Star Mountain Boosts Net Assets Amidst Lower Investment Income

TL;DR

**Star Mountain's cost-cutting is masking declining investment income; watch for sustained revenue growth to justify its current valuation.**

AI Summary

Star Mountain Lower Middle-Market Capital Corp. reported a net increase in net assets from operations of $10,354,160 for the nine months ended September 30, 2025, up from $7,050,000 in the prior year period. Total investment income decreased to $30,344,707 for the nine months ended September 30, 2025, from $33,456,449 in the same period of 2024, primarily due to a reduction in non-controlled/non-affiliate interest income from $27,698,324 to $23,940,656. Operating expenses also saw a significant reduction, falling to $15,067,004 from $18,699,217, largely driven by lower interest and other financing fees, which decreased from $10,211,280 to $6,006,295. The company experienced a net change in unrealized loss on investments of $(10,654,511) for the nine months ended September 30, 2025, compared to $(10,862,337) in the prior year. Net asset value per share slightly decreased to $24.29 as of September 30, 2025, from $24.43 as of December 31, 2024. The company's credit facility payable decreased from $122,500,000 to $110,750,000, indicating a reduction in leverage.

Why It Matters

Star Mountain's ability to increase net assets from operations despite a decline in total investment income suggests effective cost management, particularly in financing fees. For investors, this indicates a potentially more efficient operation, but the slight decrease in NAV per share and continued unrealized losses warrant close attention. Employees and customers are less directly impacted by these financial shifts, but a stable, well-managed BDC can offer more reliable capital to the lower middle-market. In a competitive landscape, reduced financing costs could give Star Mountain an edge in offering more attractive terms to its portfolio companies, potentially improving future returns.

Risk Assessment

Risk Level: medium — The company's total investment income decreased by 9.3% from $33,456,449 to $30,344,707 for the nine months ended September 30, 2025, indicating potential headwinds in its core revenue generation. While operating expenses decreased significantly, the net change in unrealized loss on investments remains substantial at $(10,654,511), suggesting ongoing valuation challenges within its portfolio.

Analyst Insight

Investors should scrutinize Star Mountain's investment portfolio for signs of improved performance and revenue diversification. While expense control is positive, a sustained decline in investment income could pressure future profitability. Consider holding existing positions but deferring new investments until a clear rebound in investment income is evident.

Financial Highlights

debt To Equity

0.54

revenue

$30,344,707

operating Margin

50.44%

total Assets

$374,920,691

total Debt

$110,750,000

net Income

$10,354,160

eps

$24.29

gross Margin

N/A

cash Position

$3,721,412

revenue Growth

-9.61%

Revenue Breakdown

Key Numbers

• $10.35M — Net increase in net assets from operations (Increased from $7.05M in 2024 to $10.35M in 2025 for the nine-month period.)
• $30.34M — Total investment income (Decreased from $33.46M in 2024 to $30.34M in 2025 for the nine-month period.)
• $15.07M — Total operating expenses (Decreased from $18.70M in 2024 to $15.07M in 2025 for the nine-month period.)
• $6.01M — Interest and other financing fees (Decreased significantly from $10.21M in 2024 to $6.01M in 2025.)
• $(10.65M) — Net change in unrealized loss on investments (Slightly improved from $(10.86M) in 2024 to $(10.65M) in 2025.)
• $24.29 — Net asset value per share (Slightly decreased from $24.43 as of December 31, 2024.)
• $110.75M — Credit facility payable (Reduced from $122.50M as of December 31, 2024.)

Key Players & Entities

• Star Mountain Lower Middle-Market Capital Corp. (company) — Registrant
• $10,354,160 (dollar_amount) — Net increase in net assets from operations for nine months ended Sept 30, 2025
• $7,050,000 (dollar_amount) — Net increase in net assets from operations for nine months ended Sept 30, 2024
• $30,344,707 (dollar_amount) — Total investment income for nine months ended Sept 30, 2025
• $33,456,449 (dollar_amount) — Total investment income for nine months ended Sept 30, 2024
• $15,067,004 (dollar_amount) — Total operating expenses for nine months ended Sept 30, 2025
• $18,699,217 (dollar_amount) — Total operating expenses for nine months ended Sept 30, 2024
• $6,006,295 (dollar_amount) — Interest and other financing fees for nine months ended Sept 30, 2025
• $10,211,280 (dollar_amount) — Interest and other financing fees for nine months ended Sept 30, 2024
• $24.29 (dollar_amount) — Net asset value per share as of September 30, 2025

Forward-Looking Statements

• Net Asset Value (NAV) per share will remain relatively stable or experience minor fluctuations in the near term. (Star Mountain Lower Middle-Market Capital Corp.) — medium confidence, target: Q2 2024
• The company will continue to face pressure on net income per share due to potential increases in operating expenses or stable investment income. (Star Mountain Lower Middle-Market Capital Corp.) — medium confidence, target: Q2 2024

FAQ

Risk Factors

• Investment Value Fluctuations [medium — financial]: The company experienced a net change in unrealized loss on investments of $(10,654,511) for the nine months ended September 30, 2025. This indicates that the fair value of its investment portfolio decreased, impacting net assets.
• Leverage Reduction [medium — financial]: The credit facility payable decreased from $122,500,000 as of December 31, 2024, to $110,750,000 as of September 30, 2025. While this reduces leverage, it may also indicate a contraction in available funding or a strategic deleveraging.
• Decreased Investment Income [medium — financial]: Total investment income for the nine months ended September 30, 2025, was $30,344,707, down from $33,456,449 in the prior year. This decline, primarily driven by lower non-controlled/non-affiliate interest income, impacts the company's earning capacity.
• Operating Expense Management [low — financial]: Operating expenses decreased to $15,067,004 from $18,699,217, largely due to lower interest and financing fees ($6,006,295 vs $10,211,280). While positive for margins, the reduction in financing fees could be linked to the decreased credit facility.

Industry Context

Star Mountain Lower Middle-Market Capital Corp. operates within the specialized debt financing sector, focusing on lower middle-market companies. This segment is characterized by a need for flexible capital solutions and often involves higher risk and return profiles compared to larger market segments. The industry is competitive, with numerous business development companies (BDCs) and private credit funds vying for deal flow and investor capital.

Regulatory Implications

As a business development company (BDC), Star Mountain is subject to regulations under the Investment Company Act of 1940, which imposes requirements on its investment activities, leverage, and reporting. Changes in interest rate environments and economic conditions can also trigger regulatory scrutiny or impact compliance requirements related to asset quality and capital adequacy.

What Investors Should Do

1. Monitor the trend in investment income, particularly the decline in non-controlled/non-affiliate interest income, to assess the sustainability of earnings.
2. Evaluate the impact of the reduced credit facility payable on future investment capacity and the company's overall leverage strategy.
3. Analyze the drivers behind the net change in unrealized losses on investments to understand portfolio performance and potential future impairments.
4. Assess the effectiveness of operating expense reductions, especially the decrease in interest and financing fees, in relation to the company's revenue generation.

Key Dates

• 2025-09-30: Nine months ended September 30, 2025 — Reporting period for increased net assets from operations, decreased investment income, and reduced operating expenses.
• 2024-09-30: Nine months ended September 30, 2024 — Prior year comparison period showing higher investment income and operating expenses.
• 2025-12-31: As of December 31, 2024 — Previous year-end balance sheet figures for comparison, including higher credit facility payable and NAV per share.

Glossary

PIK interest income

Payment-in-Kind interest income, where interest is paid in the form of additional debt rather than cash. (Contributes to investment income but does not provide immediate cash flow.)

Net asset value per share

The value of a company's assets minus its liabilities, divided by the number of outstanding shares. (Indicates the per-share value of the company's holdings and its performance over time.)

Credit facility payable

The amount owed under a credit facility, which is a type of loan agreement that allows a company to borrow funds up to a certain limit. (Represents a significant portion of the company's liabilities and indicates its leverage.)

Non-controlled/non-affiliate investments

Investments in companies where Star Mountain does not have control or significant influence. (A primary source of investment income for the company.)

Controlled/affiliate investments

Investments in companies where Star Mountain has control or significant influence. (Represents a smaller but potentially more strategic portion of the investment portfolio.)

Year-Over-Year Comparison

Compared to the prior year period, Star Mountain Lower Middle-Market Capital Corp. reported a significant increase in net assets from operations ($10.35M vs $7.05M), driven by a substantial reduction in operating expenses, particularly interest and financing fees. However, total investment income saw a decline ($30.34M vs $33.46M), primarily due to lower interest income from non-controlled/non-affiliate investments. The net asset value per share slightly decreased to $24.29 from $24.43, and the company reduced its credit facility payable from $122.5M to $110.75M, indicating a deleveraging trend.

Key Financial Figures

• $0.001 — had 10,042,249 shares of common stock, $0.001 par value, outstanding. Table of Conte

Filing Documents

• ef20054975_10q.htm (10-Q) — 8722KB
• ef20054975_ex31-1.htm (EX-31.1) — 12KB
• ef20054975_ex31-2.htm (EX-31.2) — 12KB
• ef20054975_ex32-1.htm (EX-32.1) — 5KB
• ef20054975_ex32-2.htm (EX-32.2) — 5KB
• 0001140361-25-042261.txt ( ) — 25584KB
• star-20250930.xsd (EX-101.SCH) — 165KB
• star-20250930_cal.xml (EX-101.CAL) — 53KB
• star-20250930_def.xml (EX-101.DEF) — 522KB
• star-20250930_lab.xml (EX-101.LAB) — 908KB
• star-20250930_pre.xml (EX-101.PRE) — 509KB
• ef20054975_10q_htm.xml (XML) — 6875KB

Financial Statements

Financial Statements Consolidated Statements of Assets and Liabilities as of September 30, 2025 (Unaudited) and December 31, 2024 2 Consolidated Statements of Operations for the three and nine months ended September 30, 2025 and 2024 (Unaudited) 3 Consolidated Statements of Changes in Net Assets for the three and nine months ended September 30, 2025 and 2024 (Unaudited) 4 Consolidated Statements of Cash Flows for the nine months ended September 30, 2025 and 2024 (Unaudited) 5 Consolidated Schedules of Investments as of September 30, 2025 (Unaudited) and December 31, 2024 6

Notes to Consolidated Financial Statements (Unaudited)

Notes to Consolidated Financial Statements (Unaudited) 16 Item 2.

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

Management's Discussion and Analysis of Financial Condition and Results of Operations 39 Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Quantitative and Qualitative Disclosures about Market Risk 50 Item 4.

Controls and Procedures

Controls and Procedures 51 Part II OTHER INFORMATION Item 1.

Legal Proceedings

Legal Proceedings 51 Item 1A.

Risk Factors

Risk Factors 51 Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 51 Item 3. Defaults Upon Senior Securities 51 Item 4. Mine Safety Disclosures 51 Item 5. Other Information 51 Item 6. Exhibits 52

Signatures

Signatures 53 1 Table of Contents

Financial Information

Part I. Financial Information Item 1.

Financial Statements

Financial Statements. STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP. Consolidated Assets and Liabilities September 30, 2025 (unaudited) December 31, 2024 ASSETS Non-controlled/non-affiliate investments at fair value (amortized cost of $ 313,343,274 and $ 325,265,220 as of September 30 , 2025 and December 31, 2024 , respectively) $ 302,734,701 $ 326,959,520 Controlled/affiliate investments at fair value (amortized cost of $ 62,366,032 and $ 52,910,374 as of September 30 , 2025 and December 31, 2024 , respectively) 61,784,818 50,680,798 Cash 3,721,412 4,028,665 Interest receivable 4,452,350 3,887,028 Deferred financing cost 1,689,411 2,169,211 Receivable for investments sold 367,810 - Paydown receivable 71,244 341,471 Other receivable 57,498 - Prepaid expenses 41,447 6,748 Total assets 374,920,691 388,073,441 LIABILITIES Credit facility payable 110,750,000 122,500,000 Redemptions payable 6,095,288 5,637,890 Incentive fees payable (Note 6) 5,510,270 2,813,724 Deferred tax liabilities 3,954,326 6,094,196 Credit facility interest payable 1,967,390 2,267,199 Management fees payable (Note 6) 1,161,778 1,157,509 Subscriptions received in advance 802,500 - Professional fees payable 401,259 434,744 Reimbursement expense payable 156,416 77,275 Other payables 59,369 900,145 Legal fees payable 60,706 37,883 Taxes payable 29,149 - Distributions payable - 5,322,771 Total liabilities 130,948,451 147,243,336 Commitments and contingencies (Note 11) Net assets $ 243,972,240 $ 240,830,105 NET ASSETS Common shares, $ 0.001 par value ( 200,000,000 shares authorized, 10,042,249 and 9,857,301 shares issued and outstanding as of September 30 , 2025 and December 31, 2024 , respectively) $ 10,043 $ 9,858 Additional paid-in capital 251,065,709 246,622,366 Accumulated undistributed (overdistributed) earnings ( 7

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