OXFORD SQUARE CAPITAL CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements that involve
substantial risks and uncertainties. These forward-looking statements are not
historical facts, but rather are based on current expectations, estimates and
projections about CAPITAL-COR-42489895/news/OXFORD-SQUARE-CAPITAL-CORP-Management-s-Discussion-and-Analysis-of-Financial-Condition-and-Results-39684130/xmltag.org">Oxford Square Capital Corp., our current and prospective
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. The forward-looking statements contained
in this Annual Report on Form 10-K involve risks and uncertainties, including
statements as to:

• our future operating results, including our ability to achieve our objectives due to the current COVID-19 pandemic;

• our business prospects and the prospects of our portfolio companies;

• the impact of the investments we plan to make;

• our contractual agreements and relationships with third parties;

•    the dependence of our future success on the general economy and its impact
on the industries in which we invest and the impact of the COVID-19 pandemic
thereon;

• the ability of our portfolio companies and CLO investments to achieve their objectives, including following the COVID-19 pandemic;

• the valuation of our investments in portfolio companies and CLOs, particularly those that do not have a liquid trading market, and the impact of the COVID-19 pandemic on them;

market conditions and our ability to access other debt markets and additional debt and equity capital, as well as the impact of the COVID-19 pandemic on such markets;

•    our expected financings and investments;

•    the adequacy of our cash resources and working capital;

•    the timing of cash flows, if any, from the operations of our portfolio
companies and CLO investments and the impact of the COVID-19 pandemic thereon;
and

• the ability of our investment adviser to find suitable investments for us and to monitor and administer our investments and the impact of the COVID-19 pandemic on them.

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 to differ materially
from those expressed or forecasted in the forward-looking statements, including
without limitation:

• an economic downturn, including as a result of the current COVID-19 pandemic, could impair the ability of our portfolio companies and CLO investments to continue to operate, which could result in the loss of all or part our investments in such portfolio companies and CLO investments;

• the impact of the elimination of the London Interbank Offered Rate (“LIBOR”) and the introduction of alternatives to LIBOR on our results of operations;

•    a contraction of available credit and/or an inability to access the equity
markets, including as a result of the current COVID-19 pandemic, could impair
our lending and investment activities;

• interest rate volatility could have an adverse effect on our results, in particular because we use leverage as part of our investment strategy;

• high levels of inflation and its impact on our investment activities and the sectors in which we invest;

• currency fluctuations could adversely affect the results of our investments in foreign companies, particularly to the extent that we receive payments denominated in foreign currencies rather than in we dollars;

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• the impact of IT system failures, data security breaches, data privacy compliance, network disruptions and cybersecurity attacks; and

•    the risks, uncertainties and other factors we identify in Item 1A. - Risk
Factors and elsewhere in this Annual Report on Form 10-K and in our filings with
the SEC.

Although we believe that the assumptions on which these forward-looking
statements are based are reasonable, any of those assumptions could prove to be
inaccurate, and as a result, the forward-looking statements based on those
assumptions also could be inaccurate. Important assumptions include our ability
to originate new loans and investments, certain margins and levels of
profitability and the availability of additional capital. In light of these and
other uncertainties, the inclusion of a projection or forward-looking statement
in this annual report on Form 10-K should not be regarded as a representation by
us that our plans and objectives will be achieved. These risks and uncertainties
include those described or identified in Item 1A. - Risk Factors and elsewhere
in this annual report on Form 10-K. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this annual
report on Form 10-K.

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and accompanying notes contained elsewhere in this Form 10-K.

PREVIEW

Our investment objective is to maximize our portfolio's total return. Our
primary focus is to seek an attractive risk-adjusted total return by investing
primarily in corporate debt securities and in collateralized loan obligations
("CLO"), which are structured finance investments that own corporate debt
securities. CLO investments may also include warehouse facilities, which are
early-stage CLO vehicles intended to aggregate loans that may be used to form
the basis of a traditional CLO vehicle. We operate as a closed-end,
non-diversified management investment company and have elected to be regulated
as a BDC under the 1940 Act. We have elected to be treated for tax purposes as a
RIC, under the Code.

Our investment activities are managed by Oxford Square Management, LLC ("Oxford
Square Management"), a registered investment adviser under the Investment
Advisers Act of 1940, as amended. Oxford Square Management is owned by Oxford
Funds, LLC ("Oxford Funds"), its managing member, and a related party, Charles
M. Royce, a member of our Board who holds a minority, non-controlling interest
in Oxford Square Management. Jonathan H. Cohen, our Chief Executive Officer, and
Saul B. Rosenthal, our President, are the controlling members of Oxford Funds.
Under an investment advisory agreement (the "Investment Advisory Agreement"), we
have agreed to pay Oxford Square Management an annual Base Fee calculated on
gross assets, and an incentive fee based upon our performance. Under an amended
and restated administration agreement (the "Administration Agreement"), we have
agreed to pay or reimburse Oxford Funds, as administrator, for certain expenses
incurred in operating the Company. Our executive officers and directors, and the
executive officers of Oxford Square Management and Oxford Funds, serve or may
serve as officers and directors of entities that operate in a line of business
similar to our own. Accordingly, they may have obligations to investors in those
entities, the fulfillment of which might not be in the best interests of us or
our stockholders.

We generally expect to invest between $5 million and $50 million in each of our
portfolio companies, although this investment size may vary proportionately as
the size of our capital base changes and market conditions warrant. We expect
that our investment portfolio will be diversified among a large number of
investments with few investments, if any, exceeding 5.0% of the total portfolio.
As of December 31, 2021, our debt investments had stated interest rates of
between 3.85% and 10.50% and maturity dates of between 3 and 91 months. In
addition, our total portfolio had a weighted average annualized yield on debt
investments of approximately 7.70%.

The weighted average annualized yield of our debt investments is not the same as
a return on investment for our stockholders but, rather, relates to a portion of
our investment portfolio and is calculated before the payment of all of our fees
and expenses. The weighted average annualized yield was computed using the
effective interest rates as of December 31, 2021, including accretion of
original issue discount ("OID") and excluding any debt investments on
non-accrual status. There can be no assurance that the weighted average
annualized yield will remain at its current level.

We have historically borrowed funds to make investments and may continue to
borrow funds to make investments. As a result, we are exposed to the risks of
leverage, which may be considered a speculative investment technique.
Borrowings, also known as leverage, magnify the potential for gain and loss
on
amounts invested and

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therefore increase the risks associated with investing in our securities. In
addition, the costs associated with our borrowings, including any increase in
the management fee payable to Oxford Square Management, will be borne by our
common stockholders.

In addition, as a BDC under the 1940 Act, we are required to make available
significant managerial assistance, for which we may receive fees, to our
portfolio companies. This assistance could involve, among other things,
monitoring the operations of our portfolio companies, participating in board and
management meetings, consulting with and advising officers of portfolio
companies and providing other organizational and financial guidance. These fees
would be generally non-recurring, however in some instances they may have a
recurring component. We have received no fee income for managerial assistance to
date.

To the extent possible, we will generally seek to invest in loans that are
collateralized by a security interest in the borrower's assets or guaranteed by
a principal to the transaction. Interest payments, if not deferred, are normally
payable quarterly with most debt investments having scheduled principal payments
on a monthly or quarterly basis. When we receive a warrant to purchase stock in
a portfolio company, the warrant will typically have a nominal strike price, and
will entitle us to purchase a modest percentage of the borrower's stock.

PORTFOLIO COMPOSITION AND INVESTMENT ACTIVITY

The total fair value of our investment portfolio was approximately $420.8
million and $294.7 million as of December 31, 2021 and December 31, 2020,
respectively. The increase in the value of investments during the year ended
December 31, 2021 was due primarily to a net change in unrealized appreciation
on our investment portfolio of approximately $38.5 million (which incorporates
reductions to CLO equity cost value of $37.5 million), repayments of principal
and sales of securities totaling approximately $39.5 million, partially offset
by purchases of investments of approximately $178.9 million. Refer to the table
below, which reconciles the investment portfolio for the year ended December 31,
2021 and the year ended December 31, 2020.

A reconciliation of the investment portfolio for the years ended December 31,
2021 and 2020 follows:
                                                          December 31,     December 31,
($ in millions)                                               2021             2020
Beginning investment portfolio                           $      294.7     $

364.8

Portfolio investments acquired                                  178.9      
      93.8
Repayments of principal                                         (24.3 )          (80.4 )
Sales of securities                                             (15.2 )          (54.2 )
Reductions to CLO equity cost value(1)                          (37.5 )          (13.0 )
Non-cash interest income due to PIK                                 -      

0.3

Accretion of discounts on investments                             0.7      

1.4

Net change in unrealized appreciation/(depreciation)
on investments                                                   38.5             (9.8 )
Net realized loss on investments                                (15.0 )    
      (8.2 )
Ending investment portfolio                              $      420.8     $      294.7


____________
(1)   For the year ended December 31, 2021, the reduction to cost value on our
CLO equity investments of approximately $37.5 million represented the difference
between distributions received, or entitled to be received, on our investments
held in CLO equity subordinated notes and fee notes, for the year ended December
31, 2021, of approximately $55.8 million and the effective yield interest income
recognized on our CLO equity subordinated notes and the amortized cost adjusted
income on our CLO equity fee notes of approximately $18.3 million. For the year
ended December 31, 2020, the reduction to cost value on our CLO equity
investments of approximately $13.0 million represented the difference between
distributions received, or entitled to be received, on our investments held in
CLO equity subordinated notes and fee notes, for the year ended December 31,
2020, of approximately $28.4 million and the effective yield interest income
recognized on our CLO equity subordinated notes and the amortized cost adjusted
income on our CLO equity fee notes of approximately $15.4 million.

During the year ended December 31, 2021, we purchased approximately $178.9
million in portfolio investments, including additional investments of
approximately $65.4 million in existing portfolio companies and approximately
$113.5 million in new portfolio companies. During the year ended December 31,
2020, we purchased approximately $93.8 million in portfolio investments,
including additional investments of approximately $22.1 million in existing
portfolio companies and approximately $71.8 million in new portfolio companies.

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In certain instances, we receive payments based on scheduled amortization of the
outstanding balances. In addition, we receive principal repayments of some of
our investments prior to their scheduled maturity date. The frequency or volume
of these repayments may fluctuate significantly from period to period.

For the years ended December 31, 2021 and December 31, 2020we had capital repayments of approximately $24.3 million and about $80.4 million, respectively. Refunds during the year ended December 31, 2021
were as follows (in millions of dollars):

                                                                      2021
Portfolio Company                                                  

Refunds

Cambium Learning Group, Inc.                                       $      

14.5

Novetta, LLC                                                              

5.4

Convergint Technologies, LLC                                              

1.5

Affinion Insurance Solutions, Inc. (f/k/a AIS Intermediate, LLC)           1.4
Net all others                                                             1.5
Total repayments                                                   $      24.3

Portfolio activity also reflects sales of securities for amounts of approximately $15.2 million and about $54.2 million for the years ended
December 31, 2021 and 2020, respectively. Sales for the year ended
December 31, 2021 were as follows (in millions of dollars):

                                                           2021
Portfolio Company                                         Sales
Verifone Systems, Inc.                                    $  6.9
Octagon Investment Partners 37, Ltd.                         3.0

Spectrum Holdings III Corp. (f/k/a KPEX Holdings, Inc.) 1.9
AMMC CLO XI, Ltd.

                                            1.8
BMC Software, Inc. (f/k/a Boxer Parent Company Inc.)         1.5
Total sales(1)                                            $ 15.2


____________

(1) Totals may not add due to rounding.

As of December 31, 2021, we had investments in debt securities of, or loans to,
20 portfolio companies, with a fair value of approximately $264.5 million, and
CLO equity investments of approximately $155.6 million. As of December 31, 2020,
we had investments in debt securities of, or loans to, 16 portfolio companies,
with a fair value of approximately $172.2 million, and equity investments of
approximately $122.5 million. Our debt and preferred stock investments made
during 2020 included approximately $0.3 million in PIK interest/dividends,
which, as described in "- Overview" above, is added to the carrying value of our
investments, reduced by repayments of principal.

The following table shows quarterly portfolio investment activity for the years ended December 31, 2021 and 2020:

                                                                        Reductions to
                     Purchases of     Repayments of      Sales of        CLO Equity
($ in millions)       Investments       Principal       Investments        Cost(1)
Quarter ended
December 31, 2021    $        23.3   $           1.6   $        10.3   $           7.4
September 30, 2021            23.1               5.7               -               8.6
June 30, 2021                 99.5               0.6             3.0              15.5
March 31, 2021                32.9              16.4             1.8               6.0
Total(2)             $       178.9   $          24.3   $        15.2   $          37.5

December 31, 2020    $        46.9   $          51.1   $        25.4   $           6.4
September 30, 2020            18.3               0.6             8.3               2.0
June 30, 2020                 21.3              16.7             9.5               2.6
March 31, 2020                 7.4              12.0            11.1               2.0
Total(2)             $        93.8   $          80.4   $        54.2   $          13.0


____________

(1) Represents reductions in the value of the CLO’s cost of equity (representing distributions received or likely to be received, in excess of interest income over effective yield and CLO expense report income adjusted to amortized cost). (2) Totals may not add due to rounding.

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The following table shows the fair value of our investment portfolio by asset class as at December 31, 2021 and 2020:

                                          December 31, 2021                 

December 31, 2020

                                 Investments at       Percentage of      Investments at       Percentage of
($ in millions)                    Fair Value        Total Portfolio       Fair Value        Total Portfolio
Senior Secured Notes            $          264.5             62.8 %     $          172.2             58.4 %
CLO Debt                                       -              0.0 %                    -              0.0 %
CLO Equity                                 155.6             37.0 %                122.5             41.6 %
Equity and Other Investments                 0.8              0.2 %        
           -              0.0 %
Total(1)                        $          420.8            100.0 %     $          294.7            100.0 %


____________

(1) Totals may not add due to rounding.

Qualifying assets must represent at least 70% of the Company's total assets at
the time of acquisition of any additional non-qualifying assets. As of December
31, 2021 and 2020, we held qualifying assets that represented 64.1% and 63.3%,
respectively, of the total assets. No additional non-qualifying assets were
acquired during the periods, if any, when qualifying assets were less than 70%
of the total assets.

The following table presents our investment portfolio by industry at fair value, in millions, at December 31, 2021 and 2020:

                                          December 31, 2021                 

December 31, 2020

                                  Investments at       Percentage of      Investments at       Percentage of
                                    Fair Value          Fair Value          Fair Value          Fair Value
                                 ($ in millions)                         ($ in millions)
Structured finance(1)           $            155.6           36.9 %     $            122.5           41.6 %
Business services                             88.7           21.0 %                   60.4           20.5 %
Healthcare                                    63.0           15.0 %                   41.7           14.1 %
Software                                      50.9           12.1 %                   13.3            4.5 %
Diversified insurance                         25.9            6.2 %                   10.8            3.7 %
Telecommunication services                    15.8            3.8 %        
          11.8            4.0 %
Plastics Manufacturing                        12.7            3.0 %                    7.0            2.4 %
Utilities                                      7.5            1.8 %                    7.2            2.4 %
IT consulting                                  0.8            0.2 %                      -              - %
Aerospace and defense                            -              - %                    5.4            1.8 %
Education                                        -              - %                   14.6            5.0 %
Total(2)                        $            420.8          100.0 %     $            294.7          100.0 %


____________

(1) Reflects our equity investments in CLOs at December 31, 2021 and
December 31, 2020, respectively. (2) Totals may not add due to rounding.

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The following tables present the top ten industries (based upon Moody's industry
classifications) of the aggregate holdings of the CLOs included in our
portfolio, based on par value, as of December 31, 2021 and December 31, 2020.
Top Ten Industries                           December 31, 2021
Healthcare & Pharmaceuticals                           9.9 %
Banking, Finance, Insurance & Real Estate              9.7 %
High Tech Industries                                   9.5 %
Business Services                                      8.4 %
Hotels, Gaming & Leisure                               5.2 %
Media: Broadcasting & Subscription                     5.0 %
Telecommunications                                     4.6 %
Chemicals, Plastics & Rubber                           4.1 %
Beverage, Food & Tobacco                               3.8 %
Construction & Building                                3.6 %
Total                                                 63.8 %


Top Ten Industries                           December 31, 2020
Banking, Finance, Insurance & Real Estate              9.5 %
Healthcare & Pharmaceuticals                           9.4 %
High Tech Industries                                   8.7 %
Business Services                                      8.5 %
Media: Broadcasting & Subscription                     5.8 %
Hotels, Gaming & Leisure                               5.6 %
Telecommunications                                     5.0 %
Chemicals, Plastics & Rubber                           4.3 %
Beverage, Food & Tobacco                               3.7 %
Construction & Building                                3.3 %
Total                                                 63.8 %


PORTFOLIO GRADING

We have adopted a credit rating system to monitor the quality of our bond investment portfolio. Equity securities are not rated. From December 31, 2021
and 2020, our portfolio had a weighted average rating of 2.1 and 2.1, respectively, based on the fair value of the debt securities in the portfolio.

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AT December 31, 2021 and 2020, our bond investment portfolio has been classified as follows: (in millions of dollars)

                                                  December 

31, 2021

                                          Principal     Percentage of     Portfolio at     Percentage of
Grade        Summary Description            Value       Debt Portfolio    

Debt portfolio at fair value

  1     Company is ahead of
        expectations and/or
        outperforming financial
        covenant requirements of the
        specific tranche and such
        trend is expected to continue.   $         -              - %     $           -              - %
  2     Full repayment of the
        outstanding amount of OXSQ's
        cost basis and interest is
        expected for the specific
        tranche.                               256.3           86.1 %             249.2           94.2 %
  3     Closer monitoring is required.
        Full repayment of the
        outstanding amount of OXSQ's
        cost basis and interest is
        expected for the specific
        tranche.                                14.7            4.9 %              13.9            5.3 %
  4     A loss of interest income has
        occurred or is expected to
        occur and, in most cases, the
        investment is placed on
        non-accrual status. Full
        repayment of the outstanding
        amount of OXSQ's cost basis is
        expected for the specific
        tranche.                                   -              - %                 -              - %
  5     Full repayment of the
        outstanding amount of OXSQ's
        cost basis is not expected for
        the specific tranche and the
        investment is placed on
        non-accrual status.                     26.9            9.0 %               1.3            0.5 %
        Total(1)                         $     297.8          100.0 %     $       264.5          100.0 %


____________

(1)   Totals may not sum due to rounding.
($ in millions)                                                  December 

31, 2020

                                          Principal     Percentage of     Portfolio at     Percentage of
Grade        Summary Description            Value       Debt Portfolio    

Debt portfolio at fair value

  1     Company is ahead of
        expectations and/or
        outperforming financial
        covenant requirements of the
        specific tranche and such
        trend is expected to continue.   $         -              - %     $           -              - %
  2     Full repayment of the
        outstanding amount of OXSQ's
        cost basis and interest is
        expected for the specific
        tranche.                               167.9           80.5 %             156.1           90.7 %
  3     Closer monitoring is required.
        Full repayment of the
        outstanding amount of OXSQ's
        cost basis and interest is
        expected for the specific
        tranche.                                14.3            6.8 %              11.8            6.9 %
  4     A loss of interest income has
        occurred or is expected to
        occur and, in most cases, the
        investment is placed on
        non-accrual status. Full
        repayment of the outstanding
        amount of OXSQ's cost basis is
        expected for the specific
        tranche.                                   -              - %                 -              - %
  5     Full repayment of the
        outstanding amount of OXSQ's
        cost basis is not expected for
        the specific tranche and the
        investment is placed on
        non-accrual status.                     26.4           12.7 %               4.2            2.5 %
        Total(1)                         $     208.5          100.0 %     $       172.2          100.0 %


____________

(1) Totals may not add due to rounding.

We expect that a portion of our investments will be in the Grades 3, 4 or 5
categories from time to time, and, as such, we will be required to work with
troubled portfolio companies to improve their business and protect our
investment. The number and amount of investments included in Grade 3, 4 or
5 may
fluctuate from year to year.

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RESULTS OF OPERATIONS
Set forth below is a comparison of our results of operations for the years ended
December 31, 2021 and 2020. For information regarding results of operations for
the year ended December 31, 2019, refer to Part II Item 7 in our Form 10-K for
the year ended December 31, 2020, as filed with the SEC on March 22, 2021, which
is incorporated by reference herein.

investment income

The following table shows the components of investment income for the years ended December 31, 2021 and 2020:

                                                              December 31,    December 31,
                                                                  2021            2020
Interest Income
Stated interest income                                        $  16,142,294   $  17,374,998
Original issue discount and market discount income                  740,731

1,397,699

PIK interest income                                                       -

271,034

Discounting income from unscheduled payments at par 557,204

1,208,324

Total interest income                                            17,440,229

20,252,055

Income from securitization vehicles and investments              18,691,631

15,014,000

Other income
Fee letters                                                         405,010

369 231

Loan prepayment and bond call fees                                  300,000
        200,000
All other fees                                                      338,143         107,219
Total other income                                                1,043,153         676,450
Total investment income                                       $  37,175,013   $  35,942,505


The increase in total investment income for the year ended December 31, 2021
compared to the year ended December 31, 2020 was largely due to an increase of
income from securitization vehicles and investments (approximately $3.7 million)
resulting from higher weighted average effective yields in 2021 compared to
2020. That increase was partially offset by: decreased stated interest income
due to lower average yields on senior secured loan investments; lower original
issue discount and market discount income resulting from lower average discounts
on our investments across our senior secured loan portfolio; and decreased
discount income derived from unscheduled remittances at par.

The total principal outstanding on income producing debt investments as of
December 31, 2021 and December 31, 2020 was approximately $297.8 million and
$182.2 million, respectively. As of December 31, 2021, our debt investments had
stated interest rates of between 3.85% and 10.50% and maturity dates of between
3 and 91 months. As of December 31, 2020, our debt investments had stated
interest rates of between 3.90% and 10.25% and maturity dates of between 22 and
87 months. In addition, our total portfolio had a weighted average yield on debt
investments of approximately 7.70% as of December 31, 2021, compared to a
weighted average yield on debt investments of 8.03% as of December 31, 2020.

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Operating Expenses

The following table shows the components of operating expenses for the years ended December 31, 2021 and 2020:

                                                             December 31,
                                        December 31, 2021        2020
Interest expense                       $        10,495,897   $   7,878,906
Base Fee                                         6,287,173       4,525,034
Professional fees                                1,910,390       1,545,279
Compensation expense                               723,931         708,350
Director's fees                                    490,500         441,500
Insurance                                          422,805         330,746
Transfer agent and custodian fees                  222,581         206,686
General and administrative                         521,541         591,512
Net Investment Income Incentive Fees                     -               -
Total operating expenses               $        21,074,818   $  16,228,013


Total operating expenses for the year ended December 31, 2021 increased by
approximately $4.8 million compared to the year ended December 31, 2020. The
increase in 2021 is attributable primarily to higher interest expense and Base
Fee.

Interest expense increased by approximately $2.6 million in 2021 compared to
2020. The increase in 2021 was a result of the additional interest expense paid
in connection with the issuance of 5.50% Unsecured Notes on May 20, 2021. The
aggregate accrued interest which remained payable as of December 31, 2021 and
2020 was approximately $1.2 million and $0.5 million, respectively.

The calculation of the Base Fee increased approximately $1.8 million in 2021
compared to 2020 due to higher average adjusted gross assets in 2021. The Base
Fee which remained payable to Oxford Square Management as of December 31, 2021
and 2020 was approximately $1.7 million and $1.2 million, respectively.

Professional fees, largely consisting of legal, valuation, consulting, audit and
tax fees increased by approximately $0.4 million in 2021 compared to 2020
primarily due to increased legal fees incurred during the year ended December
31, 2021.

Compensation expense reflects the allocation of compensation expenses for the
services of our Chief Financial Officer, accounting personnel, and other
administrative support staff. The increase in 2021 was largely the result of
staffing changes during these periods. As of December 31, 2021 and 2020, no
compensation expenses remained payable for each respective date.

General and administrative expenses primarily include registration fees, office supplies, facilities and other miscellaneous expenses, less approximately $70,000 in 2021 versus 2020. Office supplies, facility costs and other expenses are allocated to us under the terms of the administration agreement.

The calculation of the Net Investment Income Incentive Fee had no change in 2021
compared to 2020. There was no Net Investment Income Incentive Fee in 2021, nor
in 2020, primarily as a result of the Net Investment Income Incentive Fee being
reduced as the result of the Total Return Requirement. The Net Investment Income
Incentive Fee is calculated and payable quarterly in arrears based on the amount
by which (x) the "Pre-Incentive Fee Net Investment Income" for the immediately
preceding calendar quarter exceeds (y) the "Preferred Return Amount" for the
calendar quarter. For this purpose, "Pre-Incentive Fee Net Investment Income"
means interest income, dividend income and any other income accrued during the
calendar quarter minus our operating expenses for the quarter (including the
Base Fee, expenses payable under the Administration Agreement with Oxford Funds,
and any interest expense and dividends paid on any issued and outstanding
preferred stock, but excluding the incentive fee). Refer to "Note 7. Related
Party Transactions" in the notes to our financial statements.

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The expense attributable to the capital gains incentive fee, as reported under
GAAP, is calculated as if the Company's entire portfolio had been liquidated at
period end, and therefore is calculated on the basis of net realized and
unrealized gains and losses at the end of each period. That expense (or the
reversal of such an expense) related to that hypothetical liquidation of the
portfolio (and assuming no other changes in realized or unrealized gains and
losses) would only become payable to our investment adviser in the event of a
complete liquidation of our portfolio as of period end and the termination of
the Investment Advisory Agreement on such date. For the years ended December 31,
2021 and 2020, no accrual was required as a result of the impact of accumulated
net unrealized depreciation and net realized losses on our portfolio.

The amount of the Capital Gains Incentive Fee which will actually be payable is
determined in accordance with the terms of the Investment Advisory Agreement and
is calculated as of the end of each calendar year (or upon termination of the
Investment Advisory Agreement). The terms of the Investment Advisory Agreement
state that the Capital Gains Incentive Fee calculation is based on net realized
gains, if any, offset by gross unrealized depreciation for the calendar year. No
effect is given to gross unrealized appreciation in this calculation.

Realized and unrealized gains/losses on investments

For the year ended December 31, 2021we recorded net realized losses on investments of approximately $15.0 millionwhich primarily represents the extinguishment of a debt investment that was previously in a non-recognition position.

For the year ended December 31, 2021, our net change in unrealized appreciation
was approximately $38.5 million, composed of approximately $40.0 million in
gross unrealized appreciation, approximately $20.4 million in gross unrealized
depreciation and approximately $18.9 million relating to the reversal of prior
period net unrealized depreciation as investment gains and losses were realized.
This includes net unrealized appreciation of approximately $37.5 million
resulting from reductions to the cost value of our CLO equity investments
representing the difference between distributions received, or entitled to be
received, on our investments held in CLO equity subordinated notes and fee
notes, of approximately $55.8 million and the effective yield interest income
recognized on our CLO equity subordinated notes and the amortized cost adjusted
income on our CLO equity fee notes of approximately $18.3 million.

Components of the net change in unrealized capital gain/loss during the year ended December 31, 2021 were as follows (in millions of dollars):

                                                                        Changes in
                                                                        unrealized
                                                                      appreciation/
Portfolio Company                                                     (depreciation)
Imagine! Print Solutions, Inc.                                       $     
  13.4
Sound Point CLO XVI, Ltd.                                                      7.4
Vibrant CLO V, Ltd.                                                            5.8
Global Tel Link Corp.                                                          4.0
Telos CLO 2014-5, Ltd.                                                         3.7
Cedar Funding II CLO, Ltd.                                                     3.0
Zais CLO 6, Ltd.                                                               2.1
Nassau 2019-I Ltd.                                                             2.0
Carlyle Global Market Strategies CLO 2021-6, Ltd.                             (2.4 )
Premiere Global Services, Inc.                                             
 (14.6 )
Net all other                                                                 13.9
Total(1)                                                             $        38.5


____________

(1) Totals may not add due to rounding.

For the year ended December 31, 2020we recorded net realized losses on investments of approximately $8.2 millionwhich primarily represents losses resulting from the sale of several CLO equity investments.

For the year ended December 31, 2020, our net change in unrealized depreciation
was approximately $9.8 million, composed of approximately $11.9 million in gross
unrealized appreciation, approximately

                                       73

$30.9 million in gross unrealized depreciation and approximately $9.2 million
relating to the reversal of prior period net unrealized depreciation as
investment gains and losses were realized. This includes net unrealized
appreciation of approximately $13.0 million as a result of reductions to the
cost value of our CLO equity investments representing the difference between
distributions received, or entitled to be received, on our investments held in
CLO equity subordinated notes and fee notes, of approximately $28.4 million and
effective yield interest income recognized on our CLO equity subordinated notes
and the amortized cost adjusted income on our CLO equity fee notes of
approximately $15.4 million.

Components of the net change in unrealized capital gain/loss during the year ended December 31, 2020 were as follows (in millions of dollars):

                                                                        Changes in
                                                                        unrealized
                                                                      appreciation/
Portfolio Company                                                     (depreciation)
Premiere Global Services, Inc.                                       $     

3.7

AMMC CLO XII, Ltd.                                                         

2.8

Ivy Hill Middle Market Credit Fund VII, Ltd.                               

2.7

Madison Park Funding XVIII, Ltd.                                           
    1.6
Telos CLO 2013-3, Ltd.                                                         (1.5 )
Zais CLO 6, Ltd.                                                               (1.6 )
Global Tel Link Corp.                                                          (2.7 )
Unitek Global Services, Inc.                                                   (2.8 )
Nassau 2019-I, Ltd.                                                            (3.1 )
Telos CLO 2014-5, Ltd.                                                         (6.9 )
Net all other                                                                  (2.0 )
Total                                                                $         (9.8 )

Net increase in net assets resulting from net investment income

Net investment income for the year ended December 31, 2021 was approximately
$16.1 million, compared to $19.7 million for the year ended December 31, 2020.
The change was primary the result of higher operating expenses, offset by an
increase in investment income, as discussed above. For the year ended December
31, 2021, the net increase in net assets resulting from net investment income
per common share was $0.32 (basic and diluted), compared to $0.40 (basic and
diluted) for the year ended December 31, 2020, based on the weighted average
common shares outstanding for the respective period.

Net increase in net assets from operations

Net increase in net assets resulting from operations for the year ended December
31, 2021 was approximately $39.6 million, compared to a net increase of $1.7
million for year ended December 31, 2020. These changes were largely due to a
net change in unrealized appreciation, as discussed above. For the year ended
December 31, 2021, the net increase in net assets resulting from operations per
common share was $0.80 (basic and diluted), compared to a net increase in net
assets per common share of $0.03 (basic and diluted) for the year ended December
31, 2020, based on the weighted average common shares outstanding for the
respective periods.

CASH AND CAPITAL RESOURCES

During the year ended December 31, 2021, cash and cash equivalents decreased
from approximately $59.1 million at the beginning of the period to approximately
$9.0 million at the end of the period. Net cash used in operating activities for
the year ended December 31, 2021, consisting primarily of the items described in
"- Results of Operations," was approximately $107.4 million, largely reflecting
purchases of new investments of approximately $202.0 million, partially offset
by repayments of principal of approximately $24.3 million and proceeds from the
sale of investments of approximately $16.1 million. During the year ended
December 31, 2021, net cash provided by financing activities was approximately
$57.3 million, reflecting the proceeds from issuance of 5.50% Unsecured Notes of
approximately $80.5 million, partially offset by payment of distributions of
approximately $20.4 million.

                                       74

Contractual Obligations

We have certain obligations with respect to the investment advisory and
administration services we receive. Refer to "- Overview". We incurred
approximately $6.3 million for the Base Fee and approximately $500,000 for
administrative services for the year ended December 31, 2021. There were no Net
Investment Income Incentive Fees incurred during the year ended December 31,
2021. Refer to "Note 7. Related Party Transactions" in the notes to our
financial statements.

A summary of our significant contractual payment obligations is as follows as of
December 31, 2021. Refer to "Note 5. Borrowings" in the notes to our financial
statements.
                                                                         Payments Due by Period
                                         Principal      Less than                                       More than
Contractual obligations (in millions)     Amount          1 year        1 - 3 years     3 - 5 years      5 years
Long-term debt obligations:
6.50% Unsecured Notes                   $      64.4   $            -   $        64.4   $           -   $          -
6.25% Unsecured Notes                          44.8                -               -            44.8              -
5.50% Unsecured Notes                          80.5                -               -               -           80.5
                                        $     189.7   $            -   $        64.4   $        44.8   $       80.5

Off-balance sheet arrangements

On October 18, 2019, we entered into a $10 million repurchase transaction
facility (the "Repo Facility") with Nomura Securities International, Inc.
("Nomura"). Pursuant to the Master Repurchase Agreement ("MRA") and a
transaction facility confirmation, the Company may sell securities to Nomura
from time to time with a corresponding repurchase obligation at an agreed-upon
price 30 to 60 days after the sale date ("Reverse Repo"). The Repo Facility had
a funding cost of 1-month LIBOR plus 2.05% per annum for each Reverse Repo
transaction and was subject to a facility fee of 0.85% per annum on the full $10
million facility amount. The Company accounts for these Reverse Repo
transactions as secured financings for financial reporting purposes in
accordance with GAAP. As of December 31, 2021 and 2020, there was no outstanding
principal, or securities sold under the Repo Facility, as the Repo Facility
expired on October 18, 2020.

Share issue and buyback programs

On August 1, 2019, we entered into an Equity Distribution Agreement with
Ladenburg Thalmann & Co. through which we offered for sale, from time to time,
up to $150.0 million of the Company's common stock through an
At-the-Market ("ATM") offering. We did not sell any shares of common stock under
the ATM program during the year ended December 31, 2021. During the year ended
December 31, 2020, we sold approximately 1.1 million shares of common stock
under the ATM program, which raised net proceeds of approximately $5.8 million.

Loans

In accordance with the 1940 Act, with certain limited exceptions, we are only
allowed to borrow amounts such that our asset coverage, as defined in the 1940
Act, is at least 150% immediately after such borrowing. As of December 31, 2021,
our asset coverage for borrowed amounts was approximately 227%. As of December
31, 2020, our asset coverage for borrowed amounts was approximately 304%.

The following are our outstanding principal amounts, carrying values and fair
values of our borrowings as of December 31, 2021 and December 31, 2020. The fair
value of the 6.50% Unsecured Notes, 6.25% Unsecured Notes and 5.50% Unsecured
Notes are based upon the closing price on the last day of the period. The 6.50%
Unsecured Notes, 6.25% Unsecured Notes and 5.50% Unsecured Notes are listed on
the NASDAQ Global Select Market (trading symbol "OXSQL","OXSQZ" and "OXSQG",
respectively).

                                       75

                                                                   As of
                                       December 31, 2021                           December 31, 2020
                            Principal                         Fair      Principal                         Fair
($ in millions)              Amount       Carrying Value     Value      
Amount       Carrying Value      Value
6.50% Unsecured Notes      $      64.4   $           63.6   $   65.1   $      64.4   $           63.3   $    64.3
6.25% Unsecured Notes             44.8               43.8       45.5          44.8               43.5        45.1
5.50% Unsecured Notes             80.5               78.0       80.7             -                  -           -
Total(1)                   $     189.7   $          185.4   $  191.3   $     109.2   $          106.9   $   109.4


____________

(1) Totals may not add due to rounding.

The weighted average stated interest rate and weighted average maturity on all
our debt outstanding as of December 31, 2021 were 6.02% and 4.6 years,
respectively, and as of December 31, 2020 were 6.40% and 4.1 years,
respectively. The aggregate accrued interest which remained payable as of
December 31, 2021 and 2020, was approximately $1.2 million and $0.5 million,
respectively.

The tables below summarize the components of interest expense for the years ended December 31, 2021 and 2020:

                                   Year Ended December 31, 2021
                                             Amortization of
                        Stated Interest       Deferred Debt
($ in thousands)            Expense          Issuance Costs       Total
6.50% Unsecured Notes   $        4,184.1    $           324.7   $  4,508.8
6.25% Unsecured Notes            2,799.4                233.2      3,032.6
5.50% Unsecured Notes            2,718.0                236.6      2,954.5
Total(1)                $        9,701.5    $           794.4   $ 10,495.9


____________

(1) Totals may not add due to rounding.

                                   Year Ended December 31, 2020
                                              Amortization of
                         Stated Interest       Deferred Debt
($ in thousands)             Expense          Issuance Costs       Total
6.50% Unsecured Notes   $         4,184.1    $           325.6   $ 4,509.7
6.25% Unsecured Notes             2,799.4                233.8     3,033.2
Credit Facility                     262.2                  4.8       267.0
Repo Facility                        68.9                    -        68.9
Total(1)                $         7,314.6    $           564.2   $ 7,878.9


____________

(1) Totals may not add due to rounding.

Distributions

In order to qualify for tax treatment as a RIC, we are required under sub-chapter M of the Code to distribute at least 90% of our ordinary income and net short-term capital gains realized in excess of realized net long-term capital losses. to our shareholders on an annual basis.

A written statement identifying the nature of these distributions for tax
reporting purposes was posted on our website. We may not be able to achieve
operating results that will allow us to make distributions at a specific level
or to increase the amount of these distributions from time to time. In addition,
we may be limited in our ability to make distributions due to the asset coverage
requirements applicable to us as a BDC under the 1940 Act. If we do not
distribute a certain percentage of our income annually, we will suffer adverse
tax consequences, including possible loss of favorable regulated investment
company tax treatment. We cannot assure stockholders that they will receive any
distributions.

To the extent that our taxable profits are less than the total amount of our distributions for that year, a portion of those distributions may be considered a return of capital to our shareholders. Thus, the source of a distribution to our shareholders may be the initial capital invested by the shareholder rather than our ordinary taxable income.

                                       76

or capital gains. Shareholders should carefully read any written statement accompanying a distribution payment and should not assume that the source of any distribution is ordinary taxable income or capital gains. The final determination of the nature of our distributions can only be made when we file our income tax return. We have up to October 15, 2022 to submit our we
federal income tax return for the year ended December 31, 2021.

The following table reflects the cash distributions, including distributions
reinvested, if any, per share that we have paid on our common stock since the
beginning of the 2019 fiscal year through 2021:
                                                                                                 Distributions in
                                                                                                    excess of/
                                                                                                    (less than)
                                                                                   GAAP net          GAAP net
                                                                    Total         investment        investment
Date Declared           Record Date          Payment Date       Distributions       income            income
Fiscal 2021
July 22, 2021         December 17, 2021    December 31, 2021   $     0.035       $    N/A       $          -
July 22, 2021         November 16, 2021    November 30, 2021         0.035            N/A                  -
July 22, 2021          October 15, 2021     October 29, 2021         0.035            N/A                  -
Total (Fourth
Quarter 2021)                                                        0.105           0.09               0.02

April 22, 2021       September 16, 2021   September 30, 2021         0.035            N/A                  -
April 22, 2021          August 17, 2021      August 31, 2021         0.035            N/A                  -
April 22, 2021            July 16, 2021        July 30, 2021         0.035            N/A                  -
Total (Third
Quarter 2021)                                                        0.105           0.08               0.02

February 23, 2021         June 16, 2021        June 30, 2021         0.035            N/A                  -
February 23, 2021          May 14, 2021         May 28, 2021         0.035            N/A                  -
February 23, 2021        April 16, 2021       April 30, 2021         0.035            N/A                  -
Total (Second
Quarter 2021)                                                        0.105           0.06               0.05

October 22, 2020         March 17, 2021       March 31, 2021         0.035            N/A                  -
October 22, 2020      February 12, 2021    February 26, 2021         0.035            N/A                  -
October 22, 2020       January 15, 2021     January 29, 2021         0.035            N/A                  -
Total (First
Quarter 2021)                                                        0.105           0.10                  -
Total (2021)                                                   $     0.420 (1)   $   0.32 (5)   $       0.10 (5)

Fiscal 2020
September 11, 2020    December 16, 2020    December 31, 2020   $     0.035       $    N/A       $          -
September 11, 2020    November 13, 2020    November 30, 2020         0.035            N/A                  -
September 11, 2020     October 16, 2020     October 30, 2020         0.035            N/A                  -
Total (Fourth
Quarter 2020)                                                        0.105           0.10                  -

June 1, 2020         September 16, 2020   September 30, 2020         0.035            N/A                  -
June 1, 2020            August 17, 2020      August 31, 2020         0.035            N/A                  -
June 1, 2020              July 17, 2020        July 31, 2020         0.035            N/A                  -
Total (Third
Quarter 2020)                                                        0.105           0.09               0.01

February 24, 2020         June 15, 2020        June 30, 2020         0.067            N/A                  -
February 24, 2020          May 14, 2020         May 29, 2020         0.067            N/A                  -
February 24, 2020        April 15, 2020       April 30, 2020         0.067            N/A                  -
Total (Second
Quarter 2020)                                                        0.201           0.09               0.11

October 25, 2019         March 17, 2020       March 31, 2020         0.067            N/A                  -
October 25, 2019      February 14, 2020    February 28, 2020         0.067            N/A                  -
October 25, 2019       January 17, 2020     January 31, 2020         0.067            N/A                  -
Total (First
Quarter 2020)                                                        0.201           0.13               0.07
Total (2020)                                                   $     0.612 (2)   $   0.40 (5)   $       0.21 (5)



                                       77

                                                                                                  Distributions in
                                                                                                     excess of/
                                                                                                    (less than)
                                                                                   GAAP net           GAAP net
                                                                    Total         investment         investment
Date Declared           Record Date          Payment Date       Distributions       income             income
Fiscal 2019(4)
July 25, 2019         December 18, 2019    December 31, 2019   $     0.067       $    N/A       $          -
July 25, 2019         November 15, 2019    November 29, 2019         0.067            N/A                  -
July 25, 2019          October 21, 2019     October 31, 2019         0.067            N/A                  -
Total (Fourth
Quarter 2019)                                                        0.201           0.18               0.02

April 23, 2019       September 23, 2019   September 30, 2019         0.067            N/A                  -
April 23, 2019          August 23, 2019      August 30, 2019         0.067            N/A                  -
April 23, 2019            July 24, 2019        July 31, 2019         0.067            N/A                  -
Total (Third
Quarter 2019)                                                        0.201           0.19               0.01

February 22, 2019         June 21, 2019        June 28, 2019         0.067            N/A                  -
February 22, 2019          May 24, 2019         May 31, 2019         0.067            N/A                  -
February 22, 2019        April 23, 2019       April 30, 2019         0.067            N/A                  -
Total (Second
Quarter 2019)                                                        0.201           0.27              (0.07 )

February 22, 2019        March 15, 2019       March 29, 2019         0.200           0.18               0.02
Total (First
Quarter 2019)                                                        0.200           0.18               0.02
Total (2019)                                                   $     0.803 (3)   $   0.81 (5)   $      (0.01 )(5)


____________

(1)   The tax characterization of cash distributions for the year ended December
31, 2021 will not be known until the tax return for such year is finalized. For
the year ended December 31, 2021, the amounts and sources of distributions
reported are only estimates and are not being provided for U.S. tax reporting
purposes. The final determination of the source of all distributions in 2021
will be made after year-end and the amounts represented may be materially
different from the amounts disclosed in the final Form 1099-DIV notice. The
actual amounts and sources of the amounts for tax reporting purposes will depend
upon the Company's investment performance and may be subject to change based on
tax regulations.
(2)   Cash distributions for the year ended December 31, 2020 include a tax
return of capital of approximately $0.38 per share.
(3)   Cash distributions for the year ended December 31, 2019 include a tax
return of capital of approximately $0.11 per share for tax purposes.
(4)   Beginning February 22, 2019, the Board began to declare monthly
distributions in lieu of quarterly distributions.
(5)   Totals may not sum due to rounding.

RELATED PARTIES

We have a number of business relationships with affiliated or related parties, including the following:

•    We have entered into the Investment Advisory Agreement with Oxford Square
Management. Oxford Square Management is controlled by Oxford Funds, its managing
member. In addition to Oxford Funds, Oxford Square Management is owned by
Charles M. Royce, a member of our Board, who holds a minority, non-controlling
interest in Oxford Square Management as the non-managing member. Oxford Funds,
as the managing member of Oxford Square Management, manages the business and
internal affairs of Oxford Square Management. In addition, Oxford Funds provides
us with office facilities and administrative services pursuant to the
Administration Agreement.

•    Messrs. Cohen and Rosenthal also currently serve as Chief Executive Officer
and President, respectively, at Oxford Gate Management, LLC, the investment
adviser to the Oxford Gate Funds and Oxford Bridge II, LLC. Oxford Funds is the
managing member of Oxford Gate Management, LLC. In addition, Bruce L. Rubin
serves as the Chief Financial Officer and Secretary, and Gerald Cummins serves
as the Chief Compliance Officer, respectively, of Oxford Gate Management, LLC.

                                       78

•    Messrs. Cohen and Rosenthal currently serve as Chief Executive Officer and
President, respectively, of Oxford Lane Capital Corp., a non-diversified
closed-end management investment company that invests primarily in equity and
junior debt tranches of CLO vehicles, and its investment adviser, Oxford Lane
Management, LLC. Oxford Funds provides Oxford Lane Capital Corp. with office
facilities and administrative services pursuant to an administration agreement
and also serves as the managing member of Oxford Lane Management, LLC. In
addition, Bruce L. Rubin serves as the Chief Financial Officer, Treasurer and
Corporate Secretary of Oxford Lane Capital Corp. and Chief Financial Officer and
Treasurer of Oxford Lane Management, LLC, and Mr. Cummins serves as the Chief
Compliance Officer of Oxford Lane Capital Corp. and Oxford Lane Management, LLC.

As a result, certain conflicts of interest may arise with respect to the
management of our portfolio by Messrs. Cohen and Rosenthal on the one hand, and
the obligations of Messrs. Cohen and Rosenthal to manage Oxford Lane Capital
Corp., Oxford Bridge II, LLC and the Oxford Gate Funds, respectively, on the
other hand.

Oxford Square Management, Oxford Lane Management, LLC and Oxford Gate
Management, LLC are subject to a written policy with respect to the allocation
of investment opportunities among the Company, Oxford Lane Capital Corp., Oxford
Bridge II, LLC and the Oxford Gate Funds. Where investments are suitable for
more than one entity, the allocation policy generally provides that, depending
on size and subject to current and anticipated cash availability, the absolute
size of the investment as well as its relative size compared to the total assets
of each entity, current and anticipated weighted average costs of capital, among
other factors, an investment amount will be determined by the adviser to each
entity. If the investment opportunity is sufficient for each entity to receive
its investment amount, then each entity receives the investment amount;
otherwise, the investment amount is reduced pro rata. On June 14, 2017, the
Securities and Exchange Commission issued an order permitting the Company and
certain of its affiliates to complete negotiated co-investment transactions in
portfolio companies, subject to certain conditions (the "Order"). Subject to
satisfaction of certain conditions to the Order, the Company and certain of its
affiliates are now permitted, together with any future BDCs, registered
closed-end funds and certain private funds, each of whose investment adviser is
the Company's investment adviser or an investment adviser controlling,
controlled by, or under common control with the Company's investment adviser, to
co-invest in negotiated investment opportunities where doing so would otherwise
be prohibited under the 1940 Act, providing the Company's stockholders with
access to a broader array of investment opportunities. Pursuant to the Order, we
are permitted to co-invest in such investment opportunities with our affiliates
if a "required majority" (as defined in Section 57(o) of the 1940 Act) of our
independent directors make certain conclusions in connection with a
co-investment transaction, including, but not limited to, that (1) the terms of
the potential co-investment transaction, including the consideration to be paid,
are reasonable and fair to us and our stockholders and do not involve
overreaching in respect of us or our stockholders on the part of any person
concerned, and (2) the potential co-investment transaction is consistent with
the interests of our stockholders and is consistent with our then-current
investment objective and strategies.

In the ordinary course of business, we may enter into transactions with
portfolio companies that may be considered related party transactions. In order
to ensure that we do not engage in any prohibited transactions with any persons
affiliated with us, we have implemented certain policies and procedures whereby
our executive officers screen each of our transactions for any possible
affiliations between the proposed portfolio investment, us, companies controlled
by us and our employees and directors. We will not enter into any agreements
unless and until we are satisfied that doing so will not raise concerns under
the 1940 Act or, if such concerns exist, we have taken appropriate actions to
seek board review and approval or exemptive relief for such transaction. Our
Board reviews these procedures on an annual basis.

We have also adopted a Code of Business Conduct and Ethics which applies to our
senior officers, including our Chief Executive Officer and Chief Financial
Officer, as well as all of our officers, directors and employees. Our Code of
Business Conduct and Ethics requires that all employees and directors avoid any
conflict, or the appearance of a conflict, between an individual's personal
interests and our interests. Pursuant to our Code of Business Conduct and
Ethics, each employee and director must disclose any conflicts of interest, or
actions or relationships that might give rise to a conflict. Our Audit Committee
is charged with approving any waivers under our Code of Business Conduct and
Ethics. As required by the NASDAQ Global Select Market corporate governance
listing standards, the Audit Committee of our Board is also required to review
and approve any transactions with related parties (as such term is defined in
Item 404 of Regulation S-K).

Information concerning related party transactions is included in the financial
statements and related notes, appearing elsewhere in this annual report on
Form
10-K.

                                       79

CRITICAL ACCOUNTING METHODS

The preparation of financial statements and related disclosures in conformity
with generally accepted accounting principles in the United States ("GAAP")
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and revenues and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified investment valuation and investment income as
critical accounting policies.

Investment appraisal

We fair value our investment portfolio in accordance with the provisions of ASC
820, Fair Value Measurement and Disclosure ("ASC 820"). Estimates made in the
preparation of our financial statements include the valuation of investments and
the related amounts of unrealized appreciation and depreciation of investments
recorded. We believe that there is no single definitive method for determining
fair value in good faith. As a result, determining fair value requires that
judgment be applied to the specific facts and circumstances of each portfolio
investment while employing a consistently applied valuation process for the
types of investments we make.

ASC 820-10 clarified the definition of fair value and requires companies to
expand their disclosure about the use of fair value to measure assets and
liabilities in interim and annual periods subsequent to initial recognition. ASC
820-10 defines fair value 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. ASC 820-10 also establishes a three-tier
fair value hierarchy, which prioritizes the inputs used in measuring fair value.
These tiers include: Level 1, defined as observable inputs such as quoted prices
in active markets; Level 2, which includes inputs such as quoted prices for
similar securities in active markets and quoted prices for identical securities
in markets that are not active; and Level 3, defined as unobservable inputs for
which little or no market data exists, therefore requiring an entity to develop
its own assumptions. We consider the attributes of current market conditions on
an on-going basis and have determined that due to the general illiquidity of the
market for its investment portfolio, whereby little or no market data exists,
substantially all of our fair valued investments are measured based upon Level 3
inputs as of December 31, 2021 and 2020.

Our Board determines the value of our investment portfolio each quarter. In
connection with that determination, members of Oxford Square Management's
portfolio management team prepare a quarterly analysis of each portfolio
investment using the most recent portfolio company financial statements,
forecasts and other relevant financial and operational information. We also
engage third-party valuation firms to provide assistance in valuing certain of
its syndicated loans and bilateral investments, including related equity
investments, although our Board ultimately determines the appropriate valuation
of each such investment. Changes in fair value, as described above, are recorded
in the statement of operations as net change in unrealized
appreciation/depreciation.

Good Faith Determinations of Fair Value ("Rule 2a-5") under the 1940 Act was
adopted by the SEC in December 2020 and establishes requirements for determining
fair value in good faith for purposes of the 1940 Act. The Company is evaluating
the impact of adopting Rule 2a-5 on the financial statements and intends to
comply with the new rule's requirements on or before the compliance date in
September 2022.

Syndicated loans (including senior secured notes)

In accordance with ASC 820-10, our valuation procedures specifically provide for
the review of indicative quotes supplied by the large agent banks that make a
market for each security. However, the marketplace from which we obtain
indicative bid quotes for purposes of determining the fair value of our
syndicated loan investments has shown attributes of illiquidity as described by
ASC-820-10. During such periods of illiquidity, when we believe that the
non-binding indicative bids received from agent banks for certain syndicated
investments that we own may not be determinative of their fair value or when no
market indicative quote is available, we may engage third-party valuation firms
to provide assistance in valuing certain syndicated investments that we own. The
third-party valuation firms may use the income or market approach in arriving at
a valuation. Unobservable inputs utilized could include discount rates derived
from estimated credit spreads and earnings before interest, taxes, depreciation,
and amortization multiples. In addition, Oxford Square Management analyzes each
syndicated loan by reviewing the company's financial statements, covenant
compliance and recent trading activity in the security (if known), and other
business developments related to the portfolio company. All available
information, including non-binding indicative bids which may not be
determinative of fair value, is presented to the Valuation Committee to consider
in its determination of fair value. In some instances, there may be limited
trading activity in a security even though the market for the security is
considered not active. In such cases the Valuation Committee will consider
the
number of

                                       80

trades, the size and timing of each trade, and other circumstances around such
trades, to the extent such information is available, in its determination of
fair value. The Valuation Committee will evaluate the impact of such additional
information, and factor it into its consideration of the fair value that is
indicated by the analysis provided by third-party valuation firms, if any.

Secured Loan Obligations – Debt and Equity

We have acquired a number of debt and equity positions in CLO investment
vehicles and CLO warehouse investments. These investments are special purpose
financing vehicles. In valuing such investments, we consider the indicative
prices provided by a recognized industry pricing service as a primary source,
and the implied yield of such prices, supplemented by actual trades executed in
the market at or around period-end, as well as the indicative prices provided by
the broker who arranges transactions in such investment vehicles. We also
consider those instances in which the record date for an equity distribution
payment falls on the last day of the period, and the likelihood that a
prospective purchaser would require a downward adjustment to the indicative
price representing substantially all of the pending distribution. Additional
factors include any available information on other relevant transactions
including firm bids and offers in the market and information resulting from
bids-wanted-in-competition. In addition, we consider the operating metrics of
the specific investment vehicle, including compliance with collateralization
tests, defaulted and restructured securities, and payment defaults, if any.
Oxford Square Management or the Valuation Committee may request an additional
analysis by a third-party firm to assist in the valuation process of CLO
investment vehicles. All information is presented to our Board for its
determination of fair value of these investments.

Bilateral investments (including stocks)

Bilateral investments (as defined below) for which market quotations are readily
available are valued by an independent pricing agent or market maker. If such
market quotations are not readily available, under the valuation procedures
approved by our Board upon the recommendation of the Valuation Committee, a
third-party valuation firm will prepare valuations for each of our bilateral
investments that, when combined with all other investments in the same portfolio
company, (i) have a value as of the previous quarter of greater than or equal to
2.5% of its total assets as of the previous quarter, and (ii) have a value as of
the current quarter of greater than or equal to 2.5% of its total assets as of
the previous quarter, after taking into account any repayment of principal
during the current quarter. In addition, in those instances where a third-party
valuation is prepared for a portfolio investment which meets the parameters
noted in (i) and (ii) above, the frequency of those third-party valuations is
based upon the grade assigned to each such security under its credit grading
system as follows: Grade 1, at least annually; Grade 2, at least semi-annually;
Grades 3, 4, and 5, at least quarterly. Bilateral investments which do not meet
the parameters in (i) and (ii) above are not required to have a third-party
valuation and, in those instances, a valuation analysis will be prepared by
Oxford Square Management. Oxford Square Management also retains the authority to
seek, on our behalf, additional third party valuations with respect to both our
bilateral portfolio securities and our syndicated loan investments. Our Board
retains ultimate authority as to the third-party review cycle as well as the
appropriate valuation of each investment.

The term “Bilateral Investments” means debt and equity investments directly negotiated between the Company and a holding company, but excludes syndicated loans (i.e. corporate loans arranged by an agent on behalf of a a company, parts of which are owned by several investors in addition to OXSQ).

See “Note 3. Fair value” in the notes to our financial statements for more information on investment valuation and our investment portfolio.

INVESTMENT INCOME:

interest income

Interest income is recorded on an accrual basis using the contractual rate
applicable to each debt investment and includes the accretion of market
discounts and/or original issue discount ("OID") and amortization of market
premiums. Discounts from and premiums to par value on securities purchased are
accreted/amortized into interest income over the life of the respective security
using the effective yield method. The amortized cost of investments represents
the original cost adjusted for the accretion of discounts and amortization of
premiums, if any.

Generally, when interest and/or principal payments on a loan become past due, or
if we otherwise do not expect the borrower to be able to service its debt and
other obligations, we will place the loan on non-accrual status and will
generally cease recognizing interest income on that loan for financial reporting
purposes until all principal

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and interest have been brought current through payment or due to restructuring
such that the interest income is deemed to be collectible. We generally restore
non-accrual loans to accrual status when past due principal and interest is paid
and, in our judgment, is likely to remain current. As of December 31, 2021 and
2020, we had three and two debt investments that were on non-accrual status,
respectively.

Interest income also includes a payment-in-kind ("PIK") component on certain
investments in our portfolio. Refer to the section below, "Payment-In-Kind," for
a description of PIK income and its impact on interest income.

Payment in kind

We have debt and preferred stock investments in our portfolio that contain
contractual PIK provisions. PIK interest and preferred stock dividends are
computed at their contractual rates and are accrued into income and added to the
principal balances on the capitalization dates. Upon capitalization, the PIK
portions of the investments are valued at their respective fair values. If we
believe that a PIK is not fully expected to be realized, the PIK investment
would be placed on non-accrual status. When a PIK investment is placed on
non-accrual status, the accrued, uncapitalized interest or dividends would be
reversed from the related receivable through interest or dividend income,
respectively. PIK investments on non-accrual status are restored to accrual
status once it becomes probable that such PIK will be ultimately collectible in
cash. For the years ended December 31, 2021 and 2020, no PIK preferred stock
dividends were recognized as dividend income. For the year ended December 31,
2021, no PIK interest was recognized as interest income. For the year ended
December 31, 2020, approximately $0.3 million of PIK interest was recognized as
interest income.

Income from securitization vehicles and equity investments

Income from investments in the equity class securities of CLO vehicles
(typically income notes or subordinated notes) is recorded using the effective
yield method in accordance with the provisions of ASC 325-40, based upon
estimated cash flows, amounts and timing including those CLO equity investments
that have not made their inaugural distribution for the relevant period end. We
monitor the expected residual payments, and effective yield is determined and
updated periodically, as needed. Accordingly, investment income recognized on
CLO equity securities in the GAAP statement of operations differs from both the
tax-basis investment income and from the cash distributions actually received by
us during the period.

We also record income on our investments in certain securitization vehicles (or
"CLO warehouse facilities") based on a stated rate per the underlying note
purchase agreement or, if there is no stated rate, then an estimated rate is
calculated using a base case model projecting the timing of the ramp-up of the
CLO warehouse facility. As of December 31, 2021 and 2020, we had no investments
in CLO warehouse facilities.

Other income

Other income includes prepayment, amendment, and other fees earned by our loan
investments, distributions from fee letters and success fees associated with
portfolio investments. Distributions from fee letters are an enhancement to the
return on a CLO equity investment and are based upon a percentage of the
collateral manager's fees above the amortized cost, and are recorded as other
income when earned. We may also earn success fees associated with our
investments in certain securitization vehicles or CLO warehouse facilities,
which are contingent upon a repayment of the warehouse by a permanent CLO
structure; such fees are earned and recognized when the repayment is completed.

Recently issued accounting standards

See "Note 15. Recent Accounting Pronouncements" to our financial statements for
a description of recent accounting pronouncements, including the impact on
our
financial statements.

RECENT DEVELOPMENTS

On March 1, 2022, the Board of Directors approved the Fourth Amended and
Restated Bylaws (the "Fourth Amended and Restated Bylaws"), to be effective as
of March 1, 2022. The Fourth Amended and Restated Bylaws (i) provide that a
plurality of all the votes cast at a meeting of our stockholders duly called and
at which a quorum is present will be sufficient to elect a director to the Board
of Directors and (ii) removes the provision that requires incumbent directors
that are not re-elected to tender their resignation to the Board of Directors.
All of the other provisions of our bylaws shall remain in full force and effect.

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The following distributions payable to shareholders are shown below:

                                                           Per Share Distribution
 Date Declared       Record Dates        Payable Dates        Amount Declared
October 22, 2021   January 17, 2022    January 31, 2022            $0.035
October 22, 2021   February 14, 2022   February 28, 2022           $0.035
October 22, 2021    March 17, 2022      March 31, 2022             $0.035
 March 1, 2022      April 15, 2022      April 29, 2022             $0.035
 March 1, 2022       May 17, 2022        May 31, 2022              $0.035
 March 1, 2022       June 16, 2022       June 30, 2022             $0.035

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