March 31, 2021.

During the three months ended March 31, 2020, the Company issued 20,000 shares of its common stock and received gross proceeds of $50,000, at a price of $2.50 per share. There were 10% commission cost and therefore net cash proceeds to the Company were $45,000.

Note 7.5 - Investments

a) Description of Investments

During the three months ended March 31, 2020 and 2019,2021, the Company deployed approximately $1,060,000 and $0 in proceeds from its public offering$1,477,000 in several investments in portfolio companies respectively, which are described below:

b)   Current Status of Investments

Orchestra BioMed Inc. (“Orchestra”)

On May 10, 2018,December 31, 2020, a non-affiliated specialist revalued the Company purchased its initial investment of 220,000 shares of preferred stock series B of Orchestra at $5.00 per share price. The shares are convertible into common stock at any time on a 1-for-1 exchange, are eligible for a future 2-for -1 exchange pending 100% participation in a follow-on offering, automatically convert into common stock upon a firm commitment underwritten public offering of at least $16,000,000, can vote alongside common holders on an as-converted basis, have registration rights, no redemption right, has piggyback registration right, and do not pay a dividend. Upon any liquidation, dissolution or winding up of the Company, the holders of Series B Preferred shall be entitled to receive,at $473,000, a reduced value of $4.30 per share. The Company has determined that there is no change in preference to the shares of common stock or other junior securitiesfair value of the Company, the stated value of $5.00 per shareshares of Series B Preferred and thereafter shall participate on an as converted basis prorate with the holders of common stock in any further distributions. In March 2019, Orchestra announced 1-for-2 reverse split, as a result, 220,000 shares of the preferred stock we currently hold is convertible into 110,000 shares of common stock.31, 2021.

On April 3, 2019, the Company purchased 60,000 Series B-1 Preferred shares of Orchestra Biomed (OBIO) at $15.00 per share. The shares are convertible into common stock at any timeDecember 31, 2020, based on a 1-for-1 exchange, are eligible for a future 2-for-1 exchange pending 100% participation in a follow-on offering, automatically convert into common stock upon a firm-commitment underwritten public offering of at least $16,000,000, can vote alongside common holders on an as-converted basis, no redemption right, has piggyback registration rights and do not pay a dividend. Upon any liquidation, dissolution or winding-up of the Company, the holders of Series B-1 Preferred shall be entitled to receive, in preference to the shares of common stock or other junior securities of the Company, the stated value of $15.00 per share of Series B-1 Preferred, and thereafter shall participate on an as- converted basis pro-rata with the holders of Common Stock in any further distributions.

On April 3, 2019,third-party specialist’s valuation report the Company revalued the shares of preferredSeries B-1 Preferred at a fair value of $305,000. Upon inquiry with Orchestra’s management, the Company has determined that there is no change in the fair value of the shares of Series B-1 Preferred as of March 31, 2021.

First Wave BioPharma Inc. (“First Wave”, formerly AzurRx BioPharma Inc.)

AzurRx BioPharma, Inc. changed its corporate name to First Wave BioPharma, Inc. and changed its ticker symbol to “FWBI” effective September 22, 2021.

In January 2021, an aggregate of 697,210 shares of First Wave with fair value of $676,000 as of December 31, 2020 were sold for an aggregate amount of $672,000. Realized loss of $4,000 is recognized in the unaudited statements of operations.

In February 2021, First Wave Warrants B and Warrants Exchange aggregating to 468,592 common stock series B it holds at an equivalencewarrants with fair value of 110,000$571,000 were exercised for 468,592 shares of common stock with $398,000 payment in cash. The common stock was later sold for an aggregate amount of $15.00 per as-converted basis,$999,000. Realized gain of $30,000 and recorded a $550,000 increaseunrealized gain of $272,000 is recognized in value as gain on asset valuation.

AzurRx BioPharma Inc.

the unaudited statements of operations.

In July 2019, the Company purchased 1,000,000February 2021, 257,732 First Wave warrants with fair value of $334,000 were exercised for 257,732 shares of common stock with $469,000 payment in cash. Realized loss of AZURRX Biopharma, Inc. (NASDAQ: AZRX). $141,000 and unrealized gain of $191,000 is recognized in the unaudited statements of operations.

As of March 31, 2020, the closing price was $0.58, the Company recorded an unrealized loss of $460,000 related to the decrease in the value of2021, the common stock purchased.

On January 9, 2020 the Company purchased from AzuRx a convertible note in the amount of $500,000 which are convertible into 515,464 shares of AZRX common stock. The convertible notes mature on September 20, 2020 and accrue interest at a rate of 9% per annum.  The $500,000 notional amount of convertible notes come with warrants to purchase an additional 257,732 shares of AZRX common stock, equal to 50% of the shares underlying the convertible notes. The warrant expiry is December 20, 2024. Each note is convertible, at the option of the holder, into shares of the Company’s common stock at a price of $0.97 per share, and the warrants have an exercise price of $1.07 per share. The convertible debt is classified available for sale according to ASC 320 Investments—Debt and Equity Securities.  Theshares’ fair value of the convertible note was determinedamounted to be $731,959 using the market price as of the date of purchase, Company recorded an unrealized gain of $231,959. During$346,000. For the three months ended March 31, 2020,2021, the Company recordedrecognized an unrealized loss amounting to $124,000 from the change in market value of $231,959. AsFirst Wave common shares.

Other Trading Securities

Investments in other trading securities at fair value consisted of the following at March 31, 2020, the fair value of the convertible note was $500,000. The fair value of warrants was determined to be $255,940 using Black-Scholes method on the date of purchase,2021 and the Company recorded an unrealized gain of $255,940. Duringand loss during the three months ended March 31, 2021:

The Company realized a net gain of $136,000 and nil from other trading securities sold during the three months ended March 31, 2021 and 2020, respectively, which was recorded in net realized gain or loss in the unaudited statements of operations.

The table below summarizes the transactions for the three months ended March 31, 2021 and year ended December 31, 2020:

Additions for December 31, 2020 includes $24,000 accrued interest that were converted into investment.

Note 6 - Subsequent events

Subsequent to the period ended March 31, 2021, the Company recordedentered into a Third Amended Convertible Promissory Note with Naha whereby the Company committed an unrealized lossadditional $13,000 in new funds to Naha, in return Naha agreed to repay the Company a total of $177,486 based on$700,000.

Subsequent to the change of the market price from the day of purchase toperiod ended March 31, 2020. As of March 31, 2020, the fair value of the warrants was $78,454.

Lumos Pharma, Inc. (formerly NewLink Genetics, Inc.)

In January 2020,2021, the Company purchased 250,5011,200 shares of NewLink Genetics,Dash Therapeutics, Inc. (formerly NASDAQ: NLNK) through a series of open market purchases. Subsequent to the purchase of common shares, NewLink completed a merger with Lumos Pharma, Inc. (NASDAQ: LUMO), and all outstanding shares of NewLink Genetics, Inc. have become shares in Lumos Pharma, Inc. Due to a split of shares in the transaction, the 250,501 shares in NewLink Genetics, Inc. now represent 27,833 shares in Lumos Pharma, Inc. As of March 31, 2020, the closing price was $8.50, the Company recorded an unrealized loss of $262,924 related to the decrease in the value of the commonPreferred stock purchased.for $50,000 at $41.67 per share.

Vir Biotechnology, Inc.Subsequent to period ended March 31, 2021, the Company sold the remaining 257,732 common shares held in First Wave for $240,000 at $0.93 per share

InSubsequent to period ended March 2020,31, 2021, the Company purchased 498entered into a settlement agreement with a third party for $50,000 to resolve a legal matter.

Subsequent to period ended March 31, 2021, the Company is authorized to commence a private placement with targeted offering amount of $5,000,000. As of November 15, 2021, 410,000 shares of common stock at $2.50 per share were subscribed for a total amount of Vir Biotechnology, Inc. (NASDAQ: VIR). As of March 31, 2020, the closing price was $34.27, the Company recorded an unrealized gain of $55 related to the increase in the value of the common stock purchased.$1,025,000.

Amarin Corporation plc

In March 2020, the Company purchased 10,000 shares of common stock of Amarin Corporation plc (NASDAQ: AMRN). As of March 31, 2020, the closing price was $4.00, the Company recorded an unrealized loss of $1,416 related to the decrease in the value of the common stock purchased.

Note 8. Subsequent Event

Subsequent to March 31, 2020, the Company purchased from Naha Health LLC a convertible promissory note in the amount of $200,000 at a conversion price of $39.5835807 per Common Membership Interest. The convertible note matures on the fourth anniversary and accrues interest at a rate of 6% per annum.

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

The following discussion and analysis of our results of operations and financial condition for the quarters ended March 31,2020 and 2019 should be read in conjunction with our financial statements and therelated notes to thoseand other financial statements that are includedinformation appearing elsewhere in this Quarterly Report. Report on Form 10-Q. Except as otherwise specified, references to “we,” “us,” “our,” or the “Company” refer to StHealth Capital Investment Corp.

Forward-Looking Statements

This discussionquarterly report on Form 10-Q contains forward-looking statements that involve substantial known and unknown risks, uncertainties and other factors. Undue reliance should not be placed on such statements. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our businesscompany, our current and operations. Ourprospective portfolio investments, our industry, our beliefs and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “will,” “may,” “continue,” “believes,” “seeks,” “estimates,” “would,” “could,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results mayto differ materially from those expressed or forecasted in the forward-looking statements, including:

Although we currently anticipatebelieve that the assumptions on which these forward-looking statements are based are reasonable, any of the assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of many factors, includingthese and other uncertainties, the inclusion of a projection or forward-looking statement in this quarterly report on Form 10-Q should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those we describe under “Risk Factors” anddescribed or identified elsewhere in our Annual Reportthis quarterly report on Form 10-K10-Q. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this quarterly report on Form 10-Q. Moreover, we assume no duty and do not undertake to update the forward-looking statements.

Liquidity and Capital Resources

During the three months ended March 31, 2021, our cash provided by operations was $732,000 compared to cash used in operation of $1,314,000 for the periodthree months ended DecemberMarch 31, 2019, as filed with2020. The cash provided from operations during the SEC onthree months ended March 30, 2020. See “Special Note Regarding Forward Looking Statements.”

Results31, 2021 was due primarily to our cash received from sale of Operationsinvestments being greater than the cash used for the purchase of investments.

Investing Activities

There are no investing-related activities during the three months ended March 31, 2021. During the three months ended March 31, 2020, the Company used $3,000 for purchase of fixed assets.

Financing Activities

There are no financing-related activities during the three months ended March 31, 2021. During the three months ended March 31, 2020, financing activities provided $45,000 in proceeds from issuance of common stock.

Results of Operations

Three Monthsmonths Ended March 31, 20202021 Compared to Three Monthsmonths Ended March 31, 20192020

Interest Income

Our interest income for the three months ended March 31, 20202021 was $15,948,nil, compared to $19,324$16,000 for the three months ended March 31, 2019.2020. During the three months ended March 31, 2021, the Company had no interest income producing investments.

General and AdministrativeProfessional Fees

Our general and administrative expensesprofessional fee for the three months ended March 31, 2020 were $66,332,2021 was $257,000, an increase of $52,244$81,000 or 371%46% as compared to $14,088$176,000 for the three months ended March 31, 2019. An2020. The increase in general and administrative expensesprofessional fees was primarily due to the increase in rent expense. Duringdue diligence requirements needed for the three months ended March 31, 2020, $10,034 was paidCompany’s compliance obligations to a related party for administrative costs (see note 5).evaluate an increased number of investment opportunities.

Management fee – related party

Our related party management feesfee for the three months ended March 31, 2020 were $19,618,2021 was $11,000, compared to $6,500$20,000 for the three months ended March 31, 2019.

2020. Management fee is calculated at an annual rate of 2% of the Company’s total investment plus an annual rate of 20% of the realized gains as of the reporting period. During the quarter ended March 31, 2021, the Company sold of investments which resulted to the decrease in the total investment on which management fees are calculated.

Professional Fees

General and Administrative

Our professional feesgeneral and administrative expense for the three months ended March 31, 2020 were $175,820,2021 was $78,000, an increase of $88,796$12,000 or 102%18% as compared to $87,024$66,000 for the three months ended March 31, 2019. An increase in professional fees was primarily due2020. During the period ended March 31, 2021, the Company incurred expenses to increase in audit, accountingset up an audio-visual conference system and outside services fees.improve the current IT system integration, email management and data room set up.

GainNet realized gain (loss) on Investment Valuationinvestments

During the three months ended March 31, 2021, we realized $21,000 from the sale of investments in various portfolios. There were no sales transaction during the three months ended March 31, 2020.

Net unrealized gain (loss) on investments

Our total lossnet unrealized gain on investment for the three months ended March 31, 20202021 was $645,831,$318,000, compared to gainloss of $112,183$646,000 for the three months ended March 31, 2019.2020. The overall increase in the investment valuation is due to the appreciation in the fair market value of the securities.

Net Decrease in Net Assets Resulting from Operations

As a result of the foregoing, for the three months ended March 31, 2020,2021, we recorded a net decrease in net assets resulting from operations of $891,653$7,000 compared to a net increase in net assets resulting from operations of $23,895 for the three months ended March 31, 2019.

Liquidity and Capital Resources

Operating Activities

During the three months ended March 31, 2020, we used $254,516 of cash in operating activities primarily as a result of our net decrease in net assets resulting from operations of $891,653 offset by loss on investments of $645,831, depreciation of $3,216 and net changes in operating assets and liabilities of $(11,910).

During the three months ended March 31, 2019, we used $94,606 of cash in operating activities primarily as a result of our net increase in net assets resulting from operations of $23,895 offset by gain on investments of $112,183 and net changes in operating assets and liabilities of $6,318.

Investing Activities

During the three months ended March 31, 2020, the Company used $1,061,711 in investing activities, including $1,057,932 paid for investments and $3,779 for purchase of fixed assets.

During the three months ended March 31, 2019, investing activities provided $250,000 in proceeds from sale of investments.

Financing Activities

During the three months ended March 31, 2020, financing activities provided $45,000 in proceeds from issuance of common stock.

During the three months ended March 31, 2019, financing activities provided $826,155 in proceeds from issuance of common stock.

Going Concern

For the three months ended March 31, 2020, the Company incurred a net decrease in net assets resulting from operations of $891,653 and have an accumulated deficit of $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. During$892,000 for the three months ended March 31, 2020,2020.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, gains and losses. Changes in the economic environment, financial markets, credit worthiness of portfolio companies and any other parameters used in determining such estimates could cause actual results to differ materially. In addition to the discussion below, our critical accounting policies are further described in the notes to the financial statements.

Fair Value Measurements

The Company follows guidance in ASC 820, Fair Value Measurement (“ASC 820”), where fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are determined within a framework that establishes a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish a classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, such as the risk inherent in a particular valuation technique used to measure fair value using a pricing model and/or the risk inherent in the inputs for the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability based on the information available. The inputs or methodology used for valuing assets or liabilities may not be an indication of the risks associated with investing in those assets or liabilities.

ASC 820 classifies the inputs used to measure these fair values into the following hierarchy:

In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment. The level assigned to the investment valuations may not be indicative of the risk or liquidity associated with investing in such investments. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may differ materially from the values that would be received upon an actual disposition of such investments.

As of March 31, 2021, $627,000 or 45% of the Company’s investments were classified as Level 1, and $778,000 or 55% of the Company’s investments were classified as Level 3.

Investment Valuation Process

The Company determines the net asset value of the investment portfolio each quarter. The Board of Directors will establish a valuation committee to assist it in establishing guidelines and making recommendations to the Board of Directors regarding the valuation of the investments. The valuation committee will be comprised of all of the Company’s independent directors and certain of the Advisor’s investment professionals.

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 Board of Directors. In connection with that determination, the Company issued 20,000 sharesexpects that the Advisor will provide the Board of Directors with portfolio company valuations which will be 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.

With respect to investments for which market quotations are not readily available, the Company intends to undertake a multi-step valuation process each quarter, as described below:

Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to the Company’s financial statements will refer to the uncertainty with respect to the possible effect of such valuations and any change in such valuations on the Company’s financial statements. Below is a description of factors that the Board of Directors may consider when valuing the debt and equity investments.

Valuation of fixed income investments, such as loans and debt securities, depends upon a number of factors, including prevailing interest rates for like securities, expected volatility in future interest rates, call features, put features and other relevant terms of the debt. For investments without readily available market prices, the Company may incorporate these factors into discounted cash flow models to arrive at fair value. Other factors that the Board of Directors may consider include the borrower’s ability to adequately service its debt, the fair market value of the portfolio company in relation to the face amount of its common stockoutstanding debt and received gross proceedsthe quality of $50,000,collateral securing the Company’s debt investments.  

For convertible debt securities, fair value will generally approximate the fair value of the debt plus the fair value of an option to purchase the underlying security (the security into which the debt may convert) at the conversion price. To value such an option, a standard option pricing model may be used.

The equity interests in portfolio companies for which there is no liquid public market will be valued at fair value. The Board of Directors, in its analysis of fair value, may consider various factors, such as multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. All of these factors may be subject to adjustments based upon the particular circumstances of a portfolio company or actual investment position. For example, adjustments to EBITDA may take into account compensation to previous owners or acquisition, recapitalization, restructuring or other related items.

The Board of Directors may also look to private merger and acquisition statistics, public trading multiples discounted for illiquidity and other factors, valuations implied by third-party investments in the portfolio companies or industry practices in determining fair value. The Board of Directors may also consider the size and scope of a portfolio company and its specific strengths and weaknesses, as well as any other factors it deems relevant in assessing the value. Generally, the value of the equity interests in public companies for which market quotations are readily available will be based upon the most recent closing public market price. Portfolio securities that carry certain restrictions on sale will typically be valued at a pricediscount from the public market value of $2.50 per share. There were 10% commissionthe security.

If the Company receives warrants or other equity-linked securities at nominal or no additional cost in connection with an investment in a debt security, the Board of Directors will allocate the cost basis in the investment between the debt securities and therefore net proceedsany such warrants or other equity-linked securities received at the time of origination. The Board of Directors will subsequently value these warrants or other equity-linked securities received at fair value.

The fair values of the investments will be determined in cash were $45,000.good faith by the Board of Directors in consultation with management. The accompanying financial statements do not include any adjustments that mightBoard of Directors will be necessary ifsolely responsible for the valuation of the portfolio investments at fair value as determined in good faith pursuant to the Company’s valuation policy and consistently applied valuation process. The Company intends to value all of the Level 2 and Level 3 assets by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end provided by independent third-party pricing services and screened for validity by such services. For investments for which the third-party pricing service is unable to continueobtain quoted prices, the Company intends to obtain bid and ask prices directly from dealers who make a market in such investments. To the extent that the Company holds investments for which no active secondary market exists and, therefore, no bid and ask prices can be readily obtained, the Company’s valuation committee intends to utilize an independent third-party valuation service to value such investments.

The Company will periodically benchmark the bid and ask prices it receive from the third-party pricing services and/or dealers, as applicable, and valuations received from the third-party valuation service against the actual prices at which the Company purchases and sell the investments. The Company believes that these prices will be reliable indicators of fair value. The Company’s valuation committee and Board of Directors will review and approve the valuation determinations made with respect to these investments in a going concern.manner consistent with the Company’s valuation process.

Off-Balance Sheet TransactionsArrangements

At March 31, 2020,Other than contractual commitments and other legal contingencies incurred in the Company didnormal course of our business, we do not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.financings or liabilities.

Item 3.                Quantitative and Qualitative Disclosure About Market Risk

We are subject to financial market risks, including changes in interest rates and the valuations of our investment portfolio. Uncertainty with respect to the economic effects of the COVID-19 pandemic has introduced significant volatility in the financial markets, and the effects of this volatility could materially impact our market risks, including those listed below.

Investment valuation risk

AsBecause there is not a smaller reporting company,readily available market value for some of the investments in our portfolio, we value those portfolio investments at fair value as determined in good faith by our board of directors based on, among other things, the input of our management and audit committee and independent valuation firms that have been engaged at the direction of the management of our invested companies to assist in the valuation a portfolio investment without a readily available market quotation. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. Additionally, the fair value of our investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that we may ultimately realize. Further, such investments are notgenerally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to provideliquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the information required by this Item 3.value at which we have recorded it. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the valuations currently assigned.

Interest Rate Risk

Interest rate sensitivity refers to the change in our earnings that may result from changes in the level of interest rates. Because we do not fund any of our investments with borrowings, our net investment income is not affected by the difference between the rate at which we invest and the rate at which we borrow. If we do borrow money to support our investments, we intend to regularly measure our exposure to interest rate risk, and would determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates.

Item 4.                Controls and Procedures

Evaluation of Disclosure Controls and Procedures

AsWe maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on their evaluation as of the end of the period covered by this report, management performed, with the participation of our principal executiveChief Executive Officer and principal financial officers, an evaluation of the effectiveness ofour Chief Financial Officer have concluded that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designedwere not effective to ensure that the information relating to our Company, required to be disclosed in theour SEC reports we file or submit under the Exchange Act(i) is recorded, processed, summarized and reported within the time periods specified in the SEC’sSEC rules and forms, and that such information(ii) is accumulated and communicated to our management, including our principal executive officer and principal financial officer,Chief Executive Officer, to allow timely decisions regarding required disclosures. Based on the evaluation,disclosure as a result of continuing material weaknesses in our principal executive and principal financial officers concluded that, as of March 31, 2020, our disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement ofidentified in our 10-Q or interim financial statements will not be prevented or detectedAnnual Report on a timely basis. We identifiedForm 10-K for the following material weakness as of Marchyear ended December 31, 2020: insufficient personnel resources within the accounting function to segregate the duties over financial transaction processing and reporting.2020.

To remediateWe continue to work toward full remediation of these material weaknesses. We expect that the remediation of these material weaknesses in our internal control over financial reporting will remediate the weakness management intends to implement the following measures:in our disclosure controls and procedures.

The additional hiring is contingent upon our efforts to obtain additional funding and the results of our operations. Management expects to secure funds in the coming fiscal year but provides no assurances that it will be able to do so.

Changes in Internal Control overOver Financial Reporting

There werewas no changes tochange in our internal control over financial reporting (as defined in Rules 13a-15(f) or in other factors15d-15(f) promulgated under the Exchange Act) that could affect these controlsoccurred during the three monthsthree-month period ended March 31, 20202021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. However, our management is currently seeking to improve our controls and procedures in an effort to remediate the deficiency described above. 

PART II – OTHER INFORMATION

Item 1.  Legal Proceedings

PART II—OTHER INFORMATION

We are not currently asubject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be party to any pendingcertain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of any legal proceedings cannot be predicted with certainty, we do not expect that we believethese proceedings will have a material adverse effect onupon our businessfinancial condition or financial condition. We may, however, be subject to various claims and legal actions arising in the ordinary courseresults of business from time to time.operations.

Item 1A.  Risk Factors

In addition toThere have been no material changes from the other informationrisk factors set forth in this report, you should carefully consider the factors discussed under “Risk Factors” in our Annual Report on Form 10-K for the periodyear ended December 31, 2019, as filed with2020.

Not applicable. There has been no sale of unregistered equity securities during the Securities and Exchange Commission onthree months ended March 30, 2020. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by any forward-looking statements contained in this report.31, 2021.

Item 2. Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

Not applicable.

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None. 

Item 6. ExhibitsSIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on November 19, 2021.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.