PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BKF CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollar amounts in thousands)
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June 30 30,
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December 31,
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2013
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2012
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(unaudited)
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Assets
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Cash and cash equivalents
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$
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6,203
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$
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6,597
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Investments
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3,135
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3,202
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Prepaid expenses and other assets
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24
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26
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Total assets
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$
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9,362
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$
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9,825
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Liabilities and Stockholders' Equity
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Accrued expenses
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$
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49
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$
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35
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Total liabilities
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49
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35
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Commitments and contingencies
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Stockholders' equity
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Common stock, $1 par value, authorized — 15,000,000 shares, 7,446,593 issued and outstanding as of June 30, 2013 and December 31, 2012
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7,447
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7,447
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Additional paid-in capital
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68,293
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68,281
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Accumulated deficit
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(65,815
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)
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(65,393
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)
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Accumulated other comprehensive income/(loss)
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(612
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)
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(545
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)
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Total stockholders' equity
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9,313
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|
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9,790
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|
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|
|
|
|
|
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Total liabilities and stockholders' equity
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|
$
|
9,362
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|
|
$
|
9,825
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|
See accompanying notes
BKF CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
(Dollar amounts in thousands, except per
share data)
(Unaudited)
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Three Months Ended
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Six Months Ended
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June 30,
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June 30,
|
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2013
|
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|
2012
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2013
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|
|
2012
|
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|
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Non Operating Income
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Interest income
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3
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4
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7
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9
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Other income
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7
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7
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|
13
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24
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|
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Total revenues
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10
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11
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20
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33
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Expenses:
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Employee compensation and benefits
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49
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|
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|
71
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|
98
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144
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Occupancy and equipment rental
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11
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16
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32
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32
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Other operating expenses
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186
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|
394
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|
312
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424
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Total expenses
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246
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481
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442
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600
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Net income/(loss)
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(236
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)
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(470
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)
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(422
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)
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(567
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)
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Other comprehensive income, net of tax
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|
|
|
|
|
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Unrealized gain (loss) on investments
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(671
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)
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(94
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)
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(67
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)
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|
|
(11
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)
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Other comprehensive income/(loss)
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$
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(907
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)
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|
$
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(564
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)
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$
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(489
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)
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$
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(578
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)
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Net income/(loss) per share:
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Basic and Diluted
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$
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(0.03
|
)
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$
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(0.06
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)
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$
|
(0.06
|
)
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|
$
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(0.08
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)
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|
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Weighted average common shares outstanding
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7,446,593
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|
7,446,593
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7,446,593
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7,446,593
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See accompanying notes
BKF CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
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Six Months Ended
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June 30,
|
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2013
|
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|
2012
|
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Cash flows from operating activities
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Net loss
|
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$
|
(422
|
)
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|
$
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(567
|
)
|
|
Changes in operating assets and liabilities:
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Stock compensation expenses
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|
13
|
|
|
|
—
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Decrease in prepaid expenses and other assets
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|
|
—
|
|
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|
27
|
|
|
Increase in accrued expenses
|
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|
15
|
|
|
|
172
|
|
|
Net cash used in operating activities
|
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(394
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)
|
|
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(368
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)
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Cash flows from investing activities
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|
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Purchase of investment securities
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—
|
|
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(928
|
)
|
|
Net cash used in investing activities
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|
|
—
|
|
|
|
(928
|
)
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|
|
|
|
|
|
|
|
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Net decrease in cash and cash equivalents
|
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|
(394
|
)
|
|
|
(1,296
|
)
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|
Cash and cash equivalents at the beginning of the period
|
|
|
6,597
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|
|
|
8,292
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|
|
|
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|
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Cash and cash equivalents at the end of the period
|
|
$
|
6,203
|
|
|
$
|
6,996
|
|
|
|
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|
|
|
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Supplemental disclosure of cash flow information
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Cash paid for interest
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
See accompanying notes
BKF CAPITAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The unaudited condensed consolidated financial statements included
herein were prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote
disclosure 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. In the opinion of management, disclosures
made are adequate to make the information not misleading. These condensed consolidated financial statements should be read in conjunction
with the financial statements and notes included in the Company\'s Form 10-K for the year ended December 31, 2012.
In the opinion of management, the interim data includes all
adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for the interim period.
The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the fiscal
year.
1. Organization and Summary of Significant Accounting Policies
Organization and Basis of Presentation
The Company operates through its wholly-owned subsidiaries,
BKF Investment Group, Inc., formerly known as BKF Management Co., Inc. ("BIG") and BKF Asset Holdings, Inc. (“BKF
Holdings”) all of which are collectively referred to herein as the "Company" or "BKF." The Company trades
on the over the counter market under the symbol ("BKFG"). Currently, the Company plans to engage in the asset management
business through its subsidiary BKF Advisors, Inc., which is a registered investment advisor in the States of Florida and California.
BKF is also seeking to consummate an acquisition, merger or business combination with an operating entity to enhance BKF's revenues
and increase shareholder value.
The consolidated financial statements of BKF, include BIG and
BIG's two wholly owned subsidiaries BKF Advisors, Inc. (“BKF Advisors”) and BKF Asset Management, Inc., ("BAM")
and BAM's two wholly-owned subsidiaries, BKF GP, Inc. (“BKF GP”) and LEVCO Securities, Inc. ("LEVCO Securities").
On November 27, 2012 LEVCO Securities was dissolved. All intercompany accounts have been eliminated.
BAM was an investment advisor which was registered under the
Investment Advisers Act of 1940, as amended; it withdrew its registration on December 19, 2006. BAM had no operations during 2012
and 2011.
Use of Estimates
The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and reported amounts of revenues and expenses during the reporting periods. Actual results could
differ from those estimates.
BKF CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
Recent Accounting Developments
There are no new accounting standards that are expected to have
a significant impact on the Company.
Cash and Cash Equivalents
Investments in money market funds are valued at net asset value.
The Company maintains substantially all of its cash and cash equivalents in interest bearing instruments at two nationally recognized
financial institutions, which at times may exceed federally insured limits. As a result the Company is exposed to credit risk related
to the money market funds and the market rate inherent in the money market funds.
Other Comprehensive Income
The Company presents other comprehensive income in accordance
with ASC Topic 220, Comprehensive Income. This section requires that an enterprise (a) classify items of other comprehensive income
by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid in capital in the equity section of a statement of position. The Company reports its unrealized
gains and losses on investments in securities as other comprehensive income (loss) in its financial statements.
Fair Values of Financial Instruments
Financial instruments, including cash and cash equivalents,
prepaid expenses and accounts payable are carried in the consolidated financial statements at amounts that approximate fair value
at June 30, 2013 and December 31, 2012. Fair values are based on market prices and assumptions concerning the amount and timing
of estimated future cash flows. Investments have been valued using level 1 inputs under ASC Topic 820, Fair Value Measurements
and Disclosures.
2. Investments
Investments are classified as available-for-sale according to
the provisions of ASC Topic 320, Investments - Debt & Equity Securities. Accordingly, the investments are carried at fair value
with unrealized gains and losses reported separately in other comprehensive income.
At June 30, 2013 the Company held 2,239,419 common shares of
Qualstar Corporation valued at approximately $3,135,187.
BKF CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
3. Concentrations
On October 3, 2008, the Emergency Economic Stabilization Act
of 2008 increased the insurance coverage offered by the Federal Deposit Insurance Corporation (FDIC) from $100,000 to $250,000
per depositor. This limit is anticipated to return to $100,000 after December 31, 2013. Additionally, under the FDIC's Temporary
Liquidity Guarantee Program, amounts held in non-interest bearing transaction accounts at participating institutions are fully
guaranteed by the FDIC through December 31, 2013. The Company had amounts in excess of $250,000 in a single bank during the year.
Amounts over $250,000 are not insured by the Federal Deposit Insurance Corporation. These balances fluctuate during the year and
can exceed this $250,000 limit.
4. Commitments and Contingencies
The Company could be subject to a variety of claims, suits and
proceedings that arise from time to time, including actions with respect to contracts, regulatory compliance and public disclosure.
These actions may be commenced by a number of different constituents, including vendors, former employees, regulatory agencies,
and stockholders. The following is a discussion of the more significant matters involving the Company.
The Company is a defendant in a lawsuit for claims for alleged
services in the amount of approximately $171,000. The complaint was filed in the New York State Supreme Court and alleges a claim
for breach of contract against BAM for alleged goods and services delivered to BAM. The Company is vigorously defending this action.
The Company has no specific reserve for this action.
5. Restricted Stock Grant.
On August 1, 2012, the Company rehired Maria Fregosi to serve
as the Company’s Chief Operating Officer. In addition to an annual salary of $60,000 per annum, the Company also issued Ms.
Fregosi 100,000 restricted shares of the Company’s common Stock vesting as follows: (i) 25,000 on July 31, 2013, (ii) 25,000
on July 31, 2014, (iii) 25,000 on July 31, 2015, and (iv) 25,000 on July 31, 2016. The Company recorded stock compensation of $6,375
and $12,750 for the three and six months ended June 30, 2013, respectively, related to this grant.
6. Control
As of June 30, 2013 Mr. Bronson beneficially owns 4,069,785
shares of the Company's common stock. Mr. Bronson's beneficial ownership represents approximately 54.7% of the Company's issued
and outstanding shares of common stock. Accordingly, Mr. Bronson has effective control of the Company. In the election of directors,
stockholders are not entitled to cumulate their votes for nominees. Thus, as a practical matter, Mr. Bronson may be able to elect
all of the Company's directors and otherwise direct the affairs of the Company.
Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contains
certain statements that are not historical facts, including, most importantly, information concerning possible or assumed future
results of operations of BKF Capital Group, Inc. (the "Company") and statements preceded by, followed by or that include
the words "may," "believes," "expects," "anticipates," or the negation thereof, or similar
expressions, which constitute "forward-looking statements" within the meaning of the Section 27A of the Securities Act
of 1933 and Section 21E (the "Reform Act") of the Securities Exchange Act of 1934 (the "Exchange Act"). For
those statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Reform Act.
These forward-looking statements are based on the Company's current expectations and are susceptible to a number of risks, uncertainties
and other factors, including the risks specifically enumerated in Company's Annual Report on Form 10-K for the year ended December
31, 2012, and the Company's actual results, performance and achievements may differ materially from any future results, performance
or achievements expressed or implied by such forward-looking statements. The Company will not undertake and specifically declines
any obligation to publicly release the result of any revisions, which may be made to any forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
In addition, it is the Company's policy generally not to make any specific projections as to future earnings, and the Company does
not endorse any projections regarding future performance that may be made by third parties.
The following discussion and analysis provides
information which the Company's management believes to be relevant to an assessment and understanding of the Company's results
of operations and financial condition. This discussion should be read together with the Company's financial statements and the
notes to financial statements, which are included in this report, as well as the Company's Annual Report on Form 10-K for the year
ended December 31, 2012.
Background
BKF was incorporated in Delaware in 1954.
The Company's securities trade on the over the counter market under the symbol "BKFG." The Company operates through its
wholly-owned subsidiaries, BKF Investment Group, Inc., formerly known as BKF Management Co., Inc. ("BIG") and BKF Asset
Holdings, Inc. (“BKF Holdings”) all of which are collectively referred to herein as the "Company" or "BKF."
The consolidated financial statements of BKF, BIG and BIG's two wholly owned subsidiaries BKF Advisors, Inc. (“BKF Advisors”)
and BKF Asset Management, Inc., ("BAM") and BAM's two wholly-owned subsidiaries, BKF GP, Inc. (“BKF GP”)
and LEVCO Securities, Inc. ("LEVCO Securities"). On November 27, 2012 LEVCO Securities was dissolved. There were no affiliated
partnerships in BKF's June 30, 2013 consolidated financial statements.
Historically the Company operated in the
investment advisory and asset management business entirely through BAM, which was a registered investment adviser with the Securities
and Exchange Commission ("SEC"). BAM specialized in managing equity portfolios for institutional investors through its
long-only equity and alternative investment strategies. BAM withdrew its registration as a registered investment advisor on December
19, 2006 and ceased operating in the investment advisory and asset management business. LEVCO Securities, a subsidiary of BAM,
was a broker dealer registered with the SEC and a member of the National Association of Securities Dealers, Inc. (now known as
the Financial Industry Regulatory Authority). LEVCO Securities withdrew its registration as a broker-dealer on November 30, 2006
and ceased operating as a broker dealer. BKF GP, Inc., the other subsidiary of BAM, acts as the managing general partner of several
affiliated investment partnerships which have been in the process of being liquidated and dissolved since 2006.
Since January 1, 2007, the Company has had
no operating business and no assets under management. The Company's principal assets consist of a significant cash position, investments
in securities, sizable net operating tax losses to potentially carry forward, and its status as a publicly traded Exchange Act
reporting company. BKF's current revenue stream will not be sufficient to cover BKF's ongoing expenses, however the Company has
enough cash to continue in operation beyond the upcoming year.
Plan of Operations
On August 2, 2012, the Company issued a
press release disclosing that the Company plans to create an asset management platform with investment vehicles that focus on areas
of portfolio management that typically receive less attention from investors but also present unique investment opportunities.
The Company is also engaged in seeking to arrange an acquisition, with an operating business with revenues, at least three years
of operating history and unique value opportunities. The Press Release is attached as an exhibit to the Company’s Current
Report on Form 8-K, dated August 3, 2012.
In September 2012, the Company changed the
name of its subsidiary BKF Management Co., Inc. to BKF Investment Group, Inc. and formed a wholly owned subsidiary, BKF Advisors,
Inc. (“BKF Advisors”). BKF Advisors has registered as an investment advisor with the State of Florida and the State
of California. The Company expects that BKF Advisors will act as the investment advisor to the BKF Small Cap Growth and Income
Fund, L.P., a newly formed Delaware limited partnership that plans to engage as an investment fund (the “Partnership”).
BAM is the general partner of the Partnership.
The Company expects to seed the Partnership
which expects to focus on small-cap and micro-cap companies with a value based approach to investing. Thereafter, the Company intends
to grow its asset management business by acquiring or seeding other alternative investment funds with unique investment strategies
and/or emerging portfolio managers. The Company’s goal is to grow revenues and income over time and achieve valuation multiples
in line with other publicly-traded comparable companies. The Company expects to create value for its shareholders by rebuilding
its asset management operations, and expects to earn fee income for assets under management, performance fees upon successfully
liquidating investments and from its proprietary capital investments in the investment funds for which BKF acts as the general
partner. Moreover, the Company has substantial net operating loss carry-forwards that it may be able to use to offset future profits
and thereby minimize tax liabilities.
The Company is also seeking to arrange for
a merger, acquisition, business combination or other arrangement by and between the Company and a viable operating entity. The
Company shall endeavor to utilize some or all of the Company's net operating loss carryforwards in connection with a business combination
transaction; however, there can be no assurance that the Company will be able to utilize any of its net operating loss carryforwards.
The Company has not identified a viable operating entity for a merger, acquisition, business combination or other arrangement,
and there can be no assurance that the Company will ever successfully arrange for a merger, acquisition, business combination or
other arrangement by and between the Company and a viable operating entity.
The Company anticipates that the selection
of a business opportunity will be a complex process and will involve a number of risks, because potentially available business
opportunities may occur in many different industries and may be in various stages of development. Due in part to depressed economic
conditions in a number of geographic areas and shortages of available capital, management believes that there are numerous firms
seeking either the additional capital which the Company has or the benefits of a publicly traded corporation, or both. The perceived
benefits of a publicly traded corporation may include facilitating or improving the terms upon which additional equity financing
may be sought, providing liquidity for principal shareholders, creating a means for providing incentive stock options or similar
benefits to key employees, providing liquidity for all shareholders and other factors.
In some cases, management of the Company
will have the authority to effect acquisitions without submitting the proposal to the shareholders for their consideration. In
some instances, however, the proposed participation in a business opportunity may be submitted to the shareholders for their consideration,
either voluntarily by the Board of Directors to seek the shareholders' advice and consent, or because of a requirement of State
law to do so.
In seeking to arrange a merger, acquisition,
business combination or other arrangement by and between the Company and a viable operating entity, the Company's objective will
be to obtain long-term capital appreciation for the Company's shareholders. There can be no assurance that the Company will be
able to complete any merger, acquisition, business combination or other arrangement by and between the Company and a viable operating
entity.
The Company may need additional funds in
order to effectuate a merger, acquisition or other arrangement by and between the Company and a viable operating entity, although
there is no assurance that the Company will be able to obtain such additional funds, if needed. Even if the Company is able to
obtain additional funds there is no assurance that the Company will be able to effectuate a merger, acquisition or other arrangement
by and between the Company and a viable operating entity.
Qualstar Investment
On December 17, 2010, the Company purchased
1,500,000 shares of Qualstar Corporation ("Qualstar") common stock in a privately negotiated transaction at the price
of $1.55 per share or the total aggregate amount of $2,325,000 (the “2010 Purchase”). Qualstar is a diversified electronics
manufacturer specializing in data storage, power supplies and computer pointing devices. Qualstar's products are known throughout
the world for high quality and Simply Reliable designs that provide years of trouble-free service. The securities of Qualstar are
traded on NASDAQ under the symbol "QBAK." The registrant purchased the Qualstar shares from Richard A. Nelson and Kathleen
R. Nelson as Co-Trustees of the Nelson Family Trust U/A DTD 01/19/2000. Richard A. Nelson is an officer and director of Qualstar.
Following the 2010 Purchase, BKF owned approximately 12.2% of issued and outstanding shares of Qualstar. The Company previously
disclosed its acquisition of shares of Qualstar in Current Report on Form 8-K filed on December 23, 2010. Following the December
17, 2010 transaction BKF increased its Qualstar holdings through open market transactions.
On February 15, 2012 BKF sent a letter to
the Qualstar board of director, which was attached as an exhibit to the Company’s Schedule 13D filing on February 21, 2012.
In the February 15, 2012 letter, BKF suggested steps that the Qualsar board can and should take to maximize shareholder value.
The Qualstar board did not discuss the Feburary 15, 2012 letter with BKF and it failed to take any of the requested actions. In
or about May 2012, the BKF launched a proxy contest to remove and replace the board of directors of Qualstar. See BKF’s Definitive
Proxy Statement on Schedule 14A, filed on June 6, 2012, which is incorporated herein by reference. The special meeting of the shareholders
of Qualstar occurred on June 20, 2012. While BKF’s proposals did receive approval of the majority of the votes cast at the
meeting, they did not receive approval from a majority of the outstanding shares, which was required to remove the incumbent Qualstar
board.
On
January 17, 2013, BKF Capital sent a letter (the “Notice”) to the Qualstar Board, notifying the Qualstar Board that
in accordance with Section 6 of Article
II of the Qualstar’s Bylaws, as amended and
restated as of March 24, 2011, BKF Capital intends to nominate six (6) directors to serve on Qualstar’s Board of Directors
at the 2013 Annual Meeting of Shareholders. Specifically, in the Notice, BKF Capital nominated the following persons for election
to Qualstar’s Board of Directors at the 2013 Annual Meeting of Shareholders: Steven N. Bronson, Edward J. Fred, Sean M. Leder,
David J. Wolenski, Alan B. Howe and Maria Fregosi.
On January 30, 2013, BKF Capital announced
a partial tender offer to purchase up 3,000,000 shares of Qualstar’s common stock at a purchase price of $1.65 per share
(the “PTO”), which was a 19% increase above the share price of Qualstar’s common stock on the day before the
offering was announced. The PTO provided that BKF Capital would purchase a minimum of 1,000,000 shares in the PTO. In connection
with the PTO, BKF Capital filed a Scheduled TO on January 30, 2013, which is incorporated herein by reference. On February 5, 2013,
the board of directors of Qualstar adopted a poison pill in the form of a rights plan that would be triggered in the event that
BKF Capital purchased any additional shares. After analyzing the poison pill adopted by the Qualstar board of directors and the
likelihood that a court would strike down the poison pill, on February 11, 2013, BKF Capital announced that it would withdraw and
terminate the PTO. In connection with the termination of the PTO, BKF Capital filed a Schedule 14A on February 11, 2013, which
is incorporated herein by reference.
On June 6, 2013, BKF filed its definitive
proxy statement for Qualstar’s 2013 Annual Meeting of Shareholders (the “Qualstar Meeting”) to be held on June
28, 2013. In its proxy statement BKF nominated five (5) persons to be elected to the board of directors of Qualstar. Specifically,
BKF nominated Steven N. Bronson, Sean M. Leder, David J. Wolenski, Alan B. Howe and Dale E. Wallis. At the Qualstar Meeting, the
shareholders of Qualstar voted to elect BKF Capital’s nominees to the board of directors of Qualstar. Specifically, the Qualstar
shareholders elected the following persons to serve on the Qualstar board of directors: Steven N. Bronson, Sean M. Leder, David
J. Wolenski, Alan B. Howe and Dale E. Wallis. On July 3, 2013, Steven N. Bronson, our Chairman, CEO and President, was appointed
to serve as Qualstar’s Chairman and interim CEO and President.
At June 30,
2013 the Company held 2,239,419 common shares of Qualstar valued at approximately $3,135,187, representing approximately 18.2%
of the issued and outstanding shares of Qualstar. The Company holds the shares of Qualstar for investment purposes and is currently
considering its options. The Company is in the process of transferring its holdings of Qualstar shares into its wholly owned subsidiary
BKF Asset Holdings, Inc
.
RESULTS OF OPERATIONS
The following discussion and analysis of
the results of operations is based on the Consolidated Statements of Financial Condition and Consolidated Statements of Operations
for BKF Capital Group, Inc. and Subsidiaries.
Income
Total income for the three months ended
June 30, 2013 was $ 10,000 compared to $11,000 in the same period in 2012, a decrease of $ 1,000. The decrease is primarily due
to interest income.
Total income for the six months ended June
30, 2013 was $ 20,000 compared to $33,000 in the same period in 2012, a decrease of $ 13,000. The decrease is primarily due to
other income.
Expenses
Total expenses for the three months ended
June 30, 2013 were approximately $246,000, reflecting a decrease of 49% from $481,000 in expenses in the same period in 2012. These
expenses are primarily attributable to professional fees related to the proxy contest for Qualstar.
Total expenses for the six months ended
June 30, 2013 were approximately $442,000, reflecting a decrease of 26% from $600,000 in expenses in the same period in 2012. These
expenses are primarily attributable to professional fees related to the partial tender offer and proxy contest for Qualstar.
Net Income/Net Loss
Net
loss for the three months ended June 30, 2013 was $236,000, as compare
d to a net loss of $470,000
in the same period in 2012.
Net loss for
the six months ended June 30, 2013 was $422,000, as compared
to
a net loss of $567,000 in the same period in 2012.
LIQUIDITY AND CAPITAL RESOURCES
BKF's
current assets as of June 30, 2013 consist primarily of cash and investments.
While BKF has historically met its cash
and liquidity needs through cash generated by operating activities, cash flow from current activities may not be sufficient to
fund operations in the future. BKF will use a portion of its existing working capital for such purposes.
At Ju
ne
30, 2013, BKF had cash and cash equivalents of $6.2 million, compared to $6.6 million of cash and cash equivalents at December
31, 2012.
OFF BALANCE SHEET RISK
There has been no material change with respect
to the off balance sheet risk incurred by the Company since June 30, 2013.
