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 Quarterly Period Ended June 30, 2008
 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
  Large accelerated filer
o
    
    Accelerated filer
þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



PATRIOT CAPITAL FUNDING, INC.
 FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2008
 TABLE OF CONTENTS
 PART I FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1Consolidated Balance Sheets at June 30, 2008 (unaudited) and December 31, 2007
    
    
    1Consolidated Statements of Operations for the three and six months ended June 30, 2008 and 2007 (unaudited)
    
    
    2Consolidated Statements of Changes in Net Assets for the six months ended June 30, 2008 and 2007 (unaudited)
    
    
    3Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007 (unaudited)
    
    
    4Consolidated Schedule of Investments as of June 30, 2008 (unaudited)
    
    
    5Consolidated Schedule of Investments as of December 31, 2007
    
    
    11Notes to Consolidated Financial Statements
    
    
    17Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    26Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 4. Controls and Procedures
    
    
    37PART II OTHER INFORMATION
    
    
    38Item 1. Legal Proceedings
    
    
    38Item 1A. Risk Factors
    
    
    38Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    38Item 3. Defaults upon Senior Securities
    
    
    38Item 4. Submission of Matters to a Vote of Security Holders
    
    
    38Item 5. Other Information
    
    
    39Item 6. Exhibits
    
    
    40Signatures
    
    
    41




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##### 



PART I. FINANCIAL INFORMATION
 Item 1. Financial Statements
 Patriot Capital Funding, Inc.
Consolidated Balance Sheets
 June 30,
    
    
    December 31,2008
    
    
    2007(unaudited)ASSETSInvestments at fair value:Non-control/non-affiliate investments (cost of $227,867,732 - 2008,
$294,686,727 - 2007)
    
    $
    218,344,290
    
    
    $
    290,225,759Affiliate investments (cost of $87,868,751 - 2008,
$86,577,905 - 2007)
    
    
    80,800,446
    
    
    
    85,171,605Control investments (cost of $23,517,554 - 2008, $6,980,389 - 2007)
    
    
    23,265,964
    
    
    
    9,328,389Total investments
    
    
    322,410,700
    
    
    
    384,725,753Cash and cash equivalents
    
    
    1,102,733
    
    
    
    789,451Restricted cash
    
    
    7,963,276
    
    
    
    10,487,202Interest receivable
    
    
    1,357,563
    
    
    
    1,758,954Other assets
    
    
    2,264,347
    
    
    
    617,448TOTAL ASSETS
    
    $
    335,098,619
    
    
    $
    398,378,808LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIESBorrowings
    
    $
    116,100,000
    
    
    $
    164,900,000Interest payable
    
    
    467,998
    
    
    
    821,124Dividends payable
    
    
    6,831,820
    
    
    
    6,814,650Accounts payable, accrued expenses and other
    
    
    3,077,175
    
    
    
    4,245,350TOTAL LIABILITIES
    
    
    126,476,993
    
    
    
    176,781,124COMMITMENTSSTOCKHOLDERS EQUITYPreferred stock, $.01 par value, 1,000,000 shares authorized;
no shares issued and outstanding
    
    
    
    
    
    
    Common stock, $.01 par value, 49,000,000 shares authorized; 20,702,485
and 20,650,455 shares issued and outstanding at June 30, 2008,
and December 31, 2007, respectively
    
    
    207,024
    
    
    
    206,504Paid-in capital
    
    
    234,624,380
    
    
    
    233,722,593Accumulated net investment loss
    
    
    (1,912,061
    )
    
    
    (1,912,061
    )Distributions in excess of net investment income
    
    
    (3,266,523
    )
    
    
    (2,824,651
    )Net realized loss on investments
    
    
    (3,605,132
    )
    
    
    (3,171,365
    )Net unrealized depreciation on interest rate swaps
    
    
    (545,582
    )
    
    
    (762,365
    )Net unrealized depreciation on investments
    
    
    (16,880,480
    )
    
    
    (3,660,971
    )TOTAL STOCKHOLDERS EQUITY
    
    
    208,621,626
    
    
    
    221,597,684TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    335,098,619
    
    
    $
    398,378,808NET ASSET VALUE PER COMMON SHARE
    
    $
    10.08
    
    
    $
    10.73
  1




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##### 



Patriot Capital Funding, Inc.
Consolidated Statements of Operations
(unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007INVESTMENT INCOMEInterest and dividends:Non-control/non-affiliate investments
    
    $
    7,133,671
    
    
    $
    7,535,657
    
    
    $
    15,432,004
    
    
    $
    15,114,605Affiliate investments
    
    
    2,498,499
    
    
    
    1,214,881
    
    
    
    5,012,922
    
    
    
    1,834,114Control investments
    
    
    499,659
    
    
    
    
    
    
    
    678,125
    
    
    
    Total interest and dividend income
    
    
    10,131,829
    
    
    
    8,750,538
    
    
    
    21,123,051
    
    
    
    16,948,719Fees:Non-control/non-affiliate investments
    
    
    69,389
    
    
    
    188,099
    
    
    
    238,086
    
    
    
    569,725Affiliate investments
    
    
    37,787
    
    
    
    111,174
    
    
    
    76,448
    
    
    
    124,403Control investments
    
    
    35,000
    
    
    
    
    
    
    
    41,250
    
    
    
    Total fee income
    
    
    142,176
    
    
    
    299,273
    
    
    
    355,784
    
    
    
    694,128Other investment income:Non-control/non-affiliate investments
    
    
    242,388
    
    
    
    39,842
    
    
    
    282,243
    
    
    
    424,129Control investments
    
    
    138,026
    
    
    
    
    
    
    
    138,026
    
    
    
    Total other
investment income
    
    
    380,414
    
    
    
    39,842
    
    
    
    420,269
    
    
    
    424,129Total Investment Income
    
    
    10,654,419
    
    
    
    9,089,653
    
    
    
    21,899,104
    
    
    
    18,066,976EXPENSESCompensation expense
    
    
    1,107,324
    
    
    
    1,331,965
    
    
    
    2,605,499
    
    
    
    2,551,498Interest expense
    
    
    1,925,230
    
    
    
    1,642,509
    
    
    
    3,984,753
    
    
    
    3,148,721Professional fees
    
    
    408,204
    
    
    
    106,044
    
    
    
    670,731
    
    
    
    413,671General and administrative expense
    
    
    794,963
    
    
    
    617,427
    
    
    
    1,433,523
    
    
    
    1,216,100Total Expenses
    
    
    4,235,721
    
    
    
    3,697,945
    
    
    
    8,694,506
    
    
    
    7,329,990Net Investment Income
    
    
    6,418,698
    
    
    
    5,391,708
    
    
    
    13,204,598
    
    
    
    10,736,986NET REALIZED GAIN (LOSS) AND NET UNREALIZED
APPRECIATION (DEPRECIATION)Net realized
loss or investments - control
    
    
    (350,000
    )
    
    
    
    
    
    
    (350,000
    )
    
    
    Net realized gain (loss) on investments  non-control/non-affiliate
    
    
    5,783
    
    
    
    77,934
    
    
    
    (83,767
    )
    
    
    84,101Net unrealized depreciation on investments -
non-control/non-affiliate
    
    
    (2,218,615
    )
    
    
    (296,850
    )
    
    
    (8,629,899
    )
    
    
    (364,950
    )Net unrealized appreciation (depreciation) on investments -
affiliate
    
    
    (3,070,018
    )
    
    
    324,600
    
    
    
    (5,662,008
    )
    
    
    477,800Net unrealized appreciation on investments  control
    
    
    1,920,398
    
    
    
    
    
    
    
    1,072,398
    
    
    
    Net unrealized appreciation on interest rate swaps
    
    
    969,634
    
    
    
    185,472
    
    
    
    216,783
    
    
    
    122,144Net Realized Gain (Loss) and Net Unrealized Appreciation
(Depreciation)
    
    
    (2,742,818
    )
    
    
    291,156
    
    
    
    (13,436,493
    )
    
    
    319,095NET INCOME (LOSS)
    
    $
    3,675,880
    
    
    $
    5,682,864
    
    
    $
    (231,895
    )
    
    $
    11,056,081Earnings (loss) per share, basic
    
    $
    0.18
    
    
    $
    0.31
    
    
    $
    (0.01
    )
    
    $
    0.62Earnings (loss) per share, diluted
    
    $
    0.18
    
    
    $
    0.31
    
    
    $
    (0.01
    )
    
    $
    0.61Weighted average shares outstanding, basic
    
    
    20,693,337
    
    
    
    18,246,987
    
    
    
    20,671,896
    
    
    
    17,891,914Weighted average shares outstanding, diluted
    
    
    20,693,337
    
    
    
    18,466,510
    
    
    
    20,671,896
    
    
    
    18,111,437
  2




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##### 



Patriot Capital Funding, Inc.
Consolidated Statements of Changes in Net Assets
(unaudited)
 Six Months EndedJune 30,2008
    
    
    2007Operations:Net investment income
    
    $
    13,204,598
    
    
    $
    10,736,986Net realized gain (loss) on investments
    
    
    (433,767
    )
    
    
    84,101Net unrealized appreciation (depreciation) on investments
    
    
    (13,219,509
    )
    
    
    112,850Net unrealized appreciation on interest rate swaps
    
    
    216,783
    
    
    
    122,144Net increase (decrease) in net assets from operations
    
    
    (231,895
    )
    
    
    11,056,081Stockholder transactions:Distributions to stockholders from net investment income
    
    
    (13,204,598
    )
    
    
    (10,736,986
    )Distributions in excess of net investment income
    
    
    (441,872
    )
    
    
    (935,427
    )Net decrease in net assets from stockholder distributions
    
    
    (13,646,470
    )
    
    
    (11,672,413
    )Capital share transactions:Issuance of common stock
    
    
    
    
    
    
    31,694,803Common stock listing fees
    
    
    (23,585
    )
    
    
    Issuance of common stock under dividend reinvestment plan
    
    
    540,064
    
    
    
    871,477Stock option compensation
    
    
    385,828
    
    
    
    330,669Net increase in net assets from capital share transactions
    
    
    902,307
    
    
    
    32,896,949Total increase (decrease) in net assets
    
    
    (12,976,058
    )
    
    
    32,280,617Net assets at beginning of period
    
    
    221,597,684
    
    
    
    164,108,629Net assets at end of period
    
    $
    208,621,626
    
    
    $
    196,389,246Net asset value per common share
    
    $
    10.08
    
    
    $
    10.76Common shares outstanding at end of period
    
    
    20,702,485
    
    
    
    18,252,774
  3




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##### 



Patriot Capital Funding, Inc.
Consolidated Statements of Cash Flows
(unaudited)
 Six Months EndedJune 30,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    (231,895
    )
    
    $
    11,056,081Adjustments to reconcile net income to net cash provided by
(used for) operating activities:Depreciation and amortization
    
    
    268,963
    
    
    
    214,104Change in interest receivable
    
    
    401,391
    
    
    
    (208,552
    )Realized (gain) loss on sale of investments
    
    
    433,767
    
    
    
    (84,101
    )Unrealized (appreciation) depreciation on investments
    
    
    13,219,509
    
    
    
    (112,850
    )Unrealized appreciation on interest rate swaps
    
    
    (216,783
    )
    
    
    (122,144
    )Payment-in-kind interest and dividends
    
    
    (2,899,860
    )
    
    
    (1,770,022
    )Stock-based compensation expense
    
    
    385,828
    
    
    
    330,669Change in unearned income
    
    
    (633,242
    )
    
    
    270,397Change in interest payable
    
    
    (353,126
    )
    
    
    13,287Change in other assets
    
    
    (17,370
    )
    
    
    235,365Change in accounts payable, accrued expenses and other
    
    
    (1,713,757
    )
    
    
    (750,582
    )Net cash provided by operating activities
    
    
    8,643,425
    
    
    
    9,071,652CASH FLOWS FROM INVESTING ACTIVITIES:Funded investments
    
    
    (9,691,406
    )
    
    
    (86,981,250
    )Principal repayments on investments
    
    
    51,532,552
    
    
    
    46,917,872Proceeds from sale of investments
    
    
    10,353,733
    
    
    
    5,458,851Purchases of furniture and equipment
    
    
    (6,295
    )
    
    
    (4,085
    )Net cash provided by (used for) investing activities
    
    
    52,188,584
    
    
    
    (34,608,612
    )CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings
    
    
    9,052,500
    
    
    
    87,050,000Repayments on borrowings
    
    
    (57,852,500
    )
    
    
    (82,857,000
    )Net proceeds from sale of common stock
    
    
    
    
    
    
    31,694,804Common stock listing fees
    
    
    (23,585
    )
    
    
    Dividends paid
    
    
    (13,089,236
    )
    
    
    (9,864,867
    )Deferred offering costs
    
    
    (98,860
    )
    
    
    (23,188
    )Deferred financing costs
    
    
    (1,030,972
    )
    
    
    Decrease in restricted cash
    
    
    2,523,926
    
    
    
    951,530Net cash provided by (used for) financing activities
    
    
    (60,518,727
    )
    
    
    26,951,279NET INCREASE IN CASH AND CASH
EQUIVALENTS
    
    
    313,282
    
    
    
    1,414,319CASH AND CASH EQUIVALENTS AT:Beginning of Period
    
    
    789,451
    
    
    
    4,211,643End of Period
    
    $
    1,102,733
    
    
    $
    5,625,962Supplemental information:Interest paid
    
    $
    4,337,879
    
    
    $
    3,135,434Non-cash
investing activities:Conversion of debt to equity
    
    $
    5,159,567
    
    
    $
    Non-cash financing activities:Dividends reinvested in common stock
    
    $
    540,064
    
    
    $
    871,477Dividends declared but not paid
    
    
    6,831,820
    
    
    
    5,840,888
  4




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##### 



Patriot Capital Funding, Inc.
Consolidated Schedule of Investments
June 30, 2008
(unaudited)
 Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueControl investments:Encore Legal Solutions, Inc.
(Printing & Publishing)
    
    Legal document management services
    
    Junior Secured Term Loan A
(8.2%, Due 12/10) (2) (3)
    
    $
    4,010,866
    
    
    $
    3,992,624
    
    
    $
    3,992,624Junior Secured Term Loan B
(11.2%, Due 12/10) (2) (3)
    
    
    7,330,372
    
    
    
    7,285,268
    
    
    
    7,285,268Common Stock (4)
    
    
    
    
    
    
    5,159,567
    
    
    
    3,516,800Fischbein, LLC(Machinery)
    
    Designer and manufacturer of
packaging equipment
    
    Senior Subordinated Debt
(16.5%, Due 5/13) (2) (3)
    
    
    4,308,724
    
    
    
    4,280,095
    
    
    
    4,366,272Membership Interest  Class A
(4)
    
    
    
    
    
    
    2,800,000
    
    
    
    4,105,000Total Control investments (represents 7.2% of total investments at fair value)
    
    
    
    
    
    $
    23,517,554
    
    
    $
    23,265,964Affiliate investments:Aylward Enterprises, LLC (5)(Machinery)
    
    Manufacturer of packaging equipment
    
    Revolving Line of Credit
(6.3%, Due 2/12) (3)
    
    $
    3,700,000
    
    
    $
    3,638,585
    
    
    $
    3,638,585Senior Secured Term Loan A
(7.0%, Due 2/12) (3)
    
    
    8,105,938
    
    
    
    7,998,860
    
    
    
    7,998,860Senior Subordinated Debt
(22.0%, Due 8/12) (2)
    
    
    6,698,824
    
    
    
    6,619,335
    
    
    
    1,243,811Subordinated Member Note
(8.0%, Due 2/13) (2)
    
    
    145,516
    
    
    
    145,516
    
    
    
    Membership Interest (4)
    
    
    
    
    
    
    1,250,000
    
    
    
    KTPS Holdings, LLC(Textiles & Leather)
    
    Manufacturer and distributor of
specialty pet products
    
    Revolving Line of Credit
(6.8%, Due 1/12) (3)
    
    
    1,000,000
    
    
    
    984,700
    
    
    
    984,700Senior Secured Term Loan A
(6.0%, Due 1/12) (3)
    
    
    5,850,000
    
    
    
    5,792,103
    
    
    
    5,792,103Senior Secured Term Loan B
(12.0%, Due 1/12) (3)
    
    
    1,980,000
    
    
    
    1,958,354
    
    
    
    1,958,354Junior Secured Term Loan
(15.0%, Due 3/12) (2) (3)
    
    
    4,144,021
    
    
    
    4,102,778
    
    
    
    4,102,778Membership Interest  Class A
(4)
    
    
    
    
    
    
    730,020
    
    
    
    798,200Membership Interest  Common (4)
    
    
    
    
    
    
    
    
    
    
    428,900
 5




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##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueNupla Corporation(Home & Office Furnishings, 
Housewares & Durable
Consumer Products)
    
    Manufacturer and marketer of
professional high-grade
fiberglass-handled striking and
digging tools
    
    Revolving Line of Credit
(6.7%, Due 9/12) (3)
    
    
    960,000
    
    
    
    944,574
    
    
    
    944,574Senior Secured Term Loan A
(6.2%, Due 9/12) (3)
    
    
    5,534,375
    
    
    
    5,489,998
    
    
    
    5,489,998Senior Subordinated Debt
(14.0%, Due 3/13) (2)(3)
    
    
    3,050,297
    
    
    
    3,026,747
    
    
    
    3,026,747Preferred Stock (2)
    
    
    
    
    
    
    521,849
    
    
    
    387,800Common Stock (4)
    
    
    
    
    
    
    25,000
    
    
    
    Smart, LLC (5)(Diversified/Conglomerate
Service)
    
    Provider of tuition management
services
    
    Revolving Line of Credit
(6.9%, Due 8/11) (3)
    
    
    870,000
    
    
    
    829,250
    
    
    
    829,250Senior Secured Term Loan A
(7.6%, Due 6/11) (3)
    
    
    3,525,000
    
    
    
    3,490,142
    
    
    
    3,490,142Senior Secured Term Loan B
(16.5%, Due 2/12) (2) (3)
    
    
    3,943,206
    
    
    
    3,905,684
    
    
    
    3,905,684Convertible Subordinated Note
(22.0%, Due 8/12)
    
    
    500,000
    
    
    
    500,000
    
    
    
    500,000Membership Interest  Class B
(4)
    
    
    
    
    
    
    1,000,000
    
    
    
    494,900Sport Helmets Holdings, LLC
(5)(Personal & Nondurable 
Consumer Products)
    
    Manufacturer of protective headgear
    
    Senior Secured Term Loan A
(6.5%, Due 12/13) (3)
    
    
    4,500,000
    
    
    
    4,438,342
    
    
    
    4,438,342Senior Secured Term Loan B
(7.0%, Due 12/13)(3)
    
    
    7,500,000
    
    
    
    7,392,542
    
    
    
    7,360,342Senior Subordinated Debt
(15.0%, Due 6/14) (2)
    
    
    8,133,299
    
    
    
    8,020,690
    
    
    
    7,966,994Common Stock (4)
    
    
    
    
    
    
    2,000,000
    
    
    
    1,799,800Vince & Associates Clinic
Research, Inc.
(Healthcare, Education &
Childcare)
    
    Provider of clinical testing services
    
    Senior Secured Term Loan
(6.5%, Due 11/12) (2) (3)
    
    
    7,125,000
    
    
    
    7,030,452
    
    
    
    6,936,252Senior Subordinated Debt
(15.0%, Due 5/13) (2)(3)
    
    
    5,605,835
    
    
    
    5,533,230
    
    
    
    5,533,230Convertible Preferred Stock (4)
    
    
    
    
    
    
    500,000
    
    
    
    750,100Total Affiliate investments (represents 25.1% of total investments at fair value)
    
    
    
    
    
    $
    87,868,751
    
    
    $
    80,800,446Non-control/non-affiliate investments:ADAPCO, Inc.
(Ecological)
    
    Distributor of specialty chemicals
and contract application services
    
    Revolving Line of Credit
(9.3%, Due 7/11) (3)
    
    $
    3,000,000
    
    
    $
    2,980,841
    
    
    $
    2,980,841Senior Secured Term Loan A
(12.5%, Due 6/11) (3)
    
    
    8,682,500
    
    
    
    8,624,049
    
    
    
    8,029,149Common Stock (4)
    
    
    
    
    
    
    500,000
    
    
    
    
 6




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueAircraft Fasteners 
International, LLC(Machinery)
    
    Distributor of fasteners and related
hardware for use in aerospace,
electronics and defense industries
    
    Senior Secured Term Loan
(6.6%, Due 11/12) (3)
    
    
    6,664,000
    
    
    
    6,571,972
    
    
    
    6,380,172Junior Secured Term Loan
(14.0%, Due 5/13) (2) (3)
    
    
    5,252,420
    
    
    
    5,181,583
    
    
    
    5,004,263Convertible Preferred Stock (2)
    
    
    
    
    
    
    263,315
    
    
    
    454,100Allied Defense Group, Inc.
(Aerospace & Defense)
    
    Diversified defense company
    
    Common Stock (4)
    
    
    
    
    
    
    463,168
    
    
    
    156,200Arrowhead General Insurance
Agency, Inc. (6)    
(Insurance)
    
    Insurance agency and program
specialist
    
    Junior Secured Term Loan

(9.7%, Due 2/13) (3)
    
    
    5,000,000
    
    
    
    5,000,000
    
    
    
    3,750,000Borga, Inc.
(Mining, Steel, Iron &
Nonprecious Metals)
    
    Manufacturer of pre-fabricated metal
building systems
    
    Revolving Line of Credit
(5.5%, Due 5/10) (3)
    
    
    350,000
    
    
    
    341,695
    
    
    
    341,695Senior Secured Term Loan A
(6.0%, Due 3/09) (3)
    
    
    816,500
    
    
    
    810,033
    
    
    
    810,033Senior Secured Term Loan B
(9.0%, Due 5/10) (3)
    
    
    1,714,954
    
    
    
    1,690,901
    
    
    
    1,690,901Senior Secured Term Loan C
(16.0%, Due 5/10) (2) (3)
    
    
    7,953,275
    
    
    
    7,895,140
    
    
    
    7,895,140Common Stock Warrants (4)
    
    
    
    
    
    
    12,775
    
    
    
    Caleel + Hayden, LLC (5)(Personal & Nondurable Consumer Products)
    
    Provider of proprietary branded
professional skincare and cosmetic
products to physicians and spa
communities
    
    Junior Secured Term Loan B
(6.7%, Due 11/11) (3)
    
    
    10,825,312
    
    
    
    10,706,437
    
    
    
    10,706,437Senior Subordinated Debt
(14.5%, Due 11/12) (2) (3)
    
    
    6,250,000
    
    
    
    6,182,216
    
    
    
    6,307,216Common Stock (4)
    
    
    
    
    
    
    750,000
    
    
    
    1,103,300CS Operating, LLC (5)(Buildings & Real Estate)
    
    Provider of maintenance, repair and
replacement of HVAC, electrical,
plumbing, and foundation repair
    
    Revolving Line of Credit
(6.3%, Due 1/13) (3)
    
    
    200,000
    
    
    
    193,677
    
    
    
    193,677Senior Secured Term Loan A
(6.9%, Due 7/12) (3)
    
    
    2,067,564
    
    
    
    2,039,002
    
    
    
    2,018,538Senior Subordinated Debt
(14.5%, Due 1/13) (2) (3)
    
    
    2,559,372
    
    
    
    2,525,687
    
    
    
    2,486,815Copperhead Chemical
Company, Inc.
(Chemicals, Plastics &
Rubber)
    
    Manufacturer of bulk pharmaceuticals
    
    Senior Subordinated Debt
(15.3%, Due 1/13) (2) (3)
    
    
    3,599,522
    
    
    
    3,567,469
    
    
    
    3,567,469Custom Direct, Inc. (6)
(Printing & Publishing)
    
    Direct marketer of checks and other
financial products and services
    
    Senior Secured Term Loan
(5.5%, Due 12/13) (3)
    
    
    1,856,763
    
    
    
    1,592,672
    
    
    
    1,466,809Junior Secured Term Loan
(8.7%, Due 12/14) (3)
    
    
    2,000,000
    
    
    
    2,000,000
    
    
    
    1,350,000
 7




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueDover Saddlery, Inc.
(Retail Stores)
    
    Equestrian products catalog retailer
    
    Common Stock (4)
    
    
    
    
    
    
    148,200
    
    
    
    122,300Employbridge Holding 
Company (5) (6)(Personal, Food &
Miscellaneous Services)
    
    A provider of specialized staffing
services
    
    Junior Secured Term Loan
(9.8%, Due 10/13) (3)
    
    
    3,000,000
    
    
    
    3,000,000
    
    
    
    2,625,000EXL Acquisition Corp.
(Electronics)
    
    Manufacturer of lab testing supplies
    
    Senior Secured Term Loan A
(5.8%, Due 3/11) (3)
    
    
    4,086,623
    
    
    
    4,058,039
    
    
    
    3,972,416Senior Secured Term Loan B
(6.3%, Due 3/12) (3)
    
    
    4,753,796
    
    
    
    4,700,289
    
    
    
    4,600,693Senior Secured Term Loan C
(6.8%, Due 3/12) (3)
    
    
    2,932,029
    
    
    
    2,889,250
    
    
    
    2,827,821Senior Secured Term Loan D
(15.0%, Due 3/12) (3)
    
    
    6,893,099
    
    
    
    6,827,252
    
    
    
    6,827,252Common Stock  Class A (4)
    
    
    
    
    
    
    2,475
    
    
    
    195,000Common Stock  Class B (2)
    
    
    
    
    
    
    266,571
    
    
    
    268,599Fairchild Industrial
Products, Co.
(Electronics)
    
    Manufacturer of industrial controls
and power transmission products
    
    Senior Secured Term Loan A
(6.3%, Due 7/10) (3)
    
    
    1,972,469
    
    
    
    1,954,758
    
    
    
    1,954,758Senior Secured Term Loan B
(7.9%, Due 7/11) (3)
    
    
    4,581,250
    
    
    
    4,545,624
    
    
    
    4,545,624Senior Subordinated Debt
(14.8%, Due 7/11) (2)(3)
    
    
    5,460,000
    
    
    
    5,409,893
    
    
    
    5,409,893Preferred Stock  Class A (2)
    
    
    
    
    
    
    340,638
    
    
    
    342,100Common Stock  Class B (4)
    
    
    
    
    
    
    121,598
    
    
    
    450,800Impact Products, LLC(Machinery)
    
    Distributor of janitorial supplies
    
    Junior Secured Term Loan
(8.5%, Due 9/12) (3)
    
    
    8,931,250
    
    
    
    8,871,317
    
    
    
    8,404,067Senior Subordinated Debt
(15.0%, Due 9/12) (2) (3)
    
    
    5,547,993
    
    
    
    5,513,691
    
    
    
    5,513,691Keltner Enterprises, LLC (5)(Oil & Gas)
    
    Distributor of automotive oils,
chemicals and parts
    
    Senior Subordinated Debt
(14.0%, Due 12/11) (3)
    
    
    3,850,000
    
    
    
    3,839,116
    
    
    
    3,839,116L.A. Spas, Inc.
(Chemicals, Plastics &
Rubber)
    
    Manufacturer of above ground spas
    
    Senior Subordinated Debt
(17.5%, Due 1/10) (2) (3)
    
    
    7,788,849
    
    
    
    7,754,030
    
    
    
    7,754,030Common Stock Warrants (4)
    
    
    
    
    
    
    3,487
    
    
    
    
 8




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueLHC Holdings Corp.(Healthcare, Education & Childcare)
    
    Provider of home healthcare services
    
    Senior Secured Term Loan A
(6.5%, Due 11/12) (3)
    
    
    4,857,750
    
    
    
    4,801,984
    
    
    
    4,737,634Senior Subordinated Debt
(14.5%, Due 5/13) (3)
    
    
    4,565,000
    
    
    
    4,512,593
    
    
    
    4,435,693Membership Interest (4)
    
    
    
    
    
    
    125,000
    
    
    
    157,400Mac & Massey Holdings, LLC(Grocery)
    
    Broker and distributor of
ingredients to manufacturers of
food products
    
    Senior Subordinated Debt
(16.5%, Due 2/13) (2)(3)
    
    
    7,684,718
    
    
    
    7,652,439
    
    
    
    7,652,439Common Stock (4)
    
    
    
    
    
    
    247,284
    
    
    
    247,800Metrologic Instruments, Inc. (6)(Electronics)
    
    Manufacturer of imaging and
scanning equipment
    
    Senior Secured Term Loan
(7.0%, Due 4/14) (3)
    
    
    987,500
    
    
    
    987,500
    
    
    
    987,500Junior Secured Term Loan
(10.3%, Due 4/15)
    
    
    1,000,000
    
    
    
    1,000,000
    
    
    
    1,000,000Northwestern Management 
Services, LLC(Healthcare, Education & Childcare)
    
    Provider of dental services
    
    Senior Secured Term Loan A
(6.5%, Due 12/12) (3)
    
    
    5,790,000
    
    
    
    5,734,148
    
    
    
    5,662,748Senior Secured Term Loan B
(7.0%, Due 12/12) (3)
    
    
    1,243,750
    
    
    
    1,231,566
    
    
    
    1,216,316Junior Secured Term Loan
(15.0%, Due 6/13) (2)(3)
    
    
    2,796,161
    
    
    
    2,769,708
    
    
    
    2,769,708Common Stock (4)
    
    
    
    
    
    
    500,000
    
    
    
    357,100Prince Mineral Company, Inc.(Metals & Minerals)
    
    Manufacturer of pigments
    
    Junior Secured Term Loan
(7.9%, Due 12/12) (3)
    
    
    11,325,000
    
    
    
    11,167,167
    
    
    
    10,400,767Senior Subordinated Debt
(14.0%, Due 7/13) (2) (3)
    
    
    11,973,462
    
    
    
    11,843,147
    
    
    
    11,427,985Quartermaster, Inc.(Retail Stores)
    
    Retailer of uniforms and tactical
equipment to law enforcement and
security professionals
    
    Revolving Line of Credit
(7.3%, Due 12/10) (3)
    
    
        1,450,000
    
    
    
        1,426,580
    
    
    
        1,426,580Senior Secured Term Loan A
(7.7%, Due 12/10) (3)
    
    
    3,687,750
    
    
    
    3,650,035
    
    
    
    3,650,035Senior Secured Term Loan B
(8.9%, Due 12/10) (3)
    
    
    2,556,250
    
    
    
    2,534,495
    
    
    
    2,534,495Senior Secured Term Loan C
(15.0%, Due 12/11) (2) (3)
    
    
    3,348,281
    
    
    
    3,320,150
    
    
    
    3,320,150R-O-M Corporation(Automobile)
    
    Manufacturer of doors, ramps and
bulk heads for fire trucks and food
transportation
    
    Senior Secured Term Loan A
(5.5%, Due 2/13) (3)
    
    
        7,040,000
    
    
    
        6,970,950
    
    
    
        6,789,950Senior Secured Term Loan B
(6.8%, Due 5/13) (3)
    
    
    8,421,750
    
    
    
    8,324,632
    
    
    
    8,108,182Senior Subordinated Debt
(15.0%, Due 8/13) (2)
    
    
    9,100,000
    
    
    
    9,001,415
    
    
    
    9,001,415
 9




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueSidumpr Trailer Company, Inc.(Automobile)
    
    Manufacturer of side dump trailers
    
    Revolving Line of Credit
(7.5%, Due 1/11) (3)
    
    
    2,200,000
    
    
    
    2,180,582
    
    
    
    2,180,582Senior Secured Term Loan A
(6.0%, Due 1/11) (3)
    
    
    2,047,500
    
    
    
    2,032,500
    
    
    
    2,032,500Senior Secured Term Loan B
(9.0%, Due 1/11) (3)
    
    
    2,320,625
    
    
    
    2,298,021
    
    
    
    1,901,396Senior Secured Term Loan C
(15.0%, Due 7/11) (2) (3)
    
    
    3,279,374
    
    
    
    3,251,221
    
    
    
    Senior Subordinated Debt
(12.0%, Due 1/12) (3)
    
    
    75,000
    
    
    
    75,000
    
    
    
    Preferred Stock (2)
    
    
    
    
    
    
    90,730
    
    
    
    Common Stock (4)
    
    
    
    
    
    
    25
    
    
    
    Total Non-control/non-affiliate investments (represents 67.7% of total investments at fair value)
    
    
    
    
    
    $
    227,867,732
    
    
    $
    218,344,290Total Investments
    
    
    
    
    
    
    
    
    
    $
    339,254,037
    
    
    $
    322,410,700
 
 (1)
    
    Affiliate investments are generally defined under the Investment Company Act of 1940, as amended (the 1940 Act), as companies in which the Company owns at least 5% but not more than 25% of the voting
securities of the company. Control investments are generally defined under the 1940 Act as companies in which the Company owns more than 25% of the voting securities of the company or has greater than
50% representation on its board.(2)
    
    Amount includes payment-in-kind (PIK) interest or dividends.(3)
    
    Pledged as collateral under the Companys Securitization Facility. See Note 4 to Consolidated Financial Statements.(4)
    
    Non-income producing.(5)
    
    Some of the investments listed are issued by an affiliate of the listed portfolio company.(6)
    
    Syndicated investment which has been originated by another financial institution and broadly distributed.  10




---



##### 



PATRIOT CAPITAL FUNDING, INC.
Consolidated Schedule of Investments
December 31, 2007
 Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueControl investments:Fischbein, LLC(Machinery)
    
    Designer and manufacturer of
packaging equipment
    
    Senior Subordinated Debt
(16.5%, Due 5/13) (2) (3)
    
    $
    4,211,988
    
    
    $
    4,180,389
    
    
    $
    4,180,389Membership Interest  Class A
(4)
    
    
    
    
    
    
    2,800,000
    
    
    
    5,148,000Total Control investments (represents 2.4% of total investments at fair value)
    
    
    
    
    
    $
    6,980,389
    
    
    $
    9,328,389Affiliate investments:Aylward Enterprises, LLC
(5)(Machinery)
    
    Manufacturer of packaging equipment
    
    Revolving Line of Credit
(8.7%, Due 2/12) (3)
    
    $
    3,700,000
    
    
    $
    3,630,012
    
    
    $
    3,630,012Senior Secured Term Loan A
(9.5%, Due 2/12) (3)
    
    
    8,292,188
    
    
    
    8,162,724
    
    
    
    8,162,724Senior Subordinated Debt
(14.5%, Due 8/12) (2)
    
    
    6,424,702
    
    
    
    6,335,464
    
    
    
    6,335,464Membership Interest (4)
    
    
    
    
    
    
    1,250,000
    
    
    
    KTPS Holdings, LLC(Textiles & Leather)
    
    Manufacturer and distributor of
specialty pet products
    
    Revolving Line of Credit
(8.2%, Due 1/12) (3)
    
    
    300,000
    
    
    
    282,562
    
    
    
    282,562Senior Secured Term Loan A
(8.4%, Due 1/12) (3)
    
    
    6,012,500
    
    
    
    5,941,886
    
    
    
    5,941,886Senior Secured Term Loan B
(12.0%, Due 1/12) (3)
    
    
    1,985,000
    
    
    
    1,960,952
    
    
    
    1,960,952Junior Secured Term Loan
(15.0%, Due 3/12) (2) (3)
    
    
    4,081,878
    
    
    
    4,035,122
    
    
    
    4,035,122Membership Interest  Class A
(4)
    
    
    
    
    
    
    730,020
    
    
    
    769,000Membership Interest  Common(4)
    
    
    
    
    
    
    19,980
    
    
    
    87,900Nupla Corporation(Home & Office 
Furnishings, Housewares &
Durable Consumer Products)
    
    Manufacturer and marketer of
professional high-grade
fiberglass-handled striking and
digging tools
    
    Revolving Line of Credit
(9.5%, Due 9/12) (3)
    
    
    550,000
    
    
    
    532,725
    
    
    
    532,725Senior Secured Term Loan A
(8.8%, Due 9/12) (3)
    
    
    5,678,125
    
    
    
    5,628,411
    
    
    
    5,628,411Senior Subordinated Debt
(14.0%, Due 3/13) (2)
    
    
    3,019,688
    
    
    
    2,993,614
    
    
    
    2,993,614Preferred Stock (2)
    
    
    
    
    
    
    493,427
    
    
    
    493,427Common Stock (4)
    
    
    
    
    
    
    25,000
    
    
    
    38,300
 11




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueSmart, LLC (5)(Diversified/Conglomerate 
Service)
    
    Provider of tuition management
services
    
    Revolving Line of Credit
(12.3%, Due 8/11) (3)
    
    
    870,000
    
    
    
    822,799
    
    
    
    822,799Senior Secured Term Loan A
(12.3%, Due 8/11) (3)
    
    
    3,862,500
    
    
    
    3,817,733
    
    
    
    3,817,733Senior Secured Term Loan B
(19.0%, Due 2/12) (2) (3)
    
    
    3,668,965
    
    
    
    3,626,308
    
    
    
    3,626,308Convertible Subordinated Note
(22.0%, Due 8/12)
    
    
    250,000
    
    
    
    250,000
    
    
    
    250,000Membership Interest - Class B
(4)
    
    
    
    
    
    
    1,000,000
    
    
    
    729,100Sport Helmets Holdings,
LLC (5)(Personal & Nondurable 
Consumer Products)
    
    Manufacturer of protective headgear
    
    Senior Secured Term Loan A
(9.0%, Due 12/13)
    
    
    4,500,000
    
    
    
    4,431,440
    
    
    
    4,431,440Senior Secured Term Loan B
(9.5%, Due 12/13)
    
    
    7,500,000
    
    
    
    7,385,336
    
    
    
    7,385,336Senior Subordinated Debt
(15.0%, Due 6/14) (2)
    
    
    8,011,333
    
    
    
    7,889,250
    
    
    
    7,889,250Common Stock (4)
    
    
    
    
    
    
    2,000,000
    
    
    
    1,901,500Vince & Associates Clinic
Research, Inc.(Healthcare, Education &
Childcare)
    
    Provider of clinical testing services
    
    Senior Secured Term Loan
(10.0%, Due 11/12) (2) (3)
    
    
    7,500,000
    
    
    
    7,391,657
    
    
    
    7,391,657Senior Subordinated Debt
(15.0%, Due 5/13) (2)
    
    
    5,521,561
    
    
    
    5,441,483
    
    
    
    5,441,483Convertible Preferred Stock (4)
    
    
    
    
    
    
    500,000
    
    
    
    592,900Total Affiliate investments (represents 22.1% of total investments at fair value)
    
    
    
    
    
    $
    86,577,905
    
    
    $
    85,171,605Non-control/non-affiliate investments:ADAPCO, Inc.(Ecological)
    
    Distributor of specialty chemicals
and contract application services
    
    Revolving Line of Credit
(9.0%, Due 7/11) (3)
    
    $
    2,200,000
    
    
    $
    2,177,697
    
    
    $
    2,177,697Senior Secured Term Loan A
(10.5%, Due 6/11) (3)
    
    
    13,016,250
    
    
    
    12,916,093
    
    
    
    12,216,143Common Stock (4)
    
    
    
    
    
    
    500,000
    
    
    
    Aircraft Fasteners
International, LLC(Machinery)
    
    Distributor of fasteners and related
hardware for use in aerospace,
electronics and defense industries
    
    Senior Secured Term Loan
(8.3%, Due 11/12) (3)
    
    
    6,800,000
    
    
    
    6,697,869
    
    
    
    6,697,869Junior Secured Term Loan
(14.0%, Due 5/13) (2) (3)
    
    
    5,200,000
    
    
    
    5,121,815
    
    
    
    5,121,815Convertible Preferred Stock (2)
    
    
    
    
    
    
    253,342
    
    
    
    341,800Allied Defense
Group, Inc.(Aerospace & Defense)
    
    Diversified defense company
    
    Common Stock (4)
    
    
    
    
    
    
    463,168
    
    
    
    161,600
 12




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueArrowhead General
Insurance Agency,
Inc. (6)(Insurance)
    
    Insurance agency and program
specialist
    
    Junior Secured Term Loan
(12.1%, Due 2/13) (3)
    
    
    5,000,000
    
    
    
    5,000,000
    
    
    
    4,500,000Borga, Inc.(Mining, Steel, Iron &
Nonprecious Metals)
    
    Manufacturer of pre-fabricated metal
building systems
    
    Senior Secured Term Loan A
(8.8%, Due 3/09) (3)
    
    
    1,321,000
    
    
    
    1,309,581
    
    
    
    1,309,581Senior Secured Term Loan B
(11.8%, Due 5/10) (3)
    
    
    1,785,250
    
    
    
    1,755,679
    
    
    
    1,755,679Senior Secured Term Loan C
(16.0%, Due 5/10) (2) (3)
    
    
    7,794,323
    
    
    
    7,720,404
    
    
    
    7,720,404Common Stock Warrants (4)
    
    
    
    
    
    
    10,746
    
    
    
    Caleel + Hayden,
LLC (5)(Personal & Nondurable 
Consumer Products)
    
    Provider of proprietary branded
professional skincare and cosmetic
products to physicians and spa
communities
    
    Junior Secured Term Loan B
(9.6%, Due 11/11) (3)
    
    
    10,879,062
    
    
    
    10,745,564
    
    
    
    10,745,564Senior Subordinated Debt
(14.5%, Due 11/12) (2) (3)
    
    
    6,250,000
    
    
    
    6,174,425
    
    
    
    6,174,425Common Stock (4)
    
    
    
    
    
    
    750,000
    
    
    
    1,058,600Cheeseworks, Inc.(Grocery)
    
    Distributor of specialty cheese and
food products
    
    Revolving Line of Credit
(7.6%, Due 6/11) (3)
    
    
    5,080,219
    
    
    
    4,984,386
    
    
    
    4,984,386Senior Secured Term Loan
(10.7%, Due 6/11) (3)
    
    
    10,648,560
    
    
    
    10,512,576
    
    
    
    10,512,576CS Operating, LLC (5)(Buildings & Real Estate)
    
    Provider of maintenance, repair and
replacement of HVAC, electrical,
plumbing, and foundation repair
    
    Senior Secured Term Loan A
(9.1%, Due 7/12) (3)
    
    
    2,325,000
    
    
    
    2,290,500
    
    
    
    2,290,500Senior Subordinated Debt
(14.5%, Due 1/13) (2) (3)
    
    
    2,527,328
    
    
    
    2,490,326
    
    
    
    2,490,326Copperhead Chemical
Company, Inc.(Chemicals, Plastics &
Rubber)
    
    Manufacturer of bulk pharmaceuticals
    
    Senior Subordinated Debt
(15.3%, Due 1/13) (2) (3)
    
    
    3,540,943
    
    
    
    3,505,378
    
    
    
    3,505,378Custom Direct, Inc. (6)
(Printing & Publishing)
    
    Direct marketer of checks and other
financial products and services
    
    Junior Secured Term Loan
(10.8%, Due 12/14) (3)
    
    
    2,000,000
    
    
    
    2,000,000
    
    
    
    1,750,000Dover Saddlery, Inc.(Retail Stores)
    
    Equestrian products catalog retailer
    
    Common Stock (4)
    
    
    
    
    
    
    148,200
    
    
    
    129,200Eight OClock Coffee
Company (6)(Beverage, Food & Tobacco)
    
    Manufacturer, distributor, and
marketer of coffee
    
    Junior Secured Term Loan
(11.4%, Due 7/13) (3)
    
    
    9,000,000
    
    
    
    9,000,000
    
    
    
    9,000,000Employbridge Holding 
Company(5) (6)
(Personal, Food &
Miscellaneous Services)
    
    A provider of specialized staffing
services
    
    Junior Secured Term Loan
(11.8%, Due 10/13) (3)
    
    
    3,000,000
    
    
    
    3,000,000
    
    
    
    2,910,000
 13




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueEncore Legal Solutions, Inc.(Printing & Publishing)
    
    Legal document management services
    
    Junior Secured Term Loan A
(10.7%, Due 6/10) (2) (3)
    
    
    3,949,437
    
    
    
    3,925,802
    
    
    
    3,925,802Junior Secured Term Loan B
(10.8%, Due 6/10) (2) (3)
    
    
    7,193,143
    
    
    
    7,138,192
    
    
    
    7,138,192Senior Subordinated Debt
(15.0%, Due 6/10) (2) (3)
    
    
    5,926,861
    
    
    
    5,889,187
    
    
    
    3,489,226Common Stock Warrants (4)
    
    
    
    
    
    
    219,791
    
    
    
    EXL Acquisition Corp.(Electronics)
    
    Manufacturer of lab testing supplies
    
    Senior Secured Term Loan A
(8.4%, Due 3/11) (3)
    
    
    4,800,000
    
    
    
    4,761,933
    
    
    
    4,761,933Senior Secured Term Loan B
(8.9%, Due 3/12) (3)
    
    
    4,851,840
    
    
    
    4,792,326
    
    
    
    4,792,326Senior Secured Term Loan C
(9.4%, Due 3/12) (3)
    
    
    2,992,500
    
    
    
    2,944,981
    
    
    
    2,944,981Senior Secured Term Loan D
(15.0%, Due 3/12) (3)
    
    
    7,000,000
    
    
    
    6,925,241
    
    
    
    6,925,241Common Stock  Class A (4)
    
    
    
    
    
    
    2,475
    
    
    
    123,900Common Stock  Class B (2)
    
    
    
    
    
    
    254,057
    
    
    
    255,325Fairchild Industrial Products, Co.(Electronics)
    
    Manufacturer of industrial controls
and power transmission products
    
    Senior Secured Term Loan A
(8.3%, Due 7/10) (3)
    
    
    5,580,000
    
    
    
    5,531,331
    
    
    
    5,531,331Senior Secured Term Loan B
(10.0%, Due 7/11) (3)
    
    
    9,325,000
    
    
    
    9,239,973
    
    
    
    9,239,973Senior Subordinated Debt
(14.8%, Due 7/11) (2)
    
    
    5,460,000
    
    
    
    5,401,721
    
    
    
    5,401,721Preferred Stock  Class A (2)
    
    
    
    
    
    
    327,879
    
    
    
    327,879Common Stock  Class B (4)
    
    
    
    
    
    
    121,598
    
    
    
    293,200Impact Products, LLC(Machinery)
    
    Distributor of janitorial supplies
    
    Junior Secured Term Loan
(9.5%, Due 9/12) (3)
    
    
    8,968,750
    
    
    
    8,903,106
    
    
    
    8,903,106Senior Subordinated Debt
(13.5%, Due 9/12) (2) (3)
    
    
    5,547,996
    
    
    
    5,509,594
    
    
    
    5,509,594Innovative Concepts in Entertainment, Inc.(Personal & Nondurable Consumer Products)
    
    Manufacturer of coin operated games
    
    Junior Secured Term Loan A
(9.0%, Due 2/11) (3)
    
    
    4,312,500
    
    
    
    4,292,854
    
    
    
    4,292,854Junior Secured Term Loan B
(9.5%, Due 2/11) (3)
    
    
    3,537,000
    
    
    
    3,519,896
    
    
    
    3,519,896Junior Secured Term Loan C
(13.0%, Due 8/11) (3)
    
    
    3,900,000
    
    
    
    3,881,940
    
    
    
    3,881,940Keltner Enterprises, LLC (5)(Oil & Gas)
    
    Distributor of automotive oils,
chemicals and parts
    
    Senior Subordinated Debt
(14.0%, Due 12/11) (3)
    
    
    3,850,000
    
    
    
    3,837,555
    
    
    
    3,837,555
 14




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueL.A. Spas, Inc.(Chemicals, Plastics & Rubber)
    
    Manufacturer of above ground spas
    
    Senior Subordinated Debt
(15.5%, Due 1/10) (2) (3)
    
    
    7,271,249
    
    
    
    7,225,464
    
    
    
    7,225,464Common Stock Warrants (4)
    
    
    
    
    
    
    3,009
    
    
    
    LHC Holdings Corp.(Healthcare, Education & Childcare)
    
    Provider of home healthcare services
    
    Revolving Line of Credit
(8.8%, Due 11/12) (3)
    
    
    300,000
    
    
    
    287,369
    
    
    
    287,369Senior Secured Term Loan A
(8.8%, Due 11/12) (3)
    
    
    5,100,000
    
    
    
    5,035,888
    
    
    
    5,035,888Senior Subordinated Debt
(14.5%, Due 5/13)
    
    
    4,565,000
    
    
    
    4,507,250
    
    
    
    4,507,250Membership Interest (4)
    
    
    
    
    
    
    125,000
    
    
    
    120,500Mac & Massey Holdings, LLC(Grocery)
    
    Broker and distributor of
ingredients to manufacturers of food
products
    
    Senior Subordinated Debt
(16.5%, Due 2/13) (2)
    
    
    7,438,280
    
    
    
    7,402,496
    
    
    
    7,402,496Common Stock (4)
    
    
    
    
    
    
    250,000
    
    
    
    388,200Metrologic Instruments, Inc. (6)(Electronics)
    
    Manufacturer of imaging and scanning
equipment
    
    Senior Secured Term Loan
(7.8%, Due 4/14) (3)
    
    
    992,500
    
    
    
    992,500
    
    
    
    942,900Junior Secured Term Loan
(11.1%, Due 12/15)
    
    
    1,000,000
    
    
    
    1,000,000
    
    
    
    930,000Nice-Pak Products, Inc. (6)(Containers, Packaging & Glass)
    
    Manufacturer of pre-moistened wipes
    
    Senior Secured Term Loan
(8.5%, Due 6/14) (3)
    
    
    2,985,000
    
    
    
    2,985,000
    
    
    
    2,895,500Northwestern Management Services, LLC(Healthcare, Education & Childcare)
    
    Provider of dental services
    
    Senior Secured Term Loan A
(8.9%, Due 12/12) (3)
    
    
    6,000,000
    
    
    
    5,936,612
    
    
    
    5,936,612Senior Secured Term Loan B
(9.4%, Due 12/12) (3)
    
    
    1,250,000
    
    
    
    1,236,744
    
    
    
    1,236,744Junior Secured Term Loan
(15.0%, Due 6/13) (2)
    
    
    2,754,125
    
    
    
    2,724,995
    
    
    
    2,724,995Common Stock (4)
    
    
    
    
    
    
    500,000
    
    
    
    504,400Prince Mineral Company, Inc.(Metals & Minerals)
    
    Manufacturer of pigments
    
    Junior Secured Term Loan
(9.9%, Due 12/12) (3)
    
    
    11,375,000
    
    
    
    11,203,941
    
    
    
    11,203,941Senior Subordinated Debt
(14.0%, Due 7/13) (2) (3)
    
    
    11,913,159
    
    
    
    11,768,249
    
    
    
    11,768,249Quartermaster, Inc.(Retail Stores)
    
    Retailer of uniforms and tactical
equipment to law enforcement and
security professionals
    
    Revolving Line of Credit
(9.5%, Due 12/10) (3)
    
    
    500,000
    
    
    
    471,887
    
    
    
    471,887Senior Secured Term Loan A
(9.4%, Due 12/10) (3)
    
    
    4,276,250
    
    
    
    4,228,116
    
    
    
    4,228,116Senior Secured Term Loan B
(10.6%, Due 12/10) (3)
    
    
    2,568,750
    
    
    
    2,542,846
    
    
    
    2,542,846Senior Secured Term Loan C
(15.0%, Due 12/11) (2) (3)
    
    
    3,298,069
    
    
    
    3,265,862
    
    
    
    3,265,862
 15




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueR-O-M Corporation(Automobile)
    
    Manufacturer of doors, ramps and
bulk heads for fire trucks and food
transportation
    
    Senior Secured Term Loan A
(8.0%, Due 2/13) (3)
    
    
    7,440,000
    
    
    
    7,359,023
    
    
    
    7,359,023Senior Secured Term Loan B
(9.3%, Due 5/13) (3)
    
    
    8,464,500
    
    
    
    8,359,596
    
    
    
    8,359,596Senior Subordinated Debt
(15.0%, Due 8/13) (2)
    
    
    9,100,000
    
    
    
    8,991,761
    
    
    
    8,991,761Sidumpr Trailer Company, Inc.(Automobile)
    
    Manufacturer of side dump trailers
    
    Revolving Line of Credit
(9.8%, Due 1/11) (3)
    
    
    1,675,000
    
    
    
    1,651,732
    
    
    
    1,651,732Senior Secured Term Loan A
(8.5%, Due 1/11) (3)
    
    
    2,047,500
    
    
    
    2,028,320
    
    
    
    2,028,320Senior Secured Term Loan B
(11.5%, Due 1/11) (3)
    
    
    2,320,625
    
    
    
    2,294,336
    
    
    
    2,294,336Senior Secured Term Loan C
(15.0%, Due 7/11) (2) (3)
    
    
    3,230,074
    
    
    
    3,197,254
    
    
    
    3,197,254Senior Subordinated Debt
(12.0%, Due 1/12) (3)
    
    
    75,000
    
    
    
    75,000
    
    
    
    75,000Preferred Stock (2)
    
    
    
    
    
    
    87,271
    
    
    Common Stock (4)
    
    
    
    
    
    
    25
    
    
    Total Non-control/non-affiliate investments (represents 75.5% of total investments at fair value)
    
    
    
    
    
    $
    294,686,727
    
    
    $
    290,225,759Total Investments
    
    
    
    
    
    
    
    
    
    $
    388,245,021
    
    
    $
    384,725,753
 
 (1)
    
    Affiliate investments are generally defined under the Investment Company Act of 1940, as amended (the 1940 Act), as companies in which the Company owns at least 5% but not more than 25% of the voting securities of
the company. Control investments are generally defined under the 1940 Act as companies in which the Company owns more than 25% of the voting securities of the company or has greater than 50% representation on its
board.(2)
    
    Amount includes payment-in-kind (PIK) interest or dividends.(3)
    
    Pledged as collateral under the Companys Securitization Facility. See Note 4 to Consolidated Financial Statements.(4)
    
    Non-income producing.(5)
    
    Some of the investments listed are issued by an affiliate of the listed portfolio company.(6)
    
    Syndicated investment which has been originated by another financial institution and broadly distributed.  16




---



##### 



Patriot Capital Funding, Inc.
Notes to Consolidated Financial Statements
(unaudited)
  Description of Business
   Basis of Presentation
   Recent Accounting Pronouncements
  Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
 Interest, Dividends, Fees, and Other Investment Income
  17




---



##### 



Federal Income Taxes
  Dividends Paid
   Reclassifications
   Statement of
Financial Standards No. 157Fair Value Measurements
  June 30, 2008
    
    
    December 31, 2007Cost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair ValueInvestments in debt securities
    
    $
    321,432,335
    
    
    $
    306,274,501
    
    
    $
    375,410,033
    
    
    $
    371,261,022Investments in equity securities
    
    
    17,821,702
    
    
    
    16,136,199
    
    
    
    12,834,988
    
    
    
    13,464,731Total
    
    $
    339,254,037
    
    
    $
    322,410,700
    
    
    $
    388,245,021
    
    
    $
    384,725,753
   18




---



##### 



June 30, 2008
    
    
    December 31, 2007Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)
    
    
    Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)Senior Secured Debt
    
    $
    160,353,144
    
    
    
    47.2
    %
    
    $
    154,850,773
    
    
    
    48.0
    %
    
    $
    190,048,200
    
    
    
    49.0
    %
    
    $
    189,209,150
    
    
    
    49.2
    %Junior Secured Debt
    
    
    65,076,882
    
    
    
    19.2
    
    
    
    61,390,912
    
    
    
    19.1
    
    
    
    85,493,227
    
    
    
    22.0
    
    
    
    84,583,227
    
    
    
    22.0Subordinated Debt
    
    
    96,002,309
    
    
    
    28.3
    
    
    
    90,032,816
    
    
    
    27.9
    
    
    
    99,868,606
    
    
    
    25.7
    
    
    
    97,468,645
    
    
    
    25.3Warrants / Equity
    
    
    17,821,702
    
    
    
    5.3
    
    
    
    16,136,199
    
    
    
    5.0
    
    
    
    12,834,988
    
    
    
    3.3
    
    
    
    13,464,731
    
    
    
    3.5Total
    
    $
    339,254,037
    
    
    
    100.0
    %
    
    $
    322,410,700
    
    
    
    100.0
    %
    
    $
    388,245,021
    
    
    
    100.0
    %
    
    $
    384,725,753
    
    
    
    100.0
    %
 
 (1)
    
    Represents percentage of total portfolio.  June 30, 2008
    
    
    December 31, 2007Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)
    
    
    Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)Machinery
    
    $
    53,134,269
    
    
    
    15.6
    %
    
    $
    47,108,821
    
    
    
    14.6
    %
    
    $
    52,844,315
    
    
    
    13.6
    %
    
    $
    54,030,773
    
    
    
    14.0
    %Personal & Nondurable Consumer Products
    
    
    39,490,227
    
    
    
    11.6
    
    
    
    39,682,431
    
    
    
    12.3
    
    
    
    51,070,705
    
    
    
    13.2
    
    
    
    51,280,805
    
    
    
    13.3Automobile
    
    
    34,225,076
    
    
    
    10.1
    
    
    
    30,014,025
    
    
    
    9.3
    
    
    
    34,044,318
    
    
    
    8.8
    
    
    
    33,957,022
    
    
    
    8.8Electronics
    
    
    33,103,887
    
    
    
    9.8
    
    
    
    33,382,456
    
    
    
    10.4
    
    
    
    42,296,015
    
    
    
    10.9
    
    
    
    42,470,710
    
    
    
    11.0Health Care, Education & Childcare
    
    
    32,738,681
    
    
    
    9.6
    
    
    
    32,556,181
    
    
    
    10.1
    
    
    
    33,686,998
    
    
    
    8.7
    
    
    
    33,779,798
    
    
    
    8.8Metals & Minerals
    
    
    23,010,314
    
    
    
    6.8
    
    
    
    21,828,752
    
    
    
    6.8
    
    
    
    22,972,190
    
    
    
    5.9
    
    
    
    22,972,190
    
    
    
    6.0Printing & Publishing
    
    
    20,030,131
    
    
    
    6.0
    
    
    
    17,611,501
    
    
    
    5.5
    
    
    
    19,172,972
    
    
    
    4.9
    
    
    
    16,303,220
    
    
    
    4.2Textiles & Leather
    
    
    13,567,955
    
    
    
    4.0
    
    
    
    14,065,035
    
    
    
    4.4
    
    
    
    12,970,522
    
    
    
    3.3
    
    
    
    13,077,422
    
    
    
    3.4Ecological
    
    
    12,104,890
    
    
    
    3.6
    
    
    
    11,009,990
    
    
    
    3.4
    
    
    
    15,593,790
    
    
    
    4.0
    
    
    
    14,393,840
    
    
    
    3.7Chemicals, Plastic & Rubber
    
    
    11,324,986
    
    
    
    3.3
    
    
    
    11,321,499
    
    
    
    3.5
    
    
    
    10,733,851
    
    
    
    2.8
    
    
    
    10,730,842
    
    
    
    2.8Retail Stores
    
    
    11,079,460
    
    
    
    3.3
    
    
    
    11,053,560
    
    
    
    3.4
    
    
    
    10,656,911
    
    
    
    2.7
    
    
    
    10,637,911
    
    
    
    2.8Mining, Steel, Iron & Nonprecious Metals
    
    
    10,750,544
    
    
    
    3.2
    
    
    
    10,737,769
    
    
    
    3.3
    
    
    
    10,796,410
    
    
    
    2.8
    
    
    
    10,785,664
    
    
    
    2.8Housewares & Durable Consumer Products
    
    
    10,008,168
    
    
    
    2.9
    
    
    
    9,849,119
    
    
    
    3.0
    
    
    
    9,673,177
    
    
    
    2.5
    
    
    
    9,686,477
    
    
    
    2.5Diversified/Conglomerate Service
    
    
    9,725,076
    
    
    
    2.9
    
    
    
    9,219,976
    
    
    
    2.9
    
    
    
    9,516,840
    
    
    
    2.4
    
    
    
    9,245,940
    
    
    
    2.4Grocery
    
    
    7,899,723
    
    
    
    2.3
    
    
    
    7,900,239
    
    
    
    2.4
    
    
    
    23,149,458
    
    
    
    6.0
    
    
    
    23,287,658
    
    
    
    6.1Insurance
    
    
    5,000,000
    
    
    
    1.5
    
    
    
    3,750,000
    
    
    
    1.2
    
    
    
    5,000,000
    
    
    
    1.3
    
    
    
    4,500,000
    
    
    
    1.2Buildings & Real Estate
    
    
    4,758,366
    
    
    
    1.4
    
    
    
    4,699,030
    
    
    
    1.4
    
    
    
    4,780,826
    
    
    
    1.2
    
    
    
    4,780,826
    
    
    
    1.2Oil & Gas
    
    
    3,839,116
    
    
    
    1.1
    
    
    
    3,839,116
    
    
    
    1.2
    
    
    
    3,837,555
    
    
    
    1.0
    
    
    
    3,837,555
    
    
    
    1.0Personal, Food & Miscellaneous Services
    
    
    3,000,000
    
    
    
    0.9
    
    
    
    2,625,000
    
    
    
    0.8
    
    
    
    3,000,000
    
    
    
    0.8
    
    
    
    2,910,000
    
    
    
    0.8Aerospace & Defense
    
    
    463,168
    
    
    
    0.1
    
    
    
    156,200
    
    
    
    0.1
    
    
    
    463,168
    
    
    
    0.1
    
    
    
    161,600
    
    
    
    0.1Beverage, Food & Tobacco
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,000,000
    
    
    
    2.3
    
    
    
    9,000,000
    
    
    
    2.3Containers, Packaging & Glass
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,985,000
    
    
    
    0.8
    
    
    
    2,895,500
    
    
    
    0.8Total
    
    $
    339,254,037
    
    
    
    100.0
    %
    
    $
    322,410,700
    
    
    
    100.0
    %
    
    $
    388,245,021
    
    
    
    100.0
    %
    
    $
    384,725,753
    
    
    
    100.0
    %
 
 (1)
    
    Represents percentage of total portfolio.    19




---



##### 



As of June 30, 2008Internal Models with
    
    Internal Models with
    
    Total Fair ValueQuoted Market Prices
    
    Significant Observable
    
    Significant Unobservable
    
    Reported inin Active Markets
    
    Market Parameters
    
    Market Parameters
    
    Consolidated(Level 1)
    
    (Level 2)
    
    (Level 3)
    
    Balance SheetNon-affiliate investments
    
    $
    278,500
    
    
    $
    11,179,309
    
    
    $
    206,886,481
    
    
    $
    218,344,290Affiliate investments
    
    
    
    
    
    
    
    
    
    
    80,800,446
    
    
    
    80,800,446Control investments
    
    
    
    
    
    
    
    
    
    
    23,265,964
    
    
    
    23,265,964Total investments at fair value
    
    $
    278,500
    
    
    $
    11,179,309
    
    
    $
    310,952,891
    
    
    $
    322,410,700
  Fair value measurements using unobservable inputs (Level 3)Non-affiliate
    
    Affiliate
    
    ControlInvestments
    
    Investments
    
    Investments
    
    TotalFair Value December 31, 2007
    
    $
    267,006,559
    
    
    $
    85,171,605
    
    
    $
    9,328,389
    
    
    $
    361,506,553Total realized gains (losses)
    
    
    
    
    
    
    
    
    
    
    (350,000
    )
    
    
    (350,000
    )Change in unrealized depreciation
    
    
    (7,265,836
    )
    
    
    (5,662,008
    )
    
    
    1,072,398
    
    
    
    (11,855,446
    )Purchases, issuances, settlements and other, net
    
    
    (52,854,242
    )
    
    
    1,290,849
    
    
    
    13,215,177
    
    
    
    (38,348,216
    )Transfers in (out) of Level 3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fair value as of June 30, 2008
    
    $
    206,886,481
    
    
    $
    80,800,446
    
    
    $
    23,265,964
    
    
    $
    310,952,891
   20




---



##### 



21




---



##### 



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Interest charges
    
    $
    1,733,144
    
    
    $
    1,544,512
    
    
    $
    3,719,520
    
    
    $
    2,946,074Amortization of debt issuance costs
    
    
    131,728
    
    
    
    70,059
    
    
    
    190,632
    
    
    
    140,118Unused facility fees
    
    
    60,358
    
    
    
    27,938
    
    
    
    74,601
    
    
    
    62,529Total
    
    $
    1,925,230
    
    
    $
    1,642,509
    
    
    $
    3,984,753
    
    
    $
    3,148,721
       22




---



##### 



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Weighted average common shares outstanding, basic
    
    
    20,693,337
    
    
    
    18,246,987
    
    
    
    20,671,896
    
    
    
    17,891,914Effect of dilutive stock options
    
    
    
    
    
    
    219,523
    
    
    
    
    
    
    
    219,523Weighted average common shares outstanding, diluted
    
    
    20,693,337
    
    
    
    18,466,510
    
    
    
    20,671,896
    
    
    
    18,111,437
     Date Declared
    
    Record Date
    
    Payment Date
    
    AmountMay 2, 2008
    
    June 5, 2008
    
    July 16, 2008
    
    $0.33February 27, 2008
    
    March 14, 2008
    
    April 16, 2008
    
    $0.33November 1, 2007
    
    December 14, 2007
    
    January 16, 2008
    
    $0.33August 2, 2007
    
    September 14, 2007
    
    October 17, 2007
    
    $0.32April 30, 2007
    
    June 15, 2007
    
    July 17, 2007
    
    $0.32February 23, 2007
    
    March 15, 2007
    
    April 18, 2007
    
    $0.32
     23




---



##### 



January 1, 2008toJune 30, 2008GAAP net investment income
    
    $
    13,205,000Tax timing differences of:Origination fees, net
    
    
    (685,000
    )Stock compensation expense, bonus accruals, original
issue discount and depreciation and amortization
    
    
    (1,246,000
    )Tax distributable income
    
    $
    11,274,000
     24




---



##### 



For the Six Months EndedJune 30,2008
    
    
    2007Per Share Data:Net asset value at beginning of period
    
    $
    10.73
    
    
    $
    10.37Net investment income
    
    
    .64
    
    
    
    .59Net gain (loss) on investments
    
    
    (.02
    )
    
    
    .01Net change in unrealized appreciation (depreciation)
on investments
    
    
    (.64
    )
    
    
    .01Effect of issuance of common stock
    
    
    
    
    
    
    .39Distributions from net investment income
    
    
    (.64
    )
    
    
    (.59
    )Distributions in excess of net investment income
    
    
    (.02
    )
    
    
    (.05
    )Net change in unrealized swap appreciation
    
    
    .01
    
    
    
    .01Stock based compensation expense
    
    
    .02
    
    
    
    .02Net asset value at end of period
    
    $
    10.08
    
    
    $
    10.76Total net asset value return (1)
    
    
    0.1
    %
    
    
    10.0
    %Per share market value, beginning of period
    
    $
    10.09
    
    
    $
    14.49Per share market value, end of period
    
    $
    6.25
    
    
    $
    14.85Total market value return (2)
    
    
    (31.5
    )%
    
    
    6.9
    %Shares outstanding at end of period
    
    
    20,702,485
    
    
    
    18,252,774Ratios and Supplemental Data:Net assets at end of period
    
    $
    208,622,000
    
    
    $
    196,389,000Average net assets
    
    
    214,404,000
    
    
    
    195,149,000Ratio of operating expenses to average
net assets (annualized)
    
    
    8.1
    %
    
    
    7.5
    %Ratio of net investment income (loss) to
average net assets (annualized)
    
    
    12.3
    %
    
    
    11.0
    %Average borrowings outstanding
    
    $
    146,170,000
    
    
    $
    90,359,000Average amount of borrowings per
share
    
    $
    7.06
    
    
    $
    4.95
 
 (1)
    
    The total net asset value return (not annualized) reflects the change in net asset
value of a share of stock, plus dividends.(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.         25




---



##### 



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, including economic downturns or recessions;
    
    risks associated with possible disruption in our operations or the economy, and
    
    future changes in laws, accounting pronouncements or regulations.
  Overview
  Current Market Conditions
  26




---



##### 



Portfolio Composition
   June 30, 2008
    
    
    December 31, 2007Beginning portfolio at fair value
    
    $
    384,725,753
    
    
    $
    257,812,235Investments in debt securities
    
    
    9,691,406
    
    
    
    191,391,250Investments in equity securities
    
    
    
    
    
    
    8,925,000Investment repayments
    
    
    (51,532,552
    )
    
    
    (67,332,023
    )Increase in payment-in-kind interest/dividends
    
    
    2,899,860
    
    
    
    3,928,159Sale of investments
    
    
    (10,787,500
    )
    
    
    (5,374,749
    )Change in unearned revenue
    
    
    633,242
    
    
    
    (986,413
    )Decrease in fair value of investments
    
    
    (13,219,509
    )
    
    
    (3,637,706
    )Ending portfolio at fair value
    
    $
    322,410,700
    
    
    $
    384,725,753
  June 30, 2008
    
    
    December 31, 2007Investments at
    
    
    Percentage of
    
    
    Investments at
    
    
    Percentage ofFair Value
    
    
    Total Portfolio
    
    
    Fair Value
    
    
    Total PortfolioSenior secured revolving lines of credit
    
    $
    13,520,484
    
    
    
    4.2
    %
    
    $
    14,841,169
    
    
    
    3.9
    %Senior secured term loans
    
    
    141,330,289
    
    
    
    43.8
    
    
    
    174,367,981
    
    
    
    45.3Junior secured term loans
    
    
    61,390,912
    
    
    
    19.1
    
    
    
    84,583,227
    
    
    
    22.0Senior subordinated debt
    
    
    90,032,816
    
    
    
    27.9
    
    
    
    97,468,645
    
    
    
    25.3Investments in equity securities
    
    
    16,136,199
    
    
    
    5.0
    
    
    
    13,464,731
    
    
    
    3.5Totals
    
    $
    322,410,700
    
    
    
    100.0
    %
    
    $
    384,725,753
    
    
    
    100.0
    %
  27




---



##### 



June 30, 2008
    
    
    December 31, 2007Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)
    
    
    Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)Machinery
    
    $
    53,134,269
    
    
    
    15.6
    %
    
    $
    47,108,821
    
    
    
    14.6
    %
    
    $
    52,844,315
    
    
    
    13.6
    %
    
    $
    54,030,773
    
    
    
    14.0
    %Personal & Nondurable Consumer Products
    
    
    39,490,227
    
    
    
    11.6
    
    
    
    39,682,431
    
    
    
    12.3
    
    
    
    51,070,705
    
    
    
    13.2
    
    
    
    51,280,805
    
    
    
    13.3Automobile
    
    
    34,225,076
    
    
    
    10.1
    
    
    
    30,014,025
    
    
    
    9.3
    
    
    
    34,044,318
    
    
    
    8.8
    
    
    
    33,957,022
    
    
    
    8.8Electronics
    
    
    33,103,887
    
    
    
    9.8
    
    
    
    33,382,456
    
    
    
    10.4
    
    
    
    42,296,015
    
    
    
    10.9
    
    
    
    42,470,710
    
    
    
    11.0Health Care, Education & Childcare
    
    
    32,738,681
    
    
    
    9.6
    
    
    
    32,556,181
    
    
    
    10.1
    
    
    
    33,686,998
    
    
    
    8.7
    
    
    
    33,779,798
    
    
    
    8.8Metals & Minerals
    
    
    23,010,314
    
    
    
    6.8
    
    
    
    21,828,752
    
    
    
    6.8
    
    
    
    22,972,190
    
    
    
    5.9
    
    
    
    22,972,190
    
    
    
    6.0Printing & Publishing
    
    
    20,030,131
    
    
    
    6.0
    
    
    
    17,611,501
    
    
    
    5.5
    
    
    
    19,172,972
    
    
    
    4.9
    
    
    
    16,303,220
    
    
    
    4.2Textiles & Leather
    
    
    13,567,955
    
    
    
    4.0
    
    
    
    14,065,035
    
    
    
    4.4
    
    
    
    12,970,522
    
    
    
    3.3
    
    
    
    13,077,422
    
    
    
    3.4Ecological
    
    
    12,104,890
    
    
    
    3.6
    
    
    
    11,009,990
    
    
    
    3.4
    
    
    
    15,593,790
    
    
    
    4.0
    
    
    
    14,393,840
    
    
    
    3.7Chemicals, Plastic & Rubber
    
    
    11,324,986
    
    
    
    3.3
    
    
    
    11,321,499
    
    
    
    3.5
    
    
    
    10,733,851
    
    
    
    2.8
    
    
    
    10,730,842
    
    
    
    2.8Retail Stores
    
    
    11,079,460
    
    
    
    3.3
    
    
    
    11,053,560
    
    
    
    3.4
    
    
    
    10,656,911
    
    
    
    2.7
    
    
    
    10,637,911
    
    
    
    2.8Mining, Steel, Iron & Nonprecious Metals
    
    
    10,750,544
    
    
    
    3.2
    
    
    
    10,737,769
    
    
    
    3.3
    
    
    
    10,796,410
    
    
    
    2.8
    
    
    
    10,785,664
    
    
    
    2.8Housewares & Durable Consumer Products
    
    
    10,008,168
    
    
    
    2.9
    
    
    
    9,849,119
    
    
    
    3.0
    
    
    
    9,673,177
    
    
    
    2.5
    
    
    
    9,686,477
    
    
    
    2.5Diversified/Conglomerate Service
    
    
    9,725,076
    
    
    
    2.9
    
    
    
    9,219,976
    
    
    
    2.9
    
    
    
    9,516,840
    
    
    
    2.4
    
    
    
    9,245,940
    
    
    
    2.4Grocery
    
    
    7,899,723
    
    
    
    2.3
    
    
    
    7,900,239
    
    
    
    2.4
    
    
    
    23,149,458
    
    
    
    6.0
    
    
    
    23,287,658
    
    
    
    6.1Insurance
    
    
    5,000,000
    
    
    
    1.5
    
    
    
    3,750,000
    
    
    
    1.2
    
    
    
    5,000,000
    
    
    
    1.3
    
    
    
    4,500,000
    
    
    
    1.2Buildings & Real Estate
    
    
    4,758,366
    
    
    
    1.4
    
    
    
    4,699,030
    
    
    
    1.4
    
    
    
    4,780,826
    
    
    
    1.2
    
    
    
    4,780,826
    
    
    
    1.2Oil & Gas
    
    
    3,839,116
    
    
    
    1.1
    
    
    
    3,839,116
    
    
    
    1.2
    
    
    
    3,837,555
    
    
    
    1.0
    
    
    
    3,837,555
    
    
    
    1.0Personal, Food & Miscellaneous Services
    
    
    3,000,000
    
    
    
    0.9
    
    
    
    2,625,000
    
    
    
    0.8
    
    
    
    3,000,000
    
    
    
    0.8
    
    
    
    2,910,000
    
    
    
    0.8Aerospace & Defense
    
    
    463,168
    
    
    
    0.1
    
    
    
    156,200
    
    
    
    0.1
    
    
    
    463,168
    
    
    
    0.1
    
    
    
    161,600
    
    
    
    0.1Beverage, Food & Tobacco
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,000,000
    
    
    
    2.3
    
    
    
    9,000,000
    
    
    
    2.3Containers, Packaging & Glass
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,985,000
    
    
    
    0.8
    
    
    
    2,895,500
    
    
    
    0.8Total
    
    $
    339,254,037
    
    
    
    100.0
    %
    
    $
    322,410,700
    
    
    
    100.0
    %
    
    $
    388,245,021
    
    
    
    100.0
    %
    
    $
    384,725,753
    
    
    
    100.0
    %
 
 (1)
    
    Represents percentage of total portfolio.  28




---



##### 



Portfolio Asset Quality
   June 30, 2008
    
    
    December 31, 2007Investments at
    
    
    Percentage of
    
    
    Investments at
    
    
    Percentage ofInvestment Rating
    
    Fair Value
    
    
    Total Portfolio
    
    
    Fair Value
    
    
    Total Portfolio1
    
    $
    68,047,026
    
    
    
    22.2
    %
    
    $
    46,466,323
    
    
    
    12.5
    %2
    
    
    162,225,619
    
    
    
    53.0
    
    
    
    252,730,493
    
    
    
    68.13
    
    
    62,795,000
    
    
    
    20.5
    
    
    
    57,510,986
    
    
    
    15.54
    
    
    9,272,960
    
    
    
    3.0
    
    
    
    14,553,220
    
    
    
    3.95
    
    
    3,933,896
    
    
    
    1.3
    
    
    
    
    
    
    
    Totals
    
    $
    306,274,501
    
    
    
    100.0
    %
    
    $
    371,261,022
    
    
    
    100.0
    %
  Loans and Debt Securities on Non-Accrual Status
  Results of Operations
  Comparison for the three months ended June 30, 2008 and 2007
 Total Investment Income
    29




---



##### 



Expenses
   Realized Gain (Loss) on Sale of Investments
  Net Change in Unrealized Appreciation or Depreciation on Investments
  Net Unrealized Appreciation or Depreciation on Interest Rate Swaps
  Net Income
  30




---



##### 



Comparison for the six months ended June 30, 2008 and 2007
 Total Investment Income
    Expenses
   Realized Gain (Loss) on Sale of Investments
  Net Change in Unrealized Appreciation or Depreciation on Investments
  31




---



##### 



Unrealized Appreciation or Depreciation on Interest Rate Swaps
  Net
Income (Loss)
  Financial Condition, Liquidity and Capital Resources
 Cash, Cash Equivalents and Restricted Cash
  Cash Flows
  Liquidity and Capital Resources
   32




---



##### 



Borrowings
       Regulated Investment Company Status and Dividends
  33




---



##### 



Critical Accounting Policies
  Valuation of Portfolio Investments
    34




---



##### 



Fee Income Recognition
  Payment-in-Kind or PIK Interest and Dividends
   Six Months EndedJune 30, 2008Beginning PIK balance
    
    $
    4,714,356PIK interest and dividends earned during the period
    
    
    2,899,860PIK conversion to equity
    
    
    (1,519,567
    )PIK receipts during the period
    
    
    (510,288
    )Ending PIK balance
    
    $
    5,584,361
 Interest and Dividend Income Recognition
   35




---



##### 



Off-Balance Sheet Arrangements
   Contractual Obligations
  Recent Developments
       36




---



##### 



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(e) and 15d-15(e) 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 facilitating timely decisions regarding required disclosure of any material
information relating to us that is required to be disclosed by us in the reports we file or
submit under the Securities 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, 2008 that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
 37




---



##### 



PART II. OTHER INFORMATION
 Item 1. Legal Proceedings
  Item 1A. Risk Factors
  Stockholders may incur dilution if we sell shares of our common stock in one or more offerings at
prices below the then current net asset value per share of our common stock or issue securities to
subscribe to, convert to or purchase shares of our common stock.
    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
  
    
    Proposal No. 1:election of two directors to our Board of Directors who will
serve for three years;
    
    Proposal No. 2: the ratification of the selection of Grant Thornton LLP to serve
as our independent registered public accounting firm for the fiscal year ending December
31, 2008;
    
    Proposal No. 3: the authorization for us, with the approval of our Board of
Directors, to sell shares of our common stock below the then current net asset value per
share in one or more offerings;
 38




---



##### 




    
    Proposal No. 4: the authorization for us to issue shares of restricted stock
under our Employee Restricted Stock Plan; and
    
    Proposal No. 5: the approval of a proposal to authorize us to issue securities
to subscribe to, convert to, or purchase shares of our common stock in one or more
offerings.
  For
    
    Against
    
    AbstainRichard P. Buckanavage
    
    
    13,980,845
    
    
    
    627,448
    
    
    
    262,812Timothy W. Hassler
    
    
    13,987,920
    
    
    
    623,582
    
    
    
    259,604
  
  For
    
    Against
    
    AbstainTotals
    
    
    14,525,611
    
    
    
    132,362
    
    
    
    213,131
  Including Votes by Our Affiliated Persons
 BrokerFor
    
    Against
    
    Abstain
    
    Non-VotesTotals
    
    
    10,361,853
    
    
    
    2,286,562
    
    
    
    313,056
    
    
    
    1,909,636
 Excluding Votes by Our Affiliated Persons
 For
    
    Against
    
    Abstain
    
    Non-VotesTotals
    
    
    10,194,108
    
    
    
    2,286,562
    
    
    
    313,056
    
    
    
    1,909,636
  BrokerFor
    
    Against
    
    Abstain
    
    Non-VotesTotals
    
    
    7,931,210
    
    
    
    4,489,980
    
    
    
    540,283
    
    
    
    1,909,634
  BrokerFor
    
    Against
    
    Abstain
    
    Non-VotesTotals
    
    
    11,252,345
    
    
    
    1,370,151
    
    
    
    338,975
    
    
    
    1,909,636
 Item 5. Other Information
  39




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##### 



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. 40




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##### 



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
 41