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, 2008
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Commission File Number: 0-51459
 PATRIOT CAPITAL FUNDING, INC.
  Delaware
    
    74-3068511(State or other jurisdiction of 
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
  Large accelerated filer 
oAccelerated filer þNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o o þ




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##### 



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




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##### 



PART I. FINANCIAL INFORMATION
 Item 1. Financial Statements
 Patriot Capital Funding, Inc.
Consolidated Balance Sheets
 September 30,
    
    December 31,2008
    
    2007(unaudited)ASSETSInvestments at fair value:Non-control/non-affiliate investments (cost of $237,216,503 - 2008,
$294,686,727 - 2007)
    
    $
    231,061,072
    
    
    $
    290,225,759Affiliate investments (cost of $74,483,309 - 2008,
$86,577,905 - 2007)
    
    
    64,840,631
    
    
    
    85,171,605Control investments (cost of $43,270,552 - 2008, $6,980,389 -
2007)
    
    
    35,171,524
    
    
    
    9,328,389Total investments
    
    
    331,073,227
    
    
    
    384,725,753Cash and cash equivalents
    
    
    999,248
    
    
    
    789,451Restricted cash
    
    
    30,297,325
    
    
    
    10,487,202Interest receivable
    
    
    1,521,448
    
    
    
    1,758,954Other assets
    
    
    2,386,211
    
    
    
    617,448TOTAL ASSETS
    
    $
    366,277,459
    
    
    $
    398,378,808LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIESBorrowings
    
    $
    154,200,000
    
    
    $
    164,900,000Interest payable
    
    
    486,807
    
    
    
    821,124Dividends payable
    
    
    6,894,520
    
    
    
    6,814,650Accounts payable, accrued expenses and other
    
    
    3,107,060
    
    
    
    4,245,350TOTAL LIABILITIES
    
    
    164,688,387
    
    
    
    176,781,124COMMITMENTSSTOCKHOLDERS EQUITYPreferred stock, $.01 par value, 1,000,000 shares authorized;
no shares issued and outstanding
    
    
    
    
    
    
    Common stock, $.01 par value, 49,000,000 shares authorized; 20,702,485
and 20,650,455 shares issued and outstanding at September 30, 2008,
and December 31, 2007, respectively
    
    
    207,024
    
    
    
    206,504Paid-in capital
    
    
    234,802,443
    
    
    
    233,722,593Accumulated net investment loss
    
    
    (1,912,061
    )
    
    
    (1,912,061
    )Distributions in excess of net investment income
    
    
    (3,603,262
    )
    
    
    (2,824,651
    )Net realized loss on investments
    
    
    (3,149,227
    )
    
    
    (3,171,365
    )Net unrealized depreciation on investments
    
    
    (24,028,252
    )
    
    
    (3,660,971
    )Net unrealized depreciation on interest rate swaps
    
    
    (727,593
    )
    
    
    (762,365
    )TOTAL STOCKHOLDERS EQUITY
    
    
    201,589,072
    
    
    
    221,597,684TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    366,277,459
    
    
    $
    398,378,808NET ASSET VALUE PER COMMON SHARE
    
    $
    9.74
    
    
    $
    10.73
  1




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##### 



Patriot Capital Funding, Inc.
Consolidated Statements of Operations
(unaudited)
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007INVESTMENT INCOMEInterest and dividends:Non-control/non-affiliate investments
    
    $
    6,477,906
    
    
    $
    8,049,366
    
    
    $
    21,909,910
    
    
    $
    23,163,971Affiliate investments
    
    
    1,994,624
    
    
    
    1,329,525
    
    
    
    7,007,546
    
    
    
    3,047,798Control investments
    
    
    966,986
    
    
    
    176,361
    
    
    
    1,645,111
    
    
    
    292,202Total interest and dividend income
    
    
    9,439,516
    
    
    
    9,555,252
    
    
    
    30,562,567
    
    
    
    26,503,971Fees:Non-control/non-affiliate investments
    
    
    105,464
    
    
    
    161,325
    
    
    
    343,550
    
    
    
    731,050Affiliate investments
    
    
    282,518
    
    
    
    19,054
    
    
    
    358,966
    
    
    
    49,944Control investments
    
    
    72,487
    
    
    
    6,250
    
    
    
    113,737
    
    
    
    99,763Total fee income
    
    
    460,469
    
    
    
    186,629
    
    
    
    816,253
    
    
    
    880,757Other investment income:Non-control/non-affiliate investments
    
    
    17,833
    
    
    
    11,001
    
    
    
    300,076
    
    
    
    435,130Affiliate investments
    
    
    307,245
    
    
    
    
    
    
    
    307,245
    
    
    
    Control investments
    
    
    4,357
    
    
    
    
    
    
    
    142,383
    
    
    
    Total other investment income
    
    
    329,435
    
    
    
    11,001
    
    
    
    749,704
    
    
    
    435,130Total Investment Income
    
    
    10,229,420
    
    
    
    9,752,882
    
    
    
    32,128,524
    
    
    
    27,819,858EXPENSESCompensation expense
    
    
    834,779
    
    
    
    1,332,087
    
    
    
    3,440,278
    
    
    
    3,883,585Interest expense
    
    
    1,789,755
    
    
    
    2,067,467
    
    
    
    5,774,508
    
    
    
    5,216,188Professional fees
    
    
    340,388
    
    
    
    250,706
    
    
    
    1,011,119
    
    
    
    664,377General and administrative expense
    
    
    706,715
    
    
    
    601,637
    
    
    
    2,140,238
    
    
    
    1,817,737Total Expenses
    
    
    3,671,637
    
    
    
    4,251,897
    
    
    
    12,366,143
    
    
    
    11,581,887Net Investment Income
    
    
    6,557,783
    
    
    
    5,500,985
    
    
    
    19,762,381
    
    
    
    16,237,971NET REALIZED GAIN AND NET UNREALIZED
DEPRECIATIONNet realized gain (loss) on investments  non-control/non-affiliate
    
    
    (2,500
    )
    
    
    7,500
    
    
    
    (86,267
    )
    
    
    91,601Net realized gain on investments  affiliate
    
    
    458,405
    
    
    
    
    
    
    
    458,405
    
    
    
    Net realized loss on investments  control
    
    
    
    
    
    
    
    
    
    
    (350,000
    )
    
    
    Net unrealized depreciation on investments 
non-control/non-affiliate
    
    
    (2,054,709
    )
    
    
    (1,259,232
    )
    
    
    (10,684,608
    )
    
    
    (1,624,182
    )Net unrealized depreciation on investments  affiliate
    
    
    (2,808,033
    )
    
    
    (1,317,300
    )
    
    
    (8,470,041
    )
    
    
    (1,077,100
    )Net unrealized appreciation (depreciation) on investments  control
    
    
    (2,285,030
    )
    
    
    1,456,600
    
    
    
    (1,212,632
    )
    
    
    1,694,200Net unrealized appreciation (depreciation) on interest rate swaps
    
    
    (182,011
    )
    
    
    (381,680
    )
    
    
    34,772
    
    
    
    (259,536
    )Net Realized Gain and Net Unrealized Depreciation
    
    
    (6,873,878
    )
    
    
    (1,494,112
    )
    
    
    (20,310,371
    )
    
    
    (1,175,017
    )NET INCOME (LOSS)
    
    $
    (316,095
    )
    
    $
    4,006,873
    
    
    $
    (547,990
    )
    
    $
    15,062,954Earnings (loss) per share, basic
    
    $
    (0.02
    )
    
    $
    0.22
    
    
    $
    (0.03
    )
    
    $
    0.84Earnings (loss) per share, diluted
    
    $
    (0.02
    )
    
    $
    0.22
    
    
    $
    (0.03
    )
    
    $
    0.83Weighted average shares outstanding, basic
    
    
    20,702,485
    
    
    
    18,284,737
    
    
    
    20,682,167
    
    
    
    18,024,294Weighted average shares outstanding, diluted
    
    
    20,702,485
    
    
    
    18,476,049
    
    
    
    20,682,167
    
    
    
    18,215,606
  2




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##### 



Patriot Capital Funding, Inc.
Consolidated Statements of Changes in Net Assets
(unaudited)
 Nine Months EndedSeptember 30,2008
    
    2007Operations:Net investment income
    
    $
    19,762,381
    
    
    $
    16,237,971Net realized gain on investments
    
    
    22,138
    
    
    
    91,601Net unrealized depreciation on investments
    
    
    (20,367,281
    )
    
    
    (1,007,082
    )Net unrealized appreciation (depreciation) on interest rate swaps
    
    
    34,772
    
    
    
    (259,536
    )Net increase (decrease) in net assets from operations
    
    
    (547,990
    )
    
    
    15,062,954Stockholder transactions:Distributions to stockholders from net investment income
    
    
    (19,762,381
    )
    
    
    (16,237,971
    )Tax return of capital
    
    
    
    
    
    
    (334,790
    )Distributions in excess of net investment income
    
    
    (778,609
    )
    
    
    (953,087
    )Net decrease in net assets from stockholder distributions
    
    
    (20,540,990
    )
    
    
    (17,525,848
    )Capital share transactions:Issuance of common stock
    
    
    
    
    
    
    31,628,414Common stock listing fees
    
    
    (23,585
    )
    
    
    Issuance of common stock under dividend reinvestment plan
    
    
    535,062
    
    
    
    1,452,525Stock option compensation
    
    
    568,891
    
    
    
    503,166Net increase in net assets from capital share transactions
    
    
    1,080,368
    
    
    
    33,584,105Total increase (decrease) in net assets
    
    
    (20,008,612
    )
    
    
    31,121,211Net assets at beginning of period
    
    
    221,597,684
    
    
    
    164,108,629Net assets at end of period
    
    $
    201,589,072
    
    
    $
    195,229,840Net asset value per common share
    
    $
    9.74
    
    
    $
    10.67Common shares outstanding at end of period
    
    
    20,702,485
    
    
    
    18,291,982
  3




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##### 



Patriot Capital Funding, Inc.
Consolidated Statements of Cash Flows
(unaudited)
 Nine Months EndedSeptember 30,2008
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    (547,990
    )
    
    $
    15,062,954Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:Depreciation and amortization
    
    
    439,159
    
    
    
    314,592Change in interest receivable
    
    
    237,506
    
    
    
    (147,155
    )Realized gain on sale of investments
    
    
    (22,138
    )
    
    
    (91,601
    )Unrealized depreciation on investments
    
    
    20,367,281
    
    
    
    1,007,082Unrealized (appreciation) depreciation on interest rate swaps
    
    
    (34,772
    )
    
    
    259,536Payment-in-kind interest and dividends
    
    
    (4,275,711
    )
    
    
    (2,819,283
    )Stock-based compensation expense
    
    
    568,891
    
    
    
    503,166Change in unearned income
    
    
    108,349
    
    
    
    392,609Change in interest payable
    
    
    (334,317
    )
    
    
    249,124Change in other assets
    
    
    (262,351
    )
    
    
    (9,241
    )Change in accounts payable, accrued expenses and other
    
    
    (1,865,883
    )
    
    
    (94,463
    )Net cash provided by operating activities
    
    
    14,378,024
    
    
    
    14,627,320CASH FLOWS FROM INVESTING ACTIVITIES:Funded investments
    
    
    (60,267,723
    )
    
    
    (126,931,250
    )Principal repayments on investments
    
    
    86,432,830
    
    
    
    55,003,504Proceeds from sale of investments
    
    
    11,309,638
    
    
    
    5,466,351Purchases of furniture and equipment
    
    
    (6,295
    )
    
    
    (18,775
    )Net cash provided by (used for) investing activities
    
    
    37,468,450
    
    
    
    (66,480,170
    )CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings
    
    
    76,904,117
    
    
    
    123,277,000Repayments on borrowings
    
    
    (87,604,117
    )
    
    
    (88,357,000
    )Net proceeds from sale of common stock
    
    
    
    
    
    
    31,628,412Common stock listing fees
    
    
    (23,585
    )
    
    
    Dividends paid
    
    
    (19,926,056
    )
    
    
    (15,124,707
    )Deferred offering costs
    
    
    (145,941
    )
    
    
    (145,055
    )Deferred financing costs
    
    
    (1,030,972
    )
    
    
    (122,500
    )Increase in restricted cash
    
    
    (19,810,123
    )
    
    
    (140,843
    )Net cash provided by (used for) financing activities
    
    
    (51,636,677
    )
    
    
    51,015,307NET INCREASE IN CASH AND CASH
EQUIVALENTS
    
    
    209,797
    
    
    
    (837,543
    )CASH AND CASH EQUIVALENTS AT:Beginning of Period
    
    
    789,451
    
    
    
    4,211,643End of Period
    
    $
    999,248
    
    
    $
    3,374,100Supplemental information:Interest paid
    
    $
    6,108,825
    
    
    $
    4,967,064Non-cash investing activities:Conversion of debt to equity
    
    $
    5,734,567
    
    
    $
    Non-cash financing activities:Dividends reinvested in common stock
    
    $
    535,062
    
    
    $
    1,452,525Dividends declared but not paid
    
    
    6,894,520
    
    
    
    5,853,434
  4




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##### 



Patriot Capital Funding, Inc.
Consolidated Schedule of Investments
September 30, 2008
(unaudited)
 Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueControl investments:Encore Legal Solutions, Inc.(Printing & Publishing)
    
    Legal document management services
    
    Junior Secured Term Loan A(9.4%, Due 12/10) (2) (3)
    
    $
    4,020,456
    
    
    $
    4,004,821
    
    
    $
    3,746,965Junior Secured Term Loan B(12.3%, Due 12/10) (2) (3)
    
    
    7,390,687
    
    
    
    7,350,710
    
    
    
    6,876,523Common Stock (4)
    
    
    
    
    
    
    5,159,567
    
    
    
    2,471,900Fischbein, LLC(Machinery)
    
    Designer and manufacturer of  packaging equipment
    
    Senior Subordinated Debt(16.5%, Due 5/13) (2) (3)
    
    
    3,453,563
    
    
    
    3,430,699
    
    
    
    3,499,736Membership Interest  Class A (4)
    
    
    
    
    
    
    2,800,000
    
    
    
    4,431,000Nupla 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(8.4%, Due 9/12) (3)
    
    
    985,000
    
    
    
    970,500
    
    
    
    970,500Senior Secured Term Loan A(9.0%, Due 9/12) (3)
    
    
    5,462,500
    
    
    
    5,420,826
    
    
    
    5,420,826Senior Subordinated Debt(15.0%, Due 3/13) (2) (3)
    
    
    3,083,681
    
    
    
    3,061,394
    
    
    
    2,458,013Preferred Stock Class A (2)
    
    
    
    
    
    
    536,216
    
    
    
    243,600Preferred Stock Class B (2)
    
    
    
    
    
    
    1,069,393
    
    
    
    1,069,393Common Stock (4)
    
    
    
    
    
    
    80,000
    
    
    
    Sidumpr Trailer Company, Inc.(Automobile)
    
    Manufacturer of side dump trailers
    
    Revolving Line of Credit(7.5%, Due 1/11) (3)
    
    
    950,000
    
    
    
    932,507
    
    
    
    932,507Senior Secured Term Loan A(9.0%, Due 1/11) (3)
    
    
    2,047,500
    
    
    
    2,034,661
    
    
    
    2,034,661Senior Secured Term Loan B(10.5%, Due 1/11) (3)
    
    
    2,320,625
    
    
    
    2,299,948
    
    
    
    Senior Secured Term Loan C(16.5%, Due 7/11) (2) (3)
    
    
    2,307,692
    
    
    
    2,253,555
    
    
    
    Senior Secured Term Loan D(8.5%, Due 7/11) (3)
    
    
    1,700,000
    
    
    
    1,700,000
    
    
    
    1,015,900Preferred Stock (2)
    
    
    
    
    
    
    165,730
    
    
    
    Common Stock (4)
    
    
    
    
    
    
    25
    
    
    
    Total Control investments (represents 10.6% of total investments at fair value)
    
    
    
    
    $
    43,270,552
    
    
    $
    35,171,524
 5




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueAffiliate investments:Aylward Enterprises, LLC (5)(Machinery)
    
    Manufacturer of packaging equipment
    
    Revolving Line of Credit(6.7%, Due 2/12) (3)
    
    $
    3,700,000
    
    
    $
    3,642,872
    
    
    $
    3,642,872Senior Secured Term Loan A(7.1%, Due 2/12) (3)
    
    
    8,105,938
    
    
    
    8,009,574
    
    
    
    7,042,136Senior Subordinated Debt(22.0%, Due 8/12) (2)
    
    
    6,821,915
    
    
    
    6,747,301
    
    
    
    Subordinated Member Note(8.0%, Due 2/13) (2)
    
    
    148,491
    
    
    
    148,491
    
    
    
    Membership Interest (4)
    
    
    
    
    
    
    1,250,000
    
    
    
    Boxercraft Incorporated(Textiles & Leather)
    
    Supplier of spiritwear and campus apparel
    
    Revolving Line of Credit(7.5%, Due 9/13) (3)
    
    
    550,000
    
    
    
    522,992
    
    
    
    522,992Senior Secured Term Loan A(8.1%, Due 9/13) (3)
    
    
    5,500,000
    
    
    
    5,441,486
    
    
    
    5,441,486Senior Secured Term Loan B(8.6%, Due 9/13) (3)
    
    
    5,500,000
    
    
    
    5,440,912
    
    
    
    5,440,912Senior Subordinated Debt(16.8%, Due 3/14) (2) (3)
    
    
    6,512,007
    
    
    
    6,441,807
    
    
    
    6,441,807Preferred Stock (4)
    
    
    
    
    
    
    1,004,167
    
    
    
    961,700Common Stock (4)
    
    
    
    
    
    
    100
    
    
    
    KTPS
Holdings, LLC(Textiles & Leather)
    
    Manufacturer and distributor of specialty pet products
    
    Revolving Line of Credit(6.3%, Due 1/12) (3)
    
    
    1,500,000
    
    
    
    1,485,770
    
    
    
    1,485,770Senior Secured Term Loan A(5.8%, Due 1/12) (3)
    
    
    5,565,625
    
    
    
    5,513,841
    
    
    
    5,391,016Senior Secured Term Loan B(12.0%, Due 1/12) (3)
    
    
    475,000
    
    
    
    469,922
    
    
    
    459,422Junior Secured Term Loan(15.0%, Due 3/12) (2) (3)
    
    
    4,175,795
    
    
    
    4,137,309
    
    
    
    4,137,309Membership Interest  Class A (4)
    
    
    
    
    
    
    730,020
    
    
    
    812,800Membership Interest      Common (4)
    
    
    
    
    
    
    
    
    
    
    499,700Smart, LLC (5)(Diversified/ Conglomerate Service)
    
    Provider of tuition management services
    
    Membership Interest  Class B (4)
    
    
    
    
    
    
    1,280,403
    
    
    
    737,000Membership Interest  Class D (4)
    
    
    
    
    
    
    290,333
    
    
    
    295,900Sport
Helmets Holdings, LLC (5)(Personal & Nondurable Consumer Products)
    
    Manufacturer of protective headgear
    
    Senior Secured Term Loan A(6.8%, Due 12/13) (3)
    
    
    4,500,000
    
    
    
    4,441,931
    
    
    
    4,372,731Senior Secured Term Loan B(7.3%, Due 12/13) (3)
    
    
    7,500,000
    
    
    
    7,396,294
    
    
    
    7,280,894Senior Subordinated Debt(15.0%, Due 6/14) (2)
    
    
    8,195,655
    
    
    
    8,087,784
    
    
    
    8,087,784Common Stock (4)
    
    
    
    
    
    
    2,000,000
    
    
    
    1,786,400Total Affiliate investments (represents 19.6% of total investments at fair value)
    
    
    
    
    
    $
    74,483,309
    
    
    $
    64,840,631
 6




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueNon-control/non-affiliate investments:ADAPCO, Inc.(Ecological)
    
    Distributor of specialty chemicals  and contract application services
    
    Revolving Line of Credit(9.3%, Due 7/11) (3)
    
    $
    3,000,000
    
    
    $
    2,982,413
    
    
    $
    2,982,413Senior Secured Term Loan A(12.5%, Due 6/11) (3)
    
    
    8,515,625
    
    
    
    8,462,863
    
    
    
    8,462,863Common Stock (4)
    
    
    
    
    
    
    500,000
    
    
    
    Aircraft Fasteners International, LLC(Machinery)
    
    Distributor of fasteners and related  hardware for usein aerospace,  electronics and defense industries
    
    Senior Secured Term Loan(7.2%, Due 11/12) (3)
    
    
    5,596,000
    
    
    
    5,509,446
    
    
    
    5,383,446Junior Secured Term Loan(14.0%, Due 5/13) (2) (3)
    
    
    5,279,266
    
    
    
    5,212,104
    
    
    
    5,212,104Convertible Preferred Stock (2)
    
    
    
    
    
    
    266,358
    
    
    
    573,900Allied Defense Group, Inc.(Aerospace & Defense)
    
    Diversified defense company
    
    Common Stock (4)
    
    
    
    
    
    
    463,168
    
    
    
    170,800Arrowhead General Insurance Agency, Inc. (6)(Insurance)
    
    Insurance agency and program specialist
    
    Junior Secured Term Loan (11.0%, Due 2/13) (3)
    
    
    5,000,000
    
    
    
    5,000,000
    
    
    
    3,650,000Borga, Inc.(Mining, Steel, Iron & Nonprecious Metals)
    
    Manufacturer of pre-fabricated metal  building systems
    
    Revolving Line of Credit(5.5%, Due 5/10) (3)
    
    
    800,000
    
    
    
    792,823
    
    
    
    792,823Senior Secured Term Loan A(6.0%, Due 5/09) (3)
    
    
    556,308
    
    
    
    551,940
    
    
    
    551,940Senior Secured Term Loan B(9.0%, Due 5/10) (3)
    
    
    1,641,147
    
    
    
    1,619,960
    
    
    
    1,619,960Senior Secured Term Loan C(16.0%, Due 5/10) (2) (3)
    
    
    8,034,855
    
    
    
    7,984,612
    
    
    
    7,984,612Common Stock Warrants (4)
    
    
    
    
    
    
    13,790
    
    
    
    Caleel + Hayden, LLC (5)(Personal & Nondurable Consumer Products)
    
    Provider of proprietary branded
professional skincareand cosmetic  products to physicians and spa communities
    
    Junior Secured Term Loan B(7.5%, Due 11/11) (3)
    
    
    10,798,437
    
    
    
    10,687,156
    
    
    
    10,687,156Senior Subordinated Debt(14.5%, Due 11/12) (3)
    
    
    6,250,000
    
    
    
    6,186,112
    
    
    
    6,311,112Common Stock (4)
    
    
    
    
    
    
    750,000
    
    
    
    852,100Cengage
Learning Acquisitions (6)(Printing & Publishing)
    
    Publisher of textbooks and educational  materials
    
    Senior Secured Term Loan (6.2%, Due 7/14)
    
    
    1,989,950
    
    
    
    1,849,815
    
    
    
    1,641,700CDW
Corporation (6)(Electronics)
    
    Direct marketer of computer and  peripheral equipment
    
    Senior Secured Term Loan (5.7%, Due 10/14)
    
    
    2,000,000
    
    
    
    1,773,397
    
    
    
    1,600,000
 7




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueCS Operating, LLC (5)(Buildings & Real Estate)
    
    Provider of maintenance, repair and  replacement of HVAC,electrical,  plumbing, and foundation repair
    
    Revolving Line of Credit(8.5%, Due 1/13) (3)
    
    
    200,000
    
    
    
    194,121
    
    
    
    194,121Senior Secured Term Loan A(8.8%, Due 7/12) (3)
    
    
    1,961,314
    
    
    
    1,935,614
    
    
    
    1,935,614Senior Subordinated Debt(16.5%, Due 1/13) (2) (3)
    
    
    2,575,723
    
    
    
    2,543,697
    
    
    
    2,543,697Copperhead Chemical Company, Inc.(Chemicals, Plastics & Rubber)
    
    Manufacturer of bulk pharmaceuticals
    
    Senior Subordinated Debt (18.0%, Due 1/13) (2) (3)
    
    
    3,638,348
    
    
    
    3,608,052
    
    
    
    3,058,904Custom Direct, Inc. (6)(Printing & Publishing)
    
    Direct marketer of checks and other  financial products and services
    
    Senior Secured Term Loan(6.5%, Due 12/13) (3)
    
    
    1,852,074
    
    
    
    1,597,805
    
    
    
    1,296,500Junior Secured Term Loan(9.8%, Due 12/14) (3)
    
    
    2,000,000
    
    
    
    2,000,000
    
    
    
    970,000Dover Saddlery, Inc.(Retail Stores)
    
    Equestrian products catalog retailer
    
    Common Stock (4)
    
    
    
    
    
    
    148,200
    
    
    
    80,200Employbridge Holding Company (5) (6)(Personal, Food & Miscellaneous Services)
    
    A provider of specialized staffing  services
    
    Junior Secured Term Loan (10.7%, Due 10/13) (3)
    
    
    3,000,000
    
    
    
    3,000,000
    
    
    
    2,550,000EXL Acquisition Corp.(Electronics)
    
    Manufacturer of lab testing supplies
    
    Senior Secured Term Loan A(6.6%, Due 3/11) (3)
    
    
    3,665,689
    
    
    
    3,641,422
    
    
    
    3,549,533Senior Secured Term Loan B(6.9%, Due 3/12) (3)
    
    
    4,614,802
    
    
    
    4,564,388
    
    
    
    4,448,686Senior Secured Term Loan C(7.4%, Due 3/12) (3)
    
    
    2,846,300
    
    
    
    2,805,966
    
    
    
    2,734,666Senior Secured Term Loan D(15.0%, Due 3/12) (3)
    
    
    6,708,451
    
    
    
    6,647,060
    
    
    
    6,647,060Common Stock  Class A (4)
    
    
    
    
    
    
    2,475
    
    
    
    218,300Common Stock  Class B (2)
    
    
    
    
    
    
    272,896
    
    
    
    275,000Fairchild Industrial Products, Co.(Electronics)
    
    Manufacturer of industrial controls and  power transmission products
    
    Senior Secured Term Loan A(6.3%, Due 7/10) (3)
    
    
    1,842,438
    
    
    
    1,827,701
    
    
    
    1,827,701Senior Secured Term Loan B(7.9%, Due 7/11) (3)
    
    
    4,540,625
    
    
    
    4,508,529
    
    
    
    4,508,529Senior Subordinated Debt(14.8%, Due 7/11) (3)
    
    
    5,460,000
    
    
    
    5,413,980
    
    
    
    5,413,980Preferred Stock  Class A (2)
    
    
    
    
    
    
    347,106
    
    
    
    349,800Common Stock  Class B (4)
    
    
    
    
    
    
    121,598
    
    
    
    436,000Hudson 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)
    
    
    7,500,000
    
    
    
    7,278,359
    
    
    
    7,237,500
 8




---



##### 



Company (1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    Cost
    
    ValueImpact Products, LLC(Machinery)
        
        Distributor of janitorial supplies
        
        Junior Secured Term Loan (9.1%, Due 9/12) (3)
        
        
        8,912,500
        
        
        
        8,855,513
        
        
        
        8,488,513Senior Subordinated Debt (15.0%, Due 9/12) (2) (3)
        
        
        5,547,993
        
        
        
        5,515,741
        
        
        
        5,515,741Keltner Enterprises,
            LLC (5)(Oil & Gas)
        
        Distributor of automotive oils, chemicals
          and parts
        
        Senior Subordinated Debt
          (14.0%, Due 12/11) (3)
        
        
        3,850,000
        
        
        
        3,839,897
        
        
        
        3,839,897Label Corp Holdings,
            Inc. (6)(Printing & Publishing)
        
        Manufacturer of prime labels
        
        Senior Secured Term Loan
          (8.0%, Due 8/14) (3)
        
        
        6,500,000
        
        
        
        6,181,148
        
        
        
        6,110,000L.A. Spas, Inc.(Chemicals,
            Plastics & Rubber)
        
        Manufacturer of above ground
          spas
        
        Revolving Line of Credit(9.4%, Due 12/09) (3)
        
        
        525,000
        
        
        
        513,447
        
        
        
        513,447Senior Secured Term Loan(9.7%, Due 12/09) (3)
        
        
        4,165,430
        
        
        
        4,069,404
        
        
        
        4,069,404Senior Subordinated Debt(17.5%, Due 1/10) (2) (3)
        
        
        7,901,241
        
        
        
        7,871,906
        
        
        
        7,649,765Preferred Stock (4)
        
        
        
        
        
        
        90
        
        
        
        Common Stock (4)
        
        
        
        
        
        
        10
        
        
        
        Common Stock Warrants (4)
        
        
        
        
        
        
        3,726
        
        
        
        LHC Holdings Corp.(Healthcare, Education & Childcare)
        
        Provider of home healthcare
          services
        
        Senior Secured Term Loan A(7.8%, Due 11/12) (3)
        
        
        4,249,092
        
        
        
        4,202,650
        
        
        
        4,181,558Senior Subordinated Debt(14.5%, Due 5/13) (3)
        
        
        4,565,000
        
        
        
        4,515,264
        
        
        
        4,515,264Membership Interest (4)
        
        
        
        
        
        
        125,000
        
        
        
        173,500Mac & Massey Holdings, LLC(Grocery)
        
        Broker and distributor of ingredients
          to manufacturers of food products
        
        Senior Subordinated Debt(16.5%, Due 2/13) (2) (3)
        
        
        7,812,369
        
        
        
        7,781,844
        
        
        
        7,781,844Common Stock (4)
        
        
        
        
        
        
        242,820
        
        
        
        294,100Northwestern Management
            Services, LLC(Healthcare, Education & Childcare)
        
        Provider of dental services
        
        Senior Secured Term Loan A(7.7%, Due 12/12) (3)
        
        
        5,685,000
        
        
        
        5,632,920
        
        
        
        5,530,520Senior Secured Term Loan B(8.2%, Due 12/12) (3)
        
        
        1,240,625
        
        
        
        1,228,995
        
        
        
        1,206,670Junior Secured Term Loan(15.0%, Due 6/13) (2) (3)
        
        
        2,817,653
        
        
        
        2,792,539
        
        
        
        2,792,539Common Stock (4)
        
        
        
        
        
        
        500,000
        
        
        
        392,500Prince Mineral Company,
            Inc.(Metals & Minerals)
        
        Manufacturer of pigments
        
        Junior Secured Term Loan
          (7.8%, Due 12/12) (3)
        
        
        11,300,000
        
        
        
        11,149,053
        
        
        
        10,934,353Senior Subordinated Debt(14.0%, Due 7/13) (2) (3)
        
        
        12,003,728
        
        
        
        11,880,711
        
        
        
        11,561,483
 9




---



##### 



Company(1)(Industry)
        
        Company
          Description
        
        Investment
        
        Principal
        
        Cost
        
        ValueQuartermaster,
Inc.(Retail Stores)
        
        Retailer of uniforms and tactical
          equipment to lawenforcement and security professionals
        
        Revolving Line of Credit(7.8%, Due 12/10) (3)
        
        
        2,000,000
        
        
        
        1,978,928
        
        
        
        1,978,928Senior Secured Term Loan A(7.6%, Due 12/10) (3)
        
        
        3,469,000
        
        
        
        3,436,277
        
        
        
        3,436,277Senior Secured Term Loan B(8.9%, Due 12/10) (3)
        
        
        2,550,000
        
        
        
        2,530,406
        
        
        
        2,530,406Senior Secured Term Loan C(15.0%, Due 12/11) (2) (3)
        
        
        3,373,951
        
        
        
        3,347,859
        
        
        
        3,347,859R-O-M Corporation(Automobile)
        
        Manufacturer of doors, ramps
          and bulk heads for firetrucks and food transportation
        
        Senior Secured Term Loan A(5.8%, Due 2/13) (3)
        
        
        6,840,000
        
        
        
        6,776,821
        
        
        
        6,638,521Senior Secured Term Loan B(7.3%, Due 5/13) (3)
        
        
        8,400,375
        
        
        
        8,307,295
        
        
        
        8,137,520Senior Subordinated Debt(15.0%, Due 8/13) (2) (3)
        
        
        9,100,000
        
        
        
        9,006,243
        
        
        
        9,006,243Texas Competitive Electric
            Holdings Company, LLC (6)(Utilities)
        
        Generation and sale of electricity
        
        Senior Secured Term Loan
          (6.2%, Due 10/14)
        
        
        1,989,950
        
        
        
        1,865,070
        
        
        
        1,681,500Total Non-control/non-affiliate investments
          (represents 69.8% of total investments at fair value)
        
        
        $
        237,216,503
        
        
        $
        231,061,072Total Investments
        
        
        
        
        
        $
        354,970,364
        
        
        $
        331,073,227
 
 (1)
    
    Affiliate investments are generally defined under the Investment Company Act of 1940, as amended (the 1940 Act),
as companies in which the Company owns at least 5% but not more than 25% of the voting securities of the company.
Control investments are generally defined under the 1940 Act as companies in which the Company owns more than 25%
of the voting securities of the company or has greater than 50% representation on its board.(2)
    
    Amount includes payment-in-kind (PIK) interest or dividends.(3)
    
    Pledged as collateral under the Companys Securitization Facility. See Note 4 to Consolidated Financial Statements.(4)
    
    Non-income producing.(5)
    
    Some of the investments listed are issued by an affiliate of the listed portfolio company.(6)
    
    Syndicated investment which has been originated by another financial institution and broadly distributed.  10




---



##### 



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




---



##### 



Company(1)(Industry)
    
    Company Description
    
    Investment
    
    Principal
    
    
    Cost
    
    
    ValueSmart, LLC (5)(Diversified/ Conglomerate Service)
    
    Provider of tuition management services
    
    Revolving Line of Credit (12.3%, Due 8/11) (3)
    
    
    870,000
    
    
    
    822,799
    
    
    
    822,799Senior Secured Term Loan A(12.3%, Due 8/11) (3)
    
    
    3,862,500
    
    
    
    3,817,733
    
    
    
    3,817,733Senior Secured Term Loan B(19.0%, Due 2/12) (2) (3)
    
    
    3,668,965
    
    
    
    3,626,308
    
    
    
    3,626,308Convertible Subordinated Note(22.0%, Due 8/12)
    
    
    250,000
    
    
    
    250,000
    
    
    
    250,000Membership Interest  Class B (4)
    
    
    
    
    
    
    1,000,000
    
    
    
    729,100Sport
Helmets Holdings, LLC (5)(Personal & Nondurable Consumer
Products)
    
    Manufacturer of protective headgear
    
    Senior Secured Term Loan A(9.0%, Due 12/13)
    
    

    4,500,000
    
    
    
    4,431,440
    
    
    
    4,431,440Senior Secured Term Loan B(9.5%, Due 12/13)
    
    
    7,500,000
    
    
    
    7,385,336
    
    
    
    7,385,336Senior Subordinated Debt(15.0%, Due 6/14) (2)
    
    
    8,011,333
    
    
    
    7,889,250
    
    
    
    7,889,250Common Stock (4)
    
    
    
    
    
    
    2,000,000
    
    
    
    1,901,500Vince & Associates Clinical Research, Inc.(Healthcare, Education & Childcare)
    
    Provider of clinical testing services
    
    Senior Secured Term
Loan(10.0%, Due 11/12) (2) (3)
    
    
    7,500,000
    
    
    
    7,391,657
    
    
    
    7,391,657Senior Subordinated Debt(15.0%, Due 5/13) (2)
    
    
    5,521,561
    
    
    
    5,441,483
    
    
    
    5,441,483Convertible Preferred Stock (4)
    
    
    
    
    
    
    500,000
    
    
    
    592,900Total Affiliate investments (represents 22.1% of total investments at fair value)
    
    
    $
    86,577,905
    
    
    $
    85,171,605Non-control/non-affiliate investments:ADAPCO,
Inc.(Ecological)
    
    Distributor of specialty chemicals and contract application services
    
    Revolving Line of Credit(9.0%, Due 7/11) (3)
    
    $
    2,200,000
    
    
    $
    2,177,697
    
    
    $
    2,177,697Senior Secured Term Loan A(10.5%, Due 6/11) (3)
    
    
    13,016,250
    
    
    
    12,916,093
    
    
    
    12,216,143Common Stock (4)
    
    
    
    
    
    
    500,000
    
    
    
    Aircraft
Fasteners International, LLC(Machinery)
    
    Distributor of fasteners and
related hardware for use in aerospace, electronics and defense industries
    
    Senior Secured Term Loan (8.3%, Due 11/12) (3)
    
    
    6,800,000
    
    
    
    6,697,869
    
    
    
    6,697,869Junior Secured Term Loan(14.0%, Due 5/13) (2) (3)
    
    
    5,200,000
    
    
    
    5,121,815
    
    
    
    5,121,815Convertible Preferred Stock (2)
    
    
    
    
    
    
    253,342
    
    
    
    341,800Allied
Defense Group, Inc.(Aerospace
& Defense)
    
    Diversified defense company
    
    Common Stock (4)
    
    
    
    
    
    
    463,168
    
    
    
    161,600
 12




---



##### 



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




---



##### 



Company(1)(Industry)
        
        Company Description
        
        Investment
        
        Principal
        
        
        Cost
        
        
        ValueEncore Legal Solutions,
            Inc.(Printing & Publishing)
        
        Legal document management services
        
        Junior Secured Term Loan A(10.7%, Due 6/10) (2) (3)
        
        
        3,949,437
        
        
        
        3,925,802
        
        
        
        3,925,802Junior Secured Term Loan B(10.8%, Due 6/10) (2) (3)
        
        
        7,193,143
        
        
        
        7,138,192
        
        
        
        7,138,192Senior Subordinated Debt(15.0%, Due 6/10) (2) (3)
        
        
        5,926,861
        
        
        
        5,889,187
        
        
        
        3,489,226Common Stock Warrants (4)
        
        
        
        
        
        
        219,791
        
        
        
        EXL Acquisition Corp.(Electronics)
        
        Manufacturer of lab testing supplies
        
        Senior Secured Term Loan A(8.4%, Due 3/11) (3)
        
        

        4,800,000
        
        
        
        4,761,933
        
        
        
        4,761,933Senior Secured Term Loan B(8.9%, Due 3/12) (3)
        
        
        4,851,840
        
        
        
        4,792,326
        
        
        
        4,792,326Senior Secured Term Loan C(9.4%, Due 3/12) (3)
        
        
        2,992,500
        
        
        
        2,944,981
        
        
        
        2,944,981Senior Secured Term Loan D(15.0%, Due 3/12) (3)
        
        
        7,000,000
        
        
        
        6,925,241
        
        
        
        6,925,241Common Stock  Class A (4)
        
        
        
        
        
        
        2,475
        
        
        
        123,900Common Stock  Class B (2)
        
        
        
        
        
        
        254,057
        
        
        
        255,325Fairchild Industrial
            Products, Co.(Electronics)
        
        Manufacturer of industrial controls
          and power transmission products
        
        Senior Secured Term Loan A(8.3%, Due 7/10) (3)
        
        
        5,580,000
        
        
        
        5,531,331
        
        
        
        5,531,331Senior Secured Term Loan B(10.0%, Due 7/11) (3)
        
        
        9,325,000
        
        
        
        9,239,973
        
        
        
        9,239,973Senior Subordinated Debt(14.8%, Due 7/11)
        
        
        5,460,000
        
        
        
        5,401,721
        
        
        
        5,401,721Preferred Stock  Class A (2)
        
        
        
        
        
        
        327,879
        
        
        
        327,879Common Stock  Class B (4)
        
        
        
        
        
        
        121,598
        
        
        
        293,200Impact
Products, LLC(Machinery)
        
        Distributor of janitorial supplies
        
        Junior Secured Term Loan(9.5%, Due 9/12) (3)
        
        
        8,968,750
        
        
        
        8,903,106
        
        
        
        8,903,106Senior Subordinated Debt(13.5%, Due 9/12) (2) (3)
        
        
        5,547,996
        
        
        
        5,509,594
        
        
        
        5,509,594Innovative Concepts
            in Entertainment, Inc.(Personal & Nondurable
Consumer Products)

        
        Manufacturer of coin operated games
        
        Junior Secured Term Loan A(9.0%, Due 2/11) (3)
        
        
        4,312,500
        
        
        
        4,292,854
        
        
        
        4,292,854Junior Secured Term Loan B(9.5%, Due 2/11) (3)
        
        
        3,537,000
        
        
        
        3,519,896
        
        
        
        3,519,896Junior Secured Term Loan C(13.0%, Due 8/11) (3)
        
        
        3,900,000
        
        
        
        3,881,940
        
        
        
        3,881,940Keltner Enterprises,
            LLC (5)(Oil & Gas)
        
        Distributor of automotive oils, chemicals
          and parts
        
        Senior Subordinated Debt(14.0%, Due 12/11) (3)
        
        
        3,850,000
        
        
        
        3,837,555
        
        
        
        3,837,555
 14




---



##### 



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




---



##### 



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




---



##### 



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




---



##### 



Federal Income Taxes
  Dividends Paid
   Reclassifications
   Statement of
Financial Standards No. 157Fair Value Measurements
  September 30, 2008
    
    
    December 31, 2007Cost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair ValueInvestments in debt securities
    
    $
    334,847,173
    
    
    $
    313,947,634
    
    
    $
    375,410,033
    
    
    $
    371,261,022Investments in equity securities
    
    
    20,123,191
    
    
    
    17,125,593
    
    
    
    12,834,988
    
    
    
    13,464,731Total
    
    $
    354,970,364
    
    
    $
    331,073,227
    
    
    $
    388,245,021
    
    
    $
    384,725,753
  18




---



##### 



September 30, 2008
    
    
    December 31, 2007Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)
    
    
    Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)Senior Secured Debt
    
    $
    174,577,045
    
    
    
    49.2
    %
    
    $
    166,216,902
    
    
    
    50.2
    %
    
    $
    190,048,200
    
    
    
    49.0
    %
    
    $
    189,209,150
    
    
    
    49.2
    %Junior Secured Debt
    
    
    64,189,205
    
    
    
    18.1
    
    
    
    60,045,462
    
    
    
    18.1
    
    
    
    85,493,227
    
    
    
    22.0
    
    
    
    84,583,227
    
    
    
    22.0Subordinated Debt
    
    
    96,080,923
    
    
    
    27.1
    
    
    
    87,685,270
    
    
    
    26.5
    
    
    
    99,868,606
    
    
    
    25.7
    
    
    
    97,468,645
    
    
    
    25.3Warrants / Equity
    
    
    20,123,191
    
    
    
    5.6
    
    
    
    17,125,593
    
    
    
    5.2
    
    
    
    12,834,988
    
    
    
    3.3
    
    
    
    13,464,731
    
    
    
    3.5Total
    
    $
    354,970,364
    
    
    
    100.0
    %
    
    $
    331,073,227
    
    
    
    100.0
    %
    
    $
    388,245,021
    
    
    
    100.0
    %
    
    $
    384,725,753
    
    
    
    100.0
    %
 
 (1)
    
    Represents percentage of total portfolio.  September 30, 2008
    
    
    December 31, 2007Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)
    
    
    Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)Machinery
    
    $
    51,388,099
    
    
    
    14.5
    %
    
    $
    43,789,448
    
    
    
    13.2
    %
    
    $
    52,844,315
    
    
    
    13.6
    %
    
    $
    54,030,773
    
    
    
    14.0
    %Personal & Nondurable Consumer Products
    
    
    39,549,277
    
    
    
    11.1
    
    
    
    39,378,177
    
    
    
    11.9
    
    
    
    51,070,705
    
    
    
    13.2
    
    
    
    51,280,805
    
    
    
    13.3Automobile
    
    
    33,476,785
    
    
    
    9.4
    
    
    
    27,765,352
    
    
    
    8.4
    
    
    
    34,044,318
    
    
    
    8.8
    
    
    
    33,957,022
    
    
    
    8.8Electronics
    
    
    31,926,518
    
    
    
    9.0
    
    
    
    32,009,255
    
    
    
    9.7
    
    
    
    42,296,015
    
    
    
    10.9
    
    
    
    42,470,710
    
    
    
    11.0Textiles & Leather
    
    
    31,188,326
    
    
    
    8.8
    
    
    
    31,594,914
    
    
    
    9.5
    
    
    
    12,970,522
    
    
    
    3.3
    
    
    
    13,077,422
    
    
    
    3.4Printing & Publishing
    
    
    28,143,866
    
    
    
    7.9
    
    
    
    23,113,588
    
    
    
    7.0
    
    
    
    19,172,972
    
    
    
    4.9
    
    
    
    16,303,220
    
    
    
    4.2Metals & Minerals
    
    
    23,029,764
    
    
    
    6.5
    
    
    
    22,495,836
    
    
    
    6.8
    
    
    
    22,972,190
    
    
    
    5.9
    
    
    
    22,972,190
    
    
    
    6.0Health Care, Education & Childcare
    
    
    18,997,368
    
    
    
    5.4
    
    
    
    18,792,551
    
    
    
    5.7
    
    
    
    33,686,998
    
    
    
    8.7
    
    
    
    33,779,798
    
    
    
    8.8Mining, Steel, Iron & Nonprecious Metals
    
    
    18,241,484
    
    
    
    5.2
    
    
    
    18,186,835
    
    
    
    5.5
    
    
    
    10,796,410
    
    
    
    2.8
    
    
    
    10,785,664
    
    
    
    2.8Chemicals, Plastic & Rubber
    
    
    16,066,635
    
    
    
    4.5
    
    
    
    15,291,520
    
    
    
    4.6
    
    
    
    10,733,851
    
    
    
    2.8
    
    
    
    10,730,842
    
    
    
    2.8Ecological
    
    
    11,945,276
    
    
    
    3.4
    
    
    
    11,445,276
    
    
    
    3.5
    
    
    
    15,593,790
    
    
    
    4.0
    
    
    
    14,393,840
    
    
    
    3.7Retail Stores
    
    
    11,441,670
    
    
    
    3.2
    
    
    
    11,373,670
    
    
    
    3.4
    
    
    
    10,656,911
    
    
    
    2.7
    
    
    
    10,637,911
    
    
    
    2.8Housewares & Durable Consumer Products
    
    
    11,138,329
    
    
    
    3.1
    
    
    
    10,162,332
    
    
    
    3.0
    
    
    
    9,673,177
    
    
    
    2.5
    
    
    
    9,686,477
    
    
    
    2.5Grocery
    
    
    8,024,664
    
    
    
    2.3
    
    
    
    8,075,944
    
    
    
    2.4
    
    
    
    23,149,458
    
    
    
    6.0
    
    
    
    23,287,658
    
    
    
    6.1Insurance
    
    
    5,000,000
    
    
    
    1.4
    
    
    
    3,650,000
    
    
    
    1.1
    
    
    
    5,000,000
    
    
    
    1.3
    
    
    
    4,500,000
    
    
    
    1.2Buildings & Real Estate
    
    
    4,673,432
    
    
    
    1.3
    
    
    
    4,673,432
    
    
    
    1.4
    
    
    
    4,780,826
    
    
    
    1.2
    
    
    
    4,780,826
    
    
    
    1.2Oil & Gas
    
    
    3,839,897
    
    
    
    1.1
    
    
    
    3,839,897
    
    
    
    1.2
    
    
    
    3,837,555
    
    
    
    1.0
    
    
    
    3,837,555
    
    
    
    1.0Personal, Food & Miscellaneous Services
    
    
    3,000,000
    
    
    
    0.9
    
    
    
    2,550,000
    
    
    
    0.8
    
    
    
    3,000,000
    
    
    
    0.8
    
    
    
    2,910,000
    
    
    
    0.8Utilities
    
    
    1,865,070
    
    
    
    0.5
    
    
    
    1,681,500
    
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diversified/Conglomerate Service
    
    
    1,570,736
    
    
    
    0.4
    
    
    
    1,032,900
    
    
    
    0.3
    
    
    
    9,516,840
    
    
    
    2.4
    
    
    
    9,245,940
    
    
    
    2.4Aerospace & Defense
    
    
    463,168
    
    
    
    0.1
    
    
    
    170,800
    
    
    
    0.1
    
    
    
    463,168
    
    
    
    0.1
    
    
    
    161,600
    
    
    
    0.1Beverage, Food & Tobacco
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,000,000
    
    
    
    2.3
    
    
    
    9,000,000
    
    
    
    2.3Containers, Packaging & Glass
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,985,000
    
    
    
    0.8
    
    
    
    2,895,500
    
    
    
    0.8Total
    
    $
    354,970,364
    
    
    
    100.0
    %
    
    $
    331,073,227
    
    
    
    100.0
    %
    
    $
    388,245,021
    
    
    
    100.0
    %
    
    $
    384,725,753
    
    
    
    100.0
    %
 
 (1)
    
    Represents percentage of total portfolio.  19




---



##### 



As of September 30, 2008Internal Models with
    
    Internal Models with
    
    Total Fair ValueQuoted Market Prices
    
    Significant Observable
    
    Significant Unobservable
    
    Reported inin Active Markets
    
    Market Parameters
    
    Market Parameters
    
    Consolidated(Level 1)
    
    (Level 2)
    
    (Level 3)
    
    Balance SheetNon-affiliate investments
    
    $
    251,000
    
    
    $
    26,737,200
    
    
    $
    204,072,872
    
    
    $
    231,061,072Affiliate investments
    
    
    
    
    
    
    
    
    
    
    64,840,631
    
    
    
    64,840,631Control investments
    
    
    
    
    
    
    
    
    
    
    35,171,524
    
    
    
    35,171,524Total investments at fair value
    
    $
    251,000
    
    
    $
    26,737,200
    
    
    $
    304,085,027
    
    
    $
    331,073,227
  Fair value measurements using unobservable inputs (Level 3)Non-affiliate
    
    Affiliate
    
    ControlInvestments
    
    Investments
    
    Investments
    
    TotalFair Value December 31, 2007
    
    $
    267,006,559
    
    
    $
    85,171,605
    
    
    $
    9,328,389
    
    
    $
    361,506,553Total realized gains (losses)
    
    
    
    
    
    
    458,405
    
    
    
    (350,000
    )
    
    
    108,405Change in unrealized depreciation
    
    
    (1,600,654
    )
    
    
    (8,756,098
    )
    
    
    (7,669,842
    )
    
    
    (18,026,594
    )Purchases, issuances, settlements and other, net
    
    
    (61,333,033
    )
    
    
    (12,033,281
    )
    
    
    33,862,977
    
    
    
    (39,503,337
    )Transfers in (out) of Level 3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fair value as of September 30, 2008
    
    $
    204,072,872
    
    
    $
    64,840,631
    
    
    $
    35,171,524
    
    
    $
    304,085,027
  20




---



##### 



21




---



##### 



Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Interest charges
    
    $
    1,579,647
    
    
    $
    1,981,617
    
    
    $
    5,299,168
    
    
    $
    4,927,691Amortization of debt issuance costs
    
    
    131,728
    
    
    
    62,593
    
    
    
    322,360
    
    
    
    202,711Unused facility fees
    
    
    78,380
    
    
    
    23,257
    
    
    
    152,980
    
    
    
    85,786Total
    
    $
    1,789,755
    
    
    $
    2,067,467
    
    
    $
    5,774,508
    
    
    $
    5,216,188
       22




---



##### 



Three Months Ended September 30,
    
    Nine Months Ended September 30,2008
    
    2007
    
    2008
    
    2007Weighted average common shares outstanding, basic
    
    
    20,702,485
    
    
    
    18,284,737
    
    
    
    20,682,167
    
    
    
    18,024,294Effect of dilutive stock options
    
    
    
    
    
    
    191,312
    
    
    
    
    
    
    
    191,312Weighted average common shares outstanding, diluted
    
    
    20,702,485
    
    
    
    18,476,049
    
    
    
    20,682,167
    
    
    
    18,215,606
     Date Declared
    
    Record Date
    
    Payment Date
    
    AmountJuly 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
    
    $
    0.33November 1, 2007
    
    December 14, 2007
    
    January 16, 2008
    
    $
    0.33August 2, 2007
    
    September 14, 2007
    
    October 17, 2007
    
    $
    0.32April 30, 2007
    
    June 15, 2007
    
    July 17, 2007
    
    $
    0.32February 23, 2007
    
    March 15, 2007
    
    April 18, 2007
    
    $
    0.32
   23




---



##### 



January 1, 2008toSeptember 30, 2008GAAP net investment income
    
    $
    19,762,000Tax timing differences of:Origination fees, net
    
    
    (947,000
    )Stock compensation expense, bonus accruals, original
issue discount and depreciation and amortization
    
    
    (990,000
    )Tax distributable income
    
    $
    17,825,000
    24




---



##### 



For the Nine Months EndedSeptember 30,2008
    
    
    2007Per Share Data:Net asset value at beginning of period
    
    $
    10.73
    
    
    $
    10.37Net investment income
    
    
    .95
    
    
    
    .90Net gain (loss) on investments
    
    
    
    
    
    
    .01Net change in unrealized appreciation (depreciation)
on investments
    
    
    (.98
    )
    
    
    (.06
    )Effect of issuance of common stock
    
    
    
    
    
    
    .41Distributions from net investment income
    
    
    (.95
    )
    
    
    (.90
    )Tax return of capital
    
    
    
    
    
    
    (.02
    )Distributions in excess of net investment income
    
    
    (.04
    )
    
    
    (.05
    )Net change in unrealized swap depreciation
    
    
    
    
    
    
    (.02
    )Stock based compensation expense
    
    
    .03
    
    
    
    .03Net asset value at end of period
    
    $
    9.74
    
    
    $
    10.67Total net asset value return (1)
    
    
    0.0
    %
    
    
    12.3
    %Per share market value, beginning of period
    
    $
    10.09
    
    
    $
    14.49Per share market value, end of period
    
    $
    6.37
    
    
    $
    13.37Total market value return (2)
    
    
    (27.0
    )%
    
    
    (1.0
    )%Shares outstanding at end of period
    
    
    20,702,485
    
    
    
    18,291,982Ratios and Supplemental Data:Net assets at end of period
    
    $
    201,589,000
    
    
    $
    195,230,000Average net assets
    
    
    211,657,000
    
    
    
    195,495,000Ratio of operating expenses to average
net assets (annualized)
    
    
    7.8
    %
    
    
    7.9
    %Ratio of net investment income to
average net assets (annualized)
    
    
    12.4
    %
    
    
    11.1
    %Average borrowings outstanding
    
    $
    138,173,000
    
    
    $
    98,682,000Average amount of borrowings per
share
    
    $
    6.67
    
    
    $
    5.39
 
 (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.     25




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   
    
    Our future operating results;
    
    Our business prospects and the prospects of our portfolio companies;
    
    The impact of the investments that we expect to make;
    
    The ability of our portfolio companies to achieve their objectives;
    
    Our expected financings and investments;
    
    The adequacy of our cash resources and working capital; and
    
    The timing of cash flows, if any, from the operations of our portfolio companies.
  
    
    changes in the economy, including economic downturns or recessions;
    
    continued instability in the financial markets, and
    
    future changes in laws, accounting pronouncements or regulations.
  Overview
  Current Market Conditions
  26




---



##### 



Portfolio Composition
   September 30, 2008
    
    
    December 31, 2007Beginning portfolio at fair value
    
    $
    384,725,753
    
    
    $
    257,812,235Investments in debt securities
    
    
    58,021,787
    
    
    
    191,391,250Investments in equity securities
    
    
    2,245,936
    
    
    
    8,925,000Investment repayments
    
    
    (86,432,830
    )
    
    
    (67,332,023
    )Increase in payment-in-kind interest/dividends
    
    
    4,275,711
    
    
    
    3,928,159Sale of investments
    
    
    (11,287,500
    )
    
    
    (5,374,749
    )Change in unearned revenue
    
    
    (108,349
    )
    
    
    (986,413
    )Decrease in fair value of investments
    
    
    (20,367,281
    )
    
    
    (3,637,706
    )Ending portfolio at fair value
    
    $
    331,073,227
    
    
    $
    384,725,753
  September 30, 2008
    
    
    December 31, 2007Investments at
    
    
    Percentage of
    
    
    Investments at
    
    
    Percentage ofFair Value
    
    
    Total Portfolio
    
    
    Fair Value
    
    
    Total PortfolioSenior secured revolving lines of credit
    
    $
    14,016,373
    
    
    
    4.2
    %
    
    $
    14,841,169
    
    
    
    3.9
    %Senior secured term loans
    
    
    152,200,529
    
    
    
    46.0
    
    
    
    174,367,981
    
    
    
    45.3Junior secured term loans
    
    
    60,045,462
    
    
    
    18.1
    
    
    
    84,583,227
    
    
    
    22.0Senior subordinated debt
    
    
    87,685,270
    
    
    
    26.5
    
    
    
    97,468,645
    
    
    
    25.3Investments in equity securities
    
    
    17,125,593
    
    
    
    5.2
    
    
    
    13,464,731
    
    
    
    3.5Totals
    
    $
    331,073,227
    
    
    
    100.0
    %
    
    $
    384,725,753
    
    
    
    100.0
    %
 27




---



##### 



September 30, 2008
    
    
    December 31, 2007Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)
    
    
    Cost
    
    
    % (1)
    
    
    Fair Value
    
    
    % (1)Machinery
    
    $
    51,388,099
    
    
    
    14.5
    %
    
    $
    43,789,448
    
    
    
    13.2
    %
    
    $
    52,844,315
    
    
    
    13.6%
    
    
    $
    54,030,773
    
    
    
    14.0
    %Personal & Nondurable Consumer Products
    
    
    39,549,277
    
    
    
    11.1
    
    
    
    39,378,177
    
    
    
    11.9
    
    
    
    51,070,705
    
    
    
    13.2
    
    
    
    51,280,805
    
    
    
    13.3Automobile
    
    
    33,476,785
    
    
    
    9.4
    
    
    
    27,765,352
    
    
    
    8.4
    
    
    
    34,044,318
    
    
    
    8.8
    
    
    
    33,957,022
    
    
    
    8.8Electronics
    
    
    31,926,518
    
    
    
    9.0
    
    
    
    32,009,255
    
    
    
    9.7
    
    
    
    42,296,015
    
    
    
    10.9
    
    
    
    42,470,710
    
    
    
    11.0Textiles & Leather
    
    
    31,188,326
    
    
    
    8.8
    
    
    
    31,594,914
    
    
    
    9.5
    
    
    
    12,970,522
    
    
    
    3.3
    
    
    
    13,077,422
    
    
    
    3.4Printing & Publishing
    
    
    28,143,866
    
    
    
    7.9
    
    
    
    23,113,588
    
    
    
    7.0
    
    
    
    19,172,972
    
    
    
    4.9
    
    
    
    16,303,220
    
    
    
    4.2Metals & Minerals
    
    
    23,029,764
    
    
    
    6.5
    
    
    
    22,495,836
    
    
    
    6.8
    
    
    
    22,972,190
    
    
    
    5.9
    
    
    
    22,972,190
    
    
    
    6.0Health Care, Education & Childcare
    
    
    18,997,368
    
    
    
    5.4
    
    
    
    18,792,551
    
    
    
    5.7
    
    
    
    33,686,998
    
    
    
    8.7
    
    
    
    33,779,798
    
    
    
    8.8Mining, Steel, Iron & Nonprecious Metals
    
    
    18,241,484
    
    
    
    5.2
    
    
    
    18,186,835
    
    
    
    5.5
    
    
    
    10,796,410
    
    
    
    2.8
    
    
    
    10,785,664
    
    
    
    2.8Chemicals, Plastic & Rubber
    
    
    16,066,635
    
    
    
    4.5
    
    
    
    15,291,520
    
    
    
    4.6
    
    
    
    10,733,851
    
    
    
    2.8
    
    
    
    10,730,842
    
    
    
    2.8Ecological
    
    
    11,945,276
    
    
    
    3.4
    
    
    
    11,445,276
    
    
    
    3.5
    
    
    
    15,593,790
    
    
    
    4.0
    
    
    
    14,393,840
    
    
    
    3.7Retail Stores
    
    
    11,441,670
    
    
    
    3.2
    
    
    
    11,373,670
    
    
    
    3.4
    
    
    
    10,656,911
    
    
    
    2.7
    
    
    
    10,637,911
    
    
    
    2.8Housewares & Durable Consumer Products
    
    
    11,138,329
    
    
    
    3.1
    
    
    
    10,162,332
    
    
    
    3.0
    
    
    
    9,673,177
    
    
    
    2.5
    
    
    
    9,686,477
    
    
    
    2.5Grocery
    
    
    8,024,664
    
    
    
    2.3
    
    
    
    8,075,944
    
    
    
    2.4
    
    
    
    23,149,458
    
    
    
    6.0
    
    
    
    23,287,658
    
    
    
    6.1Insurance
    
    
    5,000,000
    
    
    
    1.4
    
    
    
    3,650,000
    
    
    
    1.1
    
    
    
    5,000,000
    
    
    
    1.3
    
    
    
    4,500,000
    
    
    
    1.2Buildings & Real Estate
    
    
    4,673,432
    
    
    
    1.3
    
    
    
    4,673,432
    
    
    
    1.4
    
    
    
    4,780,826
    
    
    
    1.2
    
    
    
    4,780,826
    
    
    
    1.2Oil & Gas
    
    
    3,839,897
    
    
    
    1.1
    
    
    
    3,839,897
    
    
    
    1.2
    
    
    
    3,837,555
    
    
    
    1.0
    
    
    
    3,837,555
    
    
    
    1.0Personal, Food & Miscellaneous Services
    
    
    3,000,000
    
    
    
    0.9
    
    
    
    2,550,000
    
    
    
    0.8
    
    
    
    3,000,000
    
    
    
    0.8
    
    
    
    2,910,000
    
    
    
    0.8Utilities
    
    
    1,865,070
    
    
    
    0.5
    
    
    
    1,681,500
    
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diversified/Conglomerate Service
    
    
    1,570,736
    
    
    
    0.4
    
    
    
    1,032,900
    
    
    
    0.3
    
    
    
    9,516,840
    
    
    
    2.4
    
    
    
    9,245,940
    
    
    
    2.4Aerospace & Defense
    
    
    463,168
    
    
    
    0.1
    
    
    
    170,800
    
    
    
    0.1
    
    
    
    463,168
    
    
    
    0.1
    
    
    
    161,600
    
    
    
    0.1Beverage, Food & Tobacco
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,000,000
    
    
    
    2.3
    
    
    
    9,000,000
    
    
    
    2.3Containers, Packaging & Glass
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,985,000
    
    
    
    0.8
    
    
    
    2,895,500
    
    
    
    0.8Total
    
    $
    354,970,364
    
    
    
    100.0
    %
    
    $
    331,073,227
    
    
    
    100.0
    %
    
    $
    388,245,021
    
    
    
    100.0
    %
    
    $
    384,725,753
    
    
    
    100.0
    %
 
 (1)
    
    Represents percentage of total portfolio.  28




---



##### 



Portfolio Asset Quality
   September 30, 2008
    
    
    December 31, 2007Investments at
    
    
    Percentage of
    
    
    Investments at
    
    
    Percentage ofInvestment Rating
    
    Fair Value
    
    
    Total Portfolio
    
    
    Fair Value
    
    
    Total Portfolio1
    
    $
    66,966,209
    
    
    
    21.3
    %
    
    $
    46,466,323
    
    
    
    12.5
    %2
    
    
    181,737,230
    
    
    
    57.9
    
    
    
    252,730,493
    
    
    
    68.13
    
    
    44,442,829
    
    
    
    14.2
    
    
    
    57,510,986
    
    
    
    15.54
    
    
    10,101,040
    
    
    
    3.2
    
    
    
    14,553,220
    
    
    
    3.95
    
    
    10,700,326
    
    
    
    3.4
    
    
    
    
    
    
    
    Totals
    
    $
    313,947,634
    
    
    
    100.0
    %
    
    $
    371,261,022
    
    
    
    100.0
    %
  Loans and Debt Securities on Non-Accrual Status
  Results of Operations
  Comparison for the three months ended September 30, 2008 and 2007
 Total Investment Income
   29




---



##### 



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




---



##### 



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




---



##### 



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




---



##### 



Borrowings
       33




---



##### 



Regulated Investment Company Status and Dividends
     Critical Accounting Policies
  Valuation of Portfolio Investments
    34




---



##### 



Fee Income Recognition
  Payment-in-Kind or PIK Interest and Dividends
   Nine Months EndedSeptember 30, 2008Beginning PIK balance
    
    $
    4,714,356PIK interest and dividends earned during the period
    
    
    4,275,711PIK conversion to equity
    
    
    (1,519,567
    )PIK receipts during the period
    
    
    (1,766,308
    )Ending PIK balance
    
    $
    5,704,192
 Interest and Dividend Income Recognition
  35




---



##### 



Off-Balance Sheet Arrangements
   Contractual Obligations
  Recent Developments
    36




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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, 2008 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
 37




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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. 38




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SIGNATURES
  PATRIOT CAPITAL FUNDING, INC.By:
    /s/ Richard P. BuckanavageRichard P. Buckanavage
Chief Executive Officer and PresidentBy:
    /s/     William E. Alvarez, Jr.William E. Alvarez, Jr.Executive Vice President, Chief Financial Officer and
Secretary 39