##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
 For the Quarter Ended June 30, 2005
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
 Commission File Number: 0-51459
 PATRIOT CAPITAL FUNDING, INC.
  Delaware
    
    74-3068511(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 61 Wilton Road, Second FloorWestport, CT
    
    06880(Address of principal executive office)
    
    (Zip Code)
 (203) 227-7778
  o þ
 o þ
 o o




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##### 



PATRIOT CAPITAL FUNDING, INC.
 FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2005
 TABLE OF CONTENTS
 PART I
    
    FINANCIAL INFORMATION
    
    1Item 1.
    
    Financial Statements (Unaudited)
    
    1Combined Balance Sheets for June 30, 2005 and December 31, 2004
    
    1Combined Statements of Operations for the three and six months ended June 30, 2005 and 2004
    
    2Combined Statements of
Stockholders Equity for the six months ended June 30, 2005
    
    3Combined Statements of Cash Flows for the six months ended June 30, 2005 and 2004
    
    4Combined Schedule of Investments as of June 30, 2005
    
    5Combined Schedule of Investments as of December 31, 2004
    
    7Notes to Combined Financial Statements
    
    9Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    24Item 4.
    
    Controls and Procedures
    
    24PART II
    
    OTHER INFORMATION
    
    25Item 1.
    
    Legal Proceedings
    
    25Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    25Item 3.
    
    Defaults upon Senior Securities
    
    25Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    25Item 5.
    
    Other Information
    
    26Item 6.
    
    Exhibits
    
    26Signatures
    
    27




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##### 



PART I. FINANCIAL INFORMATION
 Item 1. Financial Statements
 Patriot Capital Funding, Inc.
 Combined Balance Sheets
(unaudited)
 June 30,
    
    
    December 31,2005
    
    
    2004ASSETSInvestments at fair value:Investments in debt securities
(cost of $85,101,404 - 2005,
$68,051,712 - 2004)
    
    $
    85,101,404
    
    
    $
    67,245,923Investments in equity securities (cost of $522,310 - 2005,
$502,060 - 2004)
    
    
    326,300
    
    
    
    431,828Unearned income
    
    
    (2,297,820
    )
    
    
    (2,073,921
    )Total investments
    
    
    83,129,884
    
    
    
    65,603,830Cash and cash equivalents
    
    
    1,616,960
    
    
    
    2,491,477Restricted cash
    
    
    4,000,000
    
    
    
    3,000,000Interest receivable
    
    
    697,665
    
    
    
    615,243Other assets
    
    
    1,068,477
    
    
    
    328,313TOTAL ASSETS
    
    $
    90,512,986
    
    
    $
    72,038,863LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIESBorrowings
    
    $
    58,090,875
    
    
    $
    41,645,458Notes payable
    
    
    200,000
    
    
    
    1,000,000Interest payable
    
    
    486,271
    
    
    
    283,096Management fee payable
    
    
    1,291,666
    
    
    
    916,666Accounts payable and accrued expenses
    
    
    1,703,245
    
    
    
    881,725TOTAL LIABILITIES
    
    
    61,772,057
    
    
    
    44,726,945STOCKHOLDERS EQUITYCommon stock, $.01 par value, 49,000,000 shares authorized;
3,847,902 shares issued and outstanding at June 30, 2005,
and December 31, 2004
    
    
    38,479
    
    
    
    38,479Paid-in capital
    
    
    30,061,521
    
    
    
    30,061,521Accumulated undistributed investment loss
    
    
    (1,163,061
    )
    
    
    (1,912,061
    )Net unrealized depreciation on investments
    
    
    (196,010
    )
    
    
    (876,021
    )TOTAL STOCKHOLDERS EQUITY
    
    
    28,740,929
    
    
    
    27,311,918TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    90,512,986
    
    
    $
    72,038,863NET ASSET VALUE PER COMMON SHARE
    
    $
    7.47
    
    
    $
    7.10
  1




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##### 



Patriot Capital Funding, Inc.
 Combined Statements of Operations (unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004INVESTMENT INCOMEInterest income
    
    $
    2,792,453
    
    
    $
    898,191
    
    
    $
    5,099,690
    
    
    $
    1,769,363Fees
    
    
    34,497
    
    
    
    92,560
    
    
    
    65,497
    
    
    
    106,780Total Investment Income
    
    
    2,826,950
    
    
    
    990,751
    
    
    
    5,165,187
    
    
    
    1,876,143EXPENSESSalaries and benefits
    
    
    461,879
    
    
    
    195,929
    
    
    
    890,229
    
    
    
    387,538Consulting fees
    
    
    250,000
    
    
    
    250,000
    
    
    
    500,000
    
    
    
    500,000Interest
    
    
    1,349,326
    
    
    
    274,209
    
    
    
    2,401,666
    
    
    
    553,150Professional fees
    
    
    166,866
    
    
    
    36,560
    
    
    
    236,179
    
    
    
    92,732General and administrative
    
    
    120,647
    
    
    
    42,817
    
    
    
    388,113
    
    
    
    84,790Total Expenses
    
    
    2,348,718
    
    
    
    799,515
    
    
    
    4,416,187
    
    
    
    1,618,210Net Investment Income
    
    
    478,232
    
    
    
    191,236
    
    
    
    749,000
    
    
    
    257,933Net change in unrealized appreciation (depreciation)
on investments
    
    
    (170,450
    )
    
    
    
    
    
    
    680,011
    
    
    
    NET INCOME
    
    $
    307,782
    
    
    $
    191,236
    
    
    $
    1,429,011
    
    
    $
    257,933Earnings per share, basic and diluted
    
    $
    0.08
    
    
    $
    0.05
    
    
    $
    0.37
    
    
    $
    0.07Weighted average shares outstanding, basic and diluted
    
    
    3,847,902
    
    
    
    3,847,902
    
    
    
    3,847,902
    
    
    
    3,847,902
  2




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##### 



Patriot Capital Funding, Inc.
 Combined Statements of Stockholders Equity (unaudited)
 Accumulated
    
    
    NetUndistributed
    
    
    UnrealizedInvestment
    
    
    Appreciation
    
    
    TotalCommon
    
    
    Paid-in
    
    
    Income
    
    
    (Depreciation)
    
    
    StockholdersStock
    
    
    Capital
    
    
    (Loss)
    
    
    on Investments
    
    
    EquityBalance, December 31, 2004
    
    $
    38,479
    
    
    $
    30,061,521
    
    
    $
    (1,912,061
    )
    
    $
    (876,021
    )
    
    $
    27,311,918Net income
    
    
    
    
    
    
    
    
    
    
    749,000
    
    
    
    680,011
    
    
    
    1,429,011Balance, June 30, 2005
    
    $
    38,479
    
    
    $
    30,061,521
    
    
    $
    (1,163,061
    )
    
    $
    (196,010
    )
    
    $
    28,740,929
  3




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##### 



Patriot Capital Funding, Inc.
 Combined Statements of Cash Flows (unaudited)
 Six Months EndedJune 30,2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    1,429,011
    
    
    $
    257,933Adjustments to reconcile net income to net cash provided
by (used for) operating activities:Depreciation and amortization
    
    
    11,544
    
    
    
    9,402Change in interest receivable
    
    
    (82,422
    )
    
    
    (130,750
    )Change in unrealized appreciation
    
    
    (680,011
    )
    
    
    Increase in payment-in-kind interest
    
    
    (840,942
    )
    
    
    (264,994
    )Change in unearned income
    
    
    203,649
    
    
    
    (6,456
    )Change in interest payable
    
    
    203,175
    
    
    
    534,471Change in management fee payable
    
    
    375,000
    
    
    
    500,000Change in other assets
    
    
    
    
    
    
    (573,740
    )Change in accounts payable and accrued expenses
    
    
    821,520
    
    
    
    (419,862
    )Net cash provided by (used for) operating activities
    
    
    1,440,524
    
    
    
    (93,996
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of investments
    
    
    (17,900,000
    )
    
    
    (2,000,000
    )Principal repayments on investments
    
    
    1,691,250
    
    
    
    618,709Proceeds from investment sales
    
    
    
    
    
    
    2,000,000Purchase of furniture and equipment
    
    
    (3,882
    )
    
    
    (3,202
    )Net cash provided by (used for) investing activities
    
    
    (16,212,632
    )
    
    
    615,507CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings
    
    
    18,900,000
    
    
    
    1,850,000Repayments on borrowings
    
    
    (3,254,583
    )
    
    
    (3,894,967
    )Increase in deferred offering costs
    
    
    (747,826
    )
    
    
    Decrease (increase) in restricted cash
    
    
    (1,000,000
    )
    
    
    2,000,000Net cash provided by (used for) financing activities
    
    
    13,897,591
    
    
    
    (44,967
    )NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
    
    
    (874,517
    )
    
    
    476,544CASH AND CASH EQUIVALENTS AT:Beginning of Period
    
    
    2,491,477
    
    
    
    1,245,981End of Period
    
    $
    1,616,960
    
    
    $
    1,722,525Supplemental information:Interest paid
    
    $
    2,198,499
    
    
    $
    453,495
  4




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##### 



Patriot Capital Funding, Inc.
 Combined Schedule of Investments (unaudited)
June 30, 2005
 Company(1)
    
    Industry
    
    Investment
    
    Principal
    
    
    Cost
    
    
    Fair Value(3)Agent Media Corporation
    
    Publisher of insurance
industry periodicals
    
    Senior Secured Term Loan A
(9.8%, Due 9/08)
    
    $
    1,625,000
    
    
    $
    1,625,000
    
    
    $
    1,625,000Senior Secured Term Loan
B(2)(16.0%, Due 9/09)
    
    
    2,066,550
    
    
    
    2,066,550
    
    
    
    2,066,550Common Stock Warrants,
Less than 5% of Co.(4)
    
    
    
    
    
    
    31,000
    
    
    
    35,800Allied Defense Group, Inc.
    
    Diversified defense company
    
    Senior Secured
Acquisition Line of
Credit (11.5%, Due 11/10)
    
    
    2,000,000
    
    
    
    2,000,000
    
    
    
    2,000,000Common Stock Warrants,
Less than 5% of Co.(4)
    
    
    
    
    
    
    56,128
    
    
    
    64,500Borga, Inc.
    
    Manufacturer of pre-fabricated
metal building systems
    
    Senior Secured Term Loan A
(6.9%, Due 3/09)
    
    
    3,300,000
    
    
    
    3,300,000
    
    
    
    3,300,000Senior Secured Term Loan B
(9.9%, Due 5/10)
    
    
    2,493,750
    
    
    
    2,493,750
    
    
    
    2,493,750Senior Secured Term Loan C
(16.0%, Due 5/10)
    
    
    7,042,842
    
    
    
    7,042,842
    
    
    
    7,042,842Common Stock Warrants,
Less than 5% of Co.(4)
    
    
    
    
    
    
    20,250
    
    
    
    13,500Copperhead Chemical
Company, Inc.
    
    Manufacturer of
bulk pharmaceuticals
    
    Senior Subordinated Debt(2)
(15.3%, Due 11/10)
    
    
    4,591,804
    
    
    
    4,591,804
    
    
    
    4,591,804Dover Saddlery, Inc.
    
    Equestrian products
catalog retailer
    
    Senior Subordinated
Debt(2) (17.3%, Due 3/07)
    
    
    3,769,236
    
    
    
    3,769,236
    
    
    
    3,769,236Encore Legal Solutions, Inc.
    
    Legal document
management services
    
    Junior Secured Term Loan A
(8.2%, Due 12/08)
    
    
    5,110,000
    
    
    
    5,110,000
    
    
    
    5,110,000Junior Secured Term Loan B
(8.3%, Due 12/09)
    
    
    6,979,625
    
    
    
    6,979,625
    
    
    
    6,979,625Senior Subordinated
Debt(2)(15.0%, Due 5/10)
    
    
    4,871,730
    
    
    
    4,871,730
    
    
    
    4,871,730Common Stock Warrants,
Less than 5% of Co.(4)
    
    
    
    
    
    
    350,000
    
    
    
    212,500Interstate Highway Sign
Corporation
    
    Manufacturer of
highway and roadway signs
    
    Senior Secured Term Loan
(8.6%, Due 12/09)
    
    
    1,510,000
    
    
    
    1,510,000
    
    
    
    1,510,000Senior Subordinated
Debt(2) (16.0%, Due 12/09)
    
    
    5,719,476
    
    
    
    5,719,476
    
    
    
    5,719,476
 5




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##### 



Company(1)
    
    Industry
    
    Investment
    
    Principal
    
    
    Cost
    
    
    Fair Value(3)Common Stock Warrants,
Less than 5% of Co.(4)
    
    
    
    
    
    
    59,932
    
    
    L.A. Spas, Inc.
    
    Manufacturer of above
ground spas
    
    Senior Subordinated
Debt(2) (15.5%, Due 1/10)
    
    
    6,656,449
    
    
    
    6,656,449
    
    
    
    6,656,449Common Stock Warrants,
Less than 5% of Co.(4)
    
    
    
    
    
    
    5,000
    
    
    Prince Mineral Company,
Inc.
    
    Manufacturer of
pigments
    
    Junior Secured Term Loan
(11.0%, Due 9/10)
    
    
    3,600,000
    
    
    
    3,600,000
    
    
    
    3,600,000Senior Subordinated
Debt(2) (17.0%, Due 5/11)
    
    
    10,022,617
    
    
    
    10,022,617
    
    
    
    10,022,617R-O-M Corporation
    
    Manufacturer of doors, ramps and bulk
heads for fire trucks and food transportation
    
    Senior Secured Term Loan A
(7.5%, Due 12/09)
    
    
    3,400,000
    
    
    
    3,400,000
    
    
    
    3,400,000Senior Secured Term Loan B
(8.5%, Due 12/10)
    
    
    3,400,000
    
    
    
    3,400,000
    
    
    
    3,400,000Senior Subordinated
Debt(2) (16.0%, Due 12/10)
    
    
    6,942,325
    
    
    
    6,942,325
    
    
    
    6,942,325Total Investments
    
    
    
    
    
    
    
    
    
    
    85,623,714
    
    
    
    85,427,704Unearned Income
    
    
    
    
    
    
    
    
    
    
    (2,297,820
    )
    
    
    (2,297,820
    )Total Investments Net of Unearned
Income
    
    
    
    
    
    
    
    
    
    $
    83,325,894
    
    
    $
    83,129,884
 
 (1)
    
    We do not control, and are not an affiliate of, any of our portfolio companies, each as defined in the Investment Company Act of 1940, as amended
(the 1940 Act). In general, under the 1940 Act, we would control a portfolio company if we owned 25% or more of its voting securities and would be
an affiliate of a portfolio company if we owned 5% or more of its voting securities.(2)
    
    Amount includes payment-in-kind (PIK) interest.(3)
    
    Fair value is determined in good faith by our board of directors.(4)
    
    Non-income producing. 6




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##### 



Patriot Capital Funding, Inc.
 Combined Schedule of Investments
December 31, 2004
 Company(1)
    
    Industry
    
    Investment
    
    Principal
    
    
    Cost
    
    
    Fair Value(3)Agent Media Corporation
    
    Publisher of insurance
industry periodicals
    
    Senior Secured Term Loan A
(9.8%, Due 9/08)
    
    $
    1,875,000
    
    
    $
    1,875,000
    
    
    $
    1,875,000Senior Secured Term Loan B(2)
(16.0%, Due 9/09)
    
    
    2,025,608
    
    
    
    2,025,608
    
    
    
    2,025,608Common Stock Warrants, Less than
5% of Co.(4)
    
    
    
    
    
    
    31,000
    
    
    
    25,700Allied Defense Group, Inc.
    
    Diversified defense
company
    
    Senior Secured Acquisition Line
of
Credit (11.5%, Due 11/10)
    
    
    2,000,000
    
    
    
    2,000,000
    
    
    
    2,000,000Common Stock Warrants, Less than
5% of Co.(4)
    
    
    
    
    
    
    56,128
    
    
    
    56,128Copperhead Chemical
Company, Inc.
    
    Manufacturer of
bulk pharmaceuticals
    
    Senior Subordinated Debt(2)
(15.3%, Due 11/10)
    
    
    4,517,482
    
    
    
    4,517,482
    
    
    
    4,517,482Dover Saddlery, Inc.
    
    Equestrian products
catalog retailer
    
    Senior Subordinated Debt(2)
(17.3%, Due 3/07)
    
    
    3,681,328
    
    
    
    3,681,328
    
    
    
    3,681,328Encore Legal Solutions, Inc.
    
    Legal document
management services
    
    Junior Secured Term Loan A
(7.4%, Due 12/08)
    
    
    5,560,000
    
    
    
    5,560,000
    
    
    
    5,560,000Junior Secured Term Loan B
(8.3%,
Due 12/09)
    
    
    7,014,625
    
    
    
    7,014,625
    
    
    
    7,014,625Senior Subordinated Debt(2)
(15.0%, Due 5/10)
    
    
    4,799,073
    
    
    
    4,799,073
    
    
    
    4,799,073Common Stock Warrants, Less than
5% of Co.(4)
    
    
    
    
    
    
    350,000
    
    
    
    350,000Interstate Highway Sign
Corporation
    
    Manufacturer of highway
and roadway signs
    
    Senior Secured Term Loan (7.4%,
Due 12/09)
    
    
    2,260,000
    
    
    
    2,260,000
    
    
    
    2,260,000Senior Subordinated Debt(2)
(16.0%, Due 12/09)
    
    
    5,605,789
    
    
    
    5,605,789
    
    
    
    4,800,000Common Stock Warrants, Less than
5% of Co.(4)
    
    
    
    
    
    
    59,932
    
    
    L.A. Spas, Inc.
    
    Manufacturer of above
ground spas
    
    Senior Subordinated Debt(2)
(15.5%, Due 1/10)
    
    
    6,540,507
    
    
    
    6,540,507
    
    
    
    6,540,507Common Stock Warrants, Less than
5% of Co.(4)
    
    
    
    
    
    
    5,000
    
    
    
 7




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##### 



Company(1)
    
    Industry
    
    Investment
    
    Principal
    
    
    Cost
    
    
    Fair Value(3)Prince Mineral Company,
Inc.
    
    Manufacturer of
pigments
    
    Junior Secured Term Loan (10.3%,
Due 9/10)
    
    
    3,600,000
    
    
    
    3,600,000
    
    
    
    3,600,000Senior Subordinated Debt(2)
(17.0%, Due 5/11)
    
    
    4,965,500
    
    
    
    4,965,500
    
    
    
    4,965,500R-O-M Corporation
    
    Manufacturer of doors,
ramps and bulk heads
for fire trucks and
food transportation
    
    Senior Secured Term Loan A
(7.5%, Due 12/09)
    
    
    3,400,000
    
    
    
    3,400,000
    
    
    
    3,400,000Senior Secured Term Loan B
(8.5%, Due 12/10)
    
    
    3,400,000
    
    
    
    3,400,000
    
    
    
    3,400,000Senior Subordinated Debt(2)
(16.0%, Due 12/10)
    
    
    6,806,800
    
    
    
    6,806,800
    
    
    
    6,806,800Total Investments
    
    
    
    
    
    
    
    
    
    
    68,553,772
    
    
    
    67,677,751Unearned Income
    
    
    
    
    
    
    
    
    
    
    (2,073,921
    )
    
    
    (2,073,921
    )Total Investments Net of Unearned
Income
    
    
    
    
    
    
    
    
    
    $
    66,479,851
    
    
    $
    65,603,830
 
 (1)
    
    We do not control, and are not an affiliate of, any of our portfolio companies, each as defined in the Investment Company Act of 1940, as amended (the 1940
Act). In general, under the 1940 Act, we would control a portfolio company if we owned 25% or more of its voting securities and would be an affiliate of a
portfolio company if we owned 5% or more of its voting securities.(2)
    
    Amount includes payment-in-kind (PIK) interest.(3)
    
    Fair value is determined in good faith by our board of directors.(4)
    
    Non-income producing. 8




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##### 



Patriot Capital Funding, Inc.
 
 Notes to Combined Financial Statements (unaudited)
        June 30, 2005
    
    
    December 31, 2004Cost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair ValueCommercial loans
    
    $
    85,101,404
    
    
    $
    85,101,404
    
    
    $
    68,051,712
    
    
    $
    67,245,923Investments in equity securities
    
    
    522,310
    
    
    
    326,300
    
    
    
    502,060
    
    
    
    431,828Unearned income
    
    
    (2,297,820
    )
    
    
    (2,297,820
    )
    
    
    (2,073,921
    )
    
    
    (2,073,921
    )Total
    
    $
    83,325,894
    
    
    $
    83,129,884
    
    
    $
    66,479,851
    
    
    $
    65,603,830
   9




---



##### 



June 30, 2005
    
    
    December 31, 2004Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)
    
    
    Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)Senior Secured Debt
    
    $
    26,838,142
    
    
    
    31.4
    
    
    $
    26,838,142
    
    
    
    31.4
    %
    
    $
    14,960,608
    
    
    
    21.8
    %
    
    $
    14,960,608
    
    
    
    22.1
    %Junior Secured Debt
    
    
    15,689,625
    
    
    
    18.3
    
    
    
    15,689,625
    
    
    
    18.4
    
    
    
    16,174,625
    
    
    
    23.6
    
    
    
    16,174,625
    
    
    
    23.9Subordinated Debt
    
    
    42,573,637
    
    
    
    49.7
    
    
    
    42,573,637
    
    
    
    49.8
    
    
    
    36,916,479
    
    
    
    53.9
    
    
    
    36,110,690
    
    
    
    53.4Warrants to Acquire Equity
    
    
    522,310
    
    
    
    0.6
    
    
    
    326,300
    
    
    
    0.4
    
    
    
    502,060
    
    
    
    0.7
    
    
    
    431,828
    
    
    
    0.6Total
    
    $
    85,623,714
    
    
    
    100.0
    %
    
    $
    85,427,704
    
    
    
    100.0
    %
    
    $
    68,553,772
    
    
    
    100.0
    %
    
    $
    67,677,751
    
    
    
    100.0
    %
 
 (1)
    
    - Represents percentage of total portfolio.  June 30, 2005
    
    
    December 31, 2004Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)
    
    
    Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)Manufacturing
    
    $
    52,102,996
    
    
    
    60.9
    %
    
    $
    52,036,314
    
    
    
    60.9
    %
    
    $
    34,615,503
    
    
    
    50.5
    %
    
    $
    33,749,782
    
    
    
    49.9
    %Service
    
    
    17,311,355
    
    
    
    20.2
    
    
    
    17,173,855
    
    
    
    20.1
    
    
    
    17,723,698
    
    
    
    25.9
    
    
    
    17,723,698
    
    
    
    26.2Consumer /Retail Goods
    
    
    10,430,685
    
    
    
    12.2
    
    
    
    10,425,685
    
    
    
    12.2
    
    
    
    10,226,835
    
    
    
    14.9
    
    
    
    10,221,835
    
    
    
    15.1Publishing
    
    
    3,722,550
    
    
    
    4.3
    
    
    
    3,727,350
    
    
    
    4.4
    
    
    
    3,931,608
    
    
    
    5.7
    
    
    
    3,926,308
    
    
    
    5.8Defense
    
    
    2,056,128
    
    
    
    2.4
    
    
    
    2,064,500
    
    
    
    2.4
    
    
    
    2,056,128
    
    
    
    3.0
    
    
    
    2,056,128
    
    
    
    3.0Total
    
    $
    85,623,714
    
    
    
    100.0
    %
    
    $
    85,427,704
    
    
    
    100.0
    %
    
    $
    68,553,772
    
    
    
    100.0
    %
    
    $
    67,677,751
    
    
    
    100.0
    %
 
 (1)
    
     Represents percentage of total portfolio.      10




---



##### 



Three Months Ended June 30,
    
    
    Six Months Ended December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
    
    $
    307,782
    
    
    $
    191,236
    
    
    $
    1,429,011
    
    
    $
    257,933Weighted average common shares outstanding, basic and diluted
    
    
    3,847,902
    
    
    
    3,847,902
    
    
    
    3,847,902
    
    
    
    3,847,902Earnings per common share, basic and diluted
    
    $
    0.08
    
    
    $
    0.05
    
    
    $
    0.37
    
    
    $
    0.07
             11




---



##### 



June 30,
    
    
    December 31,2005
    
    
    2004Deferred revenues
    
    $
    783,000
    
    
    $
    683,000Organization costs
    
    
    117,000
    
    
    
    138,000Non-deductible interest
    
    
    
    
    
    
    6,000Accrued expenses and other
    
    
    (6,000
    )
    
    
    119,000Net operating loss
    
    
    337,000
    
    
    
    86,000Total deferred tax assets
    
    
    1,231,000
    
    
    
    1,032,000Valuation allowance
    
    
    (1,231,000
    )
    
    
    (1,032,000
    )Total
    
    $
    
    
    
    $
    
  For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Federal income taxes (34%)
    
    ($
    127,000
    )
    
    ($
    92,000
    )
    
    ($
    206,000
    )
    
    ($
    300,000
    )State income taxes (7.5%)
    
    
    (27,000
    )
    
    
    (20,000
    )
    
    
    (45,000
    )
    
    
    (66,000
    )Effect of valuation allowance
    
    
    154,000
    
    
    
    112,000
    
    
    
    251,000
    
    
    
    366,000Total income tax expense
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
   For the Six Months EndedJune 30,2005
    
    
    2004Per Share Data:Net asset value at beginning of period
    
    $
    7.10
    
    
    $
    6.38Net investment income
    
    
    .20
    
    
    
    .06Net change in unrealized appreciation
on investments
    
    
    .17
    
    
    
    Net asset value at end of period
    
    $
    7.47
    
    
    $
    6.44Total Return (1)
    
    
    5.2
    %
    
    
    1.1
    %Shares outstanding at end of period
    
    
    3,847,902
    
    
    
    3,847,902Ratios and Supplemental Data:Net assets at end of period
    
    $
    28,740,929
    
    
    $
    24,215,315Average net assets
    
    
    28,161,998
    
    
    
    24,448,087Ratio of operating expenses to averageNet assets (annualized)
    
    
    31.4
    %
    
    
    13.2
    %Ratio of net investment income toAverage net assets (annualized)
    
    
    5.3
    %
    
    
    2.1
    %Average borrowings outstanding
    
    $
    47,201,467
    
    
    $
    8,788,497Average amount of borrowings per
Share
    
    $
    12.27
    
    
    $
    2.28
 
 (1)
    
    The total return (not annualized) reflects the change in net asset value of a share of
stock. On July 27, 2005, the Company merged Patriot and Wilton, and effected a stock
split. As a result, the Company's financial statements reflect 3,847,902 shares issued and outstanding throughout all
periods presented (see Note 10. Subsequent Events). 12




---



##### 



13




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   
 
 
 
 
 
 
  
 
 
  Overview
   14




---



##### 



Portfolio Composition
   June 30, 2005
    
    
    December 31, 2004Beginning portfolio at fair value
    
    $
    67,677,751
    
    
    $
    29,942,861Originations/draws/purchases
    
    
    17,900,000
    
    
    
    42,850,000Originations/warrants received on equity
    
    
    20,250
    
    
    
    92,128Early pay-offs/sales of investments
    
    
    (1,691,250
    )
    
    
    (5,025,375
    )Increase in PIK interest
    
    
    840,942
    
    
    
    694,158Change in unrealized appreciation (depreciation)
on investments
    
    
    680,011
    
    
    
    (876,021
    )Ending portfolio at fair value
    
    $
    85,427,704
    
    
    $
    67,677,751
  June 30, 2005
    
    
    December 31, 2004Investments at
    
    
    Percentage of
    
    
    Investments at
    
    
    Percentage ofFair Value
    
    
    Total Portfolio
    
    
    Fair Value
    
    
    Total PortfolioSenior secured revolving/acquisition line
of credit
    
    $
    2,000,000
    
    
    
    2.3
    %
    
    $
    2,000,000
    
    
    
    2.9
    %Senior secured term loans
    
    
    24,838,142
    
    
    
    29.1
    
    
    
    12,960,608
    
    
    
    19.2Junior secured term loans
    
    
    15,689,625
    
    
    
    18.3
    
    
    
    16,174,625
    
    
    
    23.9Senior subordinated debt
    
    
    42,573,637
    
    
    
    49.9
    
    
    
    36,110,690
    
    
    
    53.4Warrants to purchase common stock
    
    
    326,300
    
    
    
    0.4
    
    
    
    431,828
    
    
    
    0.6Totals
    
    $
    85,427,704
    
    
    
    100.0
    %
    
    $
    67,677,751
    
    
    
    100.0
    %
  15




---



##### 



June 30, 2005
    
    
    December 31, 2004Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)
    
    
    Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)Manufacturing
    
    $
    52,102,996
    
    
    
    60.9
    %
    
    $
    52,036,314
    
    
    
    60.9
    %
    
    $
    34,615,503
    
    
    
    50.5
    %
    
    $
    33,749,782
    
    
    
    49.9
    %Service
    
    
    17,311,355
    
    
    
    20.2
    
    
    
    17,173,855
    
    
    
    20.1
    
    
    
    17,723,698
    
    
    
    25.9
    
    
    
    17,723,698
    
    
    
    26.2Consumer / Retail Goods
    
    
    10,430,685
    
    
    
    12.2
    
    
    
    10,425,685
    
    
    
    12.2
    
    
    
    10,226,835
    
    
    
    14.9
    
    
    
    10,221,835
    
    
    
    15.1Publishing
    
    
    3,722,550
    
    
    
    4.3
    
    
    
    3,727,350
    
    
    
    4.4
    
    
    
    3,931,608
    
    
    
    5.7
    
    
    
    3,926,308
    
    
    
    5.8Defense
    
    
    2,056,128
    
    
    
    2.4
    
    
    
    2,064,500
    
    
    
    2.4
    
    
    
    2,056,128
    
    
    
    3.0
    
    
    
    2,056,128
    
    
    
    3.0Total
    
    $
    85,623,714
    
    
    
    100.0
    %
    
    $
    85,427,704
    
    
    
    100.0
    %
    
    $
    68,553,772
    
    
    
    100.0
    %
    
    $
    67,677,751
    
    
    
    100.0
    %
 
 (1)
    
     Represents percentage of total portfolio.   Portfolio Asset Quality
   June 30, 2005
    
    
    December 31, 2004Investments at
    
    
    Percentage of
    
    
    Investments at
    
    
    Percentage ofInvestment Rating
    
    Fair Value
    
    
    Total Portfolio
    
    
    Fair Value
    
    
    Total Portfolio1
    
    $
    5,833,736
    
    
    
    6.8
    %
    
    $
    21,650,006
    
    
    
    32.0
    %2
    
    
    65,708,043
    
    
    
    76.9
    
    
    
    38,967,745
    
    
    
    57.63
    
    
    13,885,925
    
    
    
    16.3
    
    
    
    7,060,000
    
    
    
    10.44
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    85,427,704
    
    
    
    100.0
    %
    
    $
    67,677,751
    
    
    
    100.0
    %
 16




---



##### 



Results of Operations
  Comparison for the three months ended June 30, 2005 and 2004
 Total Investment Income
    Expenses
    Realized Gains (Losses) on Sale of Investments and Net Unrealized Appreciation (Depreciation) on
Investments
   Net Income
  Comparison for the six months ended June 30, 2005 and 2004
 Total Investment Income
 17




---



##### 



Expenses
    Realized Gains (Losses) on Sale of Investments and Net Unrealized Appreciation (Depreciation) on
Investments
   Net Income
  Financial Condition, Liquidity and Capital Resources
 Cash, Cash Equivalents and Restricted Cash
   18




---



##### 



Liquidity and Capital Resources
      Borrowings
 Credit Agreement.
 Revolving Credit Agreement.
 Demand Note.
 Securitization Revolving Credit Facility.
 Dividends
  19




---



##### 



Critical Accounting Policies
  Valuation of Portfolio Investments
        20




---



##### 



Fee Income Recognition
  Payment-in-Kind or PIK Interest
   Six MonthsEndedJune 30, 2005Beginning PIK loan balance
    
    $
    727,087PIK interest earned during the
period
    
    
    840,942Ending PIK loan balance
    
    $
    1,568,029
 Interest Income Recognition
  Off-Balance Sheet Arrangements
  21




---



##### 



Contractual Obligations
  Related Party Transactions
      Subsequent Developments
  
    
    a $9.9 million financing for Robert Rothschild Farm, Inc., which consisted of a $5.3
million junior secured term loan and a $4.6 million senior subordinated debt investment.
Robert Rothschild Farm, Inc. is a manufacturer, marketer and distributor of a wide
variety of branded specialty food products within the gourmet food product category.
    
    a $20.2 million financing for Fairchild Industrial Products Company, which consisted
of a $2.0 million senior secured revolving credit facility, $12.8 million in senior
secured term loans and a $5.4 million senior subordinated debt investment. Fairchild
Industrial Products Company is a leading designer and manufacturer of close tolerance
industrial controls and power transmission products.
  22




---



##### 



23




---



##### 



Item 3. Quantitative and Qualitative Disclosures about Market Risk
  Item 4. Controls and Procedures
 (a)
    
    As of the end of the period covered by this report, we carried out an evaluation, under
the supervision and with the participation of our management, including our Chief Executive
Officer and President, and our Chief Financial Officer of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rule 13a-15 of the
Securities Exchange Act of 1934). Based on that evaluation, our Chief Executive Officer and
President, and our Chief Financial Officer have concluded that our current disclosure controls
and procedures are effective in timely alerting them of material information relating to us
that is required to be disclosed by us in the reports we file or submit under the Securities
and Exchange Act of 1934.(b)
    
    There have been no changes in our internal control over financial reporting that occurred
during the quarter ended June 30, 2005 that have materially affected, or are reasonable likely
to materially affect, our internal control over financial reporting.
 24




---



##### 



PART II. OTHER INFORMATION
 Item 1. Legal Proceedings
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
      Item 3. Defaults Upon Senior Securities
  Item 4. Submission of Matters to a Vote of Security Holders
    25




---



##### 



Item 5. Other Information
  Item 6. Exhibits
  ExhibitNumber
    
    Description of Document31.1*
    
    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.31.2*
    
    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.32.1*
    
    Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U. S.
C. 1350).32.2*
    
    Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U. S.
C. 1350).
 
 *
    
    Submitted herewith. 26




---



##### 



SIGNATURES
  PATRIOT CAPITAL FUNDING, INC.By:
    
    /s/ Richard P. BuckanavageRichard P. BuckanavageChief Executive Officer and PresidentBy:
    
    /s/ William E. Alvarez, Jr.William E. Alvarez, Jr.Executive Vice President, ChiefFinancial Officer and Secretary
 27