##### 



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 September 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
    
    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 þ o
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##### 



PATRIOT CAPITAL FUNDING, INC.
 FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2007
 TABLE OF CONTENTS
 PART I FINANCIAL INFORMATION
    
    
    1Item 1.
    
    Financial Statements (Unaudited)
    
    
    1Consolidated Balance Sheets at September 30, 2007 and December 31, 2006
    
    
    1Consolidated Statements of Operations for the three and nine months ended September 30, 2007 and 2006
    
    
    2Consolidated Statement of Changes in Net Assets for the nine months ended September 30, 2007 and 2006
    
    
    3Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and 2006
    
    
    4Consolidated Schedule of Investments as of September 30, 2007
    
    
    5Consolidated Schedule of Investments as of December 31, 2006
    
    
    10Notes to Consolidated Financial Statements
    
    
    15Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4.
    
    Controls and Procedures
    
    
    34PART II OTHER INFORMATION
    
    
    35Item 1.
    
    Legal Proceedings
    
    
    35Item 1A.
    
    Risk Factors
    
    
    35Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    35Item 3.
    
    Defaults upon Senior Securities
    
    
    35Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    35Item 5.
    
    Other Information
    
    
    35Item 6.
    
    Exhibits
    
    
    35Signatures
    
    
    36




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##### 



PART I. FINANCIAL INFORMATION
 Item 1. Financial Statements
 Patriot Capital Funding, Inc.
Consolidated Balance Sheets
(unaudited)
 September 30,
    
    December 31,2007
    
    2006ASSETSInvestments at fair value:Non-control/non-affiliate
investments (cost of $269,236,373  2007,
$251,915,921  2006)
    
    $
    267,629,926
    
    
    $
    251,933,655Affiliate investments (cost of $54,039,418  2007,
$8,966,605  2006)
    
    
    52,921,318
    
    
    
    8,925,605Control investments (cost of $6,979,014  2007)
    
    
    8,673,214
    
    
    
    Unearned income
    
    
    (3,802,860
    )
    
    
    (3,610,884
    )Total investments
    
    
    325,421,598
    
    
    
    257,248,376Cash and cash equivalents
    
    
    3,374,100
    
    
    
    4,211,643Restricted cash
    
    
    5,254,649
    
    
    
    5,113,806Interest receivable
    
    
    2,368,155
    
    
    
    2,221,000Other assets
    
    
    1,449,124
    
    
    
    1,727,680TOTAL ASSETS
    
    $
    337,867,626
    
    
    $
    270,522,505LIABILITIES AND STOCKHOLDERS EQUITY
LIABILITIESBorrowings
    
    $
    133,300,000
    
    
    $
    98,380,000Interest payable
    
    
    772,833
    
    
    
    523,709Distributions payable
    
    
    5,853,434
    
    
    
    4,904,818Accounts payable, accrued expenses and other
    
    
    2,711,519
    
    
    
    2,605,349TOTAL LIABILITIES
    
    
    142,637,786
    
    
    
    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;
18,291,982 and 15,821,994 shares issued and outstanding
at September 30, 2007, and December 31, 2006, respectively
    
    
    182,920
    
    
    
    158,220Paid-in capital
    
    
    205,181,942
    
    
    
    171,957,327Accumulated net investment loss
    
    
    (1,912,061
    )
    
    
    (1,912,061
    )Distributions in excess of net investment income
    
    
    (3,774,674
    )
    
    
    (2,821,587
    )Net realized loss on investments
    
    
    (3,171,365
    )
    
    
    (3,262,966
    )Net unrealized appreciation (depreciation) on interest rate swaps
    
    
    (246,575
    )
    
    
    12,961Net unrealized depreciation on investments
    
    
    (1,030,347
    )
    
    
    (23,265
    )TOTAL STOCKHOLDERS EQUITY
    
    
    195,229,840
    
    
    
    164,108,629TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    337,867,626
    
    
    $
    270,522,505NET ASSET VALUE PER COMMON SHARE
    
    $
    10.67
    
    
    $
    10.37
  1




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##### 



Patriot Capital Funding, Inc.
Consolidated Statements of Operations
(unaudited)
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006INVESTMENT INCOMEInterest and dividends:Non-control/non-affiliate investments (less than 5% owned)
    
    $
    8,049,366
    
    
    $
    6,593,670
    
    
    $
    23,163,971
    
    
    $
    17,785,473Affiliate investments (5% to 25% owned)
    
    
    1,329,525
    
    
    
    88,730
    
    
    
    3,047,798
    
    
    
    88,730Control investments (greater than 25% owned)
    
    
    176,361
    
    
    
    
    
    
    
    292,202
    
    
    
    Total interest and dividend income
    
    
    9,555,252
    
    
    
    6,682,400
    
    
    
    26,503,971
    
    
    
    17,874,203Fees:Non-control/non-affiliate investments (less than 5% owned)
    
    
    161,325
    
    
    
    59,956
    
    
    
    731,050
    
    
    
    185,857Affiliate investments (5% to 25% owned)
    
    
    19,054
    
    
    
    2,277
    
    
    
    49,944
    
    
    
    2,277Control investments (greater than 25% owned)
    
    
    6,250
    
    
    
    
    
    
    
    99,763
    
    
    
    Total fee income
    
    
    186,629
    
    
    
    62,233
    
    
    
    880,757
    
    
    
    188,134Other investment income  non-control/non-affiliate investments
(less than 5% owned)
    
    
    11,001
    
    
    
    135,000
    
    
    
    435,130
    
    
    
    848,449Total Investment Income
    
    
    9,752,882
    
    
    
    6,879,633
    
    
    
    27,819,858
    
    
    
    18,910,786EXPENSESCompensation expense
    
    
    1,332,087
    
    
    
    944,918
    
    
    
    3,883,585
    
    
    
    2,662,083Interest expense
    
    
    2,067,467
    
    
    
    994,883
    
    
    
    5,216,188
    
    
    
    2,918,271Professional fees
    
    
    250,706
    
    
    
    268,873
    
    
    
    664,377
    
    
    
    778,157General and administrative expense
    
    
    601,637
    
    
    
    574,504
    
    
    
    1,817,737
    
    
    
    1,651,570Total Expenses
    
    
    4,251,897
    
    
    
    2,783,178
    
    
    
    11,581,887
    
    
    
    8,010,081Net Investment Income
    
    
    5,500,985
    
    
    
    4,096,455
    
    
    
    16,237,971
    
    
    
    10,900,705NET REALIZED GAIN (LOSS) AND NET UNREALIZED
APPRECIATION (DEPRECIATION)Net realized gain (loss) on investments  non-control/non-affiliate
investments (less than 5% owned)
    
    
    7,500
    
    
    
    
    
    
    
    91,601
    
    
    
    (3,271,091
    )Net unrealized appreciation (depreciation) on
investments 
non-control/non-affiliate investments (less than 5% owned)
    
    
    (1,259,232
    )
    
    
    (347,487
    )
    
    
    (1,624,182
    )
    
    
    3,459,481Net unrealized depreciation on
investments  affiliate
investments (5%
 to 25% owned)
    
    
    (1,317,300
    )
    
    
    3,300
    
    
    
    (1,077,100
    )
    
    
    3,300Net unrealized appreciation on
investments  control
investments (greater than 25% owned)
    
    
    1,456,600
    
    
    
    
    
    
    
    1,694,200
    
    
    
    Net unrealized depreciation on interest rate swaps
    
    
    (381,680
    )
    
    
    (225,093
    )
    
    
    (259,536
    )
    
    
    (26,209
    )Net Realized Gain (Loss) and Net Unrealized Appreciation
(Depreciation)
    
    
    (1,494,112
    )
    
    
    (569,280
    )
    
    
    (1,175,017
    )
    
    
    165,481NET INCOME
    
    $
    4,006,873
    
    
    $
    3,527,175
    
    
    $
    15,062,954
    
    
    $
    11,066,186Earnings per share, basic
    
    $
    0.22
    
    
    $
    0.22
    
    
    $
    0.84
    
    
    $
    0.81Earnings per share, diluted
    
    $
    0.22
    
    
    $
    0.22
    
    
    $
    0.83
    
    
    $
    0.81Weighted average shares outstanding, basic
    
    
    18,284,737
    
    
    
    15,781,525
    
    
    
    18,024,294
    
    
    
    13,582,320Weighted average shares outstanding, diluted
    
    
    18,476,049
    
    
    
    15,836,416
    
    
    
    18,215,606
    
    
    
    13,637,211
  2




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##### 



Patriot Capital Funding, Inc.
Consolidated Statements of Changes in Net Assets
(unaudited)
 Nine Months EndedSeptember 30,2007
    
    2006Operations:Net investment income
    
    $
    16,237,971
    
    
    $
    10,900,705Net realized gain (loss) on investments
    
    
    91,601
    
    
    
    (3,271,091
    )Net unrealized appreciation (depreciation) on investments
    
    
    (1,007,082
    )
    
    
    3,462,781Net unrealized depreciation on interest rate swaps
    
    
    (259,536
    )
    
    
    (26,209
    )Net increase in assets from operations
    
    
    15,062,954
    
    
    
    11,066,186Stockholder transactions:Distributions to stockholders from net investment income
    
    
    (16,237,971
    )
    
    
    (10,900,705
    )Tax return of capital
    
    
    (334,790
    )
    
    
    (2,485,345
    )Distributions in excess of net investment income
    
    
    (953,087
    )
    
    
    1,446,589Net decrease in assets from stockholder transactions
    
    
    (17,525,848
    )
    
    
    (11,939,461
    )Capital share transactions:Issuance of common stock
    
    
    31,628,414
    
    
    
    36,652,098Issuance of common stock under dividend reinvestment plan
    
    
    1,452,525
    
    
    
    571,509Stock option compensation
    
    
    503,166
    
    
    
    352,030Net increase in assets from capital share transactions
    
    
    33,584,105
    
    
    
    37,575,637Total increase in net assets
    
    
    31,121,211
    
    
    
    36,702,362Net assets at beginning of period
    
    
    164,108,629
    
    
    
    127,152,365Net assets at end of period
    
    $
    195,229,840
    
    
    $
    163,854,727Net asset value per common share
    
    $
    10.67
    
    
    $
    10.38Common shares outstanding at end of period
    
    
    18,291,982
    
    
    
    15,786,769
  3




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##### 



Patriot Capital Funding, Inc.
Consolidated Statements of Cash Flows
(unaudited)
 Nine Months EndedSeptember 30,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    15,062,954
    
    
    $
    11,066,186Adjustments to reconcile net income to net cash
provided by (used for) operating activities:Depreciation and amortization
    
    
    314,592
    
    
    
    349,026Change in interest receivable
    
    
    (147,155
    )
    
    
    (506,848
    )Net realized (gain) loss on sale of investment
    
    
    (91,601
    )
    
    
    3,271,091Net unrealized depreciation (appreciation) of investments
    
    
    1,007,082
    
    
    
    (3,462,781
    )Unrealized depreciation on interest rate swaps
    
    
    259,536
    
    
    
    26,209Payment-in-kind interest and dividends
    
    
    (2,819,283
    )
    
    
    (1,767,272
    )Stock-based compensation expense
    
    
    503,166
    
    
    
    352,030Change in unearned income
    
    
    191,976
    
    
    
    32,734Change in interest payable
    
    
    249,124
    
    
    
    289,503Change in other assets
    
    
    (9,241
    )
    
    
    (125,027
    )Change in accounts payable, accrued expenses and other
    
    
    106,170
    
    
    
    641,579Net cash provided by operating activities
    
    
    14,627,320
    
    
    
    10,166,430CASH FLOWS FROM INVESTING ACTIVITIES:Funded investments
    
    
    (126,931,250
    )
    
    
    (108,551,595
    )Principal repayments on investments
    
    
    55,003,504
    
    
    
    30,918,221Proceeds from sale of investments
    
    
    5,466,351
    
    
    
    3,634,509Purchase of furniture and equipment
    
    
    (18,775
    )
    
    
    (265,365
    )Net cash used for investing activities
    
    
    (66,480,170
    )
    
    
    (74,264,230
    )CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings
    
    
    123,277,000
    
    
    
    270,685,000Repayments on borrowings
    
    
    (88,357,000
    )
    
    
    (234,450,000
    )Net proceeds from sale of common stock
    
    
    31,628,412
    
    
    
    36,652,098Distributions paid
    
    
    (15,124,707
    )
    
    
    (6,474,053
    )Deferred offering costs
    
    
    (145,055
    )
    
    
    (3,500
    )Deferred financing costs
    
    
    (122,500
    )
    
    
    (73,598
    )Change in restricted cash
    
    
    (140,843
    )
    
    
    2,504,461Net cash provided by financing activities
    
    
    51,015,307
    
    
    
    68,840,408NET DECREASE IN CASH AND CASH
EQUIVALENTS
    
    
    (837,543
    )
    
    
    4,742,608CASH AND CASH EQUIVALENTS AT:Beginning of Period
    
    
    4,211,643
    
    
    
    2,371,841End of Period
    
    $
    3,374,100
    
    
    $
    7,114,449Supplemental information:Interest paid
    
    $
    4,967,064
    
    
    $
    2,628,769Non-cash financing activities:Distributions reinvested in common stock
    
    $
    1,452,525
    
    
    $
    571,509Distributions declared but not paid
    
    
    5,853,434
    
    
    
    4,893,898
  4




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##### 



Patriot Capital Funding, Inc.
Consolidated Schedule of Investments
September 30, 2007
(unaudited)
 Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueControl investments (greater than 25% owned):Fischbein, LLC  
(Machinery)
    
    Designer and manufacturer of packaging
equipment
    
    Senior Subordinated Debt
(16.5%, Due 5/13) (2) (3)
    
    
    4,179,014
    
    
    
    4,179,014
    
    
    
    4,179,014Membership Interest - Class
A (4)
    
    
    
    
    
    
    2,800,000
    
    
    
    4,494,200Total Control investments (represents 2.6% of total investments at fair value)
    
    
    
    
    
    
    6,979,014
    
    
    
    8,673,214Affiliate investments (5% to 25% owned):Aylward Enterprises LLC  (5)
  (Machinery)
    
    Manufacturer of packaging equipment
    
    Revolving Line of Credit
(8.9%, Due 2/12) (3)
    
    $
    3,300,000
    
    
    $
    3,300,000
    
    
    $
    3,300,000Senior Secured Term Loan A
(9.6%, Due 2/12) (3)
    
    
    8,864,063
    
    
    
    8,864,063
    
    
    
    8,864,063Senior Subordinated Debt
(14.5%, Due 8/12) (2)
    
    
    6,376,348
    
    
    
    6,376,348
    
    
    
    6,376,348Membership Interest (4)
    
    
    
    
    
    
    1,250,000
    
    
    
    70,300KTPS Holdings, LLC
  (Textiles & Leather)
    
    Manufacturer and distributor of
specialty pet products
    
    Revolving Line of Credit
(9.3%, Due 1/12) (3)
    
    
    1,500,000
    
    
    
    1,500,000
    
    
    
    1,500,000Senior Secured Term Loan A
(8.6%, Due 1/12) (3)
    
    
    6,337,500
    
    
    
    6,337,500
    
    
    
    6,337,500Senior Secured Term Loan B
(12.0%, Due 1/12) (3)
    
    
    1,995,000
    
    
    
    1,995,000
    
    
    
    1,995,000Senior Subordinated Debt
(15.0%, Due 3/12) (2) (3)
    
    
    4,051,157
    
    
    
    4,051,157
    
    
    
    4,051,157Membership Interest - Class
A (4)
    
    
    
    
    
    
    730,020
    
    
    
    643,100Membership Interest - Common(4)
    
    
    
    
    
    
    19,980
    
    
    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
(9.3%, Due 9/12)
    
    
    650,000
    
    
    
    650,000
    
    
    
    650,000Senior Secured Term Loan A
(9.4%, Due 9/12)
    
    
    5,750,000
    
    
    
    5,750,000
    
    
    
    5,750,000Senior Subordinated Debt
(14.0%, Due 3/13) (2)
    
    
    3,004,500
    
    
    
    3,004,500
    
    
    
    3,004,500Preferred Stock (4)
    
    
    
    
    
    
    479,060
    
    
    
    479,060Common Stock (4)
    
    
    
    
    
    
    25,000
    
    
    
    13,100
 5




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##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueSmart, LLC (5)
  (Diversified/Conglomerate 
  Service)
    
    Provider of tuition management services
    
    Revolving Line of Credit
(10.3%, Due 8/11) (3)
    
    
    870,000
    
    
    
    870,000
    
    
    
    870,000Senior Secured Term Loan A
(10.5%, Due 6/11) (3)
    
    
    4,200,000
    
    
    
    4,200,000
    
    
    
    4,200,000Senior Secured Term Loan B
(16.5%, Due 2/12) (2) (3)
    
    
    3,636,790
    
    
    
    3,636,790
    
    
    
    3,636,790Membership Interest - Class B  (4)
    
    
    
    
    
    
    1,000,000
    
    
    
    1,180,400Total Affiliate investments (represents 16.1% of total investments at fair value)
    
    
    
    
    
    $
    54,039,418
    
    
    $
    52,921,318Non-control/non-affiliate investments (less than 5% owned):ADAPCO, Inc.
  (Ecological)
    
    Distributor of specialty chemicals and
contract application services
    
    Revolving Line of Credit
(9.5%, Due 7/11) (3)
    
    $
    1,000,000
    
    
    $
    1,000,000
    
    
    $
    1,000,000Senior Secured Term Loan A
(10.9%, Due 6/11) (3)
    
    
    13,350,000
    
    
    
    13,350,000
    
    
    
    12,950,000Common Stock (4)
    
    
    
    
    
    
    500,000
    
    
    Allied Defense Group, Inc.
  (Aerospace & Defense)
    
    Diversified defense company
    
    Common Stock Warrants (4)
    
    
    
    
    
    
    463,168
    
    
    
    220,600Arrowhead General  Insurance Agency, Inc. (6)
  (Insurance)
    
    Insurance agency and program specialist
    
    Junior Secured Term Loan
(12.5%, Due 2/13) (3)
    
    
    5,000,000
    
    
    
    5,000,000
    
    
    
    4,850,000Borga, Inc.
  (Mining, Steel, Iron &  Nonprecious Metals)
    
    Manufacturer of pre-fabricated metal
building 
systems
    
    Senior Secured Term Loan A
(9.5%, Due 3/09) (3)
    
    
    1,546,000
    
    
    
    1,546,000
    
    
    
    1,546,000Senior Secured Term Loan B
(11.9%, Due 5/10) (3)
    
    
    1,791,500
    
    
    
    1,791,500
    
    
    
    1,791,500Senior Secured Term Loan C
(16.0%, Due 5/10) (2) (3)
    
    
    7,716,042
    
    
    
    7,716,042
    
    
    
    7,716,042Common Stock Warrants (4)
    
    
    
    
    
    
    20,250
    
    
    
    7,100Caleel + Hayden, LLC (5)
  (Personal & Nondurable   Consumer Products)
    
    Provider of proprietary branded
professional skincare and cosmetic
products to physicians and spa
communities
    
    Senior Secured Term Loan B
(9.9%, Due 11/11) (3)
    
    
    10,905,937
    
    
    
    10,905,937
    
    
    
    10,905,937Senior Subordinated Debt
(14.5%, Due 11/12) (2) (3)
    
    
    6,251,302
    
    
    
    6,251,302
    
    
    
    6,251,302Common Stock (4)
    
    
    
    
    
    
    750,000
    
    
    
    1,042,200Cheeseworks, Inc.
  (Grocery)
    
    Distributor of specialty cheese and
food products
    
    Revolving Line of Credit
(7.9%, 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
    
    
    
    11,241,219CS Operating, LLC (5)
  (Buildings & Real Estate)
    
    Provider of maintenance, repair and 
replacement of HVAC, electrical, 
plumbing, and foundation repair
    
    Senior Secured Term Loan A
(9.4%, Due 7/12) (3)
    
    
    2,412,500
    
    
    
    2,412,500
    
    
    
    2,412,500Senior Subordinated Debt
(14.5%, Due 1/13) (2) (3)
    
    
    2,511,460
    
    
    
    2,511,460
    
    
    
    2,511,460Copperhead Chemical
    
    Manufacturer of bulk pharmaceuticals
    
    Senior Subordinated DebtCompany, Inc.(Chemicals, Plastics & Rubber)
    
    
    
    (15.3%, Due 1/13) (2) (3)

    
    
    3,520,889
    
    
    
    3,520,889
    
    
    
    3,520,889
 6




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueCustom Direct, Inc. (6)
  (Printing & Publishing)
    
    Direct marketer of checks and other 
financial products and services
    
    Junior Secured Term Loan
(11.2%, Due 12/14) (3)
    
    
    2,000,000
    
    
    
    2,000,000
    
    
    
    1,950,000Dover Saddlery, Inc.
  (Retail Stores)
    
    Equestrian products catalog retailer
    
    Senior Subordinated Debt
(11.5%, Due 9/09) (3)
    
    
    3,000,000
    
    
    
    3,000,000
    
    
    
    3,000,000Common Stock (4)
    
    
    
    
    
    
    148,200
    
    
    
    192,000Eight OClock Coffee Company (6)
  (Beverage, Food & Tobacco)
    
    Manufacturer, distributor, and
marketer of coffee
    
    Junior Secured Term Loan
(11.9%, Due 7/13) (3)
    
    
    9,000,000
    
    
    
    9,000,000
    
    
    
    8,730,000Employbridge Holding Company (5)(6)
  (Personal, Food &   Miscellaneous Services)
    
    A provider of specialized staffing
services
    
    Junior Secured Term Loan
(12.1%, Due 10/13) (3)
    
    
    3,000,000
    
    
    
    3,000,000
    
    
    
    2,910,000Encore Legal Solutions, Inc.
  (Printing & Publishing)
    
    Legal document management services
    
    Junior Secured Term Loan A
(10.7%, Due 6/10) (2) (3)
    
    
    3,923,093
    
    
    
    3,923,093
    
    
    
    3,923,093Junior Secured Term Loan B
(10.8%, Due 6/10) (2) (3)
    
    
    7,124,192
    
    
    
    7,124,192
    
    
    
    7,124,192Senior Subordinated Debt
(15.0%, Due 6/10) (2) (3)
    
    
    5,707,697
    
    
    
    5,707,697
    
    
    
    5,707,697Common Stock Warrants (4)
    
    
    
    
    
    
    350,000
    
    
    EXL Acquisition Corp.
  (Electronics)
    
    Manufacturer of lab testing supplies
    
    Senior Secured Term Loan A
(8.6%, Due 3/11) (3)
    
    
    5,100,000
    
    
    
    5,100,000
    
    
    
    5,100,000Senior Secured Term Loan B
(9.1%, Due 3/12) (3)
    
    
    4,864,000
    
    
    
    4,864,000
    
    
    
    4,864,000Senior Secured Term Loan C
(9.4%, Due 3/12) (3)
    
    
    3,000,000
    
    
    
    3,000,000
    
    
    
    3,000,000Senior Secured Term Loan D
(15.0%, Due 3/12) (2) (3)
    
    
    7,001,750
    
    
    
    7,001,750
    
    
    
    7,001,750Common Stock  Class A (4)
    
    
    
    
    
    
    2,475
    
    
    
    126,300Common Stock  Class B (2)
    
    
    
    
    
    
    247,731
    
    
    
    249,000Fairchild Industrial   Products, Co.
  (Electronics)
    
    Manufacturer of industrial controls 
and power transmission products
    
    Senior Secured Term Loan A
(8.7%, Due 7/10) (3)
    
    
    5,905,000
    
    
    
    5,905,000
    
    
    
    5,905,000Senior Secured Term Loan B
(10.4%, Due 7/11) (3)
    
    
    9,406,250
    
    
    
    9,406,250
    
    
    
    9,406,250Senior Subordinated Debt
(14.8%, Due 7/11) (2)
    
    
    5,471,406
    
    
    
    5,471,406
    
    
    
    5,471,406Preferred Stock  Class A (2)
    
    
    
    
    
    
    320,077
    
    
    
    320,077Common Stock  Class B (4)
    
    
    
    
    
    
    121,598
    
    
    
    146,900
 7




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueImpact Products, LLC
  (Machinery)
    
    Distributor of janitorial supplies
    
    Junior Secured Term Loan B
(9.5%, Due 9/12) (3)
    
    
    8,987,500
    
    
    
    8,987,500
    
    
    
    8,987,500Junior Secured Term Loan C
(13.5%, Due 9/12) (2) (3)
    
    
    5,547,993
    
    
    
    5,547,993
    
    
    
    5,547,993Innovative Concepts in   Entertainment, Inc.
  (Personal & Nondurable   Consumer Products)
    
    Manufacturer of coin operated games
    
    Senior Secured Term Loan A
(9.5%, Due 2/11) (3)
    
    
    4,575,000
    
    
    
    4,575,000
    
    
    
    4,575,000Senior Secured Term Loan B
(10.0%, Due 2/11) (3)
    
    
    3,546,000
    
    
    
    3,546,000
    
    
    
    3,546,000Senior Secured Term Loan C
(13.0%, Due 8/11) (3)
    
    
    3,900,000
    
    
    
    3,900,000
    
    
    
    3,900,000Keltner Enterprises, LLC (5)
  (Oil & Gas)
    
    Distributor of automotive oils, 
chemicals and parts
    
    Senior Subordinated Debt
(14.0%, Due 12/11) (3)
    
    
    3,850,000
    
    
    
    3,850,000
    
    
    
    3,850,000L.A. Spas, Inc.(Chemicals, Plastics & Rubber)
    
    Manufacturer of above ground spas
    
    Senior Subordinated Debt
(15.5%, Due 1/10) (2) (3)
    
    
    7,210,099
    
    
    
    7,210,099
    
    
    
    7,210,099Common Stock Warrants (4)
    
    
    
    
    
    
    5,000
    
    
    Mac & Massey Holdings, LLC
  (Grocery)
    
    Broker and distributor of ingredients
to manufacturers of food products
    
    Senior Subordinated Debt
(16.5%, Due 2/13) (2)
    
    
    7,318,069
    
    
    
    7,318,069
    
    
    
    7,318,069Common Stock (4)
    
    
    
    
    
    
    250,000
    
    
    
    328,500Metrologic Instruments, Inc. (6)
  (Electronics)
    
    Manufacturer of imaging and scanning 
  equipment
    
    Senior Secured Term Loan
(8.2%, Due 4/14) (3)
    
    
    995,000
    
    
    
    995,000
    
    
    
    992,500Junior Secured Term Loan
(11.5%, Due 4/15)
    
    
    1,000,000
    
    
    
    1,000,000
    
    
    
    957,500Nice-Pak Products, Inc. (6)
  (Containers, Packaging &   Glass)
    
    Manufacturer of pre-moistened wipes
    
    Senior Secured Term Loan
(8.5%, Due 6/14) (3)
    
    
    2,992,500
    
    
    
    2,992,500
    
    
    
    2,932,700Prince Mineral Company, Inc.
  (Metals & Minerals)
    
    Manufacturer of pigments
    
    Junior Secured Term Loan
(10.4%, Due 12/12) (3)
    
    
    11,400,000
    
    
    
    11,400,000
    
    
    
    11,400,000Senior Subordinated Debt
(14.0%, Due 7/13) (2) (3)
    
    
    11,893,353
    
    
    
    11,893,353
    
    
    
    11,893,353Quartermaster, Inc.
  (Retail Stores)
    
    Retailer of uniforms and tactical 
equipment to law enforcement and 
security professionals
    
    Revolving Line of Credit
(10.0%, Due 12/10) (3)
    
    
    500,000
    
    
    
    500,000
    
    
    
    500,000Senior Secured Term Loan A
(10.0%, Due 12/10) (3)
    
    
    4,688,750
    
    
    
    4,688,750
    
    
    
    4,688,750Senior Secured Term Loan B
(11.2%, Due 12/10) (3)
    
    
    2,581,250
    
    
    
    2,581,250
    
    
    
    2,581,250Senior Secured Term Loan C
(15.0%, Due 12/11) (2) (3)
    
    
    3,273,249
    
    
    
    3,273,249
    
    
    
    3,273,249
 8




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueR-O-M Corporation
  (Automobile)
    
    Manufacturer of doors, ramps and bulk 
heads for fire trucks and food 
transportation
    
    Senior Secured Term Loan A
(8.6%, Due 2/13) (3)
    
    
    7,580,000
    
    
    
    7,580,000
    
    
    
    7,580,000Senior Secured Term Loan B
(9.8%, Due 5/13) (3)
    
    
    8,485,875
    
    
    
    8,485,875
    
    
    
    8,485,875Senior Subordinated Debt
(15.0%, Due 8/13) (2)
    
    
    9,120,475
    
    
    
    9,120,475
    
    
    
    9,120,475Sidumpr Trailer Company, Inc.  
(Automobile)
    
    Manufacturer of side dump trailers
    
    Revolving Line of Credit
(10.8%, Due 1/11) (3)
    
    
    880,000
    
    
    
    880,000
    
    
    
    880,000Senior Secured Term Loan A
(9.1%, Due 1/11) (3)
    
    
    2,205,000
    
    
    
    2,205,000
    
    
    
    2,205,000Senior Secured Term Loan B
(12.0%, Due 1/11) (3)
    
    
    2,326,500
    
    
    
    2,326,500
    
    
    
    2,326,500Senior Secured Term Loan C
(14.0%, Due 7/11) (2) (3)
    
    
    3,210,149
    
    
    
    3,210,149
    
    
    
    3,210,149Senior Subordinated Debt
(12.0%, Due 1/12) (3)
    
    
    75,000
    
    
    
    75,000
    
    
    
    75,000Preferred Stock (2)
    
    
    
    
    
    
    85,631
    
    
    
    85,631Common Stock (4)
    
    
    
    
    
    
    25
    
    
    
    4,200U.S. Silica Company
  (Buildings & Real Estate)
    
    Miner, processor and marketer of 
industrial silica sand
    
    Junior Secured Term Loan
(12.3%, Due 2/14)
    
    
    1,000,000
    
    
    
    1,000,000
    
    
    
    1,000,000Total Non-control/non-affiliate investments (represents 81.3% of total investments at fair value)
    
    $
    269,236,373
    
    
    $
    267,629,926Total Investments
    
    
    
    
    
    
    
    
    
    $
    330,254,805
    
    
    $
    329,224,458Unearned Income
    
    
    
    
    
    
    
    
    
    
    (3,802,860
    )
    
    
    (3,802,860
    )Total Investments Net of Unearned Income
    
    
    
    
    
    $
    326,451,945
    
    
    $
    325,421,598
 
 (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. Controls investments are generally defined under the 1940 Act as companies in which the Company owns at more than 25% of the voting
securities of the company.(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.(6)
    
    Syndicated investment which has been originated by another financial institution and broadly distributed.  9




---



##### 



PATRIOT CAPITAL FUNDING, INC.
Consolidated Schedule of Investments
December 31, 2006
 Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueAffiliate investments (5% to 25% owned):Smart, LLC (5)
  (Diversified/Conglomerate   Service)
    
    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
  (Ecological)
    
    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
  (Printing & Publishing)
    
    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.
  (Aerospace & Defense)
    
    Diversified defense company
    
    Common Stock Warrants (4)
    
    
    
    
    
    
    463,168
    
    
    
    505,800Arrowhead General   Insurance Agency, Inc. (6)
  (Insurance)
    
    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.
  (Mining, Steel, Iron &   Nonprecious Metals)
    
    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
    
    
    
    21,200
 10




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueCaleel + Hayden, LLC (5)
  (Personal & Nondurable   Consumer Products)
    
    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
    
    
    
    858,100Cheeseworks, Inc.
  (Grocery)
    
    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.
  (Chemicals, Plastics &   Rubber)
    
    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.
  (Retail Stores)
    
    Equestrian products catalog retailer
    
    Senior Subordinated Debt
(11.5%, Due 9/09) (3)
    
    
    3,000,000
    
    
    
    3,000,000
    
    
    
    3,000,000Common Stock (4)
    
    
    
    
    
    
    148,200
    
    
    
    171,200Eight OClock Coffee   Company (6)
  (Beverage, Food &   Tobacco)
    
    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)(6)
  (Personal, Food &   Miscellaneous Services)
    
    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.
  (Printing & Publishing)
    
    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.
  (Electronics)
    
    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
    
    
    
    268,266
 11




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueFairchild Industrial   Products, Co.
  (Electronics)
    
    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
    
    
    
    80,400Impact Products, LLC
  (Machinery)
    
    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.
  (Personal & Nondurable   Consumer Products)
    
    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)
  (Oil & Gas)
    
    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.
  (Chemicals, Plastics & Rubber)
    
    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)(6)
  (Personal & Nondurable   Consumer Products)
    
    Manufacturer and marketer of
branded personal care products
    
    Junior Secured Term Loan
(11.9%, Due 12/13) (3)
    
    
    4,000,000
    
    
    
    4,000,000
    
    
    
    4,040,000
 12




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValuePrince Mineral Company, Inc.
  (Metals & Minerals)
    
    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.
  (Retail Stores)
    
    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
  (Automobile)
    
    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
    
    
    
    7,082,680Robert Rothschild Farm,   Inc.
  (Beverage, Food &   Tobacco)
    
    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.
  (Automobile)
    
    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
    
    
    
    49,700
 13




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueStolle Machinery Company,   LLC (6)
  (Machinery)
    
    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.(6)
    
    Syndicated investment which has been originated by another financial institution and broadly distributed.  14




---



##### 



Patriot Capital Funding, Inc.
Notes to Consolidated Financial Statements
(unaudited)
  Description of Business
   Basis of Presentation
    Recent Accounting Pronouncements
   15




---



##### 



Interest, Dividends, Fees, and Other Investment Income
  Distributions Paid
    Reclassifications
    September 30, 2007
    
    
    December 31, 2006Cost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair ValueInvestments in debt securities
    
    $
    320,686,590
    
    
    $
    319,621,790
    
    
    $
    256,743,135
    
    
    $
    257,014,385Investments in equity securities
    
    
    9,568,215
    
    
    
    9,602,668
    
    
    
    4,139,391
    
    
    
    3,844,875Subtotal
    
    
    330,254,805
    
    
    
    329,224,458
    
    
    
    260,882,526
    
    
    
    260,859,260Unearned income
    
    
    (3,802,860
    )
    
    
    (3,802,860
    )
    
    
    (3,610,884
    )
    
    
    (3,610,884
    )Total
    
    $
    326,451,945
    
    
    $
    325,421,598
    
    
    $
    257,271,642
    
    
    $
    257,248,376
 16




---



##### 



September 30, 2007
    
    
    December 31, 2006Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)
    
    
    Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)Senior Secured Debt
    
    $
    179,163,043
    
    
    
    54.2
    %
    
    $
    178,700,743
    
    
    
    54.3
    %
    
    $
    140,682,645
    
    
    
    53.9
    %
    
    $
    140,682,645
    
    
    
    53.9
    %Junior Secured Debt
    
    
    57,982,778
    
    
    
    17.6
    
    
    
    57,380,278
    
    
    
    17.4
    
    
    
    56,761,563
    
    
    
    21.8
    
    
    
    57,032,813
    
    
    
    21.9Subordinated Debt
    
    
    83,540,769
    
    
    
    25.3
    
    
    
    83,540,769
    
    
    
    25.4
    
    
    
    59,298,927
    
    
    
    22.7
    
    
    
    59,298,927
    
    
    
    22.7Warrants / Equity
    
    
    9,568,215
    
    
    
    2.9
    
    
    
    9,602,668
    
    
    
    2.9
    
    
    
    4,139,391
    
    
    
    1.6
    
    
    
    3,844,875
    
    
    
    1.5Total
    
    $
    330,254,805
    
    
    
    100.0
    %
    
    $
    329,224,458
    
    
    
    100.0
    %
    
    $
    260,882,526
    
    
    
    100.0
    %
    
    $
    260,859,260
    
    
    
    100.0
    %
 
 (1)
    
    Represents percentage of total portfolio.  September 30, 2007
    
    
    December 31, 2006Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)
    
    
    Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)Electronics
    
    $
    43,435,287
    
    
    
    13.1
    %
    
    $
    43,540,683
    
    
    
    13.2
    %
    
    $
    33,205,950
    
    
    
    12.7
    %
    
    $
    33,249,377
    
    
    
    12.8
    %Machinery
    
    
    41,304,918
    
    
    
    12.5
    
    
    
    41,819,418
    
    
    
    12.7
    
    
    
    13,559,438
    
    
    
    5.2
    
    
    
    13,561,938
    
    
    
    5.2Automobile
    
    
    33,968,655
    
    
    
    10.3
    
    
    
    33,972,830
    
    
    
    10.3
    
    
    
    23,666,832
    
    
    
    9.1
    
    
    
    23,716,507
    
    
    
    9.1Personal & Nondurable Consumer Products
    
    
    29,928,239
    
    
    
    9.1
    
    
    
    30,220,439
    
    
    
    9.2
    
    
    
    40,054,135
    
    
    
    15.4
    
    
    
    40,202,235
    
    
    
    15.4Grocery
    
    
    23,889,507
    
    
    
    7.2
    
    
    
    23,968,007
    
    
    
    7.3
    
    
    
    16,925,593
    
    
    
    6.5
    
    
    
    16,925,593
    
    
    
    6.5Metals & Minerals
    
    
    23,293,353
    
    
    
    7.1
    
    
    
    23,293,353
    
    
    
    7.1
    
    
    
    23,278,278
    
    
    
    8.9
    
    
    
    23,278,278
    
    
    
    8.9Printing & Publishing
    
    
    19,104,982
    
    
    
    5.8
    
    
    
    18,704,982
    
    
    
    5.7
    
    
    
    19,337,136
    
    
    
    7.4
    
    
    
    18,992,336
    
    
    
    7.3Ecological
    
    
    14,850,000
    
    
    
    4.5
    
    
    
    13,950,000
    
    
    
    4.2
    
    
    
    13,850,000
    
    
    
    5.3
    
    
    
    13,678,500
    
    
    
    5.2Textiles & Leather
    
    
    14,633,657
    
    
    
    4.4
    
    
    
    14,526,757
    
    
    
    4.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Retail Stores
    
    
    14,191,449
    
    
    
    4.3
    
    
    
    14,235,249
    
    
    
    4.3
    
    
    
    14,947,833
    
    
    
    5.7
    
    
    
    14,970,833
    
    
    
    5.7Mining, Steel, Iron & Nonprecious Metals
    
    
    11,073,792
    
    
    
    3.4
    
    
    
    11,060,642
    
    
    
    3.3
    
    
    
    10,524,057
    
    
    
    4.0
    
    
    
    10,525,007
    
    
    
    4.0Chemicals, Plastic & Rubber
    
    
    10,735,988
    
    
    
    3.3
    
    
    
    10,730,988
    
    
    
    3.3
    
    
    
    11,850,633
    
    
    
    4.5
    
    
    
    11,845,633
    
    
    
    4.5Housewares & Durable Consumer Products
    
    
    9,908,560
    
    
    
    3.0
    
    
    
    9,896,660
    
    
    
    3.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diversified/Conglomerate Service
    
    
    9,706,790
    
    
    
    2.9
    
    
    
    9,887,190
    
    
    
    3.0
    
    
    
    8,966,605
    
    
    
    3.4
    
    
    
    8,925,605
    
    
    
    3.4Beverage, Food & Tobacco
    
    
    9,000,000
    
    
    
    2.7
    
    
    
    8,730,000
    
    
    
    2.6
    
    
    
    18,402,868
    
    
    
    7.1
    
    
    
    18,549,118
    
    
    
    7.1Buildings & Real Estate
    
    
    5,923,960
    
    
    
    1.8
    
    
    
    5,923,960
    
    
    
    1.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Insurance
    
    
    5,000,000
    
    
    
    1.5
    
    
    
    4,850,000
    
    
    
    1.5
    
    
    
    5,000,000
    
    
    
    1.9
    
    
    
    5,075,000
    
    
    
    2.0Oil & Gas
    
    
    3,850,000
    
    
    
    1.2
    
    
    
    3,850,000
    
    
    
    1.2
    
    
    
    3,850,000
    
    
    
    1.5
    
    
    
    3,850,000
    
    
    
    1.5Personal, Food & Miscellaneous Services
    
    
    3,000,000
    
    
    
    0.9
    
    
    
    2,910,000
    
    
    
    0.9
    
    
    
    3,000,000
    
    
    
    1.2
    
    
    
    3,007,500
    
    
    
    1.2Containers, Packaging & Glass
    
    
    2,992,500
    
    
    
    0.9
    
    
    
    2,932,700
    
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Aerospace & Defense
    
    
    463,168
    
    
    
    0.1
    
    
    
    220,600
    
    
    
    0.1
    
    
    
    463,168
    
    
    
    0.2
    
    
    
    505,800
    
    
    
    0.2Total
    
    $
    330,254,805
    
    
    
    100.0
    %
    
    $
    329,224,458
    
    
    
    100.0
    %
    
    $
    260,882,526
    
    
    
    100.0
    %
    
    $
    260,859,260
    
    
    
    100.0
    %
 
 (1)
    
    Represents percentage of total portfolio. 17




---



##### 



Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Interest charges
    
    $
    1,981,617
    
    
    $
    842,737
    
    
    $
    4,927,691
    
    
    $
    2,449,042Amortization of debt issuance costs
    
    
    62,593
    
    
    
    93,199
    
    
    
    202,711
    
    
    
    295,796Unused facility fees
    
    
    23,257
    
    
    
    58,947
    
    
    
    85,786
    
    
    
    173,433Total
    
    $
    2,067,467
    
    
    $
    994,883
    
    
    $
    5,216,188
    
    
    $
    2,918,271
     18




---



##### 



Accounting for Stock Issued to
Employees.
     Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Basic:Net income
    
    $
    4,006,873
    
    
    $
    3,527,175
    
    
    $
    15,062,954
    
    
    $
    11,066,186Weighted average common shares outstanding
    
    
    18,284,737
    
    
    
    15,781,525
    
    
    
    18,024,294
    
    
    
    13,582,320Earnings per common share, basic
    
    $
    0.22
    
    
    $
    0.22
    
    
    $
    0.84
    
    
    $
    0.81Diluted:Net income
    
    $
    4,006,873
    
    
    $
    3,527,175
    
    
    $
    15,062,954
    
    
    $
    11,066,186Weighted average common shares outstanding
    
    
    18,284,737
    
    
    
    15,781,525
    
    
    
    18,024,294
    
    
    
    13,582,320Dilutive effect of stock options
    
    
    191,312
    
    
    
    54,891
    
    
    
    191,312
    
    
    
    54,891Weighted average common shares and common stock equivalents
    
    
    18,476,049
    
    
    
    15,836,416
    
    
    
    18,215,606
    
    
    
    13,637,211Earnings per common share, diluted
    
    $
    0.22
    
    
    $
    0.22
    
    
    $
    0.83
    
    
    $
    0.81
 19




---



##### 



Date Declared
    
    Record Date
    
    Payment Date
    
    AmountAugust 2, 2007
    
    September 14, 2007
    
    October 17, 2007
    
    $
    0.32April 30, 2007
    
    June 15, 2007
    
    July 17, 2007
    
    $
    0.32February 23, 2007
    
    March 15, 2007
    
    April 18, 2007
    
    $
    0.32November 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
        20




---



##### 



January 1, 2007
    
    
    August 1, 2006to
    
    
    toSeptember 30, 2007
    
    
    July 31, 2007GAAP net investment income
    
    $
    16,238,000
    
    
    $
    19,407,000Tax timing differences of:Origination fees, net
    
    
    571,000
    
    
    
    883,000Stock compensation expense, bonus accruals, original
issue discount and other
    
    
    229,000
    
    
    
    846,000Tax distributable income
    
    $
    17,038,000
    
    
    $
    21,136,000
   August 1, 2006toJuly 31, 2007Distributions paid from:Ordinary income
    
    $
    21,136,000Long-term capital gains
    
    
    Subtotal
    
    
    21,136,000Tax return of capital
    
    
    335,000Total distributions
    
    $
    21,471,000
   21




---



##### 



For the Nine Months EndedSeptember 30,2007
    
    
    2006Per Share Data:Net asset value at beginning of period
    
    $
    10.37
    
    
    $
    10.48Net investment income
    
    
    .90
    
    
    
    .69Net gain (loss) on investments
    
    
    .01
    
    
    
    (.21
    )Net change in unrealized appreciation
(depreciation) in investments
    
    
    (.06
    )
    
    
    .22Net change in unrealized swap depreciation
    
    
    (.02
    )
    
    
    Effect of issuance of common stock
    
    
    .41
    
    
    
    (.06
    )Distributions from net investment income
    
    
    (.90
    )
    
    
    (.69
    )Tax return of capital
    
    
    (.02
    )
    
    
    (.07
    )Distributions in excess of net investment income
    
    
    (.05
    )
    
    
    Stock based compensation expense
    
    
    .03
    
    
    
    .02Net asset value at end of period
    
    $
    10.67
    
    
    $
    10.38Total net asset value return (1)
    
    
    12.3
    %
    
    
    6.3
    %Per share market value, December 31
    
    $
    14.49
    
    
    $
    12.20Per share market value, September 30
    
    $
    13.37
    
    
    $
    13.32Total market value return (2)
    
    
    (1.0
    )%
    
    
    15.4
    %Shares outstanding at end of period
    
    
    18,291,982
    
    
    
    15,786,769Ratios and Supplemental Data:Net assets at end of period
    
    $
    195,230,000
    
    
    $
    163,855,000Average net assets
    
    
    195,495,000
    
    
    
    145,025,000Ratio of operating expenses to average
net assets (annualized)
    
    
    7.9
    %
    
    
    7.4
    %Ratio of net investment income (loss) to
average net assets (annualized)
    
    
    11.1
    %
    
    
    10.0
    %Average borrowings outstanding
    
    $
    98,682,000
    
    
    $
    48,114,000Average amount of borrowings per
share
    
    $
    5.39
    
    
    $
    3.05
 
 (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.      22




---



##### 



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; and
    
    future changes in laws or regulations and conditions in our operating areas.
  Overview
  Portfolio Composition
  23




---



##### 



September 30, 2007
    
    
    December 31, 2006Beginning portfolio at fair value
    
    $
    260,859,260
    
    
    $
    141,390,954Investments in debt securities
    
    
    121,381,250
    
    
    
    154,876,598Investments in equity securities
    
    
    5,550,000
    
    
    
    3,074,997Investment repayments
    
    
    (55,003,504
    )
    
    
    (37,627,269
    )Increase in payment-in-kind interest/dividends
    
    
    2,819,283
    
    
    
    2,424,927Sale of investments
    
    
    (5,374,749
    )
    
    
    (7,098,878
    )Change in fair value of investments
    
    
    (1,007,082
    )
    
    
    3,817,931Ending portfolio at fair value
    
    $
    329,224,458
    
    
    $
    260,859,260
  September 30, 2007
    
    
    December 31, 2006Investments at
    
    
    Percentage of
    
    
    Investments at
    
    
    Percentage ofFair Value
    
    
    Total Portfolio
    
    
    Fair Value
    
    
    Total PortfolioSenior secured revolving lines of credit
    
    $
    13,780,219
    
    
    
    4.2
    %
    
    $
    7,010,219
    
    
    
    2.7
    %Senior secured term loans
    
    
    164,920,524
    
    
    
    50.1
    
    
    
    133,672,426
    
    
    
    51.2Junior secured term loans
    
    
    57,380,278
    
    
    
    17.4
    
    
    
    57,032,813
    
    
    
    21.9Senior subordinated debt
    
    
    83,540,769
    
    
    
    25.4
    
    
    
    59,298,927
    
    
    
    22.7Investments in equity securities
    
    
    9,602,668
    
    
    
    2.9
    
    
    
    3,844,875
    
    
    
    1.5Totals
    
    $
    329,224,458
    
    
    
    100.0
    %
    
    $
    260,859,260
    
    
    
    100.0
    %
 24




---



##### 



September 30, 2007
    
    
    December 31, 2006Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)
    
    
    Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)Electronics
    
    $
    43,435,287
    
    
    
    13.1
    %
    
    $
    43,540,683
    
    
    
    13.2
    %
    
    $
    33,205,950
    
    
    
    12.7
    %
    
    $
    33,249,377
    
    
    
    12.8
    %Machinery
    
    
    41,304,918
    
    
    
    12.5
    
    
    
    41,819,418
    
    
    
    12.7
    
    
    
    13,559,438
    
    
    
    5.2
    
    
    
    13,561,938
    
    
    
    5.2Automobile
    
    
    33,968,655
    
    
    
    10.3
    
    
    
    33,972,830
    
    
    
    10.3
    
    
    
    23,666,832
    
    
    
    9.1
    
    
    
    23,716,507
    
    
    
    9.1Personal & Nondurable Consumer Products
    
    
    29,928,239
    
    
    
    9.1
    
    
    
    30,220,439
    
    
    
    9.2
    
    
    
    40,054,135
    
    
    
    15.4
    
    
    
    40,202,235
    
    
    
    15.4Grocery
    
    
    23,889,507
    
    
    
    7.2
    
    
    
    23,968,007
    
    
    
    7.3
    
    
    
    16,925,593
    
    
    
    6.5
    
    
    
    16,925,593
    
    
    
    6.5Metals & Minerals
    
    
    23,293,353
    
    
    
    7.1
    
    
    
    23,293,353
    
    
    
    7.1
    
    
    
    23,278,278
    
    
    
    8.9
    
    
    
    23,278,278
    
    
    
    8.9Printing & Publishing
    
    
    19,104,982
    
    
    
    5.8
    
    
    
    18,704,982
    
    
    
    5.7
    
    
    
    19,337,136
    
    
    
    7.4
    
    
    
    18,992,336
    
    
    
    7.3Ecological
    
    
    14,850,000
    
    
    
    4.5
    
    
    
    13,950,000
    
    
    
    4.2
    
    
    
    13,850,000
    
    
    
    5.3
    
    
    
    13,678,500
    
    
    
    5.2Textiles & Leather
    
    
    14,633,657
    
    
    
    4.4
    
    
    
    14,526,757
    
    
    
    4.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Retail Stores
    
    
    14,191,449
    
    
    
    4.3
    
    
    
    14,235,249
    
    
    
    4.3
    
    
    
    14,947,833
    
    
    
    5.7
    
    
    
    14,970,833
    
    
    
    5.7Mining, Steel, Iron & Nonprecious Metals
    
    
    11,073,792
    
    
    
    3.4
    
    
    
    11,060,642
    
    
    
    3.3
    
    
    
    10,524,057
    
    
    
    4.0
    
    
    
    10,525,007
    
    
    
    4.0Chemicals, Plastic & Rubber
    
    
    10,735,988
    
    
    
    3.3
    
    
    
    10,730,988
    
    
    
    3.3
    
    
    
    11,850,633
    
    
    
    4.5
    
    
    
    11,845,633
    
    
    
    4.5Housewares & Durable Consumer Products
    
    
    9,908,560
    
    
    
    3.0
    
    
    
    9,896,660
    
    
    
    3.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diversified/Conglomerate Service
    
    
    9,706,790
    
    
    
    2.9
    
    
    
    9,887,190
    
    
    
    3.0
    
    
    
    8,966,605
    
    
    
    3.4
    
    
    
    8,925,605
    
    
    
    3.4Beverage, Food & Tobacco
    
    
    9,000,000
    
    
    
    2.7
    
    
    
    8,730,000
    
    
    
    2.6
    
    
    
    18,402,868
    
    
    
    7.1
    
    
    
    18,549,118
    
    
    
    7.1Buildings & Real Estate
    
    
    5,923,960
    
    
    
    1.8
    
    
    
    5,923,960
    
    
    
    1.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Insurance
    
    
    5,000,000
    
    
    
    1.5
    
    
    
    4,850,000
    
    
    
    1.5
    
    
    
    5,000,000
    
    
    
    1.9
    
    
    
    5,075,000
    
    
    
    2.0Oil & Gas
    
    
    3,850,000
    
    
    
    1.2
    
    
    
    3,850,000
    
    
    
    1.2
    
    
    
    3,850,000
    
    
    
    1.5
    
    
    
    3,850,000
    
    
    
    1.5Personal, Food & Miscellaneous Services
    
    
    3,000,000
    
    
    
    0.9
    
    
    
    2,910,000
    
    
    
    0.9
    
    
    
    3,000,000
    
    
    
    1.2
    
    
    
    3,007,500
    
    
    
    1.2Containers, Packaging & Glass
    
    
    2,992,500
    
    
    
    0.9
    
    
    
    2,932,700
    
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Aerospace & Defense
    
    
    463,168
    
    
    
    0.1
    
    
    
    220,600
    
    
    
    0.1
    
    
    
    463,168
    
    
    
    0.2
    
    
    
    505,800
    
    
    
    0.2Total
    
    $
    330,254,805
    
    
    
    100.0
    %
    
    $
    329,224,458
    
    
    
    100.0
    %
    
    $
    260,882,526
    
    
    
    100.0
    %
    
    $
    260,859,260
    
    
    
    100.0
    %
 
 (1)
    
    Represents percentage of total portfolio.  25




---



##### 



Portfolio Asset Quality
   September 30, 2007
    
    
    December 31, 2006Investments at
    
    
    Percentage of
    
    
    Investments at
    
    
    Percentage ofInvestment Rating
    
    Fair Value
    
    
    Total Portfolio
    
    
    Fair Value
    
    
    Total Portfolio1
    
    $
    26,914,249
    
    
    
    8.4
    %
    
    $
    22,689,633
    
    
    
    8.8
    %2
    
    
    233,252,049
    
    
    
    73.0
    
    
    
    198,127,878
    
    
    
    77.13
    
    
    59,455,492
    
    
    
    18.6
    
    
    
    36,196,874
    
    
    
    14.14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Totals
    
    $
    319,621,790
    
    
    
    100.0
    %
    
    $
    257,014,385
    
    
    
    100.0
    %
 Loans and Debt Securities on Non-Accrual Status
  Results of Operations
  Comparison for the three months ended September 30, 2007 and 2006
 Total Investment Income
    26




---



##### 



Expenses
   Net Realized Gain (Loss) on Sale of Investments
  Net Change in Unrealized Appreciation or Depreciation on Investments
    Net Unrealized Appreciation or Depreciation on Interest Rate Swaps
  Net Income
  27




---



##### 



Comparison for the nine months ended September 30, 2007 and 2006
 Total Investment Income
    Expenses
   Net Realized Gain (Loss) on Sale of Investments
  Net Change in Unrealized Appreciation or Depreciation on Investments
  Net Unrealized Depreciation on Interest Rate Swaps
  28




---



##### 



Net Income
  Financial Condition, Liquidity and Capital Resources
 Cash, Cash Equivalents and Restricted Cash
   Liquidity and Capital Resources
     29




---



##### 



Borrowings
 Securitization Revolving Credit Facility.
   Regulated Investment Company Status and Distributions
   30




---



##### 



Critical Accounting Policies
  Valuation of Portfolio Investments
       31




---



##### 



Fee Income Recognition
  Payment-in-Kind or PIK Interest and Dividends
   Nine Months EndedSeptember 30, 2007Beginning PIK balance
    
    $
    2,891,565PIK interest and dividends earned during the period
    
    
    2,819,283PIK receipts during the period
    
    
    (1,866,047
    )Ending PIK balance
    
    $
    3,844,801
 Interest and Dividend Income Recognition
   32




---



##### 



Off-Balance Sheet Arrangements
   Contractual Obligations
  Recent Developments
     33




---



##### 



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 September 30, 2007 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
 34




---



##### 



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
  Item 5. Other Information
  Item 6. Exhibits
  ExhibitNumber
    
    Description of Document31.1*
    
    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.31.2*
    
    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.32.1*
    
    Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U. S.
C. 1350).32.2*
    
    Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U. S.
C. 1350).
 
 *
    
    Submitted herewith. 35




---



##### 



SIGNATURES
  PATRIOT CAPITAL FUNDING, INC.By:
    /s/    Richard P. BuckanavageRichard P. BuckanavageChief Executive Officer and PresidentBy:
    /s/     William E. Alvarez, Jr.William E. Alvarez, Jr.Executive Vice President, Chief Financial Officer and
Secretary 36