UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended March 31, 2014.
or
| ¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT. |
For the transition period from ____________ to __________
Commission file number: 1-10024
| BKF Capital Group, Inc. |
| (Exact name of registrant as specified in its charter) |
| Delaware | | 36-0767530 |
| (State or other jurisdiction of | | (I.R.S. Employer Identification No.) |
| incorporation or organization) | | |
| 3990-B Heritage Oak Court, Simi Valley, California 93063 |
| (Address of Principal Executive Office) (Zip Code) |
| 805-416-7100 |
| (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 past 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.
x Yes¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x Yes¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
| Large accelerated filer | ¨ | Accelerated filer | ¨ |
| | | | |
| Non-accelerated filer | ¨ | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
x Yes¨ No
As of May 13, 2014, 7,471,593 shares of the registrant's common stock, $1.00 par value, were outstanding.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BKF CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollar amounts in thousands)
| | | March 31, | | | December 31, | |
| | | 2014 | | | 2013 | |
| | | | | | (audited) | |
| | | (unaudited) | | | | |
| | | | | | | |
| Assets | | | | | | | | |
| Cash and cash equivalents | | $ | 5,373 | | | $ | 5,898 | |
| Investment in Qualstar | | | 1,127 | | | | 902 | |
| Marketable securities | | | 274 | | | | 50 | |
| Prepaid expenses and other assets | | | 35 | | | | 35 | |
| | | | | | | | | |
| Total assets | | $ | 6,809 | | | $ | 6,885 | |
| | | | | | | | | |
| Liabilities and Stockholders' Equity | | | | | | | | |
| | | | | | | | | |
| Accrued expenses | | $ | 20 | | | $ | 33 | |
| | | | | | | | | |
| Total liabilities | | | 20 | | | | 33 | |
| | | | | | | | | |
| Commitments and contingencies | | | | | | | | |
| Stockholders' equity | | | | | | | | |
| Common stock, $1 par value, authorized — 15,000,000 shares, 7,471,593 issued and outstanding as of March 31, 2014 and as of December 31, 2013 | | | 7,472 | | | | 7,472 | |
| Additional paid-in capital | | | 68,270 | | | | 68,270 | |
| Accumulated other comprehensive income/(loss) | | | 57 | | | | — | |
| Accumulated deficit | | | (69,010 | ) | | | (68,890 | ) |
| | | | | | | | | |
| Total stockholders' equity | | | 6,789 | | | | 6,852 | |
| | | | | | | | | |
| Total liabilities and stockholders' equity | | $ | 6,809 | | | $ | 6,885 | |
See accompanying notes
BKF CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Dollar amounts in thousands, except per share data)
(Unaudited)
| | | | Three Months Ended | |
| | | March 31, | |
| | | 2014 | | | 2013 | |
| Non Operating Income | | | | | | | | |
| Interest income | | $ | 2 | | | $ | 4 | |
| Other income | | | — | | | | 6 | |
| | | | | | | | | |
| Total revenues | | | 2 | | | | 10 | |
| | | | | | | | | |
| Expenses: | | | | | | | | |
| Employee compensation and benefits | | | 25 | | | | 49 | |
| Occupancy and equipment rental | | | 5 | | | | 21 | |
| Other operating expenses | | | 34 | | | | 127 | |
| | | | | | | | | |
| Total expenses | | | (64 | ) | | | (197 | ) |
| | | | | | | | | |
| Other income (expense) | | | | | | | | |
| Loss on equity investment | | | (58 | ) | | | (306 | ) |
| | | | | | | | | |
| Total other income (expense) | | | (58 | ) | | | (306 | ) |
| | | | | | | | | |
| Net income/(loss) | | | (120 | ) | | | (493 | ) |
| | | | | | | | | |
| Other comprehensive income, | | | | | | | | |
| Unrealized gain (loss) on investments, net of tax | | | 57 | | | | — | |
| Other comprehensive income/(loss) | | $ | (63 | ) | | $ | — | |
| | | | | | | | | |
| Net income/(loss) per share: | | | (.02 | ) | | | (.07 | ) |
| Basic and Diluted | | | 7,471,593 | | | | 7,446,593 | |
| Weighted average common shares outstanding | | | | | | | | |
See accompanying notes
BKF CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
| | | Three Months Ended | |
| | | March 31, | |
| | | 2014 | | | 2013 | |
| | | | | | (audited) | |
| | | | | | | |
| Cash flows from operating activities | | | | | | | | |
| Net loss | | $ | (120 | ) | | $ | (493 | ) |
| Changes in operating assets and liabilities: | | | | | | | | |
| Stock compensation expenses | | | - | | | | 6 | |
| Decrease in investment in Qualstar | | | 58 | | | | 306 | |
| (Increase)/Decrease in prepaid expenses and other assets | | | — | | | | — | |
| (Decrease)/Increase in accrued expenses | | | (13 | ) | | | 7 | |
| | | | | | | | | |
| Net cash used in operating activities | | | (75 | ) | | | (174 | ) |
| | | | | | | | | |
| Cash flows from investing activities | | | | | | | | |
| Purchase of investment securities | | | (450 | ) | | | — | |
| | | | | | | | | |
| Net cash used in investing activities | | | (450 | ) | | | — | |
| | | | | | | | | |
| Net decrease in cash and cash equivalents | | | (525 | ) | | | (174 | ) |
| Cash and cash equivalents at the beginning of the period | | | 5,898 | | | | 6,597 | |
| | | | | | | | | |
| Cash and cash equivalents at the end of the period | | $ | 5,373 | | | $ | 6,423 | |
| | | | | | | | | |
| Supplemental disclosure of cash flow information | | | | | | | | |
| 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, 2013.
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 2014 and 2013.
Services
During the quarters ended March 31, 2014 and March 31, 2013, the Company did not provide any investment advisory or asset management services.
The Company, through BKF GP, continues to act as the managing general partner of several private investment partnerships, established prior to 2005, which are in the process of being liquidated and dissolved.
BKF CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
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.
Fair Values of Financial Instruments
The Company adopted FASB ASC 820-10-50, “Fair Value Measurements”. This guidance defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
BKF CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement.
The carrying amounts reported in the balance sheets for cash and cash equivalents, and current liabilities each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. Marketable securities are valued using Level 1 inputs.
2. Investment
a) Investment in Qualstar:
On July 3, 2013, Steven Bronson, BKF’s Chairman, CEO, and majority shareholder, was appointed Chairman, Chief Executive Officer and President of Qualstar Corporation (“Qualstar”). This resulted in the 18.3% of the Company’s ownership in Qualstar to be accounted for using the equity method, a change from available for sale, on the basis that BKF can assert significant influence over the operations of Qualstar. The retroactive application of the equity method resulted in a decrease to retained earnings at March 31, 2013 of approximately $306,000. In addition, the basic and diluted earning per share were restated for the year to $-0.06.
The investment in Qualstar is accounted for using the equity method as prescribed by Accounting Standard Codification Section 323, under which the Company’s carrying amount of its investment in common stock of Qualstar is the initial cost adjusted for the Company’s share of Qualstar’s earnings and losses, and further adjusted for any distributions or dividends. At March 31, 2014 the Company held 2,811,420 common shares of Qualstar, representing approximately 22.94% of the outstanding shares. The investment in Qualstar was approximately $1,127,000 at March 31, 2014. The market value of the Company’s shares in Qualstar was approximately $4.4 million at March 31, 2014.
During the quarter ended March 31, 2014, the Company recorded a loss on its investment in Qualstar of approximately $58,000. These losses do not include the quarterly results of Qualstar as of March 31, 2014, as Qualstar’s financial statements are not typically available at the time we prepare our financial statements. Therefore, all balances related to the Company’s investment in Qualstar are recorded on a three month (quarterly) lag. This lag is consistent from period to period. The financial results for Qualstar’s quarter ended March 31, 2014 were not available prior to the preparation of our financial statements.
b) Marketable Securities
As of March 31, 2014, the Company held 19,575 shares of Interlink Electronics. The fair market value of these shares was $274,000 at March 31, 2014. At March 31, 2014, the unrealized gain on these shares reported in other comprehensive income, was approximately $57,000. Steven Bronson, BKF’s Chairman, CEO and majority shareholder is also the Chief Executive Officer of Interlink Electronics.
BKF CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. Concentrations
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. Management regularly monitors the financial institution, together with its cash balances, and tries to keep this potential risk to a minimum.
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. Control
As of September 30, 2013 Mr. Bronson beneficially owns 4,111,785 shares of the Company's common stock. Mr. Bronson's beneficial ownership represents approximately 55% 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, 2013, 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, 2013.
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 March 31, 2014consolidated 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 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 directors, 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, 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 sent a letter (the “Notice”) to the Qualstar Board, notifying Qualstar Board that in accordance with Section 6 of Article II of 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 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 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 would purchase a minimum of 1,000,000 shares in the PTO. In connection with the PTO, BKF 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 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 announced that it would withdraw and terminate the PTO. In connection with the termination of the PTO, BKF 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. In August 2013, Qualstar reimbursed BKF for the costs and expenses incurred in connection with the 2012 proxy contenst and the 2013 proxy contest in the aggregate amount of $356,000.
At March 31, 2014the Company held 2,811,420 common shares of Qualstar representing approximately 22.94% 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 March 31, 2014was $ 2,000 compared to $10,000 in the same period in 2013, a decrease of $ 8,000. The decrease is primarily due to a decrease in interest income and other income.
Expenses
Total expenses for the three months ended March 31,2014were approximately $64,000, reflecting an decrease of 68% from $197,000 in expenses in the same period in 2013. These expenses are primarily attributable to professional fees related to the proxy contest for Qualstar.
Other Income and Loss
Loss on equity investment for 2014 was approximately $58,000 compared to a loss of $306,000 in 2013. The decrease is primarily attributable to the curtailment of expenses by Qualstar.
Net Income/Net Loss
Net Loss for the three months ended March 31, 2014was $120,000, as compared to a net loss of $493,000 in the same period in 2013.
LIQUIDITY AND CAPITAL RESOURCES
BKF's current assets as of March 31, 2014consist 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 March 31, 2014, BKF had cash and cash equivalents of $5.3 million, compared to $5.9 million of cash and cash equivalents at December 31, 2013.
OFF BALANCE SHEET RISK
There has been no material change with respect to the off balance sheet risk incurred by the Company since March 31, 2014.
Item 4. Controls and Procedures
We maintain "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our principal executive officer to allow timely decisions regarding required disclosure.
Evaluation of disclosure and controls and procedures.
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of our Principal Executive Officer, of the effectiveness of the design and operation of the Company's Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on the evaluation, the Company's Principal Executive Officer has concluded that the Company's disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that the Company’s disclosure controls and procedures are operating in an effective manner to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.
Changes in internal controls over financial reporting.
There have been no changes in Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during Company's most recent quarter that has materially affected, or is reasonably likely to materially affect, Company's internal control over financial reporting.
It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there is only reasonable assurance that the Company's controls will succeed in achieving the stated goals under all potential future conditions.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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, New York County and is entitled: Thomson Financial, LLC v. BKF Asset Management, Inc. and assigned Index No. 601390/09. In the action Thomson Financial 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 not recorded a liability reserve because the Company does not believe it will be held liable in the action.
The Company's management is unaware of any other material existing or pending legal proceedings or claims against the Company.
Item 5. Other Information.
The regulatory scope of the Investment Company Act of 1940, as amended (the "40 Act"), which was enacted principally for the purpose of regulating vehicles for pooled investments in securities, extends generally to companies engaged primarily in the business of investing, reinvesting, owning, holding or trading in securities. The 40 Act may, however, also be deemed to be applicable to a company which does not intend to be characterized as an investment company but which, nevertheless, engages in activities which may be deemed to be within the definitional scope of certain provisions of the 40 Act. The Company believes that its investment strategy may subject the Company to regulation under the 40 Act. If the Company is deemed to be an investment company, the Company may be forced to divest its investments or become subject to certain restrictions relating to the Company's activities, including restrictions on the nature of its investments and the issuance of securities. In addition, the 40 Act imposes certain requirements on companies deemed to be within its regulatory scope, including registration as an investment company, adoption of a specific form of corporate structure and compliance with certain burdensome reporting, record keeping, voting, proxy, disclosure and other rules and regulations. In the event of the characterization of the Company as an investment company, the failure by the Company to satisfy such regulatory requirements, whether on a timely basis or at all, would, under certain circumstances, have a material adverse effect on the Company. It is the Company’s position that it is not an investment company required to be registered under the 40 Act.
Subsequent Event
Effective May 1, 2014 BKF Capital Group, Inc. (“BKF”) relocated its principal offices to 3990-B Heritage Oak Court, Simi Valley, California 93063 (the “Premises”). BKF occupies the Premises pursuant to a license agreement, dated May 1, 2014 (the “License Agreement”) between BKF and Qualstar Corporation (“Qualstar”). BKF’s new telephone number is (805) 416-7100. Pursuant to the License Agreement, BKF licenses one furnished office at the Premises. BKF also has access to a telephone line and other services as described in the License Agreement. BKF shall pay a license fee to Qualstar of $14,400 per annum, or $1,200 per month, for use of the Premises. Steven N. Bronson, BKF’s Chairman, CEO and majority shareholder, is also the Chairman and CEO of Qualstar. A copy of the License Agreement is attached as Exhibit 10.43 to the Company’s Current Report on Form 8-K, filed on May 2, 2014, and is incorporated herein by reference.
Item 6. Exhibits.
a. Exhibits
The following exhibits are hereby filed as part of this Quarterly Report on Form 10-Q or incorporated herein by reference.
| Exhibit | | |
| Number | | Description of Document |
| | | |
| 31* | | Section 302 Certification of Chief Executive Officer |
| 32* | | Section 906 Certification of Chief Executive Officer |
| 101.INS*# | | XBRL Instance Document |
| 101.SCH*# | | XBRL Taxonomy Extension Schema |
| 101.CAL*# | | XBRL Taxonomy Extension Calculation Linkbase |
| 101.DEF*# | | XBRL Taxonomy Extension Definition Linkbase |
| 101.LAB*# | | XBRL Taxonomy Extension Label Linkbase |
| 101.PRE*# | | XBRL Taxonomy Extension Presentation Linkbase |
_________________________
* Filed herewith.
#Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
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.
Date: May 14, 2014
| | BKF CAPITAL GROUP, INC. |
| | | |
| | By: | /s/ Steven N. Bronson |
| | | Steven N. Bronson, |
| | | Chief Executive Officer, |
| | | as Registrant's duly authorized |
| | | officer |
EXHIBIT INDEX
| Exhibit | | |
| Number | | Description of Document |
| 31* | | Section 302 Certification of Chief Executive Officer |
| 32* | | Section 906 Certification of Chief Executive Officer |
| 101.INS*# | | XBRL Instance Document |
| 101.SCH*# | | XBRL Taxonomy Extension Schema |
| 101.CAL*# | | XBRL Taxonomy Extension Calculation Linkbase |
| 101.DEF*# | | XBRL Taxonomy Extension Definition Linkbase |
| 101.LAB*# | | XBRL Taxonomy Extension Label Linkbase |
| 101.PRE*# | | XBRL Taxonomy Extension Presentation Linkbase |
__________________________
* Filed herewith.
#Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
