##### 



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 September 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.)274 Riverside AvenueWestport, CT
    
    06880(Address of principal executive office)
    
    (Zip Code)
 (203) 429-2700
 þ o
 o þ
 o þ




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##### 



PATRIOT CAPITAL FUNDING, INC.
 FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2005
 TABLE OF CONTENTS
 PART I
    
    FINANCIAL INFORMATION
    
    
    1Item 1.
    
    Financial Statements (Unaudited)
    
    
    1Combined Consolidated Balance Sheets for September 30, 2005 and December 31, 2004
    
    
    1Combined Consolidated Statements of Operations for the three and nine months ended September 30,
2005 and 2004
    
    
    2Combined Consolidated Statements of Stockholders Equity for the nine months ended September 30, 2005
    
    
    3Combined Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 and 2004
    
    
    4Combined Consolidated Schedule of Investments as of September 30, 2005
    
    
    5Combined Consolidated Schedule of Investments as of December 31, 2004
    
    
    8Notes to Combined Consolidated Financial Statements
    
    
    10Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 4.
    
    Controls and Procedures
    
    
    28PART II
    
    OTHER INFORMATION
    
    
    29Item 1.
    
    Legal Proceedings
    
    
    29Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 3.
    
    Defaults upon Senior Securities
    
    
    29Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    29Item 5.
    
    Other Information
    
    
    29Item 6.
    
    Exhibits
    
    
    29Signatures
    
    
    30




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##### 



PART I. FINANCIAL INFORMATION
 Item 1. Financial Statements
 Patriot Capital Funding, Inc.
Combined Consolidated Balance Sheets
(unaudited)
 September 30,
    
    December 31,2005
    
    2004ASSETSInvestments at fair value:Investments in debt securities (cost of $115,846,238 - 2005,
$68,051,712 - 2004)
    
    $
    112,087,292
    
    
    $
    67,245,923Investments in equity securities (cost of $670,510 - 2005,
$502,060 - 2004)
    
    
    472,400
    
    
    
    431,828Unearned income
    
    
    (2,848,916
    )
    
    
    (2,073,921
    )Total investments
    
    
    109,710,776
    
    
    
    65,603,830Cash and cash equivalents
    
    
    18,659,797
    
    
    
    2,491,477Restricted cash
    
    
    
    
    
    
    3,000,000Interest receivable
    
    
    917,333
    
    
    
    615,243Other assets
    
    
    1,617,274
    
    
    
    328,313TOTAL ASSETS
    
    $
    130,905,180
    
    
    $
    72,038,863LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIESBorrowings
    
    $
    
    
    
    $
    41,645,458Notes payable
    
    
    
    
    
    
    1,000,000Interest payable
    
    
    
    
    
    
    283,096Management fee payable
    
    
    
    
    
    
    916,666Dividends payable
    
    
    1,938,712
    
    
    
    Accounts payable and accrued expenses
    
    
    1,744,019
    
    
    
    881,725TOTAL LIABILITIES
    
    
    3,682,731
    
    
    
    44,726,945STOCKHOLDERS EQUITYCommon stock, $.01 par value, 49,000,000 shares authorized;
12,116,951 and 3,847,902 shares issued and outstanding at
September 30, 2005, and December 31, 2004, respectively
    
    
    121,170
    
    
    
    38,479Paid-in capital
    
    
    136,046,577
    
    
    
    30,061,521Accumulated undistributed investment loss
    
    
    (4,988,242
    )
    
    
    (1,912,061
    )Net unrealized depreciation on investments
    
    
    (3,957,056
    )
    
    
    (876,021
    )TOTAL STOCKHOLDERS EQUITY
    
    
    127,222,449
    
    
    
    27,311,918TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    130,905,180
    
    
    $
    72,038,863NET ASSET VALUE PER COMMON SHARE
    
    $
    10.50
    
    
    $
    7.10
  1




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##### 



Patriot Capital Funding, Inc.
Combined Consolidated Statements of Operations (unaudited)
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004INVESTMENT INCOMEInterest income
    
    $
    3,611,189
    
    
    $
    1,091,530
    
    
    $
    8,710,879
    
    
    $
    2,860,893Fees
    
    
    122,486
    
    
    
    106,309
    
    
    
    187,983
    
    
    
    213,089Total Investment Income
    
    
    3,733,675
    
    
    
    1,197,839
    
    
    
    8,898,862
    
    
    
    3,073,982EXPENSESSalaries and benefits
    
    
    944,369
    
    
    
    189,442
    
    
    
    1,834,598
    
    
    
    576,980Consulting fees
    
    
    54,796
    
    
    
    250,000
    
    
    
    554,796
    
    
    
    750,000Interest
    
    
    667,944
    
    
    
    283,948
    
    
    
    3,069,610
    
    
    
    837,098Professional fees
    
    
    75,252
    
    
    
    33,163
    
    
    
    311,431
    
    
    
    125,895Prepayment penalty
    
    
    3,395,335
    
    
    
    
    
    
    
    3,395,335
    
    
    
    General and administrative
    
    
    482,448
    
    
    
    32,783
    
    
    
    870,561
    
    
    
    117,573Total Expenses
    
    
    5,620,144
    
    
    
    789,336
    
    
    
    10,036,331
    
    
    
    2,407,546Net Investment Income (Loss)
    
    
    (1,886,469
    )
    
    
    408,503
    
    
    
    (1,137,469
    )
    
    
    666,436Net change in unrealized depreciation on investments
    
    
    (3,761,046
    )
    
    
    
    
    
    
    (3,081,035
    )
    
    
    NET INCOME (LOSS)
    
    $
    (5,647,515
    )
    
    $
    408,503
    
    
    $
    (4,218,504
    )
    
    $
    666,436Earnings (loss) per share, basic and diluted
    
    $
    (0.62
    )
    
    $
    0.11
    
    
    $
    (0.75
    )
    
    $
    0.17Weighted average shares outstanding, basic and diluted
    
    
    9,088,353
    
    
    
    3,847,902
    
    
    
    5,613,915
    
    
    
    3,847,902
  2




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##### 



Patriot Capital Funding, Inc.
Combined Consolidated 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
    )
    
    $
    27,311,918Sale of common stock, net of offering expenses
of $9.7 million
    
    
    82,691
    
    
    
    105,985,056
    
    
    
    
    
    
    
    
    
    
    
    106,067,747Distributions declared ($0.16 per common share)
    
    
    
    
    
    
    
    
    
    
    (1,938,712
    )
    
    
    
    
    
    
    (1,938,712
    )Net loss
    
    
    
    
    
    
    
    
    
    
    (1,137,469
    )
    
    
    (3,081,035
    )
    
    
    (4,218,504
    )Balance, September 30, 2005
    
    $
    121,170
    
    
    $
    136,046,577
    
    
    $
    (4,988,242
    )
    
    $
    (3,957,056
    )
    
    $
    127,222,449
  3




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##### 



Patriot Capital Funding, Inc.
Combined Consolidated Statements of Cash Flows (unaudited)
 Nine Months EndedSeptember 30,2005
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    (4,218,504
    )
    
    $
    666,436Adjustments to reconcile net income (loss) to net cash provided
by (used for) operating activities:Depreciation and amortization
    
    
    82,048
    
    
    
    14,585Change in interest receivable
    
    
    (302,090
    )
    
    
    (301,658
    )Change in unrealized depreciation
    
    
    3,081,035
    
    
    
    Increase in payment-in-kind interest
    
    
    (1,367,401
    )
    
    
    (421,378
    )Change in unearned income
    
    
    606,545
    
    
    
    160,184Change in interest payable
    
    
    (283,096
    )
    
    
    234,915Change in management fee payable
    
    
    (916,666
    )
    
    
    375,000Change in other assets
    
    
    (158,301
    )
    
    
    (22,255
    )Change in accounts payable and accrued expenses
    
    
    388,390
    
    
    
    (110,404
    )Net cash provided by (used for) operating activities
    
    
    (3,088,040
    )
    
    
    595,425CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of investments
    
    
    (54,300,000
    )
    
    
    (17,500,000
    )Principal repayments on investments
    
    
    7,872,875
    
    
    
    954,543Proceeds from investment sales
    
    
    
    
    
    
    2,000,000Purchase of furniture and equipment
    
    
    (32,382
    )
    
    
    (8,023
    )Net cash used for investing activities
    
    
    (46,459,507
    )
    
    
    (14,553,480
    )CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings
    
    
    47,250,000
    
    
    
    12,250,000Repayments on borrowings
    
    
    (89,895,458
    )
    
    
    (3,894,967
    )Net proceeds from sale of common stock
    
    
    106,067,747
    
    
    
    2,026,258Offering costs payable
    
    
    473,904
    
    
    
    Deferred financing costs
    
    
    (1,180,326
    )
    
    
    Net decrease in restricted cash
    
    
    3,000,000
    
    
    
    4,500,000Net cash provided by financing activities
    
    
    65,715,867
    
    
    
    14,881,291NET INCREASE IN CASH AND CASH
EQUIVALENTS
    
    
    16,168,320
    
    
    
    923,236CASH AND CASH EQUIVALENTS AT:Beginning of Period
    
    
    2,491,477
    
    
    
    1,245,981End of Period
    
    $
    18,659,797
    
    
    $
    2,169,217Supplemental information:Interest paid
    
    $
    3,288,538
    
    
    $
    602,182
  4




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##### 



Patriot Capital Funding, Inc.
Combined Consolidated Schedule of Investments (unaudited)
September 30, 2005
 Company(1)
    
    Industry
    
    Investment
    
    Principal
    
    
    Cost
    
    
    Fair Value(3)Agent Media Corporation
    
    Publisher of insurance
industry periodicals
    
    Senior Secured Term
Loan A (9.6%, Due 9/08)
    
    $
    1,500,000
    
    
    $
    1,500,000
    
    
    $
    1,500,000Senior Secured Term
Loan B (2) (16.0%, Due 9/09)
    
    
    2,087,675
    
    
    
    2,087,675
    
    
    
    2,087,675Common Stock
Warrants, Less than
5% of Co.(4)
    
    
    
    
    
    
    31,000
    
    
    
    49,900Allied 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
    
    
    
    76,700Borga, Inc.
    
    Manufacturer of 
pre-fabricated metal
building systems
    
    Senior Secured Term
Loan A (7.3%, Due 3/09)
    
    
    2,246,000
    
    
    
    2,246,000
    
    
    
    2,246,000Senior Secured Term
Loan B (10.3%, Due 5/10)
    
    
    1,841,500
    
    
    
    1,841,500
    
    
    
    1,841,500Senior Secured Term
Loan C (2) (16.0%, Due 5/10)
    
    
    7,115,084
    
    
    
    7,115,084
    
    
    
    7,115,084Common Stock
Warrants, Less than
5% of Co.(4)
    
    
    
    
    
    
    20,250
    
    
    
    39,300Copperhead Chemical
Company, Inc.
    
    Manufacturer of
bulk pharmaceuticals
    
    Senior Subordinated
Debt (2) (15.3%, Due
11/10)
    
    
    4,630,047
    
    
    
    4,630,047
    
    
    
    4,630,047Dover Saddlery, Inc.
    
    Equestrian products
catalog retailer
    
    Senior Subordinated
Debt (2) (11.5%, Due 9/09)
    
    
    8,050,000
    
    
    
    8,050,000
    
    
    
    8,050,000Common Stock
Warrants, Less than
5% of Co.(4)
    
    
    
    
    
    
    148,200
    
    
    
    147,800Encore Legal Solutions, Inc.
    
    Legal document
management services
    
    Junior Secured Term
Loan A (9.0%, Due 12/08)
    
    
    4,885,000
    
    
    
    4,885,000
    
    
    
    4,885,000Junior Secured Term
Loan B (8.5%, Due 12/09)
    
    
    6,962,125
    
    
    
    6,962,125
    
    
    
    6,962,125Senior Subordinated
Debt (2) (15.0%, Due 5/10)
    
    
    4,909,080
    
    
    
    4,909,080
    
    
    
    4,909,080Common Stock
Warrants, Less than
5% of Co.(4)
    
    
    
    
    
    
    350,000
    
    
    
    158,700
 5




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##### 



Company(1)
    
    Industry
    
    Investment
    
    Principal
    
    
    Cost
    
    
    Fair Value(3)Fairchild Industrial Products, Co.
    
    Manufacturer of industrial
controlsand power transmission products
    
    Senior Secured Term
Loan A (8.0%,
Due 7/10)
    
    
    10,020,000
    
    
    
    10,020,000
    
    
    
    10,020,000Senior Secured Term
Loan B
(10.0%, Due 7/11)
    
    
    2,825,000
    
    
    
    2,825,000
    
    
    
    2,825,000Senior Subordinated
Debt(15.5%, Due 7/11)
    
    
    5,355,000
    
    
    
    5,355,000
    
    
    
    5,355,000Interstate Highway Sign
Corporation
    
    Manufacturer of
highway and roadway signs
    
    Senior Secured Term
Loan (9.0%, Due 12/09)
    
    
    1,510,000
    
    
    
    1,510,000
    
    
    
    1,510,000Senior Subordinated
Debt (2)(5) (16.0%, Due 12/09)
    
    
    5,778,142
    
    
    
    5,758,946
    
    
    
    2,000,000Common 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)
    
    
    6,716,147
    
    
    
    6,716,147
    
    
    
    6,716,147Common 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 9/11)
    
    
    10,125,070
    
    
    
    10,125,070
    
    
    
    10,125,070R-O-M Corporation
    
    Manufacturer of doors, ramps and bulk
heads for fire trucks and food
transportation
    
    Senior Secured Term
Loan A (8.3%, Due 12/09)
    
    
    3,400,000
    
    
    
    3,400,000
    
    
    
    3,400,000Senior Secured Term
Loan B (9.3%, Due 12/10)
    
    
    3,400,000
    
    
    
    3,400,000
    
    
    
    3,400,000Senior Subordinated
Debt (2)
(16.0%, Due 12/10)
    
    
    7,012,319
    
    
    
    7,012,319
    
    
    
    7,012,319Robert Rothschild Farm, Inc.
    
    Manufacturer of
specialty food products
    
    Senior Secured Term
Loan B (8.4%, Due 7/10)
    
    
    5,250,000
    
    
    
    5,250,000
    
    
    
    5,250,000Senior Subordinated
Debt (2)
(16.3%, Due 1/12)
    
    
    4,647,245
    
    
    
    4,647,245
    
    
    
    4,647,245Total Investments
    
    
    
    
    
    
    
    
    
    
    116,516,748
    
    
    
    112,559,692Unearned Income
    
    
    
    
    
    
    
    
    
    
    (2,848,916
    )
    
    
    (2,848,916
    )Total Investments Net of
Unearned Income
    
    
    
    
    
    
    
    
    
    $
    113,667,832
    
    
    $
    109,710,776
 6




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##### 



(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)
    
    Common stock warrants generally are non-income producing.(5)
    
    Debt is on non-accrual status. 7




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##### 



Patriot Capital Funding, Inc.
Combined Consolidated 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
    
    
    
    
 8




---



##### 



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. 9




---



##### 



Patriot Capital Funding, Inc.
Notes to Combined Consolidated Financial Statements (unaudited)
  Description of Business
   Basis of Presentation
       September 30, 2005
    
    
    December 31, 2004Cost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair ValueCommercial loans
    
    $
    115,846,238
    
    
    $
    112,087,292
    
    
    $
    68,051,712
    
    
    $
    67,245,923Investments in equity securities
    
    
    670,510
    
    
    
    472,400
    
    
    
    502,060
    
    
    
    431,828Subtotal
    
    
    116,516,748
    
    
    
    112,559,692
    
    
    
    68,553,772
    
    
    
    67,677,751Unearned income
    
    
    (2,848,916
    )
    
    
    (2,848,916
    )
    
    
    (2,073,921
    )
    
    
    (2,073,921
    )Total
    
    $
    113,667,832
    
    
    $
    109,710,776
    
    
    $
    66,479,851
    
    
    $
    65,603,830
  10




---



##### 



September 30, 2005
    
    
    December 31, 2004Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)
    
    
    Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)Senior Secured Debt
    
    $
    43,195,259
    
    
    
    37.1
    
    
    $
    43,195,259
    
    
    
    38.4
    %
    
    $
    14,960,608
    
    
    
    21.8
    %
    
    $
    14,960,608
    
    
    
    22.1
    %Junior Secured Debt
    
    
    15,447,125
    
    
    
    13.2
    
    
    
    15,447,125
    
    
    
    13.7
    
    
    
    16,174,625
    
    
    
    23.6
    
    
    
    16,174,625
    
    
    
    23.9Subordinated Debt
    
    
    57,203,854
    
    
    
    49.1
    
    
    
    53,444,908
    
    
    
    47.5
    
    
    
    36,916,479
    
    
    
    53.9
    
    
    
    36,110,690
    
    
    
    53.4Warrants to Acquire Equity
    
    
    670,510
    
    
    
    0.6
    
    
    
    472,400
    
    
    
    0.4
    
    
    
    502,060
    
    
    
    0.7
    
    
    
    431,828
    
    
    
    0.6Total
    
    $
    116,516,748
    
    
    
    100.0
    %
    
    $
    112,559,692
    
    
    
    100.0
    %
    
    $
    68,553,772
    
    
    
    100.0
    %
    
    $
    67,677,751
    
    
    
    100.0
    %
 
 (1)
    
      Represents percentage of total portfolio.  September 30, 2005
    
    
    December 31, 2004Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)
    
    
    Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)Manufacturing
    
    $
    68,919,148
    
    
    
    59.1
    %
    
    $
    65,119,320
    
    
    
    57.9
    %
    
    $
    34,615,503
    
    
    
    50.5
    %
    
    $
    33,749,782
    
    
    
    49.9
    %Service
    
    
    17,106,205
    
    
    
    14.7
    
    
    
    16,914,905
    
    
    
    15.0
    
    
    
    17,723,698
    
    
    
    25.9
    
    
    
    17,723,698
    
    
    
    26.2Consumer / Retail Goods
    
    
    24,816,592
    
    
    
    21.3
    
    
    
    24,811,192
    
    
    
    22.1
    
    
    
    10,226,835
    
    
    
    14.9
    
    
    
    10,221,835
    
    
    
    15.1Publishing
    
    
    3,618,675
    
    
    
    3.1
    
    
    
    3,637,575
    
    
    
    3.2
    
    
    
    3,931,608
    
    
    
    5.7
    
    
    
    3,926,308
    
    
    
    5.8Defense
    
    
    2,056,128
    
    
    
    1.8
    
    
    
    2,076,700
    
    
    
    1.8
    
    
    
    2,056,128
    
    
    
    3.0
    
    
    
    2,056,128
    
    
    
    3.0Total
    
    $
    116,516,748
    
    
    
    100.0
    %
    
    $
    112,559,692
    
    
    
    100.0
    %
    
    $
    68,553,772
    
    
    
    100.0
    %
    
    $
    67,677,751
    
    
    
    100.0
    %
 
 (1)
    
     Represents percentage of total portfolio.    11




---



##### 



Accounting for Stock Issued to Employees. Accounting for Stock-based Compensation Accounting for Stock-Based Compensation  Transition and Disclosure
  For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30, 2005
    
    
    September 30, 2005Net loss, as reported
    
    $
    (5,647,515
    )
    
    $
    (4,218,504
    )Deduct: Total stock-based compensation
expense determined under fair
value based method for all awards
    
    
    65,075
    
    
    
    65,075Pro forma net loss
    
    $
    (5,712,590
    )
    
    $
    (4,283,579
    )Loss per share, as reported  basic and diluted
    
    $
    (0.62
    )
    
    $
    (0.75
    )Loss per share, pro forma  basic and diluted
    
    $
    (0.63
    )
    
    $
    (0.76
    )
   12




---



##### 



Three Months Ended September 30,
    
    Nine Months Ended September 30,2005
    
    2004
    
    2005
    
    2004Net income (loss)
    
    $
    (5,647,515
    )
    
    $
    408,503
    
    
    $
    (4,218,504
    )
    
    $
    666,436Weighted average common shares outstanding, basic and diluted
    
    
    9,088,353
    
    
    
    3,847,902
    
    
    
    5,613,915
    
    
    
    3,847,902Earnings (loss) per common share, basic and diluted
    
    $
    (0.62
    )
    
    $
    0.11
    
    
    $
    (0.75
    )
    
    $
    0.17
            13




---



##### 



For the Nine Months EndedSeptember 30,2005
    
    
    2004Per Share Data:Net asset value at beginning of period
    
    $
    7.10
    
    
    $
    6.38Net investment income (loss)
    
    
    (.20
    )
    
    
    .17Net change in unrealized depreciation
on investments
    
    
    (.55
    )
    
    
    Issuance of common stock
    
    
    12.83
    
    
    
    .53Dividends from net investment income
    
    
    (.16
    )
    
    
    Dilutive effect of share issuance
    
    
    (8.52
    )
    
    
    Net asset value at end of period
    
    $
    10.50
    
    
    $
    7.08Total Net Asset Value Return (1)
    
    
    (8.3
    )%
    
    
    2.7
    %Per share market value, August 2, 2005
    
    $
    14.00Per share market value, September 30, 2005
    
    $
    13.74Total Market Value Return (2)
    
    
    (0.7
    )%Shares outstanding at end of period
    
    
    12,116,951
    
    
    
    3,847,902Ratios and Supplemental Data:Net assets at end of period
    
    $
    127,222,449
    
    
    $
    27,243,818Average net assets
    
    
    50,913,094
    
    
    
    25,147,020Ratio of operating expenses to average
net assets (annualized)
    
    
    26.3
    %
    
    
    12.8
    %Ratio of net investment income (loss) to
average net assets (annualized)
    
    
    (3.0
    )%
    
    
    3.5
     %Average borrowings outstanding
    
    $
    39,469,709
    
    
    $
    10,134,947Average amount of borrowings per
share
    
    $
    3.26
    
    
    $
    2.63
 
 (1)
    
    The total net asset value return (not annualized) reflects the change in net asset
value of a share of stock. On July 27, 2005, Wilton merged with and into the Company and
the Company then effected a stock split. As a result, the Companys financial statements
reflect 14




---



##### 



3,847,902 shares issued and outstanding throughout all periods presented. On
August 2, 2005, the
 Company closed its initial public offering of 7,190,477 shares of common stock and on August
15, 2005, the underwriters exercised their option to purchase an additional 1,078,572 shares
of common stock.(2)
    
    The total market value return (not annualized) reflects the change in the ending market
value per share plus dividends, divided by the beginning market value per share.   15




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   
    
    Our future operating results;
    
    Our business prospects and the prospects of our portfolio companies;
    
    The impact of the investments that we expect to make;
    
    The ability of our portfolio companies to achieve their objectives;
    
    Our expected financings and investments;
    
    The adequacy of our cash resources and working capital; and
    
    The timing of cash flows, if any, from the operations of our portfolio companies.
  
    
    changes in the economy;
    
    risks associated with possible disruption in our operations or the economy generally due to terrorism; and
    
    future changes in laws or regulations and conditions in our operating areas.
  Overview
   16




---



##### 



Portfolio Composition
   September 30, 2005
    
    
    December 31, 2004Beginning portfolio at fair value
    
    $
    67,677,751
    
    
    $
    29,942,861Originations/draws/purchases
    
    
    54,300,000
    
    
    
    42,850,000Originations/warrants received on equity
    
    
    168,450
    
    
    
    92,128Early pay-offs/sales of investments
    
    
    (7,872,875
    )
    
    
    (5,025,375
    )Increase in payment-in-kind interest
    
    
    1,367,401
    
    
    
    694,158Decrease in fair value of investments
    
    
    (3,081,035
    )
    
    
    (876,021
    )Ending portfolio at fair value
    
    $
    112,559,692
    
    
    $
    67,677,751
   September 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
    
    
    
    1.8
    %
    
    $
    2,000,000
    
    
    
    2.9
    %Senior secured term loans
    
    
    41,195,259
    
    
    
    36.6
    
    
    
    12,960,608
    
    
    
    19.2Junior secured term loans
    
    
    15,447,125
    
    
    
    13.7
    
    
    
    16,174,625
    
    
    
    23.9Senior subordinated debt
    
    
    53,444,908
    
    
    
    47.5
    
    
    
    36,110,690
    
    
    
    53.4Warrants to purchase common stock
    
    
    472,400
    
    
    
    0.4
    
    
    
    431,828
    
    
    
    0.6Totals
    
    $
    112,559,692
    
    
    
    100.0
    %
    
    $
    67,677,751
    
    
    
    100.0
    %
 17




---



##### 



September 30, 2005
    
    
    December 31, 2004Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)
    
    
    Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)Manufacturing
    
    $
    68,919,148
    
    
    
    59.1
    %
    
    $
    65,119,320
    
    
    
    57.9
    %
    
    $
    34,615,503
    
    
    
    50.5
    %
    
    $
    33,749,782
    
    
    
    49.9
    %Service
    
    
    17,106,205
    
    
    
    14.7
    
    
    
    16,914,905
    
    
    
    15.0
    
    
    
    17,723,698
    
    
    
    25.9
    
    
    
    17,723,698
    
    
    
    26.2Consumer / Retail Goods
    
    
    24,816,592
    
    
    
    21.3
    
    
    
    24,811,192
    
    
    
    22.1
    
    
    
    10,226,835
    
    
    
    14.9
    
    
    
    10,221,835
    
    
    
    15.1Publishing
    
    
    3,618,675
    
    
    
    3.1
    
    
    
    3,637,575
    
    
    
    3.2
    
    
    
    3,931,608
    
    
    
    5.7
    
    
    
    3,926,308
    
    
    
    5.8Defense
    
    
    2,056,128
    
    
    
    1.8
    
    
    
    2,076,700
    
    
    
    1.8
    
    
    
    2,056,128
    
    
    
    3.0
    
    
    
    2,056,128
    
    
    
    3.0Total
    
    $
    116,516,748
    
    
    
    100.0
    %
    
    $
    112,559,692
    
    
    
    100.0
    %
    
    $
    68,553,772
    
    
    
    100.0
    %
    
    $
    67,677,751
    
    
    
    100.0
    %
 
 (1)
    
    Represents percentage of total portfolio.   Portfolio Asset Quality
 Portfolio by Investment Rating
  18




---



##### 



September 30, 2005
    
    
    December 31, 2004Investments at
    
    
    Percentage of
    
    
    Investments at
    
    
    Percentage ofInvestment Rating
    
    Fair Value
    
    
    Total Portfolio
    
    
    Fair Value
    
    
    Total Portfolio1
    
    $
    2,076,700
    
    
    
    1.8
    %
    
    $
    21,650,006
    
    
    
    32.0
    %2
    
    
    100,256,845
    
    
    
    89.1
    
    
    
    38,967,745
    
    
    
    57.63
    
    
    8,226,147
    
    
    
    7.3
    
    
    
    7,060,000
    
    
    
    10.44
    
    
    2,000,000
    
    
    
    1.8
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Totals
    
    $
    112,559,692
    
    
    
    100.0
    %
    
    $
    67,677,751
    
    
    
    100.0
    %
  Loans and Debt Securities on Non-Accrual Status
  Results of Operations
  Comparison for the three months ended September 30, 2005 and 2004
 Total Investment Income
   19




---



##### 



Expenses
    Realized Gains (Losses) on Sale of Investments
  Net Change in Unrealized Appreciation or Depreciation on Investments
    20




---



##### 



(Earnings Before Interest, Taxes, Depreciation and Amortization)
     Net Income
  Comparison for the nine months ended September 30, 2005 and 2004
 Total Investment Income
    21




---



##### 



Expenses
    Realized Gains (Losses) on Sale of Investments
  Net Change in Unrealized Appreciation or Depreciation on Investments
  Net Income (Loss)
  Financial Condition, Liquidity and Capital Resources
 Cash, Cash Equivalents and Restricted Cash
   22




---



##### 



Liquidity and Capital Resources
       Borrowings
 Credit Agreement.
 23




---



##### 



Revolving Credit Agreement.
 Demand Note.
 Securitization Revolving Credit Facility.
 Regulated Investment Company Status and Dividends
       24




---



##### 



Critical Accounting Policies
  Valuation of Portfolio Investments
        Fee Income Recognition
  25




---



##### 



Payment-in-Kind or PIK Interest
   Nine MonthsEndedSeptember 30, 2005Beginning PIK loan balance
    
    $
    727,087PIK interest earned during the period
    
    
    1,367,401PIK payments during the period
    
    
    (307,875
    )Ending PIK loan balance
    
    $
    1,786,613
  Interest Income Recognition
  Off-Balance Sheet Arrangements
   26




---



##### 



Contractual Obligations
  Related Party Transactions
      Recent Developments
  27




---



##### 



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 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
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 September 30, 2005 that have materially affected, or are reasonable
likely to materially affect, our internal control over financial reporting.
 28




---



##### 



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
  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. 29




---



##### 



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, Chief Financial
Officer and Secretary
 30