<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1997
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 (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION
20600 Chagrin Boulevard, Suite 1150, Cleveland, Ohio 44122
(Address of principal executive offices including zip code)
(216) 283-4800
(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 outstanding as of May 6, 1997 was
3,810,535.
<PAGE> 2
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
BRANTLEY CAPITAL CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
ASSETS 1997 December 31,
(Unaudited) 1996
----------- -----------
<S> <C> <C>
Cash and cash equivalents (Note 2) $38,016,899 $36,329,220
Prepaid expenses 98,341 128,566
Unamortized organization costs 156,240 162,250
----------- -----------
TOTAL ASSETS $38,271,480 $36,620,036
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Advisory fee payable $ 263,860 $ 81,898
Organization costs payable 56,438 78,912
Offering costs payable 151,800 177,215
Payable to related party (Note 3) --- 88,436
Other liabilities 94,322 51,271
----------- -----------
TOTAL LIABILITIES $ 566,420 $ 477,732
=========== ===========
STOCKHOLDERS' EQUITY (NOTE 4):
Common Stock, $0.01 par value;
25,000,000 shares authorized and
3,810,535 and 3,660,535 shares issued
and outstanding at March 31, 1997 and
December 31, 1996, respectively. $ 38,105 $ 36,605
Additional Paid in Capital 37,604,199 36,105,699
Undistributed Net Income 62,756 ---
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 37,705,060 36,142,304
=========== ===========
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $38,271,480 $36,620,036
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
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<PAGE> 3
<TABLE>
<CAPTION>
BRANTLEY CAPITAL CORPORATION
STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
INVESTMENT INCOME:
<S> <C>
Interest income $ 451,588
----------
OPERATING EXPENSES:
Advisory Fees 263,860
Administration Fees 19,726
Custody and Accounting Fees 9,863
Professional Fees 25,891
Directors' Fees 9,247
Amortization of Organization Costs 8,278
Other 51,967
----------
TOTAL EXPENSES 388,832
----------
NET INCOME $ 62,756
==========
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 62,756
==========
INCOME PER SHARE $ 0.017
==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 3,785,535
==========
</TABLE>
See accompanying notes to the financial statements.
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<PAGE> 4
BRANTLEY CAPITAL CORPORATION
STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS: $ 62,756
Adjustments to reconcile net increase in net assets resulting from
operations to net cash provided by operations:
Purchases of investment securities $(2,258,854,000)
Maturities of investment securities 2,258,854,000
Changes in assets and liabilities:
Prepaid expenses 30,225
Unamortized organization costs 8,278
Advisory fee payable 181,962
Organization costs payable (24,742)
Offering costs payable (25,415)
Payable to related party (88,436)
Other liabilities 43,051
---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 187,679
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from shares issued subsequent
to initial public offering $ 1,500,000
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 1,500,000
---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS DURING THE PERIOD $ 1,687,679
---------------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 36,329,220
---------------
CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 38,016,899
===============
</TABLE>
The Company paid no interest or federal income tax during the period.
See accompanying notes to the financial statements.
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<PAGE> 5
BRANTLEY CAPITAL CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
UNDISTRIBUTED COMMON PAID IN STOCKHOLDERS'
NET INCOME STOCK CAPITAL EQUITY
---------- ----- ------- ------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $36,605 $36,105,699 $36,142,304
Net income $62,756 62,756
Issuance of 150,000 shares
subsequent to initial public
offering 1,500 1,498,500 1,500,000
------- ------- ----------- -----------
Balance at March 31, 1997 $62,756 $38,105 $37,604,199 $37,705,060
======= ======= =========== ===========
</TABLE>
See accompanying notes to the financial statements.
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<PAGE> 6
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
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 generally
accepted accounting principles 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 1996 Annual Report filed on Form 10-K dated
March 27, 1997.
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 March 31, 1997, the results of its operations for the
three month period ended March 31, 1997, and its cash flows for the
three month period ended March 31, 1997. Interim results are not
necessarily indicative of results to be expected for a full fiscal
year.
2. CASH AND CASH EQUIVALENTS
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:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------------- --------------
<S> <C> <C>
Cash $ 116 $ 54
United States Treasury Bill
5.15%, 4/17/97 38,016,783
4.79%, 1/02/97 36,329,166
--------------- --------------
$ 38,016,899 $ 36,329,220
=============== ==============
</TABLE>
3. TRANSACTIONS WITH RELATED PARTIES
The Company is seeking exemptive relief from certain provisions of the
1940 Act to permit the Company to invest in an offering which
affiliates of Brantley Capital Management, L.L.C. (the "Adviser")
already hold an investment in or intend to invest in. Assuming the
receipt of a favorable exemptive order from the SEC, the Company
anticipates that it may, subject to certain terms and
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<PAGE> 7
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
3. TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
conditions, frequently invest in the same portfolio companies as
current and future affiliates of the Adviser. There can be no assurance
that the Company's application for exemptive relief will be granted.
Certain offering and organization costs were paid by officers of the
Company and the Adviser. As of March 31, 1997 and December 31, 1996 the
Company owned the officers of the Company and the Adviser $0 and
$88,436, respectively, in connection with these expenditures.
4. STOCKHOLDERS' EQUITY
On January 15, 1997, the Company, through the exercise of an
over-allotment option in its initial public offering, issued an
additional 150,000 shares at $10 per share.
5. FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
December 3, 1996*
Quarter Ended through
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Net Asset Value, Beginning of $ 9.87 $ 9.87(C)
the Period
Net Income (Loss) 0.02 (0.00)#
Issuance of Shares Subsequent to
Initial Public Offering at $10 per Share 0.01 ---
------- ------
Net Asset Value, End of the Period $ 9.90 $ 9.87
======= ======
Market Value, End of the Period $ 8.88 $10.00
======= ======
Total Return, At Market Value** (11.20)% 0.00%
Total Return, At NAV** .30% 0.00%
<FN>
* Commencement of operations
** Not annualized
(C) Net of offering costs of $0.13 per share
# Less than $0.01 per share
</TABLE>
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<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following analysis of the financial condition and results of
operation of the Company should be read in conjunction with the Financial
Statements, the Notes thereto and the other financial information included
elsewhere in this report.
RESULTS OF OPERATIONS
The Company began operations upon the completion of an initial public
offering on December 3, 1996. Its principal investment objective is the
realization of long-term capital appreciation from investing primarily in the
equity and equity-linked debt securities of private companies. In addition, the
Company intends to invest a portion of its assets in post-venture small-cap
public companies. Due to the Company's limited operating history, the Company's
financial performance at March 31, 1997 is primarily composed of "Net Income,"
which is the difference between the Company's income from interest on short-term
investments and its total operating expenses.
During the quarter ended March 31, 1997, interest on short-term
investments was $451,588. The significant components of total operating expenses
were fees to the Company's investment adviser, Brantley Capital Management,
L.L.C. (the "Investment Adviser") and professional fees.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company completed an initial public offering of common stock of
$36.5 million on December 3, 1996 and a related over-allotment option of $1.5
million on January 15, 1997. The Company believes that the net proceeds of this
offering will be adequate to fund the growth of the Company's investment
portfolio through 1997.
At March 31, 1997, the Company had $38,016,899 in cash and cash
equivalents. The Company invested the proceeds of the initial public offering on
a short-term basis, pending completion of investments in equity and
equity-linked debt securities of private companies and post-venture small-cap
public companies. At March 31, 1997, $38,016,899 was primarily invested in a
United States Treasury Security.
At March 31, 1997, the Company had stockholders' equity of $37,705,060,
resulting in a net asset value per share of $9.90.
Since the Company's initial public offering, in late 1996, management
had been evaluating potential post-venture small-cap public investments. On
April 7, 1997, the Company began investing in 20 small-cap, public companies. At
April 22, 1997, the cost of the small-cap investments made was approximately
$8,000,000 and their aggregate market value was approximately $7,800,000.
Management believes that the companies in which the Company has invested have
potential for long-term growth in sales and earnings.
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<PAGE> 9
On March 6, 1997 the Company filed an application with the Securities
and Exchange Commission seeking an exemptive order, which, if granted, would
permit the Company to co-invest with certain venture capital equity
partnerships. the Company's investment advisor is related to a sponsor of
approximately $100 million of venture capital private equity partnerships.
Because of this relationship, the Company is currently being presented with
excellent later stage venture capital investment opportunities in companies that
have already demonstrated profitability. When, and if, the exemptive relief is
granted, the Company expects to take advantage of these opportunities.
On April 21, 1997, the Company entered into an investment led by
National City Capital Corporation to provide $2.1 million of a $10 million
senior subordinated note facility for Waterlink, Inc., which if drawn upon,
would be used to finance an acquisition. Waterlink is a consolidation strategy
company in the industrial water and wastewater treatment market, with 1996 sales
of $80 million. The terms of the note payable to the Company call for a 12%
interest rate per annum during the first year and 14% per annum thereafter on
the utilized portion of the facility with a final maturity five years from the
closing. Waterlink has the option of drawing down on the facility at its
discretion. In connection with its commitment to provide this facility, the
Company received warrants to purchase 26,250 shares of Waterlink common stock at
an exercise price of $4.50 per share.
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<PAGE> 10
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: May 7, 1997 By: /s/ Robert P. Pinkas
--------------------------------
Robert P. Pinkas
Chief Executive Officer
Date: May 7, 1997 By: /s/ Tab A. Keplinger
--------------------------------
Tab A. Keplinger
Chief Financial Officer
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<PAGE> 11
PART II. OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS.
- ------------------------------
None.
ITEM 2. CHANGES IN SECURITIES.
- ----------------------------------
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
- --------------------------------------------
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ----------------------------------------------------------------
Not Applicable.
ITEM 5. OTHER INFORMATION.
- ------------------------------
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ---------------------------------------------
(a) The following Exhibits are included in this Form 10-Q or are
incorporated by reference as noted in the following index:
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<PAGE> 12
OTHER INFORMATION - CONTINUED
EXHIBIT INDEX
The following exhibits are filed with this report or are incorporated
herein by reference to a prior filing, in accordance with Rule 12b-32 under the
Securities Exchange Act of 1934. (Asterisk denotes exhibits filed with this
report.)
EXHIBIT 3 Articles of Incorporation and By-laws
(1) Articles of Incorporation and Articles of Amendment and
Restatement of the Charter of the Company (Exhibit 2.a.1 to the
Company's Registration Statement on Form N-2 (Reg. No. 333- 10785)
filed on August 23, 1996 (the "Registration Statement") and
Exhibit 2.a.2 to Amendment No. 2 to the Registration Statement
filed on November 22, 1996, which exhibits are incorporated herein
by reference)
(2) By-laws of the Company (Exhibit 2.b.2 to Amendment No. 2 to the
Registration Statement filed on November 22, 1996, 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 30, 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 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)
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<PAGE> 13
(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 27* Financial Data Schedule
REPORTS ON FORM 8-K
-------------------
None
- 12 -
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUARTERLY
REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 38,271,480
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 38,271,480
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 566,420
<TOTAL-LIABILITIES> 566,420
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 37,642,304
<SHARES-COMMON-STOCK> 3,810,535
<SHARES-COMMON-PRIOR> 3,660,535
<ACCUMULATED-NII-CURRENT> 62,756
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 37,705,060
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 451,588
<OTHER-INCOME> 0
<EXPENSES-NET> 388,832
<NET-INVESTMENT-INCOME> 62,756
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 62,756
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 150,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,651,444
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 263,860
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 388,832
<AVERAGE-NET-ASSETS> 36,923,682
<PER-SHARE-NAV-BEGIN> 9.87
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.90
<EXPENSE-RATIO> .421
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
