UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2024

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

Commission file number: 814-01399

Star Mountain Lower Middle-Market Capital Corp.

(Exact Name of Registrant as Specified in its Charter)

Delaware		86-3924884
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

140 E. 45th Street, 37th Floor New York, NY		10017
(Address of Principal Executive Office)		(Zip Code)

(212) 810-9044

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former name or former address, if changed since last report)

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

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
None	N/A	N/A

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 ☒ 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	☐

Non-accelerated filer	☒	Smaller reporting-company	☐

Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 14, 2024, the registrant had 7,865,679 shares of common stock, $0.001 par value, outstanding.

Table of Contents

Part I. Financial Information

Item 1.

Financial Statements.

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Consolidated Statements of Assets and Liabilities

	March 31, 2024 (unaudited)		December 31, 2023
ASSETS
Non-controlled/non-affiliate investments at fair value (amortized cost of $350,655,321 and $370,712,305 as of March 31, 2024 and December 31, 2023, respectively)	$	344,632,380	$	367,622,559
Controlled/affiliate investments at fair value (amortized cost of $7,427,288 and $7,368,843 as of March 31, 2024 and December 31, 2023, respectively)		9,044,328		9,370,413
Interest receivable		4,207,137		3,291,794
Cash		3,321,696		5,045,540
Deferred financing cost		706,395		846,916
Paydown receivable		583,278		1,068,839
Total assets		362,495,214		387,246,061

LIABILITIES

Credit facility payable		149,500,000		176,500,000
Subscriptions received in advance		6,246,250		-
Incentive fees payable, net of fee waivers (Note 6)		5,186,994		3,961,476
Redemptions payable		4,872,739		4,700,693
Credit facility interest payable		3,382,731		3,645,612
Management fees payable, net of fee waivers (Note 6)		1,152,067		1,121,412
Professional fees payable		555,322		308,137
Other payables		346,159		368,999
Legal fees payable		63,480		26,962
Reimbursement expense payable		36,341		79,070
Distributions payable		-		6,073,111
Total liabilities		171,342,083		196,785,472

Commitments and contingencies (Note 11)

Net assets	$	191,153,131	$	190,460,589

NET ASSETS
Common shares, $0.001 par value (200,000,000 shares authorized, 7,615,428 and 7,687,482 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively)	$	7,616	$	7,688
Contribution receivable		-		(110,891	)
Additional paid-in capital		189,822,985		191,646,036
Accumulated undistributed (overdistributed) earnings		1,322,530		(1,082,244	)
Total net assets	$	191,153,131	$	190,460,589

Net asset value per share	$	25.10	$	24.78

See accompanying notes.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Consolidated Statements of Operations

(Unaudited)

	For the three months ended March 31,
	2024			2023
Non-controlled/non-affiliate investment income:
Interest income	$	10,740,990		$	9,717,322
PIK interest income		1,425,439			220,183
Dividend income		-			118,693
Other income		137,528			40,720
Controlled/affiliate investment income:
Interest income		107,726			28,501
PIK interest income		45,103			-
Dividend income		-			47,811
Total investment income:		12,456,786			10,173,230

Operating expenses:
Interest and other financing fees		3,741,191			3,147,516
Incentive fees (Note 6)		1,225,518			1,064,526
Management fees (Note 6)		1,152,067			1,382,563
Professional fees		380,352			319,300
General and administrative fees		130,021			108,643
Legal expenses		81,518			69,866
Director expenses		23,620			19,726
Total expenses before fee waivers		6,734,287			6,112,140
Management fee waiver (Note 6)		-			(197,509	)
Incentive fee waiver (Note 6)		-			(719,565	)
Total expenses after fee waivers		6,734,287			5,195,066
Net investment income		5,722,499			4,978,164

Net gain (loss):
Net change in unrealized gain (loss):
Non-controlled/non-affiliate investments		(2,933,195	)		(586,413	)
Controlled/affiliate investments		(384,530	)		(119,185	)
Net change in unrealized gain (loss) on investments		(3,317,725	)		(705,598	)

Net gain (loss)		(3,317,725	)		(705,598	)

Net increase (decrease) in net assets resulting from operations	$	2,404,774		$	4,272,566

Per common share data:
Net investment income per share - basic and diluted	$	0.74		$	0.75
Net increase (decrease) in net assets resulting from operations per share - basic and diluted	$	0.31		$	0.64
Weighted average shares outstanding - basic and diluted		7,764,315			6,660,330

See accompanying notes.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Consolidated Statements of Changes in Net Assets

(Unaudited)

	Common Stock									Accumulated undistributed
For the three months ended March 31, 2023	Number of shares			Par value of shares			Additional paid- in capital			(overdistributed) earnings			Total net assets
Balance, December 31, 2022		6,592,546		$	6,593		$	163,963,185		$	2,246,995		$	166,216,773
Net investment income		-			-			-			4,978,164			4,978,164
Net change in unrealized gain (loss) on investments		-			-			-			(705,598	)		(705,598	)
Issuance of common shares		803,600			804			20,338,324			-			20,339,128
Purchase of shares in repurchase offer		(273,743	)		(274	)		(6,998,057	)		-			(6,998,331	)
Stock issued in connection with dividend reinvestment plan		86,086			86			2,181,344			-			2,181,430
Balance, March 31, 2023		7,208,489		$	7,209		$	179,484,796		$	6,519,561		$	186,011,566

For the three months ended March 31, 2024
Balance, December 31, 2023		7,687,482		$	7,688		$	191,535,145		$	(1,082,244	)	$	190,460,589
Net investment income		-			-			-			5,722,499			5,722,499
Net change in unrealized gain (loss) on investments		-			-			-			(3,317,725	)		(3,317,725	)
Contribution receivable		-			-			110,891			-			110,891
Purchase of shares in repurchase offer		(192,187	)		(192	)		(4,823,752	)		-			(4,823,944	)
Stock issued in connection with dividend reinvestment plan		120,133			120			3,000,701			-			3,000,821
Balance, March 31, 2024		7,615,428		$	7,616		$	189,822,985		$	1,322,530		$	191,153,131

See accompanying notes.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Consolidated Statements of Cash Flows

(Unaudited)

	For the three months ended March 31,
	2024			2023
Cash flows from operating activities:
Net increase (decrease) in net assets resulting from operations	$	2,404,774		$	4,272,566
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided (used in) operating activities:
Net change in unrealized (gain) loss on investments		3,317,725			705,598
Net accretion of discounts and amortization of premiums		(561,124	)		(329,927	)
Purchases of investments		(789,898	)		(26,383,056	)
Proceeds from principal payments		23,305,664			1,752,764
Amortization of deferred financing costs		140,521			172,264
Payment-in-kind interest income		(1,470,542	)		(220,183	)
Changes in operating assets and liabilities:
Interest receivable		(915,343	)		(287,658	)
Prepaid expenses		-			(32,083	)
Management fees payable, net of fee waivers (Note 6)		30,655			133,390
Incentive fees payable, net of fee waivers (Note 6)		1,225,518			344,961
Credit facility interest payable		(262,881	)		431,327
Other payables		(22,840	)		113,291
Professional fees payable		247,185			230,609
Legal fees payable		36,518			66,315
Reimbursement expense payable		(42,729	)		44,729
Net cash provided by (used in) operating activities		26,643,203			(18,985,093	)

Cash flows from financing activities:
Proceeds from issuance of common shares, including subscriptions received in advance		6,246,250			20,589,128
Payments in repurchase of shares		(4,651,898	)		(2,746,139	)
Proceeds from credit facility		-			23,500,000
Repayments of credit facility		(27,000,000	)		(37,000,000	)
Distributions paid		(2,961,399	)		(2,169,650	)
Net cash provided by (used in) financing activities		(28,367,047	)		2,173,339

Net increase (decrease) in Cash		(1,723,844	)		(16,811,754	)
Cash, beginning of period		5,045,540			18,958,445
Cash, end of period	$	3,321,696		$	2,146,691

Supplemental disclosures of cash flow information:
Non cash operating activities:
Interest received in kind	$	1,470,542		$	220,183

Supplemental and non cash financing activities:
Shares issued from dividend reinvestment plan (see Note 10)	$	3,000,821		$	2,181,430

Supplemental Information:
Cash paid for interest	$	3,548,264		$	2,050,955

See accompanying notes.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Consolidated Schedule of Investments

March 31, 2024

(Unaudited)

Portfolio Company (1)(2)(3)(4)(5)(6)	Footnotes	Spread Above Index (7)	Interest Rate	Acquisition Date	Maturity	Principal, Shares, Units		Amortized Cost (8)		Fair Value (9)		% of Net Assets
Investments
First lien senior secured term loan
Aerospace & Defense
Consolidated Machine & Tool Holdings, LLC	(17)(19)(23)	S+11.01%	11.42% Cash + 4.90% PIK	1/15/2020	1/15/2025		6,093,316	$	6,069,876	$	5,775,853		3.0
Consolidated Machine & Tool Holdings, LLC	(19)(23)	S+11.01%	11.42% Cash + 4.97% PIK	1/19/2023	1/15/2025		1,294,336		1,226,901		1,226,901		0.6
Consolidated Machine & Tool Holdings, LLC	(13)(18)(19)(23)	-	20.00% PIK	11/22/2023	1/15/2025		621,602		614,566		614,564		0.2
							8,009,254		7,911,343		7,617,318		3.8
Chemicals
Douglas Products and Packaging Company, LLC	(10)(16)	S+6.90%	12.23%	9/20/2023	9/20/2028		14,925,000		14,560,767		14,695,154		7.7
							14,925,000		14,560,767		14,695,154		7.7
Commercial Services & Supplies
Swyft AcquireCo LLC (dba Swyft Filings)	(15)(16)	S+2.75%	8.08%	12/20/2021	12/20/2027		297,538		293,710		293,074		0.2
Swyft AcquireCo LLC (dba Swyft Filings)	(10)(16)	S+5.50%	10.83%	12/20/2021	12/20/2027		3,682,383		3,637,081		3,413,936		1.8
							3,979,921		3,930,791		3,707,010		2.0
Construction & Engineering
DCCM, LLC	(17)	S+6.76% Cash + 1.00% PIK	12.06% Cash + 1.00% PIK	8/6/2021	12/30/2026		18,330,762		18,099,900		18,514,069		9.7
Fremont-Wright, LLC	(16)	S+9.10%	14.43%	12/2/2020	12/2/2024		4,240,339		4,219,452		4,240,339		2.2
MechanAir, LLC	(17)	S+10.80%	11.27% Cash + 4.83% PIK	9/2/2021	9/2/2026		11,039,824		10,894,051		10,716,044		5.6
MechanAir, LLC	(17)	S+12.30%	17.60% PIK	12/15/2023	9/2/2026		741,447		741,447		729,880		0.4
MechanAir, LLC	(13)	-	18.00% PIK	12/15/2023	9/2/2026		445,274		445,274		445,274		0.2
Versar Inc.	(10)(17)	S+8.10%	13.40%	8/4/2023	8/4/2028		10,000,000		9,631,058		9,631,058		5.0
Vertical Mechanical Group, LLC	(10)(17)	S+7.76%	13.06%	5/12/2023	5/12/2028		4,571,429		4,420,000		4,533,029		2.4
Watt Acquisition, LLC	(10)(17)	S+14.25%	13.68% Cash + 5.86% PIK	4/15/2022	4/15/2027		2,463,239		2,429,059		2,148,190		1.1
							51,832,314		50,880,241		50,957,883		26.6
Consumer Finance
Microf, LLC	(17)	S+10.85%	16.15%	3/29/2019	6/30/2025		3,427,073		3,418,199		3,427,073		1.8
							3,427,073		3,418,199		3,427,073		1.8
Distributors
48forty Intermediate Holdings, Inc.	(16)	S+6.10%	11.43%	10/11/2022	12/1/2026		14,774,436		14,268,603		13,654,534		7.1
							14,774,436		14,268,603		13,654,534		7.1
Diversified Consumer Services
Rock Gate Capital, LLC (dba 160 Driving Academy)	(17)	S+7.50%	12.80%	10/16/2019	10/16/2024		14,903,034		14,834,632		14,999,864		7.8
							14,903,034		14,834,632		14,999,864		7.8
Diversified Telecommunication Services
Caregility Corporation	(11)(17)	S+9.26%	5.00% Cash + 9.56% PIK	12/29/2021	1/31/2025		2,299,071		1,991,421		2,299,071		1.2
Gridsource Incorporated, LLC	(17)	S+8.50%	13.80%	12/16/2022	12/16/2027		14,039,156		13,655,519		13,924,035		7.3
YTC Holdings, Inc. (dba Yorktel)	(17)	S+10.01%	15.31%	9/23/2019	1/31/2025		5,181,806		5,134,300		5,181,806		2.7
							21,520,033		20,781,240		21,404,912		11.2
Electrical Equipment
Masterwork Electronics, Inc.	(17)(19)	S+9.65%	14.95% PIK	11/17/2022	11/17/2027		8,840,576		8,676,598		7,029,142		3.7
							8,840,576		8,676,598		7,029,142		3.7
Entertainment
Chicken Soup For The Soul, LLC	(16)(25)	S+8.60%	13.93%	10/29/2021	3/31/2024		6,380,856		6,380,856		3,086,420		1.6
Linden Research, Inc. (dba Linden Labs)	(10)(17)	S+7.26% + 3.25% PIK	12.56% Cash + 3.25% PIK	12/31/2020	12/31/2025		4,761,561		4,656,225		4,761,561		2.5
NW Entertainment, LLC	(17)	S+7.76%	13.06%	11/4/2022	11/4/2027		6,333,713		6,222,873		6,460,387		3.4
							17,476,130		17,259,954		14,308,368		7.5
Food Products
Uncle John’s Pride, LLC	(16)	S+10.11%	15.44%	3/31/2022	3/31/2027		7,101,095		6,980,808		7,142,992		3.7
							7,101,095		6,980,808		7,142,992		3.7
Healthcare Providers & Services
Arrow Home Health, LLC (dba Acara Home Health)	(11)(17)	S+8.50%	13.80%	3/19/2021	3/19/2026		797,086		780,655		756,036		0.4
BB-HH Platform, Inc. (dba Preferred Care Home Health)	(17)	S+7.00% + 1.50% PIK	12.30% Cash + 1.50% PIK	5/16/2023	5/16/2028		6,686,576		6,524,777		6,639,101		3.5
IPA Intermediate Co., LLC (dba Integrated Pain Associates)	(17)	S+8.01%	13.31%	1/9/2023	1/9/2028		11,181,005		10,903,318		10,782,962		5.6
Klein Hersh, LLC	(10)(17)	S+7.76% Cash + 3.00% PIK	4.63% Cash + 11.43% PIK	4/27/2022	4/27/2027		16,946,657		16,332,009		14,626,660		7.7
Nurses Staffing, LLC (dba Nurses 24/7)	(17)	S+7.26% Cash + 2.00% PIK	12.56% Cash + 2.00% PIK	5/26/2023	8/26/2028		7,112,946		6,980,765		6,937,256		3.6
							42,724,270		41,521,524		39,742,015		20.8
Hotels, Restaurants & Leisure
The Range NYC, LLC (dba Five Iron Golf)	(17)(18)	S+7.61%	12.91%	9/15/2022	9/15/2027		4,966,387		4,835,585		4,876,992		2.6
							4,966,387		4,835,585		4,876,992		2.6
Household Durables
SkyBell Technologies, Inc.	(19)(23)	0.00%	0.00%	12/13/2019	12/13/2024		4,683,036		4,618,637		2,341,518		1.2
							4,683,036		4,618,637		2,341,518		1.2
Household Products
Coop Home Goods LLC (dba Coop Home Goods)	(10)(17)	S+8.26%	13.56%	6/18/2021	6/18/2026		4,387,729		4,341,201		4,387,729		2.3
							4,387,729		4,341,201		4,387,729		2.3
IT Services
CSI IT, LLC (dba Consulting Solutions)	(17)	S+10.76%	16.06%	1/29/2021	1/29/2026		13,137,091		12,972,100		13,152,856		6.9
							13,137,091		12,972,100		13,152,856		6.9
Leisure Products
MPUSA, LLC (dba Mission)	(17)	S+8.26% Cash + 3.00% PIK	13.56% Cash + 3.00% PIK	12/9/2021	12/9/2026		4,257,153		4,193,998		2,342,286		1.2
							4,257,153		4,193,998		2,342,286		1.2
Machinery
Texas Contract Manufacturing Group, Inc.	(17)	S+12.11%	17.41%	4/27/2022	4/27/2027		4,833,807		4,763,104		4,173,509		2.2
							4,833,807		4,763,104		4,173,509		2.2
Media
PadSquad, LLC	(17)	S+9.00%	14.30%	3/30/2022	3/30/2027		4,483,134		4,424,616		4,484,928		2.3
Trailer Park Group Holdings LLC	(10)(17)	S+6.76% +1.50% PIK	12.06% Cash + 1.50% PIK	8/2/2021	8/2/2026		14,551,746		14,325,830		14,481,898		7.6
							19,034,880		18,750,446		18,966,826		9.9
Personal Products
Japonesque, LLC	(10)(17)	S+8.18%	13.48%	11/23/2021	11/23/2026		4,494,834		4,442,180		4,539,782		2.4
							4,494,834		4,442,180		4,539,782		2.4
Professional Services
Lasalle Staffing, LLC	(10)(16)	S+6.86%	12.19%	2/15/2022	2/15/2027		7,436,888		7,307,504		7,474,073		3.9
NSC Technologies, LLC	(17)	S+7.76%	13.06%	4/26/2019	10/26/2026		4,148,472		4,146,579		4,148,472		2.2
PQT Ayaquhs, LLC (dba WWC Global)	(17)	S+7.76%	13.06%	8/1/2022	8/1/2027		7,557,460		7,438,558		7,708,609		4.0
							19,142,820		18,892,641		19,331,154		10.1
Software
Proactive Dealer Solutions, LLC	(17)	S+10.26%	15.56%	12/27/2021	12/26/2026		3,033,268		2,983,666		3,063,601		1.6
PureCars Technologies, LLC	(10)(17)	S+6.35% Cash + 1.00% PIK	11.65% Cash + 1.00% PIK	4/17/2019	4/18/2024		1,475,255		1,470,408		1,475,107		0.8
							4,508,523		4,454,074		4,538,708		2.4
Specialty Retail
Clearview Systems, LLC (dba Rip-It)	(10)(17)	S+7.65%	12.95% Cash + 3.00% PIK	10/11/2022	10/11/2027		6,508,116		6,397,426		6,207,441		3.2
							6,508,116		6,397,426		6,207,441		3.2
Trading Companies & Distributors
USBid Inc.	(10)(17)	S+7.26%	12.56%	11/3/2022	11/3/2027		7,154,451		7,024,226		268,292		0.2
							7,154,451		7,024,226		268,292		0.2
Transportation Infrastructure
TCP Acquisition, LLC (dba HighStar Traffic)	(17)	S+7.50%	12.80%	7/26/2022	7/26/2027		10,606,162		10,418,742		10,642,223		5.6
							10,606,162		10,418,742		10,642,223		5.6
Total first lien senior secured term loan									311,129,060		294,455,581		153.9

See accompanying notes.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Consolidated Schedule of Investments – (continued)

March 31, 2024

(Unaudited)

Portfolio Company (1)(2)(3)(4)(5)(6)	Footnotes	Spread Above Index (7)	Interest Rate	Acquisition Date	Maturity	Principal, Shares, Units		Amortized Cost (8)		Fair Value (9)		% of Net Assets
Second lien senior secured loan
Professional Services
CorTech, LLC	(17)	S+6.35%	11.65%	3/13/2020	9/30/2025		6,308,645	$	6,248,112	$	6,067,024		3.2	%
							6,308,645		6,248,112		6,067,024		3.2
Total second lien term loan									6,248,112		6,067,024		3.2

Senior unsecured notes
Electrical Equipment
HH Masterwork Intermediate, Inc.	(21)(24)	-	17.00% PIK	11/17/2022	5/17/2028		2,067,881		2,033,098		1,265,130		0.7
							2,067,881		2,033,098		1,265,130		0.7
Total senior unsecured notes									2,033,098		1,265,130		0.7

Preferred equity securities	(12)(24)
Commercial Services and Supplies
Swyft Filings Holdings, LLC	(13)(20)(21)	-	8.00% PIK	12/20/2021	-		192,444		183,612		202,157		0.1
							192,444		183,612		202,157		0.1
Construction & Engineering
MechanAir Holdings, LLC	(13)(21)(22)	-	13.50% PIK	9/2/2021	-		1,219		1,219,441		32,857		0.0
Vertical Mechanical Group Holdings, LLC	(22)	-	-	5/12/2023	-		185,714		1,857,143		3,687,143		1.9
Watt Contracting Holdings, LLC	(21)(22)	-	15.00%PIK	4/15/2022	-		3,375		3,316,130		163,211		0.1
							190,308		6,392,714		3,883,211		2.0
Diversified Telecommunication Services
Caregility Corporation - Series A Units	(11)(13)(21)	-	8.00% PIK	12/31/2022	-		151,018		-		1,410,516		0.7
Caregility Corporation - Series B Units	(11)(13)(21)	-	8.00% PIK	7/3/2023			446,689		3,591,494		4,123,371		2.2
Gridsource Holdings, LLC	(21)(22)	-	8.00% PIK	3/9/2023	-		3,959,977		799,597		985,363		0.5
York Telecom Corporation (dba Yorktel)	(13)	-	8.00% PIK	9/23/2019	-		151,018		2,327,393		2,053,991		1.1
							4,708,702		6,718,484		8,573,241		4.5
Entertainment
NW Entertainment, LLC	(21)(22)	-	10.00% PIK	11/4/2022	-		971		955,843		1,115,446		0.6
							971		955,843		1,115,446		0.6
Food Products
UJP Acquisition, LLC (dba Uncle John's Pride)	(13)(21)(22)	-	8.00% PIK	3/31/2022	-		2,829,787		2,829,787		4,252,128		2.2
							2,829,787		2,829,787		4,252,128		2.2
Healthcare Providers & Services
Arrow Home Health, LLC (dba Acara Home Health) - Class A Units	(11)(21)(22)	-	10.00% PIK	3/19/2021	-		571,080		564,321		185,898		0.1
Arrow Home Health, LLC (dba Acara Home Health) - Class 1 Units	(11)(13)(22)	-		11/13/2023			56,005		56,005		112,010		0.1
IPA Investors, LP (dba Integrated Pain Associates)	(22)	-	8.00% PIK	1/9/2023	-		2,643		1,997,838		3,075,331		1.6
							629,728		2,618,164		3,373,239		1.8
Leisure Products
MPUSA, LLC (dba Mission)	(22)	-	-	12/9/2021	-		13		564,645		-		0.0
							13		564,645		-		0.0
Media
Channel Factory Holdings, LLC	(13)(22)	-	5.00% Cash + 5.00% PIK	8/27/2020	-		2,381,867		2,442,592		4,499,630		2.4
PadSquad Holdings, LLC	(13)(21)(22)	-	6.00% Cash + 6.00% PIK	3/30/2022	-		720,767		1,964,204		2,239,463		1.2
Trailer Park Group Holdings, LLC Class A-1 Units	(13)(22)	-	15.00% PIK	12/19/2023			40,888		73,599		110,402		0.1
Trailer Park Group Holdings LLC - Class A Units	(13)(21)(22)	-	8.00% PIK	8/2/2021	-		371,822		367,108		727,656		0.4
							3,515,344		4,847,503		7,577,151		4.1
Professional Services
Capone Holdings JV, LLC (dba LaSalle Staffing)	(22)	-	-	2/15/2022	-		4,000,000		4,000,000		6,200,800		3.2
Hometown Holdings JV, LLC (dba BWG Strategy)	(13)(22)	-	-	12/24/2020	-		666,667		659,761		829,000		0.4
PQT Ayaquhs, LLC (dba WWC Global)	(13)(21)(22)	-	10.50% PIK	8/1/2022	-		5,774		1,064,516		3,439,677		1.8
							4,672,441		5,724,277		10,469,477		5.4
Software
Proactive Dealer Holdings Parent, LLC	(22)	-	10.00% PIK	12/27/2021	-		1,141,205		1,328,162		3,515,825		1.8
PureCars Technologies Holdings, LLC	(13)(21)(22)	-	8.00% PIK	4/17/2019	-		514		240,065		39,370		0.0
PureCars Technologies, LLC	(13)(21)(22)	-	8.00% PIK	7/25/2022	7/26/2024		78		26,948		30,042		0.0
							1,141,797		1,595,175		3,585,237		1.8
Trading Companies & Distributors
USBid Inc. - Class A Units		-	-	11/3/2022	-		469		468,750		-		0.0
USBid Inc. - Class C Units	(21)	-	-	11/2/2023			9,375		7,324		-		0.0
							469		476,074		-		0.0
Total preferred equity securities									32,906,278		43,031,287		22.5

See accompanying notes.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Consolidated Schedule of Investments – (continued)

March 31, 2024

(Unaudited)

Portfolio Company (1)(2)(3)(4)(5)(6)	Footnotes	Spread Above Index (7)	Interest Rate	Acquisition Date	Maturity	Principal, Shares, Units		Amortized Cost (8)		Fair Value (9)		% of Net Assets
Warrants and other equity securities	(12)(24)
Aerospace & Defense
Consolidated Machine & Tool Holdings, LLC	(14)(22)	-	-	1/15/2020	-		176	$	142,485	$	-		0.0	%
							176		142,485		-		0.0
Construction & Engineering
DCCM, LLC	(22)	-	-	8/6/2021	-		897		939,949		1,628,015		0.9
Fremont-Wright, LLC		-	-	12/2/2020	-		2		-		821,406		0.4
Watt Contracting Holdings, LLC	(22)	-	-	4/15/2022	-		295		-		-		0.0
							1,194		939,949		2,449,421		1.3
Consumer Finance
Microf, LLC		-	-	5/5/2020	-		164,332		-		318,483		0.2
							164,332		-		318,483		0.2
Diversified Consumer Services
Rock Gate Capital, LLC (dba 160 Driving Academy)		-	-	10/16/2019	-		12,693		-		168,850		0.1
							12,693		-		168,850		0.1
Diversified Telecommunication Services
Caregility Corporation	(11)	-	-	12/29/2021	-		267,801		443,392		157,426		0.1
York Telecom Corporation (dba Yorktel)		-	-	9/23/2019	-		77,195		-		638,932		0.3
							344,996		443,392		796,358		0.4
Electrical Equipment
HH Masterwork Intermediate, Inc.		-	-	11/17/2022	11/17/2027		190,019		-		-		0.0
							190,019		-		-		0.0
Entertainment
LRI Holdco, LLC (dba Linden Labs)	(22)	-	-	12/31/2020	-		2		43,478		502,800		0.3
							2		43,478		502,800		0.3
Food Products
UJP Acquisition, LLC (dba Uncle John's Pride)	(22)	-	-	3/31/2022	-		127,215		-		47,064		0.0
							127,215		-		47,064		0.0
Healthcare Providers & Services
Klein Hersh, LLC		-	-	4/27/2022	-		1,003		-		-		0.0
Nurses 24/7 Holdings, LLC	(22)	-	-	5/26/2023	-		182		419,877		326,283		0.2
							1,185		419,877		326,283		0.2
Hotels, Restaurants & Leisure
The Range NYC, LLC (dba Five Iron Golf)		-	-	9/15/2022	-		21,210		71,599		56,136		0.0
							21,210		71,599		56,136		0.0
Household Durables
SkyBell Technologies, Inc.		-	-	12/13/2019	-		1,846,180		-		-		0.0
							1,846,180		-		-		0.0
Household Products
CHG Parent Holding LLC (dba Coop Home Goods)	(22)	-	-	6/18/2021	-		535,714		535,714		358,571		0.2
							535,714		535,714		358,571		0.2
Machinery
Texas Contract Manufacturing Group, Inc.		-	-	4/27/2022	-		1,602		-		262,258		0.1
							1,602		-		262,258		0.1
Professional Services
NSC Holdings, LLC	(22)	-	-	4/26/2019	-		111		271,262		487,222		0.3
PQT Ayaquhs, LLC (dba WWC Global)		-	-	8/1/2022	-		645		-		266,129		0.1
							756		271,262		753,351		0.4
Trading Companies & Distributors
USBid Inc.		-	-	11/3/2022	-		204		-		-		0.0
							204		-		-		0.0
Total warrants and other equity securities									2,867,756		6,039,575		3.2

Fund investments
Diversified Financials
Madryn Select Opportunities, LP	(18)	-	-	1/4/2022	-		2,855,855		2,898,305		2,818,111		1.5
							2,855,855		2,898,305		2,818,111		1.5
Total fund investments									2,898,305		2,818,111		1.5

TOTAL INVESTMENTS								$	358,082,609	$	353,676,708		185.0

(1)

All of the Company’s investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940 (the “1940 Act”), unless otherwise noted. All of the Company’s investments are issued by U.S. portfolio companies unless otherwise noted.

(2)

All investments are non-controlled/non-affiliated investments as defined by the 1940 Act, unless otherwise noted. The 1940 Act classifies investments based on the level of control that the Company maintains in a particular portfolio company.

(3)

All investments are co-investments made with the Company’s affiliates in accordance with the terms of the exemptive relief that the Company received from the U.S. Securities and Exchange Commission (the “SEC”), unless otherwise noted. See Note 6 “Transactions with Related Parties” in the accompanying notes to the consolidated financial statements.

(4)

Unless otherwise indicated, all investments are considered Level 3 assets.

(5)

Unless otherwise indicated, the Company’s portfolio companies are pledged as collateral supporting the amounts outstanding under the Secured Credit Facility (as defined herein).

(6)

Except as otherwise noted, all of the Company’s portfolio company investments are subject to legal restrictions on sales.

(7)

Loan contains a variable rate structure and may be subject to an interest rate floor. Variable rate loans bear interest at a rate that may be determined by reference to either the Secured Overnight Financing Rate (“SOFR” or “S”) or an alternate base rate which can include the Federal Funds Effective Rate or the Prime Rate, at the borrower’s option, and which reset periodically based on the terms of the loan agreement. Interest rates subject to SOFR are typically accompanied by a Credit Spread Adjustment (“CSA”).

See accompanying notes.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Consolidated Schedule of Investments – (continued)

March 31, 2024

(Unaudited)

(8)

The amortized cost represents the original cost adjusted for the amortization of discounts and premiums, as applicable, on debt investments using the effective interest method.

(9)

Because there is no readily available market value for these investments, the fair value of each of these investments is determined in good faith using significant unobservable inputs by the Company’s board of directors (the “Board”) as required by the 1940 Act. See Note 4 “Fair Value Measurements” in the accompanying notes to the consolidated financial statements.

(10)

The Company categorized its unitranche loans as First Lien Senior Secured Loans. The First Lien Senior Secured Loan is comprised of two components: a first out tranche (“First Out”) and last out tranche (“Last Out”). The Company syndicates the First Out tranche and retains the Last Out tranche. The First Out and Last Out tranches have the same maturity date. Interest disclosed reflects the contractual rate of First Lien Senior Secured Loan. The First Out tranche has priority as to the Last Out tranche with respect to payments of principal, interest and any amounts due thereunder. The Company may be entitled to receive additional interest as a result of the Agreement Among Lenders (“AAL”) entered into with the First Out lender. In exchange for the higher interest rate, the Last Out portion is at a greater risk of loss.

(11)

As defined in the 1940 Act, the Company is deemed to be both an “Affiliated Person” and may have “Control” of this portfolio company as the Company and/or its affiliated funds collectively owns more than 25% of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement). The Company’s investment in affiliates for the three months ended March 31, 2024 were Arrow Home Health, LLC and Caregility Corporation which represented $9,044,328 of Fair Value and 4.7% of Net Assets of the Company. Transactions related to investments in “Controlled/Affiliate Investments” for the three months ended March 31, 2024 were as follows:

Portfolio Company	Type of Investment	Amount of Realized Gain (Loss)		Amount of Interest or Dividends Credited to Income (a)		December 31, 2023 Value		Gross Additions (b)		Gross Reductions (c)			Transfers In/(Out) of Affiliates		Amount of Unrealized Gains (Loss)			March 31, 2024 Value
Arrow Home Health LLC (dba Acara Home Health) (d)	First lien senior securred term loan	$	-	$	27,827	$	748,782	$	514	$	-		$	-	$	6,740		$	756,036
	Preferred equity securities (571,080 shares)		-		-		202,097		-		-			-		(16,199	)		185,898
	Preferred equity securities (56,005 shares)		-		-		112,010		-		-			-		-			112,010
Caregility Corporation	First lien senior securred term loan		-		79,899		2,244,216		67,013		(9,082	)		-		(3,076	)		2,299,071
	Preferred equity securities (151,018 shares)		-		-		1,383,250		-		-			-		27,266			1,410,516
	Preferred equity securities (446,689 shares)		-		-		4,108,869		-		-			-		14,502			4,123,371
	Warrants (267,801 units)		-		-		571,189		-		-			-		(413,763	)		157,426
Total Affiliate Investments		$	-	$	107,726	$	9,370,413	$	67,527	$	(9,082	)	$	-	$	(384,530	)	$	9,044,328

(a)

Represents the total amount of interest, fees or dividends credited to income for the portion of the period an investment was included in the Affiliate category.

(b)

Gross additions include increase in the cost basis of investments resulting from purchases, PIK interest or amortization of original issue discount.

(c)

Gross reductions include decreases in the total cost basis of investments resulting from principal repayments or sales.

(d)

The fair value of the investment was determined using significant unobservable inputs.

(12)

Ownership of certain equity investments may occur through a holding company or partnership.

(13)

Investment contains a fixed rate structure.

(14)

The Company has received 46 units of incentive shares which have no Cost or Fair Value as of March 31, 2024.

(15)

Interest disclosed reflects the contractual rate of the First Out tranche under the AAL.

(16)

The interest rate on these loans is subject to 1 month SOFR, which was 5.33% as of March 31, 2024.

(17)

The interest rate on these loans is subject to 3 month SOFR, which was 5.30% as of March 31, 2024.

(18)

Positions have an aggregate unfunded commitment of $7,910,936 in addition to the amounts shown in the Consolidated Schedule of Investments. See Note 11 “Commitments, Contingencies and Risks” in the accompanying notes to the consolidated financial statements.

(19)

The investment is on non-accrual status. See Note 2 “Significant Accounting Policies”.

(20)

The investment includes the fair value and amortized cost of 1,015 shares of common equity issued in conjunction with the preferred equity.

(21)

Income producing through dividends or distributions.

(22)

Investment is held by a subsidiary of the Company. See Note 2 in the accompanying notes to the consolidated financial statements for additional information on the Company’s wholly-owned subsidiary.

(23)

The investment does not accrue payment-in-kind (“PIK”) for the debt investment as of March 31, 2024. See Note 2. “Significant Accounting Policies”.

(24)

All investments are non-income producing unless otherwise indicated.

(25)

Maturity date is under on-going negotiations with the portfolio company and other lenders, as applicable.

See accompanying notes.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Consolidated Schedule of Investments

December 31, 2023

Portfolio Company (1)(2)(3)(4)(5)(6)	Footnotes	Spread Above Index (7)	Interest Rate	Acquisition Date	Maturity	Principal, Shares, Units		Amortized Cost (8)		Fair Value (9)		% of Net Assets
Investments
First lien senior secured term loan
Aerospace & Defense
Consolidated Machine & Tool Holdings, LLC	(17)(23)	S+11.01%	11.44% Cash + 4.90% PIK	1/15/2020	1/15/2025		7,387,652	$	7,323,725	$	6,956,951		3.7	%
Consolidated Machine & Tool Holdings, LLC	(13)(18)(23)	-	20.00% PIK	11/22/2023	1/15/2025		440,629		437,211		437,210		0.2
							7,828,281		7,760,936		7,394,161		3.9
Chemicals
Douglas Products and Packaging Company, LLC	(10)(16)	S+6.90%	12.25%	9/20/2023	9/20/2028		14,962,500		14,538,407		14,538,406		7.5
							14,962,500		14,538,407		14,538,406		7.5
Commercial Services & Supplies
PPC Event Services, Inc.	(17)(18)	S+6.76%	12.09%	9/22/2022	9/22/2027		7,273,693		7,199,328		7,273,693		3.7
Swyft AcquireCo LLC (dba Swyft Filings)	(15)(16)	S+2.75%	8.10%	12/20/2021	12/20/2027		299,236		295,384		297,441		0.2
Swyft AcquireCo LLC (dba Swyft Filings)	(10)(16)	S+5.50%	10.85%	12/20/2021	12/20/2027		3,682,383		3,633,920		3,483,902		1.8
							11,255,312		11,128,632		11,055,036		5.7
Construction & Engineering
DCCM, LLC	(17)	S+7.16%	12.49%	8/6/2021	12/30/2026		18,409,233		18,151,330		18,201,208		9.6
Fremont-Wright, LLC	(16)	S+9.10%	14.45%	12/2/2020	12/2/2024		4,258,824		4,233,922		4,246,047		2.2
MechanAir, LLC	(17)	S+10.80%	11.29% Cash + 4.84% PIK	9/2/2021	9/2/2026		11,006,971		10,846,083		10,616,224		5.6
MechanAir, LLC	(17)	S+12.30%	17.63% PIK	12/15/2023	9/2/2026		710,054		710,054		-		0.0
MechanAir, LLC	(13)	-	18.00% PIK	12/15/2023	9/2/2026		426,099		426,099		-		0.0
Versar Inc.	(10)(17)	S+8.10%	13.43%	8/4/2023	8/4/2028		10,000,000		9,662,349		9,662,349		5.1
Vertical Mechanical Group, LLC	(10)(17)	S+7.76%	13.09%	5/12/2023	5/12/2028		4,571,429		4,420,000		4,420,000		2.3
Watt Acquisition, LLC	(10)(17)	S+11.25%	16.58%	4/15/2022	4/15/2027		3,653,125		3,597,178		3,132,920		1.6
							53,035,735		52,047,015		50,278,748		26.4
Consumer Finance
Microf, LLC	(17)	S+10.85%	16.18%	3/29/2019	6/30/2025		3,427,073		3,407,754		3,427,073		1.8
							3,427,073		3,407,754		3,427,073		1.8
Distributors
48forty Intermediate Holdings, Inc.	(16)	S+6.10%	11.45%	10/11/2022	12/1/2026		14,812,030		14,299,832		13,807,774		7.2
							14,812,030		14,299,832		13,807,774		7.2
Diversified Consumer Services
Rock Gate Capital, LLC (dba 160 Driving Academy)	(17)	S+7.50%	12.83%	10/16/2019	10/16/2024		15,000,652		14,905,882		15,000,652		7.9
							15,000,652		14,905,882		15,000,652		7.9
Diversified Telecommunication Services
Caregility Corporation	(11)(17)	S+9.26%	3.00% Cash + 11.59% PIK	12/29/2021	1/31/2025		2,244,216		1,933,490		2,244,216		1.2
Gridsource Incorporated, LLC	(17)	S+8.50%	13.83%	12/16/2022	12/16/2027		14,074,595		13,688,488		14,246,305		7.5
YTC Holdings, Inc. (dba Yorktel)	(17)(18)	S+10.01%	15.34%	9/23/2019	1/31/2025		4,632,805		4,600,276		4,632,805		2.4
							20,951,616		20,222,254		21,123,326		11.1
Electrical Equipment
Masterwork Electronics, Inc.	(17)	S+9.50%	14.83% PIK	11/17/2022	11/17/2027		8,521,445		8,357,466		6,935,604		3.6
							8,521,445		8,357,466		6,935,604		3.6
Entertainment
Chicken Soup For The Soul, LLC	(16)	S+8.60%	13.95%	10/29/2021	3/31/2024		6,380,856		6,368,361		5,756,809		3.0
Linden Research, Inc. (dba Linden Labs)	(10)(17)	S+7.26% Cash + 3.25% PIK	12.59% Cash + 3.25% PIK	12/31/2020	12/31/2025		4,738,655		4,634,407		4,738,655		2.5
NW Entertainment, LLC	(17)	S+7.76%	13.09%	11/4/2022	11/4/2027		6,366,361		6,254,950		6,366,361		3.3
							17,485,872		17,257,718		16,861,825		8.8
Food Products
Uncle John's Pride, LLC	(16)	S+10.11%	15.46%	3/31/2022	3/31/2027		7,146,952		7,017,250		7,146,952		3.8
							7,146,952		7,017,250		7,146,952		3.8
Healthcare Providers & Services
Arrow Home Health, LLC (dba Acara Home Health)	(11)(17)	S+8.50%	13.83% Cash	3/19/2021	3/19/2026		797,086		780,141		748,782		0.4
BB-HH Platform, Inc. (dba Preferred Care Home Health)	(17)	S+7.00% Cash + 1.50% PIK	12.33% Cash + 1.50% PIK	5/16/2023	5/16/2028		6,661,564		6,476,196		6,600,944		3.5
IPA Intermediate Co., LLC (dba Integrated Pain Associates)	(17)	S+8.01%	13.34%	1/9/2023	1/9/2028		11,209,312		10,930,921		10,930,921		5.7
Klein Hersh, LLC	(10)(17)	S+7.76%	4.63% Cash + 8.47% PIK	4/27/2022	4/27/2027		16,438,829		15,808,872		14,188,353		7.4
Nurses Staffing, LLC (dba Nurses 24/7)	(17)	S+7.26% Cash + 2.00% PIK	12.59% Cash + 2.00% PIK	5/26/2023	8/26/2028		7,396,865		7,251,132		7,258,544		3.8
							42,503,656		41,247,262		39,727,544		20.8
Hotels, Restaurants & Leisure
The Range NYC, LLC (dba Five Iron Golf)	(17)(18)	S+7.61%	12.94%	9/15/2022	9/15/2027		4,978,992		4,839,259		4,876,922		2.6
							4,978,992		4,839,259		4,876,922		2.6
Household Durables
SkyBell Technologies, Inc.	(19)(23)	0.00%	0.00%	12/13/2019	12/13/2024		4,683,036		4,618,637		2,341,518		1.2
							4,683,036		4,618,637		2,341,518		1.2
Household Products
Coop Home Goods LLC	(10)(17)	S+8.26%	13.59%	6/18/2021	6/18/2026		4,387,729		4,335,754		4,365,790		2.3
							4,387,729		4,335,754		4,365,790		2.3
IT Services
CSI IT, LLC (dba Consulting Solutions)	(17)	S+10.76%	16.09%	1/29/2021	1/29/2026		13,329,812		13,139,755		13,196,514		6.9
Lockstep Holdings, LLC	(10)(17)	S+6.75%	12.08%	7/3/2023	7/3/2028		5,357,714		5,228,599		5,210,377		2.7
							18,687,526		18,368,354		18,406,891		9.6
Leisure Products
MPUSA, LLC (dba Mission)	(17)	S+11.26%	13.59% Cash + 3.00% PIK	12/9/2021	12/9/2026		4,226,371		4,163,215		3,852,760		2.0
							4,226,371		4,163,215		3,852,760		2.0
Machinery
Texas Contract Manufacturing Group, Inc.	(17)	S+12.11%	17.44%	4/27/2022	4/27/2027		4,909,896		4,832,798		4,196,979		2.2
							4,909,896		4,832,798		4,196,979		2.2
Media
PadSquad, LLC	(17)	S+9.00%	14.33%	3/30/2022	3/30/2027		4,549,341		4,488,472		4,482,011		2.4
Trailer Park Group Holdings LLC	(10)(17)	S+6.76% Cash + 1.50% PIK	12.09% Cash + 1.50% PIK	8/2/2021	8/2/2026		14,472,961		14,244,796		14,218,237		7.5
							19,022,302		18,733,268		18,700,248		9.9
Personal Products
Japonesque, LLC	(10)(17)	S+8.18% Cash + 1.50% PIK	13.51% Cash + 1.50% PIK	11/23/2021	11/23/2026		4,525,012		4,451,581		4,457,979		2.3
							4,525,012		4,451,581		4,457,979		2.3
Professional Services
Lasalle Staffing, LLC	(10)(16)	S+6.86%	12.21%	2/15/2022	2/15/2027		7,461,888		7,332,377		7,499,198		3.9
NSC Technologies, LLC	(17)	S+7.76%	13.09%	4/26/2019	10/26/2026		4,148,472		4,139,598		4,148,472		2.2
PQT Ayaquhs, LLC (dba WWC Global)	(17)	S+7.76%	13.09%	8/1/2022	8/1/2027		7,606,855		7,481,063		7,606,855		4.0
							19,217,215		18,953,038		19,254,525		10.1
Software
Proactive Dealer Solutions, LLC	(17)	S+10.26%	15.59%	12/27/2021	12/26/2026		3,074,615		3,023,230		3,074,615		1.6
PureCars Technologies, LLC	(10)(17)	S+6.35% Cash + 1.00% PIK	11.68% Cash + 1.00% PIK	4/17/2019	4/18/2024		1,471,687		1,464,114		1,418,118		0.7
							4,546,302		4,487,344		4,492,733		2.3
Specialty Retail
Clearview Systems, LLC (dba Rip-It)	(10)(17)	S+7.65%	12.98%	10/11/2022	10/11/2027		6,452,101		6,333,920		6,367,578		3.3
							6,452,101		6,333,920		6,367,578		3.3
Trading Companies & Distributors
Gateway Dealer Network, LLC	(10)(16)	S+7.85%	13.20%	6/30/2022	6/30/2027		8,594,363		8,494,408		8,594,363		4.5
USBid Inc.	(10)(17)	S+7.26%	12.59%	11/3/2022	11/3/2027		7,154,451		7,016,197		1,549,654		0.9
							15,748,814		15,510,605		10,144,017		5.4
Transportation Infrastructure
TCP Acquisition, LLC (dba HighStar Traffic)	(17)(18)	S+7.50%	12.83%	7/26/2022	7/26/2027		10,676,188		10,474,007		10,473,968		5.5
							10,676,188		10,474,007		10,473,968		5.5
Total first lien senior secured term loan									332,292,188		319,229,009		167.2

See accompanying notes.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Consolidated Schedule of Investments – (continued)

December 31, 2023

Portfolio Company (1)(2)(3)(4)(5)(6)	Footnotes	Spread Above Index (7)	Interest Rate	Acquisition Date	Maturity	Principal, Shares, Units		Amortized Cost (8)		Fair Value (9)		% of Net Assets
Second lien senior secured loan
Professional Services
CorTech, LLC	(17)	S+6.35%	11.68%	3/13/2020	9/30/2025		6,359,542	$	6,305,249	$	6,059,372		3.2	%
							6,359,542		6,305,249		6,059,372		3.2
Total second lien term loan									6,305,249		6,059,372		3.2

Senior unsecured notes
Electrical Equipment
HH Masterwork Intermediate, Inc.		-	17.00% PIK	11/17/2022	5/17/2028		2,067,881		2,033,098		1,384,446		0.7
							2,067,881		2,033,098		1,384,446		0.7
Total senior unsecured notes									2,033,098		1,384,446		0.7

Preferred equity securities	(12)(24)
Commercial Services and Supplies
Swyft Filings Holdings, LLC	(13)(20)(21)(22)	-	8.00% PIK	12/20/2021	-		192,444		183,612		227,311		0.1
							192,444		183,612		227,311		0.1
Construction & Engineering
MechanAir Holdings, LLC	(13)(21)(22)	-	13.50% PIK	9/2/2021	-		1,219		1,219,441		-		0.0
Vertical Mechanical Group Holdings, LLC	(22)	-	-	5/12/2023	-		185,714		1,857,143		3,188,286		1.7
Watt Contracting Holdings, LLC	(21)(22)	-	15.00% PIK	4/15/2022	-		2,110		2,077,366		133,929		0.1
							189,043		5,153,950		3,322,215		1.8
Diversified Telecommunication Services
Caregility Corporation - Series A Units	(11)(13)(21)	-	8.00% PIK	12/31/2022	-		151,018		-		1,383,250		0.7
Caregility Corporation - Series B Units	(11)(13)(21)	-	8.00% PIK	7/3/2023	-		446,689		3,591,494		4,108,869		2.2
Gridsource Holdings, LLC	(21)(22)	-	8.00% PIK	3/9/2023	-		3,959,977		799,597		1,138,860		0.6
YTC Holdings, Inc. (dba Yorktel)	(13)	-	8.00% PIK	9/23/2019	-		151,018		2,327,393		1,926,709		1.0
							4,708,702		6,718,484		8,557,688		4.5
Entertainment
NW Entertainment, LLC	(21)(22)	-	10.00% PIK	11/4/2022	-		971		955,843		1,088,481		0.6
							971		955,843		1,088,481		0.6
Food Products
UJP Acquisition, LLC (dba Uncle John's Pride)	(13)(21)(22)	-	8.00% PIK	3/31/2022	-		2,829,787		2,829,787		4,482,681		2.4
							2,829,787		2,829,787		4,482,681		2.4
Healthcare Providers & Services
Arrow Home Health, LLC (dba Acara Home Health) - Class A Units	(11)(21)(22)	-	10.00% PIK	3/19/2021	-		571,080		564,321		202,097		0.1
Arrow Home Health, LLC (dba Acara Home Health) - Class 1 Units	(11)(13)(22)	-	-	11/13/2023	-		56,005		56,005		112,010		0.1
IPA Investors, LP (dba Integrated Pain Associates)	(22)	-	8.00% PIK	1/9/2023	-		2,643		1,997,838		2,854,468		1.5
							629,728		2,618,164		3,168,575		1.7
Leisure Products
MPUSA, LLC (dba Mission)	(22)	-	-	12/9/2021	-		13		564,645		-		0.0
							13		564,645		-		0.0
Media
Channel Factory Holdings, LLC	(13)(22)	-	5.00% Cash + 5.00% PIK	8/27/2020	-		2,381,867		2,442,592		4,154,769		2.2
PadSquad Holdings, LLC	(13)(21)(22)	-	6.00% Cash + 6.00% PIK	3/30/2022	-		720,767		1,964,204		2,206,343		1.2
Trailer Park Group Holdings LLC - Class A-1 Units	(13)(22)	-	-	12/19/2023			40,888		73,599		112,309		0.1
Trailer Park Group Holdings LLC - Class A Units	(13)(21)(22)	-	8.00% PIK	8/2/2021	-		371,822		367,108		696,609		0.4
							3,515,344		4,847,503		7,170,030		3.9
Professional Services
Capone Holdings JV, LLC (dba LaSalle Staffing)	(22)	-	-	2/15/2022	-		4,000,000		4,000,000		6,047,467		3.2
Hometown Holdings JV, LLC (dba BWG Strategy)	(13)(22)	-	8.00% PIK	12/24/2020	-		666,667		676,799		820,533		0.4
PQT Ayaquhs, LLC (dba WWC Global)	(13)(21)(22)	-	10.50% PIK	8/1/2022	-		5,774		1,064,516		3,821,290		2.0
							4,672,441		5,741,315		10,689,290		5.6
Software
Proactive Dealer Holdings Parent, LLC	(22)	-	10.00% PIK	12/27/2021	-		1,141,205		1,328,162		3,052,404		1.6
PureCars Technologies Holdings, LLC	(13)(21)(22)	-	8.00% PIK	4/17/2019	-		514		240,065		19,192		0.0
PureCars Technologies, LLC	(13)(21)(22)	-	8.00% PIK	7/25/2022	7/26/2024		78		26,948		26,528		0.0
							1,141,797		1,595,175		3,098,124		1.6
Trading Companies & Distributors
USBid Inc. - Class A Units		-	-	11/3/2022	-		469		468,750		-		0.0
USBid Inc. - Class C Units	(21)	-	10.00% PIK	11/2/2023	-		9,375		7,324		-		0.0
							9,844		476,074		-		0.0
Total preferred equity securities									31,684,552		41,804,395		22.2

See accompanying notes.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Consolidated Schedule of Investments – (continued)

December 31, 2023

Portfolio Company (1)(2)(3)(4)(5)(6)	Footnotes	Spread Above Index (7)	Interest Rate	Acquisition Date	Maturity	Principal, Shares, Units		Amortized Cost (8)		Fair Value (9)		% of Net Assets
Warrants and other equity securities	(12)(24)
Aerospace & Defense
Consolidated Machine & Tool Holdings, LLC	(14)(22)	-	-	1/15/2020	-		176	$	142,485	$	-		0.0	%
							176		142,485		-		0.0
Construction & Engineering
DCCM, LLC	(22)	-	-	8/6/2021	-		897		939,949		1,045,109		0.5
Fremont-Wright, LLC		-	-	12/2/2020	-		2		-		894,453		0.5
Watt Contracting Holdings, LLC	(22)	-	-	4/15/2022	-		218		-		-		0.0
							1,117		939,949		1,939,562		1.0
Consumer Finance
Microf, LLC		-	-	5/5/2020	-		164,332		-		190,807		0.1
							164,332		-		190,807		0.1
Diversified Consumer Services
Rock Gate Capital, LLC (dba 160 Driving Academy)		-	-	10/16/2019	-		12,693		-		181,524		0.1
							12,693		-		181,524		0.1
Diversified Telecommunication Services
Caregility Corporation	(11)	-	-	12/29/2021	-		267,801		443,392		571,189		0.3
York Telecom Corporation (dba Yorktel)		-	-	9/23/2019	-		77,195		-		582,640		0.3
							344,996		443,392		1,153,829		0.6
Electrical Equipment
HH Masterwork Intermediate, Inc.		-	-	11/17/2022	11/17/2027		190,019		-		-		0.0
							190,019		-		-		0.0
Entertainment
LRI Holdco, LLC (dba Linden Labs)	(22)	-	-	12/31/2020	-		2		43,478		528,569		0.3
							2		43,478		528,569		0.3
Food Products
UJP Acquisition, LLC (dba Uncle John's Pride)	(22)	-	-	3/31/2022	-		127,215		-		53,021		0.0
							127,215		-		53,021		0.0
Healthcare Providers & Services
Klein Hersh, LLC		-	-	4/27/2022			1,003		-		-		0.0
Nurses 24/7 Holdings, LLC	(22)	-	-	5/26/2023			182		419,877		428,568		0.2
							1,185		419,877		428,568		0.2

Hotels, Restaurants & Leisure
The Range NYC, LLC (dba Five Iron Golf)		-	-	9/15/2022	-		21,210		71,599		32,606		0.0
							21,210		71,599		32,606		0.0
Household Durables
SkyBell Technologies, Inc.		-	-	12/13/2019	-		1,846,180		-		-		0.0
							1,846,180		-		-		0.0
Household Products
CHG Parent Holding LLC (dba Coop Home Goods)	(22)	-	-	6/18/2021	-		535,714		535,714		99,286		0.1
							535,714		535,714		99,286		0.1
Machinery
Texas Contract Manufacturing Group, Inc.		-	-	4/27/2022	-		1,602		-		490,323		0.3
							1,602		-		490,323		0.3
Professional Services
NSC Holdings, LLC	(22)	-	-	4/26/2019	-		111		271,262		296,715		0.2
PQT Ayaquhs, LLC (dba WWC Global)		-	-	8/1/2022	-		645		-		311,613		0.2
							756		271,262		608,328		0.4

Trading Companies & Distributors
USBid Inc.		-	-	11/3/2022	-		204		-		-		0.0
							204		-		-		0.0
Total warrants and other equity securities									2,867,756		5,706,423		3.1

Fund investments
Diversified Financials
Madryn Select Opportunities, LP	(18)	-	-	1/4/2022	-		2,898,305		2,898,305		2,809,327		1.5
							2,898,305		2,898,305		2,809,327		1.5
Total fund investments									2,898,305		2,809,327		1.5

TOTAL INVESTMENTS								$	378,081,148	$	376,992,972		197.9	%

See accompanying notes.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Consolidated Schedule of Investments – (continued)

December 31, 2023

(1)

(2)

(3)

(4)

Unless otherwise indicated, all investments are considered Level 3 assets.

(5)

Unless otherwise indicated, the Company’s portfolio companies are pledged as collateral supporting the amounts outstanding under the Secured Credit Facility (as defined herein).

(6)

Except as otherwise noted, all of the Company’s portfolio company investments are subject to legal restrictions on sales.

(7)

(8)

The amortized cost represents the original cost adjusted for the amortization of discounts and premiums, as applicable, on debt investments using the effective interest method.

(9)

(10)

(11)

As defined in the 1940 Act, the Company is deemed to be both an “Affiliated Person” and may have “Control” of this portfolio company as the Company and/or its affiliated funds collectively owns more than 25% of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement). The Company’s investment in affiliates for the year ended December 31, 2023 were Arrow Home Health, LLC and Caregility Corporation which represented $9,370,413 of Fair Value and 4.9% of Net Assets of the Company. Transactions related to investments in “Controlled/Affiliate Investments” for the year ended December 31, 2023 were as follows:

Portfolio Company	Type of Investment	Amount of Realized Gain (Loss)		Amount of Interest or Dividends Credited to Income (a)		December 31, 2022 Value		Gross Additions (b)		Gross Reductions (c)			Transfers In/(Out) of Affiliates		Amount of Unrealized Gains (Loss)			December 31, 2023 Value
Arrow Home Health LLC (dba Acara Home Health) (d)	First lien senior securred term loan	$	-	$	122,389	$	851,429	$	23,200	$	(112,557	)	$	-	$	(13,290	)	$	748,782
	Preferred equity securities (571,080 shares)		-		47,811		578,101		2,799		(1,399	)		-		(377,404	)		202,097
	Preferred equity securities (56,005 shares)		-		-		-		56,005		-			-		56,005			112,010
Caregility Corporation	First lien senior securred term loan		-		149,178		-		283,192		(3,712,205	)		5,362,503		310,726			2,244,216
	Preferred equity securities (151,018 shares)		-		-		-		-		-			-		1,883,250			1,383,250
	Preferred equity securities (446,689 shares)		-		-		-		3,591,494		-			-		517,375			4,108,869
	Warrants (267,801 units)		-		-		-		-		-			443,392		127,797			571,189
Total Affiliate Investments		$	-	$	319,378	$	1,429,530	$	3,956,690	$	(3,826,161	)	$	5,805,895	$	2,504,459		$	9,370,413

(a)	Represents the total amount of interest, fees or dividends credited to income for the portion of the period an investment was included in the Affiliate category.

(b)	Gross additions include increase in the cost basis of investments resulting from purchases, PIK interest or amortization of original issue discount.

(c)	Gross reductions include decreases in the total cost basis of investments resulting from principal repayments or sales.

(d)	The fair value of the investment was determined using significant unobservable inputs.

See accompanying notes.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Consolidated Schedule of Investments – (continued)

December 31, 2023

(12)

Ownership of certain equity investments may occur through a holding company or partnership.

(13)

Investment contains a fixed rate structure.

(14)

The Company has received 46 units of incentive shares which have no Cost or Fair Value as of December 31, 2023.

(15)

Interest disclosed reflects the contractual rate of the First Out tranche under the AAL.

(16)

The interest rate on these loans is subject to 1 month SOFR, which was 5.35% as of December 31, 2023.

(17)

The interest rate on these loans is subject to 3 month SOFR, which was 5.33% as of December 31, 2023.

(18)

Positions have an aggregate unfunded commitment of $16,702,595 in addition to the amounts shown in the Consolidated Schedule of Investments. See Note 11 “Commitments, Contingencies and Risks” in the accompanying notes to the consolidated financial statements.

(19)

The investment is on non-accrual status. See Note 2 “Significant Accounting Policies”.

(20)

The investment includes the fair value and amortized cost of 1,015 shares of common equity issued in conjunction with the preferred equity.

(21)

Income producing through dividends or distributions.

(22)

Investment is held by a subsidiary of the Company. See Note 2 in the accompanying notes to the consolidated financial statements for additional information on the Company’s wholly-owned subsidiary.

(23)

The investment does not accrue PIK for the debt investment as of December 31, 2023. See Note 2. "Significant Accounting Policies".

(24)

All investments are non-income producing unless otherwise indicated.

See accompanying notes.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1. Organization and Principal Business

Star Mountain Lower Middle-Market Capital Corp. (the “Company”) is an externally managed, closed-end management investment company and has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company’s investment objectives are to generate current income and capital appreciation.

Star Mountain Credit Opportunities Fund, LP (the “Private Fund”) was formed as a Delaware limited partnership on August 7, 2019 to make investments in lower middle-market companies and commenced operations on September 16, 2019. On May 14, 2021, Star Mountain Credit Opportunities Fund, LP converted to Star Mountain Lower Middle-Market Capital Corp., via a filing with the State of Delaware of a Certificate of Conversion to a Corporation (“BDC Conversion”).

Based on analysis of the attributes of the Star Mountain Credit Opportunities Fund, LP predecessor entity versus the Star Mountain Lower Middle-Market Capital Corp. converted entity, it was determined that Star Mountain Lower Middle-Market Capital Corp. was the accounting survivor.

Star Mountain Lower Middle-Market Capital Holdings, LLC (the “Holding Company”) was formed as a Delaware limited liability company on December 13, 2023 to hold certain of the Company’s investments for tax purposes. The Holding Company commenced operations on December 13, 2023.

The Company seeks to achieve its investment objectives by investing primarily in privately negotiated loans and equity investments to small and medium-sized businesses (“SMBs”) generally with annual revenues greater than $15 million and earnings before interest, taxes, depreciation and amortization (“EBITDA”) of less than $50 million. The Company is advised by Star Mountain Fund Management, LLC (“Star Mountain Fund Management”, the “Administrator” or the “Advisor”), a registered investment adviser under the Investment Advisers Act of 1940, as amended. In addition, for U.S. federal income tax purposes, the Company has elected to be treated and intends to continue to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The preparation of these consolidated financial statements is in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying consolidated financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-Q and Articles 6 and 10 of Regulation S-X. The Company is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (“ASC”) Topic 946, Financial Services – Investment Companies.

Basis of Consolidation

As provided under ASC 946, the Company will not consolidate its investment in a company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated the financial position and results of operations of its wholly owned subsidiary Holding Company. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of March 31, 2024, and the reported revenue generated and expenses incurred during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The Company applies fair value to substantially all of its financial instruments in accordance with ASC Topic 820 — Fair Value Measurements and Disclosures (“ASC Topic 820”). ASC Topic 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements, including the categorization of financial instruments into a three-level hierarchy based on the transparency of valuation inputs. See Note 4 for further discussion regarding the fair value measurements and hierarchy.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

Note 2. Summary of Significant Accounting Policies (continued)

ASC Topic 820 requires disclosure of the fair value of financial instruments for which it is practical to estimate such value. The Company believes that the carrying amounts of its other financial instruments, such as cash and cash equivalents, receivables and payables approximate the fair value of such items due to the short maturity of such instruments.

Revenue Recognition

The Company’s revenue recognition policies are as follows:

Interest income: Interest income is recorded on the accrual basis to the extent that the Company expects to collect such amounts. Interest income is accrued based upon the outstanding principal amount and contractual terms of debt investments. For the three months ended March 31, 2024 and 2023, $10,848,716 and $9,745,823, respectively, of interest income, excluding payment in kind (“PIK”) interest income, has been accrued as shown on the Consolidated Statements of Operations. As of March 31, 2024 and December 31, 2023, $4,207,137 and $3,291,794 of interest income is receivable, respectively, as shown on the Consolidated Statements of Assets and Liabilities.

Payment in-kind income: The Company has certain investments in its portfolio that contain a PIK provision, which represents contractual interest or dividends that are added to the principal balance and recorded as income. For loans and debt securities with contractual PIK, the Company generally will not accrue PIK interest for accounting purposes if the portfolio company valuation indicates that such PIK interest is not collectible. To maintain its ability to take a dividend paid deduction, the Company may need to pay out PIK non-cash income amounts in the form of distributions, even though the Company has not yet collected the cash. For the three months ended March 31, 2024 and 2023, $1,470,542 and $220,183, respectively, of PIK income has been accrued as shown on the Consolidated Statements of Operations.

Non-accrual: Loans or preferred equity securities are placed on non-accrual status when interest, PIK interest or dividend payments become 90 days or more past due, or when there is reasonable doubt that principal, interest or dividends will be collected. Additionally, any original issue discount and market discount are no longer accreted to interest income as of the date the loan is placed on non-accrual status. Any accrued interest receivable in previous year will be written off and corresponding interest income will be reversed, as applicable. Subsequent interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans are restored to accrual status when past due principal, interest, PIK interest or dividends are paid, and, in management’s judgment are likely to remain current. Please refer to the Consolidated Schedule of Investments for non-accrual status of investments as of March 31, 2024 and December 31, 2023. As of March 31, 2024 two investments, SkyBell Technologies, Inc. and Consolidated Machine & Tool Holdings, LLC are on non-accrual status; $97,030 of interest receivable has been reversed as a result for SkyBell Technologies, Inc. As of March 31, 2024 no interest has been written off or reversed as a result of the Consolidated Machine & Tool Holdings, LLC being on non-accrual status. As of December 31, 2023 one investment, SkyBell Technologies, Inc. was on non-accrual status and no interest had been written off or reversed as a result of the investment being on non-accrual status.

Dividend income: Dividend income to be paid in-kind on equity securities is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income paid in cash is recorded on the date declared for portfolio companies. Each distribution received from limited liability company and limited partnership interests is evaluated to determine if the distribution should be recorded as dividend income or a return of capital. Distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment. For the three months ended March 31, 2024 and for the year ended December 31, 2023, the Company did not receive any return of capital distributions from its equity investments. For the three months ended March 31, 2024 and 2023, $0 and $166,504, respectively, of dividend income has been accrued as shown on the Consolidated Statements of Operations. As of March 31, 2024 and December 31, 2023, all dividend income has been received.

Original Issue Discount: Discounts to par on portfolio securities are accreted into income over the tenor of the instrument. Any remaining discount is accreted into income upon prepayment or redemption of the instrument and the Company then amortizes such amounts using the effective interest method as interest income over the life of the investment. The unamortized discount as of March 31, 2024 and December 31, 2023, was $6,194,381 and $6,789,946, respectively. The amount of original issue discount amortized for the three months ended March 31, 2024 and 2023 was $657,610 and $358,632, respectively, and is included in interest income on the Consolidated Statements of Operations.

Amendment, waiver, and consent fees: In connection with modifying credit agreements with portfolio companies to provide additional operating or borrowing flexibility, the Company may be entitled to amendment, waiver and consent fees to compensate for the potentially enhanced credit risk. Such fees will be recorded as income on the date earned and accrued to the extent the fee is to be compensated in the form of additional principal balance. For the three months ended March 31, 2024 and 2023, $16,772 and $40,720 of amendment fees had been earned and included in other income on the Consolidated Statements of Operations.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

Note 2. Summary of Significant Accounting Policies (continued)

Early repayment and termination fees: Upon the prepayment of a loan or debt security, any unamortized premium or discount or loan origination fees are recorded as interest income. To the extent the Company receives early repayment fees in connection with pre-maturity loan agreement termination, such income will be recorded on the date of prepayment. The Company and its Advisor generally do not structure transactions with a contractual exit fee to be collected upon loan repayment at maturity. No such fees were earned during the three months ended March 31, 2024 and 2023.

Gains and Losses: Investment transactions are recorded on a trade-date basis. Realized gains or losses on portfolio investments are calculated based upon the difference between the net proceeds from the disposition and the amortized cost basis of the investment, without regard to unrealized gains or losses previously recognized. Realized gains and losses are recorded within net realized gain (loss) on investments on the Consolidated Statements of Operations. Changes in the fair value of investments from the prior period, as approved by the Board based on fair value recommendations from the Advisor in accordance with the Advisor’s valuation policy, are included within net change in unrealized gain (loss) on investments on the Consolidated Statements of Operations. For the three months ended March 31, 2024 and 2023, the Company had no net realized gain (loss) on investments as represented on the Consolidated Statements of Operations.

Distributions

Distributions to Stockholders are recorded on the applicable record date. The Company generally intends to make quarterly distributions to its Stockholders out of assets legally available for distribution. All current income and realization proceeds will be retained by the Company and be available for re-investment. Distributions will be made to Stockholders at such times and in such amounts as determined by the Company’s Board.

The Company has adopted an “opt out” dividend reinvestment plan (“DRP”) for Stockholders. When a distribution is declared, Stockholders’ cash distributions will automatically be reinvested in additional shares of the Company’s common stock (“Common Stock”) unless a Stockholder specifically “opts out” of the Company’s DRP. Stockholders may opt out of the Company’s DRP by providing notice twenty (20) business days in advance of the distribution payment date.

If a Stockholder opts out, that Stockholder will receive cash distributions. Although distributions paid in the form of additional shares of Common Stock will generally be subject to U.S. federal, state and local taxes in the same manner as cash distributions, Stockholders participating in the Company’s DRP will not receive any corresponding cash distributions with which to pay any such applicable taxes. If distributions paid exceed tax earnings and profits, portions of the distribution can be recorded as a return of capital.

Earnings per Share

In accordance with the provisions of ASC Topic 260 – Earnings per Share, basic earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of shares outstanding during the period. The weighted average shares outstanding utilized in the calculation of earnings per share take into account share issues on the issuance date and the Company’s repurchases of its Common Stock on the repurchase date. See Note 9 for additional information on the Company’s share activity. For the three months ended March 31, 2024 and for the year ended December 31, 2023, there were no potentially dilutive common shares issued.

Segments

In accordance with ASC Topic 280 — Segment Reporting, the Company has determined that it has a single reporting segment and operating unit structure.

Cash

Cash is comprised of cash on deposit with major financial institutions. The Company places the majority of its cash with State Street Bank and Trust Company, a high credit quality institution, to minimize credit risk exposure. The Company, at times, may have cash on deposit with major financial institutions that exceeds federally insured limits.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

Note 2. Summary of Significant Accounting Policies (continued)

Cash Equivalents

Cash equivalents are highly liquid investments with a current maturity of three months or less at the date of acquisition, which may include temporary investments in U.S. Treasury Bills (of varying maturities) or money market funds. There were no cash equivalents outstanding on the Company’s Consolidated Statements of Assets and Liabilities as of March 31, 2024 and December 31, 2023.

Unamortized Deferred Financing Costs

Deferred financing costs represent fees and other direct incremental costs incurred in connection with the Company’s borrowings. Deferred financing costs are capitalized as incurred and amortized on a straight line basis to maturity of the Secured Credit Facility (as defined herein). For the three months ended March 31, 2024 and 2023, the Company had $140,521 and $172,264, respectively, of expensed financing costs included in interest and other financing fees on the Consolidated Statements of Operations. As of March 31, 2024 and December 31, 2023, the Company had $706,395 and $846,916, respectively, of unamortized deferred financing costs as shown in deferred financing cost on the Consolidated Statements of Assets and Liabilities.

Organization and Offering Costs

Organizational and offering costs are expensed as incurred. These expenses consist primarily of legal fees and other costs incurred with Company’s share offerings, the preparation of the Company’s registration statement, and registration fees. For the three months ended March 31, 2024 and 2023, the Company had incurred no organizational costs. As of March 31, 2024 and December 31, 2023, no organizational costs remained payable on the Consolidated Statements of Assets and Liabilities. For the three months ended March 31, 2024 and 2023, the Company incurred offering costs in the amount of $49,727 and $49,315, respectively, as shown as a component of the general and administrative fees in the Consolidated Statements of Operations. As of March 31, 2024 and December 31, 2023, $49,727 and $47,749, respectively, of offering costs incurred were payable and included in other payables on the Statement of Assets and Liabilities.

Custodian Fees

The Company has entered into a custody agreement with State Street Bank and Trust Company (the “Custodian”). For the three months ended March 31, 2024 and 2023, the Company incurred expenses for services provided by the Custodian of $5,997 and $7,500, respectively, which is included in professional fees on the Consolidated Statements of Operations. As of March 31, 2024 and December 31, 2023, $20,000 and $20,000, respectively, remained payable, which is included in professional fees payable on the Consolidated Statements of Assets and Liabilities.

Income Taxes

On May 14, 2021, the Company elected to be regulated as a BDC under the 1940 Act. The Company also elected to be treated as a RIC under Subchapter M of the Code and intends to qualify annually as a RIC. As long as the Company maintains its status as a RIC, it generally will not pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that it distributes at least annually to its Stockholders. Rather, any tax liability related to income earned by the Company represents obligations of the Company’s Stockholders and will not be reflected in the consolidated financial statements of the Company.

To qualify as a RIC under Subchapter M of the Code, the Company must, among other things, meet certain source-of-income and asset diversification requirements. In addition, to qualify for RIC tax treatment, the Company must distribute to its Stockholders, for each taxable year, at least 90% of its “investment company taxable income” for that year, which is generally its ordinary income plus the excess of its realized net short-term capital gains over its realized net long-term capital losses. In order for the Company not to be subject to U.S. federal excise taxes, it must distribute annually an amount at least equal to the sum of (i) 98% of its net ordinary income (taking into account certain deferrals and elections) for the calendar year, (ii) 98.2% of its capital gains in excess of capital losses for the one-year period ending October 31 in that calendar year and (iii) any net ordinary income and capital gains in excess of capital losses for preceding years that were not distributed during such years. The Company, at its discretion, may carry forward taxable income in excess of calendar year dividends and pay a 4% nondeductible U.S. federal excise tax on this income. For the three months ended March 31, 2024 and 2023, the Company did not record a net expense on the Consolidated Statements of Operations for U.S. federal excise tax.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

Note 2. Summary of Significant Accounting Policies (continued)

The Company accounts for income taxes in conformity with ASC Topic 740 — Income Taxes (“ASC Topic 740”). ASC Topic 740 provides guidelines for how uncertain tax positions should be recognized, measured, presented and disclosed in the consolidated financial statements. ASC Topic 740 requires the evaluation of tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current period. It is the Company’s policy to recognize accrued interest and penalties related to uncertain tax benefits in income tax expense. The Company did not record any uncertain income tax positions for the three months ended March 31, 2024 and for the year ended December 31, 2023. The aggregate amortized tax basis cost of investments included on the Consolidated Schedule of Investments as of March 31, 2024 and December 31, 2023 were $358,082,609 and $378,081,148, respectively.

Recent Accounting Pronouncements

In November 2023, the FASB issued Accounting Standards Update No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). This change is intended to improve reportable segment requirements, primarily through enhanced disclosures about significant segment expenses, allowing financial statement users to better understand the components of a segment’s profit or loss and assess potential future cash flows for each reportable segment and the entity as a whole. The amendments expand a public entity’s segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker, clarifying when an entity may report one or more additional measures to assess segment performance, requiring enhanced interim disclosures, and providing new disclosure requirements for entities with a single reportable segment among other new disclosure requirements. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted. Although the ASU only requires additional disclosure about the Company’s operating segment, the Company is currently evaluating the impact of adopting this guidance with respect to the consolidated financial statements.

In January 2021, the FASB issued Accounting Standards Update No. 2021-01, “Reference Rate Reform (Topic 848)” (“ASU 2021-01”). ASU 2021-01 is an update of ASU 2020-04, which is in response to concerns about structural risks of interbank offered rates, and particularly the risk of cessation of the London Interbank Offered Rate (“LIBOR”). Regulators have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. ASU 2020-04 provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. ASU 2020- 04 is elective and applies to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The ASU 2021-01 update clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The amendments in this update are effective immediately through December 31, 2023, for all entities. On December 21, 2022, the FASB issued a new Accounting Standards Update ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848,” that extends the sunset (or expiration) date of Accounting Standards Codification (ASC) Topic 848 to December 31, 2024. This gives reporting entities two additional years to apply the accounting relief provided under ASC Topic 848 for matters related to reference rate reform. The ASU is effective immediately. The Company has evaluated its impact on the Company’s consolidated financial statements. Accordingly, all of the Company’s relevant credit agreements have transitioned to Secured Overnight Financing Rate (“SOFR”) as of December 31, 2023.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

Note 3. Investments

The following tables show the composition of the Company’s investment portfolio, at amortized cost and fair value (with corresponding percentage of total portfolio investments):

	March 31, 2024
	Amortized Cost				Fair Value
First Lien Senior Secured Loan	$	311,129,060	86.9	%	$	294,455,581	83.2	%
Second Lien Senior Secured Loan		6,248,112	1.7			6,067,024	1.7
Senior Unsecured Notes		2,033,098	0.6			1,265,130	0.4
Preferred Equity Securities		32,906,278	9.2			43,031,287	12.2
Warrants and Other Equity Securities		2,867,756	0.8			6,039,575	1.7
Fund Investments		2,898,305	0.8			2,818,111	0.8
Total	$	358,082,609	100.0	%	$	353,676,708	100.0	%

	December 31, 2023
	Amortized Cost				Fair Value
First Lien Senior Secured Loan	$	332,292,188	87.8	%	$	319,229,009	84.7	%
Second Lien Senior Secured Loan		6,305,249	1.7			6,059,372	1.6
Senior Unsecured Notes		2,033,098	0.5			1,384,446	0.4
Preferred Equity Securities		31,684,552	8.4			41,804,395	11.1
Warrants and Other Equity Securities		2,867,756	0.8			5,706,423	1.5
Fund Investments		2,898,305	0.8			2,809,327	0.7
Total	$	378,081,148	100.0	%	$	376,992,972	100.0	%

The following tables show the composition of the Company’s investment portfolio by geographic region, at amortized cost and fair value (with corresponding percentage of total portfolio investments). The geographic composition is determined by the location of the corporate headquarters of the portfolio company, which may not be indicative of the primary source of the portfolio company’s business:

	March 31, 2024
	Amortized Cost				Fair Value
Southeast	$	112,046,102	31.3	%	$	105,477,235	29.9	%
Midwest		64,421,858	18.0			66,105,019	18.7
West		53,734,976	15.0			52,581,652	14.9
Northeast		46,882,211	13.1			43,861,988	12.4
East		34,389,298	9.6			34,746,311	9.8
Southwest		25,203,934	7.0			25,631,795	7.2
South		21,404,230	6.0			25,272,708	7.1
Total	$	358,082,609	100.0	%	$	353,676,708	100.0	%

	December 31, 2023
	Amortized Cost				Fair Value
Southeast	$	117,249,715	31.0	%	$	112,796,734	29.8	%
Midwest		72,946,758	19.3			72,951,802	19.4
Northeast		53,801,241	14.2			55,247,793	14.7
West		53,349,023	14.1			51,488,613	13.7
East		33,935,529	9.0			33,986,375	9.0
Southwest		25,324,544	6.7			24,996,508	6.6
South		21,474,338	5.7			25,525,147	6.8
Total	$	378,081,148	100.0	%	$	376,992,972	100.0	%

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

Note 3. Investments (continued)

The following tables show the composition of the Company’s investment portfolio by industry, at amortized cost and fair value (with corresponding percentage of total portfolio investments):

	March 31, 2024
	Amortized Cost				Fair Value
Aerospace & Defense	$	8,053,828	2.2	%	$	7,617,318	2.2	%
Chemicals		14,560,767	4.1			14,695,154	4.2
Commercial Services & Supplies		4,114,403	1.1			3,909,167	1.1
Construction & Engineering		58,212,904	16.4			57,290,515	16.1
Consumer Finance		3,418,199	1.0			3,745,556	1.1
Distributors		14,268,603	4			13,654,534	3.9
Diversified Consumer Services		14,834,632	4.1			15,168,714	4.3
Diversified Financials		2,898,305	0.8			2,818,111	0.8
Diversified Telecommunication Services		27,943,116	7.8			30,774,511	8.6
Electrical Equipment		10,709,696	3			8,294,272	2.3
Entertainment		18,259,275	5.1			15,926,614	4.5
Food Products		9,810,595	2.7			11,442,184	3.2
Healthcare Providers & Services		44,559,565	12.4			43,441,537	12.2
Hotels, Restaurants & Leisure		4,907,184	1.4			4,933,128	1.4
Household Durables		4,618,637	1.3			2,341,518	0.7
Household Products		4,876,915	1.4			4,746,300	1.3
IT Services		12,972,100	3.6			13,152,856	3.7
Leisure Products		4,758,643	1.3			2,342,286	0.7
Machinery		4,763,104	1.3			4,435,767	1.3
Media		23,597,949	6.6			26,543,977	7.5
Personal Products		4,442,180	1.2			4,539,782	1.3
Professional Services		31,136,292	8.7			36,621,006	10.4
Software		6,049,249	1.7			8,123,945	2.3
Specialty Retail		6,397,426	1.8			6,207,441	1.8
Trading Companies & Distributors		7,500,300	2.1			268,292	0.1
Transportation Infrastructure		10,418,742	2.9			10,642,223	3.0
Total	$	358,082,609	100.0	%	$	353,676,708	100.0	%

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

Note 3. Investments (continued)

	December 31, 2023
	Amortized Cost				Fair Value
Aerospace & Defense	$	7,903,421	2.1	%	$	7,394,163	2.0	%
Chemicals		14,538,407	3.8			14,538,407	3.9
Commercial Services & Supplies		11,312,244	3.0			11,282,346	2.9
Construction & Engineering		58,140,914	15.4			55,540,524	14.7
Consumer Finance		3,407,754	0.9			3,617,879	1.0
Distributors		14,299,832	3.8			13,807,774	3.7
Diversified Consumer Services		14,905,882	3.9			15,182,176	4.0
Diversified Financials		2,898,305	0.8			2,809,327	0.7
Diversified Telecommunication Services		27,384,130	7.2			30,834,843	8.2
Electrical Equipment		10,390,564	2.7			8,320,050	2.2
Entertainment		18,257,039	4.8			18,478,875	4.9
Food Products		9,847,037	2.6			11,682,654	3.1
Healthcare Providers & Services		44,285,303	11.7			43,324,687	11.5
Hotels, Restaurants & Leisure		4,910,858	1.3			4,909,528	1.3
Household Durables		4,618,637	1.2			2,341,518	0.6
Household Products		4,871,468	1.3			4,465,076	1.2
IT Services		18,368,354	4.9			18,406,891	4.9
Leisure Products		4,727,860	1.3			3,852,760	1.0
Machinery		4,832,798	1.3			4,687,302	1.2
Media		23,580,771	6.2			25,870,278	6.9
Personal Products		4,451,581	1.2			4,457,979	1.2
Professional Services		31,270,864	8.3			36,611,515	9.7
Software		6,082,519	1.6			7,590,857	2.0
Specialty Retail		6,333,920	1.7			6,367,578	1.7
Trading Companies & Distributors		15,986,679	4.2			10,144,017	2.7
Transportation Infrastructure		10,474,007	2.8			10,473,968	2.8
Total	$	378,081,148	100.0	%	$	376,992,972	100.0	%

Note 4. Fair Value Measurements Investments

ASC Topic 820 clarifies the definition of fair value as the amount that would be received in the sale of an asset or paid in the transfer of a liability in an orderly transaction between market participants at the measurement date. Where available, the Company uses quoted market prices based on the last sales price on the measurement date.

In accordance with ASC Topic 820, the Company discloses the fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). To the extent that fair value is based on inputs that are less observable, the determination of fair value requires a significant amount of management judgment. Investments which are valued using NAV as a practical expedient are excluded from this hierarchy.

The three-tier hierarchy of inputs is summarized below.

•	Level 1 - Quoted prices are available in active markets/exchanges for identical investments as of the reporting date.

•

Level 2 - Pricing inputs are observable inputs including, but not limited to, prices quoted for similar assets or liabilities in active markets/exchanges or prices quoted for identical or similar assets or liabilities in markets that are not active, and fair value is determined through the use of models or other valuation methodologies.

•	Level 3 - Pricing inputs are unobservable for the investment and include activities where there is little, if any, market activity for the investment. The inputs into determination of fair value require significant management judgment and estimation.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

Note 4. Fair Value Measurements (continued)

The inputs used by management in estimating the fair value of Level 3 investments may include valuations and other reporting provided by representatives of the portfolio companies, original transaction prices, recent transactions for identical or similar instruments, and comparisons to fair values of comparable investments, and may include adjustments to reflect illiquidity or non-transferability. The Company has policies with respect to its investments, which may assist the Advisor in assessing the quality of information provided by, or on behalf of, each portfolio investment and in determining whether such information continues to be provided by a reliable source or whether further investigation is necessary. Any such investigation, as applicable, may or may not require the Advisor to forego its normal reliance on the value supplied by, or on behalf of, such portfolio investment and to independently recommend the fair value of the Company’s interest in such portfolio investments for approval by the Board, consistent with the Company’s valuation procedures.

The Company has engaged an independent third-party valuation provider, which performs valuation procedures to arrive at estimated valuation ranges of the investments on a quarterly basis. Investments that have been completed within the past three months will be fair valued at cost unless there has been a material event. If there has been a material event or material information that was not known as of the close of the transaction, the independent third-party valuation provider will provide an independent valuation range. The types of valuation methodologies employed by the third-party valuation provider include discounted cash flow, recent financing and enterprise value valuation methodologies. The Company’s Board will discuss valuations and determine the fair value of each investment in the Company’s portfolio in good faith, based on the input of the Advisor, the respective independent valuation firms and the audit committee.

The Company’s investments and borrowings are subject to market risk. Market risk is the potential for changes in the value due to market changes. Market risk is directly impacted by the volatility and liquidity in the markets in which the investments and borrowings are traded.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. The availability of valuation techniques and observable inputs can vary from security to security and is affected by a wide variety of factors including the type of security, whether the security is new and not yet established in the marketplace, and other characteristics particular to the transaction. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics and other factors.

The use of these valuation models requires significant estimation and judgment by the Advisor. While the Company believes its valuation methods are appropriate, other market participants may value identical assets differently than the Company at the measurement date. The methods used by the Company may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. The Company may also have risk associated with its concentration of investments in certain geographic regions and industries.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for securities categorized in Level 3.

The determination of what constitutes “observable” requires significant judgment by the Company. The Company considers observable data to be market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, which may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement. The categorization of an investment within the hierarchy is based upon the pricing transparency of the investment and observability of prices and inputs may be reduced for many investments. This condition could cause the investment to be reclassified to a lower level within the fair value hierarchy.

The consolidated financial statements include portfolio investments at fair value of $353,676,708 and $376,992,972 as of March 31, 2024 and December 31, 2023, respectively.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

Note 4. Fair Value Measurements (continued)

The Company valued its investments in underlying funds based on its proportionate interest in net asset value (“NAV”) of the underlying funds. For the purpose of classifying the investments in underlying funds within the fair value hierarchy, the Company makes use of the practical expedient under ASU 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent). As of March 31, 2024 and December 31, 2023, the Company’s investments in underlying funds amounted to $2,818,111 and $2,809,327, respectively.

U.S. GAAP requires that the Company disclose the Company’s pro-rata portion of individual securities, if available, that are reported to the Company by the underlying portfolio funds that exceed 5% of the Company’s capital balance.

The following tables present fair value measurements of investments, by major class according to the fair value hierarchy.

	Fair Value Measurements
March 31, 2024	Level 1		Level 2		Level 3		Total
First Lien Senior Secured Loan	$	-	$	-	$	294,455,581	$	294,455,581
Second Lien Senior Secured Loan		-		-		6,067,024		6,067,024
Senior Unsecured Notes		-		-		1,265,130		1,265,130
Preferred Equity Securities		-		-		43,031,287		43,031,287
Warrants and Other Equity Securities		-		-		6,039,575		6,039,575
Total	$	-	$	-	$	350,858,597	$	350,858,597
Fund Investments								2,818,111
Total Investments							$	353,676,708

	Fair Value Measurements
December 31, 2023	Level 1		Level 2		Level 3		Total
First Lien Senior Secured Loan	$	-	$	-	$	319,229,009	$	319,229,009
Second Lien Senior Secured Loan		-		-		6,059,372		6,059,372
Senior Unsecured Notes		-		-		1,384,446		1,384,446
Preferred Equity Securities		-		-		41,804,395		41,804,395
Warrants and Other Equity Securities		-		-		5,706,423		5,706,423
Total	$	-	$	-	$	374,183,645	$	374,183,645
Fund Investments								2,809,327
Total Investments							$	376,992,972

First Lien Senior Secured Loans and Second Lien Senior Secured Loans are collateralized by tangible and intangible assets of the borrowers. These investments include loans to entities that have some level of challenge in obtaining financing from other, more conventional institutions, such as a bank. Interest rates on these loans are either fixed or floating and are based on current market conditions.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

Note 4. Fair Value Measurements (continued)

The following tables provide a reconciliation of the beginning and ending balances for investments at fair value that use Level 3 inputs for the three months ended March 31, 2024 and 2023:

	Investments
	First Lien Senior Secured Loan			Second Lien Senior Secured Loan			Senior Unsecured Notes			Preferred Equity Securities			Warrants and Other Equity Securities		Fund Investments		Total Investments
Balance as of December 31, 2023	$	319,229,009		$	6,059,372		$	1,384,446		$	41,804,395		$	5,706,423	$	2,809,327	$	376,992,972
Net change in unrealized gain (loss) on investments		(3,610,300	)		64,789			(119,316	)		5,166			333,152		8,784		(3,317,725	)
Purchases of investments and other adjustments to cost ⁽¹⁾		2,821,564			-			-			-			-		-		2,821,564
Proceeds from principal repayments⁽²⁾		(22,745,927	)		(57,137	)		-			(17,039	)		-		-		(22,820,103	)
Lien status change⁽³⁾		(1,238,765	)		-			-			1,238,765			-		-		-
Balance as of March 31, 2024	$	294,455,581		$	6,067,024		$	1,265,130		$	43,031,287		$	6,039,575	$	2,818,111	$	353,676,708

(1)

Includes purchases of new investments, premium and discount accretion and amortization and PIK interest.

(2)

Includes paydowns receivable from the Consolidated Statements of Assets and Liabilities

(3)

Lien conversions are fair valued at beginning of period on January 1, 2024

	Investments
	First Lien Senior Secured Loan			Second Lien Senior Secured Loan			Senior Unsecured Notes		Preferred Equity Securities			Warrants and Other Equity Securities		Fund Investments		Total Investments
Balance as of December 31, 2022	$	260,982,122		$	6,250,270		$	-	$	27,088,732		$	5,829,429	$	3,045,128	$	303,195,681
Net change in unrealized gain (loss) on investments		(1,188,943	)		33,626			-		213,058			184,228		52,433		(705,598	)
Purchases of investments and other adjustments to cost⁽¹⁾		23,998,021			8,110			-		2,927,035			-		-		26,933,166
Proceeds from sales of investments		-			-			-		-			-		-		-
Proceeds from principal repayments⁽²⁾		(1,701,330	)		(50,897	)		-		(17,039	)		-		-		(1,769,266	)
Lien status change		-			-			1,628,075		(389,310	)		-		-		1,238,765
Balance as of March 31, 2023	$	282,089,870		$	6,241,109		$	1,628,075	$	29,839,515		$	6,013,657	$	3,097,561	$	328,909,787

(1)

Includes purchases of new investments, premium and discount accretion and amortization and PIK interest.

(2)

Includes paydowns receivable from the Consolidated Statements of Assets and Liabilities

The net change in unrealized gain (loss) on investments included on the Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023, attributable to Level 3 investments still held as of March 31, 2024 was $(3,170,410) and $(705,598), respectively.

Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in or out of Level 3 as of the beginning of the period which the reclassifications occur. There were no transfers among Levels 1, 2 and 3 for the three months ended March 31, 2024 and 2023.

Purchases (including accretion, amortization, PIK interest) for the three months ended March 31, 2024 and 2023 amounted to $2,821,564 and $26,933,166, respectively.

For the three months ended March 31, 2024, the Company did not invest in any new portfolio companies and invested (net of original issue discount) $787,844 in two existing portfolio companies as reflected in the Consolidated Schedule of Investments. For the three months ended March 31, 2023, the Company invested (net of original issue discount) $14,653,791 in one new portfolio company and $11,646,365 in four existing portfolio companies as reflected in the Consolidated Schedule of Investments.

Significant Unobservable Inputs

ASC Topic 820 requires disclosure of quantitative information about the significant unobservable inputs used in the valuation of assets and liabilities classified as Level 3 within the fair value hierarchy. The tables below are not intended to be all-inclusive, but rather to provide information on significant unobservable inputs and valuation techniques used by the Company.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

Note 4. Fair Value Measurements (continued)

The table below summarizes the quantitative inputs and assumptions used for items categorized in Level 3 of the fair value hierarchy as of March 31, 2024.

								Range
	Fair Value		Valuation Technique	Unobservable Input	Weighted Average Mean			Minimum			Maximum
Assets:
First Lien Senior Secured Loan	$	259,211,450	Discount Rate	Market Yields		15.6	%		7.7	%		30.0	%
				EBITDA Multiple		8.33	x		1.53	x		35.50	x
First Lien Senior Secured Loan		12,921,031	Discount Rate	Market Yields		19.3	%		17.0	%		27.0	%
				Revenue Multiple		0.44	x		0.30	x		0.50	x
First Lien Senior Secured Loan		5,086,630	Enterprise Value Method	Revenue Multiple		1.29	x		0.40	x		2.75	x
First Lien Senior Secured Loan		14,894,952	Enterprise Value Method	EBITDA Multiple		9.18	x		5.00	x		6.00	x
First Lien Senior Secured Loan		2,341,518	Other	N/A		N/A			N/A			N/A
Second Lien Senior Secured Loan		6,067,024	Discount Rate	Market Yields		16.7	%		15.4	%		17.9	%
				EBITDA Multiple		7.50	x		7.00	x		8.00	x
Senior Unsecured Note		1,265,130	Discount Rate	Market Yields		30.0	%		30.0	%		30.0	%
				EBITDA Multiple		5.75	x		5.25	x		6.25	x
Preferred Equity Securities		30,042	Discount Rate	Market Yields		23.3	%		23.3	%		23.3	%
				Revenue Multiple		0.40	x		0.30	x		0.50	x
Preferred Equity Securities		4,499,630	Enterprise Value Method	Revenue Multiple		2.60	x		2.10	x		3.10	x
				EBITDA Multiple		12.50	x		12.00	x		13.00	x
Preferred Equity Securities		32,857	Enterprise Value Method	Revenue Multiple		0.45	x		0.40	x		0.50	x
				EBITDA Multiple		6.75	x		6.25	x		7.25	x
Preferred Equity Securities		5,573,257	Enterprise Value Method	Revenue Multiple		2.24	x		0.30	x		2.75	x
Preferred Equity Securities		32,895,501	Enterprise Value Method	EBITDA Multiple		7.55	x		3.00	x		13.75	x
Warrants and Other Equity Securities		157,426	Enterprise Value Method	Revenue Multiple		2.25	x		1.75	x		2.75	x
Warrants and Other Equity Securities		5,882,149	Enterprise Value Method	EBITDA Multiple		7.50	x		3.00	x		35.50	x
Fund Investments		2,818,111	Other	N/A		N/A			N/A			N/A
Total Level 3 Assets	$	353,676,708

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

Note 4. Fair Value Measurements (continued)

The table below summarizes the quantitative inputs and assumptions used for items categorized in Level 3 of the fair value hierarchy as of December 31, 2023.

								Range
	Fair Value		Valuation Technique	Unobservable Input	Weighted Average Mean			Minimum			Maximum
Assets:
First Lien Senior Secured Loan	$	297,206,519	Discounted Cash Flow	Market Yields		15.3	%		7.0	%		27.0	%
				EBITDA Multiple		8.15	x		1.97	x		35.50	x
First Lien Senior Secured Loan		5,270,878	Discounted Cash Flow	Market Yields		21.8	%		19.0	%		25.9	%
				Revenue Multiple		0.62	x		0.30	x		0.80	x
First Lien Senior Secured Loan		15,201,958	Enterprise Value Method	Revenue Multiple		1.77	x		0.40	x		8.43	x
First Lien Senior Secured Loan		1,549,654	Enterprise Value Method	EBITDA Multiple		5.50	x		5.00	x		6.00	x
Second Lien Senior Secured Loan		6,059,372	Discounted Cash Flow	Market Yields		16.6	%		15.5	%		17.7	%
				EBITDA Multiple		7.50	x		7.00	x		8.00	x
Senior Unsecured Note		1,384,446	Discounted Cash Flow	Market Yields		26.7	%		26.7	%		26.7	%
				EBITDA Multiple		9.00	x		8.50	x		9.50	x
Preferred Equity Securities		26,528	Discounted Cash Flow	Market Yields		23.3	%		23.3	%		23.3	%
				Revenue Multiple		0.40	x		0.30	x		0.50
Preferred Equity Securities		4,154,769	Enterprise Value Method	Gross Profit Multiple		2.60	x		2.10	x		3.10	x
				EBITDA Multiple		12.50	x		12.00	x		13.00	x
Preferred Equity Securities		5,511,310	Enterprise Value Method	Revenue Multiple		2.49	x		0.30	x		3.00	x
Preferred Equity Securities		32,111,788	Enterprise Value Method	EBITDA Multiple		7.51	x		3.25	x		14.00	x
Warrants and Other Equity Securities		571,189	Enterprise Value Method	Revenue Multiple		2.50	x		2.00	x		8.43	x
Warrants and Other Equity Securities		5,135,234	Enterprise Value Method	EBITDA Multiple		6.58	x		3.25	x		35.50	x
Fund Investments		2,809,327	Other	N/A		N/A			N/A			N/A
Total Level 3 Assets	$	376,992,972

An increase or decrease in any of the significant unobservable inputs used in the fair value measurement of the investments would result in a higher or lower fair value measurement, respectively.

The significant unobservable input used in the income approach of fair value measurement of the Company’s investments is the discount rate (derived from market yields, EBITDA Multiple and Revenue Multiple) used to discount the estimated future cash flows expected to be received from the underlying investment, which include both future principal and interest payments. Increases (decreases) in the discount rate would result in a decrease (increase) in the fair value estimate of the investment. Included in the consideration and selection of discount rates are the following factors: risk of default, rating of the investment and comparable investments, and call provisions.

The significant unobservable inputs used in the market approach of fair value measurement of the Company’s investments are the market multiples of EBITDA or revenue of the comparable guideline public companies. The Company selects a population of public companies for each investment with similar operations and attributes of the portfolio company. Using these guideline public companies’ data, a range of multiples of enterprise value to EBITDA or revenue is calculated. The Company selects percentages from the range of multiples for purposes of determining the portfolio company’s estimated enterprise value based on said multiple and generally the latest twelve months EBITDA or revenue of the portfolio company (or other meaningful measure). Increases (decreases) in the multiple will result in an increase (decrease) in enterprise value, resulting in an increase (decrease) in the fair value estimate of the investment.

Note 5. Transactions with Affiliated Companies

The Company and the Advisor have received an exemptive order from the SEC that permits the Company to co-invest with certain accounts managed by the Advisor and/or certain affiliates of the Company, subject to the terms and conditions specified in the exemptive order.

An affiliated company is a company in which the Company has an ownership interest of 5% or more of its voting securities. A controlled affiliate company is a company in which the Company and its affiliated funds have an ownership interest of more than 25% of its voting securities. Please see the Company’s Consolidated Schedule of Investments for the type of investment, principal amount, interest rate including the spread, and the maturity date. For the three months ended March 31, 2024 and for the year ended December 31, 2023, the Advisor’s managed funds had an ownership interest of 25% or more in two companies’ voting securities.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

Note 5. Transactions with Affiliated Companies (continued)

Transactions related to the Company’s investments with controlled affiliates for the three months ended March 31, 2024 and for the year ended December 31, 2023, were as follows:

The three months ended March 31, 2024	Equity Ownership Held by the Company			Equity Ownership Held by Star Mountain Affiliate Funds
Issuer:
Arrow Home Health LLC		2.2	%		55.5	%
Caregility Corporation		7.9	%		37.4	%

The year ended December 31, 2023	Equity Ownership Held by the Company			Equity Ownership Held by Star Mountain Affiliate Funds
Issuer:
Arrow Home Health LLC		2.2	%		55.5	%
Caregility Corporation		7.9	%		37.4	%

Note 6. Transactions with Related Parties

Star Mountain Lower Middle-Market (Offshore) Ltd. (the “Feeder Fund”) was formed as a Cayman Islands exempted company and commenced operations on August 17, 2021. The Feeder Fund has been formed to invest all or substantially all of its investable assets in the common stock of the Company. As of March 31, 2024 and December 31, 2023, the Feeder Fund had $17,313,800 and $17,313,800 in capital committed to the Company, respectively, and an ownership percentage in the Company of 7.78% and 7.93%, respectively. As of March 31, 2024 and December 31, 2023, the Feeder Fund had $0 and $110,891 of contributions payable to the Company.

Management Fees

The Company has entered into an investment advisory agreement with the Advisor (the “Investment Advisory Agreement”), under which the Advisor, subject to the overall supervision of the Board, provides investment advisory services to the Company. The Company pays the Advisor a fee for its services under the Investment Advisory Agreement consisting of two components – a base management fee and an incentive fee. The cost of both the base management fee and the incentive fee are borne by the Company’s Stockholders, unless such fees are waived by the Advisor.

On June 14, 2023, the Company entered into an amended and restated investment advisory agreement with the Advisor (the “Amended and Restated Investment Advisory Agreement”), replacing the Investment Advisory Agreement pursuant to which effective June 14, 2023 (the “Effective Date”), the base management fee was reduced from 1.75% to 1.25% per annum of the average of the Company’s total gross assets (excluding cash or cash equivalents but including assets purchased with borrowed amounts) as of the end of each of the two most recently completed calendar quarters.

Management fees for the three months ended March 31, 2024 and 2023 were $1,152,067 and $1,382,563, respectively. For the three months ended March 31, 2024 and 2023, the Advisor elected to voluntarily waive $0 and $197,509, respectively, of such management fees. The management fees waived are not recoupable by the Advisor. There is no guarantee that the Advisor will waive management fees in the future, and the Advisor may discontinue or modify any such waivers in the future at its discretion. As of March 31, 2024 and December 31, 2023, $1,152,067 and $1,121,412 of management fees remained payable, respectively.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

Note 6. Transactions with Related Parties (continued)

Incentive Fees

The incentive fee (“Incentive Compensation”) consists of two parts. The first component of the income incentive fee is payable quarterly in arrears. The Income Incentive Fee will be determined by comparing the Company’s pre-incentive fee net investment income for the preceding quarter. Pre-incentive fee net investment income means interest income, dividend income, PIK interest and any other income (including any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies but excluding fees for providing managerial assistance) accrued during the calendar quarter, minus operating expenses for the quarter (including the base management fee), any expenses payable under the administration agreement (the “Administration Agreement”) between the Company and the Administrator and any interest expense and dividends paid on any outstanding preferred stock, but excluding the incentive fee. Pre-incentive fee net investment income will include, in the case of investments with a deferred interest feature such as market discount, debt instruments with PIK interest, preferred stock with PIK dividends and zero-coupon securities, accrued income that the Company has not yet received in cash. The Advisor is not under any obligation to reimburse the Company for any part of the incentive fee it receives that was based on accrued interest that the Company never actually receives.

Pre-incentive fee net investment income does not include any realized capital gains or losses or unrealized capital gains or losses. If any distributions from portfolio companies are characterized as a return of capital, such returns of capital would affect the capital gains incentive fee to the extent a gain or loss is realized. Because of the structure of the incentive fee, it is possible that the Company may pay an incentive fee in a quarter where it incurs a loss. For example, if the Company receives pre-incentive fee net investment income in excess of the hurdle rate (as defined below) for a quarter, the Company will pay the applicable incentive fee even if it has incurred a loss in that quarter due to realized and unrealized capital losses.

Pre-incentive fee net investment income, expressed as a rate of return on the value of the Company’s net assets (defined as total assets less indebtedness and before taking into account any incentive fees payable during the period) at the end of the immediately preceding calendar quarter, is compared to a fixed “hurdle rate” of 1.75% per quarter (7% annually).

As of the Effective Date, the Income Incentive Fee was reduced from 20% to 17.5% of the Company’s pre-incentive fee net investment income.

Under the Amended and Restated Investment Advisory Agreement, the Company pays the Advisor an incentive fee with respect to its pre-incentive fee net investment income in each calendar quarter as follows:

•

no incentive fee in any calendar quarter in which the pre-incentive fee net investment income does not exceed the hurdle rate of 1.75% (7% annually);

•

100% of the Company’s pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than or equal to the product of (i) 2.1212% per quarter (8.4848% annualized) and (ii) the Company’s net assets at the end of the immediately preceding quarter. The Company refers to this portion of the Company’s pre-incentive fee net investment income as the “catch-up” provision. The catch-up is meant to provide the Advisor with approximately 17.5% of the pre-incentive fee net investment income if a hurdle rate did not apply; and

•

17.5% of the Company’s pre-incentive fee net investment income that exceeds the “catch-up” provision. This provides that once the hurdle amount and the catch-up provision are achieved, 17.5% of all pre-incentive fee net investment income thereafter is allocated to the Advisor.

These calculations are appropriately prorated for any period of less than three months and adjusted for any share issuances or repurchases during the current quarter.

The second part of the incentive fee is a capital gains incentive fee that is determined and payable in arrears as of the end of each fiscal year (or upon termination of the Amended and Restated Advisory Agreement, as of the termination date). Under the Amended and Restated Investment Advisory Agreement, the Capital Gains Incentive Fee was reduced from 20.0% to 17.5% of cumulative realized capital gains as of the end of the fiscal year as of the Effective Date.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

Note 6. Transactions with Related Parties (continued)

In determining the capital gains incentive fee payable to the Advisor, the Company calculates the cumulative aggregate realized capital gains and cumulative aggregate realized capital losses since the Company’s inception, and the aggregate unrealized capital depreciation as of the date of the calculation, as applicable, with respect to each of the investments in the Company’s portfolio. For this purpose, cumulative aggregate realized capital gains, if any, equals the sum of the differences between the net sales price of each investment, when sold, and the amortized cost of such investment. Cumulative aggregate realized capital losses equals the sum of the amounts by which the net sales price of each investment, when sold, is less than the amortized cost of such investment since the Company’s inception. Aggregate unrealized capital depreciation equals the sum of the difference, if negative, between the valuation of each investment as of the applicable calculation date and the amortized cost of such investment. At the end of the applicable year, the amount of capital gains that will serve as the basis for the calculation of the capital gains incentive fee equals the cumulative aggregate realized capital gains less cumulative aggregate realized capital losses, less aggregate unrealized capital depreciation, with respect to the Company’s portfolio of investments. If this number is positive at the end of such year, then the capital gains incentive fee for such year equals 17.5% (reduced from 20%) of such amount, less the aggregate amount of any capital gains incentive fees paid in respect of the Company’s portfolio in all prior years.

While the Amended and Restated Investment Advisory Agreement with the Advisor neither includes nor contemplates the inclusion of unrealized gains in the calculation of the capital gains incentive fee, pursuant to an interpretation of an American Institute for Certified Public Accountants Technical Practice Aid for investment companies, the Company includes unrealized gains in the calculation of the capital gains incentive fee expense and related accrued capital gains incentive fee. This accrual reflects the incentive fees that would be payable to the Advisor if the Company’s entire portfolio was liquidated at its fair value as of the balance sheet date even though the Advisor is not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized.

Incentive fees for the three months ended March 31, 2024 and 2023 were $1,225,518 and $1,064,526, respectively. For the three months ended March 31, 2024 and 2023 the Advisor elected to voluntarily waive $0 and $719,565 of such incentive fees, respectively. The incentive fees waived for the period ended March 31, 2024 are not recoupable and there is no guarantee that the Advisor will waive incentive fees in the future. The Advisor may discontinue or modify any such waivers in the future at its discretion. As of March 31, 2024 and December 31, 2023, $5,186,994 and $3,961,476, respectively, of incentive fees remained payable as shown in the Consolidated Statements of Assets and Liabilities.

Administration Fees

The Company has entered into the Administration Agreement with the Advisor, under which the Company reimburses the Administrator for its allocable portion of overhead and other expenses, including the costs of furnishing the Company with office facilities and equipment and providing clerical, bookkeeping, record-keeping and other administrative services at such facilities, and the Company’s allocable portion of the cost of the chief financial officer and chief compliance officer and their respective staffs. To the extent that the Administrator outsources any of its functions, the Company will pay the fees associated with such functions on a direct basis, without incremental profit, to the Administrator. For the three months ended March 31, 2024 and 2023, the Company incurred reimbursement expenses of $41,305 and $44,729, respectively, included under General and Administrative fees on the Consolidated Statements of Operations. As of March 31, 2024 and December 31, 2023, $36,341 and $79,070, respectively, of reimbursement expense was payable as shown in the Consolidated Statements of Assets and Liabilities as reimbursement expense payable.

The Administrator has entered into a sub-administration agreement with SS&C Technologies, Inc. (the “Sub-Administrator”), under which the Sub-Administrator provides various accounting and administrative services to the Company. Administrative services may include maintenance of the Company’s books and records, processing of investor transactions, and calculation of the NAV. For the three months ended March 31, 2024 and 2023, the Company incurred expenses for services provided by the Sub-Administrator of $167,436 and $129,661, respectively, which is included in professional fees on the Consolidated Statements of Operations. As of March 31, 2024 and December 31, 2023, there were $167,436 and $0 payable, for expenses incurred for services provided by the Sub-Administrator.

Directors’ Fees

The Company incurs certain fees and expenses paid to the Company’s independent directors (including expenses and costs related to meetings of the independent directors); for the three months ended March 31, 2024 and 2023, directors’ expenses are $23,620 and $19,726, respectively, as shown on the Consolidated Statements of Operations. As of March 31, 2024 and December 31, 2023, $23,620 and $23,750 of directors’ expenses remained payable, respectively, which are included in professional fees payable as shown on the Consolidated Statements of Assets and Liabilities.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

Note 7. Borrowings

On July 2, 2021, the Company entered into a Loan and Servicing Agreement (the “Loan Agreement”) with Sterling National Bank (“SNB”), which provides for a $55 million senior secured revolving credit facility (“Secured Credit Facility”). In February 2022, SNB was subsequently acquired by Webster Bank (“Webster”), which took over the relationship with the Company. On January 12, 2022, the Company entered into a second amendment to the Secured Credit Facility to upsize the Secured Credit Facility to $80 million. On May 6, 2022, the Company entered into an amendment to the Secured Credit Facility to upsize the Secured Credit Facility to $125 million. On September 16, 2022, the Company entered into an amendment to the Secured Credit Facility to upsize the Secured Credit Facility to $200 million.

As of March 31, 2024 and December 31, 2023, the Secured Credit Facility commitment amounts were as follows:

	As of March 31, 2024		As of December 31, 2023
Secured Credit Facility Lender	Commitment		Commitment
Webster Bank	$	67,500,000	$	67,500,000
Blue Ridge Bank		25,000,000		25,000,000
First Foundation Bank		20,000,000		20,000,000
Mitsubishi HC Capital America, Inc.		20,000,000		20,000,000
Woodforest National Bank		20,000,000		20,000,000
Forbright Bank		17,500,000		17,500,000
Apple Bank		15,000,000		15,000,000
Peapack-Gladstone Bank		15,000,000		15,000,000
Total Commitment	$	200,000,000	$	200,000,000

Borrowings can be increased to a maximum of $350 million in accordance with the Secured Credit Facility accordion feature terms and conditions and are limited by various advance rates and concentration limits.

As of March 31, 2024 and December 31, 2023, the total fair value of the borrowings outstanding under the Secured Credit Facility was $149,500,000 and $176,500,000, respectively.

Advances under the Secured Credit Facility bear interest at a per annum rate equal to the Prime rate in effect on such day minus 0.35%. Inclusive of syndication, agency, and administrative fees paid to Webster, the total annualized cost of capital is estimated to be 8.0%. The Company will also pay a non-utilization fee on the average daily unused amount of the aggregate commitments until the commitment termination date (as defined in the Loan Agreement). As of March 31, 2024, the total commitments under the Secured Credit Facility were $200 million. Proceeds from borrowings under the Secured Credit Facility may be used to finance certain investments, fulfill payment obligations under the Secured Credit Facility, make distributions/payments permitted by the Loan Agreement. All amounts outstanding under the Secured Credit Facility must be repaid by the fourth anniversary of the initial closing of the Secured Credit Facility. The Company’s obligations to the lenders under the Secured Credit Facility are secured by a first priority security interest in substantially all of the Company’s assets, subject to certain exclusions.

In May 2024, the Company extended its $200,000,000 Secured Credit Facility with Webster, the Administrative Agent, to June 30, 2028. The Secured Credit Facility carries an interest rate of 3M SOFR plus 2.9%.

Borrowings under the Secured Credit Facility are limited by various advance rates and concentration limits. In connection with the Secured Credit Facility, the Company has made certain customary representations/warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. The Secured Credit Facility is subject to customary events of default for similar financing transactions. Upon the occurrence and during the continuation of an event of default, Webster may declare the outstanding advances and all other obligations under the Secured Credit Facility immediately due and payable.

On June 22, 2022 the Company entered into a Loan and Security Agreement with East West Bank, which provides for cash or credit advances of up to $25 million (the “Revolving Credit Line”) pursuant to the terms and conditions of the Revolving Credit Line. On September 26, 2022, the Company entered into an amendment with East West Bank, to downsize the Revolving Credit Line to $21 million. On May 17, 2023, the Company repaid the outstanding balance in full and terminated the loan and security agreement initially entered into on June 22, 2022.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

Note 7. Borrowings (continued)

The fair value of the borrowings outstanding under the Secured Credit Facility and the Revolving Credit Line are based on a market yield approach and current interest rates, which are Level 3 inputs to the market yield model. The components of the Company’s interest expense and other debt financing expenses, average outstanding balances and average stated interest rates (i.e. the rate in effect plus spread) were as follows:

	For the three months ended March 31,
	2024			2023
Interest expense - Secured Credit Facility	$	3,288,169		$	2,482,260
Interest expense - Revolving Credit Line		-			23,354
Unused commitment fees		47,687			110,939
Amortization of deferred financing costs		140,521			172,264
Utilization fees		264,814			358,699
Total interest and other debt financing fees	$	3,741,191		$	3,147,516
Average debt outstanding	$	162,269,231		$	138,366,667
Average stated interest rate		8.13	%		7.34	%

Note 8. Income Taxes

The amount of taxable income to be paid out as a distribution is determined by the Board each quarter and generally is based upon the annual earnings estimated by management of the Company. Net capital gains, if any, are distributed at least annually, although the Company may decide to retain all or some of those capital gains for investment and pay corporate-level income taxes on those retained amounts. If the Company chooses to do so, this generally would increase expenses and reduce the amount available to be distributed to stockholders. In the event the Company’s taxable income (including any net capital gains) for a fiscal year fall below the amount of distributions declared and paid with respect to that year, however, a portion of the total amount of those distributions may be deemed a return of capital for tax purposes to the Company’s stockholders.

Because federal income tax regulations differ from accounting principles generally accepted in the United States, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary in nature. Permanent differences are reclassified among capital accounts in the consolidated financial statements to reflect their appropriate tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future.

The calculation of reclassifications due to permanent book-to-tax differences and tax character of distributions declared are performed at each calendar year end and have no impact on net assets.

For the year ended December 31, 2023 no permanent differences were reclassified for tax purposes.

For income tax purposes, distributions paid to stockholders are reported as ordinary income, return of capital, redemption, long term capital gains or a combination thereof. The following table provides the tax character of distributions declared for the year ended December 31, 2023:

	For the year ended December 31, 2023
Ordinary income	$	22,097,019
Long-term capital gains		3,773
Total	$	22,100,792

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

Note 8. Income Taxes (continued)

The following table sets forth the tax cost basis and the estimated aggregate gross unrealized appreciation and depreciation from investments for federal income tax purposes as of and for the period ended March 31, 2024 and December 31, 2023:

	As of March 31, 2024		As of December 31, 2023
Tax Cost of Investment	$	358,082,609	$	378,551,985

	As of March 31, 2024			As of December 31, 2023
Unrealized appreciation	$	23,673,130		$	20,541,825
Unrealized depreciation		(28,079,031	)		(22,100,838	)
Net unrealized appreciation/(depreciation) from investments	$	(4,405,901	)	$	(1,559,013	)

Note 9. Stock Issuances

As of March 31, 2024 and December 31, 2023, the total number of shares of all classes of capital stock that the Company has the authority to issue was 200,000,000 shares of Common Stock, par value $0.001 per share.

New Stockholders admitted to the Company or existing Stockholders increasing their Capital Commitments at a particular closing will be required to purchase shares of the Company with an aggregate purchase price necessary to ensure that all Stockholders in the Company have generally contributed the same percentage of their Capital Commitments to the Company immediately following such purchase (a “Catch-up Purchase”) and each such Stockholder shall be issued a number of shares of the Company based on a per share purchase price determined by the Board. A Catch-up Purchase may be made in multiple installments as determined by the Advisor based on the Company’s capital requirements. The per share purchase price shall be at least equal to the NAV per share in accordance with the limitations of Section 23 of the 1940 Act. The Board may set the price per share above the NAV per share based on a variety of factors, including without limitation, the total amount of the Company’s organizational and other expenses that will have accrued following the Company’s initial closing.

For the three months ended March 31, 2024 and 2023, the Company entered into subscription agreements (collectively, the “Subscription Agreements”) with new investors, providing for the private placement of common shares. Under the terms of the Subscription Agreements, investors are required to fund drawdowns to purchase common shares up to the amount of their respective capital commitments on an as-needed basis with a minimum of 8 business days’ prior notice. As of March 31, 2024 and December 31, 2023, the Company had received capital commitments totaling $222,512,762 and $218,337,762, respectively.

As of March 31, 2024, net contributions of $204,144,825 had been made by Stockholders and $18,367,937 remained available to be drawn by the Company.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

Note 9. Stock Issuances (continued)

The following tables summarize the issuance of shares for the three months ended March 31, 2024 and 2023:

Date	Price per share		Shares Issued		Proceeds
For the three months ended March 31, 2024:
Stock issued in connection with dividend reinvestment plan
January 31, 2024	$	24.98		120,133	$	3,000,821
Total				120,133	$	3,000,821

Date	Price per share		Shares Issued		Proceeds
For the three months ended March 31, 2023:
March 21, 2023	$	25.31		803,600	$	20,339,128
				803,600	$	20,339,128

Stock issued in connection with dividend reinvestment plan
January 26, 2023		25.34		86,086		2,181,430
				86,086		2,181,430
Total				889,686	$	22,520,558

Note 10. Discretionary Repurchase of Shares of Common Stock and Distributions

Beginning with the quarter ended September 30, 2022, the Company began to conduct quarterly tender offers, at the Board’s discretion, in accordance with the requirements of Rule 13e-4 under the Exchange Act and the 1940 Act, to permit Stockholders to tender their shares of common stock at a specific per share price (“Purchase Price”) based on the Company’s NAV as of the last date of the quarter in which the tender offer is conducted. The Company intends to conduct each tender offer to repurchase up to 2.5% of the number of shares of common stock outstanding as of the end of the prior quarter in which the tender offer is conducted, subject to numerous restrictions that limit Stockholders’ ability to sell their shares of common stock.

The following tables summarize the repurchase of shares for the three months ended March 31, 2024 and 2023.

Quarter Ended	Purchase Price			Shares Repurchased		Amount Paid in Cash
Stock repurchased in connection with tender offer
March 29, 2024		$	25.10		192,187.05		$	4,823,944
Total					192,187.05		$	4,823,944

Quarter Ended	Purchase Price			Shares Repurchased		Amount Paid in Cash
Stock repurchased in connection with tender offer
December 31, 2022*		$	25.21		108,930.54		$	2,746,138
March 31, 2023			25.80		164,813.65			4,252,193
Total					273,744.19		$	6,998,331

*	On December 15, 2022 the Company commenced a tender offer for repurchase of common shares. The tender offer expired on January 16, 2023 and the shares of common stock repurchased in connection with the tender offer were recorded and paid out as capital activity for 2023.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

Note 10. Discretionary Repurchase of Shares of Common Stock and Distributions (continued)

The Company’s distributions are recorded on the record date. For the three months ended March 31, 2024 no distributions were declared to Stockholders and no distributions remained payable as of March 31, 2023.

The following table summarizes the settlement of distributions declared and recorded as of December 31, 2023, and the subsequent payment and issuance of those distributions for the three months ended March 31, 2024:

Date Declared	Record Date	Payment/Issuance Date	Amount Per Share		Amount Paid in Cash		Amount Settled via Newly Issued Shares		Total
For the three months ended March 31, 2024
December 31, 2023	December 31, 2023	January 31, 2024	$	0.79	$	2,961,399	$	3,000,821	$	5,962,220
			$	0.79	$	2,961,399	$	3,000,821	$	5,962,220

The following table summarizes the settlement of distributions declared and recorded as of December 31, 2022, and the subsequent payment and issuance of those distributions for the three months ended March 31, 2023:

Date Declared	Record Date	Payment/Issuance Date	Amount Per Share		Amount Paid in Cash		Amount Settled via Newly Issued Shares		Total
For the three months ended March 31, 2023:
December 31, 2022	December 31, 2022	January 26, 2023	$	0.66	$	2,169,650	$	2,181,430	$	4,351,080
Total			$	0.66	$	2,169,650	$	2,181,430	$	4,351,080

Note 11. Commitments, Contingencies, and Risks

Commitments: As of March 31, 2024 and December 31, 2023, the Company had $6,809,241 and $15,600,970 in outstanding commitments to direct investments and $1,101,695 and $1,101,625 in outstanding commitments to fund investments, respectively.

March 31, 2024	Outstanding Commitments
Direct Investments
Consolidated Machine & Tool Holdings, LLC	$	86,552
The Range NYC, LLC (dba Five Iron Golf)		6,722,689
Total Direct Investments	$	6,809,241

Fund Investments
Madryn Select Opportunities, LP	$	1,101,695
Total Fund Investments	$	1,101,695

Total	$	7,910,936

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

Note 11. Commitments, Contingencies, and Risks (continued)

December 31, 2023	Outstanding Commitments
Direct Investments
Consolidated Machine & Tool Holdings, LLC	$	267,525
PPC Event Services, Inc.		2,391,846
TCP Acquisition, LLC		5,595,960
The Range NYC, LLC (dba Five Iron Golf)		6,722,689
YTC Holdings, Inc. (dba Yorktel)		622,950
Total Direct Investments	$	15,600,970

Fund Investments
Madryn Select Opportunities, LP	$	1,101,625
Total Fund Investments	$	1,101,625

Total	$	16,702,595

Management believes that the Company’s available cash balances provide sufficient funds to cover its unfunded commitments as of March 31, 2024 and December 31, 2023.

Indemnifications: In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties that provide general indemnification. The Company’s maximum exposure under these agreements is unknown, as these involve future claims that may be made against the Company but that have not occurred. The Company expects the risk of any future obligations under these indemnification provisions to be remote.

Legal proceedings: In the normal course of business, the Company may be subject to legal and regulatory proceedings that are generally incidental to its ongoing operations. While there can be no assurance of the ultimate disposition of any such proceedings, the Company is not currently aware of any such proceedings or disposition that would have a material adverse effect on the Company’s consolidated financial statements.

Concentration of credit and counterparty risk: Credit risk arises primarily from the potential inability of counterparties to perform in accordance with the terms of the contract. In the event that the counterparties do not fulfill their obligations, the Company may be exposed to risk. The risk of default depends on the creditworthiness of the counterparties or issuers of the instruments. It is the Company’s policy to review, as necessary, the credit standing of each counterparty.

Table of Contents

STAR MOUNTAIN LOWER MIDDLE-MARKET CAPITAL CORP.

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

Note 12. Financial Highlights

The following is a schedule of financial highlights for the three months ended March 31, 2024 and 2023:

	For the three months ended March 31,
	2024			2023
Per share data:
Net asset value at beginning of period	$	24.78		$	25.21
Net investment income (loss) ⁽¹⁾		0.74			0.75
Net realized and unrealized gain (loss)⁽¹⁾		(0.43	)		(0.11	)
Net increase (decrease) in net assets resulting from operations⁽¹⁾		0.31			0.64
Stockholder distributions⁽²⁾		-			(0.33	)
Dividend reinvestment plan distributions⁽²⁾		(0.40	)		(0.33	)
Other ⁽³⁾		0.41			0.61
Net asset value at end of period	$	25.10		$	25.80
Net assets at end of period	$	191,153,131		$	186,011,566
Shares outstanding at end of period		7,615,428			7,208,489
Total return ⁽⁴⁾		4.49	%		5.01	%
Ratio/Supplemental data:
Ratio of expenses to average net assets before incentive fees and waivers⁽⁵⁾		11.52	%		12.19	%
Ratio of expenses to average net assets after incentive fees and before waivers⁽⁵⁾		12.15	%		12.82	%
Ratio of expenses to average net assets after incentive fees and waivers⁽⁵⁾		12.15	%		12.27	%
Ratio of net investment income (loss) to average net assets before incentive fees and waivers⁽⁵⁾		14.52	%		12.37	%
Ratio of net investment income (loss) to average net assets after incentive fees and before waivers⁽⁵⁾		13.89	%		11.74	%
Ratio of net investment income (loss) to average net assets after incentive fees and waivers⁽⁵⁾		13.89	%		12.29	%
Portfolio turnover⁽⁶⁾		0.22	%		0.77	%

(1)

The per share data was derived by using the weighted average shares outstanding during the period presented.

(2)

Management monitors available taxable earnings, including net investment income and realized capital gains, to determine if a tax return of capital may occur for the year. To the extent the Company’s taxable earnings fall below the total amount of the Company’s distributions for that fiscal year, a portion of those distributions may be deemed a tax return of capital to the Company’s stockholders. The tax character of distributions will be determined at the end of the fiscal year.

(3)

Includes the impact of different share amounts used in calculating per share data as a result of calculating certain per share data based on weighted average shares outstanding during the period and certain per share data based on shares outstanding as of a period end or transaction date.

(4)

Total return is calculated as the change in NAV per share during the period, divided by the beginning NAV per share and assumes reinvestment of dividends at NAV. Total return is not annualized.

(5)

Ratios are annualized for periods less than one year. To the extent incentive fees and waivers are included within the ratio, they are not annualized.

(6)

Ratio is not annualized.

13. Subsequent Events

The Company has evaluated subsequent events through May 14, 2024, the date on which the consolidated financial statements were issued.

On April 8, 2024, the Company issued a capital call of 250,250,401 shares for $6,245,250.

On April 12, 2024, the Company declared a dividend of $0.75 per share to stockholders of record as of April 12, 2024.

On April 19, 2024, the Company issued a capital call of $14,077,500.

On May 16, 2024, the Company intends to pay a total distribution of $5,899,259, of which $2,774,184 will be paid in cash and $3,125,075 in the form of shares.

Table of Contents

Item 2.

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

FORWARD-LOOKING STATEMENTS

Statements contained in this Quarterly Report on Form 10-Q (including those relating to current and future market conditions and trends in respect thereof) that are not historical facts are based on current expectations, estimates, projections, opinions and/or beliefs of Star Mountain Lower Middle-Market Capital Corp. (the “Company”), Star Mountain Fund Management, LLC (the “Advisor”) and Star Mountain Capital, LLC (“Star Mountain”). Such statements involve known and unknown risks, uncertainties and other factors and undue reliance should not be placed thereon. Certain information contained in this Quarterly Report on Form 10-Q constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “seek,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue,” “target,” or “believe” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of the Company may differ materially from those reflected or contemplated in such forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond the Company’s control and are difficult to predict, that could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements including, without limitation, the risks, uncertainties and other factors the Company identifies in the section entitled “Item 1A. Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and in the Company’s filings with the Securities and Exchange Commission (“SEC”).

Although the Company believes that the assumptions on which these forward-looking statements are based are reasonable, some of those assumptions are based on the work of third parties and any of those assumptions could prove to be inaccurate; as a result, the forward-looking statements based on those assumptions also could prove to be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Quarterly Report on Form 10-Q should not be regarded as a representation by us that the Company’s plans and objectives will be achieved. These risks and uncertainties include those described or identified in the section entitled “Item 1A. Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Investors should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. The Company does not undertake any obligation to update or revise any forward-looking statements or any other information contained herein, except as required by applicable law. The safe harbor provisions of Section 21E of the Securities Exchange Act of 1934 (“Exchange Act”), which preclude civil liability for certain forward-looking statements, do not apply to the forward-looking statements in this Quarterly Report on Form 10-Q because the Company is an investment company.

The following factors are among those that may cause actual results to differ materially from the Company’s forward-looking statements:

•

the Company’s future operating results;

•

increasing interest rates and interest rate volatility, including volatility associated with the decommissioning of the London Interbank Offered Rate (“LIBOR”) and the transition to new reference rates, including the Secured Overnight Financing Rate (“SOFR”);

•

inflation could adversely affect the business, results of operations and financial condition of the Company’s portfolio companies;

•

the Company’s business prospects and the prospects of the Company’s prospective portfolio companies;

•

the impact of increased competition;

•

the Company’s contractual arrangements and relationships with third parties;

•

the dependence of the Company’s future success on the general economy and its impact on the industries in which the Company invests;

•

the ability of the Company’s prospective portfolio companies to achieve their objectives;

•

the relative and absolute performance of the Advisor;

•

the ability of the Advisor and its affiliates to retain talented professionals;

•

the Company’s expected financings and investments;

•

the Company’s ability to pay dividends or make distributions;

Table of Contents

•

the adequacy of the Company’s cash resources;

•

risks associated with possible disruptions in the Company’s operations or the economy generally due to war or terrorism or other disruptive geopolitical events domestically and/or globally;

•

the ongoing conflict in Ukraine and Russia, including sanctions and market volatility related to such conflict, may adversely impact the industries and portfolio companies in which the Company invests;

•

the impact of future acquisitions and divestitures;

•

the Company’s regulatory structure as a business development company (“BDC”) and tax status as a regulated investment company (a “RIC”); and

•

future changes in laws or regulations and conditions in the Company’s operating areas.

Overview:

Star Mountain Lower Middle-Market Corp. is an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act, as amended. In addition, for U.S. federal income tax purposes, the Company has elected to be treated and intends to continue to be treated as a RIC under the subchapter M of the Internal Revenue Code of 1986, as amended. As such, the Company is required to comply with various regulatory requirements, such as the requirement to invest at least 70% of the Company’s assets in “qualifying assets,” source of income limitations, asset diversification requirements, and the requirement to distribute annually at least 90% of the Company’s taxable income.

The Company’s investment objectives are to generate current income and capital appreciation. The Company seeks to achieve its investment objectives by investing primarily in privately negotiated loans and equity investments to SMBs generally with annual revenues greater than $15 million and earnings before interest, taxes, depreciation and amortization of less than $50 million. Generally, these businesses are owner-operated with an average 20+ year operating history. To accomplish this, the Company makes direct investments in SMBs and makes investments in investment funds focused primarily on investing in SMBs generally not owned by large private equity firms.

The Company seeks to provide investors with access to a diversified portfolio of credit investments generating current income distributions with equity upside. Capital protection is achieved through defensive structures with affirmative, negative and financial maintenance covenants and active portfolio management which results in generally low volatility and low correlation to public market indices. The Company aims to target diversification of assets by vintage, industry and geography through direct originations and acquisitions of loan portfolios.

The Company’s investment strategy may be complemented by secondary fund investments and secondary loans, consisting of generally non-brokered purchases of limited partnership interests in lower middle-market credit-oriented funds and secondary loans. This complementary strategy may result in portfolio construction and diversification benefits.

The Company’s investments are subject to a number of risks. See “Part I. Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 as filed with the SEC on April 1, 2024.

Characteristics of and Risks Related to Investments in Private Companies:

Investments in private businesses involve a high degree of business and financial risk, which can result in substantial losses for the Stockholders in those investments and accordingly should be considered speculative. There is generally no publicly available information about the companies in which the Company invests, and the Company relies significantly on the diligence of its service providers and agents to obtain information in connection with investment decisions. If the Company is unable to identify all material information about these companies, among other factors, the Company may fail to receive the expected return on investment or lose some or all of the money invested in these companies. In addition, these businesses may have shorter operating histories, narrower product lines, smaller market shares and less experienced management than their larger competitors and may be more vulnerable to customer preferences, market conditions, and loss of key personnel, or economic downturns, which may adversely affect the return on, or the recovery of, investments in such businesses.

The Company generally invests in limited partnership interests of funds focused on making investments in SMBs and in long-term loans to and private equity investments in small and medium-sized private companies that do not have an established trading market. The Company typically exits its debt and equity investments through structured terms and amortization or when the portfolio company has a liquidity event such as a sale, recapitalization, or initial public offering of the company. The illiquidity of the Company’s investments may adversely affect the Company’s ability to dispose of debt and equity securities at times when it may be otherwise advantageous for the Company to liquidate such investments. In addition, if the Company were forced to immediately liquidate some or all of the investments in the portfolio, the proceeds of such liquidation could be significantly less than the current value of such investments.

Table of Contents

Operating and Regulatory Structure:

The Company’s investment activities are managed by the Advisor and supervised by the Board, a majority of whom are independent. Under the Amended and Restated Investment Advisory Agreement, the Company pays the Advisor a quarterly management fee based on the Company’s average gross assets (excluding cash or cash equivalents but including assets purchased with borrowed amounts) as of the end of each of the two most recently completed calendar quarters as well as incentive fees based on the Company’s performance.

The Company has entered into an Administration Agreement with the Advisor to serve as Administrator for the Company. Pursuant to the Administration Agreement, the Advisor provides the Company with services such as accounting, financial reporting, legal and compliance support and investor relations support, necessary for the Company to operate or engage a third-party firm to perform some or all of these functions. The Administrator has entered into a sub-administration agreement with SS&C Technologies, Inc. (the "Sub-Administrator"), under which the Sub-Administrator provides various accounting and administrative services to the Company.

Revenues:

The Company generates revenues primarily through receipt of interest income from the Portfolio Investments the Company holds. In addition, the Company generates income from various loan origination and other fees and dividends on direct equity investments. The debt the Company invests in will typically not be rated by any rating agency, but if it were, it is likely that such debt would be rated below investment grade.

Expenses:

Under the Administration Agreement, the Administrator is authorized to incur and pay, in the name and on behalf of the Company, all expenses which it deems necessary or advisable.

The Advisor is responsible for and will pay, or cause to be paid, all Overhead Expenses, except to the extent provided below. For this purpose, “Overhead Expenses” include overhead expenses of an ordinarily recurring nature such as rent, utilities, supplies, secretarial expenses, stationery, charges for furniture, fixtures and equipment, employee benefits including insurance, payroll taxes and compensation of all employees.

The Company reimburses the Advisor or its affiliates, as applicable, for all costs and expenses incurred in connection with administering the Company’s business including out of pocket expenses (including travel, lodging and meals), the Company’s allocable portion of the Advisor’s or any affiliated Administrator’s overhead expenses in performing its obligations under the Advisory Agreement or any Administration Agreement, as applicable, including rent and the allocable portion of the compensation paid by the Advisor or its affiliates, as applicable, to the Company’s Chief Compliance Officer and Chief Financial Officer and their respective staffs (based on the percentage of time such individuals devote, on an estimated basis, to the business affairs of the Company), third- party software licensing, implementation, data management and recovery services and custom development costs.

All other expenses are borne by the Company, including legal, accounting, tax, auditing, consulting and other professional expenses (including, without limitation, expenses relating to establishing reputation and public relations in connection with self-sourced lending or other financial transactions); the Management Fee and Incentive Compensation; professional liability insurance (including costs relating to directors’ and officers’ liability insurance and errors and omissions insurance); research and market data expenses; interest on indebtedness; custodial fees; bank service fees; investment-related fees and expenses (such as third-party sourcing fees, fees and expenses of legal and other professionals, due diligence expenses and travel, lodging and meal expenses) related to the analysis, purchase or sale of investments, whether or not the investments are consummated; expenses related to special purpose vehicles (each, an “SPV”) (including, without limitation, Overhead Expenses related thereto); interest payable on debt, if any, incurred to finance the Company’s investments; other expenses related to the purchase, monitoring, sale, settlement, custody or transmittal of Company assets (directly or through trading affiliates) as will be determined by the Advisor or an affiliate thereof, as applicable, in its sole discretion (including costs associated with systems and software used in connection with investment-related activities); costs of reporting to Stockholders and Stockholder meetings; administration fees and expenses charged by any third-party provider of administration services; entity-level taxes; expenses relating to the offer, transfer, sale and marketing of shares; filing fees and expenses; Federal and state registration fees and expenses; regulatory and compliance fees and expenses of the Company (including with respect to any registration activities of the Company); costs of winding up and liquidating the Company; costs associated with ensuring compliance with the applicable BDC and RIC requirements, including, but not limited to, costs incurred in connection with the organization of, and transfer of assets to, a private investment vehicle; expenses incurred in connection with a Stockholder that defaults in respect of a Capital Commitment; and other expenses associated with the operation of the Company and its investment activities, including extraordinary expenses such as litigation, workout and restructuring and indemnification expenses, if any. For the avoidance of doubt, the Company will also bear its allocable share (based on invested capital) of any of the expenses listed above incurred by any Subsidiary Investment Vehicle.

Table of Contents

The Company is also responsible for the costs of the offering of common shares and other securities, including, but not limited to, all expenses incurred in connection with an IPO; costs and expenses relating to distributions paid to Stockholders; costs of effecting sales and repurchases of the Company’s securities; allocated costs incurred by the Advisor or its affiliate in providing managerial assistance to those companies in which the Company has invested who request it; transfer agent fees; fees and expenses paid to the Company’s independent directors (including expenses and costs related to meetings of the independent directors); costs of preparing and filing reports with the SEC and other Company reporting and compliance costs, including registration and listing fees; the Company’s allocable portion of the fidelity bond; the costs of reports, proxy statements or other notices to Stockholders, including printing and mailing costs; the costs of any Stockholders’ meetings and communications; expenses payable under any underwriting agreement, including associated fees, expenses and any indemnification obligations; and all other expenses incurred by the Company in connection with maintaining its status as a BDC. In addition, the Company may make investments in investment funds focused primarily on investing in SMBs. As a result, the Company (and the Stockholders, indirectly through the Company) bear the Company’s proportionate share of the fees and expenses paid by the shareholders of such investment fund.

Generally, expenses incurred directly in connection with a particular investment (or proposed investment) of the Company and other Star Mountain accounts in which Star Mountain conducts substantial investment and other activities in their own accounts and the accounts of other clients (the “Star Mountain Accounts”) will be allocated among the Company and other Star Mountain Accounts pro rata based upon capital invested (or proposed to be invested) in such investment; provided that expenses specifically attributable to the Company or any other Star Mountain Account may be allocated to the Company or any such other Star Mountain Account, as applicable. The Advisor will allocate other expenses among the Company and other Star Mountain Accounts in a fair and equitable manner taking into account such factors as it deems appropriate.

Notwithstanding the foregoing, in light of the Company’s investment mandate, which may include investments in small loans, niche credits and other similar securities, it may not be practical to specifically allocate certain investment-related expenses to the particular loans to which they relate. The Advisor, in its absolute and sole discretion, may instead allocate such expenses (along with expenses that relate to transactions that are not consummated) pro rata across one or more investments.

Advisor Expenses:

The Advisor shall pay (a) the respective compensation and expenses of the officers and employees of the Advisor, including salaries and benefits of the officers and employees of the Advisor, except as otherwise specified; (b) expenses associated with office space and facilities, utilities and telephone services, news, quotation and similar information and pricing services, computer equipment, travel expenses and support of the Advisor incurred in connection with Company operations; and (c) organizational expenses in excess of $1,000,000.

Board Approval of the Investment Advisory Agreement and Amended and Restated Investment Advisory Agreement:

The Investment Advisory Agreement was initially approved by the Board at a meeting of the Board called, in part, for such purpose, on February 24, 2021. The Board, including a majority of the directors that are not “interested persons” as defined in Section 2(a)(19) of the 1940 Act, approved the renewal of the Investment Advisory Agreement on February 23, 2023. On June 14, 2023, the Company and the Advisor entered into an Amended and Restated Investment Advisory Agreement pursuant to which the Management Fee (as defined in the Investment Advisory Agreement) was reduced from 1.75% to 1.25% per annum of the average of the Company’s total gross assets (excluding cash or cash equivalents but including assets purchased with borrowed amounts). The Income Incentive Fee (as defined in the Investment Advisory Agreement) was reduced from 20.0% to 17.5% of the Company’s Pre-Incentive Fee Net Investment Income (as defined in the Investment Advisory Agreement). The Capital Gains Incentive Fee (as defined in the Investment Advisory Agreement) was reduced from 20.0% to 17.5% of cumulative realized capital gains. The Advisor indicated to the Board of Directors of the Company that this change was proposed to better position the Company to capitalize on the current market dynamics which it believes are compelling for its market strategy, and that there would be no reduction in services provided to the Company in connection with the fee reduction. No other material changes were made to the Investment Advisory Agreement.

Such approvals were made in accordance with, and on the basis of an evaluation satisfactory to the Board as required by, Section 15(c) of the 1940 Act and applicable rules and regulations thereunder, including a consideration of, among other factors, (i) the nature, quality and extent of the advisory and other services to be provided under the agreement, (ii) the investment performance of the personnel who manage investment portfolios with objectives similar to the Company’s, (iii) comparative data with respect to advisory fees or similar expenses paid by other BDCs with similar investment objectives and (iv) information about the services to be performed and the personnel performing such services under the agreement.

Net Gain (Loss):

We recognize realized gains or losses on investments based on the difference between the net proceeds from the disposition and the cost basis of the investment without regard to unrealized gains or losses previously recognized. We record current period changes in fair value of investments within net change in unrealized gain (loss) on the Consolidated Statements of Operations.

Table of Contents

Portfolio and Investment Activity:

The Company had $22,820,103 in principal repayments for the three months ended March 31, 2024, of which $23,305,664 was received in cash as of March 31, 2024 (with the remaining balance as the change in receivable from December 31, 2023). The Company had $1,752,227 in principal repayments for the three months ended March 31, 2023, respectively, of which $1,752,764 was paid in cash as of March 31, 2023 (with the remaining balance as receivable).

As of March 31, 2024 and December 31, 2023, the Company’s investments consisted of the following:

	March 31, 2024				December 31, 2023
Fair Value:
First Lien Senior Secured Loan	$	294,455,581	83.20	%	$	319,229,009	84.70	%
Second Lien Senior Secured Loan		6,067,024	1.70			6,059,372	1.60
Senior Unsecured Notes		1,265,130	0.40			1,384,446	0.40
Preferred Equity Securities		43,031,287	12.20			41,804,395	11.10
Warrants and Other Equity Securities		6,039,575	1.70			5,706,423	1.50
Fund Investments		2,818,111	0.80			2,809,327	0.70
Total	$	353,676,708	100.00	%	$	376,992,972	100.00	%

Table of Contents

The table below describes investments by industry composition based on fair value as of March 31, 2024 and December 31, 2023:

	March 31, 2024				December 31, 2023
Fair Value:
Aerospace & Defense	$	7,617,318	2.20	%	$	7,394,163	2.00	%
Chemicals		14,695,154	4.20			14,538,407	3.90
Commercial Services & Supplies		3,909,167	1.10			11,282,346	2.90
Construction & Engineering		57,290,515	16.10			55,540,524	14.70
Consumer Finance		3,745,556	1.10			3,617,879	1.00
Distributors		13,654,534	3.90			13,807,774	3.70
Diversified Consumer Services		15,168,714	4.30			15,182,176	4.00
Diversified Financials		2,818,111	0.80			2,809,327	0.70
Diversified Telecommunication Services		30,774,511	8.60			30,834,843	8.20
Electrical Equipment		8,294,272	2.30			8,320,050	2.20
Entertainment		15,926,614	4.50			18,478,875	4.90
Food Products		11,442,184	3.20			11,682,654	3.10
Healthcare Providers & Services		43,441,537	12.20			43,324,687	11.50
Hotels, Restaurants & Leisure		4,933,128	1.40			4,909,528	1.30
Household Durables		2,341,518	0.70			2,341,518	0.60
Household Products		4,746,300	1.30			4,465,076	1.20
IT Services		13,152,856	3.70			18,406,891	4.90
Leisure Products		2,342,286	0.70			3,852,760	1.00
Machinery		4,435,767	1.30			4,687,302	1.20
Media		26,543,977	7.50			25,870,278	6.90
Personal Products		4,539,782	1.30			4,457,979	1.20
Professional Services		36,621,006	10.40			36,611,515	9.70
Software		8,123,945	2.30			7,590,857	2.00
Specialty Retail		6,207,441	1.80			6,367,578	1.70
Trading Companies & Distributors		268,292	0.10			10,144,017	2.70
Transportation Infrastructure		10,642,223	3.00			10,473,968	2.80
Total	$	353,676,708	100.00	%	$	376,992,972	100.00	%

Table of Contents

Portfolio Asset Quality:

The Advisor employs an investment risk rating to assign each investment an investment grade no less than quarterly. The system is intended primarily to reflect the underlying risk of a portfolio investment relative to the Company’s initial cost basis in respect of such portfolio investment (i.e., at the time of origination), although it may also take into account under certain circumstances, the portfolio company’s cash flow generation relative to underwriting expectations, recent business performance trends, collateral coverage and other relevant factors. When necessary, the Advisor will update its investment risk ratings, borrowing base criteria and covenant compliance reports. The investment risk rating of a particular investment should not, however, be deemed to be a guarantee of the investment’s future performance.

Investment Performance Risk Rating		Summary Description
Grade 1		Investment is performing above expectations. Full return of principal, interest and dividend income is expected.
Grade 2		Investment is performing in-line with expectations. Risk factors remain neutral or favorable compared with initial underwriting. All investments are given a “2” at the time of origination
Grade 3		Investment is performing below expectations. Capital impairment or payment delinquency is not anticipated. The investment may also be out of compliance with certain financial covenants.
Grade 4		Investment is performing below expectations. Quantitative or qualitative risks have increased materially. Delinquency of interest and / or dividend payments is anticipated. No loss of principal anticipated.
Grade 5		Investment is performing substantially below expectations. It is anticipated that the Company will not recoup its initial cost basis and may realize a loss upon exit. Most or all of the debt covenants are out of compliance. Amortization, interest and / or dividend payments are substantially delinquent.

In the event of credit deterioration, the Advisor may form a team or engage outside advisors to preserve the value of the Company’s investment, including requirement of additional equitization from the ownership group or exercising other creditor rights.

For investments rated Grade 4 or Grade 5, the Advisor enhances its level of scrutiny over the monitoring of such portfolio company and will develop an action plan to address the underperformance. The Advisor’s senior investment team has extensive experience managing investments through workouts, restructurings, and bankruptcies.

The following table shows the distribution of the Company’s investments on the 1 to 5 investment performance risk rating scale as of March 31, 2024 and December 31, 2023:

	March 31, 2024					December 31, 2023
Investment Performance Risk Rating	Investments at Fair Value		Percentage of Total Investments			Investments at Fair Value		Percentage of Total Investments
1	$	17,638,720		5.00	%	$	25,158,510		6.70	%
2		244,593,621		69.20			255,233,299		67.70
3		41,162,546		11.60			41,858,365		11.10
4		40,322,985		11.40			52,401,280		13.90
5		9,958,836		2.80			2,341,518		0.60
Total	$	353,676,708		100.00	%	$	376,992,972		100.00	%

Results of Operations:

The following tables represent the operating results for the three months ended March 31, 2024 and 2023:

	For the three months ended March 31,
	2024			2023
Total investment income	$	12,456,786		$	10,173,230
Total expenses		6,734,287			6,112,140
Net investment income before fee waivers		5,722,499			4,061,090
Management fee waiver		-			197,509
Incentive fee waiver		-			719,565
Net investment income after fee waivers		5,722,499			4,978,164
Net realized gain (loss) on investments		-			-
Net change in unrealized gain (loss) on investments		(3,317,725	)		(705,598	)
Net increase (decrease) in net assets resulting from operations	$	2,404,774		$	4,272,566

Table of Contents

Investment Income:

The composition of the Company’s investment income was as follows for the three months ended March 31, 2024 and 2023:

	For the three months ended March 31,
	2024		2023
Non-controlled/non-affiliate investment income
Interest income	$	10,740,990	$	9,717,322
PIK interest income		1,425,439		220,183
Dividend income		-		118,693
Other income		137,528		40,720
Controlled/affiliate investment income
Interest income		107,726		28,501
PIK interest income		45,103		-
Dividend income		-		47,811
Total investment income	$	12,456,786	$	10,173,230

Operating Expenses:

The composition of the Company’s operating expenses was as follows for the three months ended March 31, 2024 and 2023:

	For the three months ended March 31,
	2024		2023
Interest and other financing fees	$	3,741,191	$	3,147,516
Incentive fees (Note 6)		1,225,518		1,064,526
Management fees (Note 6)		1,152,067		1,382,563
Professional fees		380,352		319,300
General and administrative fees		130,021		108,643
Legal expenses		81,518		69,866
Director expenses		23,620		19,726
Expenses		6,734,287		6,112,140
Management fee waiver		-		(197,509	)
Incentive fee waiver		-		(719,565	)
Total Expenses	$	6,734,287	$	5,195,066

Income Taxes, Including Excise Tax:

The Company has elected to be regulated as a BDC under the 1940 Act. The Company has also elected to be treated as a RIC under Subchapter M of the Code and intends to qualify annually as a RIC. As long as the Company maintains its status as a RIC, it generally will not pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that it distributes at least annually to its Stockholders. Rather, any tax liability related to income earned by the Company represents obligations of the Company’s Stockholders and will not be reflected in the consolidated financial statements of the Company.

To qualify as a RIC under Subchapter M of the Code, the Company must, among other things, meet certain source-of-income and asset diversification requirements. In addition, to qualify for RIC tax treatment, the Company must distribute to its Stockholders, for each taxable year, at least 90.0% of its “investment company taxable income” for that year, which is generally its ordinary income plus the excess of its realized net short-term capital gains over its realized net long-term capital losses. In order for the Company not to be subject to U.S. federal excise taxes, it must distribute annually an amount at least equal to the sum of (i) 98.0% of its net ordinary income (taking into account certain deferrals and elections) for the calendar year, (ii) 98.2% of its capital gains in excess of capital losses for the one year period ending October 31 in that calendar year and (iii) any net ordinary income and capital gains in excess of capital losses for preceding years that were not distributed during such years. The Company, at its discretion, may carry forward taxable income in excess of calendar year dividends and pay a 4.0% nondeductible U.S. federal excise tax on this income. For the three months ended March 31, 2024 and for the year ended December 31, 2023, the Company did not record a net expense on the Consolidated Statements of Operations for U.S. federal excise tax.

The Company accounts for income taxes in conformity with ASC Topic 740 — Income Taxes (“ASC Topic 740”). ASC Topic 740 provides guidelines for how uncertain tax positions should be recognized, measured, presented and disclosed in the consolidated financial statements. ASC Topic 740 requires the evaluation of tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current year. It is the Company’s policy to recognize accrued interest and penalties related to uncertain tax benefits in income tax expense. The Company did not record any uncertain income tax positions for the three months ended March 31, 2024 and the year ended December 31, 2023 on the Consolidated Statements of Assets and Liabilities.

Table of Contents

Net Increase (Decrease) in Net Assets Resulting from Operations:

For the three months ended March 31, 2024, the net increase (decrease) in net assets resulting from operations was $2,404,774. Based on the weighted average shares of Common Stock outstanding for the three months ended March 31, 2024, the Company’s per share net increase (decrease) in net assets resulting from operations was $0.31.

For the three months ended March 31, 2023, the net increase (decrease) in net assets resulting from operations was $4,272,566. Based on the weighted average shares of Common Stock outstanding for the three months ended March 31, 2023, the Company’s per share net increase (decrease) in net assets resulting from operations was $0.64.

Financial Condition, Liquidity and Capital Resources:

The Company will generate cash primarily from the net proceeds generated from private offerings, and from cash flows from fees, interest and dividends earned from investments and principal repayments, proceeds from sales of investments and borrowings under the Company’s Secured Credit Facility. The Company’s primary use of funds will be direct credit and equity investments in SMBs, payments of expenses and distributions to holders of the Company’s Common Stock and, to a lesser extent, the Company may invest in limited partnership interests of funds focused on making investments in SMBs. As of March 31, 2024 and December 31, 2023, the Company had approximately $3.3 million and $5.0 million, respectively, in cash on deposit with financial institutions and $149.5 million and $176.5 million, respectively, in debt outstanding.

In accordance with the 1940 Act, the Company generally is required to meet a coverage ratio of total assets to total borrowings and other senior securities, which include all borrowings and any preferred stock that may be issued in the future, of at least 150%. If this ratio declines below 150%, the Company cannot incur additional debt and could be required to sell a portion of the Company’s investments to repay some debt when it is disadvantageous to do so.

Capital Contributions:

For the three months ended March 31, 2024 and for the year ended December 31, 2023, the Company entered into subscription agreements (collectively, the “Subscription Agreements”) with new investors, providing for the private placement of common shares. Under the terms of the Subscription Agreements, investors are required to fund drawdowns to purchase common shares up to the amount of their respective capital commitments on an as-needed basis with a minimum of 8 business days’ prior notice. As of March 31, 2024 and December 31, 2023, the Company had received capital commitments totaling $222.5 million and $218.3 million, respectively.

The following tables summarize the issuance of shares for the three months ended March 31, 2024 and 2023:

Date	Price per share		Shares Issued		Proceeds
For the three months ended March 31, 2024:
Stock issued in connection with dividend reinvestment plan
January 31, 2024	$	24.98		120,133	$	3,000,821
Total				120,133	$	3,000,821

Date	Price per share		Shares Issued		Proceeds
For the three months ended March 31, 2023:
March 21, 2023	$	25.31		803,600	$	20,339,128
				803,600	$	20,339,128

Stock issued in connection with dividend reinvestment plan
January 26, 2023		25.34		86,086		2,181,430
				86,086		2,181,430
Total				889,686	$	22,520,558

Table of Contents

Distributions:

The Board will determine the timing and amount, if any, of the Company’s distributions. The Company intends to pay distributions on a quarterly basis. In order to avoid corporate-level tax on the distributed income as a RIC, the Company must distribute to Stockholders at least 90.0% of ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, on an annual basis out of the assets legally available for such distributions. In order for the Company to avoid certain excise taxes imposed on RICs, the Company currently intends to distribute, or be deemed to distribute, during each calendar year an amount at least equal to the sum of (1) 98.0% of the Company’s ordinary income for the calendar year, (2) 98.2% of the Company’s capital gain in excess of capital loss for the one-year period ending on October 31 of such calendar year and (3) any ordinary income and net capital gain for preceding years that were not distributed during such years and on which we paid no U.S. federal income tax.

The Company has adopted an “opt out” dividend reinvestment plan (“DRP”) for Stockholders. When a distribution is declared, Stockholders’ cash distributions will automatically be reinvested in additional shares of Common Stock unless a Stockholder specifically “opts out” of the Company’s DRP. Stockholders may opt out of the Company’s DRP by providing notice twenty (20) business days in advance of the distribution payment date.

The following table summarizes the settlement of distributions declared and recorded as of the three months ended March 31, 2024 and the subsequent payment and issuance of those distributions for the three months ended March 31, 2024:

Date Declared	Record Date	Payment/Issuance Date	Amount Per Share		Amount Paid in Cash		Amount Settled via Newly Issued Shares		Total
For the three months ended March 31, 2024
December 31, 2023	December 31, 2023	January 31, 2024	$	0.79	$	2,961,399	$	3,000,821	$	5,962,220
			$	0.79	$	2,961,399	$	3,000,821	$	5,962,220

The following table summarizes the settlement of distributions declared and recorded as of March 31, 2023, respectively, and the subsequent payment and issuance of those distributions for the three months ended March 31, 2023:

Date Declared	Record Date	Payment/Issuance Date	Amount Per Share		Amount Paid in Cash		Amount Settled via Newly Issued Shares		Total
For the three months ended March 31, 2023:
December 31, 2022	December 31, 2022	January 26, 2023	$	0.66	$	2,169,650	$	2,181,430	$	4,351,080
Total			$	0.66	$	2,169,650	$	2,181,430	$	4,351,080

Contractual Obligations:

On June 14, 2023, the Company entered into the Amended and Restated Investment Advisory Agreement with the Advisor, replacing the original Investment Advisory Agreement pursuant to which, effective on the Effective Date, the base management fee was reduced from 1.75% to 1.25% per annum of the average of the Company’s total gross assets (excluding cash or cash equivalents but including assets purchased with borrowed amounts) as of the end of each of the two most recently completed calendar quarters. As of the Effective Date, the Income Incentive Fee was reduced from 20% to 17.5% of the Company’s pre-incentive fee net investment income and Capital Gains incentive fee was reduced from 20% to 17.5% of cumulative realized capital gains as of the end of the fiscal year.

Payments for investment advisory services under the Amended and Restated Investment Advisory Agreement in future periods are equal to (a) a management fee calculated at an annual rate of 1.25% of the value of the Company’s gross assets and (b) an incentive fee based on the Company’s performance. The Company has entered into an administration agreement with the Advisor to serve as the Company’s Administrator. The Company anticipates that the Administrator will be reimbursed for administrative expenses incurred on the Company’s behalf.

Table of Contents

As of March 31, 2024 and December 31, 2023, the Secured Credit Facility commitment amounts were as follows:

	As of March 31, 2024		As of December 31, 2023
Secured Credit Facility Lender	Commitment		Commitment
Webster Bank	$	67,500,000	$	67,500,000
Blue Ridge Bank		25,000,000		25,000,000
First Foundation Bank		20,000,000		20,000,000
Mitsubishi HC Capital America, Inc.		20,000,000		20,000,000
Woodforest National Bank		20,000,000		20,000,000
Forbright Bank		17,500,000		17,500,000
Apple Bank		15,000,000		15,000,000
Peapack-Gladstone Bank		15,000,000		15,000,000
Total Commitment	$	200,000,000	$	200,000,000

As of March 31, 2024 and December 31, 2023, the total fair value of the borrowings outstanding under the Secured Credit Facility was $149,500,000 and $176,500,000, respectively.

The fair value of the borrowings outstanding under the Secured Credit Facility and the Revolving Credit Line are based on a market yield approach and current interest rates, which are Level 3 inputs to the market yield model. Interest expense incurred for the three months ended March 31, 2024 and 2023, totaled $3,288,169 and $2,505,614, respectively, which is included in interest and other financing fees on the Consolidated Statements of Operations. The unused commitment fees, amortization of deferred financing costs, and utilization fees for the three months ended March 31, 2024 and 2023, amounted to $453,022 and $641,902, respectively, which is included in interest and other financing fees on the Consolidated Statements of Operations. The unused fees payable and interest expense payable as of March 31, 2024 and December 31, 2023, are included in the credit facility interest payable on the Consolidated Statements of Assets and Liabilities. The utilization fees payable as of March 31, 2024 and December 31, 2023, are included in other payables on the Consolidated Statements of Assets and Liabilities.

Off-Balance Sheet Arrangements:

The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources of the Company.

Table of Contents

Critical Accounting Policies:

This discussion of the Company’s operating plans is based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S., or GAAP. The preparation of these consolidated financial statements will require the Advisor to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ. In addition to the discussion below, the Company’s critical accounting policies, including revenue recognition and taxes, have been described in Item 1. Note 2. Summary of Significant Accounting Policies.

Valuation of Portfolio Investments:

Investments for which market quotations are readily available are typically valued at those market quotations. To validate market quotations, the Company utilizes a number of factors to determine if the quotations are representative of fair value, including the source and number of the quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available are valued quarterly at fair value as determined in good faith by the Board, based on, among other considerations, the input of the Advisor, the Company’s Audit Committee and an independent third-party valuation firm, engaged at the direction of the Board.

The Board oversees a multi-step valuation process, which includes, among other procedures, the following:

•

the quarterly valuation process commences with each portfolio company or investment being initially evaluated by the investment professionals of the Advisor responsible for the monitoring of the portfolio investment;

•

the Advisor’s Valuation Committee reviews the valuations provided by the independent third-party valuation firm and develops a valuation recommendation. Valuation recommendations are presented to the Audit Committee of the Board;

•

the Audit Committee of the Board reviews valuation recommendations of the Advisor incorporating any adjustments or further supplements by the Advisor to the valuations; and

•

the Board discusses these valuations and determines the fair value of each investment in the portfolio in good faith, based on the input of the Advisor, the independent valuation firm, and the Audit Committee.

The Company applies Financial Accounting Standards Board Accounting Standards Codification 820, Fair Value Measurement (“ASC Topic 820”), as amended, which establishes a framework for measuring fair value in accordance with U.S. GAAP and required disclosures of fair value measurements. ASC Topic 820 determines fair value to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between market participants on the measurement date. Market participants are defined as buyers and sellers in the principal or most advantageous market (which may be a hypothetical market) that are independent, knowledgeable, and willing and able to transact. In accordance with ASC Topic 820, the Company considers its principal market to be the market that has the greatest volume and level of activity. ASC Topic 820 specifies a fair value hierarchy that prioritizes and ranks the level of observability of inputs used in determination of fair value.

The three-tier hierarchy of inputs is summarized below.

•	Level 1 - Quoted prices are available in active markets/exchanges for identical investments as of the reporting date.

•

•	Level 3 - Pricing inputs are unobservable for the investment and include activities where there is little, if any, market activity for the investment. The inputs into determination of fair value require significant management judgment and estimation.

The use of these valuation models requires significant estimation and judgment by the Advisor. The Advisor uses a third-party valuation firm to ensure fair values are determined on an independent basis. While the Company believes its valuation methods are appropriate, other market participants may value identical assets differently than the Company at the measurement date. The methods used by the Company may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. The Company may also have risk associated with its concentration of investments in certain geographic regions and industries.

The determination of what constitutes (“observable”) requires significant judgment by the Company. The Company considers observable data to be market data, which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, which may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement. The categorization of an investment within the hierarchy is based upon the pricing transparency of the investment and observability of prices and inputs may be reduced for many investments. This condition could cause the investment to be reclassified to a lower level within the fair value hierarchy.

Table of Contents

The Board, with the assistance of the Advisor, the Company’s Audit Committee, and independent third-party valuation firm(s) engaged at the direction of the Board, will determine the fair value of the Company’s assets, including such assets that are not publicly traded or whose market prices are not readily available, on at least a quarterly basis, in accordance with the terms of ASC Topic 820, Fair Value Measurement and Disclosures. The Audit Committee is comprised of the Independent Directors.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

The Company is subject to financial market risks, including changes in interest rates. The Company invests primarily in illiquid debt securities of private companies. Most of the Company’s investments do not have a readily available market price, and the Company values these investments at fair value as determined in good faith by the Board, based on, among other considerations, the input of the Advisor, the Company’s Audit Committee and an independent third-party valuation firm, engaged at the direction of the Board in accordance with the Company’s valuation policy. There is no single standard 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 the Company makes.

The majority of the loans in the Company’s portfolio have floating interest rates, and we expect that the Company’s loans in the future may also have floating interest rates. These loans are usually based on a floating benchmark rate (e.g., 3-month SOFR) plus a spread and typically have interest rate re-set provisions that adjust applicable interest rates under such loans to current market rates on a monthly or quarterly basis. The majority of the loans in the Company’s current portfolio have interest rate floors which will effectively convert the loans to fixed rate loans for certain periods of time during which the floating rate benchmark is less than such interest rate floor.

All of the Company’s relevant credit agreements have transitioned to the Secured Overnight Financing Rate (“SOFR”) as of December 31, 2023.

LIBOR was the basic rate of interest used in lending transactions between banks on the London interbank market and has been widely used as a reference for setting the interest rate on loans globally. As a result of benchmark reforms, publication of most LIBOR settings has ceased. Some LIBOR settings continue to be published but only on a temporary, synthetic and non-representative basis. All such synthetic LIBOR settings are expected to be discontinued by September 30, 2024. When publication of applicable synthetic LIBOR settings ceases, any still outstanding loans, notes, derivatives and other instruments or investments using synthetic LIBOR settings are expected to transition to alternative floating rate benchmarks. Regulated entities have generally ceased entering into new LIBOR contracts in connection with regulatory guidance or prohibitions. As a result of legislative mechanisms and industry-wide efforts to replace LIBOR with alternative floating-rate benchmarks, LIBOR has been replaced in many loans, notes, derivatives and other instruments or investments.

The final cessation of LIBOR or the adoption of one or more replacement rates that are significantly different from LIBOR could cause a disruption in the credit markets generally. Such a disruption could have an adverse impact on the market value of and/or transferability of any LIBOR-linked or formally LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to us or on our overall financial condition or results of operations. It is not possible to predict the effect of any of these developments, and any future initiatives to regulate, reform or change the manner of administration of LIBOR or any replacement rate used instead of LIBOR could result in adverse consequences to the rate of interest payable and receivable on, market value of and market liquidity for floating rate financial instruments.

In addition, the transition from LIBOR to SOFR, SONIA and the adoption of these or other alternative reference rates may also introduce operational risks in our accounting, financial reporting, loan servicing, liability management and other aspects of our business.

A reduction in the interest rates on new investments relative to interest rates on current investments could also have an adverse impact on the Company’s net interest income. An increase in interest rates could decrease the value of any investments the Company holds which earn fixed interest rates, including subordinated loans, senior and junior secured and unsecured debt securities and loans and high yield bonds, and also could increase the Company’s interest expense, thereby decreasing its net income. Also, an increase in interest rates available to investors could make investment in the Company less attractive if the Company is not able to increase its dividend or distribution rate, which could reduce the value of an investment in the Company.

Investors should also be aware that a change in the general level of interest rates can be expected to lead to a change in the interest rate the Company may receive on many of its debt investments. Accordingly, a change in the interest rate could make it easier for the Company to meet or exceed the performance threshold and may result in a substantial increase in the amount of incentive fees payable to the Advisor with respect to the portion of the incentive fee based on income.

Table of Contents

Assuming that the Consolidated Statements of Assets and Liabilities as of March 31, 2024, was to remain constant and that we took no actions to alter the Company’s existing interest rate sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates:

Change in Interest Rates	Increase (decrease) in interest income			Increase (decrease) in interest expense			Net increase (decrease) in net investment income
Down 100 basis points	$	(2,866,071	)	$	(1,495,000	)	$	(1,371,071	)
Down 50 basis points		(1,443,642	)		(747,500	)		(696,142	)
Down 25 basis points		(728,997	)		(373,750	)		(355,247	)
Up 25 basis points		740,704			373,750			366,954
Up 50 basis points		1,481,409			747,500			733,909
Up 100 basis points		2,962,818			1,495,000			1,467,818
Up 200 basis points		5,925,636			2,990,000			2,935,636
Up 300 basis points		8,888,454			4,485,000			4,403,454

Although we believe that this analysis is indicative of the Company’s existing sensitivity to interest rate changes, it does not adjust for changes in the credit market, credit quality, the size and composition of the assets in the Company’s portfolio and other business developments, including borrowing under the credit facility or other borrowings that could affect net increase in net assets resulting from operations, or net income. Accordingly, we can offer no assurances that actual results would not differ materially from the analysis above.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s disclosure controls and procedures are designed to provide reasonable assurances that information required to be disclosed in this Quarterly Report on Form 10-Q and other reports that we file under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the required time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

The Company’s management, including our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the evaluation of these disclosure controls and procedures, the Company’s management, including our Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2024. It should be noted that any system of controls, regardless of design and execution, can provide only reasonable assurance of achieving the desired control objectives.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1.

Legal Proceedings

The Company is not currently subject to any material legal proceedings, nor, to the Company’s knowledge, is any material legal proceeding threatened against us. From time to time, the Company may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of the Company’s rights under loans to or other contracts with the Company’s portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, the Company does not expect that these proceedings will have a material effect upon the Company’s financial condition or results of operations.

Item 1A.

Risk Factors

There have been no material changes during the three months ended March 31, 2024 to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on April 1, 2024. If any of such changes or risks actually occur, our business, financial condition or results of operations could be materially adversely affected. If that happens, the value of our securities could decline, and you may lose all or part of your investment.

Table of Contents

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Except as previously reported by the Company on its current reports on Form 8-K, the Company did not sell any securities during the period covered by this Form 10-Q that were not registered under the Securities Act.

Item 3.

Defaults Upon Senior Securities

Not applicable.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

During the fiscal quarter ended March 31, 2024, none of our directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”

On May 9, 2024, the Company entered into a fourth amendment (the “Fourth Amendment”) to the Loan and Servicing Agreement dated as of July 2, 2021 (as amended or otherwise modified, the “Secured Credit Facility”) to extend the revolving period by 3 years to July 2, 2027, as well as extend the maturity date by 3 years to June 30, 2028. Additionally, the interest rate was amended to 3M SOFR + 2.95%.

In conjunction with the Fourth Amendment, Dime Community Bank and Hanmi Bank agreed to become lenders with $25.0 million and $15.5 million commitments, respectively, to replace Blue Ridge Bank and Forbright Bank to keep total commitments on the Facility at $200.0 million.

Item 6.

Exhibits

The exhibits filed as part of this Form 10-Q are set forth on the Index to Exhibits, which is incorporated herein by reference.

Table of Contents

INDEX TO EXHIBITS

Exhibit Number		Description of Document

3.1		Certificate of Incorporation (incorporated by reference to the Company’s Form 10 Registration Statement filed on May 7, 2021)

3.1.1		Certificate of Conversion to a Corporation (incorporated by reference to the Company’s Form 10 Registration Statement filed on May 7, 2021)

3.2		By-Laws (incorporated by reference to the Company’s Form 10 Registration Statement filed on May 7, 2021)

4.1		Form of Subscription Agreement (incorporated by reference to the Company’s Form 10 Registration Statement filed on May 7, 2021)

10.1		Investment Advisory Agreement between Star Mountain Credit Opportunities Fund, LP and Star Mountain Fund Management, LLC (incorporated by reference to the Company’s Form 10 Registration Statement filed on May 7, 2021)

10.2		Amended and Restated Investment Advisory Agreement dated as of June 14, 2023 between Star Mountain Credit Opportunities Fund, LP and Star Mountain Fund Management, LLC (incorporated by reference to the Company’s Current Report on Form 8-K (File No. 814-01399), filed on June 16, 2023)

10.3		Administration Agreement between Star Mountain Credit Opportunities Fund, LP and Star Mountain Fund Management LLC (incorporated by reference to the Company’s Form 10 Registration Statement filed on May 7, 2021)

10.4		Loan and Servicing Agreement, dated as of July 2, 2021, by and among Star Mountain Lower Middle-Market Capital Corp., as borrower, the lenders party thereto and Sterling National Bank, in its capacities as collateral agent and administrative agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-56259), filed on July 15, 2021)

10.5		First Amendment to Revolving Credit Agreement, dated as of November 10, 2021, by and among the Company, as Borrower, and Sterling National Bank, as Administrative Agent and the Letter of Credit Issuer, and the Lenders party thereto (incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on November 12, 2021)

10.6		Second Amendment to Revolving Credit Agreement, dated as of January 12, 2022, by and among the Company, as Borrower, and Sterling National Bank, as Administrative Agent and the Letter of Credit Issuer, and the Lenders party thereto (incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on January 14, 2022)

10.7		Amendment to Loan and Servicing Agreement and Joinder Agreement, dated as of May 6, 2022, by and among the Company, as Borrower, and Webster Bank, N.A. (f/k/a Sterling National Bank), as Administrative Agent and the Letter of Credit Issuer, and the Lenders party thereto (incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on May 12, 2022)

10.8		Second Amendment to Loan and Servicing Agreement, dated as of September 16, 2022, by and among the Company, as Borrower, and Webster Bank, N.A. (f/k/a Sterling National Bank), as Collateral Agent, Administrative Agent, Swing Lender, and Sole Lead Arranger, and the Lenders party thereto (incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on September 20, 2022)

10.9*^		Fourth Amendment to Loan and Servicing Agreement, dated as of May 9, 2024, by and among the Company, as Borrower, and Webster Bank, N.A. (f/k/a Sterling National Bank), as Collateral Agent, Administrative Agent, Swing Lender, and Sole Lead Arranger, and the Lenders party thereto (filed herewith)

31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1**		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2**		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	Filed herewith.
**	Furnished herewith.
^	Certain portions of this exhibit have been omitted in accordance with Item 601(b)(10)(vi) of Regulation S-K. The registrant agrees to furnish supplementally an unredacted copy of this exhibit to the Securities and Exchange Commission upon its request.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Star Mountain Lower Middle-Market Capital Corp.

Date: May 14, 2024	By:	/s/ Brett A. Hickey
	Name:	Brett A. Hickey
	Title:	Chief Executive Officer and President

Date: May 14, 2024	By:	/s/ Christopher J. Gimbert
	Name:	Christopher J. Gimbert
	Title:	Chief Financial Officer

		Page
Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Assets and Liabilities as of March 31, 2024 (Unaudited) and December 31, 2023	2
	Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023 (Unaudited)	3
	Consolidated Statements of Changes in Net Assets for the three months ended March 31, 2024 and 2023 (Unaudited)	4
	Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 (Unaudited)	5
	Consolidated Schedules of Investments as of March 31, 2024 (Unaudited) and December 31, 2023	6
	Notes to Consolidated Financial Statements (Unaudited)	15
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	50
Item 4.	Controls and Procedures	51

Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 3.	Defaults Upon Senior Securities	52
Item 4.	Mine Safety Disclosures	52
Item 5.	Other Information	52
Item 6.	Exhibits	52
Signatures		54