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Section 1: 10-Q (FORM 10-Q)

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

___________________________________

FORM 10-Q

___________________________________

 

(Mark One)

   
   

S

 

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019

 

£

 

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

COMMISSION FILE NUMBER: 814-00638

_______________________

OXFORD SQUARE CAPITAL CORP.

(Exact name of registrant as specified in its charter)

_______________________

 

MARYLAND

 

20-0188736

   
   

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

   

8 SOUND SHORE DRIVE, SUITE 255
GREENWICH, CONNECTICUT 06830

(Address of principal executive office)

(203) 983-5275

(Registrant’s telephone number, including area code)

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

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common stock, par value $0.01 per share

 

OXSQ

 

NASDAQ Global Select Market LLC

6.50% Notes due 2024

 

OXSQL

 

NASDAQ Global Select Market LLC

6.25% Notes due 2026

 

OXSQZ

 

NASDAQ Global Select Market LLC

_______________________

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 S 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, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer £

 

Accelerated filer S

   

Non-accelerated filer £

 

Smaller Reporting company £

   

Emerging growth company £

   

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 S

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. The number of shares of the issuer’s common stock, $0.01 par value, outstanding as of July 30, 2019, was 47,650,959.

 

OXFORD SQUARE CAPITAL CORP.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

 

1

Item 1.

 

Financial Statements

 

1

   

Consolidated Statements of Assets and Liabilities as of June 30, 2019 (unaudited) and December 31, 2018

 

1

   

Consolidated Schedule of Investments as of June 30, 2019 (unaudited)

 

2

   

Consolidated Schedule of Investments as of December 31, 2018

 

9

   

Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018 (unaudited)

 

16

   

Consolidated Statements of Changes in Net Assets for the three and six months ended June 30, 2019 and 2018 (unaudited)

 

17

   

Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (unaudited)

 

18

   

Notes to Consolidated Financial Statements (unaudited)

 

19

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

43

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

58

Item 4.

 

Controls and Procedures

 

59

PART II. OTHER INFORMATION

 

60

Item 1.

 

Legal Proceedings

 

60

Item 1A.

 

Risk Factors

 

60

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

60

Item 3.

 

Defaults Upon Senior Securities

 

60

Item 4.

 

Mine Safety Disclosures

 

60

Item 5.

 

Other Information

 

60

Item 6.

 

Exhibits

 

61

SIGNATURES

 

62

i

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

OXFORD SQUARE CAPITAL CORP.

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

 

June 30,
2019

 

December 31,
2018

   

(unaudited)

   

ASSETS

 

 

 

 

 

 

 

 

Non-affiliated/non-control investments (cost: $497,304,443 and $486,232,755, respectively)

 

$

433,845,212

 

 

$

430,496,633

 

Affiliated investments (cost: $15,461,904 and $9,126,017, respectively)

 

 

13,949,814

 

 

 

14,492,197

 

Cash equivalents

 

 

10,336,577

 

 

 

13,905,059

 

Restricted cash

 

 

2,267,372

 

 

 

3,175,805

 

Interest and distributions receivable

 

 

4,486,790

 

 

 

4,682,735

 

Other assets

 

 

421,172

 

 

 

392,784

 

Total assets

 

$

465,306,937

 

 

$

467,145,213

 

LIABILITIES

 

 

 

 

 

 

 

 

Notes payable – 6.50% Unsecured Notes, net of deferred issuance costs

 

$

62,825,881

 

 

$

62,664,863

 

Notes payable – Credit Facility, net of deferred issuance costs

 

 

52,811,859

 

 

 

85,522,569

 

Notes payable – 6.25% Unsecured Notes, net of deferred issuance costs

 

 

43,201,242

 

 

 

 

Base management fee and net investment income incentive fee payable to affiliate

 

 

4,223,566

 

 

 

3,227,456

 

Accrued interest payable

 

 

972,028

 

 

 

488,608

 

Accrued expenses

 

 

442,887

 

 

 

517,470

 

Total liabilities

 

 

164,477,463

 

 

 

152,420,966

 

COMMITMENTS AND CONTINGENCIES (Note 13)

 

 

 

 

 

 

 

 

NET ASSETS

 

 

 

 

 

 

 

 

Common stock, $0.01 par value, 100,000,000 shares authorized; 47,650,959 and 47,650,959 shares issued and outstanding, respectively

 

 

476,509

 

 

 

476,509

 

Capital in excess of par value

 

 

456,970,560

 

 

 

456,970,560

 

Total distributable earnings / (accumulated losses)

 

 

(156,617,595

)

 

 

(142,722,822

)

Total net assets

 

 

300,829,474

 

 

 

314,724,247

 

Total liabilities and net assets

 

$

465,306,937

 

 

$

467,145,213

 

Net asset value per common share

 

$

6.31

 

 

$

6.60

 

See Accompanying Notes.

1

OXFORD SQUARE CAPITAL CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited)
June 30, 2019

COMPANY/INVESTMENT(1)(20)

 

PRINCIPAL
AMOUNT

 

COST

 

FAIR
VALUE
(2)

 

% OF NET ASSETS

Senior Secured Notes

 

 

   

 

   

 

     

 

Aerospace and Defense

 

 

   

 

   

 

     

 

Novetta, LLC

 

 

   

 

   

 

     

 

first lien senior secured notes, 7.44% (LIBOR + 5.00%), (1.00% floor) due October 16, 2022(4)(5)(6)(16)(21)

 

$

5,500,130

 

$

5,452,580

 

$

5,390,127

   

 

Total Aerospace and Defense

 

 

   

$

5,452,580

 

$

5,390,127

 

1.8

%

   

 

   

 

   

 

     

 

Business Services

 

 

   

 

   

 

     

 

Access CIG, LLC

 

 

   

 

   

 

     

 

first lien senior secured notes, 6.19% (LIBOR + 3.75%),
(0.00% floor) due February 27, 2025(4)(5)(6)(14)(16)(21)

 

$

493,752

 

$

493,752

 

$

490,513

   

 

second lien senior secured notes, 10.19% (LIBOR + 7.75%), (0.00% floor) due February 27, 2026(4)(5)(14)(16)(21)

 

 

16,754,000

 

 

16,854,905

 

 

16,614,439

   

 

   

 

   

 

   

 

     

 

Convergint Technologies, LLC

 

 

   

 

   

 

     

 

second lien senior secured notes, 9.19% (LIBOR + 6.75%), (0.75% floor) due February 2, 2026(4)(5)(16)(21)

 

 

1,500,000

 

 

1,492,966

 

 

1,440,000

   

 

   

 

   

 

   

 

     

 

Imagine! Print Solutions

 

 

   

 

   

 

     

 

second lien senior secured notes, 11.19% (LIBOR + 8.75%), (1.00% floor) due June 21, 2023(4)(5)(16)(21)

 

 

15,000,000

 

 

14,850,583

 

 

12,000,000

   

 

   

 

   

 

   

 

     

 

OMNIA Partners, Inc.

 

 

   

 

   

 

     

 

first lien senior secured notes, 6.35% (LIBOR + 3.75%), (0.00% floor) due May 23, 2025(4)(5)(6)(14)(15)(21)

 

 

5,940,027

 

 

5,941,635

 

 

5,865,777

   

 

second lien senior secured notes, 10.10% (LIBOR + 7.50%), (0.00% floor) due May 22, 2026(4)(5)(14)(15)(21)

 

 

14,000,000

 

 

13,939,940

 

 

13,650,000

   

 

   

 

   

 

   

 

     

 

Premiere Global Services, Inc.

 

 

   

 

   

 

     

 

first lien senior secured notes, 9.06% (LIBOR + 6.50%), (1.00% floor) due December 8, 2021(4)(5)(6)(15)

 

 

14,318,924

 

 

13,581,243

 

 

8,090,192

   

 

second lien senior secured notes, 12.08% (LIBOR + 9.50%), (1.00% floor) due June 6, 2022(4)(5)(15)

 

 

10,000,000

 

 

9,812,522

 

 

5,000,000

   

 

   

 

   

 

   

 

     

 

Verifone Systems, Inc.

 

 

   

 

   

 

     

 

first lien senior secured notes, 6.52% (LIBOR + 4.00%), (0.00% floor) due August 20, 2025(4)(5)(6)(15)(21)

 

 

6,965,000

 

 

6,934,419

 

 

6,738,638

   

 

Total Business Services

 

 

   

$

83,901,965

 

$

69,889,559

 

23.2

%

   

 

   

 

   

 

     

 

Diversified Insurance

 

 

   

 

   

 

     

 

AmeriLife Group LLC

 

 

   

 

   

 

     

 

second lien senior secured notes, 11.41% (LIBOR + 9.00%), (1.00% floor) due July 11, 2027(4)(5)(16)

 

$

10,000,000

 

$

9,900,137

 

$

9,950,000

   

 

Total Diversified Insurance

 

 

   

$

9,900,137

 

$

9,950,000

 

3.3

%

   

 

   

 

   

 

     

 

Education

 

 

   

 

   

 

     

 

Edmentum, Inc. (f/k/a Plato, Inc.)

 

 

   

 

   

 

     

 

first lien senior secured notes, 7.08% (LIBOR + 4.50%), (1.00% floor) Cash, 4.00% PIK due June 9,
2021
(3)(4)(5)(6)(15)(21)

 

$

6,012,946

 

$

5,976,814

 

$

5,050,875

   

 

Total Education

 

 

   

$

5,976,814

 

$

5,050,875

 

1.7

%

(continued on next page)

See Accompanying Notes.

2

OXFORD SQUARE CAPITAL CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited)
June 30, 2019

COMPANY/INVESTMENT(1)(20)

 

PRINCIPAL
AMOUNT

 

COST

 

FAIR
VALUE
(2)

 

% OF NET ASSETS

Senior Secured Notes – (continued)

 

 

   

 

   

 

     

 

Financial Intermediaries

 

 

   

 

   

 

     

 

First American Payment Systems

 

 

   

 

   

 

     

 

second lien senior secured notes, 13.10% (LIBOR + 10.50%), (1.00% floor) due July 5, 2024(4)(5)(15)(21)

 

$

1,500,000

 

$

1,466,093

 

$

1,498,125

   

 

   

 

   

 

   

 

     

 

Lighthouse Network, LLC (f/k/a Harbortouch Payments, LLC)

 

 

   

 

   

 

     

 

first lien senior secured notes, 7.08% (LIBOR + 4.50%), (1.00% floor) due November 30, 2024(4)(5)(6)(14)(15)(21)

 

 

3,447,500

 

 

3,434,061

 

 

3,443,191

   

 

second lien senior secured notes, 11.08% (LIBOR + 8.50%), (1.00% floor) due November 30, 2025(4)(5)(14)(15)(21)

 

 

16,490,000

 

 

16,339,962

 

 

16,118,975

   

 

Total Financial Intermediaries

 

 

   

$

21,240,116

 

$

21,060,291

 

7.0

%

   

 

   

 

   

 

     

 

Healthcare

 

 

   

 

   

 

     

 

Keystone Acquisition Corp.

 

 

   

 

   

 

     

 

first lien senior secured notes, 7.85% (LIBOR + 5.25%), (1.00% floor) due May 1, 2024(4)(5)(6)(14)(15)(21)

 

$

7,496,017

 

$

7,467,276

 

$

7,289,877

   

 

second lien senior secured notes, 11.85% (LIBOR + 9.25%), (1.00% floor) due May 1, 2025(4)(5)(14)(15)(21)

 

 

13,000,000

 

 

12,865,395

 

 

12,610,000

   

 

   

 

   

 

   

 

     

 

Viant Medical Holdings, Inc.

 

 

   

 

   

 

     

 

first lien senior secured notes, 6.35% (LIBOR + 3.75%), (0.00% floor) due July 2, 2025(4)(5)(6)(15)(21)

 

 

9,925,000

 

 

9,925,723

 

 

9,887,781

   

 

second lien senior secured notes, 10.35% (LIBOR + 7.75%), (0.00% floor) due July 2, 2026(4)(5)(15)(21)

 

 

5,000,000

 

 

4,955,136

 

 

4,912,500

   

 

   

 

   

 

   

 

     

 

Healthport Technologies, LLC

 

 

   

 

   

 

     

 

first lien senior secured notes, 6.69% (LIBOR + 4.25%), (1.00% floor) due December 1, 2021(4)(5)(6)(16)

 

 

12,467,532

 

 

10,770,171

 

 

10,597,402

   

 

   

 

   

 

   

 

     

 

ScribeAmerica, LLC

 

 

   

 

   

 

     

 

first lien senior secured notes, 6.97% (LIBOR + 4.50%), (0.00% floor) due April 3, 2025(4)(5)(6)(16)

 

 

9,912,092

 

 

9,846,750

 

 

9,837,751

   

 

Total Healthcare

 

 

   

$

55,830,451

 

$

55,135,311

 

18.3

%

   

 

   

 

   

 

     

 

Logistics

 

 

   

 

   

 

     

 

Capstone Logistics Acquisition, Inc.

 

 

   

 

   

 

     

 

first lien senior secured notes, 6.94% (LIBOR + 4.50%), (1.00% floor) due October 7, 2021(4)(5)(6)(16)(21)

 

$

12,917,066

 

$

12,899,536

 

$

12,836,334

   

 

Total Logistics

 

 

   

$

12,899,536

 

$

12,836,334

 

4.3

%

   

 

   

 

   

 

     

 

Printing and Publishing

 

 

   

 

   

 

     

 

Merrill Communications, LLC

 

 

   

 

   

 

     

 

first lien senior secured notes, 7.83% (LIBOR + 5.25%), (1.00% floor) due June 1, 2022(4)(5)(6)(15)(21)

 

$

4,860,339

 

$

4,853,709

 

$

4,884,641

   

 

Total Printing and Publishing

 

 

   

$

4,853,709

 

$

4,884,641

 

1.6

%

   

 

   

 

   

 

     

 

Software

 

 

   

 

   

 

     

 

ECI Software Solutions, Inc.

 

 

   

 

   

 

     

 

first lien senior secured notes, 6.85% (LIBOR + 4.25%), (1.00% floor) due September 29, 2024(4)(5)(6)(14)(15)(21)

 

$

4,937,186

 

$

4,952,874

 

$

4,918,672

   

 

second lien senior secured notes, 10.60% (LIBOR + 8.00%), (1.00% floor) due September 29, 2025(4)(5)(14)(15)(21)

 

 

15,000,000

 

 

14,914,828

 

 

14,756,250

   

 

(continued on next page)

See Accompanying Notes.

3

OXFORD SQUARE CAPITAL CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited)
June 30, 2019

COMPANY/INVESTMENT(1)(20)

 

PRINCIPAL
AMOUNT

 

COST

 

FAIR
VALUE
(2)

 

% OF NET ASSETS

Senior Secured Notes – (continued)

 

 

   

 

   

 

     

 

Software – (continued)

 

 

   

 

   

 

     

 

Help/Systems Holdings, Inc.

 

 

   

 

   

 

     

 

first lien senior secured notes, 6.19% (LIBOR + 3.75%), (0.00% floor) due March 28, 2025(4)(5)(6)(14)(15)(21)

 

$

3,960,000

 

$

3,967,982

 

$

3,925,350

   

 

second lien senior secured notes, 10.19% (LIBOR + 7.75%), (0.00% floor) due March 27, 2026(4)(5)(14)(15)(21)

 

 

15,500,000

 

 

15,484,417

 

 

15,345,000

   

 

   

 

   

 

   

 

     

 

Quest Software, Inc.

 

 

   

 

   

 

     

 

first lien senior secured notes, 6.84% (LIBOR + 4.25%), (0.00% floor) due May 16, 2025(4)(5)(6)(14)(15)(21)

 

 

5,970,000

 

 

5,943,994

 

 

5,865,525

   

 

second lien senior secured notes, 10.83% (LIBOR + 8.25%), (0.00% floor) due May 18, 2026(4)(5)(14)(15)(21)

 

 

15,000,000

 

 

14,864,250

 

 

14,728,200

   

 

Total Software

 

 

   

$

60,128,345

 

$

59,538,997

 

19.8

%

   

 

   

 

   

 

     

 

Telecommunications Services

 

 

   

 

   

 

     

 

Global Tel Link Corp.

 

 

   

 

   

 

     

 

second lien senior secured notes, 10.69% (LIBOR + 8.25%), (0.00% floor) due November 29, 2026(4)(5)(14)(16)