##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934


FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002


OR

[      ] TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


FOR THE TRANSITION PERIOD FROM

TO


Commission File Number: 814-00127

BRANTLEY CAPITAL CORPORATION




(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                            
|------------------------------------------------------------------ |  | -------------------------------------------
|Maryland                                                           |  | 34-1838462                                 
|                                                                   |  |                                            
|(State or other Jurisdiction of
    Incorporation or Organization) |  | (I.R.S. Employer Identification
    Number)

3201 Enterprise Parkway, Suite 350,
Cleveland, Ohio 44122

(Address of principal executive offices
including zip code)


(216) 464-8400

(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 [     ].

The number of shares of common stock, $.01 par
value, outstanding as of September 30, 2002 was 3,810,535.



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TABLE OF CONTENTS



|                                                 |                                                                                               |                                     |  |  |  |  |  | 
|------------------------------------------------ | --------------------------------------------------------------------------------------------- | ----------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                   
|                                                 | Item 1. Financial Statements                                                                 
|                                                 |                                                                                               | BALANCE SHEETS                     
|                                                 |                                                                                               | STATEMENTS OF OPERATIONS           
|                                                 |                                                                                               | STATEMENTS OF CHANGES IN NET ASSETS
|                                                 |                                                                                               | STATEMENTS OF CASH FLOWS           
|                                                 |                                                                                               | STATEMENT OF INVESTMENTS           
|                                                 |                                                                                               | NOTES TO THE FINANCIAL STATEMENTS  
|                                                 | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                 | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|                                                 | Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION                      
|                                                 | Item 1. Legal Proceedings                                                                    
|                                                 | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                                                 | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                      
|CERTIFICATION OF CHIEF EXECUTIVE OFFICER        
|CERTIFICATION OF CHIEF FINANCIAL OFFICER        
|CERTIFICATION OF ROBERT P. PINKAS   EXHIBIT 99.1
|CERTIFICATION OF TAB A KEPLINGER   EXHIBIT 99.2 



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##### Table of Contents



TABLE OF CONTENTS

|                              |  |                                                                                           |    |  |    | 
|----------------------------- |  | ----------------------------------------------------------------------------------------- | -- |  | -- | 
|PART I. FINANCIAL INFORMATION |  |                                                                                           |    | 
|Item 1.                       |  | Financial Statements                                                                      |    |  | 2  | 
|                              |  | Balance Sheets                                                                            |    |  | 2  | 
|                              |  | Statements of Operations                                                                  |    |  | 3  | 
|                              |  | Statements of Changes in Net Assets                                                       |    |  | 5  | 
|                              |  | Statements of Cash Flows                                                                  |    |  | 6  | 
|                              |  | Statement of Investments                                                                  |    |  | 7  | 
|                              |  | Notes to the Financial Statements                                                         |    |  | 8  | 
|Item 2.                       |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |    |  | 11 | 
|Item 3.                       |  | Quantitative and Qualitative Disclosures about
    Market Risk                            |    |  | 18 | 
|Item 4.                       |  | Controls and Procedures                                                                   |    |  | 19 | 
|PART II. OTHER INFORMATION    |  |                                                                                           |    | 
|Item 1.                       |  | Legal Proceedings                                                                         |    |  | 19 | 
|Item 4.                       |  | Submission of Matters to a Vote of Security
    Holders                                   |    |  | 20 | 
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                          |    |  | 21 | 
|Signatures                    |  |                                                                                           | 22 | 



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##### Table of Contents






PART I.      FINANCIAL
INFORMATION




Item 1.     Financial
Statements

BRANTLEY CAPITAL CORPORATION






BALANCE SHEETS


|                                                                                                                                                                          |                              |                                                |            |              |            |   |            |            |            | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------- | ---------------------------------------------- | ---------- | ------------ | ---------- | - | ---------- | ---------- | ---------- | 
|                                                                                                                                                                          |                              | September 30,                                  |            | December 31,
|                                                                                                                                                                          |                              | 2002                                           |            | 2001        
|                                                                                                                                                                          |                              | (Unaudited)                                    |            | (Audited)   
|                                                                                                                                                                          |                              |                                                |            |             
|ASSETS                                                                                                                                                                    |                              |                                                |            |              |            |   |            |           
|Investments at fair value                                                                                                                                                 |                              |                                                |            |              |            |   |            |           
|                                                                                                                                                                          | Companies 5% to 25% owned    |                                                | $          | 59,612,969   |            |   | $          | 56,482,013 |           
|                                                                                                                                                                          | Companies less than 5% owned |                                                |            | 2,935,496    |            |   |            | 3,829,094  |           
|Cash and cash equivalents                                                                                                                                                 |                              |                                                | 151,440    |              |            |   | 5,369,345  |           
|Restricted cash                                                                                                                                                           |                              |                                                | 6,000,000  |              |            |   | 6,000,000  |           
|Receivable for investments sold                                                                                                                                           |                              |                                                | 318,709    |              |            |   |           |           
|Dividends and interest receivable                                                                                                                                         |                              |                                                | 4,844,649  |              |            |   | 3,493,059  |           
|Other assets                                                                                                                                                              |                              |                                                | 399,957    |              |            |   | 360,158    |           
|                                                                                                                                                                          |                              |                                                |            |              |            |   |            |           
|                                                                                                                                                                          |                              | Total Assets                                   |            | $            | 74,263,220 |   |            | $          | 75,533,669 | 
|                                                                                                                                                                          |                              |                                                |            |              |            |   |            |           
|                                                                                                                                                                          |                              | LIABILITIES AND STOCKHOLDERS
    EQUITY       |            |              |            |   |            |            |            | 
|Note payable                                                                                                                                                              |                              | $                                              | 6,000,000  |              |            | $ | 6,000,000  |           
|Payable for investments purchased                                                                                                                                         |                              |                                                | 285,853    |              |            |   | 200,000    |           
|Advisory fee payable                                                                                                                                                      |                              |                                                | 478,734    |              |            |   | 487,931    |           
|Accrued professional fees                                                                                                                                                 |                              |                                                | 463,138    |              |            |   | 53,163     |           
|Distributions payable                                                                                                                                                     |                              |                                                |           |              |            |   | 736,455    |           
|Other liabilities                                                                                                                                                         |                              |                                                | 99,196     |              |            |   | 49,806     |           
|                                                                                                                                                                          |                              |                                                |            |              |            |   |            |           
|                                                                                                                                                                          |                              | Total Liabilities                              |            |              | 7,326,921  |   |            |            | 7,527,355  | 
|                                                                                                                                                                          |                              |                                                |            |              |            |   |            |           
|Stockholders Equity:                                                                                                                                                     |                              |                                                |            |              |            |   |            |           
|Common Stock, $0.01 par value; 25,000,000 shares
    authorized and 3,810,535 shares issued and outstanding at
    September 30, 2002 and December 31, 2001, respectively |                              |                                                | 38,105     |              |            |   | 38,105     |           
|Additional paid in capital                                                                                                                                                |                              |                                                | 37,484,895 |              |            |   | 37,484,895 |           
|Retained earnings                                                                                                                                                         |                              |                                                | 29,413,299 |              |            |   | 30,483,314 |           
|                                                                                                                                                                          |                              |                                                |            |              |            |   |            |           
|                                                                                                                                                                          |                              | Total Stockholders Equity                     |            |              | 66,936,299 |   |            |            | 68,006,314 | 
|                                                                                                                                                                          |                              |                                                |            |              |            |   |            |           
|                                                                                                                                                                          |                              | Total Liabilities and
    Stockholders Equity |            | $            | 74,263,220 |   |            | $          | 75,533,669 | 
|                                                                                                                                                                          |                              |                                                |            |              |            |   |            |           
|Net Asset Value Per Share                                                                                                                                                 |                              | $                                              | 17.57      |              |            | $ | 17.85      |           
|                                                                                                                                                                          |                              |                                                |            |              |            |   |            |           

The accompanying notes to the financial
statements are an integral part of these statements.

2



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##### Table of Contents



BRANTLEY CAPITAL CORPORATION






STATEMENTS OF OPERATIONS


(Unaudited)

|                                                                                       |                                     |                              |            |                     |           |   |           |           |           | 
|-------------------------------------------------------------------------------------- | ----------------------------------- | ---------------------------- | ---------- | ------------------- | --------- | - | --------- | --------- | --------- | 
|                                                                                       |                                     | For the nine months          |            | For the nine months
|                                                                                       |                                     | ended                        |            | ended              
|                                                                                       |                                     | September 30,                |            | September 30,      
|                                                                                       |                                     | 2002                         |            | 2001               
|                                                                                       |                                     |                              |            |                    
|Investment Income:                                                                     |                                     |                              |            |                     |           |   |           |          
|                                                                                       | Interest and Dividends              |                              |            |                     |           |   |           |           |          
|                                                                                       |                                     | Companies owned 5% to 25%    |            | $                   | 1,626,575 |   |           | $         | 1,209,953 | 
|                                                                                       |                                     | Companies less than 5% owned |            |                     | 61,327    |   |           |           | 34,962    | 
|                                                                                       |                                     |                              |            |                     |           |   |           |          
|                                                                                       | Total investment income             |                              |            | 1,687,902           |           |   |           | 1,244,915 |          
|                                                                                       |                                     |                              |            |                     |           |   |           |          
|Operating Expenses:                                                                    |                                     |                              |            |                     |           |   |           |          
|                                                                                       | Advisory fees                       |                              |            | 1,419,601           |           |   |           | 1,124,410 |          
|                                                                                       | Administration fees                 |                              |            | 56,096              |           |   |           | 55,891    |          
|                                                                                       | Professional fees                   |                              |            | 666,437             |           |   |           | 287,358   |          
|                                                                                       | Interest and other expenses         |                              |            | 550,685             |           |   |           | 638,226   |          
|                                                                                       |                                     |                              |            |                     |           |   |           |          
|                                                                                       | Total operating expenses            |                              |            | 2,692,819           |           |   |           | 2,105,885 |          
|Investment Loss, net                                                                   |                                     |                              | (1,004,917 | )                   |           |   | (860,970  | )        
|Net Realized and Unrealized Gains (Losses) on
    Investments:                         |                                     |                              |            |                     |           |   |           |          
|                                                                                       | Net realized gains (losses)         |                              |            |                     |           |   |           |           |          
|                                                                                       |                                     | Companies less than 5% owned |            |                     | (318,939  | ) |           |           | 998,050   | 
|                                                                                       | Net unrealized gains on investments |                              |            | 253,841             |           |   |           | 1,625,803 |          
|                                                                                       |                                     |                              |            |                     |           |   |           |          
|Net realized and unrealized gains (losses) on
    investment transactions              |                                     |                              | (65,098    | )                   |           |   | 2,623,853 |          
|                                                                                       |                                     |                              |            |                     |           |   |           |          
|Net increase (decrease) in net assets
    resulting from operations                    |                                     | $                            | (1,070,015 | )                   |           | $ | 1,762,883 |          
|                                                                                       |                                     |                              |            |                     |           |   |           |          
|Net increase (decrease) in net assets
    from operations per share, basic and diluted |                                     | $                            | (0.28      | )                   |           | $ | 0.46      |          
|                                                                                       |                                     |                              |            |                     |           |   |           |          
|Weighted average number of shares outstanding,
    basic and diluted                   |                                     |                              | 3,810,535  |                     |           |   | 3,810,535 |          
|                                                                                       |                                     |                              |            |                     |           |   |           |          

The accompanying notes to the financial
statements are an integral part of these statements.

3



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##### Table of Contents



BRANTLEY CAPITAL CORPORATION

STATEMENTS OF OPERATIONS

(Unaudited)

|                                                                            |                                      |                              |           |                 |          |   |            |            |         | 
|--------------------------------------------------------------------------- | ------------------------------------ | ---------------------------- | --------- | --------------- | -------- | - | ---------- | ---------- | ------- | 
|                                                                            |                                      | For the quarter              |           | For the quarter
|                                                                            |                                      | ended                        |           | ended          
|                                                                            |                                      | September 30,                |           | September 30,  
|                                                                            |                                      | 2002                         |           | 2001           
|                                                                            |                                      |                              |           |                
|Investment Income:                                                          |                                      |                              |           |                 |          |   |            |           
|                                                                            | Interest and Dividends               |                              |           |                 |          |   |            |            |        
|                                                                            |                                      | Companies owned 5% to 25%    |           | $               | 531,419  |   |            | $          | 286,322 | 
|                                                                            |                                      | Companies less than 5% owned |           |                 | 165,765  |   |            |            | 104,712 | 
|                                                                            |                                      |                              |           |                 |          |   |            |           
|                                                                            | Total investment income              |                              |           | 697,184         |          |   |            | 391,034    |        
|                                                                            |                                      |                              |           |                 |          |   |            |           
|Operating Expenses:                                                         |                                      |                              |           |                 |          |   |            |           
|                                                                            | Advisory fees                        |                              |           | 483,280         |          |   |            | 401,335    |        
|                                                                            | Administration fees                  |                              |           | 18,904          |          |   |            | 18,905     |        
|                                                                            | Professional fees                    |                              |           | 567,915         |          |   |            | 135,859    |        
|                                                                            | Interest and other expenses          |                              |           | 182,567         |          |   |            | 241,111    |        
|                                                                            |                                      |                              |           |                 |          |   |            |           
|                                                                            | Total operating expenses             |                              |           | 1,252,666       |          |   |            | 797,210    |        
|Investment Loss, net                                                        |                                      |                              | (555,482  | )               |          |   | (406,176   | )         
|Net Realized and Unrealized Gains (Losses) on
    Investments:              |                                      |                              |           |                 |          |   |            |           
|                                                                            | Net Realized gains (losses)          |                              |           |                 |          |   |            |            |        
|                                                                            |                                      | Companies less than 5% owned |           |                 | (149,187 | ) |            |            | 564,915 | 
|                                                                            | Net unrealized losses on investments |                              |           | (123,769        | )        |   |            | (1,881,782 | )      
|                                                                            |                                      |                              |           |                 |          |   |            |           
|Net realized and unrealized losses on
    investment transactions           |                                      |                              | (272,956  | )               |          |   | (1,316,867 | )         
|                                                                            |                                      |                              |           |                 |          |   |            |           
|Net decrease in net assets resulting from
    operations                    |                                      | $                            | (828,438  | )               |          | $ | (1,723,043 | )         
|                                                                            |                                      |                              |           |                 |          |   |            |           
|Net decrease in net assets from
    operations per share, basic and diluted |                                      | $                            | (0.21     | )               |          | $ | (0.46      | )         
|                                                                            |                                      |                              |           |                 |          |   |            |           
|Weighted average number of shares outstanding,
    basic and diluted        |                                      |                              | 3,810,535 |                 |          |   | 3,810,535  |           
|                                                                            |                                      |                              |           |                 |          |   |            |           

The accompanying notes to the financial
statements are an integral part of these statements.

4



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##### Table of Contents



BRANTLEY CAPITAL CORPORATION






STATEMENTS OF CHANGES IN NET ASSETS


(Unaudited)

|                                            |  |        |        |            |  |          |            |              |  |   |            |   |  |   |            |  
|------------------------------------------- |  | ------ | ------ | ---------- |  | -------- | ---------- | ------------ |  | - | ---------- | - |  | - | ---------- | -
|                                            |  |        |        | Additional |  |          |            | Total       
|                                            |  | Common |        | Paid in    |  | Retained |            | Stockholders
|                                            |  | Stock  |        | Capital    |  | Earnings |            | Equity      
|                                            |  |        |        |            |  |          |            |             
|Balance at December 31, 1999                |  | $      | 38,105 |            |  | $        | 37,505,433 |              |  | $ | 14,896,797 |   |  | $ | 52,440,335 |  
|                                            |  |        |        |            |  |          |            |              |  |   |            |   |  |   |            |  
|Net increase in net assets from operations: |  |        |        |            |  |          |            |              |  |   |            |   |  |   |            |  
|Net investment income                       |  |        |       |            |  |          |           |              |  |   | 145,082    |   |  |   | 145,082    |  
|Net realized gain                           |  |        |       |            |  |          |           |              |  |   | 1,564,206  |   |  |   | 1,564,206  |  
|Net unrealized gain                         |  |        |       |            |  |          |           |              |  |   | 170,027    |   |  |   | 170,027    |  
|Distributions from:                         |  |        |        |            |  |          |            |              |  |   |            |   |  |   |            |  
|Net investment income                       |  |        |       |            |  |          | (20,538    | )            |  |   | (112,831   | ) |  |   | (133,369   | )
|Net realized gain                           |  |        |       |            |  |          |           |              |  |   | (2,243,262 | ) |  |   | (2,243,262 | )
|                                            |  |        |        |            |  |          |            |              |  |   |            |   |  |   |            |  
|Balance at December 31, 2000                |  | $      | 38,105 |            |  | $        | 37,484,895 |              |  | $ | 14,420,019 |   |  | $ | 51,943,019 |  
|                                            |  |        |        |            |  |          |            |              |  |   |            |   |  |   |            |  
|Net increase in net assets from operations: |  |        |        |            |  |          |            |              |  |   |            |   |  |   |            |  
|Net investment loss                         |  |        |       |            |  |          |           |              |  |   | (1,207,676 | ) |  |   | (1,207,676 | )
|Net realized gain                           |  |        |       |            |  |          |           |              |  |   | 1,155,843  |   |  |   | 1,155,843  |  
|Net unrealized gain                         |  |        |       |            |  |          |           |              |  |   | 16,851,583 |   |  |   | 16,851,583 |  
|Distributions from:                         |  |        |        |            |  |          |            |              |  |   |            |   |  |   |            |  
|Net investment income                       |  |        |       |            |  |          |           |              |  |   |           |   |  |   |           |  
|Net realized gain                           |  |        |       |            |  |          |           |              |  |   | (736,455   | ) |  |   | (736,455   | )
|                                            |  |        |        |            |  |          |            |              |  |   |            |   |  |   |            |  
|Balance at December 31, 2001                |  | $      | 38,105 |            |  | $        | 37,484,895 |              |  | $ | 30,483,314 |   |  | $ | 68,006,314 |  
|                                            |  |        |        |            |  |          |            |              |  |   |            |   |  |   |            |  
|Net decrease in net assets from operations: |  |        |        |            |  |          |            |              |  |   |            |   |  |   |            |  
|Net investment loss                         |  |        |       |            |  |          |           |              |  |   | (1,004,917 | ) |  |   | (1,004,917 | )
|Net realized loss                           |  |        |       |            |  |          |           |              |  |   | (318,939   | ) |  |   | (318,939   | )
|Net unrealized gain                         |  |        |       |            |  |          |           |              |  |   | 253,841    |   |  |   | 253,841    |  
|                                            |  |        |        |            |  |          |            |              |  |   |            |   |  |   |            |  
|Balance at September 30, 2002               |  | $      | 38,105 |            |  | $        | 37,484,895 |              |  | $ | 29,413,299 |   |  | $ | 66,936,299 |  
|                                            |  |        |        |            |  |          |            |              |  |   |            |   |  |   |            |  

The accompanying notes to the financial
statements are an integral part of these statements.

5



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##### Table of Contents



BRANTLEY CAPITAL CORPORATION






STATEMENTS OF CASH FLOWS


(Unaudited)

|                                                                    |                                                                                                                  |                                              |                                   |                     |            |            |            |           |              |            |  
|------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | -------------------------------------------- | --------------------------------- | ------------------- | ---------- | ---------- | ---------- | --------- | ------------ | ---------- | -
|                                                                    |                                                                                                                  | For the nine months                          |                                   | For the nine months
|                                                                    |                                                                                                                  | ended September 30,                          |                                   | ended September 30,
|                                                                    |                                                                                                                  | 2002                                         |                                   | 2001               
|                                                                    |                                                                                                                  |                                              |                                   |                    
|Cash Flows from Operating
    Activities:                           |                                                                                                                  |                                              |                                   |                     |            |            |            |          
|                                                                    | Net change in net assets resulting from
    operations:                                                          |                                              | $                                 | (1,070,015          | )          |            | $          | 1,762,883 |             
|                                                                    | Adjustments to reconcile net change in net assets
    resulting from operations to net cash used for operations: |                                              |                                   |                     |            |            |            |           |             
|                                                                    |                                                                                                                  | Net realized gains (losses) from investments |                                   |                     | 318,939    |            |            |           | (998,050     | )         
|                                                                    |                                                                                                                  | Net unrealized gains on investments          |                                   |                     | (253,841   | )          |            |           | (1,625,803   | )         
|                                                                    |                                                                                                                  | Changes in assets and liabilities:           |                                   |                     |            |            |            |           |              |           
|                                                                    |                                                                                                                  |                                              | Dividend and interest receivable  |                     |            | (1,351,590 | )          |           |              | (1,053,933 | )
|                                                                    |                                                                                                                  |                                              | Receivable for investments sold   |                     |            | (318,709   | )          |           |              |           |  
|                                                                    |                                                                                                                  |                                              | Other assets                      |                     |            | (39,799    | )          |           |              | 6,642      |  
|                                                                    |                                                                                                                  |                                              | Payable for investments purchased |                     |            | 85,853     |            |           |              |           |  
|                                                                    |                                                                                                                  |                                              | Advisory fee payable              |                     |            | (9,197     | )          |           |              | 2,208      |  
|                                                                    |                                                                                                                  |                                              | Accrued professional fees         |                     |            | 409,975    |            |           |              | 26,337     |  
|                                                                    |                                                                                                                  |                                              | Dividends payable                 |                     |            | (736,455   | )          |           |              |           |  
|                                                                    |                                                                                                                  |                                              | Accrued interest                  |                     |            |           |            |           |              | 40,328     |  
|                                                                    |                                                                                                                  |                                              | Other liabilities                 |                     |            | 49,390     |            |           |              | (30,782    | )
|                                                                    |                                                                                                                  |                                              |                                   |                     |            |            |            |          
|                                                                    |                                                                                                                  | Net cash used for
    operating activities   |                                   |                     | (2,915,449 | )          |            |           | (1,870,170   | )         
|                                                                    |                                                                                                                  |                                              |                                   |                     |            |            |            |          
|Cash Flows from Investing
    Activities:                           |                                                                                                                  |                                              |                                   |                     |            |            |            |          
|                                                                    |                                                                                                                  | Purchases of investment securities           |                                   |                     | (9,117,416 | )          |            |           | (5,441,940   | )         
|                                                                    |                                                                                                                  | Sales/ Maturities of investment securities   |                                   |                     | 6,814,960  |            |            |           | 3,404,077    |           
|                                                                    |                                                                                                                  | Purchases of short-term investments          |                                   |                     |           |            |            |           | (514,412,500 | )         
|                                                                    |                                                                                                                  | Sales/ Maturities of short-term investments  |                                   |                     |           |            |            |           | 514,416,321  |           
|                                                                    |                                                                                                                  |                                              |                                   |                     |            |            |            |          
|                                                                    |                                                                                                                  | Net cash used for investing
    activities   |                                   |                     | (2,302,456 | )          |            |           | (2,034,042   | )         
|                                                                    |                                                                                                                  |                                              |                                   |                     |            |            |            |          
|Net change in cash and cash equivalents for
    the period          |                                                                                                                  |                                              | (5,217,905                        | )                   |            |            | (3,904,212 | )        
|Cash, cash equivalents and restricted cash,
    beginning of period |                                                                                                                  |                                              | 11,369,345                        |                     |            |            | 14,882,432 |          
|                                                                    |                                                                                                                  |                                              |                                   |                     |            |            |            |          
|Cash, cash equivalents and restricted cash,
    end of the period   |                                                                                                                  | $                                            | 6,151,440                         |                     |            | $          | 10,978,220 |          
|                                                                    |                                                                                                                  |                                              |                                   |                     |            |            |            |          

The accompanying notes to the financial
statements are an integral part of these statements.

6



---



##### Table of Contents



BRANTLEY CAPITAL CORPORATION






STATEMENT OF INVESTMENTS


September 30, 2002

(unaudited)


|                                         |                                                                           |            |  |           |  |   |            |            | 
|---------------------------------------- | ------------------------------------------------------------------------- | ---------- |  | --------- |  | - | ---------- | ---------- | 
|Name of Issuer and Title of Issue        |                                                                           | Shares/Par |  | Value    
|                                         |                                                                           |            |  |          
|Avionics                                 |                                                                           |            |  |           |  |   |            |           
|                                         | Flight Options International Inc. Preferred Stock
    *#@                 |            |  | 3,342,060 |  |   | $          | 32,500,000 | 
|                                         |                                                                           |            |  |           |  |   |            |           
|Business Services                        |                                                                           |            |  |           |  |   |            |           
|                                         | Disposable Products Company, LLC Subordinated
    Debt with Warrants #    |            |  | 2,437,201 |  |   |            | 2,430,541  | 
|                                         | FactSet Research Systems, Inc. Common Stock                               |            |  | 1,080     |  |   |            | 28,674     | 
|                                         | The Holland Group, Inc. Convertable Preferred
    Stock #@                |            |  | 282,530   |  |   |            | 2,125,001  | 
|                                         | The Holland Group, Inc. Subordinated Note #@                              |            |  | 50,000    |  |   |            | 50,000     | 
|                                         | International Total Services, Inc.
    Common Stock                       |            |  | 104,250   |  |   |            | 2,085      | 
|                                         | Prime Office Products, Inc. Convertable Preferred
    Stock #@            |            |  | 750,000   |  |   |            | 1,500,000  | 
|                                         | ScanSource, Inc. Common Stock                                             |            |  | 485       |  |   |            | 28,154     | 
|                                         |                                                                           |            |  |           |  |   |            |           
|                                         |                                                                           |            |  |           |  |   | 6,164,455  |           
|                                         |                                                                           |            |  |           |  |   |            |           
|Drugs & Health Care                      |                                                                           |            |  |           |  |   |            |           
|                                         | Dynacq International, Inc. Common Stock                                   |            |  | 2,250     |  |   |            | 26,190     | 
|                                         | Health Care Solutions, Subordinated Debt with
    Warrants #@             |            |  | 3,677,572 |  |   |            | 3,549,000  | 
|                                         | Integrated Physician Solutions, Inc. Convertable
    Preferred Stock #@   |            |  | 823,000   |  |   |            | 3,196,900  | 
|                                         | Integrated Physician Solutions, Subordinated Debt
    with Warrants #@    |            |  | 267,448   |  |   |            | 267,448    | 
|                                         | KV Pharmaceutical, Inc. Common Stock                                      |            |  | 1,660     |  |   |            | 31,374     | 
|                                         | Medical Action Industries, Inc. Common Stock                              |            |  | 2,470     |  |   |            | 29,297     | 
|                                         | Merit Medical Services, Inc. Common Stock                                 |            |  | 1,420     |  |   |            | 27,420     | 
|                                         | National Rehabilitation Partners, Inc.
    Convertable Preferred Stock #@ |            |  | 2,245,603 |  |   |            | 1,461,365  | 
|                                         | Orthodontic Centers of America, Inc.
    Common Stock                     |            |  | 2,450     |  |   |            | 26,215     | 
|                                         | U.S. Physical Therapy, Inc. Common Stock                                  |            |  | 2,770     |  |   |            | 29,224     | 
|                                         |                                                                           |            |  |           |  |   |            |           
|                                         |                                                                           |            |  |           |  |   | 8,644,433  |           
|                                         |                                                                           |            |  |           |  |   |            |           
|Miscellaneous                            |                                                                           |            |  |           |  |   |            |           
|                                         | Action Performance Companies, Inc.
    Common Stock                       |            |  | 1,160     |  |   |            | 29,812     | 
|                                         | American Woodmark Corporation Common Stock                                |            |  | 575       |  |   |            | 29,176     | 
|                                         | Avocent Corporation Common Stock                                          |            |  | 1,357     |  |   |            | 18,157     | 
|                                         | Buca, Inc. Common Stock                                                   |            |  | 3,430     |  |   |            | 27,440     | 
|                                         | Fossil, Inc. Common Stock                                                 |            |  | 1,420     |  |   |            | 28,471     | 
|                                         | ITT Educational Services, Inc. Common Stock                               |            |  | 1,620     |  |   |            | 30,407     | 
|                                         | K-Swiss, Inc. Common Stock                                                |            |  | 1,280     |  |   |            | 27,354     | 
|                                         | Streamline Foods, Inc. Convertable Preferred
    Stock #@                 |            |  | 925,072   |  |   |            | 699,941    | 
|                                         | Streamline Foods, Inc. Subordinated Debt with
    Warrants #@             |            |  | 95,000    |  |   |            | 95,000     | 
|                                         | Triad Guarantee, Inc. Common Stock                                        |            |  | 880       |  |   |            | 30,642     | 
|                                         | Value Creation Partners, Inc. Convertable
    Preferred Stock #@          |            |  | 304,989   |  |   |            | 2,226,069  | 
|                                         | Waterlink, Inc. Warrants                                                  |            |  | 53,550    |  |   |            |           | 
|                                         |                                                                           |            |  |           |  |   |            |           
|                                         |                                                                           |            |  |           |  |   | 3,242,469  |           
|                                         |                                                                           |            |  |           |  |   |            |           
|Oil                                      |                                                                           |            |  |           |  |   |            |           
|                                         | GulfMark International, Inc. Common Stock                                 |            |  | 1,600     |  |   |            | 27,680     | 
|                                         | Petroleum Partners, Inc. Convertable Preferred
    Stock #@               |            |  | 825,000   |  |   |            | 1,450,000  | 
|                                         | Petroleum Partners, Inc. Subordinated Debt with
    Warrants #@           |            |  | 1,953,125 |  |   |            | 1,875,781  | 
|                                         |                                                                           |            |  |           |  |   |            |           
|                                         |                                                                           |            |  |           |  |   | 3,353,461  |           
|                                         |                                                                           |            |  |           |  |   |            |           
|Retail Trade                             |                                                                           |            |  |           |  |   |            |           
|                                         | Fitness Quest, Inc. Convertable Preferred Stock
    *#@                   |            |  | 1,468,602 |  |   | $          | 7,369,722  | 
|                                         | Fitness Quest, Subordinated Debt with Warrants #@                         |            |  | 181,172   |  |   |            | 1,246,742  | 
|                                         | Hibbett Sporting Goods, Inc. Common Stock                                 |            |  | 1,310     |  |   |            | 27,183     | 
|                                         |                                                                           |            |  |           |  |   |            |           
|                                         |                                                                           |            |  |           |  |   | 8,643,647  |           
|                                         |                                                                           |            |  |           |  |   |            |           
|Total Investments(Cost
    $30,988,583) |                                                                           |            |  |           |  | $ | 62,548,465 |           
|                                         |                                                                           |            |  |           |  |   |            |           



---

All investments are U.S. companies



|  |                                                                                 
|- | --------------------------------------------------------------------------------
|* | Represents 5% or more of total stockholders equity                              
| 
|# | Represents privately held securities which are
    considered illiquid.         
| 
|@ | Represents more than 5% but less than 25% of the
    voting class of securities.

The accompanying notes to the financial
statements are an integral part of these statements.

7



---



##### Table of Contents



BRANTLEY CAPITAL CORPORATION










|   |                                
|-- | -------------------------------
|1. | Significant Accounting Policies

The interim financial statements have been
prepared by Brantley Capital Corporation (the
Company) pursuant to the rules and regulations of the
Securities and Exchange Commission applicable to quarterly
reports on Form 10-Q. Certain information and footnote
disclosures normally included in financial statements prepared
in accordance with accounting principles generally accepted in
the United States of America have been condensed or omitted
pursuant to such rules and regulations, although management
believes that the disclosures are adequate to make the
information presented not misleading. These financial statements
should be read in conjunction with the audited financial
statements and related notes and schedules included in the
Companys 2001 Annual Report filed on Form 10-K dated
December 31, 2001.

The unaudited financial statements reflect, in
the opinion of management, all adjustments, all of which are of
a normal recurring nature, necessary to present fairly the
financial position of the Company as of September 30, 2002,
the results of its operations for the quarter ended
September 30, 2002, the results of its operations for the
nine months ended September 30, 2002, and its cash flows
for the nine months ended September 30, 2002. Interim
results are not necessarily indicative of results to be expected
for a full fiscal year.

Privately placed securities are carried at fair
value as determined in good faith by or under the direction of
the Board of Directors. Generally, the fair value of each
security will initially be based primarily upon its original
cost to the Company. Cost will be the primary factor used to
determine fair value on an ongoing basis until significant
developments or other factors affecting the investment (such as
results of the portfolio companys operations, changes in
the general market conditions, subsequent financings or the
availability of market quotations) provide a basis for value
other than cost valuation.

Portfolio investments listed on an exchange or
traded on NASDAQ National Market are valued at the closing price
listed on their respective exchange or system on the date of
valuation. Securities traded in the over-the-counter market will
be valued on the average of the closing bid and asked prices on
the day of valuation.

Debt securities with 60 days or less
remaining to maturity will be valued at amortized cost.



|   |                                           
|-- | ------------------------------------------
|2. | Investments, Cash and Cash
    Equivalents

As of September 30, 2002 and
December 31, 2001, the identified costs of investments were
$30,988,583 and $40,292,851, respectively.

Cash equivalents consist of highly liquid
investments with insignificant interest rate risk and original
maturities of three months or less at acquisition date. Cash and
cash equivalents consisted of the following:

|                |  |               |           |              |  |   |           | 
|--------------- |  | ------------- | --------- | ------------ |  | - | --------- | 
|                |  | September 30, |           | December 31,
|                |  | 2002          |           | 2001        
|                |  | (Unaudited)   |           | (Audited)   
|                |  |               |           |             
|Cash            |  | $             | 151,440   |              |  | $ | 5,369,345 | 
|                |  |               |           |              |  |   |           | 
|Restricted Cash |  | $             | 6,000,000 |              |  | $ | 6,000,000 | 
|                |  |               |           |              |  |   |           | 

For the nine months ended September 30,
2002, the Company made the following investments in portfolio
companies owned more than 5%.

|                            |  |   |           | 
|--------------------------- |  | - | --------- | 
|Prime Office Products, Inc. |  | $ | 480,000   | 
|Health Care Solutions, Inc. |  |   | 1,250,000 | 
|Streamline Foods, Inc.      |  |   | 795,000   | 
|Petroleum Partners, Inc.    |  |   | 625,000   | 

8



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##### Table of Contents



BRANTLEY CAPITAL CORPORATION


NOTES TO THE FINANCIAL STATEMENTS 
(UNAUDITED)  (Continued)



|   |                              
|-- | -----------------------------
|3. | Investment Advisory Agreement

The Company has entered into an investment
advisory agreement (the Investment Advisory
Agreement) with Brantley Capital Management, L.L.C. (the
Investment Adviser) under which the Investment
Adviser is entitled to an annual management fee of 2.85% of the
Companys net assets, determined at the end of each
calendar quarter, and payable quarterly in arrears throughout
the term of the Investment Advisory Agreement. For the three and
nine months ended September 30, 2002, the Investment
Adviser earned $483,280 and $1,419,601 respectively under the
Investment Advisory Agreement. Certain officers of the Company
are also officers of the Investment Adviser. No officer of the
Investment Adviser receives any compensation from the Company
for serving as officer of the Company.



|   |                     
|-- | --------------------
|4. | Financial Highlights

|                                         |                                                            |                                  |       |                    |        |       |       |       |       |      
|---------------------------------------- | ---------------------------------------------------------- | -------------------------------- | ----- | ------------------ | ------ | ----- | ----- | ----- | ----- | -----
|                                         |                                                            | For the nine                     |       | For the nine      
|                                         |                                                            | months                           |       | months            
|                                         |                                                            | ended                            |       | ended             
|                                         |                                                            | September 30, 2002               |       | September 30, 2001
|                                         |                                                            |                                  |       |                   
|Net Asset Value, Beginning of the Period |                                                            | $                                | 17.85 |                    |        | $     | 13.63 |      
|                                         |                                                            |                                  |       |                    |        |       |       |      
|Income from investment operations:       |                                                            |                                  |       |                    |        |       |       |      
|                                         | Net investment loss                                        |                                  |       | (0.26              | )      |       |       | (0.23 | )    
|                                         | Net realized and unrealized gain (loss)
    on investments |                                  |       | (0.02              | )      |       |       | 0.69  |      
|                                         |                                                            |                                  |       |                    |        |       |       |      
|                                         |                                                            | Total from investment operations |       |                    | (0.28  | )     |       |       | 0.46  |      
|                                         |                                                            |                                  |       |                    |        |       |       |      
|Less Distributions:                      |                                                            |                                  |       |                    |        |       |       |      
|Distributions from net investment income |                                                            |                                  |      |                    |        |       |      |      
|                                         |                                                            |                                  |       |                    |        |       |       |      
|Net Asset Value, End of Period           |                                                            | $                                | 17.57 |                    |        | $     | 14.09 |      
|                                         |                                                            |                                  |       |                    |        |       |       |      
|Market Value, End of Period              |                                                            | $                                | 8.76  |                    |        | $     | 8.42  |      
|                                         |                                                            |                                  |       |                    |        |       |       |      
|                                         |                                                            | Total return, at Market Value    |       |                    | (19.56 | )%(1) |       |       | (2.37 | )%(1)
|                                         |                                                            |                                  |       |                    |        |       |       |      
|                                         |                                                            | Total return, at Net Asset Value |       |                    | (1.57  | )%(1) |       |       | 3.37  | %(1) 
|                                         |                                                            |                                  |       |                    |        |       |       |      
|                                         | Total Expenses/ Average net assets                         |                                  |       | 5.32               | %(2)   |       |       | 5.37  | %(2) 
|                                         |                                                            |                                  |       |                    |        |       |       |      
|                                         | Net Investment Income/ Average net assets                  |                                  |       | (1.49              | )%(2)  |       |       | (2.20 | )%(2)
|                                         |                                                            |                                  |       |                    |        |       |       |      



---



|    |                
|--- | ---------------
|(1) | Not annualized.
|   
|(2) | Annualized.    



|   |                    
|-- | -------------------
|5. | Recent Developments

On September 25, 2002, Phillip Goldstein, a
director and shareholder of the Company filed a lawsuit in the
District Court for the Northern District of Ohio against us,
Robert Pinkas, James Oliver, Benjamin Bryan and IVS Associates,
Inc. alleging, among other things, that the Company engaged in
wrongdoing and that the individual defendants breached their
fiduciary duties during the Annual Meeting of Stockholders held
on September 17, 2002. Mr. Goldstein alleges that the
Companys actions surrounding the closing of the polls
disenfranchised certain shareholders. Mr. Goldstein is
seeking to have votes for which he has proxies, which were
submitted after the polls were closed, counted. He also seeks an
order declaring his nominees to be directors of the Company. The
Company has answered the complaint and denied any violations.
The Company also asserted a counterclaim against
Mr. Goldstein alleging violations of the proxy rules and
the failure to disclose his participation in a group as required
by Regulation 13D. Mr. Goldstein has denied the
allegations of the counterclaims. Mr. Goldsteins
motion for a temporary restraining order was denied, and there
is a hearing for a preliminary injunction scheduled for
November 18, 2002.

9



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##### Table of Contents



BRANTLEY CAPITAL CORPORATION


NOTES TO THE FINANCIAL STATEMENTS 
(UNAUDITED)  (Continued)

On October 8, 2002, Thomas Kornfeld and
Robert Strougo filed a purported class action lawsuit against
the Company, the directors of the Company excluding Phillip
Goldstein, IVS Associates, Inc. and JMP Securities LLC, alleging
a series of derivative and direct claims that the directors have
breached their fiduciary duties and that the Company engaged in
wrongdoing with respect to the Annual Meeting of Stockholders
held on September 17, 2002. The factual allegations are
substantially similar to the complaint filed by
Mr. Goldstein and also include allegations of conversion of
corporate funds. The complaint seeks, among other things, an
order declaring Mr. Goldsteins nominees to be
directors of the Company, an order declaring that the investment
advisory agreement be terminated and damages for breach of
fiduciary duty.

We believe that both of these lawsuits are
without merit, and we intend to defend the lawsuits vigorously.
While we do not expect these matters to materially affect our
financial condition or results of operations, there can be no
assurance as to whether these matters will have a material
adverse effect on our financial condition or results of
operations in any future reporting period.

On October 4, 2002, the Company received
notice from the Midwest Regional Office (MRO) of the
SEC that they were inquiring into activities involving the
Annual Meeting. The Company has and will cooperate with the
inquiry. The letter from the MRO states that the inquiry should
not be construed as an indication by the staff of that office
that any violation of law has occurred, or as a reflection upon
any person or entity that may be involved.

10



---



##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis of
    Financial Condition and Results of Operations



| |                 
| | ----------------
| | General Overview

We are a non-diversified investment company that
is regulated as a business development company under the
Investment Company Act of 1940. We provide equity and long-term
debt financing to small and medium-sized private companies in a
variety of industries throughout the United States. In addition,
we invest a portion of our assets in small-capitalization public
companies. Our investment objective is to achieve long-term
capital appreciation in the value of our investments and to
provide current income primarily from interest, dividends and
fees paid by our portfolio companies.

Historically, we have focused our investing
activities on private equity securities. We generally structure
our private equity investments as participating preferred stock
with an 8% to 10% dividend yield that accumulates and is paid
upon a liquidity event. Our private equity investments typically
range from $1 million to $5 million, and we generally
expect these investments to achieve liquidity within four to
seven years although there is no assurance they will do so. We
typically do not receive a cash return on our private equity
investments until a liquidity event occurs, but instead seek to
achieve long-term capital appreciation in net asset value
through such investments.

We have explored various strategic alternatives
to enhance our growth and stockholders value. We
determined that operating at our current size or attempting to
realize premature liquidity events within our portfolio would
not enhance the market value of our common stock and would limit
our ability to generate recurring income sought by the
investment community and our stockholders. Specifically, we have
been exploring the possibility of expanding our origination of
mezzanine investments. Shares of business development companies
that invest primarily in mezzanine investments tend to trade at
a premium to net asset value per share due to the expectation of
current income produced by such investments. There can be no
assurance that our shares will trade at a premium to net asset
value. We believe that current market conditions, influenced by
more stringent credit standards of commercial banks and more
conservative capital structures sought by entrepreneurs and
equity sponsors, have created an increased demand for mezzanine
investments.

Mezzanine investments would be expected to
provide a current cash return to us in the form of interest and
origination fees. We typically participate in any increase in
the equity value of the companies to whom we provide mezzanine
financing through warrants or other equity rights. We anticipate
that mezzanine investments would provide less potential for
appreciation in our net asset value than private equity
investments, but would instead provide higher current income
that may be distributed to our stockholders. In the future, we
may also seek to further leverage our portfolio by utilizing
additional borrowings to fund our investments.

In order to fund the origination of mezzanine
investments, we are exploring various capital-raising
alternatives. We intend to use the proceeds of such an event to
make mezzanine investments. We can make no assurances that a
capital raising effort will be undertaken or that any of our
portfolio companies would experience a liquidity event. We can
also make no assurances that our plan to expand our origination
of mezzanine investments will be consummated or be successful.

On June 4, 2002 the Company announced that
it had received board approval to pursue a preliminary plan to
raise capital for the purpose of expanding its origination of
mezzanine investments. As part of the plan, we intend to
initiate a rights offering to stockholders where each
stockholder will receive a right to purchase one new share of
the Companys common stock for every three shares of common
stock that a stockholder owns. The right would entitle the
holder to purchase the share of common stock at a discount to
the market price. Based on the current number of shares
outstanding, the plan would increase the outstanding shares by
up to 1.27 million shares. The subscription price and the
record date for the distribution of the rights have not been
determined. We anticipate that the rights will be transferable
and will be admitted for trading on the Nasdaq National Market.
There can be no assurance that a market for the rights will
develop. We intend to file a registration statement with the
Securities and Exchange Commission, which will be subject to
review.

In addition to the rights offering, we have
applied for inclusion in the Small Business Investment Company
program of the Small Business Administration (the
SBA). If granted, we would be eligible for debt
financing from the SBA at an amount up to two times the equity
financing expected from the rights offering. We have filed an
application with the SBA, which will be subject to review. There
can be no assurance that we will be able to obtain a license to
operate an SBIC or that we will be able to obtain leverage from
the SBA.

11



---



##### Table of Contents





| |                            
| | ---------------------------
| | Certain Accounting Policies

Privately placed equity and mezzanine securities
are carried at fair value as determined in good faith by our
board of directors. Initially, the fair value of each such
security is based upon its original cost. Cost is also the
primary factor used to determine fair value on an ongoing basis
until significant developments or other factors affecting the
investment (such as results of subsequent financings, the
availability of market quotations, the portfolio companys
operations and changes in general market conditions) provide a
basis for value other than cost. Portfolio investments listed on
a securities exchange or traded on the Nasdaq Stock Market are
valued at the closing price listed on the relevant exchange or
quotation system on the date of valuation. Securities traded in
the over-the-counter market are valued based on the average of
the closing bid and asked prices on the date of valuation.

Origination fees are recognized as income during
the period in which they are received. Interest income is
recorded on mezzanine investments when the payment is
contractually due unless a loan is more than 30 days past
due. Interest is not accrued on any loans that are more than
30 days past due.

We account for our operations utilizing
accounting principles generally accepted in the United States
for investment companies. On this basis, the principal measure
of our financial performance is captioned Net change in
net assets resulting from operations, which is the sum of
two elements. The first element is Investment income
(loss), net, which is the difference between (1) our
income from interest, dividends and fees, and (2) our
operating expenses. The second element is Net gain
(loss) on investment transactions, which is the sum
of (1) the difference between the proceeds received from
our dispositions of portfolio securities and their stated cost
(Net realized gain (loss) on investments), and
(2) the net change in the fair value of our investment
portfolio (Net unrealized gain (loss) on
investments). Net realized gain (loss) on
investments and Net unrealized gain (loss) on
investments are directly related. For example, in the
period during which a security is sold to realize a gain, net
unrealized gain on investments decreases, and net realized gain
on investments increases.

Historically, we have focused our investing
activities on private equity securities. We began making such
investments in 1997 and are now entering into a phase of the
business plan which emphasizes positioning our more mature
portfolio companies for appropriate liquidity events. As a
result, we are continually monitoring portfolio company results
and evaluating opportunities to maximize the valuation of our
investments. In that regard, we periodically evaluate potential
acquisitions, financing transactions, initial public offerings,
strategic alliances, and sale opportunities involving our
portfolio companies. Any such transaction could have an impact
on the valuation of our investments. These transactions and
activities are generally not disclosed to our stockholders and
the investing public until such time as the transactions are
publicly announced or completed, as the case may be.

Results of Operations



| |                             
| | ----------------------------
| | Dividend and Interest Income

Dividend and interest income on investments for
the three months ended September 30, 2002 and 2001 was
$697,184 and $391,034. Dividend and interest income on
investments for the nine months ended September 30, 2002
and 2001 was $1,687,902 and $1,244,915, respectively. The
increase in interest and dividend income during the three and
nine months ended September 30, 2002 was primarily because
of the ongoing increase in the private equity and mezzanine
portfolio which generates higher dividend and interest income.



| |                   
| | ------------------
| | Operating Expenses

Total operating expenses during the three months
ended September 30, 2002 and 2001 were $1,252,666 and
$797,210 respectively. The significant components of total
operating expenses were advisory fees of $483,280 and $401,335
earned by our investment adviser and professional fees of
$567,915 and $135,859 during the three months ended
September 30, 2002 and 2001, respectively. The increase in
total operating expenses was primarily due to the increase of
$81,954 in the advisory fees resulting from the increase in net
assets and the increase of $432,056 in professional fees which
is primarily related to contested matters involving the Annual
Meeting of Stockholders, ongoing litigation challenging the
certified results of the Annual Meeting of Stockholders, and
counsel retained for the independent directors in connection
with certain matters regarding the Advisor.

12



---



##### Table of Contents



Total operating expenses during the nine months
ended September 30, 2002 and 2001 were $2,692,819 and
$2,105,885, respectively. The significant components of total
operating expenses were advisory fees of $1,419,601 and
$1,124,410 earned by our investment adviser and professional
fees of $666,437 and $287,358 during the nine months ended
September 30, 2002 and 2001, respectively. The increase in
total operating expenses was primarily due to the increase of
$295,191 in the advisory fees resulting from the increase in net
assets and the increase of $379,079 in professional fees which
is primarily related to contested matters involving the Annual
Meeting of Stockholders, ongoing litigation challenging the
certified results of the Annual Meeting of Stockholders, and
counsel retained for the independent directors in connection
with certain matters regarding the Advisor.



| |                                                                 
| | ----------------------------------------------------------------
| | Net Realized and Unrealized Gains on
    Investment Transactions

During the three months ended September 30,
2002 and 2001, valuation of our equity and mezzanine investments
resulted in net realized and unrealized losses on investments of
($272,956) and ($1,316,867). During the nine months ended
September 30, 2002 and 2001, valuation of our equity and
mezzanine investments resulted in net realized and unrealized
gains (losses) on investments of ($65,098) and $2,623,853,
respectively. At September 30, 2002, and 2001, we had
investments in eleven privately-held companies, as well as in
various small-capitalization public stocks which are subject to
general stock market and business conditions. The unrealized
gains (losses) during such periods were significantly influenced
by general stock market and business conditions as well as the
June 30, 2001 financing transaction of Flight Options
International, Inc. as more fully described under
Financial Conditions, Liquidity and Capital
Resources.

Financial Condition, Liquidity and Capital
Resources

At September 30 2002 and December 31,
2001, we had $151,440 and $5,369,345, respectively, in cash and
cash equivalents which were primarily invested in overnight
securities. Restricted cash is held under direction of our
lender and is not readily available to fund investments or pay
operating expenses. Our management believes that proceeds from
our investments will provide us with the liquidity necessary to
pay our operating expenses. However, in order to execute our
mezzanine investment plan, we will continue to seek
opportunities to raise additional capital in the form of debt or
equity.

At September 30, 2002 and December 31,
2001, we had stockholders equity of $67,323,299 and
$68,006,314, respectively, resulting in net asset values per
share of $17.67 and 17.85 respectively. At September 30,
2002, we had $6,000,000 of outstanding indebtedness. For the
nine months ended September 30, 2002, the weighted average
interest rate on this indebtedness was 4.75%.

Brantley Venture Partners II, L.P., Brantley
Venture Partners III, L.P. and Brantley Partners IV, L.P. hold,
in the aggregate, approximately $211 million of private
equity investments. These partnerships are related to our
investment adviser in a manner that required the receipt, from
the Securities and Exchange Commission, of an exemption from
certain provisions of the Investment Company Act of 1940 in
order to permit us, under certain circumstances, to invest in
the same portfolio companies as the other private investment
funds managed by our investment adviser.

At September 30, 2002 and December 31,
2001, the aggregate cost of the investments we made to date was
$31.0 million and $28.9 million, respectively, and
their aggregate market value was $62.5 million and
$60.3 million, respectively, for an aggregate fair value
appreciation of 102% and 109%, respectively. Our management
believes that our portfolio companies have significant potential
for long-term growth in sales and earnings.

Since the completion of our initial public
offering, our management has focused its investment activities
on securing new investments for our portfolio. However, given
the nature of our current portfolio and the fact that this
portfolio as a whole is maturing, our management is seeking to
position the more mature portfolio companies for appropriate
liquidity events. We are continuously monitoring portfolio
company results and evaluating opportunities to maximize the
value of our investments. In that regard, we periodically
evaluate potential acquisitions, financing transactions, initial
public offerings, strategic alliances and sale opportunities
involving our portfolio companies. These transactions and
activities are generally not disclosed to our stockholders and
the investing public until such time as the transactions are
publicly announced or completed, as the case may be. Any such
transaction could have an impact on the valuation of our
investments. However, these revised valuations would generally
not be adjusted until the transaction is publicly announced or
completed.

13



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| |                                          
| | -----------------------------------------
| | Private Portfolio Company
    Investments

Our individually significant equity and mezzanine
investments at September 30, 2002 are described in more
detail below:



| |                                 
| | --------------------------------
| | Disposable Products Company, LLC

On August 10, 1998, we entered into an
investment led by Banc One Capital to provide $1.0 million
of a $3.0 million subordinated debt facility with warrants
for Disposable Products Company, LLC. Disposable Products is an
acquisition strategy company in the business of manufacturing
and converting paper and non-woven materials into wiping
products for sale to commercial, institutional, industrial and
government markets. In addition, Disposable Products is a
converter and reseller of other safety and industrial/janitorial
products. Proceeds of the transaction were used to complete
Disposable Products first acquisition. The terms of the
debt facility call for a 12% interest rate per annum with a
final maturity in 2003. We also received a detachable capital
stock purchase warrant exercisable for 5% of the fully-diluted
capital stock of Disposable Products at the time of exercise at
a nominal exercise price. On January 26, 2001, we funded a
$166,667 12% promissory note from Disposable Products. In
addition, through September 30, 2002 we funded additional
12% promissory notes of $1,270,534 from Disposable Products.



| |                    
| | -------------------
| | Fitness Quest, Inc.

On December 16, 1997, we funded a
$1.35 million commitment to invest with Brantley Venture
Partners III, L.P. in a $3.85 million preferred stock issue
for Fitness Quest, Inc. As a result, we purchased approximately
788,961 shares of Fitness Quest Series A 10% Convertible
Preferred Stock at $1.71 per share. Fitness Quest is a direct
marketing and distribution company. The proceeds were used by
Fitness Quest for a management buy-out of the company from its
previous owner, The Time Warner Music Group, a 100% wholly owned
subsidiary of Time Warner, Inc., and for other acquisitions.
Fitness Quest has been in the fitness promotional products
business since 1994. Fitness Quest operates in a highly
competitive industry and is dependent on the management talent
and efforts of key personnel for its success. We do not believe
that Fitness Quest is dependent on a single or small number of
customers, possesses significant intellectual property, or is
operating in an unusually regulated industry.

During 1997, Fitness Quest increased its revenue
and improved its operating margins and profits. After a complete
evaluation, our board of directors re-valued our Fitness Quest
investment to $5,440,000, resulting in a 1997 unrealized gain of
$4,090,000. This evaluation was based on price to earnings
ratios, cash flow multiples and other appropriate financial
measurements of similar private companies. In addition to the
above Series A 10% Convertible Preferred Stock, we funded
$1,751,300 to invest with Brantley Venture Partners III, L.P. in
a $3.5 million 10% senior subordinated debt investment in
Fitness Quest in 2000. In addition, we received a warrant to
purchase 181,172 shares of Fitness Quest common stock for $0.01
per share.

The proceeds of the most recent investment were
used to fund Fitness Quests working capital needs. During
the fourth quarter of 2000, we exchanged the senior subordinated
debt investment and related unpaid interest for 679,641 shares
of Fitness Quest common stock.



| |                                                                        
| | -----------------------------------------------------------------------
| | Flight Options International, Inc. (Formerly
    Corporate Wings, Inc.)

On December 23, 1997, we funded
$2.1 million to invest with Brantley Venture Partners III,
L.P. in a $6.0 million preferred stock issue for Flight
Options International, Inc. Our investment consists of
approximately 2,576,000 shares of Flight Options Series A
8% Convertible Preferred Stock at $0.8152 per share. Flight
Options provides complete private air travel service through the
sale of fractional interests in pre-owned jet aircraft. The
proceeds of the transaction were used by Flight Options to
continue to execute an acquisition strategy. We believe Flight
Options is one of the top five providers of fractional interests
in aircraft in the United States, a highly competitive industry
and is dependent on the management talent and efforts of key
personnel for its success. Flight Options is subject to certain
regulations of the Federal Aviation Administration. We do not
believe it is dependent on a single or small number of customers
or possesses significant intellectual property.

On December 29, 1998, we completed a second
private equity investment in Flight Options. In this investment,
we purchased $962,500 of a $5.5 million preferred stock
transaction led by The Provident Bank. Our

14



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##### Table of Contents



purchase represents approximately 260,135 shares
of Class A 8% Convertible Preferred Stock at $3.70 per
share. The proceeds were used by Flight Options to fund the
expansion of its fractional ownership program and to continue to
execute its acquisition strategy. During 1998, Flight Options
completed the acquisition of Miller Aviation. Based upon the
price of this subsequent financing and the operating performance
of Flight Options during 1998, the fair value of our original
investment was increased to $9,531,760, resulting in an
unrealized gain of $7,431,760. This valuation was based on the
$3.70 per share price negotiated by The Provident Bank and was
approved by our board of directors.


On August 31, 1999, Flight Options sold
$20 million of Series B 8% Preferred Stock to a third
party private equity group at $4.365 per share. Consistent with
our investment valuation guidelines, this transaction resulted
in a valuation increase on our Flight Options investment of
$1,886,030 or $0.50 per share.

On July 11, 2000, we guaranteed a portion of
Flight Options third-party borrowings. As a result, we
were issued a warrant to purchase 36,000 shares of Flight
Options common stock at a price of $0.01 per share. This
guarantee was terminated prior to December 12, 2000.

On December 12, 2000 we purchased 469,925
shares of Flight Options Class C 8% Preferred Stock at
$5.32 per share for a total investment of $2.5 million. The
proceeds of the transaction were used by Flight Options to fund
the continued expansion of its fractional ownership program.

On June 30, 2001, Flight Options received
offers from institutional investors to purchase convertible
preferred stock or subordinated debt securities of Flight
Options which support the valuation used to complete the
December 12, 2000 Class C 8% Preferred Stock
transaction described in the preceding paragraph. As a result,
and consistent with our investment valuation guidelines, our
board of directors approved a valuation increase on the Flight
Options investment which resulted in our reporting an unrealized
gain of $2,742,889 or $0.72 per share for the quarter ended
June 30, 2001.

On December 21, 2001, Flight Options, Inc.
and Raytheon Travel Air, a Wichita, Kansas-based unit of
Raytheon Company, a Lexington, Mass. based defense contractor,
agreed to combine operations into one fractional aircraft
ownership program to be known as Flight Options. Under the terms
of the transaction, Flight Options, Inc. holds 50.1% ownership
of the new business with Raytheon holding 49.9%. The transaction
was completed during the quarter ended March 31, 2002.

As a result of the transaction described above,
our board of directors met to review the terms of the
transaction including, among other things, a valuation review
prepared by an investment banking firm working on the
transaction. Consistent with our valuation guidelines, the board
used a private market method to value our investment in Flight
Options, Inc. and approved an increase in the value of our
investment in Flight Options, Inc. to $32.5 million. At
September 30, 2002, the financial statement value of our
investment in Flight Options represents an increase of more than
484% from its original purchase price. The commentary above
reflects a four-for-one stock split executed in 2000. All share
and per share amounts have been adjusted to reflect such stock
split.



| |                            
| | ---------------------------
| | Health Care Solutions, Inc.

On September 30, 1997, we funded a
$1.5 million convertible junior subordinated promissory
note facility for Health Care Solutions, Inc. Health Care
Solutions is an acquisition strategy company in the home
healthcare services market with a strong presence in the Midwest
and Great Lakes regions. The terms of the notes called for an
18% interest rate per annum during the first year and 12% per
annum thereafter, with final maturity two years from the
closing. After the first year, the notes were convertible into
common stock at a price of $3.50 per share.

In connection with our commitment to provide this
facility, we received warrants to purchase up to $450,000 of
common stock valued at an exercise price of 10% of an initial
public offering price completed during the term of the notes, or
at $3.50 per share should the warrants be exercised other than
in connection with an initial public offering. The warrants are
currently exercisable. The proceeds of the notes were used by
Health Care Solutions to help finance acquisitions.

In 2000, Health Care Solutions completed a
re-capitalization plan, including a two-for-one reverse stock
split. As a result, we agreed to exchange our convertible junior
subordinated promissory note and accrued interest thereon for
246,994 shares of Series C 8% Convertible Preferred Stock
at an exchange rate of $7.50 per share.

15



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##### Table of Contents



The warrants to purchase up to $450,000 of common
stock at an exercise price of 10% of an initial public offering
price or at $3.50 per share remain outstanding and have been
adjusted to reflect the reverse stock split.


In addition to the above Series C 8%
Convertible Preferred Stock, we funded $500,000 and $299,000 12%
Convertible Subordinated Notes from Health Care Solutions in
2000. As part of this transaction, we received a warrant to
purchase up to $50,000 of Health Care Solutions common stock at
an exercise price equal to the lower of the price determined by
an initial public offering or $7.50 per share. On March 7,
2001, we agreed to exchange the $500,000 Convertible
Subordinated Note for 71,880 shares of Series D Convertible
Preferred Stock. On January 29, 2002, we funded a
$1,250,000 12% Convertible Subordinated Note from Health Care
Solutions.



| |                        
| | -----------------------
| | The Holland Group, Inc.

On July 13, 2000, we funded a
$2.1 million commitment to invest with Brantley Partners
IV, L.P. in a $8.5 million preferred stock issue of The
Holland Group, Inc. The Holland Group is a provider of temporary
staffing and human resource management services that currently
operates 35 branches in five states. In this transaction, we
purchased 282,530 shares of The Holland Groups
Series A 8% Convertible Preferred Stock. In
February 2002 we purchased a $50,000 12% convertible
subordinated note from The Holland Group.



| |                              
| | -----------------------------
| | National Rehab Partners, Inc.

On August 10, 1999, we funded
$1.4 million of a $1.5 million commitment to invest
with Brantley Partners IV, L.P. and a third party equity group
in a $12.0 million preferred stock issue for National Rehab
Partners, Inc. Pursuant to this commitment, we purchased
2.2 million shares of Class A 8% Convertible Preferred
Stock. The proceeds of this transaction were used to complete
the acquisition of a group of rehabilitation management service
providers. The remainder of the commitment is being funded upon
the successful closing of additional acquisitions. National
Rehab Partners is a Brentwood, Tennessee rehabilitation
management service company providing rehabilitation services
through acute care hospitals and hospital systems throughout the
United States. National Rehab Partners is the only national
rehabilitation company focused exclusively on helping hospitals
develop their outpatient rehabilitation services.

On January 10, 2001, we funded a $26,126 10%
promissory note from National Rehab Partners. On June 13,
2001, the $26,126 note and the related accrued interest were
cancelled and replaced with a $27,228 10% promissory note.



| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Integrated Physician Solutions, Inc. (Formerly
    Pediatric Physicians Alliance, Inc.)

On January 28, 1999, we funded a
$3.2 million commitment to invest with Brantley Venture
Partners III, L.P. in a $7.9 million preferred stock issue
for Integrated Physician Solutions, Inc. Pursuant to our
commitment, we purchased 793,000 shares of Class A-2 10%
Convertible Preferred Stock. Integrated Physician Solutions is a
physician practice management systems provider. Their objective
is to develop the leading integrated physician practice
management system in the United States. Integrated Physician
Solutions is dependent on the management talent and effort of
key personnel for its success in this highly competitive
industry. We do not believe it is dependent on a single or small
number of customers, possesses significant intellectual property
or that it is subject to significant regulations. The proceeds
of the transaction were used to complete the acquisition of a
number of physician practices.

In addition to the above Class A-2 10%
Convertible Preferred Stock, in 2000 we funded $267,448 to
invest with Brantley Venture Partners III, L.P. in $668,619 of
promissory notes, with detachable warrants, in Integrated
Physician Solutions. The detachable warrants are for the
purchase of 30,000 shares of Integrated Physician Solutions
common stock at $4.00 per share.



| |                         
| | ------------------------
| | Petroleum Partners, Inc.

On June 7, 2001, we entered into a
$2.7 million commitment to invest with Brantley Partners
IV, L.P. in a $15.0 million preferred stock and
subordinated debt issue for Petroleum Partners, Inc. In
connection with this commitment, we purchased 250,000 shares of
Class A 8% Convertible Preferred Stock at $1.00 per share,
600,000 shares of Class B 8% Convertible Preferred Stock at
$2.00 per share, and funded a $1,250,000 10% Convertible
Subordinated Note with a detachable warrant for the purchase of
78,125 shares of common stock at

16



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##### Table of Contents



$0.01 per share. Petroleum Partners, based in
Cleveland, Ohio, is a provider of outsourced maintenance
services to the petroleum industrys retailers and
refineries. The proceeds from the transaction were used to
acquire a company which is a leading provider of petroleum and
petrochemical handling equipment and outsourced facilities
maintenance services to providers of fuel delivery systems such
as gasoline retailers and refineries. The equipment distributed
by the company includes petroleum storage tanks, pumps, fuel
dispensers, flexible piping, tank valves, leak detection gauges,
canopies, air compressors and service station lighting equipment.


In addition to the above investment, we funded
$1,875,000 of 10% Convertible Subordinated through
September 30, 2002. The proceeds of the notes were used for
operating purposes.



| |                                                                     
| | --------------------------------------------------------------------
| | Prime Office Products, Inc. (Formerly Business
    Essentials, Inc.)

On April 22, 1999, we entered into a
$1.7 million commitment to invest with Brantley Partners
IV, L.P. and Massey Burch Capital Corp. in a $10.0 million
preferred stock issue for Prime Office Products, Inc. Pursuant
to our commitment, we purchased 510,000 shares of Class A
8% Convertible Preferred Stock at $2.00 per share. Prime Office
Products is an office products marketing and distribution
company based in Nashville, Tennessee. The first part of the
commitment was funded to launch an acquisition strategy focused
on office distribution companies serving primarily commercial
and industrial customers. The remainder of the commitment is
being funded upon the closing of additional acquisitions. On
January 8, 2002, we purchased an additional 200,000 shares
of Class A 8% Convertible Preferred Stock at $2.00 per
share. On July 31, 2002, we purchased an additional 40,000
shares of Class A 8% Convertible Preferred Stock at $2.00
per share.



| |                       
| | ----------------------
| | Streamline Foods, Inc.

On February 7, 2002 we funded a $795,000
commitment to invest with Brantley Partners IV, L.P. in a
$7,950,000 preferred stock and subordinated debt issue for
Streamline Foods, Inc. Pursuant to our commitment we purchased
approximately 898,000 shares of Series A 8% Convertible
Preferred Stock at $0.78 per share and a $95,000 13% Convertible
Subordinated Note with warrants to purchase 27,500 shares of
common stock at $0.01 per share. The proceeds were used by
Streamline Foods for a buy-out of the Company from its previous
owner. Streamline Foods, Inc. sources, blends, packages and
distributes high sugar content food products for branded
multi-national food companies and private label manufacturers.



| |                              
| | -----------------------------
| | Value Creation Partners, Inc.

On June 14, 2000, we completed a
$2.1 million commitment to invest with Brantley Partners
IV, L.P. and several other private equity investors in a
$23.8 million preferred stock issue for Value Creation
Partners, Inc. Pursuant to this commitment, we purchased
approximately 35,000 shares and 269,989 shares of 8% Convertible
Preferred Stock at $5.00 and $7.30 per share, respectively.
Value Creation Partners is an acquisition strategy company in
the food industry. The proceeds of the transaction were used to
complete the acquisition of Best Brands, Inc., one of the six
largest manufacturers and distributors of a complete line of
premium ingredients, mixes and products, including equipment,
for all segments of the baking industry. Their products are sold
primarily to retail bakeries, bakery distributors, supermarket
in-store bakeries, food wholesalers and food service
establishments.

Small-Capitalization Public Equity
Investments

The small-capitalization public companies in
which we had an investment at September 30, 2002 are listed
in the Statement of Investments. Subsequent to the end of the
quarter we completed a process of liquidating the
small-capitalization public equity portfolio.

Impact of Inflation

We do not believe that our business is materially
affected by inflation, other than the impact that inflation may
have on the securities markets, the valuations of business
enterprises and the relationship of such valuations to
underlying earnings, all of which will influence the value of
our investments.

17



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##### Table of Contents



Recent Developments

On September 25, 2002, Phillip Goldstein, a
director and shareholder of the Company filed a lawsuit in the
District Court for the Northern District of Ohio against us,
Robert Pinkas, James Oliver, Benjamin Bryan and IVS Associates,
Inc. alleging, among other things, that the Company engaged in
wrongdoing and that the individual defendants breached their
fiduciary duties during the Annual Meeting of Stockholders held
on September 17, 2002. Mr. Goldstein alleges that the
Companys actions surrounding the closing of the polls
disenfranchised certain shareholders. Mr. Goldstein is
seeking to have votes for which he has proxies, which were
submitted after the polls were closed, counted. He also seeks an
order declaring his nominees to be directors of the Company. The
Company has answered the complaint and denied any violations.
The Company also asserted a counterclaim against
Mr. Goldstein alleging violations of the proxy rules and
the failure to disclose his participation in a group as required
by Regulation 13D. Mr. Goldstein has denied the
allegations of the counterclaims. Mr. Goldsteins
motion for a temporary restraining order was denied, and there
is a hearing for a preliminary injunction scheduled for
November 18, 2002.

On October 8, 2002, Thomas Kornfeld and
Robert Strougo filed a purported class action lawsuit against
the Company, the directors of the Company excluding Phillip
Goldstein, IVS Associates, Inc. and JMP Securities LLC, alleging
a series of derivative and direct claims that the directors have
breached their fiduciary duties and that the Company engaged in
wrongdoing with respect to the Annual Meeting of Stockholders
held on September 17, 2002. The factual allegations are
substantially similar to the complaint filed by
Mr. Goldstein and also include allegations of conversion of
corporate funds. The complaint seeks, among other things, an
order declaring Mr. Goldsteins nominees to be
directors of the Company, an order declaring that the investment
advisory agreement be terminated and damages for breach of
fiduciary duty.

We believe that both of these lawsuits are
without merit, and we intend to defend the lawsuits vigorously.
While we do not expect these matters to materially affect our
financial condition or results of operations, there can be no
assurance as to whether these matters will have a material
adverse effect on our financial condition or results of
operations in any future reporting period.

On October 4, 2002, the Company received
notice from the Midwest Regional Office (MRO) of the
SEC that they were inquiring into activities involving the
Annual Meeting. The Company has and will cooperate with the
inquiry. The letter from the MRO states that the inquiry should
not be construed as an indication by the staff of that office
that any violation of law has occurred, or as a reflection upon
any person or entity that may be involved.

Disclosure Regarding Forward-Looking
Statements

Information contained in this Quarterly Report on
Form 10-Q may contain forward-looking
statements which can be identified by the use of
forward-looking terminology such as may,
will, expect, intend,
anticipate, estimate or
continue or the negative thereof or other variations
or similar words or phrases. The matters described throughout
this Quarterly Report on Form 10-Q and in any exhibits of
which this Quarterly Report is a part constitute cautionary
statements identifying important factors with respect to any
such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to differ
materially from those in such forward-looking statements.






|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures about
    Market Risk

We invest in small and medium-sized companies,
and our investments are considered speculative in nature. Our
investments often include securities that are subject to legal
or contractual restrictions on resale that adversely affect the
liquidity and marketability of such securities. As a result, we
are subject to risk of loss which may prevent our stockholders
from achieving price appreciation and dividend distributions.

The portion of our portfolio consisting of
investments in private companies is also subject to valuation
risk. We value our privately held investments based on a
determination of their fair value made in good faith by our
board of directors on a quarterly basis in accordance with our
established guidelines. In the absence of a readily
ascertainable market value, the estimated values of our
investments may differ significantly from the values that would
exist if a ready market for these securities existed. Any
changes in valuation are recorded in our consolidated statements
of operations as Net unrealized gain (loss) on
investments.

18



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##### Table of Contents



We consider the management of equity price risk
essential to conducting our business and maintaining our
profitability. A portion of our portfolio consists of
investments in private companies. We anticipate no impact on
these investments from modest changes in public market equity
prices. However, should significant changes in market prices
occur, there could be a long-term effect on valuations of
private companies, which could affect the carrying value and the
amount and timing of gains realized on these investments. This
could also affect our ability to generate cash through the sale
of private equity investments, since there may not be realistic
initial public offering opportunities. A portion of our
investment portfolio also consists of shares of common stock of
small-capitalization public companies. These investments are
directly exposed to market price risk.






|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

(a) Within the 90-day period prior to the
filing date of this quarterly report, the Companys chief
executive officer and chief financial officer conducted an
evaluation of the Companys disclosure controls and
procedures (as defined in Rules 13a-14 and 15d-14 of the
Securities Exchange Act of 1934). Based upon this evaluation,
the Companys chief executive officer and chief financial
officer concluded that the Companys disclosure controls
and procedures are effective in timely alerting them of any
material information relating to the Company that is required to
be disclosed by the Company in the reports it files or submits
under the Securities Exchange Act of 1934.

(b) There have not been any significant
changes in the Companys internal controls or in other
factors that could significantly affect these controls
subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.




PART II. OTHER INFORMATION






|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings

On September 25, 2002, Phillip Goldstein, a
director and shareholder of the Company filed a lawsuit in the
District Court for the Northern District of Ohio against us,
Robert Pinkas, James Oliver, Benjamin Bryan and IVS Associates,
Inc. alleging, among other things, that the Company engaged in
wrongdoing and that the individual defendants breached their
fiduciary duties during the Annual Meeting of Stockholders held
on September 17, 2002. Mr. Goldstein alleges that the
Companys actions surrounding the closing of the polls
disenfranchised certain shareholders. Mr. Goldstein is
seeking to have votes for which he has proxies, which were
submitted after the polls were closed, counted. He also seeks an
order declaring his nominees to be directors of the Company. The
Company has answered the complaint and denied any violations.
The Company also asserted a counterclaim against
Mr. Goldstein alleging violations of the proxy rules and
the failure to disclose his participation in a group as required
by Regulation 13D. Mr. Goldstein has denied the
allegations of the counterclaims. Mr. Goldsteins
motion for a temporary restraining order was denied, and there
is a hearing for a preliminary injunction scheduled for
November 18, 2002.

On October 8, 2002, Thomas Kornfeld and
Robert Strougo filed a purported class action lawsuit against
the Company, the directors of the Company excluding Phillip
Goldstein, IVS Associates, Inc. and JMP Securities LLC, alleging
a series of derivative and direct claims that the directors have
breached their fiduciary duties and that the Company engaged in
wrongdoing with respect to the Annual Meeting of Stockholders
held on September 17, 2002. The factual allegations are
substantially similar to the complaint filed by
Mr. Goldstein and also include allegations of conversion of
corporate funds. The complaint seeks, among other things, an
order declaring Mr. Goldsteins nominees to be
directors of the Company, an order declaring that the investment
advisory agreement be terminated and damages for breach of
fiduciary duty.

We believe that both of these lawsuits are
without merit, and we intend to defend the lawsuits vigorously.
While we do not expect these matters to materially affect our
financial condition or results of operations, there can be no
assurance as to whether these matters will have a material
adverse effect on our financial condition or results of
operations in any future reporting period.

On October 4, 2002, the Company received
notice from the Midwest Regional Office (MRO) of the
SEC that they were inquiring into activities involving the
Annual Meeting. The Company has and will cooperate with the
inquiry. The letter from the MRO states that the inquiry should
not be construed as an indication by the staff

19



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##### Table of Contents



of that office that any violation of law has
occurred, or as a reflection upon any person or entity that may
be involved.





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

At the Annual Meeting of Stockholders held on
September 17, 2002, there were a total of 2,854,144 shares
represented either in person or by proxy. The stockholders
elected two directors to the Companys Board of Directors.
The stockholders elected James P. Oliver and Benjamin F. Bryan
to serve terms expiring in 2007. The certified results of the
voting for the election of directors of the Company as certified
by IVS Associates Inc. were as follows:

|                  |  |          |           |          |  |  |        | 
|----------------- |  | -------- | --------- | -------- |  |  | ------ | 
|                  |  | In Favor |           | Withheld
|                  |  |          |           |         
|James P. Oliver   |  |          | 1,154,517 |          |  |  | 92,324 | 
|Benjamin F. Bryan |  |          | 1,154,517 |          |  |  | 92,324 | 
|Andrew Dakos      |  |          | 6,000     |          |  |  | 0      | 
|Gerald Hellerman  |  |          | 6,000     |          |  |  | 0      | 

In addition, the stockholders ratified the
selection of KPMG LLP as the Companys independent public
accountant for the fiscal year ending December 31, 2002.
The results of voting for the ratification of the selection of
KPMG LLP as the Companys independent public accountant as
certified by IVS Associates Inc. were as follows:

|        |  |  |           | 
|------- |  |  | --------- | 
|For     |  |  | 1,088,161 | 
|Against |  |  | 149,051   | 
|Abstain |  |  | 15,628    | 

The stockholders also voted down a proposal
recommending that the board of directors take action to commence
an orderly liquidation of the Company as soon as possible. The
results of voting down the proposal as certified by IVS
Associates Inc. were as follows:

|        |  |  |           | 
|------- |  |  | --------- | 
|For     |  |  | 159,929   | 
|Against |  |  | 1,071,407 | 
|Abstain |  |  | 23,071    | 

Finally, the stockholders voted down a proposal
to terminate the existing investment advisory agreement and to
request the board negotiate a new advisory agreement at a
reduced fee. The results of voting down the proposal as
certified by IVS Associates Inc. were as follows:

|        |  |  |           | 
|------- |  |  | --------- | 
|For     |  |  | 217,151   | 
|Against |  |  | 1,012,618 | 
|Abstain |  |  | 23,071    | 

The certified election results have been
challenged in two lawsuits. See Legal Proceedings
for a discussion of proceedings related to the Annual Meeting.

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##### Table of Contents








|        |                                     
|------- | ------------------------------------
|Item 6. | Exhibits and Reports on
    Form 8-K

a. Exhibits

|           |  |                                                                                                                                                                                                                                              
|---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 3  |  | Articles of Incorporation and By-laws                                                                                                                                                                                                        
|(1)        |  | Articles of Amendment and Restatement of the
    Charter of the Company (Exhibit 3.1 to the Annual Report on Form
    10-K filed on March 31, 1999, which exhibit is incorporated
    herein by reference)                                   
|(2)        |  | Amended and Restated Bylaws of the Company
    (Exhibit 3.2 to the Annual Report on Form 10-K filed on March
    31, 1999, which exhibit is incorporated herein by reference)                                                                
|(3)        |  | Amendment to the Charter of the Company (Exhibit
    3.3 to the Registration Statement filed on October 26, 2001,
    which exhibit is incorporated herein by reference)                                                                     
|Exhibit 4  |  | Form of Share Certificate (Exhibit 2.d to
    amendment No. 1 to the Registration Statement filed on
    October 31, 1996, which exhibit is incorporated herein by
    reference)                                                            
|Exhibit 10 |  | Material Contracts                                                                                                                                                                                                                           
|(1)        |  | Dividend Reinvestment and Cash Purchase Plan
    (Exhibit 2.e to Amendment No. 3 to the Registration
    Statement filed on November 26, 1996, which exhibit is
    incorporated herein by reference)                                        
|(2)        |  | Form of Investment Advisory Agreement between the
    Company and the Investment Adviser (Exhibit 2.g to Amendment No.
    3 to the Registration Statement filed on November 26, 1996,
    which exhibit is incorporated herein by reference)
|(3)        |  | Stock Option Plan and Form of Option Grants
    (Exhibit 2.i.1 to Amendment No. 2 to the Registration Statement
    filed on November 22, 1996, which exhibit is incorporated herein
    by reference)                                       
|(4)        |  | Disinterested Director Option Plan and Form of
    Option Grants (Exhibit 2.i.2 to Amendment No. 2 to the
    Registration Statement filed on November 22, 1996, which exhibit
    is incorporated herein by reference)                      
|(5)        |  | Form of Custodian Contract (Exhibit 2.j to
    Amendment No. 2 to the Registration Statement filed on November
    22, 1996, which exhibit is incorporated herein by reference)                                                              
|(6)        |  | Form of Registrar, Transfer Agency and Service
    Agreement (Exhibit 2.k.1 to Amendment No. 2 to the Registration
    Statement filed on November 22, 1996, which exhibit is
    incorporated herein by reference)                          
|(7)        |  | Form of Administration Agreement (Exhibit 2.k.2
    to Amendment No. 2 to the Registration Statement filed on
    November 22, 1996, which exhibit is incorporated herein by
    reference)                                                  
|(8)        |  | Form of Indemnification Agreement for Directors
    and Officers (Exhibit 2.s to Amendment No. 2 to the Registration
    Statement filed on November 22, 1996, which exhibit is
    incorporated herein by reference)                        
|Exhibit 99 |  | Other                                                                                                                                                                                                                                        
|(1)        |  | Certificaton Pursuant to 18 U.S.C. 1350, As
    Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
    2002.                                                                                                                       
|(2)        |  | Certificaton Pursuant to 18 U.S.C. 1350, As
    Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
    2002.                                                                                                                       

b. Reports on Form 8-K

A Form 8-K was filed on October 22,
2002 which announced that Brantley Capital Management LLC, the
Companys investment advisor (the Advisor)
obtained an order from the Securities and Exchange Commission
(SEC) declaring that its investment adviser
registration had become effective.

21



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##### Table of Contents






SIGNATURES

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



| |                             
| | ----------------------------
| | BRANTLEY CAPITAL CORPORATION

|                        |  |                                                                                                   
|----------------------- |  | --------------------------------------------------------------------------------------------------
|                       
|Date: November 14, 2002 |  | By: /s/ ROBERT P. PINKASRobert P. Pinkas
    Chairman of the Board and
    Chief Executive Officer
|                       
|Date: November 14, 2002 |  | By: /s/ TAB A. KEPLINGERTab A. Keplinger
    Vice President and
    Chief Financial Officer       

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##### Table of Contents






CERTIFICATION OF CHIEF EXECUTIVE
OFFICER

I, Robert P. Pinkas, Chief Executive Officer,
certify that:



| |    |                                                                                                                                                                                                                                                                                                                                                   
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this quarterly report on
    Form 10-Q of Brantley Capital Corporation;                                                                                                                                                                                                                                                           
|
| | 2. | Based on my knowledge, this quarterly report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    quarterly report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this quarterly
    report, fairly present in all material respects the financial
    condition, results of operations and cash flows of the
    registrant as of, and for, the periods presented in this
    quarterly report;                   
|
| | 4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                              



| |    |                                                                                                                                                                                                                                                                                                                
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this quarterly report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    quarterly report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this quarterly report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |    |                                                                                                                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent functions):



| |    |                                                                                                                                                                                                                                                                                                                  
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could aversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                   



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officer
    and I have indicated in this quarterly report whether or not
    there were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

Date: 11/14/02

| |                        
| | -----------------------
| | /s/ ROBERT P. PINKAS   
| | Robert P. Pinkas       
| | Chief Executive Officer

23



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##### Table of Contents






CERTIFICATION OF CHIEF FINANCIAL
OFFICER

I, Tab A. Keplinger, Chief Financial Officer,
certify that:



| |    |                                                                                                                                                                                                                                                                                                                                                   
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this quarterly report on
    Form 10-Q of Brantley Capital Corporation;                                                                                                                                                                                                                                                           
|
| | 2. | Based on my knowledge, this quarterly report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    quarterly report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this quarterly
    report, fairly present in all material respects the financial
    condition, results of operations and cash flows of the
    registrant as of, and for, the periods presented in this
    quarterly report;                   
|
| | 4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                              



| |    |                                                                                                                                                                                                                                                                                                                
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this quarterly report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    quarterly report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this quarterly report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |    |                                                                                                                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent functions):



| |    |                                                                                                                                                                                                                                                                                                                  
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could aversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                   



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officer
    and I have indicated in this quarterly report whether or not
    there were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

Date: 11/14/02

| |                        
| | -----------------------
| | /s/ TAB A. KEPLINGER   
| | Tab A. Keplinger       
| | Chief Financial Officer

24