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 March 31, 2009
 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 
incorporation or organization)
    
    (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 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



PATRIOT CAPITAL FUNDING, INC.
 FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2009
 TABLE OF CONTENTS
 PART
I
    
    FINANCIAL
INFORMATION
    
    
    1Item 1.
    
    Financial Statements
(Unaudited)
    
    
    1Consolidated Balance
Sheets at March 31, 2009 and December 31, 2008
    
    
    1Consolidated
Statements of Operations for the three months ended March 31,
2009 and 2008
    
    
    2Consolidated
Statements of Changes in Net Assets for the three months ended
March 31, 2009 and 2008
    
    
    3Consolidated
Statements of Cash Flows for the three months ended March 31,
2009 and 2008
    
    
    4Consolidated
Schedule of Investments as of March 31, 2009
    
    
    5Consolidated
Schedule of Investments as of December 31, 2008
    
    
    11Notes to
Consolidated Financial Statements
    
    
    17Item 2.
    
    Managements
Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    27Item 3.
    
    Quantitative and
Qualitative Disclosures About Market Risk
    
    
    38Item 4.
    
    Controls and
Procedures
    
    
    38PART
II
    
    OTHER
INFORMATION
    
    
    39Item 1.
    
    Legal Proceedings
    
    
    39Item 1A.
    
    Risk Factors
    
    
    39Item 2.
    
    Unregistered Sales
of Equity Securities and Use of Proceeds
    
    
    39Item 3.
    
    Defaults upon Senior
Securities
    
    
    39Item 4.
    
    Submission of
Matters to a Vote of Security Holders
    
    
    39Item 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
 (unaudited)
 March 31,
    
    
    December 31,2009
    
    
    2008ASSETSInvestments at fair value:Non-control/non-affiliate investments (cost of $229,604,443 - 2009,
$269,577,008 - 2008)
    
    $
    220,408,409
    
    
    $
    240,486,620Affiliate investments (cost of $52,990,210 - 2009,
$53,129,533 - 2008)
    
    
    49,806,458
    
    
    
    51,457,082Control investments (cost of $64,573,917 - 2009, $43,192,484 - 2008)
    
    
    29,297,277
    
    
    
    30,427,046Total investments
    
    
    299,512,144
    
    
    
    322,370,748Cash and cash equivalents
    
    
    14,230,158
    
    
    
    6,449,454Restricted cash
    
    
    15,795,067
    
    
    
    22,155,073Interest receivable
    
    
    1,333,041
    
    
    
    1,390,285Other assets
    
    
    1,934,259
    
    
    
    1,897,086TOTAL ASSETS
    
    $
    332,804,669
    
    
    $
    354,262,646LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIESBorrowings
    
    $
    157,600,000
    
    
    $
    162,600,000Interest payable
    
    
    290,352
    
    
    
    514,125Dividends payable
    
    
    
    
    
    
    5,253,709Accounts payable, accrued expenses and other
    
    
    4,689,208
    
    
    
    5,777,642TOTAL LIABILITIES
    
    
    162,579,560
    
    
    
    174,145,476COMMITMENTSSTOCKHOLDERS 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; 20,950,501
and 20,827,334 shares issued and outstanding at March 31, 2009 and
December 31, 2008, respectively
    
    
    209,506
    
    
    
    208,274Paid-in capital
    
    
    234,948,393
    
    
    
    234,385,063Accumulated net investment income (loss)
    
    
    1,446,795
    
    
    
    (1,912,061
    )Distributions in excess of net investment income
    
    
    
    
    
    
    (1,758,877
    )Net realized loss on investments
    
    
    (15,654,717
    )
    
    
    (4,053,953
    )Net unrealized depreciation on interest rate swaps
    
    
    (2,914,535
    )
    
    
    (3,097,384
    )Net unrealized depreciation on investments
    
    
    (47,810,333
    )
    
    
    (43,653,892
    )TOTAL STOCKHOLDERS EQUITY
    
    
    170,225,109
    
    
    
    180,117,170TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    332,804,669
    
    
    $
    354,262,646NET ASSET VALUE PER COMMON SHARE
    
    $
    8.13
    
    
    $
    8.65
  1




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##### 



Patriot Capital Funding, Inc.
 
 Consolidated Statements of Operations
 (unaudited)
 Three Months EndedMarch 31,2009
    
    
    2008INVESTMENT INCOMEInterest and dividends:Non-control/non-affiliate investments
    
    $
    6,190,762
    
    
    $
    8,298,333Affiliate investments
    
    
    1,331,559
    
    
    
    2,514,423Control investments
    
    
    836,630
    
    
    
    178,466Total interest and dividend income
    
    
    8,358,951
    
    
    
    10,991,222Fees:Non-control/non-affiliate investments
    
    
    110,717
    
    
    
    168,697Affiliate investments
    
    
    21,888
    
    
    
    38,661Control investments
    
    
    34,545
    
    
    
    6,250Total fee income
    
    
    167,150
    
    
    
    213,608Other investment income:Non-control/non-affiliate investments
    
    
    8,804
    
    
    
    39,855Total other investment income
    
    
    8,804
    
    
    
    39,855Total Investment Income
    
    
    8,534,905
    
    
    
    11,244,685EXPENSESCompensation expense
    
    
    921,121
    
    
    
    1,498,175Interest expense
    
    
    1,586,437
    
    
    
    2,059,523Professional fees
    
    
    328,920
    
    
    
    262,527General and administrative expense
    
    
    580,694
    
    
    
    638,560Total Expenses
    
    
    3,417,172
    
    
    
    4,458,785Net Investment Income
    
    
    5,117,733
    
    
    
    6,785,900NET REALIZED GAIN (LOSS) AND NET UNREALIZED
APPRECIATION (DEPRECIATION)Net realized loss on investments  non-control/non-affiliate
    
    
    
    
    
    
    (89,550
    )Net realized loss on investments  control
    
    
    (11,600,764
    )
    
    
    Net unrealized appreciation (depreciation) on investments -
non-control/non-affiliate
    
    
    9,530
    
    
    
    (6,411,284
    )Net unrealized depreciation on investments  affiliate
    
    
    (1,511,301
    )
    
    
    (2,591,990
    )Net unrealized depreciation on investments  control
    
    
    (2,654,670
    )
    
    
    (848,000
    )Net unrealized appreciation (depreciation) on interest rate swaps
    
    
    182,849
    
    
    
    (752,851
    )Net Realized Gain (Loss) and Net Unrealized Appreciation (Depreciation)
    
    
    (15,574,356
    )
    
    
    (10,693,675
    )NET LOSS
    
    $
    (10,456,623
    )
    
    $
    (3,907,775
    )Loss per share, basic and diluted
    
    $
    (0.50
    )
    
    $
    (0.19
    )Weighted average shares outstanding, basic and diluted
    
    
    20,929,973
    
    
    
    20,650,455
  2




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##### 



Patriot Capital Funding, Inc.
 
 Consolidated Statements of Changes in Net Assets
 (unaudited)
 Three Months EndedMarch 31,2009
    
    
    2008Operations:Net investment income
    
    $
    5,117,733
    
    
    $
    6,785,900Net realized loss on investments
    
    
    (11,600,764
    )
    
    
    (89,550
    )Net unrealized depreciation on investments
    
    
    (4,156,441
    )
    
    
    (9,851,274
    )Net unrealized appreciation (depreciation) on interest rate swaps
    
    
    182,849
    
    
    
    (752,851
    )Net decrease in net assets from operations
    
    
    (10,456,623
    )
    
    
    (3,907,775
    )Stockholder transactions:Distributions to stockholders from net investment income
    
    
    
    
    
    
    (6,785,900
    )Distributions in excess of net investment income
    
    
    
    
    
    
    (28,750
    )Net decrease in net assets from stockholder distributions
    
    
    
    
    
    
    (6,814,650
    )Capital share transactions:Issuance of common stock under dividend reinvestment plan
    
    
    364,499
    
    
    
    Stock option compensation
    
    
    200,063
    
    
    
    182,063Net increase in net assets from capital share transactions
    
    
    564,562
    
    
    
    182,063Total decrease in net assets
    
    
    (9,892,061
    )
    
    
    (10,540,362
    )Net assets at beginning of period
    
    
    180,117,170
    
    
    
    221,597,684Net assets at end of period
    
    $
    170,225,109
    
    
    $
    211,057,322Net asset value per common share
    
    $
    8.13
    
    
    $
    10.22Common shares outstanding at end of period
    
    
    20,950,501
    
    
    
    20,650,455
  3




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##### 



Patriot Capital Funding, Inc.
 
 Consolidated Statements of Cash Flows
 (unaudited)
 Three Months EndedMarch 31,2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (10,456,623
    )
    
    $
    (3,907,775
    )Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:Depreciation and amortization
    
    
    164,469
    
    
    
    98,111Change in interest receivable
    
    
    57,244
    
    
    
    381,280Realized loss on sale of investments
    
    
    11,600,764
    
    
    
    89,550Change in unrealized depreciation on investments
    
    
    4,156,441
    
    
    
    9,851,274Change in unrealized (appreciation) depreciation
on interest rate swaps
    
    
    (182,849
    )
    
    
    752,851Payment-in-kind interest and dividends
    
    
    (1,087,159
    )
    
    
    (1,453,912
    )Stock-based compensation expense
    
    
    200,063
    
    
    
    182,063Change in unearned income
    
    
    (242,383
    )
    
    
    (356,002
    )Change in interest payable
    
    
    (223,773
    )
    
    
    (303,522
    )Change in other assets
    
    
    (201,641
    )
    
    
    (16,195
    )Change in accounts payable, accrued expenses and other
    
    
    (905,586
    )
    
    
    (2,126,838
    )Net cash provided by operating activities
    
    
    2,878,967
    
    
    
    3,190,885CASH FLOWS FROM INVESTING ACTIVITIES:Funded investments
    
    
    (4,075,088
    )
    
    
    (5,141,406
    )Principal repayments on investments
    
    
    12,506,029
    
    
    
    19,441,899Proceeds from sale of investments
    
    
    
    
    
    
    10,347,950Purchases of furniture and equipment
    
    
    
    
    
    
    (3,927
    )Net cash provided by investing activities
    
    
    8,430,941
    
    
    
    24,644,516CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings
    
    
    7,500,000
    
    
    
    6,052,500Repayments on borrowings
    
    
    (12,500,000
    )
    
    
    (27,952,500
    )Dividends paid
    
    
    (4,889,210
    )
    
    
    (6,814,650
    )Deferred offering costs
    
    
    
    
    
    
    (23,633
    )Change in restricted cash
    
    
    6,360,006
    
    
    
    1,425,181Net cash used for financing activities
    
    
    (3,529,204
    )
    
    
    (27,313,102
    )NET INCREASE IN CASH AND CASH
EQUIVALENTS
    
    
    7,780,704
    
    
    
    522,299CASH AND CASH EQUIVALENTS AT:Beginning of Period
    
    
    6,449,454
    
    
    
    789,451End of Period
    
    $
    14,230,158
    
    
    $
    1,311,750Supplemental information:Interest paid
    
    $
    1,678,482
    
    
    $
    2,363,045Non-cash financing activities:Dividends reinvested in common stock
    
    $
    364,499
    
    
    $
    Dividends declared but not paid
    
    
    
    
    
    
    6,814,650
  4




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##### 



Patriot Capital Funding, Inc.
Consolidated Schedule of Investments
March 31, 2009
(unaudited)
 Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueControl investments:Aylward Enterprises, LLC (5)
    
    Manufacturer of packaging equipment
    
    Revolving Line of Credit(Machinery)
    
    
    
    (5.3%, Due 2/12) (3)
    
    $
    3,700,000
    
    
    $
    3,651,432
    
    
    $
    3,651,432Senior Secured Term Loan A(5.7%, Due 2/12) (3)
    
    
    8,085,938
    
    
    
    8,010,003
    
    
    
    2,247,565Senior Subordinated Debt(22.0%, Due 8/12) (2)
    
    
    7,730,791
    
    
    
    6,747,301
    
    
    
    Subordinated Member Note(8.0%, Due 2/13) (2)
    
    
    154,558
    
    
    
    148,491
    
    
    
    Membership Interest (1,250,000
units) (4)
    
    
    
    
    
    
    1,250,000
    
    
    
    Encore Legal Solutions, Inc.
    
    Legal document management services
    
    Junior Secured Term Loan A(Printing & Publishing)
    
    
    
    (6.2%, Due 12/10) (2) (3)
    
    
    4,020,456
    
    
    
    4,009,847
    
    
    
    4,009,847Junior Secured Term Loan B(8.9%, Due 12/10) (2) (3)
    
    
    7,390,687
    
    
    
    7,361,384
    
    
    
    Common Stock 
(30,000 shares) (4)
    
    
    
    
    
    
    5,159,567
    
    
    
    Fischbein, LLC
    
    Designer and manufacturer of packaging
    
    Senior Subordinated Debt(Machinery)
    
    equipment
    
    (16.5%, Due 5/13) (2) (3)
    
    
    3,532,641
    
    
    
    3,512,275
    
    
    
    3,582,934Membership Interest - Class A

(2,800,000 units) (4)
    
    
    
    
    
    
    2,800,000
    
    
    
    3,477,800L.A. Spas, Inc.
    
    Manufacturer of above ground spas
    
    Revolving Line of Credit(Chemicals, Plastics & Rubber)
    
    
    
    (8.8%, Due 12/09) (3)
    
    
    1,000,000
    
    
    
    990,794
    
    
    
    990,794Senior Secured Term Loan(8.8%, Due 12/09) (3)
    
    
    4,165,430
    
    
    
    4,092,364
    
    
    
    399,134Charge-off of principalof impaired loan (7)
    
    
    
    
    
    
    (3,693,230
    )
    
    
    Senior Subordinated Debt(17.5%, Due 1/10) (2) (3)
    
    
    8,132,897
    
    
    
    7,907,534
    
    
    
    Charge-off of principalof impaired loan (7)
    
    
    
    
    
    
    (7,907,534
    )
    
    
    Common Stock 
(1,125,000 shares) (4)
    
    
    
    
    
    
    188
    
    
    
    Common Stock Warrants
(13,828 warrants) (4)
    
    
    
    
    
    
    3,963
    
    
    
    Nupla 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 
(7.3%, Due 9/12) (3)
    
    
    1,020,000
    
    
    
    1,007,348
    
    
    
    1,007,348Senior Secured Term Loan A(8.0%, Due 9/12) (3)
    
    
    5,246,876
    
    
    
    5,210,656
    
    
    
    5,075,280Senior Subordinated Debt(15.0%, Due 3/13) (2) (3)
    
    
    3,162,122
    
    
    
    3,142,356
    
    
    
    2,396,334Preferred Stock Class A 
(475 shares) (2)
    
    
    
    
    
    
    564,638
    
    
    
    Preferred Stock Class B 
(1,045 shares) (2)
    
    
    
    
    
    
    1,131,921
    
    
    
    Common Stock 
(1,140,584 shares) (4)
    
    
    
    
    
    
    80,000
    
    
    
    
 5




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##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueSidumpr Trailer Company, Inc.
    
    Manufacturer of side dump trailers
    
    Revolving Line of Credit(Automobile)
    
    
    
    (7.3%, Due 1/11) (3)
    
    
    950,000
    
    
    
    934,432
    
    
    
    934,432Senior Secured Term Loan A(7.3%, Due 1/11) (3)
    
    
    2,047,500
    
    
    
    2,036,677
    
    
    
    1,524,377Senior Secured Term Loan B(8.8%, Due 1/11) (3)
    
    
    2,320,625
    
    
    
    2,301,926
    
    
    
    Senior Secured Term Loan C(16.5%, Due 7/11) (2) (3)
    
    
    2,507,974
    
    
    
    2,253,829
    
    
    
    Senior Secured Term Loan D(7.3%, Due 7/11)
    
    
    1,700,000
    
    
    
    1,700,000
    
    
    
    Preferred Stock (49,635.5 shares) (2)
    
    
    
    
    
    
    165,730
    
    
    
    Common Stock 
(64,050 shares) (4)
    
    
    
    
    
    
    25
    
    
    
    Total Control investments (represents 9.8% of total investments at fair value)
    
    
    
    
    
    $
    64,573,917
    
    
    $
    29,297,277Affiliate investments:Boxercraft Incorporated
    
    Supplier of spiritwear and campus apparel
    
    Senior Secured Term Loan A(Textiles & Leather)
    
    
    
    (8.0%, Due 9/13) (3)
    
    $
    5,148,387
    
    
    $
    5,098,108
    
    
    $
    5,098,108Senior Secured Term Loan B(8.5%, Due 9/13) (3)
    
    
    5,466,266
    
    
    
    5,412,038
    
    
    
    5,412,038Senior Subordinated Debt(16.8%, Due 3/14) (2) (3)
    
    
    6,669,957
    
    
    
    6,606,144
    
    
    
    6,606,144Preferred Stock 
(1,000,000 shares) (4)
    
    
    
    
    
    
    1,054,722
    
    
    
    676,500Common Stock 
(10,000 shares) (4)
    
    
    
    
    
    
    100
    
    
    
    KTPS Holdings, LLC
    
    Manufacturer and distributor of specialty
    
    Revolving Line of Credit(Textiles & Leather)
    
    pet products
    
    (7.0%, Due 1/12) (3)
    
    
    900,000
    
    
    
    887,906
    
    
    
    887,906Senior Secured Term Loan A(5.9%, Due 1/12) (3)
    
    
    4,996,875
    
    
    
    4,956,633
    
    
    
    4,956,659Senior Secured Term Loan B(14.0%, Due 1/12) (3)
    
    
    465,000
    
    
    
    460,613
    
    
    
    460,613Junior Secured Term Loan(17.0%, Due 3/12) (2) (3)
    
    
    4,239,362
    
    
    
    4,206,379
    
    
    
    4,206,379Membership Interest - Class A 
(730.02 units) (4)
    
    
    
    
    
    
    730,020
    
    
    
    439,600Membership Interest -Common (199,795.08 units) (4)
    
    
    
    
    
    
    
    
    
    
    Smart, LLC (5)
(Diversified/Conglomerate Service)
    
    Provider of tuition management

services
    
    Membership Interest - Class B (1,218 units) (4)
    
    
    
    
    
    
    1,280,403
    
    
    
    Membership Interest - Class D (1
unit) (4)
    
    
    
    
    
    
    290,333
    
    
    
    
 6




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueSport Helmets Holdings, LLC (5)
    
    Manufacturer of protective headgear
    
    Senior Secured Term Loan A(Personal & Nondurable Consumer Products)
    
    
    
    (5.4%, Due 12/13) (3)
    
    
    4,443,750
    
    
    
    4,393,144
    
    
    
    4,239,594Senior Secured Term Loan B(5.9%, Due 12/13) (3)
    
    
    7,481,250
    
    
    
    7,385,358
    
    
    
    7,126,708Senior Subordinated Debt -Series A (15.0%, Due 6/14) (2) (3)7,052,500
    
    
    
    6,954,090
    
    
    
    6,954,090Senior Subordinated Debt -Series B (15.0%, Due 6/14) (2)
    
    
    1,274,219
    
    
    
    1,274,219
    
    
    
    1,274,219Common Stock (20,000 shares) (4)
    
    
    
    
    
    
    2,000,000
    
    
    
    1,467,900Total Affiliate investments (represents
16.6% of total investments at fair value)
    
    
    
    
    
    $
    52,990,210
    
    
    $
    49,806,458Non-control/non-affiliate investments:ADAPCO, Inc.
    
    Distributor of specialty chemicals and
    
    Revolving Line of Credit(Ecological)
    
    contract application services
    
    (10.3%, Due 7/11) (3)
    
    $
    800,000
    
    
    $
    785,553
    
    
    $
    785,553Senior Secured Term Loan A(10.3%, Due 6/11) (3)
    
    
    7,890,625
    
    
    
    7,849,393
    
    
    
    7,849,393Common Stock 
(5,000 shares) (4)
    
    
    
    
    
    
    500,000
    
    
    
    137,000Aircraft Fasteners International, LLC
    
    Distributor of fasteners and related hardware
    
    Senior Secured Term Loan(Machinery)
    
    for use in aerospace, electronics and defense industries
    
    (4.2%, Due 11/12) (3)
    
    
    5,443,000
    
    
    
    5,367,416
    
    
    
    5,217,116Junior Secured Term Loan(14.0%, Due 5/13) (2) (3)
    
    
    5,333,075
    
    
    
    5,273,251
    
    
    
    5,273,251Convertible Preferred Stock 
(32,500 shares) (2)
    
    
    
    
    
    
    270,935
    
    
    
    493,100Allied Defense Group, Inc.
(Aerospace & Defense)
    
    Diversified defense company
    
    Common Stock 
(4,000 shares) (4)
    
    
    
    
    
    
    463,168
    
    
    
    110,600Arrowhead General Insurance Agency, Inc. (6)(Insurance)
    
    Insurance agency and program specialist
    
    Junior Secured Term Loan(9.5%, Due 2/13) (3)
    
    
    5,000,000
    
    
    
        5,000,000
    
    
    
    4,061,400Borga, Inc.
    
    Manufacturer of pre-fabricated metal
    
    Revolving Line of Credit(Mining, Steel, Iron & Nonprecious Metals)
    
    building systems
    
    (6.5%, Due 5/10) (3)
    
    
    800,000
    
    
    
    795,074
    
    
    
    795,074Senior Secured Term Loan B(10.0%, Due 5/10) (3)
    
    
    1,629,534
    
    
    
    1,614,306
    
    
    
    1,614,306Senior Secured Term Loan C(19.0%, Due 5/10) (2) (3)
    
    
    8,198,709
    
    
    
    8,164,229
    
    
    
    8,164,229Common Stock Warrants
(33,750 warrants) (4)
    
    
    
    
    
    
    15,816
    
    
    
    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(9.8%, Due 11/11) (3)
    
    
    9,996,558
    
    
    
    9,901,060
    
    
    
    9,901,060Senior Subordinated Debt(16.5%, Due 11/12) (3)
    
    
    6,250,000
    
    
    
    6,193,894
    
    
    
    6,256,394Common Stock (7,500 shares) (4)
    
    
    
    
    
    
    750,000
    
    
    
    786,500
 7




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueCDW Corporation (6)
    
    Direct marketer of computer and
    
    Senior Secured Term Loan(Electronics)
    
    peripheral equipment
    
    (4.0%, Due 10/14)
    
    
    1,995,909
    
    
    
    1,784,513
    
    
    
    1,017,900CS Operating, LLC (5)
    
    Provider of maintenance, repair and replacement of
    
    Revolving Line of Credit(Buildings & Real Estate)
    
    HVAC, electrical, plumbing, and foundation repair
    
    (6.0%, Due 1/13) (3)
    
    
    200,000
    
    
    
    195,006
    
    
    
    195,006Senior Secured Term Loan A(6.6%, Due 7/12) (3)
    
    
    1,748,814
    
    
    
    1,728,522
    
    
    
    1,728,522Senior Subordinated Debt(16.5%, Due 1/13) (2) (3)
    
    
    2,657,752
    
    
    
    2,629,039
    
    
    
    2,629,039Copernicus Group
    
    Provider of clinical trial review services
    
    Revolving Line of Credit(Healthcare, Education & Childcare)
    
    
    
    (8.8%, Due 10/13) (3)
    
    
    250,000
    
    
    
    231,762
    
    
    
    231,762Senior Secured Term Loan A(8.8%, Due 10/13) (3)
    
    
    7,837,500
    
    
    
    7,720,740
    
    
    
    7,720,740Senior Subordinated Debt(16.0%, Due 4/14) (3)
    
    
    12,233,120
    
    
    
    12,056,330
    
    
    
    12,056,330Preferred Stock - Series A
  (1,000,000 shares) (4)
    
    
    
    
    
    
    1,000,000
    
    
    
    1,068,900Copperhead Chemical Company, Inc.
    
    Manufacturer of bulk pharmaceuticals
    
    Senior Subordinated Debt(Chemicals, Plastics & Rubber)
    
    
    
    (21.0%, Due 1/13) (2) (3)
    
    
    3,749,492
    
    
    
    3,722,703
    
    
    
    3,722,703Custom Direct, Inc. (6)
    
    Direct marketer of checks and other
    
    Senior Secured Term Loan(Printing & Publishing)
    
    financial products and services
    
    (4.0%, Due 12/13) (3)
    
    
    1,847,386
    
    
    
    1,613,302
    
    
    
    1,293,200Junior Secured Term Loan(7.2%, Due 12/14) (3)
    
    
    2,000,000
    
    
    
    2,000,000
    
    
    
    1,200,000Dover Saddlery, Inc.
(Retail Stores)
    
    Equestrian products catalog retailer
    
    Common Stock
  (30,974 shares) (4)
    
    
    
    
    
    
    148,200
    
    
    
    66,000Employbridge Holding Company (5) (6)
    
    A provider of specialized staffing
    
    Junior Secured Term Loan(Personal, Food & Miscellaneous Services)
    
    services
    
    (9.3%, Due 10/13) (3)
    
    
    3,000,000
    
    
    
    3,000,000
    
    
    
    300,000EXL Acquisition Corp.
    
    Manufacturer of lab testing supplies
    
    Senior Secured Term Loan A(Electronics)
    
    
    
    (4.9%, Due 3/11) (3)
    
    
    2,864,871
    
    
    
    2,848,357
    
    
    
    2,721,187Senior Secured Term Loan B(5.2%, Due 3/12) (3)
    
    
    4,357,370
    
    
    
    4,313,325
    
    
    
    4,119,955Senior Secured Term Loan C(5.7%, Due 3/12) (3)
    
    
    2,687,523
    
    
    
    2,652,236
    
    
    
    2,532,913Senior Secured Term Loan D(15.0%, Due 3/12) (3)
    
    
    6,366,381
    
    
    
    6,313,891
    
    
    
    6,313,891Common Stock - Class A 
 (2,475 shares) (4)
    
    
    
    
    
    
    2,475
    
    
    
    309,400Common Stock - Class B
 (25 shares) (2)
    
    
    
    
    
    
    285,410
    
    
    
    289,700
 8




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueFairchild Industrial Products, Co.
    
    Manufacturer of industrial controls and
    
    Senior Secured Term Loan A(Electronics)
    
    power transmission products
    
    (5.9%, Due 7/10) (3)
    
    
    1,538,366
    
    
    
    1,529,009
    
    
    
    1,507,743Senior Secured Term Loan B(7.7%, Due 1/11) (3)
    
    
    4,414,375
    
    
    
    4,389,448
    
    
    
    4,328,473Senior Subordinated Debt(14.8%, Due 7/11) (3)
    
    
    5,460,000
    
    
    
    5,422,141
    
    
    
    5,422,141Preferred Stock - Class A
 (378.4 shares) (2)
    
    
    
    
    
    
    359,900
    
    
    
    365,000Common Stock - Class B
 (27.5 shares) (4)
    
    
    
    
    
    
    121,598
    
    
    
    359,800Hudson Products Holdings, Inc. (6)
    
    Manufactures and designs air-cooled heat
    
    Senior Secured Term Loan(Mining, Steel, Iron & Nonprecious Metals)
    
    exchanger equipment
    
    (8.0%, Due 8/15) (3)
    
    
    7,462,500
    
    
    
    7,253,501
    
    
    
    6,401,000Impact Products, LLC
    
    Distributor of janitorial supplies
    
    Junior Secured Term Loan(Machinery)
    
    
    
    (6.6%, Due 9/12) (3)
    
    
    8,875,000
    
    
    
    8,824,101
    
    
    
    8,799,501Senior Subordinated Debt(15.0%, Due 9/12) (3)
    
    
    5,547,993
    
    
    
    5,519,836
    
    
    
    5,519,836Label Corp Holdings, Inc. (6)
    
    Manufacturer of prime labels
    
    Senior Secured Term Loan(Printing & Publishing)
    
    
    
    (8.0%, Due 8/14) (3)
    
    
    6,467,500
    
    
    
    6,171,841
    
    
    
    5,560,500LHC Holdings Corp.
    
    Provider of home healthcare services
    
    Senior Secured Term Loan A(Healthcare, Education & Childcare)
    
    
    
    (4.5%, Due 11/12) (3)
    
    
    3,855,339
    
    
    
    3,816,427
    
    
    
    3,704,588Senior Subordinated Debt(14.5%, Due 5/13) (3)
    
    
    4,565,000
    
    
    
    4,520,600
    
    
    
    4,520,600Membership Interest
 (125,000 units) (4)
    
    
    
    
    
    
    125,000
    
    
    
    183,000Mac & Massey Holdings, LLC
    
    Broker and distributor of ingredients to
    
    Senior Subordinated Debt(Grocery)
    
    manufacturers of food products
    
    (15.8%, Due 2/13) (2) (3)
    
    
    8,066,238
    
    
    
    8,039,213
    
    
    
    8,039,213Common Stock
 (250 shares) (4)
    
    
    
    
    
    
    238,916
    
    
    
    386,300Northwestern Management Services, LLC
    
    Provider of dental services
    
    Revolving Line of Credit(Healthcare, Education & Childcare)
    
    
    
    (5.8%, Due 12/12) (3)
    
    
    125,000
    
    
    
    117,091
    
    
    
    117,091Senior Secured Term Loan A(4.5%, Due 12/12) (3)
    
    
    5,430,000
    
    
    
    5,385,468
    
    
    
    5,099,368Senior Secured Term Loan B(5.1%, Due 12/12) (3)
    
    
    1,234,375
    
    
    
    1,223,890
    
    
    
    1,223,890Junior Secured Term Loan(15.0%, Due 6/13) (2) (3)
    
    
    2,860,658
    
    
    
    2,838,218
    
    
    
    2,838,218Common Stock
 (500 shares) (4)
    
    
    
    
    
    
    500,000
    
    
    
    408,100Prince Mineral Company, Inc.
    
    Manufacturer of pigments
    
    Junior Secured Term Loan(Metals & Minerals)
    
    
    
    (6.2%, Due 12/12) (3)
    
    
    11,250,000
    
    
    
    11,113,401
    
    
    
    10,727,901Senior Subordinated Debt(14.0%, Due 7/13) (2) (3)
    
    
    12,064,491
    
    
    
    11,956,048
    
    
    
    11,705,457
 9




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueQuartermaster, Inc.
    
    Retailer of uniforms and tactical equipment to
    
    Revolving Line of Credit(Retail Stores)
    
    law enforcement and security professionals
    
    (6.5%, Due 12/10) (3)
    
    
    2,150,000
    
    
    
    2,133,615
    
    
    
    2,133,615Senior Secured Term Loan A(6.8%, Due 12/10) (3)
    
    
    2,981,500
    
    
    
    2,958,273
    
    
    
    2,958,273Senior Secured Term Loan B(8.1%, Due 12/10) (3)
    
    
    2,537,500
    
    
    
    2,522,409
    
    
    
    2,522,409Senior Secured Term Loan C(15.0%, Due 12/11) (2) (3)
    
    
    3,425,317
    
    
    
    3,403,295
    
    
    
    3,403,295R-O-M Corporation
    
    Manufacturer of doors, ramps and
bulk heads for
    
    Revolving Line of Credit(Automobile)
    
    fire trucks and food transportation
    
    (4.8%, Due 2/13) (3)
    
    
    375,000
    
    
    
    354,446
    
    
    
    354,446Senior Secured Term Loan A(3.3%, Due 2/13) (3)
    
    
    6,340,000
    
    
    
    6,288,368
    
    
    
    5,977,668Senior Secured Term Loan B(4.8%, Due 5/13) (3)
    
    
    8,357,625
    
    
    
    8,272,925
    
    
    
    7,863,300Senior Subordinated Debt(15.0%, Due 8/13) (3)
    
    
    7,100,000
    
    
    
    7,015,559
    
    
    
    7,015,559Total Non-control/non-affiliate investments
(represents 73.6% of total investments at fair value)
    
    
    
    
    
    $
    229,604,443
    
    
    $
    220,408,409Total Investments
    
    
    
    
    
    
    
    
    
    $
    347,168,570
    
    
    $
    299,512,144
 
 (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 Amended Securitization Facility. See Note 6 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.(7)
    
    All or a portion of the loan is considered permanently impaired and, accordingly, the charge-off of the principal balance has been recorded as a realized loss for financial reporting
purposes.  10




---



##### 



PATRIOT CAPITAL FUNDING, INC.
 
 Consolidated Schedule of Investments
 December 31, 2008
 Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueControl investments:Encore Legal Solutions, Inc.
    
    Legal document management services
    
    Junior Secured Term Loan A(Printing & Publishing)
    
    
    
    (6.2%, Due 12/10) (2) (3)
    
    $
    4,020,456
    
    
    $
    4,007,366
    
    
    $
    3,537,910Junior Secured Term Loan B(9.2%, Due 12/10) (2) (3)
    
    
    7,390,687
    
    
    
    7,355,975
    
    
    
    6,492,888Common Stock  (30,000 shares) (4)
    
    
    
    
    
    
    5,159,567
    
    
    
    326,900Fischbein, LLC
    
    Designer and manufacturer of packaging
    
    Senior Subordinated Debt(Machinery)
    
    equipment
    
    (16.5%, Due 5/13) (2) (3)
    
    
    3,492,760
    
    
    
    3,471,147
    
    
    
    3,540,987Membership Interest  Class A  (2,800,000 units) (4)
    
    
    
    
    
    
    2,800,000
    
    
    
    3,876,000Nupla
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(7.3%, Due 9/12) (3)
    
    
    870,000
    
    
    
    856,425
    
    
    
    856,425Senior Secured Term Loan A(8.0%, Due 9/12) (3)
    
    
    5,354,688
    
    
    
    5,315,741
    
    
    
    5,166,852Senior Subordinated Debt(15.0%, Due 3/13) (2) (3)
    
    
    3,123,084
    
    
    
    3,102,059
    
    
    
    2,192,375Preferred Stock Class A 
(475 shares) (2)
    
    
    
    
    
    
    550,584
    
    
    
    15,900Preferred Stock Class B (1,045 shares) (2)
    
    
    
    
    
    
    1,101,001
    
    
    
    1,101,500Common Stock (1,140,584 shares) (4)
    
    
    
    
    
    
    80,000
    
    
    
    Sidumpr Trailer Company, Inc.
    
    Manufacturer of side dump trailers
    
    Revolving Line of Credit(Automobile)
    
    
    
    (7.3%, Due 1/11) (3)
    
    
    950,000
    
    
    
    934,432
    
    
    
    934,432Senior Secured Term Loan A(7.3%, Due 1/11) (3)
    
    
    2,047,500
    
    
    
    2,036,677
    
    
    
    2,036,677Senior Secured Term Loan B(8.8%, Due 1/11) (3)
    
    
    2,320,625
    
    
    
    2,301,926
    
    
    
    Senior Secured Term Loan C(16.5%, Due 7/11) (2) (3)
    
    
    2,406,374
    
    
    
    2,253,829
    
    
    
    Senior Secured Term Loan D(7.3%, Due 7/11)
    
    
    1,700,000
    
    
    
    1,700,000
    
    
    
    348,200Preferred Stock  (49,635.5 shares) (2)
    
    
    
    
    
    
    165,730
    
    
    
    Common Stock  (64,050 shares) (4)
    
    
    
    
    
    
    25
    
    
    
    Total Control investments (represents 9.4% of total investments at fair value)
    
    
    
    
    
    $
    43,192,484
    
    
    $
    30,427,046
 11




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueAffiliate investments:Boxercraft Incorporated
    
    Supplier of spiritwear and campus apparel
    
    Senior Secured Term Loan A(Textiles & Leather)
    
    
    
    (8.0%, Due 9/13) (3)
    
    
    5,328,125
    
    
    
    5,273,766
    
    
    
    5,273,766Senior Secured Term Loan B(8.5%, Due 9/13) (3)
    
    
    5,486,250
    
    
    
    5,429,567
    
    
    
    5,429,567Senior Subordinated Debt(16.8%, Due 3/14) (2) (3)
    
    
    6,591,375
    
    
    
    6,524,347
    
    
    
    6,524,347Preferred Stock (1,000,000 shares) (4)
    
    
    
    
    
    
    1,029,722
    
    
    
    849,500Common Stock (10,000 shares) (4)
    
    
    
    
    
    
    100
    
    
    
    KTPS Holdings, LLC
    
    Manufacturer and distributor of specialty
    
    Revolving Line of Credit(Textiles & Leather)
    
    pet products
    
    (5.0%, Due 1/12) (3)
    
    
    1,000,000
    
    
    
    986,840
    
    
    
    986,840Senior Secured Term Loan A(5.1%, Due 1/12) (3)
    
    
    4,996,875
    
    
    
    4,950,978
    
    
    
    4,951,005Senior Secured Term Loan B(12.0%, Due 1/12) (3)
    
    
    465,000
    
    
    
    460,265
    
    
    
    460,265Junior Secured Term Loan (15.0%, Due 3/12) (2) (3)
    
    
    4,207,806
    
    
    
    4,172,076
    
    
    
    4,172,076Membership Interest  Class
A (730.02 units) (4)
    
    
    
    
    
    
    730,020
    
    
    
    721,200Membership Interest  Common (199,795.08 units) (4)
    
    
    
    
    
    
    
    
    
    
    Smart, LLC (5)(Diversified/Conglomerate Service)
    
    Provider of tuition management services
    
    Membership Interest  Class
B (1,218 units) (4)
    
    
    
    
    
    
    1,280,403
    
    
    
    311,500Membership Interest  Class D (1 unit) (4)
    
    
    
    
    
    
    290,333
    
    
    
    312,000Sport Helmets Holdings, LLC (5)
    
    Manufacturer of protective headgear
    
    Senior Secured Term Loan A(Personal & Nondurable Consumer Products)
    
    
    
    (5.9%, Due 12/13) (3)
    
    
    4,500,000
    
    
    
    4,445,614
    
    
    
    4,282,314Senior Secured Term Loan B(6.4%, Due 12/13) (3)
    
    
    7,500,000
    
    
    
    7,400,148
    
    
    
    7,128,048Senior Subordinated Debt -Series A (15.0%, Due 6/14) (2) (3)
    
    
    7,000,000
    
    
    
    6,896,866
    
    
    
    6,896,866Senior Subordinated Debt -Series B (15.0%, Due 6/14) (2)
    
    
    1,258,488
    
    
    
    1,258,488
    
    
    
    1,258,488Common Stock (20,000 shares) (4)
    
    
    
    
    
    
    2,000,000
    
    
    
    1,899,300Total Affiliate investments (represents 16.0% of total investments at fair value)
    
    
    
    
    
    $
    53,129,533
    
    
    $
    51,457,082Non-control/non-affiliate investments:ADAPCO, Inc.
    
    Distributor of specialty chemicals and
    
    Senior Secured Term Loan A(Ecological)
    
    contract application services
    
    (11.5%, Due 6/11) (3)
    
    $
    8,103,125
    
    
    $
    8,056,102
    
    
    $
    8,056,102Common Stock (5,000 shares) (4)
    
    
    
    
    
    
    500,000
    
    
    
    108,800
 12




---



##### 



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(4.1%, Due 11/12) (3)
    
    
    5,528,000
    
    
    
    5,446,932
    
    
    
    5,208,632Junior Secured Term Loan(14.0%, Due 5/13) (2) (3)
    
    
    5,306,249
    
    
    
    5,242,761
    
    
    
    5,242,761Convertible Preferred Stock
 (32,500 shares) (2)
    
    
    
    
    
    
    273,397
    
    
    
    503,600Allied Defense Group, Inc.
(Aerospace & Defense)
    
    Diversified defense company
    
    Common Stock (4,000 shares) (4)
    
    
    
    
    
    
    463,168
    
    
    
    173,600Arrowhead General Insurance
Agency, Inc. (6)(Insurance)
    
    Insurance agency and program specialist
    
    Junior Secured Term Loan(7.7%, Due 2/13) (3)
    
    
    5,000,000
    
    
    
    5,000,000
    
    
    
    4,048,200Aylward Enterprises, LLC (5)
    
    Manufacturer of packaging equipment
    
    Revolving Line of Credit(Machinery)
    
    
    
    (10.0%, Due 2/12) (3)
    
    $
    3,700,000
    
    
    
    $3,647,158
    
    
    
    $3,647,158Senior Secured Term Loan A(11.6%, Due 2/12) (3)
    
    
    8,085,938
    
    
    
    7,999,958
    
    
    
    3,572,320Senior Subordinated Debt(22.0%, Due 8/12) (2)
    
    
    7,328,591
    
    
    
    6,747,301
    
    
    
    Subordinated Member Note(8.0%, Due 2/13) (2)
    
    
    151,527
    
    
    
    148,491
    
    
    
    Membership Interest (1,250,000 units) (4)
    
    
    
    
    
    
    1,250,000
    
    
    
    Borga, Inc.
    
    Manufacturer of pre-fabricated metal
    
    Revolving Line of Credit(Mining, Steel, Iron & Nonprecious Metals)
    
    building systems
    
    (4.9%, Due 5/10) (3)
    
    
    800,000
    
    
    
    793,950
    
    
    
    793,950Senior Secured Term Loan A(5.4%, Due 5/09) (3)
    
    
    328,116
    
    
    
    325,903
    
    
    
    325,903Senior Secured Term Loan B(8.4%, Due 5/10) (3)
    
    
    1,635,341
    
    
    
    1,617,095
    
    
    
    1,617,095Senior Secured Term Loan C(16.0%, Due 5/10) (2) (3)
    
    
    8,117,266
    
    
    
    8,074,916
    
    
    
    8,074,916Common Stock Warrants (33,750
warrants) (4)
    
    
    
    
    
    
    14,805
    
    
    
    Caleel + Hayden, LLC (5)
    
    Provider of proprietary branded professional skincare and
    
    Junior Secured Term Loan B(Personal & Nondurable Consumer Products)
    
    cosmetic products to physicians and spa communities
    
    (4.7%, Due 11/11) (3)
    
    
    10,771,562
    
    
    
    10,668,072
    
    
    
    10,668,072Senior Subordinated Debt(14.5%, Due 11/12) (3)
    
    
    6,250,000
    
    
    
    6,190,008
    
    
    
    6,252,608Common Stock (7,500 shares) (4)
    
    
    
    
    
    
    750,000
    
    
    
    862,100CDW Corporation (6)(Electronics)
    
    Direct marketer of computer and peripheral equipment
    
    Senior Secured Term Loan (6.7%, Due 10/14)
    
    
    2,000,000
    
    
    
    1,780,924
    
    
    
    920,000CS Operating, LLC (5)
    
    Provider of maintenance, repair and replacement of
    
    Revolving Line of Credit(Buildings & Real Estate)
    
    HVAC, electrical, plumbing, and foundation repair
    
    (6.8%, Due 1/13) (3)
    
    
    200,000
    
    
    
    194,564
    
    
    
    194,564Senior Secured Term Loan A(6.6%, Due 7/12) (3)
    
    
    1,855,064
    
    
    
    1,832,122
    
    
    
    1,832,122Senior Subordinated Debt(16.5%, Due 1/13) (2) (3)
    
    
    2,616,863
    
    
    
    2,586,496
    
    
    
    2,586,496
 13




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueCopernicus Group
    
    Provider of clinical trial review services
    
    Revolving Line of Credit(Healthcare, Education & Childcare)
    
    
    
    (8.8%, Due 10/13) (3)
    
    
    150,000
    
    
    
    130,753
    
    
    
    130,753Senior Secured Term Loan A(9.0%, Due 10/13) (3)
    
    
    8,043,750
    
    
    
    7,917,470
    
    
    
    7,917,470Senior Subordinated Debt(16.0%, Due 4/14) (3)
    
    
    12,112,000
    
    
    
    11,926,408
    
    
    
    11,926,408Preferred Stock  Series A (1,000,000 shares) (4)
    
    
    
    
    
    
    1,000,000
    
    
    
    1,033,000Copperhead Chemical Company, Inc.
    
    Manufacturer of bulk pharmaceuticals
    
    Senior Subordinated Debt(Chemicals, Plastics & Rubber)
    
    
    
    (21.0%, Due 1/13) (2) (3)
    
    
    3,693,195
    
    
    
    3,664,655
    
    
    
    3,664,655Custom Direct, Inc. (6)(Printing & Publishing)
    
    Direct marketer of checks and other financial products and services
    
    Senior Secured Term Loan(4.2%, Due 12/13) (3)
    
    
    1,847,386
    
    
    
    1,603,118
    
    
    
    1,330,100Junior Secured Term Loan(7.5%, Due 12/14) (3)
    
    
    2,000,000
    
    
    
    2,000,000
    
    
    
    880,000Dover Saddlery, Inc.
(Retail Stores)
    
    Equestrian products catalog retailer
    
    Common Stock (30,974 shares) (4)
    
    
    
    
    
    
    148,200
    
    
    
    41,500Employbridge Holding Company (5) (6)
    
    A provider of specialized staffing
    
    Junior Secured Term Loan(Personal, Food & Miscellaneous Services)
    
    services
    
    (10.4%, Due 10/13) (3)
    
    
    3,000,000
    
    
    
    3,000,000
    
    
    
    1,050,000EXL Acquisition Corp.
    
    Manufacturer of lab testing supplies
    
    Senior Secured Term Loan A(Electronics)
    
    
    
    (6.6%, Due 3/11) (3)
    
    
    3,278,998
    
    
    
    3,258,757
    
    
    
    3,072,159Senior Secured Term Loan B(6.9%, Due 3/12) (3)
    
    
    4,499,911
    
    
    
    4,452,650
    
    
    
    4,196,539Senior Secured Term Loan C(7.4%, Due 3/12) (3)
    
    
    2,775,439
    
    
    
    2,737,602
    
    
    
    2,579,563Senior Secured Term Loan D(15.0%, Due 3/12) (3)
    
    
    6,557,997
    
    
    
    6,501,063
    
    
    
    6,501,063Common Stock  Class A (2,475 shares) (4)
    
    
    
    
    
    
    2,475
    
    
    
    269,000Common Stock  Class B 
(25 shares) (2)
    
    
    
    
    
    
    279,222
    
    
    
    281,900Fairchild Industrial Products, Co.
    
    Manufacturer of industrial controls and
    
    Senior Secured Term Loan A(Electronics)
    
    power transmission products
    
    (5.8%, Due 7/10) (3)
    
    
    1,690,402
    
    
    
    1,678,459
    
    
    
    1,652,157Senior Secured Term Loan B(7.7%, Due 1/11) (3)
    
    
    4,477,500
    
    
    
    4,448,975
    
    
    
    4,379,475Senior Subordinated Debt(14.8%, Due 7/11) (3)
    
    
    5,460,000
    
    
    
    5,418,066
    
    
    
    5,418,066Preferred Stock  Class A (378.4 shares) (2)
    
    
    
    
    
    
    353,573
    
    
    
    353,573Common Stock  Class B 
(27.5 shares) (4)
    
    
    
    
    
    
    121,598
    
    
    
    410,000
 14




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueHudson Products Holdings, Inc. (6)(Mining, Steel, Iron & Nonprecious Metals)
    
    Manufactures and designs air-cooled heat exchanger equipment
    
    Senior Secured Term Loan(8.0%, Due 8/15) (3)
    
    
    7,481,250
    
    
    
    7,265,876
    
    
    
    6,433,900Impact Products, LLC
    
    Distributor of janitorial supplies
    
    Junior Secured Term Loan(Machinery)
    
    
    
    (7.0%, Due 9/12) (3)
    
    
    8,893,750
    
    
    
    8,839,775
    
    
    
    8,418,625Senior Subordinated Debt(15.0%, Due 9/12) (3)
    
    
    5,547,993
    
    
    
    5,517,791
    
    
    
    5,517,791Keltner Enterprises, LLC (5)
    
    Distributor of automotive oils, chemicals
    
    Senior Subordinated Debt(Oil & Gas)
    
    and parts
    
    (14.0%, Due 12/11) (3)
    
    
    3,850,000
    
    
    
    3,840,677
    
    
    
    3,840,677Label Corp Holdings, Inc. (6)(Printing & Publishing)
    
    Manufacturer of prime labels
    
    Senior Secured Term Loan (8.0%, Due 8/14) (3)
    
    
    6,483,750
    
    
    
    6,176,385
    
    
    
    5,592,200L.A. Spas, Inc.(Chemicals, Plastics & Rubber)
    
    Manufacturer of above ground spas
    
    Revolving Line of Credit(8.8%, Due 12/09) (3)
    
    
    1,000,000
    
    
    
    990,794
    
    
    
    990,794Senior Secured Term Loan(8.8%, Due 12/09) (3)
    
    
    4,165,430
    
    
    
    4,092,364
    
    
    
    4,092,364Senior Subordinated Debt(17.5%, Due 1/10) (2) (3)
    
    
    8,011,600
    
    
    
    7,907,534
    
    
    
    599,193Common Stock (250,000 shares) (4)
    
    
    
    
    
    
    100
    
    
    
    Common Stock Warrants (13,828
warrants) (4)
    
    
    
    
    
    
    3,963
    
    
    
    LHC Holdings Corp.
    
    Provider of home healthcare services
    
    Senior Secured Term Loan A(Healthcare, Education & Childcare)
    
    
    
    (4.5%, Due 11/12) (3)
    
    
    4,100,403
    
    
    
    4,057,774
    
    
    
    3,927,171Senior Subordinated Debt(14.5%, Due 5/13) (3)
    
    
    4,565,000
    
    
    
    4,517,936
    
    
    
    4,517,936Membership Interest (125,000 units) (4)
    
    
    
    
    
    
    125,000
    
    
    
    159,500Mac & Massey Holdings, LLC(Grocery)
    
    Broker and distributor of ingredients to manufacturers of food products
    
    Senior Subordinated Debt(16.5%, Due 2/13) (2) (3)
    
    
    7,942,142
    
    
    
    7,913,369
    
    
    
    7,913,369Common Stock (250 shares) (4)
    
    
    
    
    
    
    242,820
    
    
    
    365,200Northwestern Management Services, LLC
    
    Provider of dental services
    
    Senior Secured Term Loan A(Healthcare, Education & Childcare)
    
    
    
    (4.5%, Due 12/12) (3)
    
    
    5,580,000
    
    
    
    5,531,693
    
    
    
    5,531,693Senior Secured Term Loan B(5.0%, Due 12/12) (3)
    
    
    1,237,500
    
    
    
    1,226,436
    
    
    
    1,226,436Junior Secured Term Loan(15.0%, Due 6/13) (2) (3)
    
    
    2,839,310
    
    
    
    2,815,535
    
    
    
    2,815,535Common Stock (500 shares) (4)
    
    
    
    
    
    
    500,000
    
    
    
    315,200
 15




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValuePrince Mineral Company, Inc.(Metals & Minerals)
    
    Manufacturer of pigments
    
    Junior Secured Term Loan(5.5%, Due 12/12) (3)
    
    
    11,275,000
    
    
    
    11,131,129
    
    
    
    10,750,129Senior Subordinated Debt(14.0%, Due 7/13) (2) (3)
    
    
    12,034,071
    
    
    
    11,918,351
    
    
    
    11,703,780Quartermaster, Inc.
    
    Retailer of uniforms and tactical equipment to
    
    Revolving Line of Credit(Retail Stores)
    
    law enforcement and security professionals
    
    (6.7%, Due 12/10) (3)
    
    
    1,750,000
    
    
    
    1,731,275
    
    
    
    1,731,275Senior Secured Term Loan A(6.8%, Due 12/10) (3)
    
    
    3,225,250
    
    
    
    3,197,369
    
    
    
    3,197,369Senior Secured Term Loan B(8.1%, Due 12/10) (3)
    
    
    2,543,750
    
    
    
    2,526,377
    
    
    
    2,526,377Senior Secured Term Loan C(15.0%, Due 12/11) (2) (3)
    
    
    3,399,818
    
    
    
    3,375,763
    
    
    
    3,375,763R-O-M Corporation
    
    Manufacturer of doors, ramps and bulk heads for
    
    Senior Secured Term Loan A(Automobile)
    
    fire trucks and food transportation
    
    (3.4%, Due 2/13) (3)
    
    
    6,640,000
    
    
    
    6,582,627
    
    
    
    6,266,127Senior Secured Term Loan B(4.9%, Due 5/13) (3)
    
    
    8,379,000
    
    
    
    8,290,058
    
    
    
    7,890,766Senior Subordinated Debt(15.0%, Due 8/13) (3)
    
    
    9,100,000
    
    
    
    9,011,070
    
    
    
    9,011,070Total Non-control/non-affiliate investments (represents 74.6% of total investments at fair value)
    
    
    
    
    
    $
    269,577,008
    
    
    $
    240,486,620Total Investments
    
    
    
    
    
    
    
    
    
    $
    365,899,025
    
    
    $
    322,370,748
 
 (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 Amended Securitization Facility. See Note 6 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)
 Note 1. Description of Business
   Note 2. Going Concern
    17




---



##### 



Note 3. Summary of Significant Accounting Policies
 Basis of Presentation
   Recently Issued or Adopted Accounting Pronouncements
     18




---



##### 



Interest, Dividends, Fees, and Other Investment Income
  Federal Income Taxes
   Dividends Paid
   Note 4. Investments
 Statement of Financial Standards No. 157Fair Value Measurements
 March 31, 2009
    
    
    December 31, 2008Cost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair ValueInvestments in debt securities
    
    $
    325,875,542
    
    
    $
    288,486,944
    
    
    $
    344,683,219
    
    
    $
    308,079,975Investments in equity securities
    
    
    21,293,028
    
    
    
    11,025,200
    
    
    
    21,215,806
    
    
    
    14,290,773Total
    
    $
    347,168,570
    
    
    $
    299,512,144
    
    
    $
    365,899,025
    
    
    $
    322,370,748
 19




---



##### 



March 31, 2009
    
    
    December 31, 2008Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)
    
    
    Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)Senior Secured Debt
    
    $
    166,887,662
    
    
    
    48.1
    %
    
    $
    149,468,394
    
    
    
    49.9
    %
    
    $
    171,889,470
    
    
    
    47.0
    %
    
    $
    156,638,667
    
    
    
    48.6
    %Junior Secured Debt
    
    
    63,527,641
    
    
    
    18.3
    
    
    
    51,317,557
    
    
    
    17.1
    
    
    
    64,232,689
    
    
    
    17.5
    
    
    
    58,076,196
    
    
    
    18.0Subordinated Debt
    
    
    95,460,239
    
    
    
    27.5
    
    
    
    87,700,993
    
    
    
    29.3
    
    
    
    108,561,060
    
    
    
    29.7
    
    
    
    93,365,112
    
    
    
    29.0Warrants / Equity
    
    
    21,293,028
    
    
    
    6.1
    
    
    
    11,025,200
    
    
    
    3.7
    
    
    
    21,215,806
    
    
    
    5.8
    
    
    
    14,290,773
    
    
    
    4.4Total
    
    $
    347,168,570
    
    
    
    100.0
    %
    
    $
    299,512,144
    
    
    
    100.0
    %
    
    $
    365,899,025
    
    
    
    100.0
    %
    
    $
    322,370,748
    
    
    
    100.0
    %
 
 (1)
    
    Represents percentage of total portfolio.  March 31, 2009
    
    
    December 31, 2008Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)
    
    
    Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)Machinery
    
    $
    51,375,041
    
    
    
    14.8
    %
    
    $
    38,262,535
    
    
    
    12.8
    %
    
    $
    51,384,711
    
    
    
    14.0
    %
    
    $
    39,527,874
    
    
    
    12.3
    %Health Care, Education &
Childcare
    
    
    39,535,526
    
    
    
    11.4
    
    
    
    39,172,587
    
    
    
    13.1
    
    
    
    39,749,005
    
    
    
    10.9
    
    
    
    39,501,102
    
    
    
    12.2Personal & Nondurable
Consumer Products
    
    
    38,851,765
    
    
    
    11.2
    
    
    
    38,006,465
    
    
    
    12.7
    
    
    
    39,609,196
    
    
    
    10.8
    
    
    
    39,247,796
    
    
    
    12.2Automobile
    
    
    31,323,917
    
    
    
    9.0
    
    
    
    23,669,782
    
    
    
    7.9
    
    
    
    33,276,374
    
    
    
    9.1
    
    
    
    26,487,272
    
    
    
    8.2Electronics
    
    
    30,022,303
    
    
    
    8.7
    
    
    
    29,288,103
    
    
    
    9.8
    
    
    
    31,033,364
    
    
    
    8.5
    
    
    
    30,033,495
    
    
    
    9.3Textiles & Leather
    
    
    29,412,663
    
    
    
    8.5
    
    
    
    28,743,947
    
    
    
    9.6
    
    
    
    29,557,681
    
    
    
    8.1
    
    
    
    29,368,566
    
    
    
    9.1Printing & Publishing
    
    
    26,315,941
    
    
    
    7.6
    
    
    
    12,063,547
    
    
    
    4.0
    
    
    
    26,302,411
    
    
    
    7.2
    
    
    
    18,159,998
    
    
    
    5.6Metals & Minerals
    
    
    23,069,449
    
    
    
    6.7
    
    
    
    22,433,358
    
    
    
    7.5
    
    
    
    23,049,480
    
    
    
    6.3
    
    
    
    22,453,909
    
    
    
    7.0Mining, Steel, Iron &
Nonprecious Metals
    
    
    17,842,926
    
    
    
    5.1
    
    
    
    16,974,609
    
    
    
    5.7
    
    
    
    18,092,545
    
    
    
    4.9
    
    
    
    17,245,764
    
    
    
    5.3Retail Stores
    
    
    11,165,792
    
    
    
    3.2
    
    
    
    11,083,592
    
    
    
    3.7
    
    
    
    10,978,984
    
    
    
    3.0
    
    
    
    10,872,284
    
    
    
    3.4Housewares & Durable Consumer
Products
    
    
    11,136,919
    
    
    
    3.2
    
    
    
    8,478,962
    
    
    
    2.8
    
    
    
    11,005,810
    
    
    
    3.0
    
    
    
    9,333,052
    
    
    
    2.9Ecological
    
    
    9,134,946
    
    
    
    2.6
    
    
    
    8,771,946
    
    
    
    2.9
    
    
    
    8,556,102
    
    
    
    2.3
    
    
    
    8,164,902
    
    
    
    2.5Grocery
    
    
    8,278,129
    
    
    
    2.4
    
    
    
    8,425,513
    
    
    
    2.8
    
    
    
    8,156,189
    
    
    
    2.2
    
    
    
    8,278,569
    
    
    
    2.6Chemicals, Plastic & Rubber
    
    
    5,116,782
    
    
    
    1.5
    
    
    
    5,112,631
    
    
    
    1.7
    
    
    
    16,659,410
    
    
    
    4.6
    
    
    
    9,347,006
    
    
    
    2.9Insurance
    
    
    5,000,000
    
    
    
    1.4
    
    
    
    4,061,400
    
    
    
    1.4
    
    
    
    5,000,000
    
    
    
    1.4
    
    
    
    4,048,200
    
    
    
    1.3Buildings & Real Estate
    
    
    4,552,567
    
    
    
    1.3
    
    
    
    4,552,567
    
    
    
    1.5
    
    
    
    4,613,182
    
    
    
    1.3
    
    
    
    4,613,182
    
    
    
    1.4Personal, Food &
Miscellaneous Services
    
    
    3,000,000
    
    
    
    0.8
    
    
    
    300,000
    
    
    
    0.1
    
    
    
    3,000,000
    
    
    
    0.8
    
    
    
    1,050,000
    
    
    
    0.3Diversified/Conglomerate
Service
    
    
    1,570,736
    
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    1,570,736
    
    
    
    0.4
    
    
    
    623,500
    
    
    
    0.2Aerospace & Defense
    
    
    463,168
    
    
    
    0.1
    
    
    
    110,600
    
    
    
    0.0
    
    
    
    463,168
    
    
    
    0.1
    
    
    
    173,600
    
    
    
    0.1Oil & Gas
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,840,677
    
    
    
    1.1
    
    
    
    3,840,677
    
    
    
    1.2Total
    
    $
    347,168,570
    
    
    
    100.0
    %
    
    $
    299,512,144
    
    
    
    100.0
    %
    
    $
    365,899,025
    
    
    
    100.0
    %
    
    $
    322,370,748
    
    
    
    100.0
    %
 
 (1)
    
    Represents percentage of total portfolio.  20




---



##### 



Note 5. Fair Value Measurements
       As of March 31, 2009Internal 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 SheetInvestmentsNon-affiliate investments
    
    $
    176,600
    
    
    $
    19,834,000
    
    
    $
    200,397,809
    
    
    $
    220,408,409Affiliate investments
    
    
    
    
    
    
    
    
    
    
    49,806,458
    
    
    
    49,806,458Control investments
    
    
    
    
    
    
    
    
    
    
    29,297,277
    
    
    
    29,297,277Total investments at fair value
    
    $
    176,600
    
    
    $
    19,834,000
    
    
    $
    279,501,544
    
    
    $
    299,512,144LiabilitiesInterest
rate swaps
    
    $
    
    
    
    $
    (2,914,535
    )
    
    $
    
    
    
    $
    (2,914,535
    )Total
liabilities at fair value
    
    $
    
    
    
    $
    (2,914,535
    )
    
    $
    
    
    
    $
    (2,914,535
    )
  Fair value measurements using unobservable inputs (Level 3)Non-affiliate
    
    Affiliate
    
    ControlInvestments
    
    Investments
    
    Investments
    
    TotalFair Value December 31, 2008
    
    $
    220,017,120
    
    
    $
    51,457,082
    
    
    $
    30,427,046
    
    
    $
    301,901,248Total realized losses
    
    
    
    
    
    
    
    
    
    
    (11,600,764
    )
    
    
    (11,600,764
    )Change in unrealized depreciation
    
    
    465,285
    
    
    
    (1,511,300
    )
    
    
    (2,654,672
    )
    
    
    (3,700,687
    )(a)Purchases, issuances, settlements, and other, net
    
    
    (7,182,767
    )
    
    
    (139,324
    )
    
    
    223,838
    
    
    
    (7,098,253
    )Transfers within Level 3
    
    
    (12,901,829
    )
    
    
    
    
    
    
    12,901,829
    
    
    
    Transfers in (out) of Level 3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fair Value as of March 31, 2009
    
    $
    200,397,809
    
    
    $
    49,806,458
    
    
    $
    29,297,277
    
    
    $
    279,501,544
 
 (a)
    
    Relates to assets held at March 31, 2009  21




---



##### 



Note 6. Borrowings
    22




---



##### 



Three Months Ended March 31,2009
    
    
    2008Interest charges
    
    $
    1,399,221
    
    
    $
    1,986,376Amortization of debt issuance costs
    
    
    131,728
    
    
    
    58,904Unused facility fees
    
    
    55,488
    
    
    
    14,243Total
    
    $
    1,586,437
    
    
    $
    2,059,523
 Note 7. Stock Option Plan and Restricted Stock Plan
    23




---



##### 



Note 8. Share Data and Common Stock
  Three Months Ended March 31,2009
    
    2008Weighted average common shares outstanding, basic
    
    
    20,929,973
    
    
    
    20,650,455Effect of dilutive restricted stock awards and options
    
    
    
    
    
    
    Weighted average common shares outstanding, diluted
    
    
    20,929,973
    
    
    
    20,650,455
   Date Declared
    
    Record Date
    
    Payment Date
    
    AmountOctober 30, 2008
    
    December 22, 2008
    
    January 15, 2009
    
    $0.25July 30, 2008
    
    September 12, 2008
    
    October 15, 2008
    
    $0.33May 2, 2008
    
    June 5, 2008
    
    July 16, 2008
    
    $0.33February 27, 2008
    
    March 14, 2008
    
    April 16, 2008
    
    $0.33
 Note 9. Commitments and Contingencies
    24




---



##### 



Note 10. Concentrations of Credit Risk
   Note 11. Income Taxes
   January 1, 2009toMarch 31, 2009GAAP net investment income
    
    $
    5,118,000Tax timing differences of:Origination fees, net
    
    
    (296,000
    )Permanent impairment on loans
    
    
    (11,826,000
    )Stock compensation expense, original issue discount
and depreciation and amortization
    
    
    780,000Tax loss
    
    $
    (6,224,000
    )
     Note 12. Hedging Activities
  25




---



##### 



Three months endedMarch 31, 2009As of March 31, 2009
    
    
    UnrealizedDate
    
    Date
    
    
    Interest
    
    
    
    
    
    
    
    
    
    
    Fair
    
    
    AppreciationEntered
    
    Expiring
    
    
    Rate
    
    
    Notional
    
    
    Cost
    
    
    Value
    
    
    (Depreciation)03/06
    
    
    01/11
    
    
    
    5.04
    %
    
    $
    10,334,395
    
    
    $
    
    
    
    $
    (466,622
    )
    
    $
    89,14912/06
    
    
    02/12
    
    
    
    4.84
    %
    
    
    3,300,177
    
    
    
    
    
    
    
    (338,177
    )
    
    
    10,88208/07
    
    
    04/12
    
    
    
    5.17
    %
    
    
    3,962,202
    
    
    
    
    
    
    
    (468,185
    )
    
    
    16,35809/07
    
    
    04/12
    
    
    
    4.98
    %
    
    
    3,826,627
    
    
    
    
    
    
    
    (419,102
    )
    
    
    14,79212/07
    
    
    01/11
    
    
    
    4.28
    %
    
    
    736,120
    
    
    
    
    
    
    
    (52,092
    )
    
    
    3,18304/08
    
    
    12/12
    
    
    
    3.51
    %
    
    
    9,323,080
    
    
    
    
    
    
    
    (606,248
    )
    
    
    (1,080
    )05/08
    
    
    09/10
    
    
    
    3.32
    %
    
    
    1,119,757
    
    
    
    
    
    
    
    (19,067
    )
    
    
    7,76610/08
    
    
    10/12
    
    
    
    3.54
    %
    
    
    12,931,823
    
    
    
    
    
    
    
    (545,042
    )
    
    
    41,799Total
    
    
    
    
    
    
    
    
    
    $
    45,534,181
    
    
    $
    
    
    
    $
    (2,914,535
    )
    
    $
    182,849
 Note 13. Financial Highlights
 For the Three Months EndedMarch 31,2009
    
    
    2008Per Share Data:Net asset value at beginning of period
    
    $
    8.65
    
    
    $
    10.73Net investment income
    
    
    .24
    
    
    
    .33Net change in unrealized appreciation (depreciation)
on investments
    
    
    (.20
    )
    
    
    (.48
    )Realized loss
    
    
    (.55
    )
    
    
    Effect of issuance of common stock
    
    
    (.03
    )
    
    
    Distributions from net investment income
    
    
    
    
    
    
    (.33
    )Distributions in excess of net investment income
    
    
    
    
    
    
    Net change in unrealized swap depreciation
    
    
    .01
    
    
    
    (.04
    )Stock based compensation expense
    
    
    .01
    
    
    
    .01Net asset value at end of period
    
    $
    8.13
    
    
    $
    10.22Total net asset value return (1)
    
    
    (6.0
    )%
    
    
    (1.7
    )%Per share market value, beginning of period
    
    $
    3.64
    
    
    $
    10.09Per share market value, end of period
    
    $
    1.83
    
    
    $
    10.47Total market value return (2)
    
    
    (49.7
    )%
    
    
    7.0
    %Shares outstanding at end of period
    
    
    20,950,501
    
    
    
    20,650,455Ratios and Supplemental Data:Net assets at end of period
    
    $
    170,225,000
    
    
    $
    211,057,000Average net assets
    
    
    178,894,000
    
    
    
    218,247,000Ratio of operating expenses to average
net assets (annualized)
    
    
    7.6
    %
    
    
    8.2
    %Ratio of net investment income (loss) to
average net assets (annualized)
    
    
    11.4
    %
    
    
    12.4
    %Average borrowings outstanding
    
    $
    151,156,000
    
    
    $
    152,702,000Average amount of borrowings per
share
    
    $
    7.21
    
    
    $
    7.39
 
 (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. 26




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   
    
    Our ability to negotiate an arrangement with the lenders of our Amended
Securitization Facility for repayment terms that do not require us to use all
principal and interest collected from the debt investments secured by the
facility to pay down amounts outstanding thereunder;
    
    Our ability to maintain our status as a RIC under the Code;
    
    Our future operating results;
    
    Our business prospects and the prospects of our portfolio companies;
    
    The ability of our portfolio companies to achieve their objectives;
    
    Our expected financings and investments;
    
    Future changes in laws or regulations (including the interpretation of these
laws and regulations by regulatory authorities) and conditions in our operating
areas, particularly with respect to business development companies and RICs;
    
    The adequacy of our cash resources and working capital; and
    
    The timing of cash flows, if any, from the operations of our portfolio companies.
   Overview
   27




---



##### 



Portfolio Composition
   March 31, 2009
    
    
    December 31, 2008Beginning portfolio at fair value
    
    $
    322,370,748
    
    
    $
    384,725,753Investments in debt securities
    
    
    4,075,000
    
    
    
    79,096,786Investments in equity securities
    
    
    88
    
    
    
    3,245,937Investment repayments
    
    
    (12,506,029
    )
    
    
    (95,018,988
    )Increase in payment-in-kind interest/dividends
    
    
    1,087,159
    
    
    
    5,452,124Sale of investments
    
    
    
    
    
    
    (15,267,401
    )Change in unearned revenue
    
    
    242,383
    
    
    
    (129,458
    )Realized loss on investments
    
    
    (11,600,764
    )
    
    
    Decrease in fair value of investments
    
    
    (4,156,441
    )
    
    
    (39,992,921
    )Ending portfolio at fair value
    
    $
    299,512,144
    
    
    $
    322,370,748
 28




---



##### 



March 31, 2009
    
    
    December 31, 2008Investments at
    
    
    Percentage of
    
    
    Investments at
    
    
    Percentage ofFair Value
    
    
    Total Portfolio
    
    
    Fair Value
    
    
    Total PortfolioSenior secured revolving lines of credit
    
    $
    12,084,459
    
    
    
    4.0
    %
    
    $
    10,266,191
    
    
    
    3.2
    %Senior secured term loans
    
    
    137,383,935
    
    
    
    45.9
    
    
    
    146,372,476
    
    
    
    45.4Junior secured term loans
    
    
    51,317,557
    
    
    
    17.1
    
    
    
    58,076,196
    
    
    
    18.0Senior subordinated debt
    
    
    87,700,993
    
    
    
    29.3
    
    
    
    93,365,112
    
    
    
    29.0Investments in equity securities
    
    
    11,025,200
    
    
    
    3.7
    
    
    
    14,290,773
    
    
    
    4.4Totals
    
    $
    299,512,144
    
    
    
    100.0
    %
    
    $
    322,370,748
    
    
    
    100.0
    %
    March 31, 2009
    
    
    December 31, 2008Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)
    
    
    Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)Machinery
    
    $
    51,375,041
    
    
    
    14.8
    %
    
    $
    38,262,535
    
    
    
    12.8
    %
    
    $
    51,384,711
    
    
    
    14.0
    %
    
    $
    39,527,874
    
    
    
    12.3
    %Health Care, Education &
Childcare
    
    
    39,535,526
    
    
    
    11.4
    
    
    
    39,172,587
    
    
    
    13.1
    
    
    
    39,749,005
    
    
    
    10.9
    
    
    
    39,501,102
    
    
    
    12.2Personal & Nondurable
Consumer Products
    
    
    38,851,765
    
    
    
    11.2
    
    
    
    38,006,465
    
    
    
    12.7
    
    
    
    39,609,196
    
    
    
    10.8
    
    
    
    39,247,796
    
    
    
    12.2Automobile
    
    
    31,323,917
    
    
    
    9.0
    
    
    
    23,669,782
    
    
    
    7.9
    
    
    
    33,276,374
    
    
    
    9.1
    
    
    
    26,487,272
    
    
    
    8.2Electronics
    
    
    30,022,303
    
    
    
    8.7
    
    
    
    29,288,103
    
    
    
    9.8
    
    
    
    31,033,364
    
    
    
    8.5
    
    
    
    30,033,495
    
    
    
    9.3Textiles & Leather
    
    
    29,412,663
    
    
    
    8.5
    
    
    
    28,743,947
    
    
    
    9.6
    
    
    
    29,557,681
    
    
    
    8.1
    
    
    
    29,368,566
    
    
    
    9.1Printing & Publishing
    
    
    26,315,941
    
    
    
    7.6
    
    
    
    12,063,547
    
    
    
    4.0
    
    
    
    26,302,411
    
    
    
    7.2
    
    
    
    18,159,998
    
    
    
    5.6Metals & Minerals
    
    
    23,069,449
    
    
    
    6.7
    
    
    
    22,433,358
    
    
    
    7.5
    
    
    
    23,049,480
    
    
    
    6.3
    
    
    
    22,453,909
    
    
    
    7.0Mining, Steel, Iron &
Nonprecious Metals
    
    
    17,842,926
    
    
    
    5.1
    
    
    
    16,974,609
    
    
    
    5.7
    
    
    
    18,092,545
    
    
    
    4.9
    
    
    
    17,245,764
    
    
    
    5.3Retail Stores
    
    
    11,165,792
    
    
    
    3.2
    
    
    
    11,083,592
    
    
    
    3.7
    
    
    
    10,978,984
    
    
    
    3.0
    
    
    
    10,872,284
    
    
    
    3.4Housewares & Durable
Consumer Products
    
    
    11,136,919
    
    
    
    3.2
    
    
    
    8,478,962
    
    
    
    2.8
    
    
    
    11,005,810
    
    
    
    3.0
    
    
    
    9,333,052
    
    
    
    2.9Ecological
    
    
    9,134,946
    
    
    
    2.6
    
    
    
    8,771,946
    
    
    
    2.9
    
    
    
    8,556,102
    
    
    
    2.3
    
    
    
    8,164,902
    
    
    
    2.5Grocery
    
    
    8,278,129
    
    
    
    2.4
    
    
    
    8,425,513
    
    
    
    2.8
    
    
    
    8,156,189
    
    
    
    2.2
    
    
    
    8,278,569
    
    
    
    2.6Chemicals, Plastic & Rubber
    
    
    5,116,782
    
    
    
    1.5
    
    
    
    5,112,631
    
    
    
    1.7
    
    
    
    16,659,410
    
    
    
    4.6
    
    
    
    9,347,006
    
    
    
    2.9Insurance
    
    
    5,000,000
    
    
    
    1.4
    
    
    
    4,061,400
    
    
    
    1.4
    
    
    
    5,000,000
    
    
    
    1.4
    
    
    
    4,048,200
    
    
    
    1.3Buildings & Real Estate
    
    
    4,552,567
    
    
    
    1.3
    
    
    
    4,552,567
    
    
    
    1.5
    
    
    
    4,613,182
    
    
    
    1.3
    
    
    
    4,613,182
    
    
    
    1.4Personal, Food &
Miscellaneous Services
    
    
    3,000,000
    
    
    
    0.8
    
    
    
    300,000
    
    
    
    0.1
    
    
    
    3,000,000
    
    
    
    0.8
    
    
    
    1,050,000
    
    
    
    0.3Diversified/Conglomerate
Service
    
    
    1,570,736
    
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    1,570,736
    
    
    
    0.4
    
    
    
    623,500
    
    
    
    0.2Aerospace & Defense
    
    
    463,168
    
    
    
    0.1
    
    
    
    110,600
    
    
    
    0.0
    
    
    
    463,168
    
    
    
    0.1
    
    
    
    173,600
    
    
    
    0.1Oil & Gas
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,840,677
    
    
    
    1.1
    
    
    
    3,840,677
    
    
    
    1.2Total
    
    $
    347,168,570
    
    
    
    100.0
    %
    
    $
    299,512,144
    
    
    
    100.0
    %
    
    $
    365,899,025
    
    
    
    100.0
    %
    
    $
    322,370,748
    
    
    
    100.0
    %
 
 (1)
    
    Represents percentage of total portfolio. 29




---



##### 



Portfolio Asset Quality
   March 31, 2009
    
    
    December 31, 2008Investments at
    
    
    Percentage of
    
    
    Investments at
    
    
    Percentage ofInvestment Rating
    
    Fair Value
    
    
    Total Portfolio
    
    
    Fair Value
    
    
    Total Portfolio1
    
    $
    97,349,622
    
    
    
    33.7
    %
    
    $
    82,179,735
    
    
    
    26.7
    %2
    
    
    145,022,413
    
    
    
    50.3
    
    
    
    184,507,897
    
    
    
    59.93
    
    
    31,239,645
    
    
    
    10.8
    
    
    
    21,275,475
    
    
    
    6.94
    
    
    9,413,394
    
    
    
    3.3
    
    
    
    8,477,320
    
    
    
    2.75
    
    
    5,461,870
    
    
    
    1.9
    
    
    
    11,639,548
    
    
    
    3.8Totals
    
    $
    288,486,944
    
    
    
    100.0
    %
    
    $
    308,079,975
    
    
    
    100.0
    %
   Results of Operations
  Comparison for the three months ended March 31, 2009 and 2008
 Total Investment Income
  30




---



##### 



Expenses
   Realized Gain (Loss) on Sale of Investments
  Net Change in Unrealized Appreciation or Depreciation on Investments
  31




---



##### 



Net Unrealized Depreciation on Interest Rate Swaps
  Net Loss
  Financial Condition, Liquidity and Capital Resources
 Cash, Cash Equivalents and Restricted Cash
   Liquidity and Capital Resources
   
    
    curtailing our investment originations;
    
    reducing our operating expenses;
    
    obtaining stockholder approval at our 2008 annual meeting of stockholders to sell shares
of our common stock below the then current net asset value per share in one or more
offerings for a period of one year ending on June 17, 2009; and
    
    delaying the payment of our 2009 dividends to our stockholders.
 32




---



##### 



Borrowings
 Securitization Revolving Credit Facility.
   33




---



##### 



Regulated Investment Company Status and Dividends
     34




---



##### 



Critical Accounting Policies
  Going Concern
  Valuation of Portfolio Investments
     35




---



##### 



Fee Income Recognition
  Payment-in-Kind or PIK Interest and Dividends
   Three Months EndedMarch 31, 2009Beginning PIK balance
    
    $
    6,605,194PIK interest and dividends earned during the period
    
    
    1,087,159PIK write-off (1)
    
    
    (1,110,041
    )PIK receipts during the period
    
    
    (214,045
    )Ending PIK balance
    
    $
    6,368,267
 
 (1)
    
    Write-off is the result of  the permanent impairment  of
loans to one of our portfolio companies. Interest and Dividend Income Recognition
   Off-Balance Sheet Arrangements
  36




---



##### 



Contractual Obligations
   37




---



##### 



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 March 31, 2009 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
 38




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  An event of termination occurred under our Amended Securitization Facility which allows our lenders
to accelerate repayment of the outstanding obligations under the facility and exercise other rights
and remedies provided by the Amended Securitization Facility, including the right to sell the
collateral under the Amended Securitization Facility.
   
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  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. Buckanavage

Richard P. BuckanavageChief Executive Officer and PresidentBy:
    
    /s/ William E. Alvarez, Jr.

William E. Alvarez, Jr.Executive Vice President, ChiefFinancial Officer and Secretary
 41