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

_______________________________

Form 10-Q

_______________________________

 

S

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended August 31, 2020

   

£

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File No. 814-00732

_______________________________

SARATOGA INVESTMENT CORP.

(Exact name of registrant as specified in its charter)

_______________________________

Maryland

 

20-8700615

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification Number)

535 Madison Avenue

New York, New York 10022

(Address of principal executive offices)

(212) 906-7800

(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 $0.001 per share

 

SAR

 

The New York Stock Exchange

6.25% Notes due 2025

 

SAF

 

The New York Stock Exchange

7.25% Notes due 2025

 

SAK

 

The New York Stock Exchange

_______________________________

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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

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 Act).    Yes £    No S

The number of outstanding common shares of the registrant as of October 7, 2020 was 11,174,322.

 

________________________

TABLE OF CONTENTS
________________________

     

Page

PART I.

 

FINANCIAL INFORMATION

 

1

Item 1.

 

Consolidated Financial Statements

 

1

   

Consolidated Statements of Assets and Liabilities as of August 31, 2020 (unaudited) and February 29, 2020

 

1

   

Consolidated Statements of Operations for the three and six months ended August 31, 2020 (unaudited) and August 31, 2019 (unaudited)

 

2

   

Consolidated Statements of Changes in Net Assets for three and six months ended August 31, 2020 (unaudited) and August 31, 2019 (unaudited)

 

3

   

Consolidated Statements of Cash Flows for the three and six months ended August 31, 2020 (unaudited) and August 31, 2019 (unaudited)

 

4

   

Consolidated Schedules of Investments as of August 31, 2020 (unaudited) and February 29, 2020

 

5

   

Notes to Consolidated Financial Statements as of August 31, 2020 (unaudited)

 

20

Item 2.

 

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

 

84

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

119

Item 4.

 

Controls and Procedures

 

120

PART II.

 

OTHER INFORMATION

 

121

Item 1.

 

Legal Proceedings

 

121

Item 1A.

 

Risk Factors

 

121

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

122

Item 3.

 

Defaults Upon Senior Securities

 

122

Item 4.

 

Mine Safety Disclosures

 

122

Item 5.

 

Other Information

 

122

Item 6.

 

Exhibits

 

123

Signatures

 

126

i

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Saratoga Investment Corp.

Consolidated Statements of Assets and Liabilities

 

August 31,
2020

 

February 29,
2020

   

(unaudited)

   

ASSETS

 

 

 

 

 

 

 

 

Investments at fair value

 

 

 

 

 

 

 

 

Non-control/Non-affiliate investments (amortized cost of $452,233,107 and $418,006,725, respectively)

 

$

440,847,945

 

 

$

420,442,928

 

Affiliate investments (amortized cost of $26,051,719 and $23,998,917, respectively)

 

 

18,731,636

 

 

 

18,485,854

 

Control investments (amortized cost of $45,869,421 and $44,293,619, respectively)

 

 

48,537,411

 

 

 

46,703,192

 

Total investments at fair value (amortized cost of $524,154,247 and $486,299,261, respectively)

 

 

508,116,992

 

 

 

485,631,974

 

Cash and cash equivalents

 

 

39,052,320

 

 

 

24,598,905

 

Cash and cash equivalents, reserve accounts

 

 

26,342,863

 

 

 

14,851,447

 

Interest receivable (net of reserve of $1,729,764 and $1,238,049, respectively)

 

 

4,396,518

 

 

 

4,810,456

 

Management fee receivable

 

 

284,122

 

 

 

272,207

 

Other assets

 

 

619,543

 

 

 

701,007

 

Total assets

 

$

578,812,358

 

 

$

530,865,996

 

   

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

Revolving credit facility

 

$

 

 

$

 

Deferred debt financing costs, revolving credit facility

 

 

(466,094

)

 

 

(512,628

)

SBA debentures payable

 

 

170,000,000

 

 

 

150,000,000

 

Deferred debt financing costs, SBA debentures payable

 

 

(2,729,422

)

 

 

(2,561,495

)

6.25% Notes Payable 2025

 

 

60,000,000

 

 

 

60,000,000

 

Deferred debt financing costs, 6.25% notes payable 2025

 

 

(1,859,372

)

 

 

(2,046,735

)

7.25% Notes Payable 2025

 

 

43,125,000

 

 

 

 

Deferred debt financing costs, 7.25% notes payable 2025

 

 

(1,561,533

)

 

 

 

7.75% Notes Payable 2025

 

 

5,000,000

 

 

 

 

Deferred debt financing costs, 7.75% notes payable 2025

 

 

(266,420

)

 

 

 

Base management and incentive fees payable

 

 

3,738,729

 

 

 

15,800,097

 

Deferred tax liability

 

 

1,194,700

 

 

 

1,347,363

 

Accounts payable and accrued expenses

 

 

1,816,618

 

 

 

1,713,157

 

Interest and debt fees payable

 

 

2,287,313

 

 

 

2,234,042

 

Directors fees payable

 

 

59,500

 

 

 

61,500

 

Due to manager

 

 

295,981

 

 

 

543,842

 

Total liabilities

 

 

280,635,000

 

 

 

226,579,143

 

   

 

 

 

 

 

 

 

Commitments and contingencies (See Note 8)

 

 

 

 

 

 

 

 

NET ASSETS

 

 

 

 

 

 

 

 

Common stock, par value $0.001, 100,000,000 common shares authorized, 11,174,322 and 11,217,545 common shares issued and outstanding, respectively

 

 

11,174

 

 

 

11,218

 

Capital in excess of par value

 

 

288,699,868

 

 

 

289,476,991

 

Total distributable earnings

 

 

9,466,316

 

 

 

14,798,644

 

Total net assets

 

 

298,177,358

 

 

 

304,286,853

 

Total liabilities and net assets

 

$

578,812,358

 

 

$

530,865,996

 

NET ASSET VALUE PER SHARE

 

$

26.68

 

 

$

27.13

 

See accompanying notes to consolidated financial statements.

1

Saratoga Investment Corp.

Consolidated Statements of Operations

(unaudited)

 

For the three months ended

 

For the six months ended

   

August 31,
2020

 

August 31,
2019

 

August 31,
2020

 

August 31,
2019

INVESTMENT INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest from investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/Non-affiliate investments

 

$

10,207,720

 

 

$

8,585,609

 

 

$

20,163,282

 

 

$

17,113,349

 

Affiliate investments

 

 

388,052

 

 

 

267,533

 

 

 

786,422

 

 

 

516,858

 

Control investments

 

 

1,249,972

 

 

 

1,678,326

 

 

 

2,383,556

 

 

 

3,326,472

 

Payment-in-kind interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/Non-affiliate investments

 

 

328,938

 

 

 

179,847

 

 

 

910,884

 

 

 

331,744

 

Affiliate investments

 

 

48,018

 

 

 

41,265

 

 

 

94,241

 

 

 

81,415

 

Control investments

 

 

37,771

 

 

 

989,367

 

 

 

72,553

 

 

 

1,975,236

 

Total interest from investments

 

 

12,260,471

 

 

 

11,741,947

 

 

 

24,410,938

 

 

 

23,345,074

 

Interest from cash and cash equivalents

 

 

1,610

 

 

 

145,793

 

 

 

13,406

 

 

 

197,152

 

Management fee income

 

 

625,436

 

 

 

629,745

 

 

 

1,260,008

 

 

 

1,259,261

 

Structuring and advisory fee income*

 

 

940,000

 

 

 

1,047,350

 

 

 

1,253,306

 

 

 

1,363,725

 

Other income*

 

 

28,060

 

 

 

323,378

 

 

 

215,060

 

 

 

474,185

 

Total investment income

 

 

13,855,577

 

 

 

13,888,213

 

 

 

27,152,718

 

 

 

26,639,397

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and debt financing expenses

 

 

3,328,447

 

 

 

3,866,722

 

 

 

5,892,323

 

 

 

7,731,298

 

Base management fees

 

 

2,209,052

 

 

 

1,997,240

 

 

 

4,369,580

 

 

 

3,809,409

 

Incentive management fees expense (benefit)

 

 

1,529,677

 

 

 

2,085,486

 

 

 

(328,633

)

 

 

4,198,655

 

Professional fees

 

 

367,553

 

 

 

384,874

 

 

 

754,441

 

 

 

780,000

 

Administrator expenses

 

 

602,083

 

 

 

518,750

 

 

 

1,158,333

 

 

 

1,018,750

 

Insurance

 

 

67,727

 

 

 

64,619

 

 

 

135,453

 

 

 

129,238

 

Directors fees and expenses

 

 

75,000

 

 

 

97,500

 

 

 

135,000

 

 

 

157,500

 

General & administrative

 

 

333,824

 

 

 

382,873

 

 

 

684,638

 

 

 

641,474

 

Income tax expense (benefit)

 

 

7,501

 

 

 

(465,925

)

 

 

(1,444

)

 

 

(463,789

)

Total operating expenses

 

 

8,520,864

 

 

 

8,932,139

 

 

 

12,799,691

 

 

 

18,002,535

 

NET INVESTMENT INCOME

 

 

5,334,713

 

 

 

4,956,074

 

 

 

14,353,027

 

 

 

8,636,862

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net realized gain (loss) from investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/Non-affiliate investments

 

 

11,929

 

 

 

1,870,089

 

 

 

20,409

 

 

 

1,870,089

 

Net realized gain (loss) from investments

 

 

11,929

 

 

 

1,870,089

 

 

 

20,409

 

 

 

1,870,089

 

Net change in unrealized appreciation (depreciation) on investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/Non-affiliate investments

 

 

10,601,529

 

 

 

365,541

 

 

 

(13,821,365

)

 

 

2,758,732

 

Affiliate investments

 

 

637,232

 

 

 

731,304

 

 

 

(1,807,020

)

 

 

901,248

 

Control investments

 

 

5,341,640

 

 

 

361,027

 

 

 

258,417

 

 

 

1,787,022

 

Net change in unrealized appreciation (depreciation) on investments

 

 

16,580,401

 

 

 

1,457,872

 

 

 

(15,369,968

)

 

 

5,447,002

 

Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments

 

 

(116,521

)

 

 

(704,263

)

 

 

151,219

 

 

 

(725,193

)

Net realized and unrealized gain (loss) on investments

 

 

16,475,809

 

 

 

2,623,698

 

 

 

(15,198,340

)

 

 

6,591,898

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

 

$

21,810,522

 

 

$

7,579,772

 

 

$

(845,313

)

 

$

15,228,760

 

WEIGHTED AVERAGE – BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE

 

$

1.95

 

 

$

0.91

 

 

$

(0.08

)

 

$

1.89

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING – BASIC AND DILUTED

 

 

11,207,142

 

 

 

8,333,570

 

 

 

11,212,315

 

 

 

8,041,365

 

____________

*        Certain prior period amounts have been reclassified to conform to current period presentation.

See accompanying notes to consolidated financial statements.

2

Saratoga Investment Corp.

Consolidated Statements of Changes in Net Assets

(unaudited)

 

For the six months ended

   

August 31,
2020

 

August 31,
2019

INCREASE (DECREASE) FROM OPERATIONS:

 

 

 

 

 

 

 

 

Net investment income

 

$

14,353,027

 

 

$

8,636,862

 

Net realized gain from investments

 

 

20,409

 

 

 

1,870,089

 

Net change in unrealized appreciation (depreciation) on investments

 

 

(15,369,968

)

 

 

5,447,002

 

Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments

 

 

151,219

 

 

 

(725,193

)

Net increase (decrease) in net assets resulting from operations

 

 

(845,313

)

 

 

15,228,760

 

   

 

 

 

 

 

 

 

DECREASE FROM SHAREHOLDER DISTRIBUTIONS:

 

 

 

 

 

 

 

 

Total distributions to shareholders

 

 

(4,487,015

)

 

 

(8,512,358

)

Net decrease in net assets from shareholder distributions

 

 

(4,487,015

)

 

 

(8,512,358

)

   

 

 

 

 

 

 

 

CAPITAL SHARE TRANSACTIONS:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

 

 

 

35,875,017

 

Stock dividend distribution

 

 

774,990

 

 

 

1,381,918

 

Repurchases of common stock

 

 

(1,550,417

)

 

 

 

Repurchase fees

 

 

(1,740

)

 

 

 

 

Offering costs

 

 

 

 

 

(511,957

)

Net increase in net assets from capital share transactions

 

 

(777,167

)

 

 

36,744,978

 

Total increase (decrease) in net assets

 

 

(6,109,495

)

 

 

43,461,380

 

Net assets at beginning of period

 

 

304,286,853

 

 

 

180,875,187

 

Net assets at end of period

 

$