##### 



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, 2007
 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
(State or other jurisdiction of 
incorporation or organization)
    
    74-3068511
(I.R.S. Employer
Identification No.)274 Riverside Avenue 
Westport, CT
(Address of principal executive office)
    
    06880(Zip Code)
 (203) 429-2700
 þ o
  o þ o
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##### 



PATRIOT CAPITAL FUNDING, INC.
 FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2007
 TABLE OF CONTENTS
 PART I
    
    FINANCIAL INFORMATION
    
    
    1Item 1.
    
    Financial Statements (Unaudited)
    
    
    1Consolidated Balance Sheets at June 30, 2007 and December 31, 2006
    
    
    1Consolidated Statements of Operations for the three and six months ended June 30, 2007 and 2006
    
    
    2Consolidated Statement of Changes in Net Assets for the six months ended June 30, 2007 and 2006
    
    
    3Consolidated Statements of Cash Flows for the six months ended June 30, 2007 and 2006
    
    
    4Consolidated Schedule of Investments as of June 30, 2007
    
    
    5Consolidated Schedule of Investments as of December 31, 2006
    
    
    9Notes to Consolidated Financial Statements
    
    
    13Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 4.
    
    Controls and Procedures
    
    
    31PART II
    
    OTHER INFORMATION
    
    
    32Item 1.
    
    Legal Proceedings
    
    
    32Item 1A.
    
    Risk Factors
    
    
    32Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3.
    
    Defaults upon Senior Securities
    
    
    32Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    32Item 5.
    
    Other Information
    
    
    33Item 6.
    
    Exhibits
    
    
    33Signatures
    
    
    
    
    34




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##### 



PART I. FINANCIAL INFORMATION
 Item 1. Financial Statements
 Patriot Capital Funding, Inc.
Consolidated Balance Sheets
(unaudited)
 June 30,
    
    December 31,2007
    
    2006ASSETSInvestments at fair value:Non-control/non-affiliate investments (cost of $247,162,137  2007,
$251,915,921  2006)
    
    $
    246,814,921
    
    
    $
    251,933,655Affiliate investments (cost of $50,179,039  2007,
$8,966,605  2006)
    
    
    50,615,839
    
    
    
    8,925,605Unearned income
    
    
    (3,741,786
    )
    
    
    (3,610,884
    )Total investments
    
    
    293,688,974
    
    
    
    257,248,376Cash and cash equivalents
    
    
    5,625,962
    
    
    
    4,211,643Restricted cash
    
    
    4,162,276
    
    
    
    5,113,806Interest receivable
    
    
    2,429,552
    
    
    
    2,221,000Other assets
    
    
    1,427,628
    
    
    
    1,727,680TOTAL ASSETS
    
    $
    307,334,392
    
    
    $
    270,522,505LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIESBorrowings
    
    $
    102,573,000
    
    
    $
    98,380,000Interest payable
    
    
    536,996
    
    
    
    523,709Distributions payable
    
    
    5,840,888
    
    
    
    4,904,818Accounts payable, accrued expenses and other
    
    
    1,994,262
    
    
    
    2,605,349TOTAL LIABILITIES
    
    
    110,945,146
    
    
    
    106,413,876STOCKHOLDERS 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;
18,252,774 and 15,821,994 shares issued and outstanding at
at June 30, 2007, and December 31, 2006, respectively
    
    
    182,528
    
    
    
    158,220Paid-in capital
    
    
    204,829,967
    
    
    
    171,957,327Accumulated net investment loss
    
    
    (1,912,061
    )
    
    
    (1,912,061
    )Distributions in excess of net investment income
    
    
    (3,757,013
    )
    
    
    (2,821,587
    )Net realized loss on investments
    
    
    (3,178,865
    )
    
    
    (3,262,966
    )Net unrealized appreciation on interest rate swaps
    
    
    135,105
    
    
    
    12,961Net unrealized appreciation (depreciation) on investments
    
    
    89,585
    
    
    
    (23,265
    )TOTAL STOCKHOLDERS EQUITY
    
    
    196,389,246
    
    
    
    164,108,629TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    307,334,392
    
    
    $
    270,522,505NET ASSET VALUE PER COMMON SHARE
    
    $
    10.76
    
    
    $
    10.37
  1




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##### 



Patriot Capital Funding, Inc.
Consolidated Statements of Operations
(unaudited)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006INVESTMENT INCOMEInterest and dividends:Non-control/non-affiliate investments (less than 5% owned)
    
    $
    7,535,657
    
    
    $
    5,752,032
    
    
    $
    15,114,605
    
    
    $
    11,191,803Affiliate investments (5% to 25% owned)
    
    
    1,214,881
    
    
    
    
    
    
    
    1,834,114
    
    
    
    -
    
    -Total
interest and dividend income
    
    
    8,750,538
    
    
    
    5,752,032
    
    
    
    16,948,719
    
    
    
    11,191,803Fees:Non-control/non-affiliate investments (less than 5% owned)
    
    
    188,099
    
    
    
    55,833
    
    
    
    569,725
    
    
    
    125,901Affiliate investments (5% to 25% owned)
    
    
    111,174
    
    
    
    
    
    
    
    124,403
    
    
    
    -
    
    -Total fee income
    
    
    299,273
    
    
    
    55,833
    
    
    
    694,128
    
    
    
    125,901Other investment income  non-control/non-affiliate investments
(less than 5% owned)
    
    
    39,842
    
    
    
    
    
    
    
    424,129
    
    
    
    713,449-Total Investment Income
    
    
    9,089,653
    
    
    
    5,807,865
    
    
    
    18,066,976
    
    
    
    12,031,153EXPENSESCompensation expense
    
    
    1,331,965
    
    
    
    848,418
    
    
    
    2,551,498
    
    
    
    1,717,165Interest expense
    
    
    1,642,509
    
    
    
    954,257
    
    
    
    3,148,721
    
    
    
    1,923,388Professional fees
    
    
    106,044
    
    
    
    270,216
    
    
    
    413,671
    
    
    
    509,285General and administrative expense
    
    
    617,427
    
    
    
    640,259
    
    
    
    1,216,100
    
    
    
    1,077,066Total Expenses
    
    
    3,697,945
    
    
    
    2,713,150
    
    
    
    7,329,990
    
    
    
    5,226,904Net Investment Income
    
    
    5,391,708
    
    
    
    3,094,715
    
    
    
    10,736,986
    
    
    
    6,804,249NET REALIZED GAIN AND LOSS AND NET UNREALIZED
APPRECIATION (DEPRECIATION)Net realized gain (loss) on investments  non-control/non-affiliate
investments (less than 5% owned)
    
    
    77,934
    
    
    
    (3,271,091
    )
    
    
    84,101
    
    
    
    (3,271,091
    )Net unrealized appreciation (depreciation) on investments 
non-control/non-affiliate investments (less than 5% owned)
    
    
    (296,850
    )
    
    
    4,611,300
    
    
    
    (364,950
    )
    
    
    3,806,967Net unrealized appreciation on investments  affiliate
investments (5% to 25% owned)
    
    
    324,600
    
    
    
    
    
    
    
    477,800
    
    
    
    Net unrealized appreciation on interest rate swaps
    
    
    185,472
    
    
    
    149,687
    
    
    
    122,144
    
    
    
    198,884Net Realized Gain and Net Unrealized Appreciation
    
    
    291,156
    
    
    
    1,489,896
    
    
    
    319,095
    
    
    
    734,760NET INCOME
    
    $
    5,682,864
    
    
    $
    4,584,611
    
    
    $
    11,056,081
    
    
    $
    7,539,009Earnings per share, basic
    
    $
    0.31
    
    
    $
    0.36
    
    
    $
    0.62
    
    
    $
    0.60Earnings per share, diluted
    
    $
    0.31
    
    
    $
    0.36
    
    
    $
    0.61
    
    
    $
    0.60Weighted average shares outstanding, basic
    
    
    18,246,987
    
    
    
    12,788,727
    
    
    
    17,891,914
    
    
    
    12,464,492Weighted average shares outstanding, diluted
    
    
    18,466,510
    
    
    
    12,788,727
    
    
    
    18,111,437
    
    
    
    12,464,492
  2




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##### 



Patriot Capital Funding, Inc.
Consolidated Statements of Changes in Net Assets
(unaudited)
 Six Months EndedJune 30,2007
    
    
    2006Operations:Net investment income
    
    $
    10,736,986
    
    
    $
    6,804,249Net realized gain (loss) on investments
    
    
    84,101
    
    
    
    (3,271,091
    )Net unrealized appreciation on investments
    
    
    112,850
    
    
    
    3,806,967Net unrealized appreciation on interest rate swaps
    
    
    122,144
    
    
    
    198,884Net increase in assets from operations
    
    
    11,056,081
    
    
    
    7,539,009Stockholder transactions:Distributions to stockholders from net investment income
    
    
    (10,736,986
    )
    
    
    (6,804,249
    )Distributions in excess of net investment income
    
    
    (935,427
    )
    
    
    (241,313
    )Net decrease in assets from stockholder transactions
    
    
    (11,672,413
    )
    
    
    (7,045,562
    )Capital share transactions:Issuance of common stock
    
    
    31,694,803
    
    
    
    36,690,690Issuance of common stock under dividend reinvestment plan
    
    
    871,477
    
    
    
    269,247Stock option compensation
    
    
    330,669
    
    
    
    198,276Net increase in assets from capital share transactions
    
    
    32,896,949
    
    
    
    37,158,213Total increase in net assets
    
    
    32,280,617
    
    
    
    37,651,660Net assets at beginning of period
    
    
    164,108,629
    
    
    
    127,152,365Net assets at end of period
    
    $
    196,389,246
    
    
    $
    164,804,025Net asset value per common share
    
    $
    10.76
    
    
    $
    10.46Common shares outstanding at end of period
    
    
    18,252,774
    
    
    
    15,758,387
  3




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##### 



Patriot Capital Funding, Inc.
Consolidated Statements of Cash Flows
(unaudited)
 Six Months EndedJune 30,2007
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    11,056,081
    
    
    $
    7,539,009Adjustments to reconcile net income to net cash
provided by (used for) operating activities:Depreciation and amortization
    
    
    214,104
    
    
    
    237,245Change in interest receivable
    
    
    (208,552
    )
    
    
    (33,054
    )Net realized (gain) loss on sale of investment
    
    
    (84,101
    )
    
    
    3,271,091Net unrealized appreciation of investments
    
    
    (112,850
    )
    
    
    (3,806,967
    )Unrealized appreciation on interest rate swaps
    
    
    (122,144
    )
    
    
    (198,884
    )Payment-in-kind interest and dividends
    
    
    (1,770,022
    )
    
    
    (1,144,116
    )Stock-based compensation expense
    
    
    330,669
    
    
    
    198,276Change in unearned income
    
    
    130,902
    
    
    
    (153,947
    )Change in interest payable
    
    
    13,287
    
    
    
    131,533Change in other assets
    
    
    235,365
    
    
    
    93,570Change in accounts payable, accrued expenses and other
    
    
    (611,087
    )
    
    
    306,368Net cash provided by operating activities
    
    
    9,071,652
    
    
    
    6,440,124CASH FLOWS FROM INVESTING ACTIVITIES:Funded investments
    
    
    (86,981,250
    )
    
    
    (74,102,610
    )Principal repayments on investments
    
    
    46,917,872
    
    
    
    18,519,755Proceeds from sale of investments
    
    
    5,458,851
    
    
    
    3,634,509Purchase of furniture and equipment
    
    
    (4,085
    )
    
    
    (37,625
    )Net cash used for investing activities
    
    
    (34,608,612
    )
    
    
    (51,985,971
    )CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings
    
    
    87,050,000
    
    
    
    184,578,750Repayments on borrowings
    
    
    (82,857,000
    )
    
    
    (173,950,000
    )Net proceeds from sale of common stock
    
    
    31,694,804
    
    
    
    36,690,690Distributions paid
    
    
    (9,864,867
    )
    
    
    (3,250,383
    )Deferred offering costs
    
    
    (23,188
    )
    
    
    Change in restricted cash
    
    
    951,530
    
    
    
    1,390,319Net cash provided by financing activities
    
    
    26,951,279
    
    
    
    45,459,376NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
    
    
    1,414,319
    
    
    
    (86,471
    )CASH AND CASH EQUIVALENTS AT:Beginning of Period
    
    
    4,211,643
    
    
    
    2,371,841End of Period
    
    $
    5,625,962
    
    
    $
    2,285,370Supplemental information:Interest paid
    
    $
    3,135,434
    
    
    $
    1,791,856Non-cash financing activities:Distributions reinvested in common stock
    
    $
    871,477
    
    
    $
    269,247Distributions declared but not paid
    
    
    5,840,888
    
    
    
    3,525,932
  4




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##### 



Patriot Capital Funding, Inc.
Consolidated Schedule of Investments
June 30, 2007(unaudited)
 Company(1)
    
    Industry
    
    Investment
    
    Principal
    
    Cost
    
    ValueAffiliate investments (5% to 25% owned):Aylward
Enterprises LLC (5)
    
    Manufacturer of packaging
equipment
    
    Revolving Line of Credit
(8.9%, Due 2/12) (3)
    
    $
    1,500,000
    
    
    $
    1,500,000
    
    
    $
    1,500,000Senior Secured Term Loan A
(9.7%, Due 2/12) (3)
    
    
    9,150,000
    
    
    
    9,150,000
    
    
    
    9,150,000Senior Subordinated Debt
(14.5%, Due 8/12) (2)
    
    
    6,327,835
    
    
    
    6,327,835
    
    
    
    6,327,835Membership Interest (4)
    
    
    
    
    
    
    1,250,000
    
    
    
    1,391,400Fischbein, LLC
    
    Designer and manufacturer of bag
packaging equipment
    
    Senior Subordinated Debt
(16.5%, Due 5/13) (2)
(3)
    
    
    4,131,322
    
    
    
    4,131,322
    
    
    
    4,131,322Membership Interest -
Class A (4)
    
    
    
    
    
    
    2,800,000
    
    
    
    3,037,600KTPS Holdings, LLC
    
    Manufacturer and distributor of
specialty pet products
    
    Revolving Line of Credit
(9.2%, Due 1/12) (3)
    
    
    1,000,000
    
    
    
    1,000,000
    
    
    
    1,000,000Senior Secured Term Loan A
(8.7%, Due 1/12) (3)
    
    
    6,500,000
    
    
    
    6,500,000
    
    
    
    6,500,000Senior Secured Term Loan B
(12.0%, Due 1/12) (3)
    
    
    2,000,000
    
    
    
    2,000,000
    
    
    
    2,000,000Senior Subordinated Debt
(15.0%, Due
3/12) (2) (3)
    
    
    4,020,333
    
    
    
    4,020,333
    
    
    
    4,020,333Membership Interest -
Class A (4)
    
    
    
    
    
    
    730,020
    
    
    
    641,300Membership Interest -
Common (4)
    
    
    
    
    
    
    19,980
    
    
    
    Smart, LLC (5)
    
    Provider of tuition management
services
    
    Revolving Line of Credit
(10.8%, Due 8/11) (3)
    
    
    1,870,000
    
    
    
    1,870,000
    
    
    
    1,870,000Senior Secured Term Loan A
(10.3%, Due 6/11) (3)
    
    
    4,275,000
    
    
    
    4,275,000
    
    
    
    4,275,000Senior Secured Term Loan B
(16.5%, Due 2/12) (2) (3)
    
    
    3,604,549
    
    
    
    3,604,549
    
    
    
    3,604,549Membership Interest -
Class B (4)
    
    
    
    
    
    
    1,000,000
    
    
    
    1,166,500Total Affiliate investments (represents 17.0% of total investments at fair value)
    
    $
    50,179,039
    
    
    $
    50,615,839Non-control/non-affiliate investments (less than 5% owned):ADAPCO, Inc.
    
    Distributor of specialty chemicals
and contract application services
    
    Revolving Line of Credit
(10.0%, Due 7/11) (3)
    
    $
    1,200,000
    
    
    $
    1,200,000
    
    
    $
    1,200,000Senior Secured Term Loan A
(10.9%, Due
6/11) (3)
    
    
    13,350,000
    
    
    
    13,350,000
    
    
    
    13,350,000Common Stock (4)
    
    
    
    
    
    
    500,000
    
    
    
    273,500Allied Defense Group, Inc.
    
    Diversified defense company
    
    Common Stock Warrants (4)
    
    
    
    
    
    
    463,168
    
    
    
    183,000
 5




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##### 



Company(1)
    
    Industry
    
    Investment
    
    Principal
    
    Cost
    
    ValueArrowhead General
Insurance Agency,
Inc.
    
    Insurance agency and program
specialist
    
    Junior Secured Term Loan
(12.6%, Due 2/13) (3)
    
    
    5,000,000
    
    
    
    5,000,000
    
    
    
    5,087,500Borga, Inc.
    
    Manufacturer of pre-fabricated
metal building systems
    
    Revolving Line of Credit
(8.3%, Due 5/10) (3)
    
    
    250,000
    
    
    
    250,000
    
    
    
    250,000Senior Secured Term Loan A
(9.1%, Due 3/09) (3)
    
    
    1,996,000
    
    
    
    1,996,000
    
    
    
    1,996,000Senior Secured Term Loan B
(11.9%, Due 5/10) (3)
    
    
    1,804,000
    
    
    
    1,804,000
    
    
    
    1,804,000Senior Secured Term Loan C
(16.0%, Due 5/10) (2)
(3)
    
    
    7,637,702
    
    
    
    7,637,702
    
    
    
    7,637,702Common Stock Warrants (4)
    
    
    
    
    
    
    20,250
    
    
    
    30,300Caleel + Hayden, LLC (5)
    
    Provider of proprietary branded
professional skincare and
cosmetic products to physicians
and spa communities
    
    Senior Secured Term Loan B
(10.1%, Due 11/11)
(3)
    
    
    10,959,687
    
    
    
    10,959,687
    
    
    
    10,959,687Senior Subordinated Debt
(14.5%, Due 11/12) (2)
(3)
    
    
    6,250,868
    
    
    
    6,250,868
    
    
    
    6,250,868Common Stock (4)
    
    
    
    
    
    
    750,000
    
    
    
    919,600Cheeseworks, Inc.
    
    Distributor of specialty cheese
and food products
    
    Revolving Line of Credit
(8.0%, Due 6/11) (3)
    
    
    5,080,219
    
    
    
    5,080,219
    
    
    
    5,080,219Senior Secured Term Loan
(10.9%, Due 6/11) (3)
    
    
    11,241,219
    
    
    
    11,241,219
    
    
    
    11,241,219Copperhead
Chemical  
Company, Inc.
    
    Manufacturer of
bulk pharmaceuticals
    
    Senior Subordinated Debt
(15.3%,
Due 11/10) (2) (3)
    
    
    4,904,608
    
    
    
    4,904,608
    
    
    
    4,904,608Dover Saddlery, Inc.
    
    Equestrian products
catalog retailer
    
    Senior Subordinated Debt
(11.5%, Due
9/09) (3)
    
    
    3,000,000
    
    
    
    3,000,000
    
    
    
    3,000,000Common Stock Warrants (4)
    
    
    
    
    
    
    148,200
    
    
    
    186,900Eight OClock  
Coffee Company
    
    Manufacturer, distributor, and
marketer of coffee
    
    Junior Secured Term Loan
(11.9%, Due 7/13) (3)
    
    
    9,000,000
    
    
    
    9,000,000
    
    
    
    8,966,300Employbridge Holding  Company
(5)
    
    A provider of specialized
staffing services
    
    Junior Secured Term Loan
(12.3%, Due 10/13) (3)
    
    
    3,000,000
    
    
    
    3,000,000
    
    
    
    3,007,500Encore Legal Solutions,
Inc.
    
    Legal document
management services
    
    Junior Secured Term Loan A
(10.5%, Due
6/10) (2) (3)
    
    
    3,884,856
    
    
    
    3,884,856
    
    
    
    3,884,856Junior Secured Term Loan B
(10.8%, Due
6/10) (2) (3)
    
    
    7,049,466
    
    
    
    7,049,466
    
    
    
    7,049,466Senior Subordinated Debt
(15.0%,
Due 6/10) (2) (3)
    
    
    5,494,380
    
    
    
    5,494,380
    
    
    
    5,494,380Common Stock Warrants (4)
    
    
    
    
    
    
    350,000
    
    
    
    
 6




---



##### 



Company(1)
    
    Industry
    
    Investment
    
    Principal
    
    Cost
    
    ValueEXL Acquisition Corp.
    
    Manufacturer of lab testing
supplies
    
    Senior Secured Term Loan A
(8.6%, Due 3/11) (3)
    
    
    6,450,000
    
    
    
    6,450,000
    
    
    
    6,450,000Senior Secured Term Loan B
(9.1%, Due 3/12) (3)
    
    
    2,370,000
    
    
    
    2,370,000
    
    
    
    2,370,000Senior Secured Term Loan D
(15.0%, Due 3/12) (2)
(3)
    
    
    5,000,833
    
    
    
    5,000,833
    
    
    
    5,000,833Common Stock  Class A (4)
    
    
    
    
    
    
    2,475
    
    
    
    215,400Common Stock  Class B
(2)
    
    
    
    
    
    
    279,910
    
    
    
    282,110Fairchild Industrial  
Products, Co.
    
    Manufacturer of industrial
controls
and power transmission products
    
    Senior Secured Term Loan A
(8.6%, Due 7/10) (3)
    
    
    6,230,000
    
    
    
    6,230,000
    
    
    
    6,230,000Senior Secured Term Loan B
(10.4%, Due
7/11) (3)
    
    
    9,437,500
    
    
    
    9,437,500
    
    
    
    9,437,500Senior Subordinated Debt
(14.8%, Due
7/11) (2)
    
    
    5,471,406
    
    
    
    5,471,406
    
    
    
    5,471,406Preferred Stock  Class A
(2)
    
    
    
    
    
    
    313,519
    
    
    
    313,519Common Stock  Class B (4)
    
    
    
    
    
    
    121,598
    
    
    
    102,800Impact Products, LLC
    
    Distributor of janitorial supplies
    
    Junior Secured Term Loan B
(9.6%, Due 9/12) (3)
    
    
    9,006,250
    
    
    
    9,006,250
    
    
    
    9,006,250Junior Secured Term Loan C
(13.5%, Due 9/12)
(2) (3)
    
    
    5,547,461
    
    
    
    5,547,461
    
    
    
    5,547,461Innovative Concepts in  
Entertainment, Inc.
    
    Manufacturer of coin operated
games
    
    Senior Secured Term Loan A
(9.4%, Due 2/11) (3)
    
    
    5,100,000
    
    
    
    5,100,000
    
    
    
    5,100,000Senior Secured Term Loan B
(9.9%, Due 2/11) (3)
    
    
    3,564,000
    
    
    
    3,564,000
    
    
    
    3,564,000Senior Secured Term Loan C
(13.0%, Due 8/11) (3)
    
    
    3,900,000
    
    
    
    3,900,000
    
    
    
    3,900,000Keltner Enterprises, LLC (5)
    
    Distributor of automotive
oils, chemicals and parts
    
    Senior Subordinated Debt
(14.0%, Due 12/11) (3)
    
    
    3,850,000
    
    
    
    3,850,000
    
    
    
    3,850,000L.A. Spas, Inc.
    
    Manufacturer of above
ground spas
    
    Senior Subordinated Debt
(15.5%,
Due 1/10) (2) (3)
    
    
    7,145,991
    
    
    
    7,145,991
    
    
    
    7,145,991Common Stock Warrants (4)
    
    
    
    
    
    
    5,000
    
    
    
    Metrologic
Instruments, Inc.
    
    Manufacturer of imaging and
scanning
equipment
    
    Senior Secured Term Loan
(8.4%, Due 4/14)
    
    
    997,500
    
    
    
    997,500
    
    
    
    1,002,500Junior Secured Term Loan
(11.6%, Due 4/15)
    
    
    1,000,000
    
    
    
    1,000,000
    
    
    
    1,002,500Prince Mineral Company,
Inc.
    
    Manufacturer of
pigments
    
    Junior Secured Term Loan
(10.4%, Due
12/12) (3)
    
    
    11,425,000
    
    
    
    11,425,000
    
    
    
    11,425,000Senior Subordinated Debt
(14.0%,
Due 7/13) (2) (3)
    
    
    11,863,037
    
    
    
    11,863,037
    
    
    
    11,863,037
 7




---



##### 



Company(1)
    
    Industry
    
    Investment
    
    Principal
    
    Cost
    
    ValueQuartermaster, Inc.
    
    Retailer of uniforms and tactical
equipment to law enforcement and
security professionals
    
    Senior Secured Term Loan A
(10.0%, Due 12/10) (3)
    
    
    4,882,500
    
    
    
    4,882,500
    
    
    
    4,882,500Senior Secured Term Loan B
(11.2%, Due 12/10) (3)
    
    
    2,587,500
    
    
    
    2,587,500
    
    
    
    2,587,500Senior Secured Term Loan C
(15.0%, Due 12/11) (2) (3)
    
    
    3,248,345
    
    
    
    3,248,345
    
    
    
    3,248,345R-O-M Corporation
    
    Manufacturer of doors, ramps and
bulk heads 
for fire trucks and
food transportation
    
    Senior Secured Term Loan A
(8.4%, Due
2/13) (3)
    
    
    7,720,000
    
    
    
    7,720,000
    
    
    
    7,720,000Senior Secured Term Loan B
(9.6%, Due
5/13) (3)
    
    
    8,507,250
    
    
    
    8,507,250
    
    
    
    8,507,250Senior Subordinated Debt
(15.0%, Due
8/13) (2)
    
    
    9,122,750
    
    
    
    9,122,750
    
    
    
    9,122,750Sidumpr Trailer  Company,
Inc.
    
    Manufacturer of
side dump trailers
    
    Revolving Line of Credit
(10.8%, Due 1/11) (3)
    
    
    630,000
    
    
    
    630,000
    
    
    
    630,000Senior Secured Term Loan A
(8.9%, Due 1/11) (3)
    
    
    2,362,500
    
    
    
    2,362,500
    
    
    
    2,362,500Senior Secured Term Loan B
(11.9%, Due 1/11) (3)
    
    
    2,332,375
    
    
    
    2,332,375
    
    
    
    2,332,375Senior Secured Term Loan C
(14.0%, Due 7/11) (2) (3)
    
    
    3,193,797
    
    
    
    3,193,797
    
    
    
    3,193,797Senior Subordinated Debt
(12.0%, Due
1/12) (3)
    
    
    75,000
    
    
    
    75,000
    
    
    
    75,000Preferred Stock (2)
    
    
    83,992
    
    
    
    83,992
    
    
    
    83,992Common Stock (4)
    
    
    25
    
    
    
    25
    
    
    
    31,000Total Non-control/non-affiliate investments (represents 83.0% of total investments at fair value)
    
    $
    247,162,137
    
    
    $
    246,814,921Total Investments
    
    
    
    
    
    
    
    
    
    $
    297,341,176
    
    
    $
    297,430,760Unearned Income
    
    
    
    
    
    
    
    
    
    
    (3,741,786
    )
    
    
    (3,741,786
    )Total Investments Net of Unearned Income
    
    
    
    
    $
    293,599,390
    
    
    $
    293,688,974
 
 (1)
    
    The Company does not control, and, except as noted in the schedule above, is not an affiliate of, any of its
portfolio companies, each as defined in the Investment Company Act of 1940, as amended (the 1940 Act). In
general, under the 1940 Act, the Company controls a portfolio company if it owns 25% or more of its voting
securities and is an affiliate of a portfolio company if the Company owns 5% or more of its voting securities.(2)
    
    Amount includes payment-in-kind (PIK) interest or dividends.(3)
    
    Pledged as collateral under the Companys Securitization Facility. See Note 3 to Consolidated Financial Statements.(4)
    
    Non-income producing.(5)
    
    Some of the investments listed are issued by an affiliate of the listed portfolio company.  8




---



##### 



PATRIOT CAPITAL FUNDING, INC.
Consolidated Schedule of Investments
December 31, 2006
 Company(1)
    
    Industry
    
    Investment
    
    Principal
    
    Cost
    
    ValueAffiliate investments (5% to 25% owned):Smart, LLC (5)
    
    Provider of tuition
management services
    
    Senior Secured Term Loan A
(10.4%, Due 6/11) (3)
    
    $
    4,425,000
    
    
    $
    4,425,000
    
    
    $
    4,425,000Senior Secured Term Loan B
(16.5%, Due 2/12) (2) (3)
    
    
    3,541,605
    
    
    
    3,541,605
    
    
    
    3,541,605Membership Interest -
Class B (4)
    
    
    
    
    
    
    1,000,000
    
    
    
    959,000Total Affiliate investments (represents 3.4% of total investments at fair value)
    
    $
    8,966,605
    
    
    $
    8,925,605Non-control/non-affiliate investments (less than 5% owned):ADAPCO, Inc.
    
    Distributor of specialty
chemicals
and contract application
services
    
    Senior Secured Term Loan A
(10.9%, Due
6/11) (3)
    
    $
    13,350,000
    
    
    $
    13,350,000
    
    
    $
    13,350,000Common Stock (4)
    
    
    
    
    
    
    500,000
    
    
    
    328,500Agent Media Corporation
    
    Publisher of insurance
industry periodicals
    
    Senior Secured Term Loan A
(10.1%, Due
9/08) (3)
    
    
    1,000,000
    
    
    
    1,000,000
    
    
    
    1,000,000Senior Secured Term Loan B
(12.4%, Due 9/09)
(3)
    
    
    2,130,105
    
    
    
    2,130,105
    
    
    
    2,130,105Common Stock Warrants (4)
    
    
    
    
    
    
    31,000
    
    
    
    36,200Allied Defense Group, Inc.
    
    Diversified defense company
    
    Common Stock Warrants (4)
    
    
    
    
    
    
    463,168
    
    
    
    505,800Arrowhead General
  Insurance Agency,
Inc.
    
    Insurance agency and program
specialist
    
    Junior Secured Term Loan
(12.6%, Due 2/13) (3)
    
    
    5,000,000
    
    
    
    5,000,000
    
    
    
    5,075,000Borga, Inc.
    
    Manufacturer of
pre-fabricated metal building
systems
    
    Senior Secured Term Loan A
(8.9%, Due 3/09) (3)
    
    
    1,208,500
    
    
    
    1,208,500
    
    
    
    1,208,500Senior Secured Term Loan B
(11.9%, Due 5/10) (3)
    
    
    1,810,250
    
    
    
    1,810,250
    
    
    
    1,810,250Senior Secured Term Loan C
(16.0%, Due 5/10) (2)
(3)
    
    
    7,485,057
    
    
    
    7,485,057
    
    
    
    7,485,057Common Stock Warrants (4)
    
    
    
    
    
    
    20,250
    
    
    
    21,200Caleel + Hayden, LLC (5)
    
    Provider of proprietary
branded professional skincare
and cosmetic products to
physicians and spa
communities
    
    Senior Secured Term Loan A
(8.1%, Due 11/10)
    
    
    5,000,000
    
    
    
    5,000,000
    
    
    
    5,000,000Senior Secured Term Loan B
(10.1%, Due 11/11)
(3)
    
    
    11,000,000
    
    
    
    11,000,000
    
    
    
    11,000,000Senior Subordinated Debt
(14.5%, Due 11/12) (2)
(3)
    
    
    6,272,135
    
    
    
    6,272,135
    
    
    
    6,272,135Common Stock (4)
    
    
    
    
    
    
    750,000
    
    
    
    858,100
 9




---



##### 



Company(1)
    
    Industry
    
    Investment
    
    Principal
    
    Cost
    
    ValueCheeseworks, Inc.
    
    Distributor of specialty
cheese and food products
    
    Revolving Line of Credit
(8.0%, Due 6/11) (3)
    
    
    5,080,219
    
    
    
    5,080,219
    
    
    
    5,080,219Senior Secured Term Loan
(11.0%, Due 6/11) (3)
    
    
    11,845,374
    
    
    
    11,845,374
    
    
    
    11,845,374Copperhead Chemical  
Company, Inc.
    
    Manufacturer of
bulk pharmaceuticals
    
    Senior Subordinated Debt
(15.3%,
Due 11/10) (2) (3)
    
    
    4,824,790
    
    
    
    4,824,790
    
    
    
    4,824,790Dover Saddlery, Inc.
    
    Equestrian products
catalog retailer
    
    Senior Subordinated Debt
(11.5%, Due
9/09) (3)
    
    
    3,000,000
    
    
    
    3,000,000
    
    
    
    3,000,000Common Stock Warrants (4)
    
    
    
    
    
    
    148,200
    
    
    
    171,200Eight OClock  
Coffee Company
    
    Manufacturer, distributor, and
marketer of coffee
    
    Junior Secured Term Loan
(11.9%, Due 7/13) (3)
    
    
    9,000,000
    
    
    
    9,000,000
    
    
    
    9,146,250Employbridge
Holding  Company (5)
    
    A provider of specialized
staffing services
    
    Junior Secured Term Loan
(12.4%, Due
10/13) (3)
    
    
    3,000,000
    
    
    
    3,000,000
    
    
    
    3,007,500Encore Legal Solutions,
Inc.
    
    Legal document
management services
    
    Junior Secured Term Loan A
(10.6%, Due
12/09) (3)
    
    
    3,819,500
    
    
    
    3,819,500
    
    
    
    3,819,500Junior Secured Term Loan B
(10.8%, Due
12/09) (3)
    
    
    6,907,625
    
    
    
    6,907,625
    
    
    
    6,907,625Senior Subordinated Debt
(15.0%,
Due 5/10) (2) (3)
    
    
    5,098,906
    
    
    
    5,098,906
    
    
    
    5,098,906Common Stock Warrants (4)
    
    
    
    
    
    
    350,000
    
    
    
    EXL Acquisition Corp.
    
    Manufacturer of lab testing
supplies
    
    Senior Secured Term Loan A
(8.6%, Due 3/11) (3)
    
    
    7,100,000
    
    
    
    7,100,000
    
    
    
    7,100,000Senior Secured Term Loan B
(9.1%, Due 3/12) (3)
    
    
    2,382,000
    
    
    
    2,382,000
    
    
    
    2,382,000Senior Secured Term Loan D
(15.0%, Due 3/12) (2)
(3)
    
    
    5,000,833
    
    
    
    5,000,833
    
    
    
    5,000,833Common Stock  Class A (4)
    
    
    
    
    
    
    2,475
    
    
    
    86,300Common Stock  Class B (2)
    
    
    
    
    
    
    267,466
    
    
    
    268,266Fairchild Industrial  
Products, Co.
    
    Manufacturer of industrial
controls and power transmission products
    
    Senior Secured Term Loan A
(9.4%, Due 7/10) (3)
    
    
    9,770,000
    
    
    
    9,770,000
    
    
    
    9,770,000Senior Secured Term Loan B
(11.4%, Due
7/11) (3)
    
    
    2,793,750
    
    
    
    2,793,750
    
    
    
    2,793,750Senior Subordinated Debt
(15.5%, Due
7/11) (2)
    
    
    5,368,427
    
    
    
    5,368,427
    
    
    
    5,368,427Preferred Stock  Class A
(2)
    
    
    
    
    
    
    399,401
    
    
    
    399,401Common Stock  Class B (4)
    
    
    
    
    
    
    121,598
    
    
    
    80,400
 10




---



##### 



Company(1)
    
    Industry
    
    Investment
    
    Principal
    
    Cost
    
    ValueImpact Products, LLC
    
    Distributor of janitorial
supplies
    
    Junior Secured Term Loan B
(9.6%, Due 9/12) (3)
    
    
    7,462,500
    
    
    
    7,462,500
    
    
    
    7,462,500Junior Secured Term Loan C
(13.5%, Due 9/12)
(2) (3)
    
    
    5,596,938
    
    
    
    5,596,938
    
    
    
    5,596,938Innovative Concepts in  
Entertainment, Inc.
    
    Manufacturer of coin operated
games
    
    Senior Secured Term Loan A
(9.4%, Due 2/11) (3)
    
    
    5,550,000
    
    
    
    5,550,000
    
    
    
    5,550,000Senior Secured Term Loan B
(9.9%, Due 2/11) (3)
    
    
    3,582,000
    
    
    
    3,582,000
    
    
    
    3,582,000Senior Secured Term Loan C
(13.0%, Due 8/11) (3)
    
    
    3,900,000
    
    
    
    3,900,000
    
    
    
    3,900,000Keltner Enterprises, LLC (5)
    
    Distributor of automotive
oils, chemicals and parts
    
    Senior Subordinated Debt
(14.0%, Due 12/11) (3)
    
    
    3,850,000
    
    
    
    3,850,000
    
    
    
    3,850,000L.A. Spas, Inc.
    
    Manufacturer of above
ground spas
    
    Senior Subordinated Debt
(15.5%,
Due 1/10) (2) (3)
    
    
    7,020,843
    
    
    
    7,020,843
    
    
    
    7,020,843Common Stock Warrants (4)
    
    
    
    
    
    
    5,000
    
    
    
    Natural Products  Group, LLC (5)
    
    Manufacturer and marketer of
branded personal care
products
    
    Junior Secured Term Loan
(11.9%, Due 12/13) (3)
    
    
    4,000,000
    
    
    
    4,000,000
    
    
    
    4,040,000Prince Mineral Company,
Inc.
    
    Manufacturer of
pigments
    
    Junior Secured Term Loan
(10.3%, Due
12/12) (3)
    
    
    11,475,000
    
    
    
    11,475,000
    
    
    
    11,475,000Senior Subordinated Debt
(14.0%,
Due 7/13) (2) (3)
    
    
    11,803,278
    
    
    
    11,803,278
    
    
    
    11,803,278Quartermaster, Inc.
    
    Retailer of uniforms and
tactical equipment to law
enforcement and security
professionals
    
    Senior Secured Term Loan A
(9.9%, Due 12/10) (3)
    
    
    6,000,000
    
    
    
    6,000,000
    
    
    
    6,000,000Senior Secured Term Loan B
(11.2%, Due 12/10) (3)
    
    
    2,600,000
    
    
    
    2,600,000
    
    
    
    2,600,000Senior Secured Term Loan C
(15.0%, Due 12/11) (2) (3)
    
    
    3,199,633
    
    
    
    3,199,633
    
    
    
    3,199,633R-O-M Corporation
    
    Manufacturer of doors, ramps
and
bulk heads for fire trucks
and food transportation
    
    Revolving Line of Credit
(9.1%, Due 12/09) (3)
    
    
    1,500,000
    
    
    
    1,500,000
    
    
    
    1,500,000Senior Secured Term Loan A
(9.0%, Due
12/09) (3)
    
    
    2,958,000
    
    
    
    2,958,000
    
    
    
    2,958,000Senior Secured Term Loan B
(9.4%, Due
12/10) (3)
    
    
    3,374,500
    
    
    
    3,374,500
    
    
    
    3,374,500Senior Subordinated Debt
(16.0%, Due
12/10) (2) (3)
    
    
    7,082,680
    
    
    
    7,082,680
    
    
    
    7,082,680
 11




---



##### 



Company(1)
    
    Industry
    
    Investment
    
    Principal
    
    Cost
    
    ValueRobert Rothschild Farm,
Inc.
    
    Manufacturer of
specialty food products
    
    Senior Secured Term Loan B
(9.1%, Due
7/11) (3)
    
    
    4,500,000
    
    
    
    4,500,000
    
    
    
    4,500,000Senior Subordinated Debt
(16.3%, Due
1/12) (2) (3)
    
    
    4,902,868
    
    
    
    4,902,868
    
    
    
    4,902,868Sidumpr Trailer  Company,
Inc.
    
    Manufacturer of
side dump trailers
    
    Revolving Line of Credit
(10.8%, Due 1/11) (3)
    
    
    430,000
    
    
    
    430,000
    
    
    
    430,000Senior Secured Term Loan A
(9.0%, Due 1/11) (3)
    
    
    2,660,000
    
    
    
    2,660,000
    
    
    
    2,660,000Senior Secured Term Loan B
(12.0%, Due 1/11) (3)
    
    
    2,344,125
    
    
    
    2,344,125
    
    
    
    2,344,125Senior Secured Term Loan C
(14.0%, Due 7/11) (2) (3)
    
    
    3,161,694
    
    
    
    3,161,694
    
    
    
    3,161,694Senior Subordinated Debt
(12.0%, Due
1/12) (3)
    
    
    75,000
    
    
    
    75,000
    
    
    
    75,000Preferred Stock (2)
    
    
    80,808
    
    
    
    80,808
    
    
    
    80,808Common Stock (4)
    
    
    25
    
    
    
    25
    
    
    
    49,700Stolle Machinery
  Company, LLC
    
    Provider of capital equipment
used in the production of aluminum or steel beverage
and food cans
    
    Junior Secured Term Loan
(11.4%, Due 9/13)
    
    
    500,000
    
    
    
    500,000
    
    
    
    502,500Total Non-control/non-affiliate investments (represents 96.6% of total investments at fair
value)
    
    $
    251,915,921
    
    
    $
    251,933,655Total Investments
    
    $
    260,882,526
    
    
    $
    260,859,260Unearned Income
    
    
    (3,610,884
    )
    
    
    (3,610,884
    )Total Investments Net of Unearned Income
    
    $
    257,271,642
    
    
    $
    257,248,376
 
 (1)
    
    The Company does not control, and, except with respect to Smart, LLC, is not an affiliate of, any of its
portfolio companies, each as defined in the Investment Company Act of 1940, as amended (the 1940 Act). In
general, under the 1940 Act, the Company controls a portfolio company if it owns 25% or more of its voting
securities and is an affiliate of a portfolio company if the Company owns 5% or more of its voting securities.(2)
    
    Amount includes payment-in-kind (PIK) interest or dividends.(3)
    
    Pledged as collateral under the Companys Securitization Facility. See Note 3 to Consolidated Financial Statements.(4)
    
    Non-income producing.(5)
    
    Some of the investments listed are issued by an affiliate of the listed portfolio company.  12




---



##### 



Patriot Capital Funding, Inc.
Notes to Consolidated Financial Statements
(unaudited)
  Description of Business
   Basis of Presentation
    Recent Accounting Pronouncements
   13




---



##### 



Interest, Dividends, Fees, and Other Investment Income
  Distributions Paid
    Reclassifications
    June 30, 2007
    
    
    December 31, 2006Cost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair ValueInvestments
in debt securities
    
    $
    288,503,039
    
    
    $
    288,571,839
    
    
    $
    256,743,135
    
    
    $
    257,014,385Investments in equity securities
    
    
    8,838,137
    
    
    
    8,858,921
    
    
    
    4,139,391
    
    
    
    3,844,875Subtotal
    
    
    297,341,176
    
    
    
    297,430,760
    
    
    
    260,882,526
    
    
    
    260,859,260Unearned income
    
    
    (3,741,786
    )
    
    
    (3,741,786
    )
    
    
    (3,610,884
    )
    
    
    (3,610,884
    )Total
    
    $
    293,599,390
    
    
    $
    293,688,974
    
    
    $
    257,271,642
    
    
    $
    257,248,376
 14




---



##### 



June 30, 2007
    
    
    December 31, 2006Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)
    
    
    Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)Senior Secured Debt
    
    $
    161,932,476
    
    
    
    54.4
    %
    
    $
    161,937,476
    
    
    
    54.4
    %
    
    $
    140,682,645
    
    
    
    53.9
    %
    
    $
    140,682,645
    
    
    
    53.9
    %Junior Secured Debt
    
    
    54,913,033
    
    
    
    18.5
    
    
    
    54,976,833
    
    
    
    18.5
    
    
    
    56,761,563
    
    
    
    21.8
    
    
    
    57,032,813
    
    
    
    21.9Subordinated Debt
    
    
    71,657,530
    
    
    
    24.1
    
    
    
    71,657,530
    
    
    
    24.1
    
    
    
    59,298,927
    
    
    
    22.7
    
    
    
    59,298,927
    
    
    
    22.7Warrants / Equity
    
    
    8,838,137
    
    
    
    3.0
    
    
    
    8,858,921
    
    
    
    3.0
    
    
    
    4,139,391
    
    
    
    1.6
    
    
    
    3,844,875
    
    
    
    1.5Total
    
    $
    297,341,176
    
    
    
    100.0
    %
    
    $
    297,430,760
    
    
    
    100.0
    %
    
    $
    260,882,526
    
    
    
    100.0
    %
    
    $
    260,859,260
    
    
    
    100.0
    %
 
 (1)
    
    Represents percentage of total portfolio.  June 30, 2007
    
    
    December 31, 2006Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)
    
    
    Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)Manufacturing
    
    $
    172,596,517
    
    
    
    58.0
    %
    
    $
    173,077,969
    
    
    
    58.2
    %
    
    $
    118,031,907
    
    
    
    45.2
    %
    
    $
    118,274,709
    
    
    
    45.3
    %Distribution
    
    
    49,775,149
    
    
    
    16.7
    
    
    
    49,548,649
    
    
    
    16.6
    
    
    
    47,685,031
    
    
    
    18.3
    
    
    
    47,513,531
    
    
    
    18.2Service
    
    
    35,528,251
    
    
    
    12.0
    
    
    
    35,439,751
    
    
    
    11.9
    
    
    
    33,142,636
    
    
    
    12.7
    
    
    
    32,834,136
    
    
    
    12.6Consumer / Retail Goods
    
    
    38,978,091
    
    
    
    13.1
    
    
    
    39,181,391
    
    
    
    13.2
    
    
    
    58,398,679
    
    
    
    22.4
    
    
    
    58,564,779
    
    
    
    22.5Publishing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,161,105
    
    
    
    1.2
    
    
    
    3,166,305
    
    
    
    1.2Defense
    
    
    463,168
    
    
    
    0.2
    
    
    
    183,000
    
    
    
    0.1
    
    
    
    463,168
    
    
    
    0.2
    
    
    
    505,800
    
    
    
    0.2Total
    
    $
    297,341,176
    
    
    
    100.0
    %
    
    $
    297,430,760
    
    
    
    100.0
    %
    
    $
    260,882,526
    
    
    
    100.0
    %
    
    $

260,859,260
    
    
    
    100.0
    %
 
 (1)
    
    Represents percentage of total portfolio.   15




---



##### 



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Interest charges
    
    $
    1,544,512
    
    
    $
    793,300
    
    
    $
    2,946,074
    
    
    $
    1,606,305Amortization of debt issuance costs
    
    
    70,059
    
    
    
    101,992
    
    
    
    140,118
    
    
    
    202,597Unused facility fees
    
    
    27,938
    
    
    
    58,965
    
    
    
    62,529
    
    
    
    114,486Total
    
    $
    1,642,509
    
    
    $
    954,257
    
    
    $
    3,148,721
    
    
    $
    1,923,388
     Accounting for Stock Issued to
Employees.
  16




---



##### 



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Basic:Net income
    
    $
    5,682,864
    
    
    $
    4,584,611
    
    
    $
    11,056,081
    
    
    $
    7,539,009Weighted average common shares outstanding
    
    
    18,246,987
    
    
    
    12,788,727
    
    
    
    17,891,914
    
    
    
    12,464,492Earnings per common share, basic
    
    $
    0.31
    
    
    $
    0.36
    
    
    $
    0.62
    
    
    $
    0.60Diluted:Net income
    
    $
    5,682,864
    
    
    $
    4,584,611
    
    
    $
    11,056,081
    
    
    $
    7,539,009Weighted average common shares outstanding
    
    
    18,246,987
    
    
    
    12,788,727
    
    
    
    17,891,914
    
    
    
    12,464,492Dilutive effect of stock options
    
    
    219,523
    
    
    
    
    
    
    
    219,523
    
    
    
    Weighted average common shares and common
stock equivalents
    
    
    18,466,510
    
    
    
    12,788,727
    
    
    
    18,111,437
    
    
    
    12,464,492Earnings per common share, diluted
    
    $
    0.31
    
    
    $
    0.36
    
    
    $
    0.61
    
    
    $
    0.60
     Date Declared
    
    Record Date
    
    Payment Date
    
    AmountApril 30, 2007
    
    June 15, 2007
    
    July 17, 2007
    
    $
    0.32February 23, 2007
    
    March 15, 2007
    
    April 18, 2007
    
    $
    0.32November 10, 2006
    
    December 15, 2006
    
    January 17, 2007
    
    $
    0.31August 7, 2006
    
    September 15, 2006
    
    October 17, 2006
    
    $
    0.31May 9, 2006
    
    June 2, 2006
    
    July 17, 2006
    
    $
    0.29February 28, 2006
    
    March 21, 2006
    
    April 11, 2006
    
    $
    0.29
 17




---



##### 



January 1, 2007
    
    
    August 1, 2006to
    
    
    toJune 30, 2007
    
    
    June 30, 2007GAAP net investment income
    
    $
    5,392,000
    
    
    $
    17,624,000Tax timing differences of:Origination fees, net
    
    
    112,000
    
    
    
    885,000Stock compensation expense, bonus accruals, original
issue discount and other
    
    
    752,000
    
    
    
    597,000Tax distributable income
    
    $
    6,256,000
    
    
    $
    19,106,000
   18




---



##### 



For the Six Months EndedJune 30,2007
    
    
    2006Per Share Data:Net asset value at beginning of period
    
    $
    10.37
    
    
    $
    10.48Net investment income
    
    
    .59
    
    
    
    .55Net gain (loss) on investments
    
    
    .01
    
    
    
    (.26
    )Net change in unrealized appreciation
on investments
    
    
    .01
    
    
    
    .31Net change in unrealized swap appreciation
    
    
    .01
    
    
    
    .01Effect of issuance of common stock
    
    
    .39
    
    
    
    (.06
    )Distributions from net investment income
    
    
    (.59
    )
    
    
    (.56
    )Distributions in excess of net investment income
    
    
    (.05
    )
    
    
    (.02
    )Stock based compensation expense
    
    
    .02
    
    
    
    .01Net asset value at end of period
    
    $
    10.76
    
    
    $
    10.46Total net asset value return (1)
    
    
    10.0
    %
    
    
    5.3
    %Per share market value, December 31
    
    $
    14.49
    
    
    $
    12.20Per share market value, June 30
    
    $
    14.85
    
    
    $
    11.10Total market value return (2)
    
    
    6.9
    %
    
    
    (4.3
    )%Shares outstanding at end of period
    
    
    18,252,774
    
    
    
    15,758,387Ratios and Supplemental Data:Net assets at end of period
    
    $
    196,389,000
    
    
    $
    164,804,000Average net assets
    
    
    195,149,000
    
    
    
    134,491,000Ratio of operating expenses to average
net assets (annualized)
    
    
    7.5
    %
    
    
    7.8
    %Ratio of net investment income (loss) to
average net assets (annualized)
    
    
    11.0
    %
    
    
    10.1
    %Average borrowings outstanding
    
    $
    90,359,000
    
    
    $
    48,360,000Average amount of borrowings per
share
    
    $
    4.95
    
    
    $
    3.07
 
 (1)
    
    The total net asset value return (not annualized) reflects the change in net asset
value of a share of stock, plus distributions.(2)
    
    The total market value return (not annualized) reflects the change in the ending
market value per share plus distributions, divided by the beginning market value per
share.      19




---



##### 



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
  Portfolio Composition
  20




---



##### 



June 30, 2007
    
    
    December 31, 2006Beginning portfolio at fair value
    
    $
    260,859,260
    
    
    $
    141,390,954Investments in debt securities
    
    
    81,181,250
    
    
    
    154,876,598Investments in equity securities
    
    
    4,800,000
    
    
    
    3,074,997Investment repayments
    
    
    (45,917,872
    )
    
    
    (37,627,269
    )Increase in payment-in-kind interest/dividends
    
    
    1,770,022
    
    
    
    2,424,927Sale of investments
    
    
    (5,374,750
    )
    
    
    (7,098,878
    )Increase in fair value of investments
    
    
    112,850
    
    
    
    3,817,931Ending portfolio at fair value
    
    $
    297,430,760
    
    
    $
    260,859,260
  June 30, 2007
    
    
    December 31, 2006Investments at
    
    
    Percentage of
    
    
    Investments at
    
    
    Percentage ofFair Value
    
    
    Total Portfolio
    
    
    Fair Value
    
    
    Total PortfolioSenior secured revolving lines of credit
    
    $
    11,530,219
    
    
    
    3.9
    %
    
    $
    7,010,219
    
    
    
    2.7
    %Senior secured term loans
    
    
    150,407,257
    
    
    
    50.5
    
    
    
    133,672,426
    
    
    
    51.2Junior secured term loans
    
    
    54,976,833
    
    
    
    18.5
    
    
    
    57,032,813
    
    
    
    21.9Senior subordinated debt
    
    
    71,657,530
    
    
    
    24.1
    
    
    
    59,298,927
    
    
    
    22.7Investments in equity securities
    
    
    8,858,921
    
    
    
    3.0
    
    
    
    3,844,875
    
    
    
    1.5Totals
    
    $
    297,430,760
    
    
    
    100.0
    %
    
    $
    260,859,260
    
    
    
    100.0
    %
   21




---



##### 



June 30, 2007
    
    
    December 31, 2006Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)
    
    
    Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)Manufacturing
    
    $
    172,596,517
    
    
    
    58.0
    %
    
    $
    173,077,969
    
    
    
    58.2
    %
    
    $
    118,031,907
    
    
    
    45.2
    %
    
    $
    118,274,709
    
    
    
    45.3
    %Distribution
    
    
    49,775,149
    
    
    
    16.7
    
    
    
    49,548,649
    
    
    
    16.6
    
    
    
    47,685,031
    
    
    
    18.3
    
    
    
    47,513,531
    
    
    
    18.2Service
    
    
    35,528,251
    
    
    
    12.0
    
    
    
    35,439,751
    
    
    
    11.9
    
    
    
    33,142,636
    
    
    
    12.7
    
    
    
    32,834,136
    
    
    
    12.6Consumer / Retail Goods
    
    
    38,978,091
    
    
    
    13.1
    
    
    
    39,181,391
    
    
    
    13.2
    
    
    
    58,398,679
    
    
    
    22.4
    
    
    
    58,564,779
    
    
    
    22.5Publishing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,161,105
    
    
    
    1.2
    
    
    
    3,166,305
    
    
    
    1.2Defense
    
    
    463,168
    
    
    
    0.2
    
    
    
    183,000
    
    
    
    0.1
    
    
    
    463,168
    
    
    
    0.2
    
    
    
    505,800
    
    
    
    0.2Total
    
    $
    297,341,176
    
    
    
    100.0
    %
    
    $
    297,430,760
    
    
    
    100.0
    %
    
    $
    260,882,526
    
    
    
    100.0
    %
    
    $
    260,859,260
    
    
    
    100.0
    %
 
 (1)
    
    Represents percentage of total portfolio.  Portfolio Asset Quality
   June 30, 2007
    
    
    December 31, 2006Investments at
    
    
    Percentage of
    
    
    Investments at
    
    
    Percentage ofInvestment Rating
    
    Fair Value
    
    
    Total Portfolio
    
    
    Fair Value
    
    
    Total Portfolio1
    
    $
    28,389,178
    
    
    
    9.8
    %
    
    $
    22,689,633
    
    
    
    8.8
    %2
    
    
    219,057,968
    
    
    
    75.9
    
    
    
    198,127,878
    
    
    
    77.13
    
    
    41,124,693
    
    
    
    14.3
    
    
    
    36,196,874
    
    
    
    14.14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Totals
    
    $
    288,571,839
    
    
    
    100.0
    %
    
    $
    257,014,385
    
    
    
    100.0
    %
 Loans and Debt Securities on Non-Accrual Status
  22




---



##### 



Results of Operations
  Comparison for the three months ended June 30, 2007 and 2006
 Total Investment Income
    Expenses
   Realized Gain (Loss) on Sale of Investments
  23




---



##### 



Net Change in Unrealized Appreciation or Depreciation on Investments
    Unrealized Appreciation on Interest Rate Swaps
  Net Income
  Comparison for the six months ended June 30, 2007 and 2006
 Total Investment Income
   24




---



##### 



Expenses
   Realized Gain (Loss) on Sale of Investments
  Net Change in Unrealized Appreciation or Depreciation on Investments
  Unrealized Appreciation on Interest Rate Swaps
  Net Income
  Financial Condition, Liquidity and Capital Resources
 Cash, Cash Equivalents and Restricted Cash
  25




---



##### 



Liquidity and Capital Resources
     Borrowings
 Securitization Revolving Credit Facility.
 26




---



##### 



Regulated Investment Company Status and Distributions
     Critical Accounting Policies
  27




---



##### 



Valuation of Portfolio Investments
        Fee Income Recognition
  28




---



##### 



Payment-in-Kind or PIK Interest and Dividends
   Six Months EndedJune 30, 2007Beginning PIK balance
    
    $
    2,891,565PIK interest and dividends earned during the period
    
    
    1,770,022PIK receipts during the period
    
    
    (1,196,353
    )Ending PIK balance
    
    $
    3,465,234
 Interest and Dividend Income Recognition
   Off-Balance Sheet Arrangements
   Contractual Obligations
  29




---



##### 



Recent Developments
     30




---



##### 



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, 2007 that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
 31




---



##### 



PART II. OTHER INFORMATION
 Item 1. Legal Proceedings
  Item 1A. Risk Factors
  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
   For
    
    
    WithheldDennis C. ODowd
    
    
    17,022,447
    
    
    
    356,242
  
  For
    
    
    Against
    
    
    AbstainTotals
    
    
    17,217,750
    
    
    
    95,675
    
    
    
    65,262
  For
    
    
    Against
    
    
    Abstain
    
    
    BrokerNon-VotesTotals
    
    
    5,429,017
    
    
    
    2,149,674
    
    
    
    133,333
    
    
    
    9,663,665
 32




---



##### 



Item 5. Other Information
     Item 6. Exhibits
  ExhibitNumber
    
    Description of Document10.1*
    
    Employment Agreement, dated August 7, 2007, between Patriot Capital Funding, Inc. and William E. Alvarez, Jr.31.1*
    
    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. 33




---



##### 



SIGNATURES
  PATRIOT CAPITAL FUNDING, INC.By:
    /s/    Richard P. BuckanavageRichard P. BuckanavageChief Executive Officer and President By:
    /s/     William E. Alvarez, Jr.William E. Alvarez, Jr.Executive Vice President, Chief Financial
Officer and Secretary 34