UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q/A


(Mark
One)


x
            QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
the quarterly period ended September 30, 2008





OR





o
            TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
the transition period
             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 
x   No
o





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     o
            Accelerated
      filer     x
            Non-accelerated
      filer     o
              (Do
      not check if smaller reporting company)
            Smaller
      reporting company   o





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes o   No x





As of
June 22, 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
                                        28ITEM
      3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
                                        37ITEM
      4.  CONTROLS AND PROCEDURES
                                        37PART II – OTHER
      INFORMATION
                                        38ITEM
      1.  LEGAL PROCEEDINGS
                                        38ITEM
      1A.  RISK FACTORS
                                        38ITEM
      2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS
                                        39ITEM
      3.  DEFAULTS UPON SENIOR SECURITIES
                                        39ITEM
      4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS
                                        39ITEM
      5.  OTHER INFORMATION
                                        39ITEM
      6.  EXHIBITS
                                        40


i


Explanatory
Note





We are filing this Amended Quarterly
Report on Form 10-Q/A to our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2008, which we refer to as the Amended Filing, to restate our
unaudited consolidated financial statements and related disclosures for
the quarter ended September 30, 2008, as discussed in Note 2 to the
accompanying restated unaudited consolidated financial
statements.  Our original Quarterly Report on Form 10-Q for the
quarter ended September 30, 2008, which we refer to as the Original Filing, was
filed with the Securities and Exchange Commission on November 10,
2008.





Background
of the Restatement





On March 15, 2010, our Board of
Directors and the members of the Audit Committee of our Board of Directors
concluded that the Company should restate its 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 in 2009, which we collectively refer
to as 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 remediated the material
weakness.  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
described below 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 an investment 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 tax 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.


ii


Restatement
of Other Financial Statements





We have restated our financial statements for the years
ended December 31, 2007 and December 31, 2008 in our Annual Report on Form 10-K
for the year ended December 31, 2009, which was filed on March 31,
2010.  We have not amended, and we do not intend to amend, either of
our previously filed Annual Reports on Form 10-K for the years ended December
31, 2007 or December 31, 2008. We have
previously filed amendments to our Quarterly Reports on Form 10-Q for each of
the quarters ended March 31 in the Affected Periods.  With the
filing of this Amended Filing, we are concurrently filing amendments to our
Quarterly Reports on Form 10−Q for the quarters ended June 30 and September 30
in each of the Affected Periods. For this reason, readers should no longer rely
on those previously issued financial statements and the related information
contained in such previously filed reports for the Affected
Periods.





For the convenience of the reader, this
Amended Filing sets forth the Original Filing, as modified and superseded where
necessary to reflect the amendment and restatement of our unaudited consolidated
financial statements and related disclosures.  The following items
have been amended principally as a result of, and to reflect, the
restatement:





·
            Part
      I – Item 1.  Consolidated Financial
  Statements;


·
            Part
      I – Item 2.  Management’s Discussion and Analysis of Financial
      Condition and Results of
Operations;


·
            Part
      I – Item 4.  Controls and
Procedures;


·
            Part
      II – Item 1.A. Risk Factors; and


·
            Part
      II – Item 6.  Exhibits.





In accordance with applicable rules of
the Securities and Exchange Commission, this Amended Filing includes
certifications from our Chief Executive Officer and Chief Financial Officer
dated as of the date of this filing.





The remaining items contained in this
Amended Filing consist of all other items originally contained in the Original
Filing and are included for the convenience of the reader.  The
sections of the Original Filing which were not amended are unchanged and
continue in full force and effect as originally filed.  This Amended
Filing speaks as of November 10, 2008, the date we filed the Original Filing,
and has not been updated to reflect events occurring subsequent to the date of
the original filing other than those associated with the evaluation of and
resulting restatement of the Company’s consolidated financial
statements.


iii


Table of
Contents





PART I - FINANCIAL
INFORMATION


Item 1. Consolidated Financial Statements.





NGP
CAPITAL RESOURCES COMPANY


CONSOLIDATED
BALANCE SHEETS





(Unaudited)September 30, 2008
                    
                    
                    December 31, 2007(As
      Restated)
                    
                    
                    (As
      Restated)AssetsInvestments
      in portfolio securities at fair valueControl
      investments - majority owned(cost:  $30,571,481
      and $21,488,105, respectively)
                    
                    $
                    32,555,085
                    
                    
                    $
                    29,669,857Affiliate
      investments(cost:  $40,514,048
      and $0, respectively)
                    
                    
                    46,568,191
                    
                    
                    
                    -Non-affiliate
      investments (cost:  $227,936,125 and $256,429,349,
      respectively)
                    
                    
                    220,727,537
                    
                    
                    
                    254,558,716Investments
      in corporate notes at fair value (cost:  $11,598,261 and
      $11,631,599, respectively)
                    
                    
                    8,244,900
                    
                    
                    
                    8,955,500Investments
      in commodity derivatives at fair value (cost:  $1,131,085
      and $0, respectively)
                    
                    
                    3,312,580
                    
                    
                    
                    -Investments
      in U.S. Treasury Bills, at amortized cost which approximates fair
      value
                    
                    
                    128,505,292
                    
                    
                    
                    163,925,625Total
      investments
                    
                    
                    439,913,585
                    
                    
                    
                    457,109,698Cash
      and cash equivalents
                    
                    
                    63,403,174
                    
                    
                    
                    18,437,115Accounts
      receivable and other current assets
                    
                    
                    756,878
                    
                    
                    
                    61,319Interest
      receivable
                    
                    
                    969,510
                    
                    
                    
                    647,839Prepaid
      assets
                    
                    
                    1,478,435
                    
                    
                    
                    2,020,655Total
      current assets
                    
                    
                    66,607,997
                    
                    
                    
                    21,166,928Total
      assets
                    
                    $
                    506,521,582
                    
                    
                    $
                    478,276,626Liabilities
      and stockholders' equity (net assets)Current
      liabilitiesAccounts
      payable
                    
                    $
                    3,617,159
                    
                    
                    $
                    928,761Management
      and incentive fees payable
                    
                    
                    4,470,880
                    
                    
                    
                    2,032,107Dividends
      payable
                    
                    
                    8,651,281
                    
                    
                    
                    9,012,671Income
      taxes payable
                    
                    
                    628,924
                    
                    
                    
                    -Deferred
      tax liabilities
                    
                    
                    -
                    
                    
                    
                    2,770,924Total
      current liabilities
                    
                    
                    17,368,244
                    
                    
                    
                    14,744,463Deferred
      tax liabilities
                    
                    
                    2,011,498
                    
                    
                    
                    116,221Long-term
      debt
                    
                    
                    178,875,000
                    
                    
                    
                    216,000,000Total
      liabilities
                    
                    
                    198,254,742
                    
                    
                    
                    230,860,684Commitments
      and contingencies  (Note 8)Stockholders’
      equity (net assets)Common
      stock, $.001 par value, 250,000,000 shares authorized; 21,628,202 and
      17,500,332 shares issued and outstanding, respectively
                    
                    
                    21,628
                    
                    
                    
                    17,500Paid-in
      capital in excess of par
                    
                    
                    307,690,159
                    
                    
                    
                    245,684,499Undistributed
      net investment income (loss)
                    
                    
                    (13,439,096
                    )
                    
                    
                    20,714Undistributed
      net realized capital gain (loss)
                    
                    
                    14,965,780
                    
                    
                    
                    859,133Net
      unrealized appreciation (depreciation) of portfolio
      securities,corporate
      notes and commodity derivative instruments
                    
                    
                    (971,631
                    )
                    
                    
                    834,096Total
      stockholders’ equity (net assets)
                    
                    
                    308,266,840
                    
                    
                    
                    247,415,942Total
      liabilities and stockholders' equity (net assets)
                    
                    $
                    506,521,582
                    
                    
                    $
                    478,276,626Net
      asset value per share
                    
                    $
                    14.25
                    
                    
                    $
                    14.14





(See
accompanying notes to consolidated financial statements)


1




Table of
Contents





NGP
CAPITAL RESOURCES COMPANY


CONSOLIDATED
STATEMENTS OF OPERATIONS


(Unaudited)





For
      the Three Months Ended
                
                
                For
      the Nine Months EndedSeptember
      30, 2008
                
                
                September
      30, 2007
                
                
                September
      30, 2008
                
                
                September
      30, 2007(As
      Restated)
                
                
                (As
      Restated)
                
                
                (As
      Restated)
                
                
                (As
      Restated)Investment
      incomeInterest
      and dividend income:Control
      investments - majority owned
                
                $
                55,215
                
                
                $
                (1,108
                )
                
                $
                310,730
                
                
                $
                2,245,677Affiliate
      investments
                
                
                1,217,558
                
                
                
                -
                
                
                
                1,934,959
                
                
                
                -Non-affiliate
      investments
                
                
                6,365,900
                
                
                
                8,777,580
                
                
                
                21,923,225
                
                
                
                24,042,038Royalty
      income, net of amortization:Control
      investments - majority owned
                
                
                78,869
                
                
                
                13,049
                
                
                
                127,576
                
                
                
                13,049Non-affiliate
      investments
                
                
                2,373,894
                
                
                
                221,884
                
                
                
                3,445,625
                
                
                
                733,468Commodity
      derivative income (loss), net of expired options
                
                
                (274,625
                )
                
                
                -
                
                
                
                (274,625
                )
                
                
                -Other
      income
                
                
                52,877
                
                
                
                47,960
                
                
                
                137,767
                
                
                
                245,704Total
      investment income
                
                
                9,869,688
                
                
                
                9,059,365
                
                
                
                27,605,257
                
                
                
                27,279,936Operating
      expensesManagement
      fees
                
                
                1,944,869
                
                
                
                1,626,857
                
                
                
                5,583,084
                
                
                
                4,776,860Incentive
      fees
                
                
                2,526,011
                
                
                
                (531,889
                )
                
                
                2,526,011
                
                
                
                522,469Professional
      fees
                
                
                174,150
                
                
                
                209,231
                
                
                
                607,519
                
                
                
                537,813Insurance
      expense
                
                
                198,812
                
                
                
                132,423
                
                
                
                596,442
                
                
                
                397,268Interest
      expense and fees
                
                
                1,470,091
                
                
                
                1,737,202
                
                
                
                5,351,738
                
                
                
                4,913,624State
      franchise taxes
                
                
                -
                
                
                
                12,218
                
                
                
                32,712
                
                
                
                46,811Other
      general and administrative expenses
                
                
                690,152
                
                
                
                614,816
                
                
                
                2,141,815
                
                
                
                1,897,879Total
      operating expenses
                
                
                7,004,085
                
                
                
                3,800,858
                
                
                
                16,839,321
                
                
                
                13,092,724Net
      investment income before income taxes
                
                
                2,865,603
                
                
                
                5,258,507
                
                
                
                10,765,936
                
                
                
                14,187,212Benefit
      (provision) for income taxes
                
                
                22,135
                
                
                
                (11,287
                )
                
                
                76,948
                
                
                
                (67,518
                )Net
      investment income
                
                
                2,887,738
                
                
                
                5,247,220
                
                
                
                10,842,884
                
                
                
                14,119,694Net
      realized capital gain (loss) on portfolio securities, corporate notes and
      commodity derivative instrumentsControl
      investments - majority owned
                
                
                12,336,596
                
                
                
                -
                
                
                
                12,336,596
                
                
                
                -Non-affiliate
      investments
                
                
                5,964,494
                
                
                
                (351,114
                )
                
                
                5,964,494
                
                
                
                6,315,744Benefit
      (provision) for taxes on capital gain (loss)
                
                
                (4,194,443
                )
                
                
                -
                
                
                
                (4,194,443
                )
                
                
                (154,258
                )Total
      net realized capital gain (loss) on investments
                
                
                14,106,647
                
                
                
                (351,114
                )
                
                
                14,106,647
                
                
                
                6,161,486Net
      unrealized gain (loss) on investmentNet
      increase (decrease) in unrealized appreciation (depreciation) on portfolio
      securities, corporate notes and commodity derivative
      instruments:Control
      investments - majority owned
                
                
                (6,199,148
                )
                
                
                2,000,000
                
                
                
                (6,198,868
                )
                
                
                8,000,000Affiliate
      investments
                
                
                6,054,143
                
                
                
                -
                
                
                
                6,054,143
                
                
                
                -Non-affiliate
      investments
                
                
                (3,667,899
                )
                
                
                (2,712,268
                )
                
                
                (3,803,002
                )
                
                
                (2,691,118
                )Benefit
      (provision) for taxes on unrealized gain (loss)
                
                
                2,142,000
                
                
                
                (680,000
                )
                
                
                2,142,000
                
                
                
                (2,770,924
                )Total
      net unrealized gain (loss) on investments
                
                
                (1,670,904
                )
                
                
                (1,392,268
                )
                
                
                (1,805,727
                )
                
                
                2,537,958Net
      increase (decrease) in stockholders' equity (net assets) resulting from
      operations
                
                $
                15,323,481
                
                
                $
                3,503,838
                
                
                $
                23,143,804
                
                
                $
                22,819,138Net
      increase (decrease) in stockholders' equity (net assets) resulting from
      operations per common share
                
                $
                0.70
                
                
                $
                0.20
                
                
                $
                1.09
                
                
                $
                1.32





(See
accompanying notes to consolidated financial statements)


2




Table of
Contents




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, 2007 (as restated)
                        
                        
                        17,500,332
                        
                        
                        $
                        17,500
                        
                        
                        $
                        245,684,499
                        
                        
                        $
                        20,714
                        
                        
                        $
                        859,133
                        
                        
                        $
                        834,096
                        
                        
                        $
                        247,415,942Net
      increase in stockholders' equity (net assets) resulting from
      operations
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        10,842,884
                        
                        
                        
                        14,106,647
                        
                        
                        
                        (1,805,727
                        )
                        
                        
                        23,143,804Issuance
      of common stock from public offering (net of underwriting
      costs)
                        
                        
                        4,086,388
                        
                        
                        
                        4,086
                        
                        
                        
                        62,109,012
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        62,113,098Offering
      costs
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (780,628
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (780,628
                        )Dividends
      declared
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (24,302,694
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (24,302,694
                        )Issuance
      of common stock underdividend reinvestment
    plan
                        
                        
                        41,482
                        
                        
                        
                        42
                        
                        
                        
                        677,276
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        677,318Balance
      at September 30, 2008 (unaudited and as restated)
                        
                        
                        21,628,202
                        
                        
                        $
                        21,628
                        
                        
                        $
                        307,690,159
                        
                        
                        $
                        (13,439,096
                        )
                        
                        $
                        14,965,780
                        
                        
                        $
                        (971,631
                        )
                        
                        $
                        308,266,840





(See
accompanying notes to consolidated financial statements)





3


Table of
Contents




NGP
CAPITAL RESOURCES COMPANY


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)





For the Nine Months EndedSeptember 30, 2008
                
                
                September 30, 2007(As Restated)
                
                
                (As Restated)Cash
      flows from operating activitiesNet
      increase in stockholders' equity (net assets) resulting from
      operations
                
                $
                23,143,804
                
                
                $
                22,819,138Adjustments
      to reconcile net increase in stockholders' equity (net assets) resulting
      from operations to net cash provided by (used in) operating
      activitiesPayment-in-kind
      interest
                
                
                (2,335,374
                )
                
                
                (2,966,423
                )Payment-in-kind
      dividend
                
                
                -
                
                
                
                (93,710
                )Net
      amortization of premiums, discounts and fees
                
                
                4,639,765
                
                
                
                (2,168,463
                )Change
      in unrealized (appreciation) depreciation on portfolio securities,
      corporate notes and commodity derivative instruments
                
                
                3,947,727
                
                
                
                (5,308,882
                )Effects
      of changes in operating assets and liabilitiesAccounts
      receivable and other current assets
                
                
                (695,559
                )
                
                
                447,258Interest
      receivable
                
                
                (321,671
                )
                
                
                59,991Prepaid
      assets
                
                
                542,220
                
                
                
                664,520Accounts
      payable
                
                
                5,127,171
                
                
                
                431,268Income
      taxes payable
                
                
                628,924
                
                
                
                221,776Current
      portion of deferred income taxes
                
                
                (2,770,924
                )
                
                
                2,770,924Non-current
      portion of deferred income taxes
                
                
                1,895,277
                
                
                
                -Purchase
      of investments in portfolio securities, corporate notes and commodity
      derivative instruments
                
                
                (100,885,393
                )
                
                
                (194,255,244
                )Redemption
      of investments in portfolio securities, corporate notes and commodity
      derivative instruments
                
                
                76,409,056
                
                
                
                109,508,043Sale
      of investments in corporate notes
                
                
                -
                
                
                
                6,007,370Net
      sale of investments in U.S. Treasury Bills
                
                
                35,420,333
                
                
                
                14,855,937Net
      cash provided by (used in) operating activities
                
                
                44,745,356
                
                
                
                (47,006,497
                )Cash
      flows from financing activitiesNet
      proceeds from the issuance of common stock
                
                
                62,790,416
                
                
                
                -Borrowings
      under revolving credit facility
                
                
                151,000,000
                
                
                
                51,000,000Repayments
      on revolving credit facility
                
                
                (188,125,000
                )
                
                
                -Offering
      costs from the issuance of common stock
                
                
                (780,628
                )
                
                
                -Dividends
      paid
                
                
                (24,664,085
                )
                
                
                (9,243,034
                )Net
      cash provided by financing activities
                
                
                220,703
                
                
                
                41,756,966Net
      increase (decrease) in cash and cash equivalents
                
                
                44,966,059
                
                
                
                (5,249,531
                )Cash
      and cash equivalents, beginning of period
                
                
                18,437,115
                
                
                
                12,334,329Cash
      and cash equivalents, end of period
                
                $
                63,403,174
                
                
                $
                7,084,798





(See
accompanying notes to consolidated financial statements)


4


Table of
Contents




NGP
CAPITAL RESOURCES COMPANY


CONSOLIDATED
SCHEDULE OF INVESTMENTS


September
30, 2008


(Unaudited)




Portfolio Company
                                                                                                  
                                                                                                  Energy Industry Segment
                                                                                                  
                                                                                                  Investment (1) (2) (4)
                                                                                                  
                                                                                                  Principal
                                                                                                  
                                                                                                  
                                                                                                  Cost
                                                                                                  
                                                                                                  
                                                                                                  Fair Value (3)TARGETED INVESTMENTS (9)Control Investments - Majority Owned (50% to 100% owned)DeanLake
      Operator, LLC
                                                                                                  
                                                                                                  Oil
      & Natural Gas
                                                                                                  
                                                                                                  Class
      A Preferred LP Units (5)
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  13,900,255
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  13,900,255Production
      and Development
                                                                                                  
                                                                                                  Overriding
      Royalty Interest
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  19,120
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  20,000Rubicon
      Energy Partners, LLC
                                                                                                  
                                                                                                  Oil
      & Natural Gas
                                                                                                  
                                                                                                  LLC
      Units (4,000 units) (5)
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,700,000LLC
                                                                                                  
                                                                                                  Production
      and DevelopmentTierraMar
      Energy LP
                                                                                                  
                                                                                                  Oil
      & Natural Gas
                                                                                                  
                                                                                                  Overriding
      Royalty Interest
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  17,276
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  300,000Production
      and Development
                                                                                                  
                                                                                                  Class
      A Preferred LP Units (5)
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  16,634,830
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  16,634,830Total
      Control Investments- Majority Owned (50% to 100% owned)
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  30,571,481
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  32,555,085Affiliate
      Investments - (5% to 25%
owned)Bionol
      Clearfield, LLC
                                                                                                  
                                                                                                  Alternative
      Fuels and
                                                                                                  
                                                                                                  Senior
      Secured Tranche C
                                                                                                  
                                                                                                  $
                                                                                                  5,000,000
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  5,000,000
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  5,000,000Specialty
      Chemicals
                                                                                                  
                                                                                                  Construction
      Loan(LIBOR
      + 7.00%, due 9/06/2016)BioEnergy
      Holding, LLC
                                                                                                  
                                                                                                  Alternative
      Fuels and
                                                                                                  
                                                                                                  Senior
      Secured Notes
                                                                                                  
                                                                                                  
                                                                                                  10,606,557
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  9,738,049
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  9,738,049Specialty
      Chemicals
                                                                                                  
                                                                                                  (15.00%,
      due 3/06/2015)BioEnergy
      International Warrants (5) (17)
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  595,845
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  595,845BioEnergy
      Holding Units (5)
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  376,687
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  376,687Resaca
      Exploitation Inc.
                                                                                                  
                                                                                                  Oil
      & Natural Gas
                                                                                                  
                                                                                                  Senior
      Secured
                                                                                                  
                                                                                                  
                                                                                                  22,000,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  21,568,211
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  21,568,211Production
      and Development
                                                                                                  
                                                                                                  Multiple-Advance
      Term Loan(The
      greater of 10.0% or LIBOR + 6.00%,due
      5/01/2012)Common
      Stock (6,574,216 shares) (5) (20)
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  3,235,256
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  9,289,399Total
      Affiliate Investments - (5% to 25% owned)
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  40,514,048
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  46,568,191Non-Affiliate
      Investments - (less than 5%
    owned)Alden
      Resources, LLC
                                                                                                  
                                                                                                  Coal
      Production
                                                                                                  
                                                                                                  Senior
      Secured
                                                                                                  
                                                                                                  $
                                                                                                  36,285,168
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  33,660,832
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  33,660,832Multiple-Advance
      Term Loan(LIBOR
      + 8.00% cash, due 1/05/2013)Royalty
      Interest
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2,579,356
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2,660,000Warrants
      (5) (15)
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  100,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  100,000Anadarko
      Petroleum Corporation
                                                                                                  
                                                                                                  Oil
      & Natural Gas
                                                                                                  
                                                                                                  Multiple-Advance
      Net Profits Interest
                                                                                                  
                                                                                                  
                                                                                                  47,520,151
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  47,619,394
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  47,619,3942007-III
      Drilling Fund
                                                                                                  
                                                                                                  Production
      and Development
                                                                                                  
                                                                                                  (Due
      4/23/2032)ATP
      Oil & Gas Corporation
                                                                                                  
                                                                                                  Oil
      & Natural Gas
                                                                                                  
                                                                                                  Limited
      Term Royalty Interest
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  27,098,069
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  23,961,306Production
      and DevelopmentBSR
      Loco Bayou, LLC (10)
                                                                                                  
                                                                                                  Oil
      & Natural Gas
                                                                                                  
                                                                                                  Senior
      Secured
                                                                                                  
                                                                                                  
                                                                                                  3,025,289
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2,487,545
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,625,456Production
      and Development
                                                                                                  
                                                                                                  Multiple-Advance
      Term Loan(LIBOR
      + 5.50% cash, +7.50% PIK - until 8/15/08,cash
      only thereafter, due 8/15/2009) (7)Overriding
      Royalty Interest
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  19,514
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  20,000Warrants
      (5) (12)
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  10,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -Chroma
      Exploration &
                                                                                                  
                                                                                                  Oil
      & Natural Gas
                                                                                                  
                                                                                                  9,428
      Shares Series A Participating
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2,221,710
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -Production,
      Inc.
                                                                                                  
                                                                                                  Production
      and Development
                                                                                                  
                                                                                                  Convertible
      Preferred Stock (7)8,610
      Shares Series AA Participating
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2,089,870
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,567,402Convertible
      Preferred Stock (7)8.11
      Shares Common Stock (5)
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -Warrants
      (5) (11)
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -Crossroads
      Energy, LP
                                                                                                  
                                                                                                  Oil
      & Natural Gas
                                                                                                  
                                                                                                  Senior
      Secured
                                                                                                  
                                                                                                  
                                                                                                  4,759,075
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  4,702,016
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  4,702,016Production
      and Development
                                                                                                  
                                                                                                  Multiple-Advance
      Term Loan(The
      greater of 10.0% or LIBOR + 5.50%,due
      6/29/2009)Overriding
      Royalty Interest
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  6,143
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  250,000


5


Table of
Contents




NGP
CAPITAL RESOURCES COMPANY


CONSOLIDATED
SCHEDULE OF INVESTMENTS


September
30, 2008


(Unaudited)


(Continued)





Portfolio Company
                                                                        
                                                                        Energy Industry Segment
                                                                        
                                                                        Investment (1) (2) (4)
                                                                        
                                                                        Principal
                                                                        
                                                                        
                                                                        Cost
                                                                        
                                                                        
                                                                        Fair Value (3)TARGETED INVESTMENTS (9) – ContinuedNon-Affiliate Investments - (less than 5% owned) – continuedFormidable,
      LLC (19)
                                                                        
                                                                        Oil
      & Natural Gas
                                                                        
                                                                        Senior
      Secured
                                                                        
                                                                        $
                                                                        37,299,054
                                                                        
                                                                        
                                                                        $
                                                                        37,299,054
                                                                        
                                                                        
                                                                        $
                                                                        37,299,054Production
      and Development
                                                                        
                                                                        Multiple-Advance
      Term Loan(LIBOR
      + 5.50% cash, due 5/31/2008) (7)Warrants
      (5) (16)
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        500,000
                                                                        
                                                                        
                                                                        
                                                                        500,000Greenleaf
      Investments, LLC
                                                                        
                                                                        Oil
      & Natural Gas
                                                                        
                                                                        Senior
      Secured
                                                                        
                                                                        
                                                                        11,627,645
                                                                        
                                                                        
                                                                        
                                                                        11,321,192
                                                                        
                                                                        
                                                                        
                                                                        11,321,192Production
      and Development
                                                                        
                                                                        Multiple-Advance
      Term Loan(The
      greater of 10.50% or LIBOR + 6.00%,due
      4/30/2011)Overriding
      Royalty Interest
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        92,856
                                                                        
                                                                        
                                                                        
                                                                        300,000Nighthawk
      Transport I, LP
                                                                        
                                                                        Energy
      Services
                                                                        
                                                                        Second
      Lien
                                                                        
                                                                        
                                                                        13,325,371
                                                                        
                                                                        
                                                                        
                                                                        12,528,195
                                                                        
                                                                        
                                                                        
                                                                        12,528,195Term
      Loan B(The
      greater of 15.0% or LIBOR + 10.50%,due
      10/03/2010)LP
      Units (5)
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        224
                                                                        
                                                                        
                                                                        
                                                                        150,000Warrants
      (5) (14)
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        850,000
                                                                        
                                                                        
                                                                        
                                                                        850,000Second
      Lien
                                                                        
                                                                        
                                                                        1,488,912
                                                                        
                                                                        
                                                                        
                                                                        1,463,025
                                                                        
                                                                        
                                                                        
                                                                        1,463,025Delayed
      Draw Term Loan B(The
      greater of 15.0% or LIBOR + 10.50%,due
      10/03/2010)Sonoran
      Energy, Inc.
                                                                        
                                                                        Oil
      & Natural Gas
                                                                        
                                                                        Warrants
      (5) (13)
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        10,000
                                                                        
                                                                        
                                                                        
                                                                        10,000Production
      and DevelopmentTammany
      Oil & Gas, LLC
                                                                        
                                                                        Oil
      & Natural Gas
                                                                        
                                                                        Senior
      Secured
                                                                        
                                                                        
                                                                        29,447,804
                                                                        
                                                                        
                                                                        
                                                                        29,149,665
                                                                        
                                                                        
                                                                        
                                                                        29,149,665Production
      and Development
                                                                        
                                                                        Multiple-Advance
      Term Loan(The
      greater of 11.0% or LIBOR + 6.00%,due
      3/21/2010)Overriding
      Royalty Interest (5)
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        200,000
                                                                        
                                                                        
                                                                        
                                                                        550,000Venoco,
      Inc.
                                                                        
                                                                        Oil
      & Natural Gas
                                                                        
                                                                        Senior
      Notes (6)
                                                                        
                                                                        
                                                                        12,000,000
                                                                        
                                                                        
                                                                        
                                                                        11,927,465
                                                                        
                                                                        
                                                                        
                                                                        10,440,000Production
      and Development
                                                                        
                                                                        (8.75%,
      due 12/15/2011)Total
      Non-Affiliate Investments - (less than 5% owned)
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        $
                                                                        227,936,125
                                                                        
                                                                        
                                                                        $
                                                                        220,727,537Subtotal
      Targeted Investments (59.57% of total investments)
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        $
                                                                        299,021,654
                                                                        
                                                                        
                                                                        $
                                                                        299,850,813


6





Table of Contents




NGP
CAPITAL RESOURCES COMPANY


CONSOLIDATED
SCHEDULE OF INVESTMENTS


September
30, 2008


(Unaudited)


(Continued)





Issuing Company
                                                                                                                                                                        
                                                                                                                                                                        Energy Industry Segment
                                                                                                                                                                        
                                                                                                                                                                        Investment (1) (2) (4)
                                                                                                                                                                        
                                                                                                                                                                        Principal
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        Cost
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        Fair Value (3)CORPORATE
      NOTES (9)Pioneer
      Natural Resources Co.
                                                                                                                                                                        
                                                                                                                                                                        Oil
      & Natural Gas
                                                                                                                                                                        
                                                                                                                                                                        Senior
      Notes, 7.2%, due 2028
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        10,000,000
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        11,598,261
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        8,244,900Production
      and DevelopmentSubtotal
      Corporate Notes ( 1.64% of total investments)
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        11,598,261
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        8,244,900COMMODITY
      DERIVATIVE INSTRUMENTS (9)Put
      Options (18)
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        Put
      Options with BP Corp. NA to sell up to 615,000 MMBtu of
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        243,360
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        990,590natural
      gas at a strike price of $10.00 per MMBtu.  12
      monthlycontracts
      beginning on July 1, 2008 and expiring on June 30, 2009.Put
      Options with BP Corp. NA to sell up to 237,750 Bbls of
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        746,900
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        2,028,037crude
      oil at a strike price of $101.00 per Bbl.  15 monthly
      contractsbeginning
      on July 1, 2008 and expiring on September 30, 2009.Put
      Options with BP Corp. NA to sell up to 32,750 Bbls of
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        140,825
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        293,953crude
      oil at a strike price of $85.00 per Bbl.  4 monthly
      contractsbeginning
      on October 1, 2009 and expiring on January 31, 2010.Subtotal
      Commodity Derivatives ( 0.66% of total investments)
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        1,131,085
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        3,312,580GOVERNMENT
      SECURITIES (8)U.S.
      Treasury Bills
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        U.S.
      Treasury Bills, 1.772%, due 10/09/2008
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        8,000,000
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        8,551,692
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        8,551,692U.S.
      Treasury Bills
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        U.S.
      Treasury Bills, 1.772%, due 10/09/2008
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        12,000,000
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        11,995,360
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        11,995,360U.S.
      Treasury Bills
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        U.S.
      Treasury Bills, 1.772%, due 10/09/2008
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        12,000,000
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        11,995,360
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        11,995,360U.S.
      Treasury Bills
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        U.S.
      Treasury Bills, 1.772%, due 10/09/2008
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        12,000,000
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        11,995,360
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        11,995,360U.S.
      Treasury Bills
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        U.S.
      Treasury Bills, 1.772%, due 10/09/2008
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        12,000,000
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        11,995,360
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        11,995,360U.S.
      Treasury Bills
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        U.S.
      Treasury Bills, 1.772%, due 10/09/2008
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        12,000,000
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        11,995,360
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        11,995,360U.S.
      Treasury Bills
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        U.S.
      Treasury Bills, 1.772%, due 10/09/2008
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        12,000,000
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        11,995,360
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        11,995,360U.S.
      Treasury Bills
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        U.S.
      Treasury Bills, 1.772%, due 10/09/2008
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        12,000,000
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        11,995,360
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        11,995,360U.S.
      Treasury Bills
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        U.S.
      Treasury Bills, 1.772%, due 10/09/2008
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        12,000,000
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        11,995,360
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        11,995,360U.S.
      Treasury Bills
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        U.S.
      Treasury Bills, 1.772%, due 10/09/2008
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        12,000,000
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        11,995,360
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        11,995,360U.S.
      Treasury Bills
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        U.S.
      Treasury Bills, 1.772%, due 10/09/2008
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        12,000,000
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        11,995,360
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        11,995,360Subtotal
      Government Securities (25.53% of total investments)
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        128,505,292
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        128,505,292CASH
      AND CASH EQUIVALENTSSubtotal
      Cash and Cash Equivalents (12.6% of total investments)
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        63,403,174
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        63,403,174TOTAL
      INVESTMENTS, CASH AND CASH
      EQUIVALENTS
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        503,659,466
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        503,316,759LIABILITIES
      IN EXCESS OF OTHER ASSETS (21)
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        (195,049,919
                                                                                                                                                                        )NET
      ASSETS (21)
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        308,266,840




7




Table of Contents





NGP
CAPITAL RESOURCES COMPANY


CONSOLIDATED
SCHEDULE OF INVESTMENTS


September
30, 2008


(Unaudited)


(Continued)





NOTES TO CONSOLIDATED
SCHEDULE OF INVESTMENTS





(1)
            All
      investments are pledged as collateral for obligations uder the Company's
      credit facilities.


(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)
            Upon
      the March 30, 2006 closing of Venoco, Inc.'s TexCal acquisition, Venoco
      Inc.'s senior notes became collateralized by second priority
      liens.


(7)
            Non-accrual
      status.


(8)
            Level
      1 security per SFAS No.
      157 hierachy.


(9)
            Level
      3 security per SFAS No.
      157 hierachy.


(10)
            Portfolio
      company was issued a written notice of
default.


(11)
            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 $325.00 per
      share.


(12)
            BSR
      Loco Bayou warrants expire on August 15, 2013 and provide the Company the
      right to purchase 10,000 investor units at the exercise price of $160.00
      per investor unit.


(13)
            Sonoran
      warrants expire on November 28, 2014 and provide the Company the right to
      purchase shares of common stock up to 2.87 million shares, on a fully
      diluted basis with anti-dilution provisions, at the exercise price of
      $0.20 per share.


(14)
            Nighthawk
      warrants expire on May 13, 2017 and provide the Company the right to
      purchase approximately 2.5% of limited partnership units at the exercise
      price of $0.001 per unit.


(15)
            Alden
      warrants provide the Company the right to purchase 23% of class C units at
      an exercise price of $0.739 per unit, expiring in December 2013 and the
      right to purchase 10% of class C units at an exercise price of $0.739 per
      unit, expiring in July 2014.


(16)
            Formidable warrants expire on
      March 31, 2015 and provide the Company the right to purchase membership
      interest representing 30% of all distributions at an exercise
      priceof $1,000 per percentage
      point.


(17)
            BioEnergy
      International, LLC warrants expire on August 15, 2010 and provide the
      Company the right to purchase  648,000 units, representing
      membership interests of BioEnergy International, LLC, at
      the  purchase price of $10.00 per
  unit.


(18)
            Put
      Options are related to the limited term royalty interest purchased from
      ATP Oil & Gas Corporation.


(19)
            Executed
      forbearance agreement with portfolio
company.


(20)
            Resaca
      stock is listed on the Alternative Investment Market of the London Stock
      Exchange, denominated in British pounds and its reported fair value at
      September 30, 2008 has been converted to U.S. dollars at the exchange rate
      effective on September 30, 2008.


(21)
            As
      restated.





(See
accompanying notes to consolidated financial statements)




8




Table of
Contents




NGP
CAPITAL RESOURCES COMPANY


CONSOLIDATED
FINANCIAL HIGHLIGHTS


(Unaudited)





For
      the Nine Months EndedSeptember
      30, 2008
                                                      
                                                      
                                                      September
      30, 2007(As
      Restated)
                                                      
                                                      
                                                      (As
      Restated)Per
      Share Data  (1)Net
      asset value, beginning of period
                                                      
                                                      $
                                                      14.14
                                                      
                                                      
                                                      $
                                                      13.96Increase
      in net assets as a result of secondarypublic
      stock offering
                                                      
                                                      
                                                      0.40
                                                      
                                                      
                                                      
                                                      -Underwriting
      discounts and commissions relatedto
      secondary public stock offering
                                                      
                                                      
                                                      (0.15
                                                      )
                                                      
                                                      
                                                      -Other
      costs related to secondary public stock offering
                                                      
                                                      
                                                      (0.03
                                                      )
                                                      
                                                      
                                                      -Net
      increase in net assets from secondary public offering
                                                      
                                                      
                                                      0.22
                                                      
                                                      
                                                      
                                                      -Net
      asset value after public stock offering
                                                      
                                                      
                                                      14.36
                                                      
                                                      
                                                      
                                                      13.96Net
      investment income
                                                      
                                                      
                                                      0.50
                                                      
                                                      
                                                      
                                                      0.82Net
      realized and unrealized gain (loss) on portfolio
    securities,corporate
      notes and commodity derivative instruments (4)
                                                      
                                                      
                                                      0.59
                                                      
                                                      
                                                      
                                                      0.50Net
      increase (decrease) in stockholders' equity (net assets)resulting
      from operations
                                                      
                                                      
                                                      1.09
                                                      
                                                      
                                                      
                                                      1.32Dividends
      declared
                                                      
                                                      
                                                      (1.20
                                                      )
                                                      
                                                      
                                                      (0.93
                                                      )Net
      asset value, end of period
                                                      
                                                      $
                                                      14.25
                                                      
                                                      
                                                      $
                                                      14.35Market
      value, beginning of period
                                                      
                                                      $
                                                      15.63
                                                      
                                                      
                                                      $
                                                      16.75Market
      value, end of period
                                                      
                                                      $
                                                      14.57
                                                      
                                                      
                                                      $
                                                      16.23Market
      value return  (2)
                                                      
                                                      
                                                      0.98
                                                      %
                                                      
                                                      
                                                      2.38
                                                      %Net
      asset value return (2)
                                                      
                                                      
                                                      9.17
                                                      %
                                                      
                                                      
                                                      8.61
                                                      %Ratios
      and Supplemental Data($
      and shares in thousands)Net
      assets, end of period
                                                      
                                                      $
                                                      308,267
                                                      
                                                      
                                                      $
                                                      250,720Average
      net assets
                                                      
                                                      $
                                                      277,841
                                                      
                                                      
                                                      $
                                                      246,989Common
      shares outstanding at end of period
                                                      
                                                      
                                                      21,628
                                                      
                                                      
                                                      
                                                      17,470Total
      operating expenses/average net assets (3)
                                                      
                                                      
                                                      8.10
                                                      %
                                                      
                                                      
                                                      7.09
                                                      %Total
      operating expenses less management andincentive
      fees and interest expense/average net assets (3)
                                                      
                                                      
                                                      1.62
                                                      %
                                                      
                                                      
                                                      1.56
                                                      %Total
      operating expenses less managementand
      incentive fees/average net assets (3)
                                                      
                                                      
                                                      4.20
                                                      %
                                                      
                                                      
                                                      4.22
                                                      %Net
      investment income/average net assets (3)
                                                      
                                                      
                                                      5.21
                                                      %
                                                      
                                                      
                                                      7.64
                                                      %Net
      increase (decrease) in net assets resulting fromoperations/average
      net assets (3)
                                                      
                                                      
                                                      11.13
                                                      %
                                                      
                                                      
                                                      12.35
                                                      %Portfolio
      turnover rate
                                                      
                                                      
                                                      27.50
                                                      %
                                                      
                                                      
                                                      44.34
                                                      %





(1) Per
Share Data is based on common shares outstanding at end of period.


(2)
Return calculations assume reinvestment of dividends and are not
annualized.


(3)
Annualized.


(4)
Calculated as a balancing amount necessary to reconcile the change in net assets
value per share with the other per share information presented.  This
amount may not agree with the aggregate gains and losses for the period because
the difference in the net asset value at the beginning and end of year may not
equal the per share changes of the line items disclosed.





(See
accompanying notes to consolidated financial statements)




9




Table of
Contents





NGP
CAPITAL RESOURCES COMPANY


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2008


(Unaudited)




Note1:
            Organization





NGP
Capital Resources Company (the “Company”) 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 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
consolidated 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, and NGPC Asset Holdings V, LP, a
Texas limited partnership.  Effective May 28, 2008, NGPC Asset
Holdings IV, LP merged with and into NGPC II.  The Company
consolidates the results of its 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 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 (the “Board of Directors”), by NGP Investment
Advisor, LP (the “Manager”), a Delaware limited partnership owned by NGP Energy
Capital Management, LLC, and NGP Administration, LLC (the “Administrator”), the
Company’s administrator.





Note
2: Restatement of Consolidated Financial Statements





Background of the
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 for 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 described below 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 an investment 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.




10




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.





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.




11




The
effects of the restatement on the unaudited consolidated balance sheet at
September 30, 2008 and consolidated balance sheet at December 31, 2007 are
summarized in the following table:




As PreviouslyReported
                        
                        
                        Reclassifications
                        
                        
                        As Reclassified
                        
                        
                        Restatement
                        
                        
                        As RestatedConsolidated
      Balance Sheets:As
      of September 30, 2008Investments
      in portfolio securities at fair value
                        
                        $
                        299,850,813
                        
                        
                        $
                        (299,850,813
                        )
                        
                        $
                        -
                        
                        
                        
                        -
                        
                        
                        $
                        -Control
      investments - majority owned
                        
                        
                        -
                        
                        
                        
                        32,555,085
                        
                        
                        
                        32,555,085
                        
                        
                        
                        -
                        
                        
                        
                        32,555,085Affiliate
      investments
                        
                        
                        -
                        
                        
                        
                        46,568,191
                        
                        
                        
                        46,568,191
                        
                        
                        
                        -
                        
                        
                        
                        46,568,191Non-affiliate
      investments
                        
                        
                        -
                        
                        
                        
                        220,727,537
                        
                        
                        
                        220,727,537
                        
                        
                        
                        -
                        
                        
                        
                        220,727,537Accounts
      receivable and other current assets
                        
                        
                        35,345
                        
                        
                        
                        -
                        
                        
                        
                        35,345
                        
                        
                        
                        721,533
                        
                        
                        
                        756,878Total
      current assets
                        
                        
                        65,886,464
                        
                        
                        
                        -
                        
                        
                        
                        65,886,464
                        
                        
                        
                        721,533
                        
                        
                        
                        66,607,997Total
      assets
                        
                        
                        505,800,049
                        
                        
                        
                        -
                        
                        
                        
                        505,800,049
                        
                        
                        
                        721,533
                        
                        
                        
                        506,521,582Income
      taxes payable
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        628,924
                        
                        
                        
                        628,924Total
      current liabilities
                        
                        
                        16,739,320
                        
                        
                        
                        -
                        
                        
                        
                        16,739,320
                        
                        
                        
                        628,924
                        
                        
                        
                        17,368,244Deferred
      tax liabilities - non-current
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        2,011,498
                        
                        
                        
                        2,011,498Total
      liabilities
                        
                        
                        195,614,320
                        
                        
                        
                        -
                        
                        
                        
                        195,614,320
                        
                        
                        
                        2,640,422
                        
                        
                        
                        198,254,742Paid-in
      capital in excess of par
                        
                        
                        307,886,738
                        
                        
                        
                        -
                        
                        
                        
                        307,886,738
                        
                        
                        
                        (196,579
                        )
                        
                        
                        307,690,159Undistributed
      net investment income (loss)
                        
                        
                        (12,240,153
                        )
                        
                        
                        -
                        
                        
                        
                        (12,240,153
                        )
                        
                        
                        (1,198,943
                        )
                        
                        
                        (13,439,096
                        )Undistributed
      net realized capital gain (loss)
                        
                        
                        14,860,223
                        
                        
                        
                        -
                        
                        
                        
                        14,860,223
                        
                        
                        
                        105,557
                        
                        
                        
                        14,965,780Net
      unrealized appreciation (depreciation) of portfolio
      securities,corporate
      notes and commodity derivative instruments
                        
                        
                        (342,707
                        )
                        
                        
                        -
                        
                        
                        
                        (342,707
                        )
                        
                        
                        (628,924
                        )
                        
                        
                        (971,631
                        )Total
      stockholders’ equity (net assets)
                        
                        
                        310,185,729
                        
                        
                        
                        -
                        
                        
                        
                        310,185,729
                        
                        
                        
                        (1,918,889
                        )
                        
                        
                        308,266,840Total
      liabilities and stockholders' equity (net assets)
                        
                        
                        505,800,049
                        
                        
                        
                        -
                        
                        
                        
                        505,800,049
                        
                        
                        
                        721,533
                        
                        
                        
                        506,521,582Net
      asset value per share
                        
                        
                        14.34
                        
                        
                        
                        -
                        
                        
                        
                        14.34
                        
                        
                        
                        (0.09
                        )
                        
                        
                        14.25As
      of December 31, 2007Investments
      in portfolio securities at fair value
                        
                        $
                        284,228,573
                        
                        
                        $
                        (284,228,573
                        )
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        -Control
      investments - majority owned
                        
                        
                        -
                        
                        
                        
                        29,669,857
                        
                        
                        
                        29,669,857
                        
                        
                        
                        -
                        
                        
                        
                        29,669,857Non-affiliate
      investments
                        
                        
                        -
                        
                        
                        
                        254,558,716
                        
                        
                        
                        254,558,716
                        
                        
                        
                        -
                        
                        
                        
                        254,558,716Accounts
      receivable and other current assets
                        
                        
                        17,569
                        
                        
                        
                        -
                        
                        
                        
                        17,569
                        
                        
                        
                        43,750
                        
                        
                        
                        61,319Total
      current assets
                        
                        
                        21,123,178
                        
                        
                        
                        -
                        
                        
                        
                        21,123,178
                        
                        
                        
                        43,750
                        
                        
                        
                        21,166,928Total
      assets
                        
                        
                        478,232,876
                        
                        
                        
                        -
                        
                        
                        
                        478,232,876
                        
                        
                        
                        43,750
                        
                        
                        
                        478,276,626Deferred
      tax liabilities - current
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        2,770,924
                        
                        
                        
                        2,770,924Total
      current liabilities
                        
                        
                        11,973,539
                        
                        
                        
                        -
                        
                        
                        
                        11,973,539
                        
                        
                        
                        2,770,924
                        
                        
                        
                        14,744,463Deferred
      tax liabilities - non-current
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        116,221
                        
                        
                        
                        116,221Total
      liabilities
                        
                        
                        227,973,539
                        
                        
                        
                        -
                        
                        
                        
                        227,973,539
                        
                        
                        
                        2,887,145
                        
                        
                        
                        230,860,684Paid-in
      capital in excess of par
                        
                        
                        245,881,078
                        
                        
                        
                        -
                        
                        
                        
                        245,881,078
                        
                        
                        
                        (196,579
                        )
                        
                        
                        245,684,499Undistributed
      net investment income (loss)
                        
                        
                        (103,394
                        )
                        
                        
                        -
                        
                        
                        
                        (103,394
                        )
                        
                        
                        124,108
                        
                        
                        
                        20,714Net
      unrealized appreciation (depreciation) of portfolio
      securities,corporate
      notes and commodity derivative instruments
                        
                        
                        3,605,020
                        
                        
                        
                        -
                        
                        
                        
                        3,605,020
                        
                        
                        
                        (2,770,924
                        )
                        
                        
                        834,096Total
      stockholders’ equity (net assets)
                        
                        
                        250,259,337
                        
                        
                        
                        -
                        
                        
                        
                        250,259,337
                        
                        
                        
                        (2,843,395
                        )
                        
                        
                        247,415,942Total
      liabilities and stockholders' equity (net assets)
                        
                        
                        478,232,876
                        
                        
                        
                        -
                        
                        
                        
                        478,232,876
                        
                        
                        
                        43,750
                        
                        
                        
                        478,276,626Net
      asset value per share
                        
                        
                        14.30
                        
                        
                        
                        -
                        
                        
                        
                        14.30
                        
                        
                        
                        (0.16
                        )
                        
                        
                        14.14




12




The
effects of the restatement on the unaudited consolidated statements of
operations for the three and nine-month periods ended September 30, 2008 are
summarized in the following table:





As PreviouslyReported
                  
                  
                  Reclassifications
                  
                  
                  As Reclassified
                  
                  
                  Restatement
                  
                  
                  As RestatedConsolidated
      Statements of Operations:For
      the Three Months Ended September 30, 2008Investment
      incomeInterest
      and dividend income:
                  
                  $
                  9,816,811
                  
                  
                  $
                  (9,816,811
                  )
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Control
      investments - majority owned
                  
                  
                  -
                  
                  
                  
                  55,215
                  
                  
                  
                  55,215
                  
                  
                  
                  -
                  
                  
                  
                  55,215Affiliate
      investments
                  
                  
                  -
                  
                  
                  
                  1,217,558
                  
                  
                  
                  1,217,558
                  
                  
                  
                  -
                  
                  
                  
                  1,217,558Non-affiliate
      investments
                  
                  
                  -
                  
                  
                  
                  6,365,900
                  
                  
                  
                  6,365,900
                  
                  
                  
                  -
                  
                  
                  
                  6,365,900Royalty
      income, net of amortization:Control
      investments - majority owned
                  
                  
                  -
                  
                  
                  
                  78,869
                  
                  
                  
                  78,869
                  
                  
                  
                  -
                  
                  
                  
                  78,869Non-affiliate
      investments
                  
                  
                  -
                  
                  
                  
                  2,373,894
                  
                  
                  
                  2,373,894
                  
                  
                  
                  -
                  
                  
                  
                  2,373,894Commodity
      derivative income (loss), net of expired options
                  
                  
                  -
                  
                  
                  
                  (274,625
                  )
                  
                  
                  (274,625
                  )
                  
                  
                  -
                  
                  
                  
                  (274,625
                  )Benefit
      (provision) for income taxes
                  
                  
                  1,400,000
                  
                  
                  
                  -
                  
                  
                  
                  1,400,000
                  
                  
                  
                  (1,377,865
                  )
                  
                  
                  22,135Net
      investment income
                  
                  
                  4,265,603
                  
                  
                  
                  -
                  
                  
                  
                  4,265,603
                  
                  
                  
                  (1,377,865
                  )
                  
                  
                  2,887,738Net
      realized capital gain (loss) on portfolio securities, corporate notes and
      commodity derivative instruments:
                  
                  
                  18,301,090
                  
                  
                  
                  (18,301,090
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Control
      investments - majority owned
                  
                  
                  -
                  
                  
                  
                  12,336,596
                  
                  
                  
                  12,336,596
                  
                  
                  
                  -
                  
                  
                  
                  12,336,596Non-affiliate
      investments
                  
                  
                  -
                  
                  
                  
                  5,964,494
                  
                  
                  
                  5,964,494
                  
                  
                  
                  -
                  
                  
                  
                  5,964,494Benefit
      (provision) for taxes on capital gain (loss)
                  
                  
                  (4,300,000
                  )
                  
                  
                  -
                  
                  
                  
                  (4,300,000
                  )
                  
                  
                  105,557
                  
                  
                  
                  (4,194,443
                  )Total
      net realized capital gain (loss) on investments
                  
                  
                  14,001,090
                  
                  
                  
                  -
                  
                  
                  
                  14,001,090
                  
                  
                  
                  105,557
                  
                  
                  
                  14,106,647Net
      increase (decrease) in unrealized appreciation (depreciation) on portfolio
      securities, corporate notes and commodity derivative
      instruments:
                  
                  
                  (3,812,904
                  )
                  
                  
                  3,812,904
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Control
      investments - majority owned
                  
                  
                  -
                  
                  
                  
                  (6,199,148
                  )
                  
                  
                  (6,199,148
                  )
                  
                  
                  -
                  
                  
                  
                  (6,199,148
                  )Affiliate
      investments
                  
                  
                  -
                  
                  
                  
                  6,054,143
                  
                  
                  
                  6,054,143
                  
                  
                  
                  -
                  
                  
                  
                  6,054,143Non-affiliate
      investments
                  
                  
                  -
                  
                  
                  
                  (3,667,899
                  )
                  
                  
                  (3,667,899
                  )
                  
                  
                  -
                  
                  
                  
                  (3,667,899
                  )Benefit
      (provision) for taxes on unrealized gain (loss)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,142,000
                  
                  
                  
                  2,142,000Total
      net unrealized gain (loss) on investments
                  
                  
                  (3,812,904
                  )
                  
                  
                  -
                  
                  
                  
                  (3,812,904
                  )
                  
                  
                  2,142,000
                  
                  
                  
                  (1,670,904
                  )Net
      increase (decrease) in stockholders' equity (net assets) resulting from
      operations
                  
                  
                  14,453,789
                  
                  
                  
                  -
                  
                  
                  
                  14,453,789
                  
                  
                  
                  869,692
                  
                  
                  
                  15,323,481Net
      increase (decrease) in stockholders' equity (net assets) resulting from
      operations per common share
                  
                  
                  0.66
                  
                  
                  
                  -
                  
                  
                  
                  0.66
                  
                  
                  
                  0.04
                  
                  
                  
                  0.70For
      the Nine Months Ended September 30, 2008Investment
      incomeInterest
      and dividend income:
                  
                  $
                  27,467,490
                  
                  
                  $
                  (27,467,490
                  )
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Control
      investments - majority owned
                  
                  
                  
                  
                  
                  
                  310,730
                  
                  
                  
                  310,730
                  
                  
                  
                  -
                  
                  
                  
                  310,730Affiliate
      investments
                  
                  
                  
                  
                  
                  
                  1,934,959
                  
                  
                  
                  1,934,959
                  
                  
                  
                  -
                  
                  
                  
                  1,934,959Non-affiliate
      investments
                  
                  
                  
                  
                  
                  
                  21,923,225
                  
                  
                  
                  21,923,225
                  
                  
                  
                  -
                  
                  
                  
                  21,923,225Royalty
      income, net of amortization:Control
      investments - majority owned
                  
                  
                  
                  
                  
                  
                  127,576
                  
                  
                  
                  127,576
                  
                  
                  
                  -
                  
                  
                  
                  127,576Non-affiliate
      investments
                  
                  
                  
                  
                  
                  
                  3,445,625
                  
                  
                  
                  3,445,625
                  
                  
                  
                  -
                  
                  
                  
                  3,445,625Commodity
      derivative income (loss), net of expired options
                  
                  
                  -
                  
                  
                  
                  (274,625
                  )
                  
                  
                  (274,625
                  )
                  
                  
                  -
                  
                  
                  
                  (274,625
                  )Other
      general and administrative expenses
                  
                  
                  2,134,624
                  
                  
                  
                  -
                  
                  
                  
                  2,134,624
                  
                  
                  
                  7,191
                  
                  
                  
                  2,141,815Total
      operating expenses
                  
                  
                  16,832,130
                  
                  
                  
                  -
                  
                  
                  
                  16,832,130
                  
                  
                  
                  7,191
                  
                  
                  
                  16,839,321Net
      investment income (loss) before income taxes
                  
                  
                  10,773,127
                  
                  
                  
                  -
                  
                  
                  
                  10,773,127
                  
                  
                  
                  (7,191
                  )
                  
                  
                  10,765,936Benefit
      (provision) for income taxes
                  
                  
                  1,392,808
                  
                  
                  
                  -
                  
                  
                  
                  1,392,808
                  
                  
                  
                  (1,315,860
                  )
                  
                  
                  76,948Net
      investment income
                  
                  
                  12,165,935
                  
                  
                  
                  -
                  
                  
                  
                  12,165,935
                  
                  
                  
                  (1,323,051
                  )
                  
                  
                  10,842,884Net
      realized capital gain (loss) on portfolio securities, corporate notes and
      commodity derivative instruments:
                  
                  
                  18,301,090
                  
                  
                  
                  (18,301,090
                  )
                  
                  
                  -
                  
                  
                  
                  -Control
      investments - majority owned
                  
                  
                  
                  
                  
                  
                  12,336,596
                  
                  
                  
                  12,336,596
                  
                  
                  
                  -
                  
                  
                  
                  12,336,596Non-affiliate
      investments
                  
                  
                  
                  
                  
                  
                  5,964,494
                  
                  
                  
                  5,964,494
                  
                  
                  
                  -
                  
                  
                  
                  5,964,494Benefit
      (provision) for taxes on capital gain (loss)
                  
                  
                  (4,300,000
                  )
                  
                  
                  -
                  
                  
                  
                  (4,300,000
                  )
                  
                  
                  105,557
                  
                  
                  
                  (4,194,443
                  )Net
      realized capital gain (loss)
                  
                  
                  14,001,090
                  
                  
                  
                  -
                  
                  
                  
                  14,001,090
                  
                  
                  
                  (4,194,443
                  )
                  
                  
                  9,806,647Net
      increase (decrease) in unrealized appreciation (depreciation) on portfolio
      securities, corporate notes and commodity derivative
      instruments:
                  
                  
                  (3,947,727
                  )
                  
                  
                  3,947,727
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Control
      investments - majority owned
                  
                  
                  -
                  
                  
                  
                  (6,198,868
                  )
                  
                  
                  (6,198,868
                  )
                  
                  
                  -
                  
                  
                  
                  (6,198,868
                  )Affiliate
      investments
                  
                  
                  -
                  
                  
                  
                  6,054,143
                  
                  
                  
                  6,054,143
                  
                  
                  
                  -
                  
                  
                  
                  6,054,143Non-affiliate
      investments
                  
                  
                  -
                  
                  
                  
                  (3,803,002
                  )
                  
                  
                  (3,803,002
                  )
                  
                  
                  -
                  
                  
                  
                  (3,803,002
                  )Benefit
      (provision) for taxes on unrealized gain (loss)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,142,000
                  
                  
                  
                  2,142,000Total
      net unrealized gain (loss) on investments
                  
                  
                  (3,947,727
                  )
                  
                  
                  -
                  
                  
                  
                  (3,947,727
                  )
                  
                  
                  2,142,000
                  
                  
                  
                  (1,805,727
                  )Net
      increase (decrease) in stockholders' equity (net assets) resulting from
      operations
                  
                  
                  22,219,298
                  
                  
                  
                  -
                  
                  
                  
                  22,219,298
                  
                  
                  
                  924,506
                  
                  
                  
                  23,143,804Net
      increase (decrease) in stockholders' equity (net assets)resulting from
      operations per common share
                  
                  
                  1.02
                  
                  
                  
                  -
                  
                  
                  
                  1.02
                  
                  
                  
                  0.07
                  
                  
                  
                  1.09




13




The
effects of the restatement on the unaudited consolidated statement of cash flows
for the nine-month period ended September 30, 2008 are summarized in the
following table:




As PreviouslyReported
                  
                  
                  Reclassifications
                  
                  
                  AsReclassified
                  
                  
                  Restatement
                  
                  
                  AsRestatedConsolidated
      Statement of Cash Flows:For
      the Nine Months Ended September 30, 2008Cash
      flows from operating activitiesNet
      increase in stockholders' equity (net assets) resulting from
      operations
                  
                  $
                  22,219,298
                  
                  
                  $
                  -
                  
                  
                  $
                  22,219,298
                  
                  
                  $
                  924,506
                  
                  
                  $
                  23,143,804Effects
      of changes in operating assets and liabilitiesAccounts
      receivable and other current assets
                  
                  
                  (17,776
                  )
                  
                  
                  -
                  
                  
                  
                  (17,776
                  )
                  
                  
                  (677,783
                  )
                  
                  
                  (695,559
                  )Income
      taxes payable
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  628,924
                  
                  
                  
                  628,924Current
      portion of deferred income taxes
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (2,770,924
                  )
                  
                  
                  (2,770,924
                  )Non-current
      deferred income taxes
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,895,277
                  
                  
                  
                  1,895,277




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 interim consolidated
financial statements have been prepared by management of the Company, 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, 2007.  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 interim consolidated financial statements and the
accompanying notes to the interim consolidated financial
statements.  Actual results could differ from these
estimates.




14




Table of Contents





Cash
and Cash Equivalents




Cash and
cash equivalents consist of demand deposits and highly liquid investments with
original maturities of three months or less when purchased. 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, fees associated with the
establishment of the policy or credit facility, and registration expenses
related to the Company’s shelf filing. Such premiums and fees are amortized
monthly on a straight-line basis over the term of the policy or credit
facility.  Registration expenses are deferred and will be charged as a
reduction of capital upon the sale of shares.




Concentration
of Credit Risk




The
Company places its cash and cash equivalents with financial institutions and, at
times, cash held in checking 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 our portfolio companies and
presents the valuations to the Company’s valuation committee (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 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 the portfolio company’s assets, such as engineering reserve
reports of oil and 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.





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 one or all
of the above valuation methods to determine the estimated enterprise value of a
portfolio company.





Debt Securities: The Company
records its investments in non-convertible debt securities at fair value which
generally approximates cost  plus amortized original issue discount
(“OID”) to the extent that the estimated asset or enterprise value of the
portfolio company exceeds the outstanding debt of the portfolio company. 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. 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 its debt investment
beginning with its junior-most debt investment such that the asset or enterprise
value less the value of the outstanding pari passu or senior debt is
zero.  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.




15




Table of Contents




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.





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 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.




In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement on Financial Accounting Statement 157, Fair Value Measurements
(“Statement 157”). This standard establishes a single authoritative definition
of fair value, sets out a framework for measuring fair value and requires
additional disclosures about fair value measurements. Statement 157 applies
to fair value measurements already required or permitted by existing standards.
Statement 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal
years. The changes to current generally accepted accounting principles from the
application of Statement 157 relate to the definition of fair value, the methods
used to measure fair value and the expanded disclosures about fair value
measurements.





As of
January 1, 2008, the Company adopted Statement 157.  The Company has
performed an analysis of all existing investments to determine the significance
and character of all inputs to their fair value determination. Based on this
assessment, the adoption of this standard did not have a material effect on the
Company’s net asset value.





Valuation
of Commodity Derivative Instruments





Current
accounting rules require that all derivative instruments, other than those that
meet specific exclusions, be recorded at fair value. Quoted market prices are
the best evidence of fair value. If quotations are not available, management’s
best estimate of fair value is based on the quoted market price of derivatives
with similar characteristics or on valuation techniques.  The
Company’s derivative instruments are either exchange traded or transacted in an
over-the-counter market. Valuation is determined by reference to readily
available public data. Option fair values for the natural gas option
transactions are based on the Black-Scholes pricing model and the crude oil
transactions are based on the Turnbull-Wakeman pricing model and verified
against the applicable counterparty’s fair values.





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
depletion using the unit of production depletion 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. Accruing interest or dividends on
investments is deferred when it is determined that the interest or dividend is
not collectible. 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




Table of Contents




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 September 30, 2008, PIK interest income, net of a $0.1 million reserve,
was $0.6 million and PIK dividend income totaled $0.  For the quarter
ended September 30, 2007, PIK interest income, net of a $0.1 million reserve,
was $1.2 million, and PIK dividend income totaled $0.  For the nine
months ended September 30, 2008, PIK interest income, net of a $0.2 million
reserve, was $2.3 million and PIK dividend income, net of a $0.1 million
reserve, was $0.  For the nine months ended September 30, 2007, PIK
interest income, net of a $0.1 million reserve, was $3.0 million and PIK
dividend income was $0.1 million.





Net
Realized Gains or Losses and Net Change in Unrealized Appreciation or
Depreciation





Realized
gains or 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.





Derivative
accounting rules require that fair value changes of derivative instruments that
do not qualify for hedge accounting be reported in current period, rather than
in the period the derivatives are settled and/or the hedged transaction is
settled. This can result in significant earnings volatility.  The
company has decided not to designate these 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 period
the commitment is outstanding. Prepayment and loan administration fees are
recognized as they are received.  For the quarter ended September 30,
2008, the Company accreted approximately $0.5 million of fee income into
interest income, compared to approximately $0.7 million of fee income for the
quarter ended September 30, 2007.




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 of its
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 Company’s 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.


17


Table of Contents





Prior to
2005, the Company was treated as a “C” corporation, had no taxable income and
therefore did not declare a dividend for that period.  The following
table summarizes the Company’s dividend history:





Dividend
History





Declaration Date
                      
                      Amount
                      
                      Record Date
                      
                      Payment DateMarch
      18, 2005
                      
                      $
                      0.120
                      
                      March
      31, 2005
                      
                      April
      15, 2005June
      17, 2005
                      
                      $
                      0.125
                      
                      June
      30, 2005
                      
                      July
      15, 2005September
      19, 2005
                      
                      $
                      0.140
                      
                      September
      30, 2005
                      
                      October
      14, 2005December
      15, 2005
                      
                      $
                      0.275
                      
                      December
      27, 2005
                      
                      January
      4, 2006March
      10, 2006
                      
                      $
                      0.160
                      
                      March
      31, 2006
                      
                      April
      17, 2006June
      14, 2006
                      
                      $
                      0.180
                      
                      June
      30, 2006
                      
                      July
      14, 2006September
      14, 2006
                      
                      $
                      0.250
                      
                      September
      29, 2006
                      
                      October
      13, 2006December
      7, 2006
                      
                      $
                      0.330
                      
                      December
      19, 2006
                      
                      December
      29, 2006March
      19, 2007
                      
                      $
                      0.265
                      
                      March
      30, 2007
                      
                      April
      13, 2007June
      13, 2007
                      
                      $
                      0.310
                      
                      June
      29, 2007
                      
                      July
      13, 2007September
      12, 2007
                      
                      $
                      0.350
                      
                      September
      28, 2007
                      
                      October
      12, 2007December
      12, 2007
                      
                      $
                      0.515
                      
                      December
      28, 2007
                      
                      January
      4, 2008March
      19, 2008
                      
                      $
                      0.400
                      
                      March
      31, 2008
                      
                      April
      11, 2008June
      9, 2008
                      
                      $
                      0.400
                      
                      June
      30, 2008
                      
                      July
      11, 2008September
      10, 2008
                      
                      $
                      0.400
                      
                      September
      30, 2008
                      
                      October
      10,
2008





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 October 10, 2008, the date of the most recent
dividend payment, holders of 1,739,829 shares, or approximately 8.0% of
outstanding shares, were participants 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 dividend reinvestment
plan:





Dividend
Reinvestment Plan Participation





Common Stock DividendsNewly Issued SharesDividend
                
                Participating
                  Shares
                
                
                Percentage of
                  Outstanding
                  Shares
                
                
                Total
                  Distribution
                
                
                Cash
                  Dividends
                
                
                Purchased
                  in Open
                  Market
                
                
                Amount
                
                
                SharesMarch
      2005
                
                
                -
                
                
                
                0.0
                %
                
                $
                2,088,012
                
                
                $
                2,088,012
                
                
                $
                -
                
                
                $
                -
                
                
                
                -June
      2005
                
                
                1,215,870
                
                
                
                7.0
                %
                
                $
                2,175,013
                
                
                $
                2,023,029
                
                
                $
                151,984
                
                
                $
                -
                
                
                
                -September
      2005
                
                
                1,488,904
                
                
                
                8.6
                %
                
                $
                2,436,014
                
                
                $
                2,227,567
                
                
                $
                208,447
                
                
                $
                -
                
                
                
                -December
      2005
                
                
                1,660,140
                
                
                
                9.5
                %
                
                $
                4,785,028
                
                
                $
                4,328,488
                
                
                $
                456,540
                
                
                $
                -
                
                
                
                -March
      2006
                
                
                1,618,940
                
                
                
                9.3
                %
                
                $
                2,784,016
                
                
                $
                2,524,986
                
                
                $
                259,030
                
                
                $
                -
                
                
                
                -June
      2006
                
                
                1,410,227
                
                
                
                8.1
                %
                
                $
                3,132,018
                
                
                $
                2,878,177
                
                
                $
                253,841
                
                
                $
                -
                
                
                
                -September
      2006
                
                
                1,270,634
                
                
                
                7.3
                %
                
                $
                4,350,025
                
                
                $
                4,032,366
                
                
                $
                317,659
                
                
                $
                -
                
                
                
                -December
      2006
                
                
                1,111,045
                
                
                
                6.4
                %
                
                $
                5,742,033
                
                
                $
                5,375,388
                
                
                $
                -
                
                
                $
                366,645
                
                
                
                22,168March
      2007
                
                
                1,355,671
                
                
                
                7.8
                %
                
                $
                4,616,901
                
                
                $
                4,257,648
                
                
                $
                -
                
                
                $
                359,253
                
                
                
                22,692June
      2007
                
                
                1,363,066
                
                
                
                7.8
                %
                
                $
                5,407,938
                
                
                $
                4,985,387
                
                
                $
                -
                
                
                $
                422,550
                
                
                
                24,694September
      2007
                
                
                1,438,143
                
                
                
                8.2
                %
                
                $
                6,114,379
                
                
                $
                5,611,029
                
                
                $
                -
                
                
                $
                503,350
                
                
                
                30,678December
      2007
                
                
                1,605,164
                
                
                
                9.2
                %
                
                $
                9,012,670
                
                
                $
                8,186,010
                
                
                $
                826,659
                
                
                $
                -
                
                
                
                -March
      2008
                
                
                1,693,284
                
                
                
                9.7
                %
                
                $
                7,000,133
                
                
                $
                6,322,815
                
                
                $
                -
                
                
                $
                677,318
                
                
                
                41,482June
      2008
                
                
                1,655,552
                
                
                
                9.4
                %
                
                $
                8,651,281
                
                
                $
                7,989,060
                
                
                $
                662,221
                
                
                $
                -
                
                
                
                -September
      2008
                
                
                1,739,829
                
                
                
                8.0
                %
                
                $
                8,651,281
                
                
                $
                7,955,350
                
                
                $
                695,931
                
                
                $
                -
                
                
                
                -
                (1)





(1)  Shares
were purchased on October 10, 2008 for the September 2008
dividend.  See above and Note 5 for further detail.


18


Table of Contents




Note 4:
            Credit Facilities and
      Borrowings





On
September 29, 2008, the Company entered into a Third Amendment to Amended and
Restated Revolving Credit Agreement, effective as of September 29, 2008, which
amended certain provisions of the Company’s Amended and Restated Revolving
Credit Agreement, dated as of August 31, 2006 (as amended, the “Investment
Facility”).  These amendments (i) extended the commitment termination date,
(ii) clarified certain definitions relating to permitted senior investment
participation and (iii) decreased the aggregate commitment amount under the
Investment Facility from $100 million to $87.5 million.  The Company
paid a 50 basis point fee in conjunction with the amendment.





Under the
terms of the Company’s Investment Facility, the lenders have agreed to extend
revolving credit to the Company in an amount not to exceed $87.5 million, with
the ability to increase the credit available to an amount not to exceed $175
million by obtaining additional commitments from existing lenders or new
lenders.  The total amount committed was $87.5 million and $52.625
million was outstanding under the Investment Facility as of September 30,
2008.  By comparison, the total amount committed as of December 31,
2007 was $100 million and $89.75 million was outstanding under the Investment
Facility.  The Investment Facility has a four-year term and bears
interest, at the Company’s option, at either (i) LIBOR plus 150 to 250 basis
points, based on the degree of leverage of the Company or (ii) the base rate
plus 0 to 75 basis points, based on the degree of leverage of the
Company.  The LIBOR pricing is a 25 basis point increase from the
previous grid.  Proceeds from the Investment Facility will be used to
supplement the Company’s equity capital to make portfolio
investments.  As of September 30, 2008, the interest rates were 5.25%
(Prime rate of 5.00% plus 25 basis points) on $43 million and 4.2375% (LIBOR
rate of 2.4875% plus 175 basis points) on $9.625 million.





The
obligations under the Investment Facility are collateralized by substantially
all of the Company’s assets, except certain assets that collateralize the
Treasury Facility 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 (excluding revenue from collateral under the Treasury Facility)
to interest expense (excluding interest on loans under the Treasury Facility) 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.




On
September 29, 2008, the Company entered into a Fourth Amendment to Treasury
Secured Revolving Credit Agreement, effective as of September 29, 2008, which
amended certain provisions and clarified certain definitions relating to
permitted senior investment participation of the Company’s Treasury Secured
Revolving Credit Agreement, dated as of August 31, 2006 (as amended, the
“Treasury Facility”). The Company paid a 5 basis point fee in conjunction with
the amendment.  Under the terms of the Company’s Treasury Facility,
the lenders party thereto and SunTrust Bank, as administrative agent for the
lenders, have extended credit available under the Treasury Facility to an amount
not to exceed $175 million by obtaining additional commitments from existing
lenders or new lenders.  The total amount committed and outstanding
under the Treasury Facility as of September 30, 2008 was $126.25 million, which
was unchanged compared to the committed and outstanding amounts as of December
31, 2007.  Proceeds from the Treasury Facility are used to facilitate
the growth of the Company’s investment portfolio and provide flexibility in the
sizing of its portfolio investments. The Treasury Facility has a three year term
and bears interest, at the Company’s option, at either (i) LIBOR plus 25 basis
points or (ii) the base rate. On September 29, 2008, the Required Lenders
exercised their option to convert pricing of the Treasury Facility from
LIBOR-based to Prime-based.  The prime rate was 5% as of September 29,
2008.  As of September 30, 2008, the interest rate on the Company’s
outstanding borrowings under the Treasury Facility was 5.00% (Prime rate) on
$126.25 million. The obligations under the Treasury Facility are collateralized
by certain securities and are guaranteed by the Company’s existing and future
subsidiaries, other than special purpose subsidiaries and certain other
subsidiaries. The Treasury 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 net income
(excluding revenue from cash collateral) plus interest, taxes, depreciation and
amortization expenses (“EBITDA”) to interest expense (excluding interest on
loans under the Treasury Facility) of the Company and its subsidiaries of not
less than 3.0:1.0, (d) maintaining a ratio of collateral to the aggregate
principal amount of loans under the Treasury Facility of not less than 1.01:1.0,
(e) limitations on additional indebtedness, (f) limitations on liens, (g)
limitations on mergers and other fundamental changes, (h) limitations on
dividends, (i) limitations on disposition of assets other than in the normal
course of business, (j) limitations on transactions with affiliates, (k)
limitations on agreements that prohibit liens on properties of the Company and
its subsidiary guarantors, (l) limitations on sale and leaseback transactions,
(m) limitations on speculative hedging transactions, and (n) limitations on the
aggregate amount of unfunded commitments.


19


Table of Contents




From time
to time, certain of the lenders may provide customary commercial and investment
banking services to the Company.





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.




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:
            Issuance of Common
      Stock




On August
6, 2004, the Company, in its initial capitalization transaction, sold 100 shares
of common stock to NGP Energy Capital Management, L.L.C. (formerly known as
Natural Gas Partners, L.L.C.) for $15.00 per share. On November 9, 2004, the
Company’s Registration Statement on Form N-2 (Registration No. 333-118279) was
declared effective by the SEC in connection with the public offering of
16,000,000 shares of common stock (plus up to 2,400,000 additional shares of
common stock upon the exercise of the underwriters’ over-allotment option),
which commenced on November 10, 2004. The number of securities covered by the
registration statement, including the shares of common stock subject to the
underwriters’ over-allotment option, was 18,400,000, of which 17,400,000 were
sold to the public at a price of $15.00 per share.





The net
proceeds from this offering, after deducting expenses of approximately
$2,308,000 and underwriting discounts and commissions of $0.825 per share, were
approximately $244,337,000.





On
February 6, 2008, the Company’s Registration Statement on Form N-2 (Registration
No. 333-146715) was declared effective by the SEC in connection with the public
offering of an additional 3,700,000 shares of common stock (plus up to 555,000
additional shares of common stock upon the exercise of the underwriters’
over-allotment option), which commenced on April 10, 2008. The number of
securities covered by this registration statement, including the shares of
common stock subject to the underwriters’ over-allotment option, was 4,255,000,
of which 4,086,388 were sold to the public at a price of $16.00 per
share.





The net
proceeds from this offering, after deducting expenses of approximately $781,000
and underwriting discounts and commissions of $0.80 per share, were
approximately $61,330,000.





The
Company has established a dividend reinvestment plan for the Company’s common
stockholders, which provides for reinvestment of distributions paid by the
Company, on behalf of each plan participant, by the Company’s transfer agent, in
accordance with the plan terms. The purpose of the plan is to provide
stockholders of record of the Company’s common stock, par value $.001 per share,
with a method of investing cash dividends and distributions in additional shares
at the current market price without charges for record-keeping, custodial, and
reporting services. However, the plan is an “opt-out” plan. This means, if the
Company declares a cash dividend, a stockholder’s cash dividend will be
automatically reinvested in additional shares of its common stock unless the
stockholder specifically “opts out” of the dividend reinvestment plan in
writing, and elects to receive cash dividends. Any stockholder of record may
elect to partially participate in the plan, or begin or resume participation at
any time, by providing the plan agent with written notice. It is customary
practice for many brokers to “opt out” of dividend reinvestment plans on behalf
of their clients unless specifically instructed otherwise.





The
Company issued 22,168 and 78,064 shares of common stock, respectively, in 2006
and 2007 to participants in the dividend reinvestment plan. For the nine months
ended September 30, 2008, the Company issued 41,482 shares of common stock to
participants in the dividend reinvestment plan.  As of September 30,
2008, holders of 1,739,829 shares, or approximately 8.0% of outstanding shares,
were participants in the Company’s dividend reinvestment plan.  As a
result, of the $8,651,281 total amount distributed for the 2008 third quarter
dividend, $695,931 was used by the dividend reinvestment plan agent to acquire
shares in the open market for credit to the accounts of the plan
participants.  See Dividends in Note 3 .


20


Table of Contents




Note 6:
            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.  Of the $4,470,880 management
and incentive fees payable to the Manager as of September 30, 2008, $1,944,869
is attributable to the base management fee for the quarter ended September 30,
2008.  The base management fee for the quarter ended September 30,
2007 was $1,626,857.





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:





·
            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 third quarters of 2008
or 2007.  Investment income incentive fees earned were $0 and $88,060
for the nine months ended September 30, 2008 and 2007,
respectively.





As a
result of the accounting errors that necessitated the restatement of our
financial statements for the fiscal years ended December 31, 2007 and 2008,
between 2007 and 2009, the Company overpaid the Manager’s management and
incentive fees by approximately $34,600. The Company overpaid the base
management fee to the Manager in 2008 and 2009 by approximately $33,400 as
detailed by quarter below. These errors resulted principally from the incorrect
reporting of Total Assets and Net Assets. In the quarters ended June 30, 2007
and December 31, 2007, the Company underpaid the Manager’s investment income
incentive fee by approximately $4,400 and $9,100, respectively and overpaid the
capital gains fee as of December 31, 2007 by approximately $14,700. The
approximate $34,600 net overpayment to the Manager was settled in the first
quarter of 2010.





Summary
of (Over)/ Under Payment of Management Fee by Quarter
 
 AverageTotal Assets
                                        
                                        
                                        Change from
                                        
                                        
                                        0.45% Fee
                                        
                                        
                                        FeeAs Reported
                                        
                                        
                                        As Restated
                                        
                                        
                                        Change
                                        
                                        
                                        Prior Quarter
                                        
                                        
                                        Correction
                                        
                                        
                                        Quarter3Q
      2007
                                        
                                        $
                                        413,597,732
                                        
                                        
                                        $
                                        413,597,732
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -4Q
      2007
                                        
                                        
                                        478,232,876
                                        
                                        
                                        
                                        478,276,626
                                        
                                        
                                        
                                        43,750
                                        
                                        
                                        
                                        21,875
                                        
                                        
                                        
                                        100
                                        
                                        
                                        
                                        1Q
      20081Q
      2008
                                        
                                        
                                        446,563,953
                                        
                                        
                                        
                                        446,607,703
                                        
                                        
                                        
                                        43,750
                                        
                                        
                                        
                                        43,750
                                        
                                        
                                        
                                        200
                                        
                                        
                                        
                                        2Q
      20082Q
      2008
                                        
                                        
                                        539,759,446
                                        
                                        
                                        
                                        539,803,196
                                        
                                        
                                        
                                        43,750
                                        
                                        
                                        
                                        43,750
                                        
                                        
                                        
                                        200
                                        
                                        
                                        
                                        3Q
      20083Q
      2008
                                        
                                        
                                        505,800,049
                                        
                                        
                                        
                                        506,521,583
                                        
                                        
                                        
                                        721,534
                                        
                                        
                                        
                                        382,642
                                        
                                        
                                        
                                        1,700
                                        
                                        
                                        
                                        4Q
      20084Q
      2008
                                        
                                        
                                        400,748,657
                                        
                                        
                                        
                                        398,994,441
                                        
                                        
                                        
                                        (1,754,216
                                        )
                                        
                                        
                                        (516,341
                                        )
                                        
                                        
                                        (2,300
                                        )
                                        
                                        
                                        1Q
      20091Q
      2009
                                        
                                        
                                        353,330,559
                                        
                                        
                                        
                                        350,284,110
                                        
                                        
                                        
                                        (3,046,449
                                        )
                                        
                                        
                                        (2,400,333
                                        )
                                        
                                        
                                        (10,800
                                        )
                                        
                                        
                                        2Q
      20092Q
      2009
                                        
                                        
                                        333,449,837
                                        
                                        
                                        
                                        331,199,409
                                        
                                        
                                        
                                        (2,250,428
                                        )
                                        
                                        
                                        (2,648,439
                                        )
                                        
                                        
                                        (11,900
                                        )
                                        
                                        
                                        3Q
      20093Q
      2009
                                        
                                        
                                        295,823,883
                                        
                                        
                                        
                                        293,370,642
                                        
                                        
                                        
                                        (2,453,241
                                        )
                                        
                                        
                                        (2,351,835
                                        )
                                        
                                        
                                        (10,600
                                        )
                                        
                                        
                                        4Q
      2009$
                                        (7,424,931
                                        )
                                        
                                        $
                                        (33,400
                                        )





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.  An accrual of $2,526,011 was made for Capital Gains Fees
earned for the third quarter of 2008.  An accrual of $434,409 was made
for estimated year to date Capital Gains Fees for the period ended September 30,
2007.





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.


21


Table of Contents




The
Manager has agreed that, to the extent permissible under federal securities laws
and regulations, including Regulation M, it will utilize 30% of the fees it
receives from the capital gains portion of the incentive fee (up to a maximum of
$5 million of fees received in the aggregate) to purchase shares of the
Company’s common stock in open market purchases through an independent trustee
or agent.  Pursuant to this voluntary agreement, with respect to the
capital gains incentive fees earned for 2007, the Manager has purchased
approximately $105,000 of the Company’s stock.  Any sales of such
stock will comply with any applicable six-month holding period under Section
16(b) of the Securities Act of 1933, as amended, and all other restrictions
contained in any law or regulation, to the fullest extent applicable to any such
sale.  Any change in this voluntary agreement will not be implemented
without at least 90 days’ prior notice to stockholders and compliance with all
applicable laws and regulations.





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 Company’s 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
members of the Company’s Board of Directors who are not interested
persons.  On October 30, 2008, the Company’s Board of Directors,
including a majority of the independent directors, approved an extension of the
investment advisory agreement through November 9, 2009.





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 its
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).


22


Table of Contents




Of the
$3,617,159 in accounts payable as of September 30, 2008, $210,362 was due to the
Administrator for expenses incurred on the Company’s behalf for the month of
September 2008.  By comparison, $208,611 was due to the Administrator
for expenses incurred on the Company’s behalf for the month of September
2007.





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 members of the Company’s Board of Directors who are not parties
to the administration agreement or “interested persons” of any such
party.  On October 30, 2008, the Company’s Board of Directors,
including a majority of the independent directors, approved the continuation of
the administration agreement through November 9, 2009.





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 7:
            Federal Income
      Taxes





The
Company intends to qualify for tax purposes as a RIC under Subchapter M of
Chapter 1 of the Internal Revenue Code of 1986, 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.





The
Company met all RIC requirements and distributed substantially all of its
investment company taxable income for the years ended December 31, 2006 and
2007.  Thus, the Company did not incur any federal income tax
liability for any of these periods.





The
following Company consolidated subsidiaries are subject to federal income taxes
for the period ended September 30, 2008: NGPC Asset Holdings, LP, NGPC Asset
Holdings II, LP, NGPC Asset Holdings III, LP, NGPC Asset Holdings IV, LP and
NGPC Asset Holdings V, LP.  The difference between the effective income tax
rate of 7.86% and the statutory federal tax rate of 34% for the nine months
ended September 30, 2008 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 11.7%
and the statutory federal tax rate of 34% for the three months ended September
30, 2008 is attributable to RIC investment company taxable income that generally
will not be subject to federal income tax.


23


Table of Contents




Note 8:
            Commitments and
      Contingencies





As of
September 30, 2008, the Company had investments in or commitments to fund loan
facilities to eighteen portfolio companies totaling $365 million, on which $301
million was drawn. 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 by reason of
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.





Note 9:
            Reclassifications





GAAP
requires that certain components of net assets be adjusted 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 capitalized gain (loss), and paid-in capital
in excess of par for the year ended December 31, 2007, as
restated.  These reclassifications were primarily due to
non-deductible meal expenses, non-deductible excise taxes and income and
expenses from a wholly-owned subsidiary.





Unrelated
to the restatement, the Company has also reclassified certain balance sheet,
statement of operations and statement of cash flows amounts to conform to the
current year presentation.  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 for a summary of these reclassified
amounts.




Year
              
              Undistributed
                Net
      Investment
                Income (Loss)
              
              
              Undistributed
                Net
      Realized
                Capital Gain (Loss)
              
              
              Paid-in
      Capital
                in
      Excess
                of Par2007,
      as restated
              
              $
              120,359
              
              
              $
              140,390
              
              
              $
              (260,749
              )




Note 10:
            Fair
  Value





In
September 2006, FASB issued Statement 157, which establishes a single
authoritative definition of fair value, sets out a framework for measuring fair
value and requires additional disclosures about fair value measurements.
Statement 157 applies to fair value measurements already required or
permitted by existing standards. Statement 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007 and
interim periods within those fiscal years. The changes to current generally
accepted accounting principles from the application of this Statement relate to
the definition of fair value, the methods used to measure fair value, and the
expanded disclosures about fair value measurements.





As of
January 1, 2008, the Company adopted Statement 157. The Company
has performed an analysis of all existing investments and derivative instruments
to determine the significance and character of all inputs to their fair value
determination. Based on this assessment, the adoption of this standard did not
have a material effect on the Company’s net asset value. However, the adoption
of the standard does require the Company to provide additional disclosures about
the inputs used to develop the measurements and the effect of certain
measurements on changes in net assets for the reportable periods as contained in
the Company’s periodic filings.





Statement 157
establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value into the following three broad
categories:





·
            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 September 30, 2008.  As required by Statement
157, financial assets and liabilities are classified 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 fair value of the crude oil and
natural gas options are estimated using a combined income and market based
valuation methodology based upon forward commodity price and volatility
curves.  The curves are obtained from independent pricing services
reflecting broker market quotes.


24


Table of Contents




The
following table presents the Company’s assets measured at fair value on a
recurring basis at September 30, 2008:





Assets at Fair Value
                                            
                                            Total
                                            
                                            
                                            Quoted Prices in
                                              Active Markets
                                              (Level 1)
                                            
                                            
                                            Prices with
                                              Observable
                                              Market Inputs
                                              (Level 2)
                                            
                                            
                                            Unobservable
                                              Inputs
                                              (Level 3)Long
      Term Investments
                                            
                                            $
                                            308,095,713
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            308,095,713Short
      Term Investments
                                            
                                            
                                            128,505,292
                                            
                                            
                                            
                                            128,505,292
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Crude
      Oil Put Options
                                            
                                            
                                            2,321,990
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            2,321,990Natural
      Gas Put Options
                                            
                                            
                                            990,590
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            990,590Total
      Assets at Fair Value
                                            
                                            $
                                            439,913,585
                                            
                                            
                                            $
                                            128,505,292
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            311,408,293





The
Company did not have any liabilities that were measured at fair value on a
recurring basis at September 30, 2008.





The
following table presents the Company’s assets measured at fair value on a
recurring basis using significant unobservable inputs (Level 3) at
December 31, 2007 and at September 30, 2008.





Assets at Fair Value Using Unobservable Inputs (Level 3)
                  
                  Long Term
                    InvestmentsBalance
      as of December 31, 2007
                  
                  $
                  272,348,573Transfers
      in (out) of Level 3
                  
                  
                  20,835,500Net
      investment income (loss)
                  
                  
                  (4,639,765
                  )Net
      realized gains (losses)
                  
                  
                  18,301,090Net
      unrealized gains (losses)
                  
                  
                  (3,947,727
                  )Purchases,
      sales and  redemptions
                  
                  
                  8,510,622Balance
      as of September 30, 2008
                  
                  $
                  311,408,293





Of the
$3,947,727 net unrealized losses presented in the table above, $740,359 relates
to ORRI sold in the third quarter 2008 for a $2,742,768 realized gain, the
remainder relates to investments that are still held at September 30, 2008, and
the Company presents these unrealized losses on the Consolidated Statement of
Operations as net increase (decrease) in unrealized appreciation (depreciation)
on portfolio securities, corporate notes and commodity derivative
instruments.





Note 11:
            Commodity Derivative
      Instruments





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 SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities .  The Company has decided
not to 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 Statement of Operations as
net increase (decrease) in unrealized appreciation (depreciation) on portfolio
securities, corporate notes and commodity derivative
instruments.


25


Table of Contents




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 Nine Months EndedSeptember
                            30,2008
                          
                          
                          September 30,
                            2007Unrealized
      gains (losses) on commodity derivatives
                          
                          $
                          2,181,494
                          
                          
                          $
                          -Realized
      gains (losses) on commodity derivatives
                          
                          
                          (274,625
                          )
                          
                          
                          -Net
      gains (losses) on commodity derivative instruments
                          
                          $
                          1,906,869
                          
                          
                          $
                          -





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





Below is
a summary of the Company’s commodity derivative instruments as of September 30,
2008.





Volumes
                                    Bbls/MMBtu
                                  
                                  
                                  Weighted
                                    Average
                                    Strike Price
                                    per
                                    Bbl/MMBtu
                                  
                                  
                                  Fair Value at
                                    September
                                    30,2008Oil:Put
      options:Remainder
      of 2008
                                  
                                  
                                  58,000
                                  
                                  
                                  $
                                  101.00
                                  
                                  
                                  $
                                  411,0082009
                                  
                                  
                                  137,500
                                  
                                  
                                  $
                                  98.00
                                  
                                  
                                  
                                  1,617,0292010
                                  
                                  
                                  7,000
                                  
                                  
                                  $
                                  85.00
                                  
                                  
                                  
                                  293,953Total
      oil
                                  
                                  
                                  202,500
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  2,321,990Natural
      gas:Put
      options:Remainder
      of 2008
                                  
                                  
                                  174,000
                                  
                                  
                                  $
                                  10.00
                                  
                                  
                                  $
                                  428,5842009
                                  
                                  
                                  242,000
                                  
                                  
                                  $
                                  10.00
                                  
                                  
                                  
                                  562,006Total
      natural gas
                                  
                                  
                                  416,000
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  990,590Total
      oil & natural gas put options
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  3,312,580





Note 12:
            Recent Accounting
      Pronouncements





In
March 2008, FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities , (“SFAS No. 161”).  SFAS
No. 161 requires enhanced disclosure about the fair value of derivative
instruments and their gains or losses in tabular format and information about
credit risk related contingent features in derivative agreements,
counterparty credit risk, and the company’s strategies and objectives for using
derivative instruments.  SFAS No. 161 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
as such, will be adopted by the Company on January 1, 2009.  The
Company is currently evaluating the effect of adopting SFAS No. 161 on its
financial statements.


26


Table of Contents




In
September 2006, FASB issued Statement 157, Fair Value Measurements ,
which establishes a framework for measuring fair value and requires additional
disclosures about fair value measurements.  Beginning January 1,
2008, the Company partially applied Statement 157 as allowed by FASB Staff
Position (FSP) 157-2, which delayed the effective date of Statement 157 for
nonrecurring fair value measurements associated with the Company’s nonfinancial
assets and liabilities.  As of January 1, 2008, the Company has
applied the provisions of Statement 157 to its recurring fair value measurements
and the impact was not material.  See Note 10 for disclosure of fair
value measurements for the Company’s financial instruments.  Under FSP
157-2, the Company will be required to apply Statement 157 to its nonrecurring
fair value measurements associated with its nonfinancial assets and liabilities
beginning January 1, 2009.  The Company is currently reviewing the
applicability of Statement 157 to our nonrecurring fair value measurements
associated with its nonfinancial assets and liabilities as well as the potential
impact on the Company’s consolidated financial statements.




In May
2008, FASB issued Statement 162, The Hierarchy of Generally Accepted
Accounting Principles (“SFAS No. 162”), which identifies a consistent
framework for selecting accounting principles to be used in preparing financial
statements for nongovernmental entities that are presented in conformity with
United States GAAP.  The current GAAP hierarchy was criticized due to
its complexity, ranking position of FASB Statements of Financial Accounting
Concepts, and the fact that it is directed at auditors rather than
entities.  SFAS No. 162 is effective November 15, 2008.  The
FASB does not expect that SFAS No. 162 will cause a change in current practice,
and the Company does not believe that SFAS No. 162 will have an impact on its
financial statements, financial position, and results of operations or cash
flows.





Note 13:
            Subsequent
      Events





On
October 7, 2008, the Company repaid the entirety of its $52.625 million balance
on the Investment Facility and on October 9, 2008, the Company reduced the
outstanding balance on the Treasury Facility from $126.25 million to $75
million.





On
October 30, 2008, the Company’s Board of Directors, including a majority of the
independent directors, approved an extension of the investment advisory
agreement and the administration agreement through November 9,
2009.





On
October 31, 2008, the Company closed a $30 million Senior Secured Credit
Facility (the "Facility") with Black Pool Energy Partners, LLC ("BPEP"), a
private company based in Houston, Texas.  The Company acted as agent
and sole lender for the Facility.  Initial availability under the
Facility is $13.5 million with approximately $0.3 million funded at
closing.  The Facility is secured by first liens on substantially all
of BPEP’s assets.  As partial consideration for providing the
Facility, the Company received warrants in BPEP and an overriding royalty
interest in BPEP's properties.  Proceeds from the Facility will be
used by BPEP for capital expenditures to develop certain
properties.  BPEP is an oil and gas producer with interests in assets
located offshore Texas and onshore in southern Louisiana.





In
October 2008, the Company executed a forbearance agreement with Formidable, LLC
(“Formidable”), effective as of September 30, 2008.  Formidable is
currently in default for failure to repay its Senior Secured Multiple-Advance
Term Loan (the “Loan”) at maturity, and for failure to pay interest when
due.  The Loan was dated June 7, 2007 and had an original maturity
date of December 31, 2007.  The maturity date was extended to March
31, 2008, and later to May 31, 2008.  The Company placed the Loan on
non-accrual status as of April 1, 2008.  Under the terms of the
forbearance agreement, Formidable is required to engage an advisor to assist in
the marketing and sale of its oil and gas properties by January 15, 2009 and
proceeds of such sale are required to be used to repay its obligations to the
Company.  The Loan, which is secured by assets of Formidable and a
personal guaranty from its owner for all amounts above $34 million, continues to
be valued at par based on a third party engineering reserve study and the
application of the Company’s historical and current quarterly valuation
process.  Although these valuations indicate that the collateral value
should adequately cover the $37.3 million balance on the Loan, in light of the
current volatile conditions in the market, it is difficult to predict the value
that may ultimately be realized in any sale.


27


Table of Contents


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 our financial statements and the notes thereto
contained elsewhere in this report.





As
discussed in the Explanatory Note to this Amended Filing, the Company is
amending and restating its Original Filing of its Quarterly Report on Form 10−Q
for the quarter ended September 30, 2008.  For a discussion of
the significant restatement adjustments and the background leading to the
adjustments, see Note 2, Restatement of Consolidated Financial Statements, in
Notes to Consolidated Financial Statements.  All amounts in this
Amended Filing affected by the restatement adjustments reflect such amounts as
restated.





Forward-Looking
Statements





The safe
harbor for forward-looking statements under the Private Securities Litigation
Reform Act of 1995 does not apply to business development companies and
statements made in this report.  Nonetheless, certain statements in
this report that relate to estimates or expectations of our future performance
or financial condition may be forward-looking. These forward-looking statements
are not historical facts, but rather are based on current expectations,
estimates and projections in our industry, our beliefs and our
assumptions.  These statements are not guarantees of future
performance and 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, such
      as the events that occurred during the third quarter of
      2008;


·
            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 external
      manager, NGP Investment Advisor, LP, which we refer to as our Manager, to
      locate suitable investments for us and to monitor and administer the
      investments; and


·
            other factors enumerated in our
      filings with the Securities and Exchange Commission, or the
      SEC.





We may
use words such as “anticipates,” “believes,” “estimates,” “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. Although we believe that the
assumptions on which these forward-looking statements are based are reasonable,
any of those assumptions could prove to be inaccurate, and as a result, the
forward-looking statements based on those assumptions also could be
inaccurate.  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, which until July 21, 2008, we
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 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.  We have elected to be regulated as a business development
company, or a BDC, under the Investment Company Act of 1940, as amended, or 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 are securities of private or thinly
traded public U.S. companies, 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 regulated
investment company, or RIC, under the Internal Revenue Code of 1986, as amended,
or 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.


28


Table of Contents




Our
investment objective is to generate both current income and capital appreciation
primarily through debt and equity investments with certain equity
components.  A key focus area for our targeted investments in the
energy industry is domestic exploration and production businesses and midstream
businesses that gather, process and transport oil and natural gas.  We
also evaluate investment opportunities in such businesses as coal, power,
electricity, energy services and alternative energy. Our investments will
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 with
equity components.  We may also invest in preferred stock and other
equity securities on a stand-alone basis.





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 and 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 has reduced 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, we have recently extended the maturity of our Investment
Facility to August 2010.  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.





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.





Portfolio
and Investment Activity





During
the quarter ended September 30, 2008, we had one full realization and one
partial realization, and the  exchange of our note and warrants for
equity in one company.  We did not add any new companies to our
portfolio during the third quarter.  In August, Rubicon Energy
Partners, LLC sold its assets, repaid its Senior Subordinated Secured
Multiple-Advance Term Loan in full and Rubicon distributed the proceeds from its
asset sale to its members, with approximately $16.3 million distributed to the
Company, resulting in a realized capital gain of $12.3 million before
taxes.  In July, in connection with Resaca’s $105.5 million initial
public offering of ordinary shares on the Alternative Investment Market of the
London Stock Exchange, we converted our $4.0 million Senior Subordinated Secured
Convertible Term Loan into ordinary shares of Resaca, sold 1.554 million of
those shares for gross proceeds of $4.0 million and continue to hold 6.6 million
shares.  Immediately following the offering, Resaca repaid its $6.0
million Senior Secured Tranche B Term Loan in full and repurchased overriding
royalty interests held by the Company.  The Company has become
Resaca’s sole lender, providing a $60 million Senior Secured Multiple-Advance
Term Loan of which $22.0 million was outstanding as of September 30,
2008.  The sale of the shares and the overriding royalty interest
resulted in realized capital gains of approximately $6.0
million.  Also in July we exchanged our $13.4 million Senior Secured
Note and warrants for preferred membership interests in DeanLake Operator, LLC
and made available an additional $3.6 million for capital
expenditures.





Following
these transactions, as of September 30, 2008, our investment portfolio consisted
of eighteen portfolio companies invested as follows: 31.6% in senior secured
term loans, 5.0% in senior subordinated secured notes, 0.3% in participating
convertible preferred stock, 1.8% in common stock, 1.6% in corporate notes, 6.5%
in membership and partnership units, 9.5% in net profits interests, 4.8% in
limited term royalty interests, and 0.8% in other investments.  The
balance of our investment portfolio (as a percentage of the whole portfolio) was
comprised 25.5% of U.S. Treasury Bills and 12.6% of cash and cash
equivalents.





At
September 30, 2008, the weighted average yield on targeted portfolio
investments, exclusive of capital gains, was 12.41%.  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 1.71%.  The weighted
average yield on our total capital invested at September 30, 2008 was
8.16%.  These yields do not include income from our four investments
on non-accrual status.  Additional discussion concerning non-accrual
investments is provided in Portfolio Credit Quality below.





By
comparison, at September 30, 2007, the weighted average yield on targeted
portfolio investments, exclusive of capital gains, was 12.2%.  The
weighted average yield of our corporate notes was 5.8%. The weighted average
yield of our U.S. Treasury Bills and cash equivalents was 3.9%.  The
weighted average yield on our total capital invested at September 30, 2007 was
9.3%.


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Yields
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.





Critical
Accounting Policies




The
preparation of financial statements and related disclosures in conformity with
generally accepted accounting principles in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements, and income and expenses during the periods
reported. Actual results could materially differ from those estimates. We have
identified the following as critical accounting policies.




Basis
of Presentation




The
accompanying consolidated financial statements have been prepared on the accrual
basis of accounting in conformity with accounting principles generally accepted
in the United States, and include the accounts of the company and its wholly
owned subsidiaries. The consolidated financial statements reflect all
adjustments and reclassifications which, in the opinion of management, are
necessary for the fair presentation of the results of the operations and
financial condition for the periods presented. All significant intercompany
balances and transactions have been eliminated.




Cash
and Cash Equivalents




Cash and
cash equivalents include short-term, liquid investments in a money market fund.
Cash and cash equivalents are carried at cost which approximates fair
value.




Prepaid
Assets




Prepaid
assets may consist of premiums paid for directors’ and officers’ insurance and
fidelity bonds with policy terms of one year, fees associated with the
establishment of the credit facility, and registration expenses related to our
shelf filing. Such premiums and fees are amortized monthly on a straight line
basis over the term of the policy or credit facility. Registration expenses, if
any, are deferred and will be charged as a reduction of capital upon the sale of
shares.




Concentration
of Credit Risk




We place
our 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.  On September 15, 2008, Lehman
Brothers Holdings Inc. (“Lehman Holdings”) filed for protection under Chapter 11
of the United States Bankruptcy Code in the United States Bankruptcy Court in
the Southern District of New York.  Subsidiaries of Lehman Holdings,
including Lehman Brothers Inc. (“Lehman Brothers”) and Lehman OTC, were not
included in the filing.  The business of Lehman Brothers Private
Investment Management (“PIM”), including our money market and bond
holdings,  was transferred during September 2008 to Barclays Wealth,
the wealth management division of Barclays Bank PLC (“Barclays”), which operates
in the United States as Barclays Capital Inc.  As of September 30,
2008, our Barclays money market account balance was approximately $0.924 million
and the fair market value of our senior notes and corporate notes were $10.44
million and $8.24 million, respectively.  We currently believe that
the transfer of our Lehman Brothers account to Barclays will not have a material
adverse effect on our financial position, results of operations or cash
flows.




Valuation
of Investments




Investments
are carried at fair value, as determined in good faith by our Board of
Directors. On a quarterly basis, the investment team of our Manager prepares
valuations for all of the assets in our portfolio and presents the valuations to
our valuation committee and Board of Directors. The valuations are determined
and recommended by the valuation committee to our 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 our Manager prepares
valuation analyses, as generally described below.


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Using the
most recently available financial statements, forecasts and, when applicable,
comparable transaction data, the investment team of our Manager prepares
valuation analyses for the various securities in our 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. Our Manager considers some or all of the above valuation
methods to determine the estimated asset value of a portfolio
company.




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
our Manager considers some or all of the above valuation methods to determine
the estimated enterprise value of a portfolio company.




Debt Securities: We record
our 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. We record our 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) our 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. If the estimated asset or
enterprise value is less than the sum of the value of our debt investment and
all other debt securities of the portfolio company pari passu or senior to our
debt investment, we reduce the value of our debt investment beginning with our
junior-most debt investment such that the asset or enterprise value less the
value of the outstanding pari
passu or senior debt is zero.  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: We record
our investments in preferred and common equity securities (including warrants or
options to acquire equity securities) at fair value based on our pro rata share
of the residual equity value available after deducting all outstanding debt from
the estimated enterprise value.




Property-Based Equity Participation
Rights: We record our 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 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.




In
September 2006, the FASB issued Statement 157 which establishes a single
authoritative definition of fair value, sets out a framework for measuring fair
value and requires additional disclosures about fair value measurements.
Statement 157 applies to fair value measurements already required or
permitted by existing standards. Statement 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007 and
interim periods within those fiscal years. The changes to current generally
accepted accounting principles from the application of Statement 157 relate to
the definition of fair value, the methods used to measure fair value and the
expanded disclosures about fair value measurements.





As of
January 1, 2008, we adopted Statement 157. We performed an analysis of all
existing investments to determine the significance and character of all inputs
to their fair value determination. Based on this assessment, the adoption of
this standard did not have a material effect on our net asset
value.


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Valuation
of Commodity Derivative Instruments





Current
accounting rules require that all derivative instruments, other than those that
meet specific exclusions, be recorded at fair value.  Quoted market
prices are the best evidence of fair value. If quotations are not available,
management’s best estimate of fair value is based on the quoted market price of
derivatives with similar characteristics or on valuation
techniques.  Our derivative instruments are either exchange traded or
transacted in an over-the-counter market. Valuation is determined by reference
to readily available public data.  Option fair values for the natural
gas transactions are based on the Black-Scholes pricing model and the crude oil
transactions are based on the Turnbull-Wakeman pricing model and verified
against the applicable counterparty’s fair values.





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 depletion using the unit of production depletion 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. Accruing interest or dividends on
investments is deferred when it is determined that the interest or dividend is
not collectible. 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.




Payment-in-Kind
Interest




We may
have investments in our portfolio that contain payment-in-kind, or 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, we base income accruals on the principal balance
including any PIK. If the portfolio company’s asset valuation is not sufficient
to cover the contractual interest, we will not accrue interest or dividend
income on the investment. To maintain our RIC status, this non-cash source of
income must be paid out to stockholders in the form of dividends, even though we
have not yet collected the cash.




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.




Net
Realized Gains or Losses and Net Change in Unrealized Appreciation or
Depreciation




Realized
capital gains or losses on portfolio securities, corporate notes and commodity
derivative instruments 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.


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Derivative
accounting rules require that fair value changes of derivative instruments that
do not qualify for hedge accounting be reported in current period, rather than
in the period the derivatives are settled and/or the hedged transaction is
settled. This can result in significant earnings volatility.  The
company has decided not to designate these 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.




Dividends




Dividends
to stockholders are recorded on the ex-dividend date. We currently intend that
our distributions each year will be sufficient to maintain our status as a RIC
for federal income tax purposes and to eliminate our liability for federal
excise taxes. We intend to make distributions to stockholders on a quarterly
basis of substantially all net taxable income. We also intend to make
distributions of net realized capital gains, if any, at least annually. However,
we may in the future decide to retain capital gains for investment and designate
such retained dividends as a deemed distribution. The amount to be paid out as a
dividend is determined by our Board of Directors each quarter and is based on
the annual taxable earnings estimated by our Manager. Based on that estimate, a
dividend is declared each quarter and paid shortly thereafter.




Results
of Operations




Investment
Income




Investment
income for the quarter ended September 30, 2008 was $9.9 million with $9.0
million attributable to targeted investments in eighteen portfolio companies,
$0.2 million from corporate notes, $0.6 million attributable to investments in
cash equivalents and $0.1 million in fee income from third parties and
affiliates. This compares to investment income for the quarter ended September
30, 2007 of $9.1 million with $7.7 million attributable to targeted investments
in thirteen portfolio companies, $0.2 million from corporate notes and $1.2
million attributable to investments in cash equivalents.




For
the nine months ended September 30, 2008, investment income increased by $0.3
million, or 1.2%, to $27.6 million from $27.3 million for the same period in
2007.  For the nine months ended September 30, 2008, we recorded $24.7
million attributable to targeted investments in portfolio companies, $0.6
million from corporate notes, $2.2 million attributable to investments in cash
equivalents, and $0.1 million in fee income from third parties and
affiliates.  This compares to investment income of $21.9 million
attributable to targeted investments in portfolio companies, $0.7 million from
corporate notes, $4.4 million attributable to investments in cash equivalents,
and $0.3 million in fee income from third parties and affiliates, for the same
period in 2007.




While
our total targeted portfolio balance increased by approximately $32.4 million
from September, 30, 2007 to September 30, 2008, the balance of non-accruing and
non-income producing investments increased from approximately $31.9 million to
approximately $85.1 million during the same period.  Additional
discussion concerning non-accrual investments is provided in Portfolio Credit
Quality below.  Although LIBOR rates dropped significantly from the
third quarter of 2007 compared to the third quarter of 2008, this had a minimal
effect on our targeted investment income because of LIBOR floors established for
new clients and certain other existing clients during
2008.  Conversely, significantly lower U.S. Treasury Bill rates during
2008 reduced interest from cash and cash equivalents.  Reserved income
for the third quarter of 2008 totaled approximately $1.0 million compared to
$0.1 million for the third quarter of 2007.  Reserved income for the
nine months ended September 30, 2008 totaled approximately $2.1 million compared
to $0.1 million for the nine months ended September 30, 2007.




Operating
Expenses




For
the quarter ended September 30, 2008, operating expenses were $7.0 million
compared to $3.8 million for the quarter ended September 30,
2007.  The 2008 amount consisted of investment advisory and management
and incentive fees of $4.5 million, insurance expenses, administrative services
fees, professional fees, directors’ fees and other general and administrative
expenses of $1.0 million and credit facility interest and fees of $1.5
million.  This compares to investment advisory and management and
incentive fees of $1.1 million, insurance expenses, administrative services
fees, professional fees, directors’ fees and other general and administrative
expenses of $1.0 million and credit facility interest and fees of $1.7 million
for the quarter ended September 30, 2007.  Approximately $2.5 million
of incentive fees were accrued in the third quarter of 2008 with respect to the
net realized gains associated with our investments in Rubicon ($12.3 million)
and Resaca ($6.0 million).


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For
the nine months ended September 30, 2008, as restated, operating expenses were
$16.8 million compared to $13.1 million for the same period of
2007.  The 2008 amount consisted of investment advisory and management
and incentive fees of $8.1 million, insurance expenses, administrative services
fees, professional fees, directors’ fees, organization costs and other general
and administrative expenses of $3.3 million and credit facility interest and
fees of $5.4 million.  This compares to investment advisory and
management and incentive fees of $5.3 million, insurance expenses,
administrative services fees, professional fees, directors’ fees, organization
costs and other general and administrative expenses of $2.9 million and credit
facility interest and fees of $4.9 million for the nine months ended September
30, 2007.




Operating
expenses for the three and nine month periods include our allocable portion of
the total organizational and operating expenses incurred by us, our Manager, and
NGP Administration, LLC, which we refer to as our Administrator, as determined
by our Board of Directors and representatives of our Manager and our
Administrator.  According to the terms of the investment advisory
agreement, the base management fee is calculated quarterly as 0.45% of the
average of our total assets as of the end of the two previous
quarters.




Net
Investment Income Before Income Taxes




For
the quarter ended September 30, 2008, net investment income before income taxes
was $2.9 million compared to $5.3 million for the quarter ended September 30,
2007, primarily due to accrued capital gains incentive fees of $2.5 million,
offset by increases in investment income.




For
the nine months ended September 30, 2008, as restated, net investment income
before income taxes was $10.8 million compared to $14.2 million for nine months
ended September 30, 2007, primarily due to accrued capital gains incentive fees
of $2.5 million and higher management fees and interest expenses.




Net
Realized Gains




Realized
capital gains or losses for the quarter and nine months ended September 30,
2008, as restated, were $18.3 million before income taxes of $4.2 million on the
sale of $4.8 million of portfolio investments.  Following Resaca’s
successful offering on the London Alternative Investment Market of the London
Stock Exchange, we converted our $4.0 million Senior Subordinated Secured
Convertible Term Loan into common stock of Resaca, and sold 1.554 million of
those shares for a gain of approximately $3.2 million.  We also sold
overriding royalty interests held by the Company to Resaca for a gain of
approximately $2.8 million. In August, Rubicon Energy Partners, LLC sold its
assets, repaid its Senior Subordinated Secured Multiple-Advance Term Loan in
full and distributed the proceeds from its asset sale to its members, resulting
in a capital gain of approximately $12.3 million distributed to the
Company.




For
the quarter ended September 30, 2007, as restated, we realized a capital loss of
$0.4 million from the sale of $6.0 million in corporate notes.  For
the nine months ended September 30, 2007, as restated, we realized a net capital
gain $6.3 million, before income taxes of $0.2 million, from the sale of client
warrants, overriding royalty interests and corporate notes.




Unrealized
Appreciation or Depreciation on Investments




For
the quarter ended September 30, 2008, as restated, the increase in net
unrealized depreciation before income tax benefit of $2.1 million was $3.8
million, comprised of a $5.6 million decrease in targeted portfolio fair value,
a $0.6 million decrease in the fair value of corporate notes and a $2.4 million
increase in the fair value of commodity derivative instruments.  The
decrease in targeted portfolio fair value was largely a result of the
realization and reversal of $7.7 million of unrealized gains reported in
previous quarters, through the sale of the assets associated with our ownership
of Rubicon and the sale of our Resaca overriding royalty
interests.  We recorded a $3.1 million decrease in the value of our
ATP Oil & Gas overriding royalty interest and a $1.3 million decrease in the
value of our Venoco bonds.  These decreases were partially offset by a
$6.1 million increase in the value of our remaining Resaca stock and $0.4
million in unrealized appreciation of overriding royalty interests. For the
quarter ended September 30, 2007, as restated, net unrealized depreciation
before income taxes of $0.7 million increased $0.7 million, consisting of a $0.8
million decrease in targeted portfolio fair value and a $0.1 million increase in
the fair value of corporate notes.




For
the nine months ended September 30, 2008, as restated, the increase in net
unrealized depreciation before income tax benefit of $2.1 million was $3.9
million, comprised of a $5.4 million decrease in targeted portfolio fair values,
a $0.7 million decrease in the fair value of corporate notes and a $2.2 million
increase in the fair value of commodity derivative instruments.  For
the nine months ended September 30, 2007, as restated, the net increase in
unrealized appreciation before income taxes of $2.8 million was $5.3 million,
consisting of a $5.4 million increase in portfolio fair value offset by a $0.1
million decrease in the fair value of corporate notes.




In
light of the recent disruption in the credit and equity capital markets and the
downward volatility of energy commodity prices, it has become more difficult to
predict the timing and amount of future realized capital gains.  In
addition, recent capital markets volatility has impacted our unrealized capital
appreciation and unrealized depreciation.  For example, since
September 30, 2008, the price of Resaca common stock as traded on the London AIM
has fallen by approximately 55% from £1.24 to £0.56 as of November 4, 2008 while
the U.S. dollar has strengthened against the British pound.  Also,
corporate bond prices have generally declined since September 30,
2008.


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Net
Increase in Stockholders’ Equity from Operations




For
the quarter ended September 30, 2008, as restated, we had a net increase in
stockholders’ equity (net assets) resulting from operations of $15.3 million, or
$0.70 per share, compared to $3.5 million, or $0.20 per share for the quarter
ended September 30, 2007, as restated.  The $11.8 million or $0.50 per
share difference is largely attributable to the realized capital gains on
portfolio securities recorded during the third quarter of 2008, net of income
taxes, unrealized depreciation and capital gains incentive fees.




For
the nine months ended September 30, 2008, as restated, the net increase in
stockholders’ equity (net assets) resulting from operations was $23.1 million,
or $1.09 per share, compared to $22.8 million, or $1.32 per share for the nine
months ended September 30, 2007, as restated.




Financial
Condition, Liquidity and Capital Resources




During
the quarter ended September 30, 2008, we generated cash from operations,
including interest earned on our portfolio securities, as well as our
investments in corporate notes, U.S. government securities and other high
quality debt securities that mature in one year or less.  At September
30, 2008, we had cash and cash equivalents of $63.4 million, investments in U.S.
Treasury Bills of $128.5 million and investments in corporate notes of $8.2
million.   As of September 30, 2008, we had investments in or commitments
to fund loan facilities to eighteen portfolio companies totaling $365 million,
of which $301 million was drawn.  We expect to fund our investments in
2008 and 2009 from income earned on our portfolio and temporary investments,
repayments or realizations of existing investments and from borrowings under our
Investment Facility.  On September 29, 2008, we extended the term of
our Investment Facility by one year, from August 31, 2009 to August 31,
2010.  One of the five banks in our bank group declined to participate
in the extension, which caused the total commitments on the Investment Facility
to be reduced from $100 million to $87.5 million.  On October 7, 2008,
we repaid the entirety of the $52.625 million balance on the Investment Facility
leaving the entire $87.5 million of the Investment Facility available for future
draws by us.  On October 9, 2008, we reduced the outstanding balance
on the Treasury Facility from $126.25 million to $75 million.  See
description under “Note 4: Credit Facilities and Borrowings” in the accompanying
notes to consolidated financial statements.  Though the recent
disruptions in the credit and equity markets has made our access to new debt and
equity capital less certain, 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.  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 Statement 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 Oil & Gas Corporation 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.  See “Note 11: Commodity Derivative Instruments”
in the accompanying notes to the consolidated financial statements for further
description of our put options.


35


Table of
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Contractual
Obligations




A
summary of our contractual payment obligations at September 30, 2008 is as
follows:




Contractual
      Obligations
                        
                        Total
                        
                        
                        Less
      than
                          1
      Year
                        
                        
                        1-3
      Years
                        
                        
                        3-5
      Years
                        
                        
                        More
      than
                          5
      YearsSeptember
      30, 2008:Long-term
      debt obligations— revolving credit facilities (1)
                        
                        $
                        178,875,000
                        
                        
                        $
                        -
                        
                        
                        $
                        178,875,000
                        
                        
                        $
                        -
                        
                        
                        $
                        -Total
                        
                        $
                        178,875,000
                        
                        
                        $
                        -
                        
                        
                        $
                        178,875,000
                        
                        
                        $
                        -
                        
                        
                        $
                        -




(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 under Subchapter
M of the Code.  To maintain our RIC status, we must distribute at
least 90% of our “investment company taxable income” (which generally consists
of ordinary income and realized net short-term 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 will be required to distribute at least 98% of our ordinary income
and net capital gains, and 100% of any income realized, but not distributed or
deemed distributed, in preceding 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
facilities. 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




We
maintain a system to evaluate the credit quality of our investments. While
incorporating quantitative analysis, this system is a qualitative
assessment.  This system is intended to reflect the overall performance of
a portfolio company’s business, the collateral coverage of an investment and
other relevant factors. Based on this system, the overall credit quality of our
targeted investment portfolio remained satisfactory in the quarter ended
September 30, 2008.  Of the twenty-one rated investments as of September
30, 2008, three investments declined in rating, two investments improved in
rating and fifteen retained the same rating.  The number of rated
investments declined by a net of two, with an increase for one new investment
offset by a decrease for three previously rated investments retired through
realizations during the third quarter of 2008.  Investments
approximating $89.4 million, or 30% of the $299.0 million cost basis of targeted
investments, are carried on our watch list due to slower than expected
development of the assets supporting the investments or deterioration in asset
coverage.  During the quarter ended September 30, 2008, we did not
record any additional unrealized depreciation on the fair value of targeted
investments to reflect any potential for loss of capital inherent in those
investments.  Our investments in Formidable , Chroma Exploration &
Production, Inc. (“Chroma”) and BSR Loco Bayou, LLC (“Loco Bayou”) remained on
non-accrual status.  Previously, we recorded unrealized depreciation
of $3.6 million with respect to our investments in Chroma and Loco
Bayou.




Effective
September 30, 2008, we executed a forbearance agreement with Formidable, whose
loan matured on May 31, 2008.  Under the terms of the forbearance
agreement, Formidable is required to engage an advisor to assist in the
marketing and sale of its oil and gas properties by January 15, 2009, and the
proceeds of such sale are required to be used to repay its obligations to
us.  DeanLake Operator, LLC (“DeanLake”) was issued a written notice
of default on January 30, 2008.  Subsequent to the default notice,
DeanLake was reorganized when we exchanged our Senior Secured Note and warrants
for preferred membership interests in DeanLake, giving us control over the
company.  We are currently in the process of seeking bids for the
assets of DeanLake.  In June 2008, we issued a written notice of
default to Alden Resources, LLC (“Alden”) principally for failing to make
interest and royalty payments on a timely basis.  The payment defaults
described in the Alden notice of default have been cured.  Loco Bayou
was issued a notice of default on October 31, 2007.  Subsequent to the
default and with our consent, Loco Bayou sold a portion of its oil and gas
properties to Southwestern Energy Production Company for cash and a carried
interest in those properties.  The cash proceeds of the transaction
were used to reduce the principal balance of our loan.


36


Table of
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Recently
Issued Accounting Pronouncements




See
“ Note 12: 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, 2007 other than the
addition of the market risk described below:




Commodity
Price Risk




We
acquired a limited term royalty interest from ATP Oil & Gas
Corporation on a transaction dated June 4, 2008.   We will
receive royalty payments from this investment which will be impacted by
fluctuations in the price of crude oil and natural gas.  We have
purchased a series of oil and gas put options at various price levels covering
periods from 12-24 months to protect a portion of our royalty payments from
declines in prices.  Earnings on these put options will partially
offset lower levels of royalty payments in the event that prices decline below
the minimum prices set by the put options.  At September
30, 2008, our open commodity derivative instruments were in a net asset
position with a fair value of approximately $3.3 million.




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 us 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 us to credit
risk arising from the potential inability of counterparties to perform under the
terms of the contracts.  BP Corp. NA is currently the only
counterparty to our commodity derivatives positions.  We are exposed
to credit losses in the event of nonperformance by the counterparty on our
commodity derivatives positions.  However, we do not anticipate
nonperformance by the counterparty over the term of the commodity derivatives
positions.




Foreign
Currency Exchange Rate Risk




In
July 2008, we converted our Senior Subordinated Secured Convertible Term Loan
with Resaca Exploitation, Inc. (“Resaca”) into shares of common stock of Resaca.
Resaca’s common stock is traded on the Alternative Investment Market of the
London Stock Exchange.  We continue to hold approximately 6.6 million
shares of Resaca common stock or approximately 7.1% of Resaca’s issued and
outstanding common shares.  Exchange rate fluctuations between the U.S.
dollar and the British pound result in fluctuations in the gross value of this
investment on our consolidated financial statements.  Foreign currency
exchange rates can fluctuate widely due to numerous factors, such as supply and
demand for foreign and U.S. currencies and U.S. and foreign country economic
conditions.  Fluctuations of exchange rates are beyond the control of our
management.




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/A, as of
the end of the fiscal period covered by this Quarterly Report on Form 10-Q/A
(September 30, 2008), 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/A 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 the Company’s 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/A 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/A. 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 September 30, 2008, 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 December 31, 2009, our management concluded that we had not yet remediated
this previously disclosed material weakness in our internal control over
financial reporting. Specifically, management did not perform a sufficiently
precise review of the 2007, 2008 and 2009 financial statements 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:




·
            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. 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.  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.




Changes
in Internal Control Over Financial Reporting




There
were no changes in internal control over financial reporting during the quarter
ended September 30, 2008 that have materially affected or are reasonably likely
to materially affect, the Company’s internal control over financial
reporting.


37


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PART II – OTHER INFORMATION




Item 1.
            Legal
      Proceedings.




We
are not currently a defendant in any material legal proceeding, nor to our
knowledge, is any material legal proceeding threatened against us.




Item
      1A.
            Risk
      Factors.




Except
as provided below, 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, 2007.




Additional
Risk Factors




We
reported a material weakness in our internal control over financial reporting,
which resulted in material misstatements in our financial statements for the
years ended December 31, 2007 and December 31, 2008 and each of the quarters in
2007 and 2008 and the first three quarters of 2009  that required us
to restate certain of our historical financial statements. If we fail to improve
our internal control over financial reporting, we may not be able to accurately
report our financial results, which could have a material adverse effect on our
operations, investor confidence in our reported financial information and the
trading price of our securities.




Our
Board of Directors, and the members of our Audit Committee, upon management’s
recommendation, determined to restate certain of our historical financial
statements, including the financial statements for the period of this report.
Our management concluded that the accounting errors that necessitated the
restatement resulted from a control deficiency in our internal control over
financial reporting constituting a material weakness. Specifically, our
management concluded that we did not maintain effective controls over the
determination and provision for income taxes. See Note 2, Restatement of
Consolidated Financial Statements in “Part I – Item 1. Consolidated Financial
Statements” and “Part I – Item 4. Controls and Procedures.”




Management’s
assessment of our internal control over financial reporting as of December 31,
2008 identified a material weakness in our internal control over financial
reporting. As described in “Part I – Item 4. Controls and Procedures,” 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. Until
it is fully remediated, this material weakness could lead to errors in our
reported financial results and could have a material adverse effect on our
operations, investor confidence in our reported financial information and the
trading price of our securities.




Further,
we cannot assure you that additional significant deficiencies or material
weaknesses in our internal control over financial reporting will not be
identified in the future. Any failure to maintain or implement required new or
improved controls, or any difficulties we encounter in their implementation,
could result in additional significant deficiencies or material weaknesses, and
cause us to fail to meet our periodic reporting obligations or result in
material misstatements in our financial statements. Any such failure could also
adversely affect the results of periodic management evaluations and annual
auditor attestation reports regarding the effectiveness of our internal control
over financial reporting required under Section 404 of the Sarbanes-Oxley Act of
2002 and the rules promulgated thereunder. The existence of a material weakness
could result in errors in our financial statements that could result in a
restatement of financial statements, cause us to fail to meet our reporting
obligations and cause investors to lose confidence in our reported financial
information, leading to a decline in our stock price.




We
may be subject to the risks associated with the ethanol industry.




The
ethanol industry is subject to many risks which may adversely affect the market
price of ethanol. For example, overcapacity in the ethanol industry may result
in a decrease in the market price of ethanol if the demand for ethanol does not
grow at the same pace as increases in supply. In addition, the ethanol industry
is highly competitive, and other companies presently in the market, or that are
about to enter the market, could adversely affect the market price of ethanol.
Moreover, because corn is the principal raw material used to produce ethanol,
ethanol companies in general are directly affected by the cost and supply of
corn. Changes in the price and supply of corn are subject to and determined by
market forces over which we have no or little control, including overall supply
and demand, government programs and policies, weather, and other factors.
Furthermore, because growth and demand for ethanol may be driven primarily by
federal and state government policies, a change in government policies favorable
to ethanol may cause demand for ethanol to decline. These favorable government
policies include the national renewable fuels standard, and various federal
ethanol tax incentives that assist the ethanol industry. The continuation of
these policies is uncertain, which means that demand for ethanol may decline if
these policies change or are discontinued. A decline in the demand of ethanol is
likely to cause lower ethanol prices. In addition, tariffs on imported ethanol,
which currently effectively limit imported ethanol into the United States, could
be reduced or eliminated, which may in turn negatively affect the demand for
domestic ethanol and the price at which domestic ethanol is sold.




Revised
Risk Factors




We
may be exposed to risks associated with changes in interest rates.




General
interest rate fluctuations may have a negative impact on our investments and
investment opportunities and, accordingly, may have a material adverse effect on
investment objectives and our rate of return on invested capital. Because we may
borrow money to make investments, our net investment income is dependent upon
the difference between the rate at which we borrow funds and the rate at which
we invest these funds. As a result, there can be no assurance that a significant
change in market interest rates will not have a material adverse effect on our
net investment income. As of September 30, 2008, approximately 15% of the
investments at fair value in our portfolio were at fixed rates, while
approximately 85% were at variable rates.  Trading prices for debt
that pays a fixed rate of return tend to fall as interest rates rise. Trading
prices tend to fluctuate more for fixed-rate securities that have longer
maturities. Although we have no policy governing the maturities of our
investments, under current market conditions we expect that we will invest in a
portfolio of debt generally having maturities of three to seven years, but may
have longer maturities. This means that, to the extent we fund longer term fixed
rate investments with shorter term floating rate borrowings, we will be subject
to greater risk (other things being equal) than a fund invested solely in
shorter term securities. A decline in the prices of the debt we own could
adversely affect the trading price of our shares.


38


Table of
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If
we issue senior securities, such as debt or preferred stock, we will be exposed
to additional risks.




We
may issue debt securities or preferred stock, and/or borrow money from banks or
other financial institutions, which we refer to collectively as senior
securities, up to the maximum amount permitted by the 1940 Act. We may issue
senior securities to make new or follow-on investments, to maintain our RIC
status or to pay contingencies and expenses. We are permitted under the 1940 Act
to issue senior securities if, immediately after the borrowing or issuance, we
will have an asset coverage of at least 200%.  That is, we may borrow
funds in an amount up to 50% of the value of our assets (including investments
made with borrowed funds).  As of September 30, 2008, given our total
assets of $506 million and total debt of $179 million, our asset coverage for
senior securities was 283%.




The
amount and nature of any borrowings will depend on a number of factors over
which we have no control, including general economic conditions and conditions
in the financial markets. We may also need to borrow funds to make qualifying
investments to maintain our RIC status. Therefore, we may need to raise
additional capital, which we may elect to finance in part through a credit
facility. We may not be able to obtain a credit facility on terms that we find
acceptable, if at all. The unavailability of funds from commercial banks or
other sources on favorable terms could inhibit the growth of our business and
have a material adverse effect on our performance.




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




Not
applicable.




Item 3.
            Defaults Upon
      Senior Securities.




Not
applicable.




Item 4.
            Submission of
      Matters to a Vote of Security
  Holders




Not
applicable.




Item 5.
            Other
      Information




Not
applicable.


39


Table of
Contents




Item 6.
            Exhibits




No.
              
              Exhibit3.1
              -
              Articles
      of Incorporation of NGP Capital Resources Company dated as of July 15,
      2004 (filed as Exhibit (a)(1) to the Company’s Registration Statement on
      Form N-2 dated November 9, 2004 (Registration No. 333-118279) and
      incorporated herein by reference)3.2
              -
              Articles
      of Amendment and Restatement of NGP Capital Resources Company dated as of
      October 29, 2004 (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
      of NGP Capital Resources Company (filed as Exhibit (b) to the Company’s
      Registration Statement on Form N-2 dated August 16, 2004 (Registration No.
      333-118279) and incorporated herein by reference)10.1
              -
              Investment
      Advisory Agreement dated as of November 9, 2004, between NGP Capital
      Resources 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 dated as of November 9, 2004, by and between NGP Capital
      Resources 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
              -
              License
      Agreement dated as of November 9, 2004, by and between NGP Capital
      Resources 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
              -
              Amended
      and Restated Joint Code of Ethics (filed as Exhibit 10.4 to the Company’s
      Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008
      and incorporated herein by reference)10.5
              -
              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)10.6
              -
              Amended
      and Restated Revolving Credit Agreement dated as of August 31, 2006, by
      and between NGP Capital Resources Company, the lenders from time to time
      party thereto and SunTrust Bank (filed as Exhibit 10.6 to the Company’s
      Quarterly Report on Form 10-Q for the quarterly period ended September 30,
      2006, and incorporated herein by reference)10.7
              -
              First
      Amendment to Amended and Restated Revolving Credit Agreement effective as
      of August 31, 2006, by and between NGP Capital Resources Company, the
      lenders from time to time party thereto and SunTrust Bank (filed as
      Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the
      quarterly period ended September 30, 2006, and incorporated herein by
      reference)10.8
              -
              Treasury
      Secured Revolving Credit Agreement dated as of August 31, 2006, by and
      between NGP Capital Resources Company, the lenders from time to time party
      thereto and SunTrust Bank (filed as Exhibit 10.7 to the Company’s
      Quarterly Report on Form 10-Q for the quarterly period ended September 30,
      2006, and incorporated herein by reference)10.9
              -
              First
      Amendment to Treasury Secured Revolving Credit Agreement effective as of
      August 31, 2006, by and between NGP Capital Resources Company, the lenders
      from time to time party thereto and SunTrust Bank (filed as Exhibit 10.9
      to the Company’s Quarterly Report on Form 10-Q for the quarterly period
      ended September 30, 2006, and incorporated herein by
      reference)10.10
              -
              Second
      Amendment to Treasury Secured Revolving Credit Agreement effective as of
      September 28, 2007, by and between NGP Capital Resources Company, the
      lenders from time to time party thereto and SunTrust Bank (filed as
      Exhibit 10.1 to the Company’s Current Report on Form 8-K on October 24,
      2007, and incorporated herein by reference)10.11
              -
              Second
      Amendment to Amended and Restated Revolving Credit Agreement effective as
      of March 13, 2008, by and between NGP Capital Resources Company, the
      lenders from time to time party thereto and SunTrust Bank (filed as
      Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q for the
      quarterly period ended June 30, 2008, and incorporated herein by
      reference)10.12
              -
              Third
      Amendment to Treasury Secured Revolving Credit Agreement effective as of
      March 13, 2008, by and between NGP Capital Resources Company, the lenders
      from time to time party thereto and SunTrust Bank (filed as Exhibit 10.12
      to the Company’s Quarterly Report on Form 10-Q for the quarterly period
      ended June 30, 2008, and incorporated herein by
  reference)




40


Table of
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10.13
              -
              Third
      Amendment to Amended and Restated Revolving Credit Agreement effective as
      of September 29, 2008, by and between NGP Capital Resources Company, the
      lenders from time to time party thereto and SunTrust Bank (filed
      as Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q for the
      quarterly period ended September 30, 2008, and incorporated herein by
      reference)10.14
              -
              Fourth
      Amendment to Treasury Secured Revolving Credit Agreement effective as of
      September 29, 2008, by and between NGP Capital Resources Company, the
      lenders from time to time party thereto and SunTrust (filed
      as Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q for the
      quarterly period ended September 30, 2008, 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.




41


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SIGNATURES




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




NGP
      CAPITAL RESOURCES COMPANYDate:
      June 24, 2010
                By:
                /s/
      John H. HomierJohn
      H. HomierPresident
      and Chief Executive OfficerDate:
      June 24, 2010
                By:
                /s/
      Stephen K. GardnerStephen
      K. GardnerChief
      Financial Officer, Treasurer and
Secretary







Table of
Contents




Index
to Exhibits


No.
              
              Exhibit3.1
              -
              Articles
      of Incorporation of NGP Capital Resources Company dated as of July 15,
      2004 (filed as Exhibit (a)(1) to the Company’s Registration Statement on
      Form N-2 dated November 9, 2004 (Registration No. 333-118279) and
      incorporated herein by reference)3.2
              -
              Articles
      of Amendment and Restatement of NGP Capital Resources Company dated as of
      October 29, 2004 (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
      of NGP Capital Resources Company (filed as Exhibit (b) to the Company’s
      Registration Statement on Form N-2 dated August 16, 2004 (Registration No.
      333-118279) and incorporated herein by reference)10.1
              -
              Investment
      Advisory Agreement dated as of November 9, 2004, between NGP Capital
      Resources 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 dated as of November 9, 2004, by and between NGP Capital
      Resources 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
              -
              License
      Agreement dated as of November 9, 2004, by and between NGP Capital
      Resources 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
              -
              Amended
      and Restated Joint Code of Ethics (filed as Exhibit 10.4 to the Company’s
      Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008
      and incorporated herein by reference)10.5
              -
              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)10.6
              -
              Amended
      and Restated Revolving Credit Agreement dated as of August 31, 2006, by
      and between NGP Capital Resources Company, the lenders from time to time
      party thereto and SunTrust Bank (filed as Exhibit 10.6 to the Company’s
      Quarterly Report on Form 10-Q for the quarterly period ended September 30,
      2006, and incorporated herein by reference)10.7
              -
              First
      Amendment to Amended and Restated Revolving Credit Agreement effective as
      of August 31, 2006, by and between NGP Capital Resources Company, the
      lenders from time to time party thereto and SunTrust Bank (filed as
      Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the
      quarterly period ended September 30, 2006, and incorporated herein by
      reference)10.8
              -
              Treasury
      Secured Revolving Credit Agreement dated as of August 31, 2006, by and
      between NGP Capital Resources Company, the lenders from time to time party
      thereto and SunTrust Bank (filed as Exhibit 10.7 to the Company’s
      Quarterly Report on Form 10-Q for the quarterly period ended September 30,
      2006, and incorporated herein by reference)10.9
              -
              First
      Amendment to Treasury Secured Revolving Credit Agreement effective as of
      August 31, 2006, by and between NGP Capital Resources Company, the lenders
      from time to time party thereto and SunTrust Bank (filed as Exhibit 10.9
      to the Company’s Quarterly Report on Form 10-Q for the quarterly period
      ended September 30, 2006, and incorporated herein by
      reference)10.10
              -
              Second
      Amendment to Treasury Secured Revolving Credit Agreement effective as of
      September 28, 2007, by and between NGP Capital Resources Company, the
      lenders from time to time party thereto and SunTrust Bank (filed as
      Exhibit 10.1 to the Company’s Current Report on Form 8-K on October 24,
      2007, and incorporated herein by reference)10.11
              -
              Second
      Amendment to Amended and Restated Revolving Credit Agreement effective as
      of March 13, 2008, by and between NGP Capital Resources Company, the
      lenders from time to time party thereto and SunTrust Bank (filed as
      Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q for the
      quarterly period ended June 30, 2008, and incorporated herein by
      reference)10.12
              -
              Third
      Amendment to Treasury Secured Revolving Credit Agreement effective as of
      March 13, 2008, by and between NGP Capital Resources Company, the lenders
      from time to time party thereto and SunTrust Bank (filed as Exhibit 10.12
      to the Company’s Quarterly Report on Form 10-Q for the quarterly period
      ended June 30, 2008, and incorporated herein by
  reference)







Table of
Contents




10.13
              -
              Third
      Amendment to Amended and Restated Revolving Credit Agreement effective as
      of September 29, 2008, by and between NGP Capital Resources Company, the
      lenders from time to time party thereto and SunTrust Bank (filed
      as Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q for the
      quarterly period ended September 30, 2008, and incorporated herein by
      reference)10.14
              -
              Fourth
      Amendment to Treasury Secured Revolving Credit Agreement effective as of
      September 29, 2008, by and between NGP Capital Resources Company, the
      lenders from time to time party thereto and SunTrust (filed
      as Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q for the
      quarterly period ended September 30, 2008, 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.