UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 
 FORM
10-Q
 (Mark
One)
 þ
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For
the quarterly period ended March 31, 2010
  OR
   ̈
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For
the transition period
from             to
  Commission
file number: 814-00672
  
  NGP
Capital Resources Company
 (Exact
name of registrant as specified in its charter)
  
  Maryland
                20-1371499(State or other jurisdiction of
                  incorporation or organization)
                (I.R.S. Employer
                  Identification No.)1221 McKinney Street, Suite 2975
                  Houston, Texas
                77010(Address of principal executive offices)
                (Zip Code)
 
 (713)
752-0062
 (Registrant’s
telephone number, including area code)
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes 
þ   No
 ̈
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes  ̈ No  ̈
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large
      accelerated filer    ̈
              Accelerated
      filer     þ
              Non-accelerated
      filer      ̈
              Smaller
      reporting company    ̈(Do
      not check if smaller reporting
company)
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes  ̈   No þ
 
 As of May
7, 2010, there were 21,628,202 shares of the registrant’s common stock
outstanding.
  
 
 TABLE OF
CONTENTS
 
 PART
      I - FINANCIAL INFORMATION
                1Item
      1.     Consolidated Financial
      Statements
                1Item
      2.     Management’s Discussion and Analysis of
      Financial Condition and Results of Operations
                26Item
      3.     Quantitative and Qualitative Disclosures
      About Market Risk
                32Item
      4.     Controls and Procedures
                32Item
      4T.  Controls and Procedures
                33PART
      II – OTHER INFORMATION
                34Item
      1.     Legal Proceedings
                34Item
      1A.  Risk Factors
                34Item
      2.     Unregistered Sales of Equity Securities
      and Use of Proceeds
                34Item
      3.     Defaults Upon Senior
      Securities
                34Item
      4.     (Removed and Reserved)
                34Item
      5.     Other Information
                34Item
      6.     Exhibits
                34
  
  PART
I - FINANCIAL INFORMATION
 Item
1. Consolidated Financial Statements.
 NGP
CAPITAL RESOURCES COMPANY
 CONSOLIDATED
BALANCE SHEETS
 
 March 31, 2010
                                                  
                                                  
                                                  December 31, 2009(Unaudited)AssetsInvestments
      in portfolio securities at fair valueControl
      investments - majority owned(cost:
      $121,569,741 and $118,590,412, respectively)
                                                  
                                                  $
                                                  75,435,448
                                                  
                                                  
                                                  $
                                                  72,449,620Affiliate
      investments(cost:
      $32,935,839 and $30,727,367, respectively)
                                                  
                                                  
                                                  34,346,136
                                                  
                                                  
                                                  
                                                  31,578,945Non-affiliate
      investments(cost:
      $87,157,197 and $92,832,647, respectively)
                                                  
                                                  
                                                  83,256,296
                                                  
                                                  
                                                  
                                                  86,965,378Investments
      in corporate notes at fair value(cost:
      $11,527,241 and $11,539,564, respectively)
                                                  
                                                  
                                                  9,416,400
                                                  
                                                  
                                                  
                                                  9,062,200Investments
      in commodity derivative instruments at fair value(cost:
      $0 and $30,100, respectively)
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  49,000Total
      investments
                                                  
                                                  
                                                  202,454,280
                                                  
                                                  
                                                  
                                                  200,105,143Cash
      and cash equivalents
                                                  
                                                  
                                                  105,337,155
                                                  
                                                  
                                                  
                                                  108,288,217Accounts
      receivable and other current assets
                                                  
                                                  
                                                  2,106,347
                                                  
                                                  
                                                  
                                                  2,115,663Interest
      receivable
                                                  
                                                  
                                                  834,042
                                                  
                                                  
                                                  
                                                  1,241,609Prepaid
      assets
                                                  
                                                  
                                                  1,904,024
                                                  
                                                  
                                                  
                                                  2,201,468Deferred
      tax assets
                                                  
                                                  
                                                  3,246,184
                                                  
                                                  
                                                  
                                                  2,979,209Total
      current assets
                                                  
                                                  
                                                  113,427,752
                                                  
                                                  
                                                  
                                                  116,826,166Total
      assets
                                                  
                                                  $
                                                  315,882,032
                                                  
                                                  
                                                  $
                                                  316,931,309Liabilities
      and stockholders' equity (net assets)Current
      liabilitiesAccounts
      payable and accrued expenses
                                                  
                                                  $
                                                  1,072,981
                                                  
                                                  
                                                  $
                                                  1,098,414Management
      and incentive fees payable
                                                  
                                                  
                                                  1,373,179
                                                  
                                                  
                                                  
                                                  1,415,866Dividends
      payable
                                                  
                                                  
                                                  3,676,794
                                                  
                                                  
                                                  
                                                  3,676,794Income
      taxes payable
                                                  
                                                  
                                                  77,547
                                                  
                                                  
                                                  
                                                  62,321Total
      current liabilities
                                                  
                                                  
                                                  6,200,501
                                                  
                                                  
                                                  
                                                  6,253,395Deferred
      tax liabilities
                                                  
                                                  
                                                  3,269,341
                                                  
                                                  
                                                  
                                                  3,002,366Long-term
      debt
                                                  
                                                  
                                                  64,905,200
                                                  
                                                  
                                                  
                                                  67,500,000Total
      liabilities
                                                  
                                                  
                                                  74,375,042
                                                  
                                                  
                                                  
                                                  76,755,761Commitments
      and contingencies  (Note 7)Stockholders’
      equity (net assets)Common
      stock, $.001 par value, 250,000,000 shares authorized;21,628,202
      shares issued and outstanding
                                                  
                                                  
                                                  21,628
                                                  
                                                  
                                                  
                                                  21,628Paid-in
      capital in excess of par
                                                  
                                                  
                                                  295,174,063
                                                  
                                                  
                                                  
                                                  295,174,063Undistributed
      net investment income (loss)
                                                  
                                                  
                                                  (6,189,997
                                                  )
                                                  
                                                  
                                                  (4,944,530
                                                  )Undistributed
      net realized capital gain (loss)
                                                  
                                                  
                                                  (9,151
                                                  )
                                                  
                                                  
                                                  -Net
      unrealized appreciation (depreciation) of portfolio
      securities,corporate
      notes and commodity derivative instruments
                                                  
                                                  
                                                  (47,489,553
                                                  )
                                                  
                                                  
                                                  (50,075,613
                                                  )Total
      stockholders’ equity (net assets)
                                                  
                                                  
                                                  241,506,990
                                                  
                                                  
                                                  
                                                  240,175,548Total
      liabilities and stockholders' equity (net assets)
                                                  
                                                  $
                                                  315,882,032
                                                  
                                                  
                                                  $
                                                  316,931,309Net
      asset value per share
                                                  
                                                  $
                                                  11.17
                                                  
                                                  
                                                  $
                                                  11.10
 
 (See
accompanying notes to consolidated financial statements)
  1
 
 NGP
CAPITAL RESOURCES COMPANY
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (Unaudited)
 
 For The Three Months EndedMarch 31, 2010
                                                        
                                                        
                                                        March 31, 2009(As
      Restated)Investment
      incomeInterest
      and dividend income:Control
      investments - majority owned
                                                        
                                                        $
                                                        1,099,979
                                                        
                                                        
                                                        $
                                                        -Affiliate
      investments
                                                        
                                                        
                                                        832,913
                                                        
                                                        
                                                        
                                                        1,356,076Non-affiliate
      investments
                                                        
                                                        
                                                        3,177,541
                                                        
                                                        
                                                        
                                                        4,838,463Royalty
      income (loss), net of amortization:Control
      investments - majority owned
                                                        
                                                        
                                                        294,811
                                                        
                                                        
                                                        
                                                        23,336Non-affiliate
      investments
                                                        
                                                        
                                                        (518,056
                                                        )
                                                        
                                                        
                                                        (917,638
                                                        )Commodity
      derivative income, net of expired options
                                                        
                                                        
                                                        16,079
                                                        
                                                        
                                                        
                                                        3,173,852Other
      income
                                                        
                                                        
                                                        290,000
                                                        
                                                        
                                                        
                                                        58,800Total
      investment income
                                                        
                                                        
                                                        5,193,267
                                                        
                                                        
                                                        
                                                        8,532,889Operating
      expensesManagement
      fees and incentive fees
                                                        
                                                        
                                                        1,338,569
                                                        
                                                        
                                                        
                                                        1,833,848Professional
      fees
                                                        
                                                        
                                                        265,304
                                                        
                                                        
                                                        
                                                        166,727Insurance
      expense
                                                        
                                                        
                                                        185,658
                                                        
                                                        
                                                        
                                                        200,221Interest
      expense and fees
                                                        
                                                        
                                                        313,063
                                                        
                                                        
                                                        
                                                        997,842Other
      general and administrative expenses
                                                        
                                                        
                                                        946,420
                                                        
                                                        
                                                        
                                                        796,948Total
      operating expenses
                                                        
                                                        
                                                        3,049,014
                                                        
                                                        
                                                        
                                                        3,995,586Net
      investment income before income taxes
                                                        
                                                        
                                                        2,144,253
                                                        
                                                        
                                                        
                                                        4,537,303Benefit
      (provision) for income taxes
                                                        
                                                        
                                                        287,074
                                                        
                                                        
                                                        
                                                        4,291Net
      investment income
                                                        
                                                        
                                                        2,431,327
                                                        
                                                        
                                                        
                                                        4,541,594Net
      realized capital gain (loss) on investmentsBenefit
      (provision) for taxes on capital gain
                                                        
                                                        
                                                        (9,151
                                                        )
                                                        
                                                        
                                                        -Total
      net realized capital gain (loss) on investments
                                                        
                                                        
                                                        (9,151
                                                        )
                                                        
                                                        
                                                        -Net
      unrealized gain (loss) on investmentsNet
      increase (decrease) in unrealized appreciation(depreciation)
      on portfolio securities, corporatenotes
      and commodity derivative instruments:Control
      investments - majority owned
                                                        
                                                        
                                                        6,501
                                                        
                                                        
                                                        
                                                        (4,075,662
                                                        )Affiliate
      investments
                                                        
                                                        
                                                        558,719
                                                        
                                                        
                                                        
                                                        205,744Non-affiliate
      investments
                                                        
                                                        
                                                        2,313,989
                                                        
                                                        
                                                        
                                                        (20,690,114
                                                        )Benefit
      (provision) for taxes on unrealized gain
                                                        
                                                        
                                                        (293,149
                                                        )
                                                        
                                                        
                                                        1,385,826Total
      net unrealized gain (loss) on investments
                                                        
                                                        
                                                        2,586,060
                                                        
                                                        
                                                        
                                                        (23,174,206
                                                        )Net
      increase (decrease) in stockholders' equity(net
      assets) resulting from operations
                                                        
                                                        $
                                                        5,008,236
                                                        
                                                        
                                                        $
                                                        (18,632,612
                                                        )Net
      increase (decrease) in stockholders' equity (net assets)resulting
      from operations per common share
                                                        
                                                        $
                                                        0.24
                                                        
                                                        
                                                        $
                                                        (0.86
                                                        )
 
 (See
accompanying notes to consolidated financial statements)
  2
 
 NGP
CAPITAL RESOURCES COMPANY
 CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (NET ASSETS)
 
 Net UnrealizedAppreciation (Depreciation)
                        
                        
                        TotalPaid-in Capital
                        
                        
                        Undistributed
                        
                        
                        Undistributed
                        
                        
                        of Portfolio Securities,
                        
                        
                        Stockholders'Common Stock
                        
                        
                        in Excess
                        
                        
                        Net Investment
                        
                        
                        Net Realized
                        
                        
                        Corporate Notes and Commodity
                        
                        
                        EquityShares
                        
                        
                        Amount
                        
                        
                        of Par
                        
                        
                        Income (Loss)
                        
                        
                        Capital Gain (Loss)
                        
                        
                        Derivative Instruments
                        
                        
                        (Net Assets)Balance
      at December 31, 2009
                        
                        
                        21,628,202
                        
                        
                        $
                        21,628
                        
                        
                        $
                        295,174,063
                        
                        
                        $
                        (4,944,530
                        )
                        
                        $
                        -
                        
                        
                        $
                        (50,075,613
                        )
                        
                        $
                        240,175,548Net
      increase (decrease) in stockholders' equity (net assets) resulting from
      operations
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        2,431,327
                        
                        
                        
                        (9,151
                        )
                        
                        
                        2,586,060
                        
                        
                        
                        5,008,236Dividends
      declared
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (3,676,794
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (3,676,794
                        )Balance
      at March 31, 2010  (unaudited)
                        
                        
                        21,628,202
                        
                        
                        $
                        21,628
                        
                        
                        $
                        295,174,063
                        
                        
                        $
                        (6,189,997
                        )
                        
                        $
                        (9,151
                        )
                        
                        $
                        (47,489,553
                        )
                        
                        $
                        241,506,990
 
 (See
accompanying notes to consolidated financial statements)
  3
 
 NGP
CAPITAL RESOURCES COMPANY
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (Unaudited)
 
 For The Three Months EndedMarch 31, 2010
                              
                              
                              March 31, 2009(As Restated)Cash
      flows from operating activitiesNet
      increase (decrease) in stockholders' equity (net assets) resulting from
      operations
                              
                              $
                              5,008,236
                              
                              
                              $
                              (18,632,612
                              )Adjustments
      to reconcile net increase (decrease) in stockholders' equity (net
      assets)resulting
      from operations to net cash provided by (used in) operating
      activitiesPayment-in-kind
      interest
                              
                              
                              (1,731,489
                              )
                              
                              
                              (912,526
                              )Net
      amortization of premiums, discounts and fees
                              
                              
                              2,968,431
                              
                              
                              
                              1,445,811Change
      in unrealized (appreciation) depreciation on portfolio securities,corporate
      notes and commodity derivative instruments before taxes
                              
                              
                              (2,879,209
                              )
                              
                              
                              24,560,032Effects
      of changes in operating assets and liabilitiesAccounts
      receivable and other current assets
                              
                              
                              9,316
                              
                              
                              
                              29,705Interest
      receivable
                              
                              
                              407,567
                              
                              
                              
                              (320,274
                              )Prepaid
      assets
                              
                              
                              297,444
                              
                              
                              
                              471,922Current
      portion of deferred income taxes
                              
                              
                              (266,975
                              )
                              
                              
                              (1,958,219
                              )Non-current
      deferred income taxes
                              
                              
                              266,975
                              
                              
                              
                              522,032Accounts
      payable and accrued expenses
                              
                              
                              (68,120
                              )
                              
                              
                              (366,449
                              )Income
      taxes payable
                              
                              
                              15,226
                              
                              
                              
                              (3,365,739
                              )Purchase
      of investments in portfolio securities, corporate notesand
      commodity derivative instruments
                              
                              
                              (3,294,585
                              )
                              
                              
                              (11,136,736
                              )Redemption
      of investments in portfolio securities, corporate notesand
      commodity derivative instruments
                              
                              
                              2,587,715
                              
                              
                              
                              5,775,530Net
      sale (purchase) of investments in U.S. Treasury Bills
                              
                              
                              -
                              
                              
                              
                              (76,134,101
                              )Net
      cash provided by (used in) operating activities
                              
                              
                              3,320,532
                              
                              
                              
                              (80,021,624
                              )Cash
      flows from financing activitiesBorrowings
      under revolving credit facility
                              
                              
                              64,905,200
                              
                              
                              
                              27,000,000Repayments
      on revolving credit facility
                              
                              
                              (67,500,000
                              )
                              
                              
                              (45,000,000
                              )Dividends
      paid
                              
                              
                              (3,676,794
                              )
                              
                              
                              (8,867,563
                              )Net
      cash used in financing activities
                              
                              
                              (6,271,594
                              )
                              
                              
                              (26,867,563
                              )Net
      increase (decrease) in cash and cash equivalents
                              
                              
                              (2,951,062
                              )
                              
                              
                              (106,889,187
                              )Cash
      and cash equivalents, beginning of period
                              
                              
                              108,288,217
                              
                              
                              
                              133,805,575Cash
      and cash equivalents, end of period
                              
                              $
                              105,337,155
                              
                              
                              $
                              26,916,388
 
 (See
accompanying notes to consolidated financial statements)
  4
 
 NGP
CAPITAL RESOURCES COMPANY
 CONSOLIDATED
SCHEDULE OF INVESTMENTS
 March
31, 2010
 (Unaudited)
 
 Portfolio Company
                                                                                                                    
                                                                                                                    Energy Industry Segment
                                                                                                                    
                                                                                                                    Investment (1) (2) (4)
                                                                                                                    
                                                                                                                    Principal
                                                                                                                    
                                                                                                                    
                                                                                                                    Cost
                                                                                                                    
                                                                                                                    
                                                                                                                    Fair Value (3)TARGETED
      INVESTMENTS (17)Control
      Investments - Majority Owned (50% to 100%
    owned)Alden
      Resources, LLC
                                                                                                                    
                                                                                                                    Coal
      Production
                                                                                                                    
                                                                                                                    Senior
      Secured
                                                                                                                    
                                                                                                                    $
                                                                                                                    22,245,994
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    20,439,434
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    20,339,434Multiple-Advance
      Term Loan - Tranche A(The
      greater of 12.00% or LIBOR +9.00
      % cash, 15.00% or LIBOR +12.00%
      PIK, due 1/05/2013)Senior
      Secured
                                                                                                                    
                                                                                                                    
                                                                                                                    21,711,913
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    19,519,841
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    19,519,841Multiple-Advance
      Term Loan - Tranche B(The
      greater of 12.00% or LIBOR +9.00
      % cash, 15.00% or LIBOR +12.00%
      PIK, due 1/05/2013) (6)Class
      E Units - 100% of outstanding units
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    5,800,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    5,800,000entitled
      to 100% of distributions ofAlden
      Resources until payout,80%
      after payout (5)Senior
      Secured
                                                                                                                    
                                                                                                                    
                                                                                                                    2,046,173
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    2,046,173
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    2,046,173Multiple-Advance
      Term Loan - Revolver(The
      greater of 12.00% or LIBOR +9.00
      % cash, 15.00% or LIBOR +12.00%
      PIK, due 1/05/2013)Royalty
      Interest
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    2,513,928
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    5,330,000BSR
      Holdings, LLC (7)
                                                                                                                    
                                                                                                                    Oil
      & Natural Gas
                                                                                                                    
                                                                                                                    Units
      - 100% of outstanding units of
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    300,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    300,000Production
      and Development
                                                                                                                    
                                                                                                                    BSR
      Holdings, LLC which holds 50% workinginterest
      in certain BSR Loco Bayou, LLCoil
      and gas properties (5)Overriding
      Royalty Interest
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    15,621
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    100,000DeanLake
      Operator, LLC
                                                                                                                    
                                                                                                                    Oil
      & Natural Gas
                                                                                                                    
                                                                                                                    Senior
      Secured Term Loan
                                                                                                                    
                                                                                                                    
                                                                                                                    3,500,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    3,500,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    3,500,000Production
      and Development
                                                                                                                    
                                                                                                                    (10.00%
      cash, 12.00% PIK,payable
      quarterly, due 6/30/2011)Class
      A Preferred Units - 100% of outstanding
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    10,400,255
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    6,500,000units
      representing 100% of distributions ofDeanLake
      Operator, LLC until payout,80%
      after payout (5)Overriding
      Royalty Interest
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    17,846
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    100,000Formidable,
      LLC
                                                                                                                    
                                                                                                                    Oil
      & Natural Gas
                                                                                                                    
                                                                                                                    Senior
      Secured
                                                                                                                    
                                                                                                                    
                                                                                                                    38,780,316
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    38,780,316
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    5,600,000Production
      and Development
                                                                                                                    
                                                                                                                    Multiple-Advance
      Term Loan(LIBOR
      + 5.50% cash, LIBOR + 8.50%default,
      due 5/31/2008) (6) (11)Warrants
      (5)
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    500,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    -Formidable
      Holdings, LLC Units - 100% of
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    10,000
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    -pledged
      stock of Formidable, LLC (5) (11)Rubicon
      Energy Partners,
                                                                                                                    
                                                                                                                    Oil
      & Natural Gas
                                                                                                                    
                                                                                                                    LLC
      Units (4,000 units) representing
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    -
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    -LLC
                                                                                                                    
                                                                                                                    Production
      and Development
                                                                                                                    
                                                                                                                    50%
      ownership of the assets ofRubicon
      Energy Partners, LLC (5)TierraMar
      Energy LP
                                                                                                                    
                                                                                                                    Oil
      & Natural Gas
                                                                                                                    
                                                                                                                    Class
      A Preferred LP Units - 100% of
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    17,710,788
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    6,000,000Production
      and Development
                                                                                                                    
                                                                                                                    outstanding
      units representing 100% ofdistributions
      of TierraMar Energy LP untilpayout,
      67% after payout (5)Overriding
      Royalty Interest
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    15,539
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    300,000Total
      Control Investments - Majority Owned (50% to 100% owned)
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    121,569,741
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    75,435,448
 
 (See accompanying notes to
consolidated financial statements)
  5
 
 NGP
CAPITAL RESOURCES COMPANY
 CONSOLIDATED
SCHEDULE OF INVESTMENTS
 March
31, 2010
 (Unaudited)
 (continued)
 
 Portfolio Company
                                                                                                                                        
                                                                                                                                        Energy Industry Segment
                                                                                                                                        
                                                                                                                                        Investment (1) (2) (4)
                                                                                                                                        
                                                                                                                                        Principal
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        Cost
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        Fair Value (3)TARGETED
      INVESTMENTS (17) - ContinuedAffiliate
      Investments - (5% to 25% owned)BioEnergy
      Holding, LLC
                                                                                                                                        
                                                                                                                                        Alternative
      Fuels and
                                                                                                                                        
                                                                                                                                        Senior
      Secured Notes
                                                                                                                                        
                                                                                                                                        $
                                                                                                                                        14,420,170
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        $
                                                                                                                                        13,068,012
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        $
                                                                                                                                        13,068,012Specialty
      Chemicals
                                                                                                                                        
                                                                                                                                        (15.00%,
      due 3/06/2015)BioEnergy
      International Warrants (5) (12)
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        34,766
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        34,766BioEnergy
      Holding Units - 11.5% of outstanding
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1,296,771
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1,296,771units
      of BioEnergy Holdings, LLC (5)Myriant
      Technologies Warrants (5) (13)
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        49,238
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        49,238Myriant
      Technologies Units - 1.9% of the
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        418,755
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        418,755outstanding
      units of Myriant Technologies, LLC (5)Bionol
      Clearfield, LLC (9)
                                                                                                                                        
                                                                                                                                        Alternative
      Fuels and
                                                                                                                                        
                                                                                                                                        Senior
      Secured Tranche C
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        4,987,500
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        4,987,500
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        4,987,500Specialty
      Chemicals
                                                                                                                                        
                                                                                                                                        Construction
      Loan(LIBOR
      + 7.00%, due 9/06/2016)Resaca
      Exploitation Inc.
                                                                                                                                        
                                                                                                                                        Oil
      & Natural Gas
                                                                                                                                        
                                                                                                                                        Senior
      Secured
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        10,000,000
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        9,845,541
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        9,845,541Production
      and Development
                                                                                                                                        
                                                                                                                                        Revolving
      Credit Facility(The
      greater of 8.0% or LIBOR + 5.50%,due
      5/01/2012)Common
      Stock (6,651,098 shares) - representing
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        3,235,256
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        4,645,5536.86%
      of outstanding common stock ofResaca
      Exploitation Inc. (5) (14)Subtotal
      Affiliate Investments - (5% to 25% owned)
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        $
                                                                                                                                        32,935,839
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        $
                                                                                                                                        34,346,136Non-affiliate
      Investments - (Less than 5% owned)Anadarko
      Petroleum Corporation
                                                                                                                                        
                                                                                                                                        Oil
      & Natural Gas
                                                                                                                                        
                                                                                                                                        Multiple-Advance
      Net Profits Interest
                                                                                                                                        
                                                                                                                                        $
                                                                                                                                        10,229,604
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        $
                                                                                                                                        10,306,694
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        $
                                                                                                                                        10,606,6932007-III
      Drilling Fund
                                                                                                                                        
                                                                                                                                        Production
      and Development
                                                                                                                                        
                                                                                                                                        (Due
      4/23/2032)ATP
      Oil & Gas Corporation
                                                                                                                                        
                                                                                                                                        Oil
      & Natural Gas
                                                                                                                                        
                                                                                                                                        Limited
      Term Royalty Interest
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        6,120,339
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        4,173,689Production
      and Development
                                                                                                                                        
                                                                                                                                        (Volume
      Denominated - 400 MBBL Pay-off)Limited
      Term Royalty Interest
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        13,506,511
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        13,506,511(Dollar
      Denominated - 16.00% Return)Black
      Pool Energy
                                                                                                                                        
                                                                                                                                        Oil
      & Natural Gas
                                                                                                                                        
                                                                                                                                        Senior
      Secured
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        18,300,000
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        18,047,454
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        18,047,454Partners,
      LLC
                                                                                                                                        
                                                                                                                                        Production
      and Development
                                                                                                                                        
                                                                                                                                        Multiple-Advance
      Term Loan(The
      greater of 15.00% or LIBOR +11.00
      % cash, due 10/24/2011)Overriding
      Royalty Interest
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        9,789
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        100,000Warrants
      (5) (15)
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        10,000
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        10,000Chroma
      Exploration &
                                                                                                                                        
                                                                                                                                        Oil
      & Natural Gas
                                                                                                                                        
                                                                                                                                        10,302
      Shares Series A Participating
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        2,221,710
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        -Production,
      Inc.
                                                                                                                                        
                                                                                                                                        Production
      and Development
                                                                                                                                        
                                                                                                                                        Convertible
      Preferred Stock (6)9,408
      Shares Series AA Participating
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        2,089,870
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        750,000Convertible
      Preferred Stock (6)8.11
      Shares Common Stock (5)
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        -
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        -Warrants
      (5) (8)
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        -
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        -Greenleaf
      Investments, LLC
                                                                                                                                        
                                                                                                                                        Oil
      & Natural Gas
                                                                                                                                        
                                                                                                                                        Senior
      Secured
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        10,267,454
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        10,129,145
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        10,129,145Production
      and Development
                                                                                                                                        
                                                                                                                                        Multiple-Advance
      Term Loan(The
      greater of 10.50% or LIBOR + 6.50%,due
      4/30/2011)Overriding
      Royalty Interest
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        20,556
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        400,000Nighthawk
      Transport I, LP
                                                                                                                                        
                                                                                                                                        Energy
      Services
                                                                                                                                        
                                                                                                                                        Second
      Lien Term Loan B (10)
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        13,022,642
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        -
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        -LP
      Units (5) (10)
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        -
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        -Warrants
      (5) (10)
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        -
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        -Second
      Lien Delayed Draw Term Loan B (10)
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1,457,656
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        -
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        -
 
 (See accompanying notes to
consolidated financial statements)
  6
 
 NGP
CAPITAL RESOURCES COMPANY
 CONSOLIDATED
SCHEDULE OF INVESTMENTS
 March
31, 2010
 (Unaudited)
 (continued)
 
 Portfolio Company
                                                                                          
                                                                                          Energy Industry Segment
                                                                                          
                                                                                          Investment (1) (2) (4)
                                                                                          
                                                                                          Principal
                                                                                          
                                                                                          
                                                                                          Cost
                                                                                          
                                                                                          
                                                                                          Fair Value (3)TARGETED
      INVESTMENTS (17) - ContinuedNon-affiliate
      Investments - (Less than 5% owned) -
    ContinuedTammany
      Oil & Gas, LLC
                                                                                          
                                                                                          Oil
      & Natural Gas
                                                                                          
                                                                                          Senior
      Secured
                                                                                          
                                                                                          $
                                                                                          24,532,804
                                                                                          
                                                                                          
                                                                                          $
                                                                                          24,532,804
                                                                                          
                                                                                          
                                                                                          $
                                                                                          24,532,804Production
      and Development
                                                                                          
                                                                                          Multiple-Advance
      Term Loan(The
      greater of 13.0% or LIBOR + 8.00%,due
      3/21/2010) (16)Overriding
      Royalty Interest
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          162,325
                                                                                          
                                                                                          
                                                                                          
                                                                                          1,000,000Subtotal
      Non-affiliate Investments - (Less than 5% owned)
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          $
                                                                                          87,157,197
                                                                                          
                                                                                          
                                                                                          $
                                                                                          83,256,296Subtotal
      Targeted Investments (62.72% of total investments)
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          $
                                                                                          241,662,777
                                                                                          
                                                                                          
                                                                                          $
                                                                                          193,037,880CORPORATE
      NOTES (17)Pioneer
      Natural Resources Co.
                                                                                          
                                                                                          Oil
      & Natural Gas
                                                                                          
                                                                                          Senior
      Notes, 7.2%, due 2028
                                                                                          
                                                                                          $
                                                                                          10,000,000
                                                                                          
                                                                                          
                                                                                          $
                                                                                          11,527,241
                                                                                          
                                                                                          
                                                                                          $
                                                                                          9,416,400Production
      and DevelopmentSubtotal
      Corporate Notes ( 3.06% of total investments)
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          $
                                                                                          11,527,241
                                                                                          
                                                                                          
                                                                                          $
                                                                                          9,416,400CASH
      AND CASH EQUIVALENTSSubtotal
      Cash and Cash Equivalents  (34.22% of total
    investments)
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          $
                                                                                          105,337,155
                                                                                          
                                                                                          
                                                                                          $
                                                                                          105,337,155TOTAL
      INVESTMENTS, CASH AND CASH EQUIVALENTS
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          $
                                                                                          358,527,173
                                                                                          
                                                                                          
                                                                                          $
                                                                                          307,791,435LIABILITIES
      IN EXCESS OF OTHER ASSETS
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          $
                                                                                          (66,284,445
                                                                                          )NET
      ASSETS
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          $
                                                                                          241,506,990
 
 NOTES TO CONSOLIDATED
SCHEDULE OF INVESTMENTS
 
 (1)
              All
      investments are pledged as collateral for obligations under the Company's
      credit facility.
 (2)
              Percentages
      represent interest rates in effect at the end of the period and due dates
      represent the contractual maturity
dates.
 (3)
              Fair
      value of targeted investments is determined by or under the direction of
      the Board of Directors.
 (4)
              All
      investments are in entities with primary operations in the United States
      of America.
 (5)
              Non-income
      producing securities.
 (6)
              Non-accrual
      status.
 (7)
              BSR
      Loco Bayou repaid its term note in full on July 31, 2009. The Company
      retains ownership of ORRI and has exercised warrants in exchange for 50%
      working interest in certain BSR Loco Bayou properties which have been
      contributed to NGPC Asset Holdings II, LP in exchange for 100% of the
      outstanding unitsin
      BSR Holdings, LLC.
 (8)
              Chroma
      warrants expire on April 5, 2012 and provide the Company the right to
      purchase 2,462 shares of common stock at a purchase price of $75.00 per
      share.
 (9)
              Bionol
      Clearfield, LLC is owned 100% by BioEnergy Holdings,
  LLC.
 (10)
              Due
      to insufficient recoveries in the liquidation under Nighthawk's voluntary
      petition under Chapter 7 of the United States Bankruptcy Code, the Company
      recognized a realized loss of its total remaining investment in Nighthawk
      notes, warrants and units in December
2009.
 (11)
              Formidable
      senior note was accelerated and the Company foreclosed on the member units
      of Formidable, LLC on September 28,
2009.
 (12)
              BioEnergy
      International, LLC warrants expire on August 15, 2010 and provide the
      Company the right to purchase 140,687 units, representing membership
      interests of BioEnergy International, LLC, at the purchase price of $10.00
      per unit.
 (13)
              Myriant
      Technologies, LLC warrants expire on August 15, 2015 and provide the
      Company the right to purchase 32,680 units, representing membership
      interests of Myriant Technologies, LLC, at the purchase price of $10.00
      per unit.
 (14)
              Resaca
      stock is listed on the Alternative Investment Market of the London Stock
      Exchange, denominated in British pounds and its reported fair value at
      March 31, 2010 has been converted to U.S. dollars at the exchange rate
      effective on March 31, 2010.
 (15)
              Black
      Pool warrants expire seven years after repayment of principal and interest
      and provide the Company the right to purchase approximately 25% of
      membership interest at the exercise price of $0.01 per
    unit.
 (16)
              Tammany
      Oil & Gas, LLC. maturity date extended until April 21,
      2010.
 (17)
              All
      investments in portfolio securities, corporate notes and commodity
      derivative instruments are level 3 securities
  hierarchy.
 
 (See
accompanying notes to consolidated financial statements)
  7
  NGP
CAPITAL RESOURCES COMPANY
 CONSOLIDATED
SCHEDULE OF INVESTMENTS
 December
31, 2009
 
 Portfolio
      Company
                                  
                                  Energy Industry
      Segment
                                  
                                  Investment(1)(2)(4)
                                  
                                  Principal
                                  
                                  Cost
                                  
                                  Fair Value(3)Targeted Investments(17)Control
      Investments – Majority Owned (50% to 100% owned)Alden
      Resources, LLC
                                  
                                  Coal
      Production
                                  
                                  Senior
      Secured
                                    Multiple-Advance
      Term Loan - Tranche A
                                    (The
      greater of 12.00% or LIBOR +
                                    9.00%
      cash, 15.00% or LIBOR +
                                    12.00%
      PIK, due 1/05/2013)
                                  
                                  $
                                  21,432,224
                                  
                                  
                                  $
                                  19,499,779
                                  
                                  
                                  $
                                  19,399,779Senior
      Secured
                                    Multiple-Advance
      Term Loan - Tranche B
                                    (The
      greater of 12.00% or LIBOR +
                                    9.00%
      cash, 15.00% or LIBOR +
                                    12.00% PIK, due 1/05/2013)(6)
                                  
                                  
                                  20,917,680
                                  
                                  
                                  
                                  19,519,841
                                  
                                  
                                  
                                  19,519,841Class
      E Units – 100% of outstanding units
                                    entitled
      to 100% of distributions of
                                    Alden
      Resources until payout,
                                    80% after payout(5)
                                  
                                  
                                  
                                  
                                  
                                  
                                  5,800,000
                                  
                                  
                                  
                                  5,800,000Royalty
      Interest
                                  
                                  
                                  
                                  
                                  
                                  
                                  2,519,051
                                  
                                  
                                  
                                  5,330,000BSR Holdings, LLC(7)
                                  
                                  Oil
      & Natural Gas
                                    Production
      and Development
                                  
                                  Units – 100%
      of outstanding units of
                                    BSR
      Holdings, LLC which holds 50%
                                    working
      interest in certain BSR Loco
                                    Bayou, LLC oil and gas properties(5)
                                  
                                  
                                  
                                  
                                  
                                  
                                  300,000
                                  
                                  
                                  
                                  300,000Overriding
      Royalty Interest
                                  
                                  
                                  
                                  
                                  
                                  
                                  16,460
                                  
                                  
                                  
                                  100,000DeanLake
      Operator, LLC
                                  
                                  Oil
      & Natural Gas
                                    Production
      and Development
                                  
                                  Senior
      Secured Term Loan
                                    (10.00%
      cash, 12.00% PIK,
                                    payable
      quarterly, due 6/30/2011)
                                  
                                  
                                  3,500,000
                                  
                                  
                                  
                                  3,500,000
                                  
                                  
                                  
                                  3,500,000Class
      A Preferred Units – 100%
                                    of
      outstanding units entitled to 100%
                                    of
      distributions of DeanLake Operator, LLC
                                    until payout, 80% after payout(5)
                                  
                                  
                                  
                                  
                                  
                                  
                                  10,400,255
                                  
                                  
                                  
                                  6,500,000Overriding
      Royalty Interest
                                  
                                  
                                  
                                  
                                  
                                  
                                  18,046
                                  
                                  
                                  
                                  100,000Formidable,
      LLC
                                  
                                  Oil
      & Natural Gas
                                    Production
      and Development
                                  
                                  Senior
      Secured
                                    Multiple-Advance
      Term Loan
                                    (LIBOR
      + 5.50% cash, LIBOR + 8.50%
                                    default, due 5/31/2008)(6)
                                  
                                  
                                  38,780,316
                                  
                                  
                                  
                                  38,780,316
                                  
                                  
                                  
                                  5,600,000Warrants(5)
                                  
                                  
                                  
                                  
                                  
                                  
                                  500,000
                                  
                                  
                                  
                                  —Formidable
      Holdings, LLC Units – 100%
                                    of pledged stock of Formidable, LLC(5)(11)
                                  
                                  
                                  
                                  
                                  
                                  
                                  10,000
                                  
                                  
                                  
                                  —Rubicon
      Energy Partners, LLC
                                  
                                  Oil
      & Natural Gas
                                    Production
      and Development
                                  
                                  LLC
      Units (4,000 units) representing 50%
                                    ownership
      of the assets of
                                    Rubicon Energy Partners, LLC(5)
                                  
                                  
                                  
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —TierraMar
      Energy LP
                                  
                                  Oil
      & Natural Gas
                                    Production
      and Development
                                  
                                  Class
      A Preferred LP Units – 100%
                                    of
      outstanding units entitled to 100%
                                    of
      distributions of TierraMar Energy LP
                                    until payout, 67% after payout(5)
                                  
                                  
                                  
                                  
                                  
                                  
                                  17,710,788
                                  
                                  
                                  
                                  6,000,000Overriding
      Royalty Interest
                                  
                                  
                                  
                                  
                                  
                                  
                                  15,876
                                  
                                  
                                  
                                  300,000Total
      Control Investments – Majority Owned (50% to 100%
      owned)
                                  
                                  $
                                  118,590,412
                                  
                                  
                                  $
                                  72,449,620
  8
  NGP
CAPITAL RESOURCES COMPANY
 CONSOLIDATED
SCHEDULE OF INVESTMENTS
 December
31, 2009
 (continued)
 
 Portfolio
      Company
                              
                              Energy Industry
      Segment
                              
                              Investment(1)(2)(4)
                              
                              Principal
                              
                              Cost
                              
                              Fair Value(3)Targeted
      Investments(17) – ContinuedAffiliate
      Investments – (5% to 25% owned)BioEnergy
      Holding, LLC
                              
                              Alternative
      Fuels and
                                Specialty
      Chemicals
                              
                              Senior
      Secured Notes
                                (15.00%,
      due 3/06/2015)
                              
                              $
                              12,255,231
                              
                              
                              $
                              10,862,125
                              
                              
                              $
                              10,862,125BioEnergy International Warrants(5)(12)
                              
                              
                              
                              
                              
                              
                              34,766
                              
                              
                              
                              34,766BioEnergy
      Holding Units – 11.5%
                                of
      outstanding units of BioEnergy
                                Holdings, LLC(5)
                              
                              
                              
                              
                              
                              
                              1,296,771
                              
                              
                              
                              1,296,771Myriant Technologies Warrants(5)(13)
                              
                              
                              
                              
                              
                              
                              49,238
                              
                              
                              
                              49,238Myriant
      Technologies Units – 1.9%
                                of
      the outstanding units of
                                Myriant Technologies, LLC(5)
                              
                              
                              
                              
                              
                              
                              418,755
                              
                              
                              
                              418,755Bionol Clearfield, LLC(9)
                              
                              Alternative
      Fuels and
                                Specialty
      Chemicals
                              
                              Senior
      Secured Tranche C
                                Construction
      Loan
                                (LIBOR
      + 7.00%, due 9/06/2016)
                              
                              
                              5,000,000
                              
                              
                              
                              5,000,000
                              
                              
                              
                              5,000,000Resaca
      Exploitation Inc.
                              
                              Oil
      & Natural Gas
                                Production
      and Development
                              
                              Senior
      Secured
                                Revolving
      Credit Facility
                                (The
      greater of 8.0% or LIBOR + 5.50%,
                                due
      5/01/2012)
                              
                              
                              10,000,000
                              
                              
                              
                              9,830,456
                              
                              
                              
                              9,830,456Common
      Stock (6,651,098 shares) –
                                representing 6.86% of outstanding common stock of
                                Resaca Exploitation Inc.(5)(15)
                              
                              
                              
                              
                              
                              
                              3,235,256
                              
                              
                              
                              4,086,834Subtotal
      Affiliate Investments – (5% to 25% owned)
                              
                              $
                              30,727,367
                              
                              
                              $
                              31,578,945Non-affiliate
      Investments – (Less than 5% owned)Anadarko
      Petroleum
                                Corporation
      2007 – III Drilling Fund
                              
                              Oil
      & Natural Gas
                                Production
      and Development
                              
                              Multiple-Advance
      Net Profits Interest
                                (Due
      4/23/2032)
                              
                              $
                              10,579,495
                              
                              
                              $
                              10,662,801
                              
                              
                              $
                              11,012,799ATP
      Oil & Gas Corporation
                              
                              Oil
      & Natural Gas
                                Production
      and Development
                              
                              Limited
      Term Royalty Interest
                                (Volume
      Denominated – 400 MBBL Pay-off)
                              
                              
                              
                              
                              
                              
                              9,335,754
                              
                              
                              
                              5,642,113Limited
      Term Royalty Interest
                                (Dollar
      Denominated – 16.00% Return)
                              
                              
                              
                              
                              
                              
                              14,935,631
                              
                              
                              
                              14,935,631Black
      Pool Energy Partners, LLC
                              
                              Oil
      & Natural Gas
                                Production
      and Development
                              
                              Senior
      Secured
                                Multiple-Advance
      Term Loan
                                (The
      greater of 12.00% or LIBOR + 8.00% cash,
                                14.00%
      or LIBOR + 10.00% PIK,
                                due
      10/24/2011)
                              
                              
                              18,300,000
                              
                              
                              
                              18,013,814
                              
                              
                              
                              18,013,814Overriding
      Royalty Interest
                              
                              
                              
                              
                              
                              
                              9,884
                              
                              
                              
                              100,000Warrants(5)(16)
                              
                              
                              
                              
                              
                              
                              10,000
                              
                              
                              
                              10,000Chroma
      Exploration &
                                Production,
      Inc.
                              
                              Oil
      & Natural Gas
                                Production
      and Development
                              
                              10,302
      Shares Series A Participating
                                Convertible Preferred Stock(6)
                              
                              
                              
                              
                              
                              
                              2,221,710
                              
                              
                              
                              —9,408
      Shares Series AA Participating
                                Convertible Preferred Stock(6)
                              
                              
                              
                              
                              
                              
                              2,089,870
                              
                              
                              
                              500,0008.11 Shares Common Stock(5)
                              
                              
                              
                              
                              
                              
                              —
                              
                              
                              
                              —Warrants(5)(8)
                              
                              
                              
                              
                              
                              
                              —
                              
                              
                              
                              —Greenleaf
      Investments, LLC
                              
                              Oil
      & Natural Gas
                                Production
      and Development
                              
                              Senior
      Secured
                                Multiple-Advance
      Term Loan
                                (The
      greater of 10.50% or LIBOR + 6.50%,
                                due
      4/30/2011)
                              
                              
                              10,783,558
                              
                              
                              
                              10,616,048
                              
                              
                              
                              10,616,048Overriding
      Royalty Interest
                              
                              
                              
                              
                              
                              
                              31,028
                              
                              
                              
                              400,000Nighthawk
      Transport I,  LP
                              
                              Energy
      Services
                              
                              Second Lien Term Loan B(10)
                              
                              
                              13,022,642
                              
                              
                              
                              —
                              
                              
                              
                              —LP Units(5)(10)
                              
                              
                              
                              
                              
                              
                              —
                              
                              
                              
                              —Warrants(5)(10)
                              
                              
                              
                              
                              
                              
                              —
                              
                              
                              
                              —Second Lien Delayed Draw Term Loan B(10)
                              
                              
                              1,457,656
                              
                              
                              
                              —
                              
                              
                              
                              —
 
 (See
accompanying notes to consolidated financial statements)
  9
 
 NGP
CAPITAL RESOURCES COMPANY
  CONSOLIDATED
SCHEDULE OF INVESTMENTS
 December
31, 2009
 (continued)
 
 Portfolio
      Company
                                    
                                    Energy Industry
      Segment
                                    
                                    Investment(1)(2)(4)
                                    
                                    Principal
                                    
                                    Cost
                                    
                                    Fair Value(3)Targeted
      Investments(17) – ContinuedNon-affiliate
      Investments – (Less than 5%
      owned) – ContinuedTammany
      Oil & Gas, LLC
                                    
                                    Oil
      & Natural Gas
                                      Production
      and Development
                                    
                                    Senior
      Secured
                                      Multiple-Advance
      Term Loan
                                      (The
      greater of 13.0% or LIBOR + 8.00%,
                                      due
      3/21/2010)
                                    
                                    $
                                    24,782,804
                                    
                                    
                                    $
                                    24,734,973
                                    
                                    
                                    $
                                    24,734,973Overriding
      Royalty Interest
                                    
                                    
                                    
                                    
                                    
                                    
                                    171,134
                                    
                                    
                                    
                                    1,000,000Subtotal
      Non-affiliate Investments – (Less than 5% owned)
                                    
                                    $
                                    92,832,647
                                    
                                    
                                    $
                                    86,965,378Subtotal
      Targeted Investments (61.93% of total investments)
                                    
                                    $
                                    242,150,426
                                    
                                    
                                    $
                                    190,993,943Corporate Notes(17)Pioneer
      Natural Resources Co.
                                    
                                    Oil
      & Natural Gas
                                      Production
      and Development
                                    
                                    Senior
      Notes, 7.2%, due 2028
                                    
                                    $
                                    10,000,000
                                    
                                    
                                    $
                                    11,539,564
                                    
                                    
                                    $
                                    9,062,200Subtotal
      Corporate Notes (2.94% of total investments)
                                    
                                    $
                                    11,539,564
                                    
                                    
                                    $
                                    9,062,200Commodity Derivative Instruments(17)Put Options(14)
                                    
                                    
                                    
                                    Put
      Options with BP Corporation North
                                      America,
      Inc. to sell up to 32,750 Bbls of
                                      crude
      oil at a strike price of $85.00 per Bbl.
                                      4
      monthly contracts beginning on October 1,2009
                                      and
      expiring on January 31, 2010.
                                    
                                    
                                    
                                    
                                    
                                    $
                                    30,100
                                    
                                    
                                    $
                                    49,000Subtotal
      Commodity Derivatives (0.02% of total investments)
                                    
                                    $
                                    30,100
                                    
                                    
                                    $
                                    49,000Cash
      and Cash EquivalentsSubtotal
      Cash and Cash Equivalents (35.11% of total
    investments)
                                    
                                    $
                                    108,288,217
                                    
                                    
                                    $
                                    108,288,217Total
      investments, cash and cash equivalents
                                    
                                    $
                                    362,008,307
                                    
                                    
                                    $
                                    308,393,360Liabilities
      in excess of other assets
                                    
                                    $
                                    (68,217,812)Net
      assets
                                    
                                    $
                                    240,175,548
  10
 
 NGP
CAPITAL RESOURCES COMPANY
 
 CONSOLIDATED
SCHEDULE OF INVESTMENTS
 December
31, 2009
 (continued)
  Notes to Consolidated Schedule of
Investments
 (1)
                  All
      investments are pledged as collateral for obligations under the
      Company’s
      credit facility.
 (2)
                  Percentages
      represent interest rates in effect at the end of the period and due dates
      represent the contractual maturity
dates.
 (3)
                  Fair
      value of targeted investments is determined by or under the direction of
      the Board of Directors.
 (4)
                  All
      investments are in entities with primary operations in the United States
      of America.
 (5)
                  Non-income
      producing securities.
 (6)
                  Non-accrual
      status.
 (7)
                  BSR
      Loco Bayou repaid its term note in full on July 31, 2009. The Company
      retains ownership of ORRI and has exercised warrants in exchange for 50%
      working interest in certain BSR Loco Bayou properties which have been
      contributed to NGPC Asset Holdings II, LP in exchange for 100% of the
      outstanding units in BSR Holdings,
LLC.
 (8)
                  Chroma
      warrants expire on April 5, 2012 and provide the Company the right to
      purchase 2,462 shares of common stock at a purchase price of $75.00 per
      share.
 (9)
                  Bionol
      Clearfield, LLC is owned 100% by BioEnergy Holdings,
  LLC.
 (10)
                  Due
      to insufficient recoveries in the liquidation under Nighthawk’s
      voluntary petition under Chapter 7 of the United States Bankruptcy Code,
      the Company recognized a realized loss of its total remaining investment
      in Nighthawk notes, warrants and units in December
  2009.
 (11)
                  Formidable
      senior note was accelerated and the Company foreclosed on the member units
      of Formidable, LLC on September 28,
2009.
 (12)
                  BioEnergy
      International, LLC warrants expire on August 15, 2010 and provide the
      Company the right to purchase 140,687 units, representing membership
      interests of BioEnergy International, LLC, at the purchase price of $10.00
      per unit.
 (13)
                  Myriant
      Technologies, LLC warrants expire on August 15, 2015 and provide the
      Company the right to purchase 32,680 units, representing membership
      interests of Myriant Technologies, LLC, at the purchase price of $10.00
      per unit.
 (14)
                    Put
      Options are related to the limited term royalty interest purchased from
      ATP Oil & Gas Corporation.(15)
                    Resaca
      stock is listed on the Alternative Investment Market of the London Stock
      Exchange, denominated in British pounds and its reported fair value at
      December 31, 2009 has been converted to U.S. dollars at the exchange rate
      effective on December 31,
2009.
 (16)
                  Black
      Pool warrants expire seven years after repayment of principal and interest
      and provide the Company the right to purchase approximately 25% of
      membership interest at the exercise price of $0.01 per
    unit.
 
 (17)
                  All
      investments in portfolio securities, corporate notes and commodity
      derivative instruments are level 3 securities
  hierarchy.
  (See
accompanying notes to consolidated financial statements)
  11
  NGP
CAPITAL RESOURCES COMPANY
 CONSOLIDATED
FINANCIAL HIGHLIGHTS
 (Unaudited)
 
 For The Three Months EndedMarch 31, 2010
                                    
                                    
                                    March 31, 2009(As Restated)Per
      Share Data (1)Net
      asset value, beginning of period
                                    
                                    $
                                    11.10
                                    
                                    
                                    $
                                    12.15Net
      investment income
                                    
                                    
                                    0.11
                                    
                                    
                                    
                                    0.21Net
      realized and unrealized gain (loss) on portfolio
    securities,corporate
      notes and commodity derivative instruments (3)
                                    
                                    
                                    0.13
                                    
                                    
                                    
                                    (1.07
                                    )Net
      increase (decrease) in stockholders' equity (net assets)resulting
      from operations
                                    
                                    
                                    0.24
                                    
                                    
                                    
                                    (0.86
                                    )Dividends
      declared
                                    
                                    
                                    (0.17
                                    )
                                    
                                    
                                    (0.20
                                    )Net
      asset value, end of period
                                    
                                    $
                                    11.17
                                    
                                    
                                    $
                                    11.09Market
      value, beginning of period
                                    
                                    $
                                    8.13
                                    
                                    
                                    $
                                    8.37Market
      value, end of period
                                    
                                    $
                                    8.52
                                    
                                    
                                    $
                                    4.97Market
      value return (2)
                                    
                                    
                                    7.06
                                    %
                                    
                                    
                                    (38.75
                                    )%Net
      asset value return (2)
                                    
                                    
                                    2.81
                                    %
                                    
                                    
                                    (5.85
                                    )%Ratios
      and Supplemental Data($
      and shares in thousands)Net
      assets, end of period
                                    
                                    $
                                    241,507
                                    
                                    
                                    $
                                    239,878Average
      net assets
                                    
                                    $
                                    240,841
                                    
                                    
                                    $
                                    251,357Common
      shares outstanding at the end of the period
                                    
                                    
                                    21,628
                                    
                                    
                                    
                                    21,628Total
      operating expenses/average net assets (4)
                                    
                                    
                                    5.13
                                    %
                                    
                                    
                                    6.45
                                    %Total
      operating expenses less management andincentive
      fees and interest expense/average net assets (4)
                                    
                                    
                                    2.35
                                    %
                                    
                                    
                                    1.88
                                    %Total
      operating expenses less managementand
      incentive fees/average net assets (4)
                                    
                                    
                                    2.88
                                    %
                                    
                                    
                                    3.49
                                    %Net
      investment income/average net assets (4)
                                    
                                    
                                    4.09
                                    %
                                    
                                    
                                    7.33
                                    %Net
      increase (decrease) in net assets resulting fromoperations/average
      net assets (4)
                                    
                                    
                                    8.43
                                    %
                                    
                                    
                                    (30.06
                                    )%Portfolio
      turnover rate
                                    
                                    
                                    1.07
                                    %
                                    
                                    
                                    2.30
                                    %
 
 (1)
                Per
      Share Data is based on common shares outstanding at the end of the
      period.
 (2)
                Return
      calculations assume reinvestment of dividends and are not
      annualized.
 (3)
                Calculated
      as a balancing amount necessary to reconcile the change in net assets
      value per share with theother
      per share information presented. This amount may not agree with the
      aggregate gains and lossesfor
      the period because the difference in the net asset value at the beginning
      and end of year may not equalthe
      per share changes of the line items
disclosed.
 (4)
                Annualized.
 
 (See
accompanying notes to consolidated financial statements)
  12
 
 NGP
CAPITAL RESOURCES COMPANY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 March
31, 2010
 (Unaudited)
  Note 1:
              Organization
 
 NGP
Capital Resources Company (together with its consolidated subsidiaries, where
applicable, “NGPC”, or the “Company,” which may also be referred to as “we,”
“us,” or “our”) was organized as a Maryland corporation in July 2004. The
Company has elected to be regulated as a business development company (“BDC”)
under the Investment Company Act of 1940, as amended (the “1940
Act”).  In addition, for federal income tax purposes the Company has
elected to be treated as a regulated investment company (“RIC”) under the
Internal Revenue Code of 1986, as amended (the “Code”).  The Company
has several direct and indirect subsidiaries that are single member limited
liability companies and wholly-owned limited partnerships established to hold
certain portfolio investments or provide services to the Company in accordance
with specific rules prescribed for a company operating as a
RIC.  These subsidiaries are: NGPC Funding GP, LLC, a Texas limited
liability company; NGPC Nevada, LLC, a Nevada limited liability company; NGPC
Funding, LP, a Texas limited partnership; NGPC Asset Holdings GP, LLC, a Texas
limited liability company; NGPC Asset Holdings, LP, a Texas limited partnership;
NGPC Asset Holdings II, LP, a Texas limited partnership (“NGPC II”); NGPC Asset
Holdings III, LP, a Texas limited partnership; NGPC Asset Holdings V, LP, a
Texas limited partnership and NGPC Asset Holdings VI, LP, a Texas limited
partnership.  The Company consolidates the financial results of its
direct subsidiaries for financial reporting purposes.  The Company
does not consolidate the financial results of its portfolio
companies.
 
 The
Company was created to invest primarily in small and mid-size private energy
companies, which, until July 21, 2008, were generally defined as companies that
have net asset values or annual revenues of less than $500 million and are not
issuers of publicly traded securities. On July 21, 2008, the Securities and
Exchange Commission expanded the definition of eligible portfolio companies
(“Eligible Portfolio Companies”) to include domestic operating companies with
securities listed on a national securities exchange so long as the company has a
market capitalization of less than $250 million. The Company’s investment
objective is to generate both current income and capital appreciation through
debt investments with certain equity components.
 
 The
Company is managed and advised, subject to the overall supervision of the
Company’s board of directors, which we refer to as the Board of Directors, by
NGP Investment Advisor, LP (the “Manager”), a Delaware limited partnership owned
by NGP Energy Capital Management, L.L.C. and NGP Administration, LLC (the
“Administrator”), the Company’s administrator.
 
 Note 2:
              Restatements of Consolidated
      Financial Statements
 
 On March
15, 2010, our Board of Directors and the members of the Audit Committee of our
Board of Directors concluded that we should restate our consolidated financial
statements for the years ended December 31, 2007 and December 31, 2008 and for
each of the quarters in 2007 and 2008 and the first three quarters of 2009
(collectively, the “Affected Periods”).
  The
determination to restate the financial statements for the Affected Periods was
made in connection with management’s assessment of accounting errors it
discovered as part of a process to remediate a material weakness in internal
controls previously disclosed in the Company’s Annual Report on Form 10-K for
the year ended December 31, 2008 and the Company’s Quarterly Reports on Form
10-Q in 2009. While the Company has taken steps to remediate the previously
disclosed material weakness, the material weakness existed throughout the
quarterly periods of 2009, and at December 31, 2009, the Company had not yet
completed its assessment as to whether the material weakness had been fully
remediated. The Company anticipates that it will complete its testing of the
additional internal control processes designed to remediate the previously
disclosed material weakness in 2010.
  The
errors and consequent restatements principally involved non-cash accounting
entries related to net deferred tax assets and liabilities that typically arise
as a result of timing differences in tax and GAAP (book) accounting. Taxable Net
Investment Income, which is the primary determinant of the Company’s
distributable income, has not been affected in any of the Affected Periods by
these restatements.
  The
Company’s assessment of certain identified accounting errors results in the
following adjustments to previously reported periods:
  1.           
In the quarter ended March 31, 2007, the Company failed to record a deferred tax
liability with respect to approximately $2.1 million in unrealized appreciation
on investments in partnerships. Similarly, in the quarters ended June 30, 2007
and September 30, 2007, the Company failed to record deferred tax liabilities
with respect to approximately $4.0 million and $2.0 million, respectively, in
unrealized appreciation on an investment.
  2.           
In the quarter ended September 30, 2008, the Company realized a $12.34 million
pre-tax gain on this same investment (as compared to the $8.15 million of
unrealized appreciation previously recorded in 2007). The reversal of the
previously unrecorded deferred tax liability in 2008 resulted in the incorrect
recording of a net deferred tax asset of $3.8 million at year end
2008.
  13
    Impact of the Restatement
and Reclassification
  The
restatement and reclassification adjustments detailed below to our previously
filed consolidated financial statements reflect adjustments which principally
involved non-cash accounting entries related to net deferred tax assets and
liabilities, which impact the consolidated balance sheets, consolidated
statement of operations and consolidated statement of cash flows.
  The
effects of the restatement on the unaudited consolidated statement of operations
for the three-month period ended March 31, 2009 are summarized in the following
table:
 
 As PreviouslyReported
                        
                        
                        Reclassifications
                        
                        
                        As Reclassified
                        
                        
                        Restatement
                        
                        
                        As RestatedConsolidated
      Statement of Operations:For
      the Three Months Ended March 31, 2009Investment
      incomeInterest
      income:
                        
                        $
                        6,194,539
                        
                        
                        $
                        (6,194,539
                        )
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        -Affiliate
      investments
                        
                        
                        -
                        
                        
                        
                        1,356,076
                        
                        
                        
                        1,356,076
                        
                        
                        
                        -
                        
                        
                        
                        1,356,076Non-affiliate
      investments
                        
                        
                        -
                        
                        
                        
                        4,838,463
                        
                        
                        
                        4,838,463
                        
                        
                        
                        -
                        
                        
                        
                        4,838,463Royalty
      income (loss), net of amortization:
                        
                        
                        (894,302
                        )
                        
                        
                        894,302
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Control
      investments - majority owned
                        
                        
                        -
                        
                        
                        
                        23,336
                        
                        
                        
                        23,336
                        
                        
                        
                        -
                        
                        
                        
                        23,336Non-affiliate
      investments
                        
                        
                        -
                        
                        
                        
                        (917,638
                        )
                        
                        
                        (917,638
                        )
                        
                        
                        -
                        
                        
                        
                        (917,638
                        )State
      and excise taxes
                        
                        
                        5,619
                        
                        
                        
                        -
                        
                        
                        
                        5,619
                        
                        
                        
                        (5,619
                        )
                        
                        
                        -Other
      general and administrative expenses
                        
                        
                        796,949
                        
                        
                        
                        -
                        
                        
                        
                        796,949
                        
                        
                        
                        (1
                        )
                        
                        
                        796,948Total
      operating expenses
                        
                        
                        4,001,206
                        
                        
                        
                        -
                        
                        
                        
                        4,001,206
                        
                        
                        
                        (5,620
                        )
                        
                        
                        3,995,586Net
      investment income before income taxes
                        
                        
                        4,531,683
                        
                        
                        
                        -
                        
                        
                        
                        4,531,683
                        
                        
                        
                        5,620
                        
                        
                        
                        4,537,303Benefit
      (provision) for income taxes
                        
                        
                        1,341,993
                        
                        
                        
                        -
                        
                        
                        
                        1,341,993
                        
                        
                        
                        (1,337,702
                        )
                        
                        
                        4,291Net
      investment income
                        
                        
                        5,873,676
                        
                        
                        
                        -
                        
                        
                        
                        5,873,676
                        
                        
                        
                        (1,332,082
                        )
                        
                        
                        4,541,594Net
      unrealized gain (loss) on investmentsNet
      increase (decrease) in unrealized appreciation(depreciation)
      on portfolio securities, corporate notes:
                        
                        
                        (24,560,032
                        )
                        
                        
                        24,560,032
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Control
      investments - majority owned
                        
                        
                        -
                        
                        
                        
                        (4,075,662
                        )
                        
                        
                        (4,075,662
                        )
                        
                        
                        -
                        
                        
                        
                        (4,075,662
                        )Affiliate
      investments
                        
                        
                        -
                        
                        
                        
                        205,744
                        
                        
                        
                        205,744
                        
                        
                        
                        -
                        
                        
                        
                        205,744Non-affiliate
      investments
                        
                        
                        -
                        
                        
                        
                        (20,690,114
                        )
                        
                        
                        (20,690,114
                        )
                        
                        
                        -
                        
                        
                        
                        (20,690,114
                        )Benefit
      (provision) for taxes on unrealized gain
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,385,826
                        
                        
                        
                        1,385,826Total
      net unrealized gain (loss) on investments
                        
                        
                        (24,560,032
                        )
                        
                        
                        -
                        
                        
                        
                        (24,560,032
                        )
                        
                        
                        1,385,826
                        
                        
                        
                        (23,174,206
                        )Net
      increase (decrease) in stockholders' equity(net
      assets) resulting from operations
                        
                        
                        (18,686,356
                        )
                        
                        
                        -
                        
                        
                        
                        (18,686,356
                        )
                        
                        
                        53,744
                        
                        
                        
                        (18,632,612
                        )
  The
effects of the restatement on the unaudited consolidated statement of cash flows
for the three-month period ended March 31, 2009 are summarized in the following
table:
 
 Consolidated
      Statement of Cash Flows:For
      the Three Months Ended March 31, 2009Cash
      flows from operating activitiesNet
      increase (decrease) in stockholders' equity (net assets) resulting from
      operations
                    
                    $
                    (18,686,356
                    )
                    
                    $
                    -
                    
                    
                    $
                    (18,686,356
                    )
                    
                    $
                    53,744
                    
                    
                    $
                    (18,632,612
                    )Effects
      of changes in operating assets and liabilitiesCurrent
      portion of deferred income taxes
                    
                    
                    (6,052,617
                    )
                    
                    
                    -
                    
                    
                    
                    (6,052,617
                    )
                    
                    
                    4,094,398
                    
                    
                    
                    (1,958,219
                    )Non-current
      deferred income taxes
                    
                    
                    4,670,174
                    
                    
                    
                    -
                    
                    
                    
                    4,670,174
                    
                    
                    
                    (4,148,142
                    )
                    
                    
                    522,032
  14
  Note 3:
              Significant Accounting
      Policies
 
 The
interim unaudited consolidated financial statements include the accounts of the
Company and its subsidiaries.  All significant intercompany accounts and
transactions have been eliminated in consolidation. The management of the
Company prepares the interim consolidated financial statements, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
(the “SEC”).  Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”) have been
omitted pursuant to such rules and regulations, although the Company believes
the disclosures included herein are adequate to make the information presented
not misleading.  In the opinion of management, all adjustments, which
are of a normal recurring nature considered necessary for presentation of the
information, have been included.  These unaudited consolidated
financial statements should be read in conjunction with the consolidated
financial statements and related notes included in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2009.  Interim results
are not necessarily indicative of results for a full year.
  The
following is a summary of the significant accounting policies consistently
applied by the Company in the preparation of its consolidated financial
statements:
 
 Use
of Estimates
 
 The
interim consolidated financial statements have been prepared in accordance with
GAAP that require management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and the accompanying
notes to the consolidated financial statements.  Actual results could
differ from these estimates.
 
 Cash
and Cash Equivalents
 
 Cash and
cash equivalents include short-term, liquid investments with an original
maturity of three months or less in accounts such as demand deposit accounts,
money market accounts, certain overnight investment sweep accounts and money
market fund accounts.  Cash and cash equivalents are carried at cost,
which approximates fair value.
 
 Prepaid
Assets
 
 Prepaid
assets consist of premiums paid for directors’ and officers’ insurance and
fidelity bonds with a policy term of one year and fees associated with the
establishment of the policy or credit facility.
 
 Concentration
of Credit Risk
 
 The
Company places its cash and cash equivalents with financial institutions and, at
times, cash held in checking or money market accounts may exceed the Federal
Deposit Insurance Corporation insured limit.
 
 Valuation
of Investments
 
 Investments
are carried at fair value, as determined in good faith by the Company’s Board of
Directors.  On a quarterly basis, the investment team of the Manager
prepares valuations for all of the assets in the Company’s portfolio and
presents the valuations to the Company’s valuation committee, which we refer to
as the Valuation Committee, and Board of Directors.  The valuations
are determined and recommended by the Valuation Committee to the Board of
Directors, which reviews and ratifies the final portfolio
valuations.
 
 Investments
in securities for which market quotations are readily available are recorded in
the financial statements at such market quotations as of the valuation date
adjusted for appropriate liquidity discounts, if applicable.  For
investments in securities for which market quotations are unavailable, or which
have various degrees of trading restrictions, the investment team of the Manager
prepares valuation analyses, as generally described below.
 
 Using the
most recently available financial statements, forecasts and, when applicable,
comparable transaction data, the investment team of the Manager prepares
valuation analyses for the various securities in the Company’s investment
portfolio.  These valuation analyses are prepared using traditional
valuation methodologies, which rely on estimates of the asset values and
enterprise values of portfolio companies issuing securities.
 
 The
methodologies for determining asset valuations include estimates based
on:  the liquidation or sale value of a portfolio company’s assets,
the discounted value of expected future net cash flows from the assets and third
party valuations of a portfolio company’s assets, such as engineering reserve
reports of oil and natural gas properties.  The investment team of the
Manager considers some or all of the above valuation methods to determine the
estimated asset value of a portfolio company.
  15
 
 The
methodologies for determining enterprise valuations include estimates based
on:  valuations of comparable public companies, recent sales of
comparable companies, the value of recent investments in the equity securities
of a portfolio company and also on the methodologies used for asset
valuations.  The investment team of the Manager considers some or all
of the above valuation methods to determine the estimated enterprise value of a
portfolio company.
 
 The
methodologies for determining estimated current market values of comparable
securities include estimates based on: recent initial offerings of comparable
securities of public and private companies; recent secondary market sales of
comparable securities of public and private companies; current market implied
interest rates for comparable securities in general; and current market implied
interest rates for non-comparable securities in general, with adjustments for
such elements as size of issue, tenor and liquidity. The investment team of the
Manager considers some or all of the above valuation methods to determine the
estimated current market value of a comparable security.
 
 Debt Securities: The Company
records its investments in non-convertible debt securities at fair value which
generally approximates cost  plus amortized original issue discount,
or OID, to the extent that the estimated asset or enterprise value of the
portfolio company exceeds the outstanding debt of the portfolio company, subject
to comparison to the estimated current market values of comparable
securities.  The Company records its investment in convertible debt
securities at fair value which generally approximates the higher of: 1) cost
plus amortized OID, to the extent that the estimated asset or enterprise value
of the portfolio company equals or exceeds the outstanding debt of the portfolio
company; and 2) the Company’s pro rata share, upon conversion, of the residual
equity value of the portfolio company available after deducting all outstanding
debt from its estimated enterprise value, both subject to comparison to the
estimated current market values of comparable securities. If the estimated asset
or enterprise value is less than the sum of the value of the Company’s debt
investment and all other debt securities of the portfolio company pari passu or senior to the
Company’s debt investment, the Company reduces the value of the debt investment
beginning with the junior-most debt investment such that the asset or enterprise
value less the value of the outstanding pari passu or senior debt is
zero, subject to comparison to the estimated current market values of comparable
securities.  Investments in debt securities for which market
quotations are readily available are recorded in the financial statements at
such market quotations as of the valuation date adjusted for appropriate
liquidity discounts, if applicable.
 
 Equity Securities: The
Company records its  investments in preferred and common equity
securities (including warrants or options to acquire equity securities) at fair
value based on its pro rata share of the residual equity value available after
deducting all outstanding debt from the estimated enterprise value, subject to
comparison to the estimated current market values of comparable
securities.
 
 Property-Based Equity Participation
Rights: The Company records its investments in overriding royalty and net
profits interests at fair value based on a multiple of cash flows generated by
such investments, multiples from transactions involving the sale of comparable
assets and/or the discounted value of expected future net cash flows from such
investments. 
Appropriate cash flow multiples are derived from the review of comparable
transactions involving similar assets. The discounted value of future net cash
flows is derived, when appropriate, from third party valuations of a portfolio
company’s assets, such as engineering reserve reports of oil and natural gas
properties.
 
 Due to
the uncertainty inherent in the valuation process, such estimates of fair value
may differ significantly from the values that would have been used had a ready
market for the securities existed, and the differences could be
material.  Additionally, changes in the market environment and other
events that may occur over the life of the investments may cause the gains or
losses ultimately realized on these investments to be different from the
valuations currently assigned.
 
 Securities
Transactions, Interest and Dividend Income Recognition
 
 All
securities transactions are accounted for on a trade-date basis. Interest income
is recorded on the accrual basis to the extent that such amounts are expected to
be collected.  Premiums and discounts are accreted into interest
income using the effective interest method. Detachable warrants, other equity
securities or property interests such as overriding royalty interests obtained
in conjunction with the acquisition of debt securities are recorded separately
from the debt securities at their initial fair value, with a corresponding
amount recorded as a discount to the associated debt security.  Income
from overriding royalty interests is recognized as received and the recorded
assets are charged amortization using the units of production
method.  The portion of the loan origination fees paid that represent
additional yield or discount on a loan are deferred and accreted into interest
income over the life of the loan using the effective interest
method.  Upon the prepayment of a loan or debt security, any
unamortized loan origination fees are recorded as interest income and any
unamortized premium or discount is recorded as a realized gain or
loss.  Market premiums or discounts on acquired loans or fixed income
investments are accreted into interest income using the effective interest
method.  Dividend income is recognized on the ex-dividend
date.  The Company accrues interest and dividends on investments when
there is no question as to collectability. When collectability of interest or
dividends is doubtful, the Company places the investment on non-accrual status
and any existing interest or dividend receivable balances are evaluated to
determine if a write off is necessary. Collectability of the interest and
dividends is assessed based on many factors, including the portfolio company’s
ability to service its loan based on current and projected cash flows as well as
the current valuation of the portfolio company’s assets.
  16
 
 Payment-in-Kind
Interest and Dividends
 
 The
Company may have investments in its portfolio that contain payment-in-kind
(“PIK”) provisions.   PIK interest or dividends, computed at the
contractual rate specified in each investment agreement, are added to the
principal balance of the investment and recorded as interest or dividend
income.  For investments with PIK interest or dividends, the Company
bases income accruals on the principal balance including any PIK.  If
the portfolio company’s asset valuation is not sufficient to cover the
contractual interest, the Company will not accrue interest income or dividend
income on the investment. To maintain the Company’s RIC status, this non-cash
source of income must be paid out to stockholders in the form of dividends, even
though the Company has not yet collected the cash. For the quarter ended March
31, 2010, PIK interest income was $1.7 million, net of a $0.8 million reserve.
For the quarter ended March 31, 2009, PIK interest income was $0.9 million,
including a $0.03 million reserve adjustment.
 
 Net
Realized Gains or Losses and Net Change in Unrealized Appreciation or
Depreciation
 
 Realized
gains and losses are measured by the difference between the net proceeds from
the repayment or sale and the amortized cost basis of the investment,
considering unamortized fees and prepayment premiums, and without regard to
unrealized appreciation or depreciation previously recognized, and include
investments charged off during the year, net of recoveries.  Net
unrealized appreciation or depreciation reflects the change in portfolio
investment values during the reporting period including the reversal of
previously recorded unrealized appreciation or depreciation, when capital gains
or losses are realized.
 
 The
Company has decided not to designate commodity derivative instruments as hedging
instruments for financial accounting purposes. Net unrealized appreciation
or depreciation reflects the change in derivative values during the reporting
period including the reversal of previously recorded unrealized appreciation or
depreciation, when settled gains or losses are realized.
 
 Fee
Income Recognition
 
 Fees
primarily include financial advisory, transaction structuring, loan
administration, commitment and prepayment fees. Financial advisory fees
represent amounts received for providing advice and analysis to companies and
are recognized as earned when such services are performed provided collection is
probable.  Transaction structuring fees represent amounts received for
structuring, financing and executing transactions and are generally payable only
if the transaction closes. Such fees are deferred and accreted into interest
income over the life of the loan using the effective interest
method.  Commitment fees represent amounts received for committed
funding and are generally payable whether or not the transaction
closes.  On transactions that close within the commitment period,
commitment fees are deferred and accreted into interest income over the life of
the loan using the effective interest method.  Commitment fees on
transactions that do not close are generally recognized over the time period the
commitment is outstanding.  Prepayment and loan administration fees
are recognized as they are received.  For the quarters ended March 31,
2010 and 2009, the Company accreted approximately $0.3 million of fee income
into interest income.
 
 Dividends
 
 Dividends
to stockholders are recorded on the ex-dividend date.  The Company
currently intends that its distributions each year will be sufficient to
maintain the Company’s status as a RIC for federal income tax purposes and to
eliminate excise tax liability.  The Company currently intends to make
distributions to stockholders on a quarterly basis of substantially all net
taxable income.  The Company also intends to make distributions of net
realized capital gains, if any, at least annually.  However, the
Company may in the future decide to retain such capital gains for investment and
designate such retained amount as a deemed distribution.  The amount
to be paid out as a dividend, if any, is determined by the Board of Directors
each quarter and is based on the annual taxable earnings estimated by the
Manager.  Based on that estimate, a dividend is declared each quarter
and paid shortly thereafter.
 
 The
following table summarizes the Company’s recent distribution
history:
 
 Distribution
History
 
 Declaration Date
                                    
                                    Amount
                                    
                                    Record Date
                                    
                                    Payment DateMarch
      19, 2008
                                    
                                    $
                                    0.40
                                    
                                    March
      31, 2008
                                    
                                    April
      11, 2008June
      9, 2008
                                    
                                    $
                                    0.40
                                    
                                    June
      30, 2008
                                    
                                    July
      11, 2008September
      10, 2008
                                    
                                    $
                                    0.40
                                    
                                    September
      30, 2008
                                    
                                    October
      10, 2008December
      19, 2008
                                    
                                    $
                                    0.41
                                    
                                    December
      29, 2008
                                    
                                    January
      5, 2009March
      10, 2009
                                    
                                    $
                                    0.20
                                    
                                    March
      31, 2009
                                    
                                    April
      10, 2009June
      11, 2009
                                    
                                    $
                                    0.12
                                    
                                    June
      30, 2009
                                    
                                    July
      10, 2009September
      10, 2009
                                    
                                    $
                                    0.15
                                    
                                    September
      30, 2009
                                    
                                    October
      9, 2009December
      3, 2009
                                    
                                    $
                                    0.17
                                    
                                    December
      31, 2009
                                    
                                    January
      7, 2010March
      10, 2010
                                    
                                    $
                                    0.17
                                    
                                    March
      31, 2010
                                    
                                    April
      9,
2010
  17
 
 The
Company has established an “opt out” dividend reinvestment plan for its common
stockholders.  As a result, if the Company declares a dividend, then a
stockholder’s cash dividend will be automatically reinvested in additional
shares of the Company’s common stock unless the stockholder, or his or her
broker, specifically “opts out” of the dividend reinvestment plan and elects to
receive cash dividends. It is customary practice for many brokers to “opt out”
of dividend reinvestment plans on behalf of their clients unless specifically
instructed otherwise.  As of April 9, 2010, the date of the most
recent dividend payment, holders of 2,343,298 shares, or approximately 10.8% of
the 21,628,202 outstanding common shares, participated in the Company’s dividend
reinvestment plan.
 
 The
Company’s dividend reinvestment plan provides for the plan agent to purchase
shares in the open market for credit to the accounts of plan participants unless
the average of the closing sales prices for the shares for the five days
immediately preceding the payment date exceeds 110% of the most recently
reported net asset value per share.
 
 The table
below summarizes participation in the Company’s recent dividend reinvestment
plan:
 
 Dividend
Reinvestment Plan Participation
  Percentage of
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                Common Stock DividendsParticipating
                                                
                                                
                                                Outstanding
                                                
                                                
                                                Total
                                                
                                                
                                                
                                                
                                                
                                                Purchased in
                                                
                                                
                                                Purchased
                                                
                                                
                                                Newly Issued SharesDividend
                                                
                                                Shares
                                                
                                                
                                                Shares
                                                
                                                
                                                Distribution
                                                
                                                
                                                Cash Dividends
                                                
                                                
                                                Open Market
                                                
                                                
                                                Price
                                                
                                                
                                                Amount
                                                
                                                
                                                SharesMarch
      2008
                                                
                                                
                                                1,693,284
                                                
                                                
                                                
                                                9.7
                                                %
                                                
                                                $
                                                7,000,133
                                                
                                                
                                                $
                                                6,322,815
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                16.3280
                                                
                                                
                                                $
                                                677,318
                                                
                                                
                                                
                                                41,482June
      2008
                                                
                                                
                                                1,655,552
                                                
                                                
                                                
                                                9.4
                                                %
                                                
                                                $
                                                8,651,281
                                                
                                                
                                                $
                                                7,989,060
                                                
                                                
                                                $
                                                662,221
                                                
                                                
                                                $
                                                15.6912
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                
                                                -September
      2008
                                                
                                                
                                                1,739,829
                                                
                                                
                                                
                                                8.0
                                                %
                                                
                                                $
                                                8,651,281
                                                
                                                
                                                $
                                                7,955,350
                                                
                                                
                                                $
                                                695,931
                                                
                                                
                                                $
                                                11.4508
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                
                                                -December
      2008
                                                
                                                
                                                1,749,954
                                                
                                                
                                                
                                                8.1
                                                %
                                                
                                                $
                                                8,867,563
                                                
                                                
                                                $
                                                8,150,082
                                                
                                                
                                                $
                                                717,481
                                                
                                                
                                                $
                                                9.5047
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                
                                                -March
      2009
                                                
                                                
                                                2,179,204
                                                
                                                
                                                
                                                10.1
                                                %
                                                
                                                $
                                                4,325,640
                                                
                                                
                                                $
                                                3,889,799
                                                
                                                
                                                $
                                                435,841
                                                
                                                
                                                $
                                                6.4340
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                
                                                -June
      2009
                                                
                                                
                                                1,889,207
                                                
                                                
                                                
                                                8.7
                                                %
                                                
                                                $
                                                2,595,384
                                                
                                                
                                                $
                                                2,368,679
                                                
                                                
                                                $
                                                226,705
                                                
                                                
                                                $
                                                5.7848
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                
                                                -September
      2009
                                                
                                                
                                                2,306,518
                                                
                                                
                                                
                                                10.7
                                                %
                                                
                                                $
                                                3,244,230
                                                
                                                
                                                $
                                                2,898,252
                                                
                                                
                                                $
                                                345,978
                                                
                                                
                                                $
                                                7.6243
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                
                                                -December
      2009
                                                
                                                
                                                2,372,306
                                                
                                                
                                                
                                                11.0
                                                %
                                                
                                                $
                                                3,676,794
                                                
                                                
                                                $
                                                3,273,502
                                                
                                                
                                                $
                                                403,292
                                                
                                                
                                                $
                                                8.8884
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                
                                                -March
      2010
                                                
                                                
                                                2,343,298
                                                
                                                
                                                
                                                10.8
                                                %
                                                
                                                $
                                                3,676,794
                                                
                                                
                                                $
                                                3,278,433
                                                
                                                
                                                $
                                                398,361
                                                (1)
                                                
                                                $
                                                7.7955
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                
                                                -
 
 (1)  Shares
were purchased on April 9, 2010 for the March 2010 dividend.
 
 Income
Taxes
 
 We
currently qualify as a RIC for federal income tax purposes, which generally
allows us to avoid paying corporate income taxes on income or gains that we
distribute to our stockholders. We have distributed and intend to distribute
sufficient dividends to eliminate taxable income. We may also be subject to
federal excise tax if we do not distribute at least 98% of our investment
company taxable income in any calendar year and 98% of our capital gains in any
calendar year. Dividends to stockholders are recorded on the ex-dividend
date.  The Company currently intends that its distributions each year
will be sufficient to maintain the Company’s status as a RIC for federal income
tax purposes and to eliminate excise tax liability.
 
 Certain
of our wholly owned subsidiaries have elected to be taxed as a corporation for
federal income tax purposes. Each of these subsidiaries may hold one or more
portfolio investments listed on our Consolidated Schedule of Investments. These
taxable subsidiaries allow us to hold portfolio companies organized as LLCs or
other forms of pass-through entities and still satisfy the RIC tax requirement
that at least 90% of our gross revenue for income tax purposes must consist of
investment income. The income of the LLCs or other pass-through entities owned
by our taxable subsidiaries is taxed to the subsidiary only and does not flow
through to the RIC. We do not consolidate the taxable subsidiaries for income
tax purposes. We do consolidate the results of our taxable subsidiaries for
financial reporting purposes and therefore our Consolidated Statements of
Operations reflects any income tax expense of those subsidiaries.
 
 Note 4:
              Credit Facilities and
      Borrowings
 
 On July
16, 2009, the Company repaid the entire $75 million balance on its Treasury
Secured Revolving Credit Agreement (as amended, the “Treasury
Facility”).  The Treasury Facility had a three-year term, maturing
August 31, 2009, and bore interest, at the Company’s option, at either (i) LIBOR
plus 25 basis points or (ii) the base rate.  The Company did not renew
or extend the Treasury Credit Facility at its maturity on August 31,
2009.
 
 Under the
terms of the Company’s Amended and Restated Revolving Credit Agreement (as
amended, the “Investment Facility”), the lenders have agreed to extend revolving
credit to the Company in an amount not to exceed $67.5 million, with the ability
to increase the credit available to an amount not to exceed $107.5 million by
obtaining additional commitments from existing lenders or new lenders. The
total amount committed was $67.5 million and $64.9 million was outstanding under
the Investment Facility as of March 31, 2010.  By comparison, the
total amount committed as of March 31, 2009 was $87.5 million and $27.0 million
was outstanding under the Investment Facility.  The Investment
Facility matures on August 31, 2012, and bears interest, at the Company’s
option, at either (i) LIBOR plus 425 to 575 basis points, based on the degree of
leverage of the Company or (ii) the base rate plus 325 to 475 basis points,
based on the degree of leverage of the Company.  Proceeds from the
Investment Facility will be used to supplement the Company’s equity capital to
make portfolio investments.  As of March 31, 2010, the interest rate
was 7.0% on $64.9 million (Prime plus 375 basis points).
  18
 
 In
February 2010, the Company had a letter of credit in the amount of $2.594
million issued under the Investment Facility with respect to its investment in
Alden Resources, LLC (“Alden”). As of March 31, 2010, the letter of credit
balance was $2.594 million but was not drawn. The letter of credit was reduced
to $1.845 million on April 7, 2010.
 
 The
obligations under the Investment Facility are collateralized by substantially
all of the Company’s assets and are guaranteed by the Company’s existing and
future subsidiaries, other than special purpose subsidiaries and certain other
subsidiaries.  The Investment Facility contains affirmative and
reporting covenants and certain financial ratio and restrictive covenants,
including: (a) maintaining a ratio of net asset value to consolidated total
indebtedness (excluding net hedging liabilities) of the Company and its
subsidiaries, of not less than 2.25:1.0, (b) maintaining a ratio of net asset
value to consolidated total indebtedness (including net hedging liabilities) of
the Company and its subsidiaries, of not less than 2.0:1.0, (c) maintaining a
ratio of EBITDA to interest expense of the Company and its subsidiaries of not
less than 3.0:1.0, (d) limitations on additional indebtedness, (e) limitations
on liens, (f) limitations on mergers and other fundamental changes, (g)
limitations on dividends, (h) limitations on disposition of assets other than in
the normal course of business, (i) limitations on transactions with affiliates,
(j) limitations on agreements that prohibit liens on properties of the Company
and its subsidiary guarantors, (k) limitations on sale and leaseback
transactions, (l) limitations on speculative hedging transactions and (m)
limitations on the aggregate amount of unfunded commitments. From time to time,
certain of the lenders may provide customary commercial and investment banking
services to the Company.
 
 In
addition to the Company’s Investment Facility, the Company may also fund a
portion of its investments with issuances of equity or senior debt
securities.  The Company may also securitize a portion of its
investments in mezzanine or senior secured loans or other assets.  The
Company expects its primary use of funds to be investments in portfolio
companies, cash distributions to holders of its common stock and payment of fees
and other operating expenses.
 
 Note 5:
              Investment
      Management
 
 Investment
Advisory Agreement
 
 The
Company has entered into an investment advisory agreement with the Manager under
which the Manager, subject to the overall supervision of the Company’s Board of
Directors, manages the day-to-day operations of, and provides investment
advisory services to, the Company.
  For
providing these services, the Manager receives a fee from the Company,
consisting of two components — a base management fee and an incentive
fee.
 
 Under the
investment advisory agreement, the base management fee is calculated quarterly
as 0.45% of the average of total assets of the Company as of the end of the two
previous quarters, and is payable quarterly in arrears.  The Manager
has agreed to waive permanently, subsequent to September 30, 2007, that portion
of the management fee attributable to U.S. Treasury securities acquired with
borrowings under the Company’s credit facilities to the extent the amount of
such securities exceeds $100 million.
 
 The
entire amount of the $1,373,179 management and incentive fees payable to the
Manager as of March 31, 2010 consists of the base management fee for the quarter
ended March 31, 2010.
 
 The
incentive fee under the investment advisory agreement consists of two parts. The
first part, which is calculated and payable quarterly in arrears, equals 20% of
the excess, if any, of the Company’s net investment income for the quarter that
exceeds a quarterly hurdle rate equal to 2% (8% annualized) of the Company’s net
assets.
 
 For this
purpose, net investment income means interest income, dividend income, and any
other income (including any other fees, such as commitment, origination,
syndication, structuring, diligence, managerial assistance, monitoring, and
consulting fees or other fees that the Company receives from portfolio
companies) accrued during the fiscal quarter, minus the Company’s operating
expenses for the quarter (including the base management fee, expenses payable
under the administration agreement, any interest expense and dividends paid on
issued and outstanding preferred stock, if any, but excluding the incentive
fee).   Accordingly, the Company may pay an incentive fee based
partly on accrued interest, the collection of which is uncertain or
deferred.  Net investment income includes, in the case of investments
with a deferred interest feature (such as original issue discount, debt
instruments with payment-in-kind interest and zero coupon securities), accrued
income that the Company has not yet received in cash.  Net investment
income does not include any realized capital gains, realized capital losses, or
unrealized capital appreciation or depreciation.
 
 The
incentive fees due in any fiscal quarter will be calculated as
follows:
  19
 
 ·
                No incentive fee in any fiscal
      quarter in which the Company’s net investment income does not exceed the
      hurdle rate.
 ·
                20% of the amount of the
      Company’s net investment income, if any, that exceeds the hurdle rate in
      any fiscal quarter.
  There
were no investment income incentive fees earned for the first quarters of 2010
and 2009.
  The
second part of the incentive fee (the “Capital Gains Fee”) is determined and
payable in arrears as of the end of each fiscal year (or upon termination of the
investment advisory agreement, as of the termination date) and equals (1) 20% of
(a) the Company’s net realized capital gain (realized capital gains less
realized capital losses) on a cumulative basis from the closing date of the
Company’s initial public offering to the end of such fiscal year, less (b) any
unrealized capital depreciation at the end of such fiscal year, less (2) the
aggregate amount of all Capital Gains Fees paid to the Manager in prior fiscal
years. No capital gains incentive fees were paid for the first quarters of
2010 and 2009.
  Realized
capital gains on a security are calculated as the excess of the net amount
realized from the sale or other disposition of such security over the amortized
cost for the security.  Realized capital losses on a security are
calculated as the amount by which the net amount realized from the sale or other
disposition of such security is less than the amortized cost of such
security.  Unrealized capital depreciation on a security is calculated
as the amount by which the original cost of such security exceeds the fair value
of such security at the end of a fiscal year. All period-end valuations are
determined by the Company in accordance with GAAP and the 1940 Act.
 
 The investment advisory
agreement was originally approved by the Company’s Board of Directors on
November 9, 2004.  The investment advisory agreement provides that
unless terminated earlier as described below, the agreement shall remain in
effect from year-to-year after November 9, 2006, provided continuation is
approved at least annually by the Board of Directors or by the affirmative vote
of the holders of a majority of the Company’s outstanding voting securities,
including, in either case, approval by a majority of the Company’s directors who
are not interested persons.  On November 3, 2009, the Company’s Board
of Directors, including all of the independent directors, approved an extension
of the investment advisory agreement through November 9, 2010.
 
 The
agreement may be terminated at any time, without the payment of any penalty, by
a vote of the Company’s Board of Directors or the holders of a majority of the
Company’s shares on 60 days written notice to the Manager, and would
automatically terminate in the event of its “assignment” (as defined in the 1940
Act).  The agreement may be terminated by either party without penalty
upon not more than 60 days written notice to the other.
 
 The
investment advisory agreement provides that, absent willful misfeasance, bad
faith or gross negligence in the performance of its duties or the reckless
disregard of its duties and obligations, the Manager and its officers, manager,
agents, employees, controlling persons, members and any other person or entity
affiliated with it are entitled to indemnification from the Company for any
damages, liabilities, costs and expenses (including reasonable attorneys’ fees
and amounts reasonably paid in settlement) arising from the rendering of the
Manager’s services under the investment advisory agreement or otherwise as the
Company’s Manager.
 
 Pursuant
to the investment advisory agreement the compensation and routine overhead
expenses of the investment professionals of the Company’s management team and
their respective staffs, when and to the extent engaged in providing management
and investment advisory services to the Company, will be paid for by the
Manager.  The Company will bear all other costs and expenses of our
operations and transactions.
 
 The
Manager, NGP Investment Advisor, LP, was formed in 2004 and maintains an office
at 1221 McKinney Street, Suite 2975, Houston, Texas 77010.  The
Manager’s sole activity is to perform management and investment advisory
services for the Company.  The Manager is a registered investment
adviser under the Investment Advisers Act of 1940.
 
 The
foregoing description of the investment advisory agreement is qualified in its
entirety by reference to the full text of the document, a copy of which was
filed as Exhibit 10.1 to the Company’s Form 10-K for the year ended
December 31, 2004, and is incorporated herein by reference.
 
 Administration Agreement
 
 The
Company has entered into an administration agreement with the Administrator,
under which the Administrator furnishes the Company with office facilities,
equipment and clerical, bookkeeping and record keeping services at such
facilities.  Under the administration agreement, the Administrator
also performs, or oversees the performance by third parties of, the Company’s
required administrative services, which include being responsible for the
financial records that the Company is required to maintain and preparing reports
to the Company’s stockholders and reports filed with the SEC.  In
addition, the Administrator assists in determining and publishing the Company’s
net asset value, oversees the preparation and filing of the Company’s tax
returns and the printing and dissemination of reports to the Company’s
stockholders and generally oversees the payment of the Company’s expenses and
the performance of administrative and professional services rendered to the
Company by others.  To the extent permitted under the 1940 Act, the
Administrator may also provide on the Company’s behalf, significant managerial
assistance to the Company’s portfolio companies.  Payments under the
agreement are equal to amounts based upon the allocable portion of the
Administrator’s costs and expenses incurred in connection with administering the
Company’s business.  The Administrator bills the Company for charges
under the administration agreement monthly in arrears.  The agreement
may be terminated by either party without penalty upon 60 days’ written notice
to the other party and will automatically terminate in the event of its
“assignment” (as defined in the 1940 Act).
  20
 
 Of the
$1,072,981 in accounts payable as of March 31, 2010, $382,757 was due to the
Administrator for expenses incurred on the Company’s behalf for the first
quarter of 2010.
 
 The
administration agreement was originally approved by the Company’s Board of
Directors on November 9, 2004.  The administration agreement provides
that unless terminated earlier, the agreement will continue in effect until
November 9, 2006, and from year-to-year thereafter provided such
continuance is approved at least annually by (i) the Company’s Board of
Directors and (ii) a majority of the Company’s directors who are not
parties to the administration agreement or “interested persons” of any such
party.  On November 3, 2009, the Company’s Board of Directors,
including all of the independent directors, approved the continuation of the
administration agreement through November 9, 2010.
 
 The
foregoing description of the administration agreement is qualified in its
entirety by reference to the full text of the document, a copy of which was
filed as Exhibit 10.2 to the Company’s Form 10-K for the year ended
December 31, 2004, and is incorporated herein by reference.
 
 Note 6:
              Federal Income
      Taxes
 
 The
Company intends to qualify for tax purposes as a RIC under Subchapter M of
Chapter 1 of the Code, as amended.  As a RIC, the Company generally
will not be subject to federal income tax on the portion of its investment
company taxable income and net capital gain (i.e., realized net long term
capital gains in excess of realized net short term capital losses) distributed
to stockholders.  To qualify as a RIC, the Company is required, among
other things, to distribute to its stockholders at least 90% of investment
company taxable income, as defined by the Code, and to meet certain asset
diversification requirements.
  For the
five years ended December 31, 2009, the Company met all RIC requirements. The
Company distributed substantially all of its investment company taxable income
for these years.  Thus, the Company did not incur any federal income
tax liability for any of these periods.
 
 When a
“C” corporation qualifies to be taxed as a RIC, it is subject to corporate-level
tax on appreciation inherent in its assets on the date it becomes a RIC (i.e.,
built-in gain) that it recognizes within the first 10 years of its RIC status. A
RIC generally may use loss carryforwards arising in taxable years while it was a
“C” corporation to reduce its net recognized built-in gain, although a RIC is
not otherwise allowed to utilize such loss carryforwards. Because the Company
intends to qualify as a RIC under Subchapter M of the Code for 2005 and later
years, it is uncertain whether the Company will fully utilize the tax benefit of
its loss carryforward.
 
 Certain
of our wholly owned subsidiaries have elected to be taxed as a corporation for
federal income tax purposes. The following Company consolidated subsidiaries are
taxable entities: NGPC Asset Holdings, LP, NGPC Asset Holdings II, LP, NGPC
Asset Holdings III, LP, NGPC Asset Holdings V, LP and NGPC Asset Holdings VI,
LP, collectively NGPCAH.
  The
difference between the effective income tax rate of 0.30% and the statutory
federal tax rate of 34% for the three months ended March 31, 2010 is primarily
attributable to RIC investment company taxable income that generally will not be
subject to federal income tax.
 The
difference between the effective income tax rate of 6.94% and the statutory
federal tax rate of 34% for the three months ended March 31, 2009 is
attributable to RIC investment company taxable income that generally will not be
subject to federal income tax.
 Note 7:
              Commitments and
      Contingencies
 
 As of
March 31, 2010, the Company had investments in or commitments to fund
investments to fifteen portfolio companies totaling $248.7 million, of which
$242.7 million was outstanding and $6.0 million remained
available.  In addition, the Company has continuing obligations under
the investment advisory agreement with the Manager and the administration
agreement with the Administrator.  The agreements provide that, absent
willful misfeasance, bad faith or gross negligence in the performance of its
duties or the reckless disregard of its duties and obligations, the Manager, the
Administrator and its officers, managers, agents, employees, controlling
persons, members and any other person or entity affiliated with them will be
entitled to indemnification from the Company for any damages, liabilities, costs
and expenses (including reasonable attorneys’ fees and amounts reasonably paid
in settlement) arising from the rendering of the Manager’s or Administrator’s
services under the agreements or otherwise as the Company’s investment adviser
or administrator. The agreements also provide that the Manager, the
Administrator and their affiliates will not be liable to the Company or any
stockholder for any error of judgment, mistake of law, any loss or damage with
respect to any of the Company’s investments or any action taken or omitted to be
taken by the Manager or the Administrator in connection with the performance of
any of their duties or obligations under the agreements or otherwise as
investment adviser or administrator to the Company, except to the extent
specified in Section 36(b) of the 1940 Act concerning loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services. In the normal course of business, the Company enters into a variety of
undertakings containing a variety of representations that may expose the Company
to some risk of loss.  The amount of future loss, if any arising from
such undertakings, while not quantifiable, is not expected to be
significant.
  21




Note 8:
            Reclassifications




GAAP
requires adjustments to certain components of net assets to reflect permanent
differences between financial and tax reporting. These reclassifications have no
effect on total net assets or net asset value per share. The table below
summarizes the reclassifications from undistributed net investment income
(loss), undistributed net realized capital gain (loss), and paid-in capital in
excess of par for the year ended December 31, 2009. These reclassifications are
primarily due to operating losses, return of capital distributions,
reclassification of the distribution of dividends paid, non-deductible meal
expenses, non-deductible excise taxes, income and expenses from wholly owned
subsidiaries and the $13.9 million write-off of the Company’s investment in
Nighthawk.




Year
                                                
                                                
                                                Undistributed Net
                                                  Investment
                                                  Income(Loss)
                                                
                                                
                                                Undistributed
                                                  NetRealized
                                                  Capital Gain(Loss)
                                                
                                                
                                                Paid-inCapital
                                                  inExcess ofPar2009
                                                
                                                
                                                $
                                                2,293,828
                                                
                                                
                                                $
                                                12,180,142
                                                
                                                
                                                $
                                                (14,473,970
                                                )




Note 9:
            Fair
  Value





The
following three broad categories comprise the hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value:




•
            Level
      1 — Quoted unadjusted prices for identical instruments in
      active markets to which the Company has access at the date of
      measurement.





•
            Level
      2 — Quoted prices for similar instruments in active
      markets; quoted prices for identical or similar instruments in markets
      that are not active; and model-derived valuations in which all significant
      inputs and significant value drivers are observable in active markets.
      Level 2 inputs are those in markets for which there are few transactions,
      the prices are not current, little public information exists or instances
      where prices vary substantially over time or among brokered market
      makers.





•
            Level
      3 — Model derived valuations in which one or more
      significant inputs or significant value drivers are unobservable.
      Unobservable inputs are those inputs that reflect the Company’s own
      assumptions that market participants would use to price the asset or
      liability based on the best available
  information.




The
following table sets forth by level within the fair value hierarchy the
Company’s financial assets that were accounted for at fair value on a recurring
basis as of March 31, 2010. Fair value accounting classifies financial assets
and liabilities in their entirety based on the lowest level of input that is
significant to the fair value measurement. The Company’s assessment of the
significance of a particular input to the fair value measurement requires
judgment, and may affect the valuation of fair value assets and liabilities and
their placement within the fair value hierarchy levels. The Company estimates
the fair value of the crude oil and natural gas options using a combined income
and market based valuation methodology based upon forward commodity price and
volatility curves. Independent pricing services provide the curves which reflect
broker market quotes.




The
following tables present changes in the Company’s assets measured at fair value
on a recurring basis at March 31, 2010 and December 31, 2009:




Fair Value Measurements As
Of March 31, 2010





Prices withQuoted Prices
                  
                  
                  Observablein Active
                  
                  
                  Market
                  
                  
                  UnobservableMarkets
                  
                  
                  Inputs
                  
                  
                  InputsAssets at Fair Value
                  
                  Total
                  
                  
                  (Level 1)
                  
                  
                  (Level 2)
                  
                  
                  (Level 3)Long
      term investmentsControl
      investments
                  
                  $
                  75,435,448
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  75,435,448Affiliate
      investments
                  
                  
                  34,346,136
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  34,346,136Non-affiliate
      investments
                  
                  
                  83,256,296
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  83,256,296Corporate
      notes
                  
                  
                  9,416,400
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  9,416,400Total assets at fair value
                  
                  $
                  202,454,280
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  202,454,280


22




Fair Value Measurements As
Of December 31, 2009





Prices withQuoted Prices
                  
                  
                  Observablein Active
                  
                  
                  Market
                  
                  
                  UnobservableMarkets
                  
                  
                  Inputs
                  
                  
                  InputsAssets at Fair Value
                  
                  Total
                  
                  
                  (Level 1)
                  
                  
                  (Level 2)
                  
                  
                  (Level 3)Long
      term investmentsControl
      investments
                  
                  $
                  72,449,620
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  72,449,620Affiliate
      investments
                  
                  
                  31,578,945
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  31,578,945Non-affiliate
      investments
                  
                  
                  86,965,378
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  86,965,378Corporate
      notes
                  
                  
                  9,062,200
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  9,062,200Crude
      oil put options
                  
                  
                  49,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  49,000Total assets at fair value
                  
                  $
                  200,105,143
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  200,105,143




The
Company did not have any liabilities that were measured at fair value on a
recurring basis at March 31, 2010 or December 31, 2009.




The
following tables present roll-forwards of the changes in the fair value during
the three-month period from December 31, 2009 to March 31, 2010 and for the
three-month period from December 31, 2008 to March 31, 2009, for all investments
for which the Company determines fair value using unobservable (Level 3)
factors. During the three months ended March 31, 2010 and March 31, 2009, none
of the investments in portfolio companies changed between the categories of
Control Investments – Majority Owned, Affiliate Investments and Non-Affiliate
Investments.




Assets at Fair Value Using Unobservable Inputs (Level 3)Control
                      
                      
                      Affiliate
                      
                      
                      Non-affiliate
                      
                      
                      Corporate
                      
                      
                      Commodity Derivative
                      
                      
                      TotalInvestments
                      
                      
                      Investments
                      
                      
                      Investments
                      
                      
                      Notes
                      
                      
                      Instruments
                      
                      
                      InvestmentsBalance
      as of December 31, 2009
                      
                      $
                      72,449,620
                      
                      
                      $
                      31,578,945
                      
                      
                      $
                      86,965,378
                      
                      
                      $
                      9,062,200
                      
                      
                      $
                      49,000
                      
                      
                      $
                      200,105,143Transfers
      in (out) of Level 3
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Net
      amortization of premiums, discounts and fees
                      
                      
                      119,385
                      
                      
                      
                      56,033
                      
                      
                      
                      (3,131,526
                      )
                      
                      
                      (12,323
                      )
                      
                      
                      -
                      
                      
                      
                      (2,968,431
                      )Net
      realized gains (losses)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Net
      unrealized gains (losses)
                      
                      
                      6,501
                      
                      
                      
                      558,719
                      
                      
                      
                      1,966,366
                      
                      
                      
                      366,523
                      
                      
                      
                      (18,900
                      )
                      
                      
                      2,879,209Change
      in Control
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Purchases
                      
                      
                      2,046,172
                      
                      
                      
                      1,247,220
                      
                      
                      
                      1,193
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      3,294,585Payment-in-kind
                      
                      
                      813,770
                      
                      
                      
                      917,719
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,731,489Sales
      and repayments
                      
                      
                      -
                      
                      
                      
                      (12,500
                      )
                      
                      
                      (2,545,115
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (2,557,615
                      )Settlements
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (30,100
                      )
                      
                      
                      (30,100
                      )Balance
      as of March 31, 2010
                      
                      $
                      75,435,448
                      
                      
                      $
                      34,346,136
                      
                      
                      $
                      83,256,296
                      
                      
                      $
                      9,416,400
                      
                      
                      $
                      -
                      
                      
                      $
                      202,454,280




Most of
the $2,879,209 net unrealized gains before taxes presented in the table above
relate to improved fair market values of limited term royalties from the
Company’s investment in ATP Oil & Gas Co., $1,746,991, and the Company’s
investment in the common stock of Resaca Exploitation, Inc., $558,719. The
remaining balance of $573,499 gain relates primarily to the higher market value
of corporate notes and a mix of gains and losses on other portfolio investments.
The Company presents net unrealized losses on the Consolidated Statements of
Operations as “Net increase (decrease) in unrealized appreciation (depreciation)
on portfolio securities, corporate notes and commodity derivative
instruments.”


23




Assets at Fair Value Using Unobservable Inputs (Level 3)Control
                          
                          
                          Affiliate
                          
                          
                          Non-affiliate
                          
                          
                          Corporate
                          
                          
                          Commodity Derivative
                          
                          
                          TotalInvestments
                          
                          
                          Investments
                          
                          
                          Investments
                          
                          
                          Notes
                          
                          
                          Instruments
                          
                          
                          InvestmentsBalance
      as of December 31, 2008 (As restated)
                          
                          $
                          24,570,000
                          
                          
                          $
                          44,416,490
                          
                          
                          $
                          175,243,078
                          
                          
                          $
                          6,350,000
                          
                          
                          $
                          8,212,872
                          
                          
                          $
                          258,792,440Transfers
      in (out) of Level 3
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Net
      amortization of premiums, discounts and fees
                          
                          
                          (296
                          )
                          
                          
                          44,617
                          
                          
                          
                          (1,478,495
                          )
                          
                          
                          (11,637
                          )
                          
                          
                          -
                          
                          
                          
                          (1,445,811
                          )Net
      realized gains (losses)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Net
      unrealized gains (losses)
                          
                          
                          (4,075,662
                          )
                          
                          
                          205,744
                          
                          
                          
                          (17,275,378
                          )
                          
                          
                          (225,063
                          )
                          
                          
                          (3,189,673
                          )
                          
                          
                          (24,560,032
                          )Change
      in Control
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Purchases
                          
                          
                          1,075,958
                          
                          
                          
                          4,000,000
                          
                          
                          
                          6,060,778
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          11,136,736Payment-in-kind
                          
                          
                          -
                          
                          
                          
                          795,837
                          
                          
                          
                          116,689
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          912,526Sales
      and repayments
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (5,481,565
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (5,481,565
                          )Settlements
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (293,965
                          )
                          
                          
                          (293,965
                          )Balance
      as of March 31, 2009 (As restated)
                          
                          $
                          21,570,000
                          
                          
                          $
                          49,462,688
                          
                          
                          $
                          157,185,107
                          
                          
                          $
                          6,113,300
                          
                          
                          $
                          4,729,234
                          
                          
                          $
                          239,060,329




Of the
$24,560,032 net unrealized losses before taxes presented in the table above,
$3,189,673 relates to unrealized losses upon realization of gains of commodity
derivative instruments maturities during the first quarter of 2009. The
remaining loss of $21,370,359 relates primarily to the lower market value of our
investments in Formidable, LLC, $17,550,812 and TierraMar Energy LP, $4,075,958.
The Company presents net unrealized losses on the Consolidated Statements of
Operations as “Net increase (decrease) in unrealized appreciation (depreciation)
on portfolio securities, corporate notes and commodity derivative
instruments.”


Note
      10:
              Commodity
      Derivative
Instruments


The
Company may periodically enter into commodity derivative instruments to manage
our exposure to commodity price fluctuations. The Company uses all of its
derivatives for risk management purposes and does not hold any amounts for
speculative or trading purposes. These contracts generally consist of options
contracts on underlying commodities.




The
Company acquired a limited term royalty interest from ATP Oil & Gas
Corporation and will receive royalty payments from this investment that are
based on crude oil and natural gas production and prices. As a result, the
Company is exposed to fluctuations in crude oil and natural gas prices. As of
June 4, 2008, the Company had entered into option contracts to manage the price
risk associated with these royalty payments. The Company accounts for derivative
instruments and hedging activities in accordance with derivative instruments and
hedging accounting rules. The Company has decided not to designate these
instruments as hedging instruments for financial accounting purposes. As a
result, we recognize the change in the instruments’ fair value currently on the
Consolidated Statements of Operations as net increase (decrease) in unrealized
appreciation (depreciation) on portfolio securities, corporate notes and
commodity derivative instruments.




Investments
in derivative instruments represent future commitments or options to purchase or
sell other financial instruments or commodities at specific prices at specified
future dates, which expose the Company to market risk if the market value of the
contract is higher or lower than the contract price at the maturity date.
Additionally, these derivative instruments expose the Company to credit risk
arising from the potential inability of counterparties to perform under the
terms of the contracts.




The
components of gains (losses) on commodity derivative instruments are as
follows:




For
      the Three Months EndedMarch 31, 2010
                  
                  
                  March 31, 2009Unrealized
      gains (losses) on commodity derivatives
                  
                  $
                  (18,900
                  )
                  
                  $
                  (3,189,673
                  )Realized
      gains (losses) on commodity derivatives
                  
                  
                  16,079
                  
                  
                  
                  3,173,852Net
      gains (losses) on commodity derivative instruments
                  
                  $
                  (2,821
                  )
                  
                  $
                  (15,821
                  )




The
unrealized gains (losses) on commodity derivatives are included in net increase
(decrease) and unrealized appreciation (depreciation) on portfolio securities,
corporate notes and commodity derivative instruments.





The
realized gains (losses) on commodity derivatives are composed of revenues
received on favorable expired options less the cost of all expired positions and
are included in interest income.




24




The
Company’s commodity derivative instruments were totally expired as of January
31, 2010.


Note
      11:
              Recent
      Accounting
Pronouncements





In April
2009, the FASB issued three new accounting standards relating to certain aspects
of fair value measurement and related disclosures, also included in ASC Topic
820. The accounting standards update was effective April 1, 2009. The Company
does not believe that the adoption of these standards will have an impact on its
consolidated financial statements.




In April
2009, the FASB issued an accounting standards update, included in ASC Topic 820,
to provide additional guidance for estimating the fair value of assets or
liabilities with low levels of activity. The new guidance was effective
prospectively for interim and annual reporting periods ended after June 15,
2009. The Company adopted the new guidance in its Quarterly Report on Form 10-Q
for the quarter ended June 30, 2009. The adoption of this new accounting
guidance did not have a material effect on the Company’s consolidated financial
statements or disclosures.




In May
2009, the FASB issued an accounting standards update on subsequent events, which
was primarily codified into ASC Topic 855. The Company adopted ASC 855 in its
Quarterly Report on Form 10-Q for the quarter ended June 30, 2009. In February
2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-09, Amendments to Certain Recognition
and Disclosure Requirements(“ASU 2010-09”) which amends ASC 855 to
define an SEC filer and remove the requirement for an SEC filer to disclose the
date, in both issued and revised financial statements, through which it has
evaluated subsequent events. This change alleviates potential conflicts with
current SEC guidance. ASU No. 2010-09 is effective upon issuance for all
entities other than conduit bond obligors. The Company adopted the requirements
of ASU No. 2010-09 on the effective date. See Note 12 for a listing of
subsequent events.




In
January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and
Disclosures, which amends ASC 820 and requires additional disclosure
related to recurring and non-recurring fair value measurements in respect to
transfers in and out of Levels 1 and 2 and activity in Level 3 fair value
measurements. The update also clarifies existing disclosure requirements related
to activity in Level 3 fair value measurements, which are effective for fiscal
years beginning after December 15, 2010 and for interim periods within those
fiscal years. The Company adopted the new guidance in its annual Report on 10-K
for the year ended December 31, 2009.




Note
      12:
              Subsequent
      Events




In April
2010, the Company and Tammany Oil & Gas, LLC (“Tammany”) agreed to amend the
Company’s Credit Agreement with Tammany. Under the amended terms, the Company
extended the maturity of the Tammany Credit Agreement from April 21, 2010 to
September 21, 2010.


25




Item 2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.





The
following analysis of our financial condition and results of operations should
be read in conjunction with management’s discussion and analysis contained in
our 2009 Annual Report on Form 10-K, as well as our consolidated financial
statements and the notes thereto included in this Quarterly Report on Form
10-Q.





Restatement





On March
15, 2010, our Board of Directors and the members of the Audit Committee of our
Board of Directors concluded that we should restate our consolidated financial
statements for the years ended December 31, 2007 and December 31, 2008 and the
first three quarters of 2009 (collectively, the “Affected
Periods”).




The
determination to restate the financial statements for the Affected Periods was
made in connection with management’s assessment of accounting errors it
discovered as part of a process to remediate a material weakness in internal
controls previously disclosed in the Company’s Annual Report on Form 10-K for
the year ended December 31, 2008 and the Company’s Quarterly Reports on Form
10-Q in 2009. While the Company has taken steps to remediate the previously
disclosed material weakness, the material weakness existed throughout the
quarterly periods of 2009, and at December 31, 2009, the Company had not yet
completed its assessment as to whether the material weakness had been fully
remediated. The Company anticipates that it will complete its testing of the
additional internal control processes designed to remediate the previously
disclosed material weakness in 2010.




The
errors and consequent restatements principally involved non-cash accounting
entries related to net deferred tax assets and liabilities that typically arise
as a result of timing differences in tax and GAAP (book) accounting. Taxable Net
Investment Income, which is the primary determinant of the Company’s
distributable income, has not been affected in any period by these
restatements.




The
Company’s assessment of certain identified accounting errors results in the
following adjustments to previously reported periods:




1.           In
the quarter ended March 31, 2007, the Company failed to record a deferred tax
liability with respect to approximately $2.1 million in unrealized appreciation
on investments in partnerships. Similarly, in the quarters ended June 30, 2007
and September 30, 2007, the Company failed to record deferred tax liabilities
with respect to approximately $4.0 million and $2.0 million, respectively, in
unrealized appreciation on an investment.




2.           In
the quarter ended September 30, 2008, the Company realized a $12.34 million
pre-tax gain on this same investment (as compared to the $8.15 million of
unrealized appreciation previously recorded in 2007). The reversal of the
previously unrecorded deferred tax liability in 2008 resulted in the incorrect
recording of a net deferred tax asset of $3.8 million at year end
2008.




Unrelated
to the restatements, we have reclassified certain balance sheet, statement of
operations and statement of cash flows amounts to conform to the presentation in
our most recently-filed Annual Report on Form 10-K. These reclassifications were
primarily related to the disaggregation of investments in portfolio securities,
investment income, net realized capital gain (loss) on investments and net
unrealized gain (loss) on investments into separate classifications according to
level of control.





See Note
2, Restatement of Consolidated Financial Statements for a schedule of the
amounts and accounts that were affected for the period ended March 31,
2009.




Forward-Looking
Statements





Certain
statements in this Quarterly Report on Form 10-Q that relate to estimates or
expectations of our future performance or financial condition may constitute
“forward-looking statements” as defined under the Private Securities Litigation
Reform Act of 1995.  These forward-looking statements are subject to
various risks and uncertainties, which could cause actual results and conditions
to differ materially from those projected, including, but not limited
to,




·
              uncertainties associated with the
      timing of transaction
closings;
 ·
              changes in the prospects of our
      portfolio companies;
 ·
              changes in interest
      rates;
 ·
              changes in regional, national or
      international economic conditions and their impact on the industries in
      which we invest;
 ·
              continued disruption of credit
      and capital markets;
 ·
              the future operating results of
      our portfolio companies and their ability to achieve their
      objectives;
 ·
              changes in the conditions of the
      industries in which we
invest;
 ·
              the adequacy of our cash
      resources and working
capital;
 ·
              the timing of cash flows, if any,
      from the operations of our portfolio
  companies;
 ·
              the
      ability of our Manager to locate suitable investments for us and to
      monitor and administer the investments;
and
  26
  ·
              other factors enumerated in our
      filings with the SEC.




We may
use words such as “anticipates,” “believes,” “expects,” “intends,” “will,”
“should,” “may” and similar expressions to identify forward-looking
statements.  Such statements are based on currently available
operating, financial and competitive information and are subject to various
risks and uncertainties that could cause actual results to differ materially
from our historical experience and present expectations.  Undue
reliance should not be placed on such forward-looking statements, as such
statements speak only as of the date on which they are
made.  Additional information regarding these and other risks and
uncertainties is contained in our periodic filings with the SEC.





Overview





We are a
financial services company created to invest primarily in debt securities of
small and mid-size private energy companies.  We have elected to be
regulated as a BDC under the 1940 Act and, as such, we are required to comply
with certain regulatory requirements.  For instance, we generally have
to invest at least 70% of our total assets in “qualifying assets,”
which include securities of private U.S. companies, U.S. companies whose
securities are listed on a national securities exchange but whose market
capitalization is less than $250 million, cash, cash equivalents, U.S.
government securities and high-quality debt investments that mature in one year
or less.  In addition, for federal income tax purposes we operate so
as to be treated as a RIC under the Code.  Pursuant to these
elections, we generally will not have to pay corporate-level taxes on any income
and capital gains we distribute to our stockholders.  The Company has
several direct and indirect subsidiaries that are single member limited
liability companies and wholly-owned limited partnerships established to hold
certain portfolio investments or provide services to the Company in accordance
with specific rules prescribed for a company operating as a RIC.  The
Company consolidates the results of its subsidiaries for financial reporting
purposes. The Company does not consolidate the financial results of its
portfolio companies.





Our
investment objective is to generate both current income and capital appreciation
primarily through debt investments with certain equity components.  A
key focus area for our targeted investments in the energy industry is domestic
upstream businesses that produce, develop, acquire and explore for oil and
natural gas.  We also evaluate investment opportunities in such
businesses as coal, power, electricity, energy services and alternative
energy.  Our investments generally range in size from $10 million to
$50 million, however, we may invest more or less depending on market conditions
and our Manager’s view of a particular investment opportunity. Our targeted
investments primarily consist of debt instruments, including senior and
subordinated loans combined in one facility, sometimes with an equity component,
and subordinated loans, sometimes with equity components.  We may also
invest in preferred stock and other equity securities on a stand-alone
basis.





We
generate revenue in the form of interest income on the debt securities that we
own, dividend income on any common or preferred stock that we own and capital
gains or losses on any debt or equity securities that we acquire in portfolio
companies and subsequently sell. Our investments, if in the form of debt
securities, typically have a term of three to seven years and bear interest at a
fixed or floating rate. To the extent achievable, we seek to collateralize our
investments by obtaining security interests in our portfolio companies'
assets.  We also may acquire minority or majority equity interests in
our portfolio companies, which may pay cash or in-kind dividends on a recurring
or otherwise negotiated basis.  In addition, we may generate revenue
in other forms including commitment, origination, structuring, administration or
due diligence fees; fees for providing managerial assistance; and possibly
consultation fees.  Any such fees generated in connection with our
investments are recognized as earned.





Our level
of investment activity can and does vary substantially from period to period
depending on many factors, including the amount of debt and equity capital
available to energy companies, the level of acquisition and divestiture activity
for such companies, the level and volatility of energy commodity prices, the
general economic environment and the competitive environment for the types of
investments we make, and our own ability to raise capital, both through issuance
of debt and equity securities, to fund our investments.  We believe
that the recent dislocation in the credit markets and decline in energy
commodity prices should favorably impact the competitive environment, in that it
is reducing the debt capital available to energy companies from other
sources. Though the same macro economic factors also make our access to new
debt and equity capital less certain, in October 2009, we extended the maturity
date of our Investment Facility to August 2012. While we currently have
capital available to invest, it is not unlimited.  We remain committed
to our underwriting and investment disciplines in selectively investing in
appropriate risk-reward opportunities within the energy sector.





Accounting
Policies





Our
discussion and analysis of our financial condition and results of operations are
based upon our financial statements, which have been prepared in accordance with
GAAP.  The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses.  Changes in the economic
environment, financial markets and any other parameters used in determining such
estimates could cause actual results to differ materially.  In
addition to the discussion below, our significant accounting policies are
further described in Note 3 of our consolidated financial statements included in
this Quarterly Report on Form 10-Q.




27




Valuation
of Investments




Investments
are carried at fair value, as determined in good faith by the Company’s Board of
Directors.  On a quarterly basis, the investment team of the Manager
prepares valuations for all of the assets in the Company’s portfolio and
presents the valuations to the Company’s Valuation Committee and Board of
Directors.  The valuations are determined and recommended by the Valuation
Committee to the Board of Directors, which reviews and ratifies the final
portfolio valuations.





Investments
in securities for which market quotations are readily available are recorded in
the financial statements at such market quotations as of the valuation date
adjusted for appropriate liquidity discounts, if applicable.  For
investments in securities for which market quotations are unavailable, or which
have various degrees of trading restrictions, the investment team of the Manager
prepares valuation analyses.





Using the
most recently available financial statements, forecasts and, when applicable,
comparable transaction data, the investment team of the Manager prepares
valuation analyses for the various securities in the Company’s investment
portfolio.  These valuation analyses are prepared using traditional
valuation methodologies, which rely on estimates of the asset values and
enterprise values of portfolio companies issuing securities, as well as
estimated current market values for comparable securities.





The
following three broad categories comprise the hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value:




·
              Level 1— Quoted unadjusted prices
      for identical instruments in active markets to which the Company has
      access at the date of
measurement.
 
 ·
              Level 2— Quoted prices for similar
      instruments in active markets; quoted prices for identical or similar
      instruments in markets that are not active; and model-derived valuations
      in which all significant inputs and significant value drivers are
      observable in active markets.  Level 2 inputs are those in
      markets for which there are few transactions, the prices are not current,
      little public information exists or instances where prices vary
      substantially over time or among brokered market
      makers.
 
 ·
              Level 3— Model derived valuations
      in which one or more significant inputs or significant value drivers are
      unobservable.  Unobservable inputs are those inputs that reflect the
      Company’s own assumptions that market participants would use to price the
      asset or liability based on the best available
      information.




Fair
value accounting classifies financial assets and liabilities in their entirety
based on the lowest level of input that is significant to the fair value
measurement. The Company’s assessment of the significance of a particular input
to the fair value measurement requires judgment, and may affect the valuation of
fair value assets and liabilities and their placement within the fair value
hierarchy levels. The Company estimates the fair value of the crude oil and
natural gas options using a combined income and market based valuation
methodology based upon forward commodity price and volatility curves.
Independent pricing services provide the curves which reflect broker market
quotes.




Portfolio
and Investment Activity




In
February 2010, the Company amended its Senior Secured Credit Facility (the
“Alden Facility”) with Alden. The amendment provides Alden with a $3.0 million
Revolving Credit Facility (the “Revolver”) with initial availability of $2.7
million. Additionally, the Company arranged a $3.25 million Letter of Credit
Facility (the “L/C Facility”) for Alden through SunTrust Bank. The letter of
credit under the L/C Facility was issued on behalf of Alden and guaranteed by
the Company. Initially, a $2.594 million letter of credit was issued to secure a
series of reclamation bonds issued by Argo Surety. The terms of the Revolver and
L/C Facility are the same as the Alden Facility (12% cash interest, 15% PIK). As
additional consideration for providing the Revolver and the L/C Facility, the
Company will earn an incremental 0.5% Royalty Interest on all of Alden’s
revenue.




In
February 2010, the Company and Black Pool Energy Partners, LLC (“Black Pool”)
agreed to amend the Company’s Credit Agreement with Black Pool. Under the
amended terms, the Company consented to Black Pool’s sale of a 37.5% working
interest in certain offshore wells to a third party for $7.1 million. Proceeds
from the sale will be used to pay completion costs for the offshore wells, to
repay debt and to retire accounts payable. As consideration for its consent,
interest on the facility will increase from 12% to 15% (LIBOR + 11% with a floor
of 4%).




In March
2010, the Company and Tammany Oil & Gas, LLC (“Tammany”) agreed to amend the
Company’s Credit Agreement with Tammany. Under the amended terms, the Company
extended the maturity of the Tammany Credit Agreement from March 21, 2010 to
April 21, 2010. As consideration for the extension, the Company received an
amendment fee of $125,000. See Note 12 Subsequent Events for more information on
Tammany.





In total
for the quarter ended March 31, 2010, investments in existing portfolio
companies increased by $5.8 million and we received principal repayments,
realizations and settlements of $5.8 million.  One investment, our
commodity derivative instruments, expired during the first quarter of 2010 and
we did not add any new companies to our portfolio.


28




Following
these transactions our investment portfolio consisted of fifteen portfolio
companies and was invested as follows based on their fair values as of March 31,
2010: 45.6% in senior secured term loans, 0.2% in participating convertible
preferred stock, 1.5% in common stock, 3.0% in corporate notes, 6.0% in
membership and partnership units, 3.5% in net profits interests, 5.8% in limited
term royalty interests, and 0.2% in other investments.  The balance of
our investment portfolio (as a percentage of the whole portfolio) was comprised
34.2% of cash and cash equivalents.





Results
of Operations




Investment
Income




Investment
income for the quarter ended March 31, 2010 was $5.2 million, with $4.9 million
attributable to interest from targeted investments in ten portfolio companies, a
$0.2 million net loss attributable to royalty income, net of amortization, and
$0.5 million from corporate notes, investments in cash and cash equivalents and
fee income from third parties and affiliates.  This compares to
investment income for the quarter ended March 31, 2009 of $8.5 million with $6.0
million attributable to interest from targeted investments in eleven portfolio
companies, $3.2 million attributable to income from commodity derivative
instruments, a $0.9 million net loss attributable to royalty income net of
amortization, and $0.2 million from corporate notes and investments in cash
equivalents.





Our total
targeted portfolio balance decreased on a cost basis by approximately $57.9
million from $299.6 million on March 31, 2009 to $241.7 million on March 31,
2010.  The balance of non-accruing and non-income producing
investments on a cost basis increased from approximately $77.8 million at March
31, 2009 to approximately $102.4 million at March 31, 2010.  The
balance of non-accruing and non-income producing investments on a fair value
basis increased from approximately $30.4 million at March 31, 2009 to
approximately $50.9 million at March 31, 2010.  Although LIBOR rates
remained low in the first quarter of 2010, they had a minimal effect on our
targeted investment income because of LIBOR floors established for new portfolio
companies and certain other existing portfolio companies during 2010 and
2009.  Additionally, the continued downward pressure on U.S. Treasury
Bill interest rates during 2010 and 2009 reduced interest from cash and cash
equivalents.





At March
31, 2010, the weighted average yield on targeted portfolio investments,
exclusive of capital gains, was 7.23%.  The weighted average yield of
our corporate notes was 5.82%.  The weighted average yield of our cash
& cash equivalents was 0.57%.  The weighted average yield on our
total capital invested at March 31, 2010 was 5.22%.  Further, three
investments totaling $62.6 million on a cost basis (Formidable, LLC
(“Formidable”), $38.8 million; Alden Tranche B, $19.5 million; and Chroma
Exploration & Production, Inc., $4.3 million) are currently on non-accrual
status.  Investments totaling $39.8 million on a cost basis are
non-income producing and include equity investments in TierraMar Energy LP
preferred units, DeanLake Operator, LLC preferred units, Resaca Exploitation,
Inc. (“Resaca”) common stock, Alden class E units and warrants and units
associated with our investment in BioEnergy.





At March
31, 2009, the weighted average yield on targeted portfolio investments,
exclusive of capital gains, was 6.51%.  The weighted average yield of
our corporate notes was 5.82%.  The weighted average yield of our U.S.
Treasury Bills and cash equivalents was 0.13% and 0.31%,
respectively.  The weighted average yield on our total capital
invested at March 31, 2009 was 6.05%.





Yields on
investments are computed using interest rates as of the balance sheet date and
include amortization of loan discount points, original issue discount and market
premium or discount, royalty interest income, net profits income and other
similar investment income, weighted by their respective costs when averaged.
Additionally, these yields do not include income from any investments on
non-accrual status.  Such weighted average yields are not necessarily
indicative of expected total returns on a portfolio.





Operating
Expenses




For the
quarter ended March 31, 2010, operating expenses were $3.0 million compared to
$4.0 million for the quarter ended March 31, 2009.  The 2010 amount
consisted of investment advisory and management fees of $1.3 million, insurance
expenses, administrative services fees, professional fees, directors’ fees and
other general and administrative expenses of $1.4 million and credit facility
interest and fees of $0.3 million.  In comparison, for the quarter
ended March 31, 2009, investment advisory and management fees were $1.8 million,
insurance expenses, administrative services fees, professional fees, directors’
fees and other general and administrative expenses of $1.2 million and credit
facility interest and fees of $1.0 million.  Overall lower portfolio
balances in 2010 resulted in lower investment advisory and management fees, and
lowered levels of borrowings reduced our credit facility interest and fees.
Professional fees in the first quarter of 2010 were higher than expected due to
additional costs incurred related to the restatement of our financial statements
from 2007 through 2009.




Operating
expenses for the three-month period include our allocable portion of the total
organizational and operating expenses incurred by us, the Manager and the
Administrator, as determined by our Board of Directors and representatives of
the Manager and the Administrator.  According to the terms of the
investment advisory agreement, we calculate the base management fee quarterly as
0.45% of the average of our total assets as of the end of the two previous
quarters.  Other general and administrative expenses include allocated
share of employee, facilities and stockholder services and marketing
costs.


29




Net
Investment Income Before Income Taxes





For the
quarter ended March 31, 2010, net investment income before income taxes was $2.1
million compared to $4.5 million for the quarter ended March 31, 2009, as
restated.  The 52.7% decrease was due to lower investment income
partially offset by lower operating expenses, primarily lower management fees
and credit facility interest expenses and fees.




Net
Realized Gains





There
were no realized capital gains or losses for the quarters ended March 31, 2010
and 2009.




Unrealized
Appreciation or Depreciation on Investments





For the
quarter ended March 31, 2010, the decrease in net unrealized depreciation after
income taxes was $2.6 million, comprised of a $2.5 million increase in targeted
portfolio fair value and an increase of $0.4 million in the fair value of our
corporate notes, less a tax provision of $0.3 million resulting from routine
quarterly valuation allowance reallocation.  The increase in targeted
portfolio fair value was largely a result of changes in the estimated current
market values of underlying assets.





For the
quarter ended March 31, 2009, as restated, the increase in net unrealized
depreciation after income taxes was $23.2 million, comprised of a $21.2 million
decrease in targeted portfolio fair value, a decrease of $3.2 million in
commodity derivative instruments fair value and a decrease of $0.2 million in
corporate notes fair value, offset by a $1.4 million tax benefit. The decrease
in targeted portfolio fair value was largely a result of changes in the
estimated current market values of underlying assets. The decrease in the fair
value of commodity derivative instruments was a result of the reversal of 2008
unrealized appreciation due to realizations in the first quarter of
2009.





While, in
general, current capital and commodity markets are more stable than during the
prior eighteen months, conditions are such that it remains difficult to predict
capital gains or losses or fluctuations in our portfolio values.





Net
Increase or Decrease in Stockholders’ Equity from Operations





For the
quarter ended March 31, 2010, we had a net increase in stockholders’ equity (net
assets) resulting from operations of $5.0 million, or $0.24 per share, compared
to a net decrease of $18.6 million, or $0.86 per share for the quarter ended
March 31, 2009, as restated.  The $23.6 million or $1.10 per share net
increase is attributable to a $25.7 million decrease in unrealized depreciation
on portfolio securities net of taxes, offset by a decrease in net investment
income after taxes of $2.1 million.





Financial
Condition, Liquidity and Capital Resources





During
the quarter ended March 31, 2010, we generated cash from operations, including
interest earned on our portfolio securities, as well as our investments in
corporate notes and U.S. government securities.  At March 31, 2010, we
had cash and cash equivalents of $105.3 and investments in corporate notes of
$9.4 million.  Our Investment Facility had an outstanding balance of
$64.9 million at March 31, 2010 and will mature on August 31,
2012.  As of March 31, 2010, we had investments in or commitments to
fund loan facilities to fifteen portfolio companies totaling $248.7 million, of
which $242.7 million was drawn.  We expect to fund our investments in
2010 from available cash, income earned on our portfolio and temporary
investments, repayments or realizations of existing investments and from
borrowings under our Investment Facility.  In the future, we may also
fund a portion of our investments with issuances of equity or senior debt
securities.  We may also securitize a portion of our investments in
mezzanine or senior secured loans or other assets.  We expect our
primary use of funds to be investments in portfolio companies, cash
distributions to holders of our common stock and payment of fees and other
operating expenses.





Commodity
Derivative Instruments





We use
commodity derivative instruments to manage our exposure to commodity price
fluctuations.  We do not designate these instruments as hedging instruments
for financial accounting purposes, and, as a result, we recognize the change in
the instruments’ fair value currently on the Consolidated Statements of
Operations as net increase (decrease) in unrealized appreciation (depreciation)
on portfolio securities, corporate notes and commodity derivative
instruments.





We
acquired a limited term royalty interest from ATP, and the royalty payments
associated with this investment are subject to fluctuations in natural gas and
oil prices.  To manage this risk, we purchased oil and natural gas put
options on approximately 93% of our royalty interest.  These
transactions limit exposure to declines in oil and natural gas prices and were
fully expired as of January 31, 2010.  See “Note 10: Commodity
Derivative Instruments” in the accompanying notes to the consolidated financial
statements for further description of our put options.




30




Contractual
Obligations




A summary
of our contractual payment obligations at March 31, 2010 is as
follows:





Less than
                          
                          
                          
                          
                          
                          3-5
                          
                          
                          More
                            thanContractual Obligations
                          
                          Total
                          
                          
                          1 Year
                          
                          
                          1-3 Years
                          
                          
                          Years
                          
                          
                          5 YearsMarch
      31, 2010:Long-term
      debt obligations— revolving credit facilities (1)
                          
                          $
                          64,905,200
                          
                          
                          $
                          -
                          
                          
                          $
                          64,905,200
                          
                          
                          $
                          -
                          
                          
                          $
                          -Total
                          
                          $
                          64,905,200
                          
                          
                          $
                          -
                          
                          
                          $
                          64,905,200
                          
                          
                          $
                          -
                          
                          
                          $
                          -





(1)
Excludes accrued interest amounts.





Off-Balance
Sheet Arrangements





Currently,
we do not engage in any off-balance sheet arrangements, including any risk
management of commodity pricing or other hedging practices.





Dividends





We have
elected to operate our business so as to be taxed as a RIC for federal income
tax purposes. As a RIC, we generally will not be required to pay corporate-level
federal income taxes on any ordinary income or capital gains that we distribute
to our stockholders as dividends.  To maintain our RIC status, we must
meet specific source-of-income and asset diversification requirements and
distribute annually an amount equal to at least 90% of our “investment company
taxable income” (which generally consists of ordinary income and realized net
short-term capital gains in excess of realized net long-term capital losses, if
any, reduced by deductible expenses) and net tax-exempt interest.  In
order to avoid certain excise taxes imposed on RICs, we must distribute during
each calendar year an amount at least equal to the sum of (1) 98% of our
ordinary income for the calendar year, (2) 98% of our capital gain net income
(i.e., realized capital gains in excess of realized capital losses) for the
one-year period ended on October 31 of that calendar year, and (3) 100% of any
ordinary income or capital gain net income not distributed in prior years. We
currently intend to make sufficient distributions to satisfy the annual
distribution requirement and to avoid the excise taxes.





We may
not be able to achieve operating results that will allow us to make
distributions at a specific level or to increase the amount of these
distributions from time to time. In addition, we may be limited in our ability
to make distributions due to the asset coverage test for borrowings when
applicable to us as a BDC under the 1940 Act and due to provisions in our credit
facility. If we do not distribute a certain percentage of our income annually,
we will suffer adverse tax consequences, including possible loss of our status
as a RIC. We cannot assure stockholders that they will receive any distributions
or distributions at a particular level.





Portfolio
Credit Quality





Virtually
all of our portfolio investments are in negotiated, and often illiquid,
securities of energy companies. We maintain a system to evaluate the credit
quality of these investments. While incorporating quantitative analysis, this
system is a qualitative assessment. This system is intended to reflect the
overall, long term performance of a portfolio company’s business, the collateral
coverage of an investment, and other relevant factors. As a consequence of the
general economic downturn and associated weakness in the energy markets, one of
our investments, Formidable, has experienced significant degradation in value
that may not be recoverable. Of the twenty-four rated investments in fifteen
portfolio companies, compared to the quarter ended December 31, 2009, none
improved in rating, one declined in rating, twenty-two retained the same rating
and one investment was added during the first quarter of 2010. Fourteen
investments totaling approximately $137.1 million, or approximately 57% of the
$242.2 million in targeted investments, on a cost basis, are carried on our
watch list due to slower than expected development of the assets supporting the
investments, the downturn in general economic and energy market conditions or
deterioration in asset coverage.




For the
first quarter of 2010, the combined decrease in unrealized depreciation of our
portfolio securities, corporate notes and commodity derivative instruments of
$2.6 million was largely due to increases in the estimated market values of
underlying assets, consisting primarily of the increase in the fair value of
Resaca common stock, $0.6 million; increase in the fair value of our investment
in ATP Oil & Gas Corp limited term royalty, $1.7 million and increase in the
fair value of our corporate bonds, $0.4 million.




31




Recently
Issued Accounting Pronouncements




See
“Note 11: Recent Accounting Pronouncements” in the accompanying notes to
consolidated financial statements for details of recently issued accounting
pronouncements and their expected impact on our financial
statements.





Item 3.
            Quantitative
      and Qualitative Disclosures About Market
Risk.





There
have been no material changes from the information provided in Item 7A of our
Annual Report on Form 10-K for the year ended December 31, 2009.





Item 4.
            Controls
      and Procedures.





Disclosure
Controls and Procedures





We
maintain disclosure controls and procedures (as defined in 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as amended, which we refer to
as the Exchange Act), designed to ensure that information required to be
disclosed in our reports under the Exchange Act is recorded, processed,
summarized and reported on a timely basis and accumulated and made known to
management, including our Chief Executive Officer and our Chief Financial
Officer, to allow timely decisions regarding required disclosures.





In
connection with the preparation of this Quarterly Report on Form 10-Q, as of the
end of the fiscal period covered by this Quarterly Report on Form 10-Q, the
Company performed an evaluation, under the supervision and with the
participation of the Company’s management, including our Chief Executive Officer
and our Chief Financial Officer, of the effectiveness of the design and
operation of the Company’s disclosure controls and procedures pursuant to Rules
13a-15(b) and 15d-15(b) under the Exchange Act.




After
giving effect to the restatement referred to below and based on an evaluation of
our disclosure controls and procedures as of the end of the period covered by
this Form 10-Q conducted by our management, with the participation of our Chief
Executive Officer and our Chief Financial Officer, our Chief Executive Officer
and our Chief Financial Officer concluded that our disclosure controls and
procedures were ineffective in providing reasonable assurance that information
required to be disclosed in the reports we file or submit under the Exchange Act
is recorded, processed, summarized and reported when required and that such
information is accumulated and communicated to management in a manner that
allows timely decisions regarding required disclosure. In light of this material
weakness, the Company performed additional analysis and post-closing procedures
to ensure its financial statements were prepared in accordance with generally
accepted accounting principles. After giving effect to the restatements referred
to below, and subject to the statements below regarding our inability to
maintain effective controls over the determination and reporting of the
provision for income taxes, the Company’s management has concluded that the
financial statements included in this Form 10-Q present fairly in all material
respects the Company’s financial condition, results of operations and cash flows
for the periods presented.





The
certifications of our Chief Executive Officer and our Chief Financial Officer
required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 are
attached as exhibits to this Form 10-Q. The disclosures set forth in this Item 4
contain information concerning (i) the evaluation of our disclosure controls and
procedures referred to in paragraph 4 of the certifications, and (ii) material
weaknesses in the design or operation of our internal control over financial
reporting referred to in paragraph 5 of those certifications. Those
certifications should be read in conjunction with this Item 4 for a more
complete understanding of the matters covered by the
certifications.





Discussion
of Material Weakness





Management’s
assessment identified a material weakness in the Company’s internal control over
financial reporting. As of March 31, 2010, the Company did not maintain
effective controls over the determination and reporting of the provision for
income taxes. This material weakness was initially disclosed in Item 9A of our
Annual Report on Form 10-K for the year ended December 31, 2008. As of March 31,
2010, our management was unable to conclude that we had remediated this
previously disclosed material weakness in our internal control over financial
reporting. Specifically, management did not perform a sufficiently precise
review to ensure the completeness and accuracy of the Company’s calculation of
its income tax provision and deferred income tax assets and liabilities. This
deficiency resulted in the restatement of the Company’s consolidated financial
statements for the years ended December 31, 2007 and 2008 (and the unaudited
selected quarterly data for each of the quarters in 2007 and 2008 and the first
three quarters in 2009), and results in a reasonable possibility that a material
misstatement of the Company’s annual or interim financial statements would not
be prevented or detected on a timely basis.




Remediation
Efforts





The
remediation efforts, as outlined below, are designed to address the material
weakness identified by management and to strengthen the Company’s internal
control over financial reporting.





Beginning
in the first quarter of 2009, the Company implemented the following remediation
steps to address this material weakness discussed above and to improve its
internal controls over financial reporting:


32




·
            improved
      procedures for the calculation and reconciliation process of our deferred
      income tax assets and liabilities, including validation of underlying
      supporting data;


·
            engaged
      external tax experts to support the Company’s financial closing and
      reporting process; and


·
            enhanced
      quarterly management review of the calculation of the deferred income tax
      assets and liabilities and underlying supporting
  data.





We
believe that these remediation actions will represent ongoing improvement
measures. While we have taken steps to remediate the material weakness,
additional measures may be required. We will continue to assess the
effectiveness of our remediation efforts in connection with our management’s
tests of internal control over financial reporting in conjunction with our
annual and quarterly reports. The Company anticipates that it will complete its
testing of the additional internal control processes designed to remediate the
previously disclosed material weakness in 2010.





Changes
in Internal Control Over Financial Reporting





There
were no changes in internal control over financial reporting during the quarter
ended March 31, 2010 that have materially affected or are reasonably likely to
materially affect, the Company’s internal control over financial
reporting.




Item 4T.
            Controls
      and Procedures.





Not applicable.


33




PART
II – OTHER INFORMATION




Item 1.
            Legal
      Proceedings.





There
have been no material changes to the legal proceedings disclosed under Part I,
Item 3, “Legal Proceedings” in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2009.




Item 1A.
            Risk
      Factors.





There
have been no material changes to the risk factors disclosed under Part I, Item
1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2009.




Item 2.
            Unregistered
      Sales of Equity Securities and Use of
Proceeds.





Not
applicable.




Item 3.
            Defaults
      Upon Senior Securities.





Not
applicable.




Item 4.
            (Removed
      and Reserved).





Item 5.
            Other
      Information.





Not
applicable.




Item 6.
            Exhibits.





See
“Index to Exhibits” following the signature page for a description of the
exhibits filed as part of this Quarterly Report on Form 10-Q.


34




SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.




NGP
      CAPITAL RESOURCES COMPANYDate:
      May 10, 2010
                
                By:
                /s/
      John H. HomierJohn
      H. HomierPresident
      and Chief Executive
Officer





Date:
      May 10, 2010
                
                By:
                /s/
      Stephen K. GardnerStephen
      K. GardnerChief
      Financial Officer, Treasurer and
Secretary







Index
to Exhibits





Exhibits No.
                
                Exhibit3.1
                
                Articles
      of Incorporation (filed as Exhibit (a)(1) to the Company’s Registration
      Statement on Form N-2 filed on August 16, 2004 (Registration No.
      333-118279) and incorporated herein by reference)3.2
                
                Articles
      of Amendment and Restatement (filed as Exhibit 3.2 to the Company’s Annual
      Report on Form 10-K for the year ended December 31, 2004 and incorporated
      herein by reference)3.3
                
                Bylaws
      (filed as Exhibit (b) to the Company’s Registration Statement on Form N-2
      filed on August 16, 2004 (Registration No. 333-118279) and incorporated
      herein by reference)4.1
                
                Form
      of Stock Certificate (filed as Exhibit (d) to the Company’s Pre-Effective
      Amendment No. 2 to Registration Statement on Form N-2 filed on October 7,
      2004 (Registration No. 333-118279) and incorporated herein by
      reference)4.2
                
                Dividend
      Reinvestment Plan (filed as Exhibit (e) to the Company’s Registration
      Statement on Form N-2 filed on August 16, 2004 (Registration No.
      333-118279) and incorporated herein by reference)10.1
                
                Investment
      Advisory Agreement between the Company and NGP Investment Advisor, LP
      (filed as Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the
      year ended December 31, 2004 and incorporated herein by
      reference)10.2
                
                Administration Agreement between
      the Company and NGP Administration, LLC (filed as Exhibit 10.2 to the Company’s
      Annual Report on Form 10-K for the year ended December 31, 2004 and
      incorporated herein by reference)10.3
                
                Trademark
      License Agreement between the Company and NGP Energy Capital Management,
      L.L.C. (formerly known as Natural Gas Partners, L.L.C.) (filed as Exhibit
      10.3 to the Company’s Annual Report on Form 10-K for the year ended
      December 31, 2004 and incorporated herein by reference)10.4
                
                Form
      of Indemnity Agreement (filed as Exhibit 10.5 to the Company’s Annual
      Report on Form 10-K for the year ended December 31, 2004 and incorporated
      herein by reference)10.5
                
                Amended
      and Restated Revolving Credit Agreement, dated as of August 31, 2006,
      among the Company, the lenders from time to time party thereto and
      SunTrust Bank, as administrative agent for the lenders (filed as Exhibit
      10.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
      September 30, 2006 and incorporated herein by
reference)10.6
                
                Treasury
      Secured Revolving Credit Agreement, dated as of August 31, 2006, between
      the Company, the lenders from time to time party thereto and SunTrust Bank
      as administrative agent for the lenders (filed as Exhibit 10.7 to the
      Company’s Quarterly Report on Form 10-Q for the quarter ended September
      30, 2006 and incorporated herein by reference)10.7
                
                Custody
      Agreement between the Company and Wells Fargo Bank, N.A. (filed as Exhibit
      (j)(1) to the Company’s Registration Statement on Form N-2 filed on
      October 15, 2007 (Registration No. 333-146715) and incorporated herein by
      reference)10.8
                
                Amendment
      No. 1 to Custody Agreement between the Company and Wells Fargo Bank, N.A.
      (filed as Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the
      year ended December 31, 2007 and incorporated herein by
      reference)10.9
                
                Amendment
      No. 2 to Custody Agreement between the Company and Wells Fargo Bank, N.A.
      (filed as Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the
      year ended December 31, 2007 and incorporated herein by
      reference)10.10
                
                First
      Amendment to Amended and Restated Revolving Credit Agreement effective as
      of August 31, 2006, between the Company, the lenders from time to time
      party thereto and SunTrust Bank, as administrative agent (filed as Exhibit
      10.7 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
      September 30, 2007 and incorporated herein by
reference)10.11
                
                First
      Amendment to Treasury Secured Revolving Credit Agreement effective as of
      August 31, 2006, between the Company, the lenders from time to time party
      thereto and SunTrust Bank, as administrative agent (filed as Exhibit 10.9
      to the Company’s Quarterly Report on Form 10-Q for the quarter ended
      September 30, 2007 and incorporated herein by
reference)10.12
                
                Second
      Amendment to Treasury Secured Revolving Credit Agreement effective as of
      October 18, 2007, between the Company, the lenders from time to time party
      thereto and SunTrust Bank, as administrative agent (filed as Exhibit 10.1
      to the Company’s Current Report on Form 8-K filed on October 24, 2007 and
      incorporated herein by reference)10.13
                
                Second
      Amendment to Amended and Restated Revolving Credit Agreement effective as
      of March 13, 2008, between the Company, the lenders from time to time
      party thereto and SunTrust Bank, as administrative agent (filed as Exhibit
      10.11 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
      March 31, 2008 and incorporated herein by
  reference)


36





Exhibits No.
                
                Exhibit10.14
                
                Third
      Amendment to Treasury Secured Revolving Credit Agreement effective as of
      March 13, 2008, between the Company, the lenders from time to time party
      thereto and SunTrust Bank, as administrative agent (filed as Exhibit 10.12
      to the Company’s Quarterly Report on Form 10-Q for the quarter ended March
      31, 2008 and incorporated herein by reference)10.15
                
                Third
      Amendment to Amended and Restated Revolving Credit Agreement effective as
      of September 29, 2008, between the Company, the lenders from time to time
      party thereto and SunTrust Bank, as administrative agent (filed as Exhibit
      10.13 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
      September 30, 2008 and incorporated herein by
reference)10.16
                
                Fourth
      Amendment to Treasury Secured Revolving Credit Agreement effective as of
      September 29, 2008, between the Company, the lenders from time to time
      party thereto and SunTrust Bank, as administrative agent (filed as Exhibit
      10.14 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
      September 30, 2008 and incorporated herein by
reference)10.17
                
                Fourth
      Amendment to Amended and Restated Revolving Credit Agreement effective as
      of October 2, 2009, between the Company, the lenders from time to time
      party thereto and SunTrust Bank, as administrative agent (filed as Exhibit
      10.1 to the Company’s Current Report on Form 8-K filed on October 6, 2009
      and incorporated herein by reference)31.1*
                
                Certification
      required by Rule 13a-14(a)/15d-14(a) by the Chief Executive
      Officer31.2*
                
                Certification
      required by Rule 13a-14(a)/15d-14(a) by the Chief Financial
      Officer32.1*
                
                Section
      1350 Certification by the Chief Executive Officer32.2*
                
                Section
      1350 Certification by the Chief Financial
  Officer


_______________________


*Filed
herewith.


37