I listened to the conference call. Here are some highlights for anyone interested.
Earnings ($.25 per share) were reduced by the reversal of interest of a loan put on non-accrual retroactive to previous quarter. Earnings (estimate) would have been about 40+ cents per share otherwise.
They had a very nice gain ($1.63) on the payment of a previously written down loan. NAV remains about the same due to dilution from the stock dividend.
They hope to hear something about the SBIC license within the next few months. Nothing is certain on either timing or approval however. An SBIC license would be a real game changer for this company. They seem to be very small and low on capital to get an approval, but that's just my opinion. Another BDC I follow (MGIC) was recently denied a second SBIC license because of insufficient capital and it is over ten times SAR's size. Based on the current value of the stock the market is discounting the probability of an SBIC license. The government was giving them out like candy on Halloween a one point to stimulate the economy but they have become a lot less generous lately.
They were very circumspect about dividend policy. They want to conserve capital for now but would like to pay a full cash dividend "at some point". I'm not quite sure what they mean, as a BDC the would be required to pay out 90% of earnings on an annual basis. The IRS decision allowing stock dividends instead of cash has expired according to my information. Will the give up their BDC status like ACAS did? They could wait over a year till February of 2013 and then pay one big annual dividend?
 I did not find evidence that there was a "the reversal of interest of a loan put on non-accrual retroactive to previous quarter".
 I thought SAR was very clear on their dividend intentions. But I would not put 100% faith in their actualizing that intention.
 I did not find debt to EBITDA or interest coverage ratios for the debt on SAR's portfolio companies [which means I can not contradict what another has posted]. So if there is evidence that credit quality declined in the quarter, I would like to see it.
Your last paragraph was what had me scratching my head too. On the one hand they acknowledge that a dividend was important to a "small BDC," which makes me think they aren't thinking of converting, yet they also said that they don't plan to pay a dividend while below critical mass. At this point the IRS has not extended the ruling that allows a stock dividend for BDCs.
They would not have to pay a cash dividend for almost a year. I think they are hoping that in the meantime one of three things will happen: (1) SBIC license, (2) extension of the IRS stock dividend ruling, or (3) a crazy rally in risk assets. If none of those things happen I think they will sell the company, take it private, or give up their BDC status.
Any way you look at the 45% discount to NAV and high insider ownership offer alot of protection but with ACAS and MVC you get similar discounts with a buyback at ACAS and a 3% yield at MVC and the opportunity to build a six figure position if you want to (almost impossible with SAR).
I also thought the credit quality declined a bit this quarter, BTW.
You are correct about earnings. The reference to a reversal was in the previous comparable (2010) quarter not this quarter. The earnings are well below the estimated run rate of 40 to 50 cents per quarter. I am guessing that they are building cash and not replacing loans as they are paid off. They would need $25 million equity for an SBIC operation.
I wonder if they might just delay dividends for a long time. I remember that at one time several years ago Prospect (PSEC) carried over earnings from one year to the next. There was an excise tax of 3% on undistributed earnings but that is not really that bad, like borrowing money from the gov't at 3%. I doubt that the IRS would allow them to do that for long.