FORM 10-Q
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30, 2006
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Or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from
to
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Commission file number: 1-10024
BKF Capital Group,
Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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36-0767530
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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One Rockefeller Plaza,
New York, New York
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10020
(Zip Code)
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(Address of principal executive
offices)
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(212) 332-8400
(Registrants
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 þ No
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated
filer o Accelerated
filer þ Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of November 1, 2006, 8,131,906 shares of the
registrants common stock, $1.00 par value, were
outstanding.
TABLE OF
CONTENTS
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Ex 10.1:
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First Amendment to Sublease
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Ex 31.1:
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Certification
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Ex 31.2:
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Certification
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Ex 32.1:
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Certification
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Ex 32.2:
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Certification
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2
PART I.
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements
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BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
(Dollar
amounts in thousands)
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September 30,
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December 31,
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2006
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2005
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(Unaudited)
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Assets
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Cash and cash equivalents
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$
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5,193
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$
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14,432
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U.S. Treasury bills
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29,194
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42,384
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Investment advisory and incentive
fees receivable
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1,681
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21,805
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Investments in securities, at
value (cost $3,335 and $6,839, respectively)
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4,167
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7,685
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Investments in affiliated
partnerships
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7,696
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Prepaid expenses and other assets
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2,329
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2,373
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Fixed assets (net of accumulated
depreciation of $5,823 and $8,000, respectively)
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1,568
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4,783
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Goodwill (net of accumulated
amortization of $23,362 and $8,566 respectively)
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14,796
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Investment advisory contracts (net
of accumulated amortization)
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1,107
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Consolidated affiliated
partnerships:
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Due from broker
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16,783
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Investments in securities, at
value (cost $0 and $13,841, respectively)
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14,578
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Total assets
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$
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44,132
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$
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148,422
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Liabilities, minority interest
and stockholders equity
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Accrued expenses
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$
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1,916
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$
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5,638
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Accrued compensation
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885
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43,020
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Accrued lease amendment expense
and sublease reserves
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7,491
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3,420
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Consolidated affiliated
partnerships:
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Securities sold short, at value
(proceeds of $0 and $6,878, respectively)
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7,084
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Partner contributions received in
advance
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506
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Total liabilities
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10,292
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59,668
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Minority interest in consolidated
affiliated partnerships
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13,161
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Stockholders
equity
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Common stock, $1 par value,
authorized 15,000,000 shares, issued and
outstanding 8,154,893 and 8,180,057 shares,
respectively
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$
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8,155
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8,180
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Additional paid-in capital
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81,305
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88,887
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Accumulated deficit
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(49,897
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(10,168
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Unearned compensation
restricted stock and restricted stock units
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(5,723
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(11,306
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Total stockholders equity
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33,840
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75,593
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Total liabilities, minority
interest and stockholders equity
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$
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44,132
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$
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148,422
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See accompanying notes
3
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
(Unaudited)
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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2006
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2005
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2006
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2005
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Revenues:
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Investment advisory fees
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$
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888
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$
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17,875
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$
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9,247
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$
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57,217
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Incentive fees
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18,860
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10,078
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39,934
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Commission income and other
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336
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125
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1,188
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502
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Net realized and unrealized gain
on investments
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370
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640
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915
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989
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Interest income
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585
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375
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1,264
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840
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From consolidated affiliated
partnerships:
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Net realized and unrealized gain
on investments
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878
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192
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1,792
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Interest and dividend income
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119
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297
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208
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Total revenues
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$
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2,179
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$
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38,872
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$
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23,181
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$
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101,482
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Expenses:
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Employee compensation and benefits
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$
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1,447
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$
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29,200
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$
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23,480
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$
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76,144
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Employee compensation relating to
equity grants (forfeitures)
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(1,279
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)
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(900
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)
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(809
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)
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2,012
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Occupancy & equipment
rental
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1,266
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1,693
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4,399
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5,004
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Other operating expenses
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1,800
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4,045
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6,722
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10,814
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Amortization of intangibles
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3,770
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1,107
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7,274
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Interest expense
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123
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170
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158
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210
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Other operating expenses from
consolidated affiliated partnerships
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59
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58
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120
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Losses resulting from
restructuring expenses
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15,209
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27,664
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Total expenses
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$
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18,566
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$
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38,037
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$
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62,779
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$
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101,578
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Operating income (loss)
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(16,387
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)
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835
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(39,598
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)
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(96
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)
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Minority interest in consolidated
affiliated partnerships
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(357
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)
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(131
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)
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(750
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)
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Income (loss) before taxes
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(16,387
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)
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478
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(39,729
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)
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(846
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)
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Income tax expense
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6,899
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7,903
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Net (loss)
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(16,387
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)
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$
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(6,421
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)
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(39,729
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)
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$
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(8,749
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)
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(Loss) per share:
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Basic and Diluted
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$
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(1.99
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$
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(0.84
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$
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(4.79
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)
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$
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(1.16
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)
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Weighted average shares outstanding
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Basic and Diluted
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8,247,534
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7,603,292
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8,298,165
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7,526,455
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See accompanying notes
4
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
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Nine Months Ended
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September 30,
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2006
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2005
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Cash flows from operating
activities
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Net (loss)
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$
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(39,729
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)
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$
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(8,749
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)
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Adjustments to reconcile net
(loss) to net cash provided by operations:
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Depreciation and amortization
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2,335
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8,921
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Non cash portion of losses
resulting from restructuring expenses
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17,008
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Expense for vesting (forfeitures)
of restricted stock and stock units
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(771
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)
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1,979
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Change in deferred tax asset
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8,391
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Unrealized (gain) loss on
investments in securities
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266
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(378
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)
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Decrease (Increase) in
U.S. treasury bills
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13,190
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(5,806
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)
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Decrease in investment advisory
and incentive fees receivable
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20,124
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$
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452
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(Increase) Decrease in prepaid
expenses and other assets
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44
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2,408
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Decrease in investments in
affiliated investment partnerships
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7,696
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7,482
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Decrease (Increase) in investments
in securities
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3,252
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(1,480
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)
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(Decrease) Increase in accrued
expenses
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(3,722
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)
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|
157
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(Decrease) Increase in accrued
bonuses
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(42,135
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)
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11,634
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Increase (decrease) in accrued
lease amendment expense
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4,071
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|
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(318
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)
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Changes in operating assets and
liabilities from consolidated affiliated partnerships:
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Minority interest in income
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|
132
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|
|
|
750
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Decrease (Increase) in due from
broker
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16,783
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|
|
|
(8,621
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)
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Decrease (Increase) in securities
|
|
|
14,578
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|
|
|
(4,410
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)
|
(Decrease) Increase in securities
sold short
|
|
|
(7,084
|
)
|
|
|
2,105
|
|
|
|
|
|
|
|
|
|
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Net cash provided by operating
activities
|
|
$
|
6,038
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|
|
$
|
14,517
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|
|
|
|
|
|
|
|
|
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Cash flows from investing
activities
|
|
|
|
|
|
|
|
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Fixed asset additions
|
|
|
(225
|
)
|
|
|
(612
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing
activities
|
|
|
(225
|
)
|
|
|
(612
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)
|
|
|
|
|
|
|
|
|
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Cash flows from financing
activities
|
|
|
|
|
|
|
|
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Issuance of common stock
|
|
|
(1,246
|
)
|
|
|
(4,187
|
)
|
Dividends paid to shareholders
|
|
|
|
|
|
|
(10,740
|
)
|
Consolidated affiliated
partnerships:
|
|
|
|
|
|
|
|
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(Decrease) in partner
contributions received in advance
|
|
|
(506
|
)
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|
|
|
|
Partner subscriptions
|
|
|
1,100
|
|
|
|
4,230
|
|
Partner redemptions
|
|
|
(14,400
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net cash (used in) financing
activities
|
|
|
(15,052
|
)
|
|
|
(10,697
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)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
(9,239
|
)
|
|
|
3,208
|
|
Cash and cash equivalents at the
beginning of the year
|
|
|
14,432
|
|
|
|
3,582
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the
end of the period
|
|
$
|
5,193
|
|
|
$
|
6,790
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash
flow information
|
|
|
|
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Cash paid for interest
|
|
$
|
15
|
|
|
$
|
60
|
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes
|
|
$
|
153
|
|
|
$
|
61
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
5
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY
Nine Months Ended September 30, 2006
(Amounts in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Unearned
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings (Deficit)
|
|
|
Compensation
|
|
|
Total
|
|
|
Balance at December 31, 2002
|
|
$
|
6,642
|
|
|
$
|
78,990
|
|
|
$
|
30,434
|
|
|
$
|
(12,016
|
)
|
|
$
|
104,050
|
|
Grants of restricted stock units
|
|
|
|
|
|
|
10,380
|
|
|
|
|
|
|
|
(2,193
|
)
|
|
|
8,187
|
|
Issuance of common stock
|
|
|
184
|
|
|
|
(2,066
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,882
|
)
|
Tax benefit related to employee
compensation plans
|
|
|
|
|
|
|
633
|
|
|
|
|
|
|
|
|
|
|
|
633
|
|
Net (loss)
|
|
|
|
|
|
|
|
|
|
|
(8,380
|
)
|
|
|
|
|
|
|
(8,380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
$
|
6,826
|
|
|
$
|
87,937
|
|
|
$
|
22,054
|
|
|
$
|
(14,209
|
)
|
|
$
|
102,608
|
|
Grants of restricted stock and
restricted stock units
|
|
|
65
|
|
|
|
(2,744
|
)
|
|
|
|
|
|
|
8,814
|
|
|
|
6,135
|
|
Issuance of common stock
|
|
|
384
|
|
|
|
(1,167
|
)
|
|
|
|
|
|
|
|
|
|
|
(783
|
)
|
Tax benefit related to employee
compensation plans
|
|
|
|
|
|
|
4,432
|
|
|
|
|
|
|
|
|
|
|
|
4,432
|
|
Dividend, net of compensation
expense
|
|
|
|
|
|
|
|
|
|
|
(2,781
|
)
|
|
|
|
|
|
|
(2,781
|
)
|
Net (loss)
|
|
|
|
|
|
|
|
|
|
|
(1,765
|
)
|
|
|
|
|
|
|
(1,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
$
|
7,275
|
|
|
$
|
88,458
|
|
|
$
|
17,508
|
|
|
$
|
(5,395
|
)
|
|
$
|
107,846
|
|
Grants of restricted stock units
and restricted stock
|
|
|
388
|
|
|
|
5,965
|
|
|
|
|
|
|
|
(5,911
|
)
|
|
|
442
|
|
Issuance of common stock
|
|
|
517
|
|
|
|
(6,414
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,897
|
)
|
Tax benefit related to employee
compensation plans
|
|
|
|
|
|
|
878
|
|
|
|
|
|
|
|
|
|
|
|
878
|
|
Dividends, net of compensation
expense
|
|
|
|
|
|
|
|
|
|
|
(11,811
|
)
|
|
|
|
|
|
|
(11,811
|
)
|
Net (loss)
|
|
|
|
|
|
|
|
|
|
|
(15,865
|
)
|
|
|
|
|
|
|
(15,865
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
$
|
8,180
|
|
|
$
|
88,887
|
|
|
$
|
(10,168
|
)
|
|
$
|
(11,306
|
)
|
|
$
|
75,593
|
|
Grants (forfeitures) of restricted
stock units and restricted stock
|
|
|
(106
|
)
|
|
|
(4,252
|
)
|
|
|
|
|
|
|
5,583
|
|
|
|
1,225
|
|
Issuance of common stock
|
|
|
81
|
|
|
|
(4,016
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,935
|
)
|
Grants of stock options
|
|
|
|
|
|
|
686
|
|
|
|
|
|
|
|
|
|
|
|
686
|
|
Net (loss)
|
|
|
|
|
|
|
|
|
|
|
(39,729
|
)
|
|
|
|
|
|
|
(39,729
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2006
|
|
$
|
8,155
|
|
|
$
|
81,305
|
|
|
$
|
(49,897
|
)
|
|
$
|
(5,723
|
)
|
|
$
|
33,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
6
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
1.
|
Organization
and Summary of Significant Accounting Policies
|
Organization
and Basis of Presentation
Basis of
Presentation
In the opinion of management, the accompanying unaudited
consolidated financial statements reflect all adjustments,
consisting only of normal recurring adjustments except as
otherwise disclosed, necessary to present fairly the financial
position of BKF Capital Group, Inc. and its subsidiaries (the
Company) at September 30, 2006 and the results
of operations for the nine months and three months ended
September 30, 2006 and 2005 and cash flows for the nine
months ended September 30, 2006 and 2005 subject to the
organizations ability to continue as a going concern. In
light of the changed business conditions created by the
departure of key investment personnel and the resulting loss of
assets under management, the Company is currently evaluating
strategic alternatives. The results of operations for the nine
month and three month periods ended September 30, 2006
should not be taken as indicative of the results of operations
that may be expected for the entire year 2006.
Organization
The consolidated interim financial statements of BKF Capital
Group, Inc. and its subsidiaries included herein have been
prepared in accordance with generally accepted accounting
principles for interim financial information and
Rule 10-01
of
Regulation S-X.
Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles
for complete financial statements. These consolidated financial
statements are unaudited and should be read in conjunction with
the audited consolidated financial statements and notes thereto
included in the Companys Annual Report on
Form 10-K/A
for the year ended December 31, 2005. The Company follows
the same accounting policies in the preparation of interim
reports. In the opinion of management, the consolidated
financial statements reflect all adjustments, which are of a
normal recurring nature, necessary for a fair presentation of
the financial condition, results of operations and cash flows of
the Company for the interim periods presented and are not
necessarily indicative of a full years results. BKF
Capital Group, Inc. operates through a wholly-owned subsidiary,
BKF Management Co., Inc. and its subsidiaries, all of which are
referred to as BKF.
The Consolidated Financial Statements of the Company include its
wholly-owned subsidiaries LEVCO Europe Holdings, Ltd.
(LEVCO Holdings) and its wholly-owned subsidiary,
LEVCO Europe, LLP (LEVCO Europe), BKF Asset
Management, Inc., (BAM), BKFs two wholly-owned
subsidiaries, BKF GP Inc. (BKF GP) and LEVCO
Securities, Inc. (LEVCO Securities) and certain
affiliated investment partnerships for which the Company is
deemed to have a controlling interest in the applicable
partnership. There were no investment partnerships consolidated
at September 30, 2006 and five at December 31, 2005.
In addition, the operations of three investment partnerships
were included in the statements of operation and cash flows for
the nine-months ended September 30, 2006 and for the same
period in September 30, 2005. Currently LEVCO Holding,
LEVCO Securities, and the affiliated partnerships are in the
process of winding down and it is expected they will be
liquidated by the end of 2006. All intercompany transactions
have been eliminated in consolidation.
BKF is an investment advisor registered under the Investment
Advisers Act of 1940, as amended, which has historically
provided investment advisory services to its clients which
included U.S. and foreign corporations, mutual funds, limited
partnerships, universities, pension and profit sharing plans,
individuals, trusts,
not-for-profit
organizations and foundations. BKF also participated in broker
consulting programs (Wrap Accounts) with several nationally
recognized financial institutions. LEVCO Securities is
registered with the SEC as a broker- dealer and is a member of
the National Association of Securities Dealers, Inc. BKF GP acts
as the managing general partner of several affiliated investment
partnerships.
7
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidation
Accounting Policies
Operating Companies. Financial Accounting
Standards Board (FASB) Interpretation No. 46,
Consolidation of Variable Interest Entities an
interpretation of Accounting Research Bulletin No. 51
(ARB 51), Consolidated Financial
Statements, to variable interest entities
(VIE), (FIN 46), which was issued
in January 2003 and revised in December 2003
(FIN 46R), defines the criteria necessary to be
considered an operating company (i.e., voting interest entity)
for which the consolidation accounting guidance of Statement of
Financial Accounting Standards (SFAS) No. 94,
Consolidation of All Majority-Owned Subsidiaries,
(SFAS 94) should be applied. As required by
SFAS 94, the Company consolidates operating companies in
which BKF has a controlling financial interest. The usual
condition for a controlling financial interest is ownership of a
majority of the voting interest. FIN 46R defines operating
companies as businesses that have a sufficient legal equity to
absorb the entities expected losses and, in each case, for
which the equity holders have substantive voting rights and
participate substantively in the gains and losses of such
entities. Operating companies in which the Company is able to
exercise significant influence but do not control are accounted
for under the equity method. Significant influence generally is
deemed to exist when the Company owns 20% to 50% of the voting
equity of an operating entity. The Company has determined that
it does not have any VIE. Entities consolidated are based on
equity ownership of the entity by the Company and its affiliates.
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.
Revenue
Recognition
Generally, investment advisory fees are billed quarterly, in
arrears, and are based upon a percentage of the market value of
each account at the end of the quarter. Wrap account fees are
billed quarterly based upon a percentage of the market value of
each account as of the previous quarter end. Incentive fees,
general partner incentive allocations earned from affiliated
investment partnerships, and incentive fees from other accounts
are accrued on a quarterly basis and are billed quarterly or at
the end of their respective contract year, as applicable. Such
accruals may be reversed as a result of subsequent investment
performance prior to the conclusion of the applicable contract
year.
Commissions earned on securities transactions executed by LEVCO
Securities and related expenses are recorded on a trade-date
basis net of any sales credits.
Commissions earned on distribution of an unaffiliated investment
advisors funds are recorded once a written commitment is
obtained from the investor.
Revenue
Recognition Policies for Consolidated Affiliated Partnerships
(CAP)
Marketable securities owned and securities sold short, are
valued at independent market prices with the resultant
unrealized gains and losses included in operations.
Security transactions are recorded on a trade date basis.
Interest income and expense are accrued as earned or incurred.
Dividend income and expense are recorded on the ex-dividend date.
8
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Investments
in Affiliated Investment Partnerships
BKF GP serves as the managing general partner for several
affiliated investment partnerships (AIP), which
primarily engage in the trading of publicly traded equity
securities and in the case of one partnership, distressed
corporate debt. The assets and liabilities and results of
operations of the AIP are not included in the Companys
consolidated statements of financial condition with the
exception of BKF GPs equity ownership and certain AIP
whereby BKF GP is deemed to have a controlling interest in the
partnership (see Note 4). The limited partners of the AIP
have the right to redeem their partnership interests at least
quarterly.
Additionally, the unaffiliated limited partners of the AIP may
terminate BKF GP as the general partner of the AIP at any time.
BKF GP does not maintain control over the unconsolidated AIP,
has not guaranteed any of the AIP obligations, nor does it have
any contractual commitments associated with them. Investments in
the unconsolidated AIP held through BKF GP, are recorded based
upon the equity method of accounting.
BKF GPs investment amount in the unconsolidated AIP equals
the sum total of its capital accounts, including incentive
allocations, in the AIP. Each AIP values its underlying
investments in accordance with policies as described in its
audited financial statements and underlying offering memoranda.
It is the Companys general practice to withdraw the
incentive allocations earned from the AIP within three months
after the fiscal year end. BKF GP has general partner liability
with respect to its interest in each of the AIP and has no
investments in the AIP other than its interest in these
partnerships. See Note 5 Investments in
Affiliated Investment Partnerships and Related Revenue.
Income
Taxes
The Company accounts for income taxes under the liability method
prescribed by SFAS No. 109, Accounting for
Income Taxes. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to the
differences between the financial statement carrying amount of
existing assets and liabilities and their respective tax basis.
Future tax benefits are recognized only to the extent that
realization of such benefits is more likely than not to occur.
The Company files consolidated Federal and combined state and
local income tax returns.
Long-Lived
Assets
Long-lived assets are accounted for in accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which requires impairment
losses to be recognized on long-lived assets used in operations
when an indication of an impairment exists. If the expected
future undiscounted cash flows are less than the carrying amount
of the assets, an impairment loss would be recognized to the
extent the carrying value of such asset exceeded its fair value.
During the first quarter of calendar year 2006, the Company
completed the amortization of certain long-lived assets
(investment advisory contracts). These investment advisory
contracts relate to cost in excess of the net assets acquired in
June 1996, were reflected as goodwill, investment advisory
contracts, and employment contracts in the Consolidated
Statements of Financial Condition. In 2005 the Company was
terminated as the investment advisor for a significant number of
accounts to which the investment advisory contracts relate. The
Company performed a valuation of the intangible assets (under
SFAS No. 144) and determined that the estimated
discounted cash flows for the remaining investment advisory
accounts acquired by the Company in 1996 was less than the
carrying value of the related assets as determined using the
Income approach. As a result, the Company recorded a charge of
approximately $2.4 million during 2005 representing the
difference between the fair value and the carrying value of the
group of assets and recorded a charge of $1.1 million in
the first quarter of 2006 to fully amortize these contracts.
Such amount is reflected in amortization expense in the
Consolidated Statement of Operations.
9
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Intangible
Assets
The cost in excess of net assets of BKF acquired by the Company
in June 1996 is reflected as goodwill, investment advisory
contracts, and employment contracts in the Consolidated
Statements of Financial Condition. Through December 31,
2001, goodwill was amortized straight line over 15 years.
Effective January 1, 2002 the Company adopted
SFAS No. 142, Goodwill and Other Intangible
Assets. Under SFAS No. 142, goodwill is no
longer amortized but is subject to an impairment test at least
annually or when indicators of potential impairment exist. The
Company utilizes the public market price of its stock to
determine if there has been an impairment of its intangible
assets.
During the second quarter of 2006 the Company determined that
goodwill which it carried as $14.8 million since
January 1, 2002 had become partially impaired because of
the substantial losses the business incurred as a result of the
substantial loss of assets under management due to the loss of
key personnel. The Company uses the market method to measure the
amount of goodwill impairment. The method indicated an
impairment and as a result the Company recorded a charge of
$5.0 million to partially amortize the balance during the
second quarter of 2006. The continuing deterioration of the
business resulted in further impairment and the remaining
$9.8 million of goodwill was written off during the quarter
ended September 30, 2006. Such amount is reflected in
restructuring losses in the Consolidated Statement of Operations.
Earnings
Per Share
The Company accounts for Earnings Per Share under
SFAS No. 128, Earnings Per Share. Basic
earnings (loss) per share is calculated by dividing net income
(loss) by the weighted average number of common shares
outstanding during the year. Diluted earnings (loss) per share
is computed by dividing net income (loss) by the total of the
weighted average number of shares of common stock outstanding
and common stock equivalents. Diluted earnings (loss) per share
is computed using the treasury stock method.
The following table sets forth the computation of basic and
diluted (loss) per share (dollar amounts in thousands, except
per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Net (loss)
|
|
$
|
(16,387
|
)
|
|
$
|
(6,421
|
)
|
|
$
|
(39,729
|
)
|
|
$
|
(8749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average shares
outstanding
|
|
|
8,247,534
|
|
|
|
7,603,292
|
|
|
|
8,298,165
|
|
|
|
7,526,455
|
|
Dilutive potential shares from
equity grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average shares
outstanding
|
|
|
8,247,534
|
|
|
|
7,603,292
|
|
|
|
8,298,165
|
|
|
|
7,526,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) per share
|
|
$
|
(1.99
|
)
|
|
$
|
(0.84
|
)
|
|
$
|
(4.79
|
)
|
|
$
|
(1.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In calculating diluted (loss) per share for the three and nine
months ended September 30, 2006 and 2005 common stock
equivalents of 300,000 and 824,882, respectively, were excluded
due to their anti-dilutive effect on the calculation.
Business
Segments
The Company has not presented business segment data, in
accordance with SFAS No. 131 Disclosures about
Segments of an Enterprise and Related Information, because
it operates in one business segment, the investment advisory and
asset management business.
10
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
Options
In December 2004, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards
No. 123 (revised 2004), Share-Based Payment
(SFAS No. 123R) requiring that the compensation cost
relating to share-based payment transactions be recognized in
financial statements. The cost is to be measured based on the
fair value of the equity or liability instruments issued. In
April 2005, the adoption date of SFAS No. 123R was
delayed to financial statements issued for the first annual
period beginning after June 15, 2005. The Company has
adopted SFAS No. 123R on January 1, 2006 using
the modified prospective method. The impact of adopting this
Standard is discussed in Note 8 Stock Options.
Reclassifications
Certain prior period amounts reflect reclassifications to
conform with the current years presentation.
Significant
Accounting Policies of Consolidated Affiliated Partnerships
(CAP)
Securities sold short represent obligations to deliver the
underlying securities sold at prevailing market prices and
option contracts written represent obligations to purchase or
deliver the specified security at the contract price. The future
satisfaction of these obligations may be at amounts that are
greater or less than that recorded on the consolidated
statements of financial condition. The CAP monitors their
positions continuously to reduce the risk of potential loss due
to changes in market value or failure of counterparties to
perform.
Minority
Interest
Minority interests in the accompanying consolidated statements
of financial condition represent the minority owners share
of the equity of consolidated investment partnerships. Minority
interest in the accompanying consolidated statements of
operations represents the minority owners share of the
income or loss of consolidated investment partnerships.
Partner
Contributions and Withdrawals
Typically, contributions are accepted monthly and withdrawals
are made quarterly upon the required notification period having
been met. The notification period ranges from thirty to sixty
days.
Recent
Accounting Developments
In June 2006, the FASB issued FASB Interpretation No. 48
(FIN 48), Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement
No. 109, which seeks to reduce diversity in practice
that is associated with certain aspects of measurement and
recognition when accounting for uncertain tax positions and
clarifies the accounting and disclosure for uncertainty in tax
positions. FIN 48 is effective for the Company beginning
January 1, 2007. FIN 48 is not expected to have a
material effect on the Companys results of operations of
financial condition.
In September 2006, the FASB issued SFAS 157, Fair Value
Measurements, which defines fair value, establishes a
framework for measuring fair value and requires additional
disclosure regarding fair value measurements. SFAS 157 is
effective for the Company beginning January 1, 2008. The
Company is currently evaluating the impact, if any, that the
adoption of SFAS 157 will have on our financial statements.
In September 2006, the staff of the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 108
(SAB 108), Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements. SAB 108 was issued to
address diversity in practice in quantifying financial statement
misstatements and the potential under current practice for the
build up of improper amounts on the balance sheet, and to
provide consistency between how registrants quantify financial
statement misstatements. The techniques most commonly used in
practice to accumulate and quantify misstatements are generally
referred to as
11
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the roll-over and iron curtain
approaches. The roll-over approach quantifies a misstatement
based on the amount of the error originating in the current year
statement. The iron curtain approach quantifies a misstatement
based on the effects of correcting the misstatement existing in
the balance sheet at the end of the current year, irrespective
of when the misstatement originated. SAB 108 requires a
dual approach that requires quantification of errors
under both the roll-over and iron curtain methods. SAB 108
is effective for fiscal years ending after November 15,
2006. The Company does not expect the adoption of SAB 108
will have a material effect on the Companys results of
operations or financial condition as management is not aware of
any prior year misstatements in the Companys financial
statements.
|
|
2.
|
Off-Balance
Sheet Risk
|
LEVCO Securities acts as an introducing broker and all
transactions for its customers are cleared through and carried
by a major U.S. securities firm on a fully disclosed basis.
LEVCO Securities has agreed to indemnify its clearing broker for
losses that the clearing broker may sustain from the customer
accounts introduced by LEVCO Securities. In the ordinary course
of its business, however, LEVCO Securities does not accept
orders with respect to client accounts if the funds required for
the client to meet its obligations are not on deposit in the
client account at the time the order is placed.
In the normal course of business, the CAP enter into
transactions in various financial instruments, including
derivatives, for trading purposes, in order to reduce their
exposure to market risk. These transactions include option
contracts and securities sold short.
Substantially all of the CAP cash and securities positions are
deposited with one clearing broker for safekeeping purposes. The
broker is a member of major securities exchanges.
|
|
3.
|
Investment
Advisory and Incentive Fees Receivable
|
Included in investment advisory and incentive fees receivable
are approximately $0 and $203,000 of accrued incentive fees as
of September 30, 2006 and December 31, 2005,
respectively, for which the full contract measurement period has
not been reached. The Company has provided for the applicable
expenses relating to this revenue. If the accrued incentive fees
are not ultimately realized, a substantial portion of the
related accrued expenses will be reversed.
As required by SFAS 94, the Company consolidates AIP in
which the Company has a controlling financial interest. The
consolidation of these partnerships does not impact the
Companys equity or net income. BKF GP has general partner
liability with respect to its interest in each of the CAP.
At December 31, 2005 there were 5 affiliated partnerships
consolidated, however as of September 30, 2006 all
affiliated partnerships had been liquidated and no CAP were
consolidated.
12
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
Investments
in Affiliated Investment Partnerships and Related
Revenue
|
Summary financial information, including the Companys
carrying value and income from the unconsolidated AIP is as
follows (dollar amounts in thousands):
|
|
|
|
|
|
|
September 30,
|
|
|
|
2006
|
|
|
Total AIP assets
|
|
$
|
922
|
|
Total AIP liabilities
|
|
|
(124
|
)
|
Total AIP capital balance
|
|
|
798
|
|
AIP net earnings
|
|
|
(7
|
)
|
Companys carrying value
(including incentive allocations)
|
|
|
|
|
Companys (loss) on invested
capital (excluding accrued incentive allocations)
|
|
|
|
|
Included in the carrying value of investments in AIP at
September 30, 2006 and December 31, 2005 are accrued
incentive allocations approximating $0 and $5.2 million,
respectively.
Included in the Companys incentive fees and general
partner incentive allocations are approximately $0 and
$1.8 million payable directly to employee owned and
controlled entities (Employee Entities) for the
three months ended September 30, 2006 and 2005,
respectively and $755,000 and $3.7 million for the nine
months ended September 30, 2006 and 2005 respectively.
These amounts are included in the Companys carrying value
of the AIP at the end of the applicable period except in periods
after which the AIP has liquidated and proceeds have been
distributed. These Employee Entities, which serve as
non-managing general partners of several AIP, also bear the
liability for all compensation expense relating to the allocated
revenue, amounting to approximately $0 and $1.8 million for
the three months ended September 30, 2006 and 2005,
respectively and $755,000 and $3.7 million for the nine
months ended September 30, 2006 and 2005 respectively.
These amounts are included in the Consolidated Statement of
Operations.
The Company recorded investment advisory fees and incentive
allocations/fees from unconsolidated affiliated domestic
investment partnerships and affiliated offshore investment
vehicles of approximately $0 and $26.5 million for the
three months ended September 30, 2006 and 2005,
respectively and $7.2 million and $63.8 million for
the nine months ended September 30, 2006 and 2005
respectively.
Included in investment advisory and incentive fees receivable at
September 30, 2006 and December 31, 2005 are $0 and
$1.9 million, respectively, of advisory fees from AIP and
sponsored investment offshore vehicles. Also included in
investment advisory and incentive fees receivable are $0 and
$11.2 million of incentive fees from sponsored offshore
investment vehicles at September 30, 2006 and
December 31, 2005, respectively.
|
|
6.
|
Contractual
Obligations
|
In the ordinary course of business, the Company enters into
contracts with third parties pursuant to which BKF or the third
party provides services to the other. In many of the contracts,
the Company agrees to indemnify the third party under certain
circumstances. The terms of the indemnity vary from contract to
contract and the amount of the indemnification liability, if
any, cannot be determined.
First Quarter 2005:
|
|
|
|
|
Certain executive officers of the Company, who are subject to
performance based criteria with regard to their 2004
compensation, and several employees were granted
75,344 shares of restricted stock with a value of
approximately $3.2 million, which vest over a three-year
period. The amount unearned as of March 31, 2005 is
recorded as unearned compensation in the Consolidated Statement
of Financial Condition.
|
13
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
The Company withheld 112,874 shares of common stock for
required withholding taxes in connection with the delivery of
280,854 restricted stock units (RSU).
|
|
|
|
5,000 unvested RSU were forfeited.
|
|
|
|
The restriction on 9,600 shares of restricted stock was
lifted and delivered.
|
|
|
|
9,000 shares of restricted stock were granted to
non-employee Directors for 2005 Directors fees with a value
of approximately $360,000.
|
Second Quarter 2005:
|
|
|
|
|
The restriction on 4,800 shares of restricted stock was
lifted and delivered.
|
|
|
|
3,433 shares of restricted stock were granted to several
employees with a value of approximately $132,000, of which 1,174
unvested shares were forfeited.
|
Third Quarter 2005:
|
|
|
|
|
1,800 shares of restricted stock were granted to
non-employee Directors with a value of approximately $61,000.
|
|
|
|
The restriction on 2,100 shares of restricted stock was
lifted and delivered and 747 shares of restricted stock
were forfeited.
|
|
|
|
46,933 shares of restricted stock granted to employees were
forfeited.
|
|
|
|
94,000 shares of restricted stock were granted to several
employees with a value of approximately $3.2 million.
|
|
|
|
161,725 RSU were forfeited with an approximate grant value of
$2.6 million (of which 47,546 RSU were vested and subject
to a non-compete clause and were therefore forfeited) and
46,786 shares of restricted stock have been forfeited with
an approximate grant value of $1.6 million, as part of the
separation agreement with John A. Levin.
|
|
|
|
On September 28, 2005, the Company hired a new Chief
Executive Officer. As part of the agreement the Company granted
250,000 shares of restricted stock with an approximate
value of $8.0 million, which vest 20% on December 30,
2005 and the remaining 80% shall vest ratably in 20% (i.e. 25%
of the invested 80%) installments on the first through fourth
anniversaries of the grant date. In addition, 250,000 stock
options will be granted on December 30, 2005 equal to the
fair market value on the grant date and will vest over the same
terms as the restricted stock. The stock options will be
accounted for under SFAS 123R upon grant.
|
First Quarter 2006:
|
|
|
|
|
Certain officers and employees of the Company were granted
145,000 shares of restricted stock with a value of
approximately $2.0 million, which vest over a three-year
period. The amount unearned as of March 31, 2006 is
recorded as unearned compensation in the consolidated statement
of financial condition.
|
|
|
|
The Company withheld 74,428 shares of common stock for
required withholding taxes in connection with the delivery of
99,526 RSU.
|
|
|
|
11,953 shares of unvested restricted stock were forfeited.
|
|
|
|
The restriction on 5,764 shares of restricted stock was
lifted and delivered.
|
|
|
|
4,592 shares of restricted stock were granted to
non-employee Directors for 2005 Directors fees with a value
of approximately $59,000.
|
Second Quarter 2006:
|
|
|
|
|
181,650 shares of unvested restricted stock were forfeited.
|
|
|
|
The restriction on 4,382 shares of restricted stock was
lifted and delivered.
|
14
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
12,500 shares of restricted stock were granted to a
non-employee service provider with a value of approximately
$107,000.
|
Third Quarter 2006:
|
|
|
|
|
74,746 shares of unvested restricted stock were forfeited
|
|
|
|
The Company withheld 25,625 shares of common stock for
withholding taxes in connection with the delivery of
50,000 shares of restricted stock.
|
Effective January 1, 2006, the Company adopted the
provisions of Statement of Financial Accounting Standards
No. 123 (revised 2004), Share-Based Payment
(SFAS No. 123R) requiring that compensation cost
relating to share-based payment transactions be recognized in
the financial statements. The cost is measured at the grant
date, based on the calculated fair value of the award, and is
recognized as an expense over the employees requisite
service period (generally the vesting period of the equity
award). Prior to January 1, 2006, the Company accounted for
share-based compensation to employees in accordance with
Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB
No. 25), and related interpretations. The Company also
followed the disclosure requirements of Statement of Financial
Accounting Standards No. 123, Accounting for
Stock-Based Compensation, as amended by Statement of
Financial Accounting Standards No. 148, Accounting
for Stock-Based Compensation-Transition and Disclosure. We
adopted SFAS 123R using the modified prospective method
and, accordingly, financial statement amounts for prior periods
presented in this
Form 10-Q
have not been restated to reflect the fair value method of
recognizing compensation cost relating to stock options.
There was $686,000 and $198,000 of compensation cost related to
non-qualified stock options recognized in operating results
(included in employee compensation relating to equity grants) in
the nine months and three months ended September 30, 2006
respectively.
The fair value of each option award is estimated on the grant
date using the Black-Scholes option-pricing model. Expected
volatility is based on implied volatilities from the public
trading price of BKF stock. The Company used a 10 year
option life as the expected term. The expected term represents
an estimate of the time options are expected to remain
outstanding. The risk-free rate for periods within the
contractual life of the option is based on the
U.S. treasury yield curve in effect at the time of grant.
The following table sets forth the assumptions used to determine
compensation cost for our non-qualified stock options consistent
with the requirements of SFAS No. 123R.
|
|
|
|
|
|
|
Nine Months
|
|
|
|
September 30,
|
|
|
|
2006
|
|
|
Expected volatility
|
|
|
39.79
|
%
|
Expected annual dividend yield
|
|
|
0.00
|
%
|
Risk free rate of return
|
|
|
4.49
|
%
|
Expected option term (years)
|
|
|
10.0
|
|
The following table summarizes the information about stock
option activity for the nine months ended September 30,
2006:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted-Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Outstanding at December 31,
2005
|
|
|
273,396
|
|
|
$
|
18.61
|
|
Granted
|
|
|
50,000
|
|
|
|
13.75
|
|
Lapsed or canceled
|
|
|
(23,396
|
)
|
|
|
15.01
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30,
2006
|
|
|
300,000
|
|
|
|
18.08
|
|
Exercisable at September 30,
2006
|
|
|
112,500
|
|
|
|
18.37
|
|
15
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At September 30, 2006 there was $1.6 million of total
unrecognized compensation cost related to non-vested stock
options, which is expected to be recognized over a
weighted-average period of 2.03 years. The total fair value
of options vested during the nine months and three months ended
September 30, 2006 was $573,000 and $479,000, respectively.
There were 50,000 options vested during the three months ended
September 30, 2006.
There were no tax provisions for the first nine months of 2006.
This amount differs from the amount of income tax determined by
applying the applicable U.S. federal statutory income tax
rate principally due to the elimination of the net deferred tax
assets, operating losses and the prior utilization of the
Companys tax carry back.
The Company has recorded a valuation allowance of approximately
$5.8 million against its net deferred tax asset as of
September 30, 2006. The Company believes that it is more
likely than not that this deferred tax benefit will not be
utilized in the foreseeable future.
The Company has recently filed its federal tax return for 2005
on which it reported a tax loss carryforward of approximately
$14 million.
|
|
10.
|
Restructuring
Expenses
|
During the third quarter of 2006 additional restructuring
expenses were incurred to account for the termination costs
associated with employee separation agreements of
$3.3 million, losses incurred in subleasing excess office
space of $2.1 million and the full amortization of the
goodwill balance of $9.8 million. For the nine months ended
September 30, 2006 restructuring expenses totaled
$27.7 million related to separation payments of
$5.9 million, subleasing activity of $7.0 million and
$14.8 million of expense related to the goodwill writeoff.
During October 2006, the Company agreed in principle to sublet
approximately 17,000 square feet of office space in its
headquarters to a third party in addition to the office space
subleases executed in August and May 2006. The Company will
establish a reserve to account for the difference between the
lease and sublease cash flows of approximately $2.9 million
at the point the sublease is signed. The Company is seeking to
sublease additional space and will record reserves as
appropriate.
During the third quarter, the Company filed its business plan
with the New York Stock Exchange (NYSE) to remedy
its violation of the NYSEs minimum continued listing
standards. The NYSE decided that given the Companys
current situation its shares should be delisted. The Company
initially appealed the NYSEs decision, but on
November 1, 2006 withdrew its appeal as it has no potential
transaction in discussion that would allow it to return to a
level of market capitalization sufficient to meet the listing
standard.
On October 12, 2006 a former employee of the Company, filed
a complaint in U.S. District Court alleging breach of contract
and other state law claims during the period from 2002 to 2006,
claiming that the company (1) failed to pay him sales
commissions earned while employed by the Company, (2) failed to
pay him severance payments and (3) failed to make matching
contributions on his behalf to the Companys 401(k) plan.
The Company is currently unable to predict the outcome of the
suit or reasonably estimate a range of possible loss.
On October 31, 2006 the Company announced that its
President and Chief Executive Officer, John Siciliano, and its
Chief Financial Officer, J. Clarke Gray, would resign effective
January 2, 2007 and June 30, 2007, respectively.
Mr. Siciliano also stepped down as Chairman of the
Companys Board of Directors effective October 31,
2006. Two members of the Companys Board of Directors
agreed to succeed to the positions of President and CEO and
Chairman of the Board of Directors. Mr. Harvey Bazaar will
become President and Chief Executive Officer of the Company on
January 2, 2007 and Mr. Marvin Olshan was elected
Chairman of the Board of Directors on October 31, 2006 and
will become Executive Chairman on January 2, 2007. The
severance cost related to the separations of the Chief Executive
Officer and Chief Financial Officer will be $1.35 million
and will be charged to operations during the period the
separation is effective.
16
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
OVERVIEW
In the third quarter of 2005, the Company began suffering a
substantial loss of assets under management due to the departure
of key personnel and uncertainty surrounding the future of the
business. The deterioration in assets has continued through 2006
culminating in the Company electing to terminate all of its
client relationships in the third quarter of 2006. At
September 30, 2006, the Company had no clients for whom it
was managing assets.
As a result, the Company has no operating business and no assets
under management at September 30, 2006. The Companys
principal assets consist of a significant cash position,
sizeable net operating tax losses to carry forward, its status
as a reporting company under the Exchange Act and a small
revenue stream consisting of fee sharing payments from departed
portfolio managers and interest on the cash. The revenue stream
will be insufficient to cover operating expenses.
The Company has been in the process of attempting to merge with
or acquire a third party asset management business and has
reviewed numerous opportunities. To date those efforts have been
unsuccessful. During the fourth quarter, the Company plans to
expand the scope of its efforts beyond traditional asset
management and related financial services companies. If the
other options are not available, the Company would liquidate and
distribute remaining cash to its stockholders.
Recent
Developments
As of December 31, 2004, the Company had $13.6 billion
of assets under management. In the first half of 2005, a group
of stockholders launched a proxy fight to elect three new
directors. It was announced at the Companys annual meeting
on June 23, 2005, that these stockholders were successful
and three new directors were elected to the Companys
board. The proxy contest created significant uncertainty for the
Companys business and employees and, as a result,
throughout 2005 the Company suffered significant declines in
assets under management.
Following the proxy contest, in August 2005, John A. Levin, the
Companys founder and then Chief Executive Officer, agreed
to resign effective upon the appointment of a new Chief
Executive Officer. The new Chief Executive Officer, John C.
Siciliano, assumed his role on September 28, 2005. Under
the terms of a separation agreement the Company entered into
with Mr. Levin, he was allowed to solicit clients
representing approximately $2.1 billion of assets under
management by the Company. Under the separation agreement, the
Company has an economic stake equal to 15% of the investment
fees generated by Mr. Levins firm from such former
clients (to the extent clients invest in strategies similar to
those that had been utilized by them at the Company).
In April 2005, the Company entered into a letter agreement with
the senior portfolio managers of the Companys alternative
and event driven strategies, including Henry Levin,
son of John A. Levin, setting forth compensation arrangements
for 2005 for these portfolio managers and others in their group.
During the third quarter of 2005, the Company negotiated with
various portfolio managers of these alternative and event
driven strategies to enter into long-term compensation
arrangements. The Company announced on October 18, 2005
that it was not successful in these negotiations. As a result,
the Company liquidated these alternative and event
driven strategies, which represented 41.3% of the
Companys revenues during 2005.
Also in 2005, the Company entered into compensation arrangements
for 2006 with the senior portfolio managers of its two remaining
major alternative investment strategies, the actively traded
long-short equity and small-mid cap long-short equity
strategies, and with Philip Friedman, the Companys Chief
Investment Officer, and the senior portfolio manager of the
Companys long-only equity business. These arrangements
contemplated superseding longer-term economic arrangements would
be reached in the first quarter of 2006 and provided that the
teams in these strategies would receive 25% of their 2006 bonus
pool on April 15, 2006 for members of the team still in the
employ of the Company at March 31, 2006 if no such
arrangements were reached. Thereafter, the members of the team
would be eligible to receive the balance of 75% of their annual
bonus if they were terminated by the Company prior to
December 31, 2006 or if they were still in the employ of
the Company at that date.
The Company was unable to reach long-term compensation
arrangements with the senior portfolio managers of its actively
traded long-short equity and small-mid cap long-short equity
strategies. As a result, the strategies
17
were liquidated and the portfolio managers left the Company in
April 2006. These strategies represented 23.5% of the
Companys revenues for 2005.
The Company also was unable to successfully conclude a longer
term employment agreement with Mr. Friedman. As a result,
Mr. Friedman resigned and the Company decided to fully exit
the long only strategies on an orderly basis and
they were liquidated during the third quarter. As a result, the
Company no longer has an operating business nor any assets under
management.
Throughout 2006, the Company has conducted conversations with a
number of parties including individual investment professionals,
investment teams, and asset management companies, both
alternative and long only, as regards a joint venture with,
acquisition by or direct employment with BKF. At this time,
there are no serious discussions underway which may result in a
transaction in the immediate future. The Company intends to
continue to pursue all reasonable alternatives.
On October 31, 2006 the Companys Chief Executive
Officer, John Siciliano, and Chief Financial Officer, J. Clarke
Gray, announced their intention to resign in 2007 in order to
conserve the Companys liquid assets, which were
approximately $38.5 million at September 30th. The
Chief Executive Officer will step down on January 2, 2007
and the Chief Financial Officer on June 30, 2007.
Additionally, John Siciliano stepped down as Chairman of the
Companys Board of Directors effective October 31,
2006. Two members of the Companys Board of Directors
agreed to succeed to the positions of President and CEO and
Chairman of the Board of Directors. Mr. Harvey Bazaar will
become President and Chief Executive Officer of the Company on
January 2, 2007 and Mr. Marvin Olshan was elected
Chairman of the Board of Directors on October 31, 2006 and
will become Executive Chairman on January 2, 2007.
Since the beginning of the year, the number of employees at BKF
has been reduced from 96 to 10 and will be further reduced as
operations continue to wind down.
RISK
FACTORS
The
ability of BKF to continue as an operating company is dependent
on its ability to consummate a merger or an acquisition
and/or to
raise additional capital.
The Companys available options include (i) forming a
new asset management venture and/or (ii) merging with or
acquiring a third party. The Company is not currently engaged in
serious discussions regarding a transaction. Any such
transaction will be subject to identifying a suitable business
and negotiating definitive agreements. Even if the Company is
able to enter into a definitive agreement for a transaction, any
definitive agreement could be subject to various conditions,
including regulatory approvals. Therefore, there can be no
assurance that the Company will be able to effect any such
transaction. Although the Companys cash position is
sufficient to allow it to operate for a protracted period, the
Company believes that an issuance or exchange of either debt or
equity or both will be necessary to conclude any such
transaction. The ability to raise additional capital is subject
to market conditions, the willingness of investors to invest in
a new or startup business and other factors. Certain
transactions including a possible public offering may require
stockholder approval. Also, an equity or rights offering could
be dilutive to the existing stockholders of the Company. There
can be no assurance that the Company will be able to raise any
additional capital on favorable terms at all. If the Company is
unable to effect a transaction or to raise additional capital,
the Company would expect to be dissolved and liquidated.
Finally, even if a transaction or financing occurs, the terms of
the transaction or financing may not be favorable to the Company
and its stockholders and could result in a decline in the stock
price of the Company.
If the
Company is liquidated, the stockholders of the Company may not
receive cash proceeds equal to the current stock price or book
value of the Company.
If the Company is dissolved and liquidated, the creditors of the
Company will be paid prior to any distribution to the
stockholders. Furthermore, the Company expects to reserve a
significant portion of its cash to pay for future liabilities,
such as rental expenses, employment termination costs and other
contractual obligations. As a result, the cash remaining to be
distributed to stockholders is expected to be significantly less
than the Companys current cash position and could be less
than the stock price or book value of the Company.
18
Our
Common Stock has been delisted on the New York Stock
Exchange
On August 29, 2006, the Companys common stock was
delisted from the NYSE. The Company originally appealed this
decision but on November 1, 2006 withdrew its appeal as a
result of the failure to find a suitable transaction that would
have allowed it to meet the NYSEs continued listing
standards. Currently, the Companys common stock trades on
the over-the-counter bulletin board (OTCBB). Even
though the Companys common stock continues trading on the
OTCBB, the Company cannot ensure you that the market for its
common stock will be as liquid as it had been on the NYSE, which
can make the market price for the Companys common stock
more volatile than it had been historically. Additionally, being
traded on the OTCBB could reduce the ability of holders of the
Companys common stock to purchase or sell the
Companys common stock as quickly and inexpensively as they
had been able to when the Company was listed on the NYSE.
Lastly, the lack of liquidity also could make it more difficult
for the Company to raise capital in the future.
BKFs
ability to consider strategic alternatives and to make
investments in new businesses will be limited by the terms of
the Investment Company Act of 1940.
Any company that is primarily engaged in the business of
investing, reinvesting, or trading or holding securities is an
investment company subject to the registration and other
regulatory requirements of the Investment Company Act of 1940
(the 1940 Act). The Companys primary business
is investment advising and asset management. The significant
reduction in its assets under management has substantially
reduced BKFs assets, with the remaining assets being
concentrated in cash and cash equivalents, U.S. treasury
bills and investments in securities and investment partnerships.
The Company does not believe it is an investment company and has
no intent to become an investment company. Therefore, as a
protective measure, the Company intends to rely upon
Rule 3a-2
under the 1940 Act. Under
Rule 3a-2,
a company that has a bona fide intent to be engaged in a
business other than that of an investment company may avoid
being classified and regulated as an investment company for up
to a year. After that one-year period, the Company must either
not be an investment company, be exempt from the provisions of
the 1940 Act or register as an investment Company and become
subject to 1940 Act regulation. (The Company may also seek an
order from the SEC regulating that the one-year period be
extended. There can be an assurance that the SEC would grant
such an order). As a result, the Companys ability to
consider strategic alternatives over an extended period will be
limited. In addition, the 1940 Act restricts the ability of the
Company to make non-controlling investments. Therefore, the
Companys ability to consider different types of strategic
alternatives and to determine how to use its cash position will
be subject to certain limitations imposed by the 1940 Act.
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 and
its subsidiaries. Because of the substantial reduction in assets
under management and the Companys determination to exit
its long only strategies, these financial results will not be
indicative of the Companys future results. It should be
noted that certain affiliated investment partnerships in which
BKF may be deemed to have a controlling interest have been
consolidated. The number and identity of the partnerships being
consolidated may change over time as the percentage interest
held by BKF and its affiliates in affiliated partnerships
changes. The assets, liabilities and related operations of these
partnerships and related minority interest have been reflected
in the consolidated financial statements for the
three-months
and nine months periods ended September 30, 2006 and
September 30, 2005. The consolidation of the partnerships
does not impact BKFs equity or net income.
Three
Months Ended September 30, 2006 as Compared to Three Months
Ended September 30, 2005
Revenues
Total revenues for the third quarter of 2006 were
$2.2 million, reflecting a decrease of 94.4% from
$38.9 million in revenues in the same period in 2005. This
decrease is primarily attributable to the termination of all
alternative strategies and the decline in assets under
management of the long-only strategies. The Company
19
has no operating business and no assets under management as of
September 30, 2006. The revenues generated by the various
investment strategies were as follows (all amounts are in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Investments Management Fees (IMF)
|
|
|
|
|
|
|
|
|
Long-Only
|
|
$
|
888
|
|
|
$
|
7,777
|
|
Event-Driven
|
|
|
|
|
|
|
5,763
|
|
Long-Short
|
|
|
|
|
|
|
2,874
|
|
Short-Biased
|
|
|
|
|
|
|
926
|
|
Other
|
|
|
|
|
|
|
535
|
|
|
|
|
|
|
|
|
|
|
Total IMF Fees
|
|
|
888
|
|
|
|
17,875
|
|
|
|
|
|
|
|
|
|
|
Incentive Fees and Allocations
|
|
|
|
|
|
|
|
|
Long-Only
|
|
|
|
|
|
|
67
|
|
Event-Driven
|
|
|
|
|
|
|
15,023
|
|
Active Long-Short
|
|
|
|
|
|
|
2,813
|
|
Short-Biased
|
|
|
|
|
|
|
3
|
|
Other
|
|
|
|
|
|
|
954
|
|
|
|
|
|
|
|
|
|
|
Total Incentive Fees
|
|
|
|
|
|
|
18,860
|
|
|
|
|
|
|
|
|
|
|
Total Fees
|
|
|
888
|
|
|
|
36,735
|
|
|
|
|
|
|
|
|
|
|
Commission Income and Other
|
|
|
336
|
|
|
|
125
|
|
Investment and Interest Income
Gain (Loss)
|
|
|
955
|
|
|
|
1,015
|
|
Investment Income from
Consolidated Affiliated Partnerships
|
|
|
|
|
|
|
997
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
2,179
|
|
|
$
|
38,872
|
|
|
|
|
|
|
|
|
|
|
The decline in asset-based advisory fees was due to a
significant loss of assets under management across all products.
Commission income and other for the third quarter of 2006 was
$336,000, as compared to $125,000 for the third quarter of 2005.
The 2006 amount, represents payments from a firm founded by John
A. Levin, the former Chief Executive Officer of BKF, pursuant to
an agreement between Mr. Levin and BKF. The payments are
based on a percentage of the revenues generated by clients of
Mr. Levins new firm that had been clients of BKF.
Revenue generated by the broker-dealer business declined as the
result of a decrease in the number of accounts maintained at the
broker-dealer and since early May 2006, there have been
virtually no commissions.
There were no realized and unrealized gain on investments and
interest and dividend income loss from consolidated affiliated
partnerships in the three months ended September 30, 2006,
as compared to $997,000 in the same period of 2005.
Expenses
Total operating expenses for the third quarter of 2006 were
$18.6 million, reflecting a decrease of 51.2% from
$38.0 million in expenses in the same period in 2005. The
third quarter of 2006 includes restructuring expenses more fully
described below.
Employee compensation and benefit expense (excluding grants of
equity awards) was $1.4 million in the third quarter of
2006, reflecting a decrease of 95.0% from $29.2 million in
the third quarter of 2005. These results primarily reflect the
reduction of personnel.
20
Occupancy and equipment rental was $1.3 million in the
third quarter of 2006, 25.2% lower than the same period last
year.
Other operating expenses were $1.8 million in the third
quarter of 2006, reflecting a 56.7% decrease from
$4.0 million in the same period in 2005 resulting from the
elimination of service and fees , and generally lower expenses
of operating the business.
Restructuring
Expenses
Included in the restructuring reserve established in the third
quarter of 2006 is the final write-off of the remaining goodwill
of $9.8 million, the lease reserve for the sublease of
$2.1 million and severance payments to terminating
employees of $3.4 million.
BKF continues to be in the process of reducing personnel and
seeking to sublease a significant portion of its premises, which
can be expected to result in charges relating to lease and
personnel costs. In May and August of 2006, BKF executed
subleases of approximately 33,000 square feet of its office
space to a third party. A reserve of $7.5 million was
established to account for the future losses related to that
space. In October 2006, a sublease for an additional
17,000 square feet of office space was agreed to in
principle. An additional reserve of approximately
$3.0 million will be established in the fourth quarter to
account for future losses related to that sublease. There will
be additional reserves related to severance costs established in
the third quarter as employees separate from the Company. It is
estimated that the payments will be approximately
$2 million for the remaining employees.
Taxes
There were no income taxes for the third quarter of 2006
compared to $6.9 million of tax expense in the same period
of 2005.
Net
Losses
There was a $16.4 million net loss for the third quarter of
2006 compared to a net loss of $6.4 million in 2005.
Nine
Months Ended September 30, 2006 as Compared to Nine Months
Ended September 30, 2005
Revenues
Total revenues for the first nine months of 2006 were
$23.2 million, reflecting a decrease of 77.2% from
$101.5 million in revenues in the same period in 2005. This
decrease is primarily attributable to the termination of all
alternative strategies and the decline in assets under
management of the long-only strategies. The Company has
21
no operating business and no assets under management as of
September 30, 2006. The revenues generated by the various
investment strategies were as follows (all amounts are in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Investments Management Fees (IMF)
|
|
|
|
|
|
|
|
|
Long-Only
|
|
$
|
5,954
|
|
|
$
|
24,384
|
|
Event-Driven
|
|
|
|
|
|
|
19,167
|
|
Long-Short
|
|
|
2,663
|
|
|
|
8,955
|
|
Short-Biased
|
|
|
|
|
|
|
3,126
|
|
Small Mid-Cap Long-Short
|
|
|
619
|
|
|
|
|
|
Other
|
|
|
11
|
|
|
|
1,585
|
|
|
|
|
|
|
|
|
|
|
Total IMF Fees
|
|
|
9,247
|
|
|
|
57,217
|
|
|
|
|
|
|
|
|
|
|
Incentive Fees and Allocations
|
|
|
|
|
|
|
|
|
Long-Only
|
|
|
|
|
|
|
2,128
|
|
Event-Driven
|
|
|
179
|
|
|
|
28,029
|
|
Active Long-Short
|
|
|
8,626
|
|
|
|
7,838
|
|
Short-Biased
|
|
|
|
|
|
|
3
|
|
Small Mid-Cap Long-Short
|
|
|
1,212
|
|
|
|
|
|
Other
|
|
|
61
|
|
|
|
1,936
|
|
|
|
|
|
|
|
|
|
|
Total Incentive Fees
|
|
|
10,078
|
|
|
|
39,934
|
|
|
|
|
|
|
|
|
|
|
Total Fees
|
|
|
19,325
|
|
|
|
97,151
|
|
|
|
|
|
|
|
|
|
|
Commission Income and Other
|
|
|
1,188
|
|
|
|
502
|
|
Investment and Interest Income
|
|
|
2,179
|
|
|
|
1,829
|
|
Investment Income from
Consolidated Affiliated Partnerships
|
|
|
489
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
23,181
|
|
|
$
|
101,482
|
|
|
|
|
|
|
|
|
|
|
The decline in asset-based advisory fees was due to a
significant loss of assets under management across all products.
Commission income (net) and other for the first nine months of
2006 was $1.2 million, as compared to $502,000 for the same
period of 2005. Of the 2006 amount, $1.0 million represents
payments from a firm founded by John A. Levin, the former Chief
Executive Officer of BKF, pursuant to an agreement between
Mr. Levin and BKF. Revenue generated by the broker-dealer
business declined as the result of a decrease in the number of
accounts maintained at the broker-dealer and reduced trading
activity in such accounts.
Net realized and unrealized gain on investments and interest and
dividend income from consolidated affiliated partnerships was
$489,000 for the nine months ended 2006, as compared to
$2.0 million in the same period of 2005. The gains/losses
on investments and dividend and interest income from
consolidated investment partnerships include minority interests,
i.e., the portion of the gains or losses generated by the
partnerships allocable to all partners other than BKF GP, Inc.,
which are separately identified on the consolidated statements
of operations.
Expenses
Total operating expenses for the first nine months of 2006 were
$62.8 million, reflecting a decrease of 38.2% from
$101.6 million in expenses in the same period in 2005.
22
Employee compensation and benefit expense (excluding grants of
equity awards) was $23.5 million in the first nine months
of 2006, reflecting a decrease of 69.2% from $76.1 million
in the same period of 2005. These results primarily reflect the
reduction of personnel.
Occupancy and equipment rental was $4.4 million in the
first nine months of 2006, reflecting a 12.1% decrease from
$5.0 million in the same period in 2005 as a result of less
office equipment expense, lower depreciation and subleases
commencing late in the second quarter of 2006.
Other operating expenses were $6.7 million in the first
nine months of 2006, reflecting a 38.3% decrease from
$10.8 million in the same period in 2005 generally due to
reduced third quarter business activity.
Taxes
There was no income tax expense for this first nine months of
2006 compared to a $7.9 million expense in 2005.
Net
Loss
Net loss for the first nine months of 2006 was
$39.7 million as compared to a net loss of
$8.7 million for the same period in 2005.
LIQUIDITY
AND CAPITAL RESOURCES
BKFs current assets as of September 30, 2006 consist
primarily of cash, short-term investments and investment
advisory and incentive fees receivable.
While BKF has historically met its cash and liquidity needs
through cash generated by operating activities, because of the
significant decrease in revenues as the result of terminations
and withdrawals, cash flow from operating activities has not
been sufficient to fund operations during 2006. BKF will use its
existing working capital for such purposes. As of
September 30, 2006, cash and cash equivalents, US Treasury
bills, receivables and investments represent current assets and
totaled $40.2 million. There are $10.3 million total
liabilities of which $2.8 million would be considered
current in the form of accrued expenses and accrued
compensation. Net current assets at September 30, 2006 were
approximately $37.4 million. The Company expects net
current assets to decline as needed to fund operating losses.
At September 30, 2006, BKF had cash, cash equivalents and
U.S. Treasury bills of $34.4 million, compared to
$56.8 million at December 31, 2005. This decrease
primarily reflects the payment of cash bonuses in 2006 that were
accrued in 2005, which was partly offset by the collection of
receivables and the withdrawal of general partner incentive
allocations from affiliated investment partnerships. The
decrease in investment advisory and incentive fees receivable
from $21.8 million at December 31, 2005 to
$1.7 million at September 30, 2006 primarily reflects
the receipt of incentive fees earned in 2005, and the
substantial reduction in the level of fees receivable generated
during the nine months ended September 30, 2006. The
decrease in investments in affiliated investment partnerships
from $7.7 million at December 31, 2005 to $0 at
September 30, 2006 reflects the withdrawal of the general
partner incentive allocations and the general partners
interest from the partnerships due to the liquidation of these
partnerships.
Accrued expenses were $1.9 million at September 30,
2006, as compared to $5.6 million at December 31,
2005. Such expenses were comprised primarily of accruals for
employee severance, marketing fees and professional fees.
Accrued compensation was $0.9 million at September 30,
2006, as compared to $43.0 million at December 31,
2005, reflecting the payment of 2005 bonuses and the accrual for
2006 bonuses.
In addition, the loss of accounts and cost reduction measures
being implemented by BKF in 2006 will result in charges relating
to lease and personnel costs. Except for its lease commitments,
which are discussed in Note 11 in the Notes to Consolidated
Financial Statements in BKFs Annual Report on
Form 10-K
for the year ended December 31, 2005, BKF has no material
commitments for capital expenditures.
23
OFF
BALANCE SHEET RISK
There has been no material change with respect to the off
balance sheet risk incurred by BKF Capital since
December 31, 2005.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Since BKFs revenues are largely driven by the market value
of BKFs assets under management, these revenues are
exposed to fluctuations in the equity markets. However as result
of the loss of assets, going forward this risk has been
substantially reduced. Management fees for most accounts are
determined based on the market value of the account on the last
day of the quarter, so any significant increases or decreases in
market value occurring on or shortly before the last day of a
quarter may materially impact revenues of the current quarter or
the following quarter (with regard to wrap program accounts).
Furthermore, since BKF manages most of its assets in a large cap
value style, a general decline in the performance of value
stocks could have an adverse impact on BKFs revenues.
Because BKF is primarily in the asset management business and
manages equity portfolios, changes in interest rates, foreign
currency exchange rates, commodity prices or other market rates
or prices impact BKF only to the extent they are reflected in
the equity markets.
|
|
Item 4.
|
Controls
and Procedures
|
An evaluation was performed under the supervision and with the
participation of BKFs management, including the CEO and
CFO, of the effectiveness of the design and operation of
BKFs disclosure controls and procedures (as defined in
Rules 13a 15(e) and 15d 15(e) under
the Securities Exchange Act of 1934, as amended). Based on that
evaluation, BKFs management, including the CEO and CFO,
concluded that BKFs disclosure controls and procedures
were effective as of the end of the period covered by this
report.
There have been no changes in BKFs internal control over
financial reporting (as defined in Rules 13a
15(f) and 15d 15(f) under the Securities Exchange
Act 1934, as amended) that occurred during BKFs most
recent quarter that has materially affected, or is reasonably
likely to materially affect, BKFs 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 BKFs controls will succeed in achieving
their stated goals under all potential future conditions.
During the third quarter the Company was notified by its public
accountant that a material inadequacy existed in the
Companys internal controls over financial reporting during
the second quarter. As more fully disclosed in Companys
June 30, 2006 10Q/A the issue arose as a result of
non-routine
transaction disclosure and reporting. The Company took remedial
action, including the engagement of an independent accounting
firm to review the financial statements and disclosure contained
in the companys periodic reports. BKFs management
has concluded that these actions will satisfactorily remedy this
inadequacy.
24
PART II.
OTHER INFORMATION
|
|
Item 1.
|
Legal
Proceedings
|
On October 12, 2006, Stephen T. Eckenberger, a former
employee of the Company, filed a complaint in the
U.S. District Court for the Southern District of New York
alleging breach of contract and other state law claims during
the period from 2002 to 2006, claiming that the company
(1) failed to pay him sales commissions earned while
employed by the Company, (2) failed to pay him severance
payments and (3) failed to make matching contributions on
his behalf to the Companys 401(k) plan. The complaint was
served on October 16, 2006. The plaintiff is seeking
specified monetary damages as well as injunctive relief. The
Company intends to defend against the claims vigorously. The
Company is currently unable to predict the outcome of the suit
or reasonably estimate a range of possible loss.
See Part I. Financial Information. Item 2.
Managements Discussion and Analysis of Financial Condition
and Results of Operations Risk Factors and Recent
Events. These risk factors have changed during 2006 and
reflect adverse material developments that have taken place
since the filing of the Annual Report on
Form 10-K/A
for the year ended December 31, 2005.
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
None
|
|
Item 3.
|
Defaults
Upon Senior Securities
|
None
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
None.
|
|
Item 5.
|
Other
Information
|
On August 3, 2006 the Company executed an amendment to its
sublease with a third party dated May 12, 2006 for a
additional portion of its office space at One Rockefeller Plaza,
NY, NY 10020. A copy of the sublease is attached as Exhibit 10.1
to this Quarterly Report
Form 10-Q.
On October 31, John Siciliano, CEO of BKF Capital Group and
J. Clarke Gray, CFO of BKF Capital Group, submitted their
registrations to be effective in 2007. This information was
disclosed in a current report on
Form 8-K
filed November 3, 2006.
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 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 Reform Act. For those
statements, BKF claims the protection of the safe harbor for
forward-looking statements contained in the Reform Act. These
forward-looking statements are based on BKFs current
expectations and are susceptible to a number of risks,
uncertainties and other factors, including the risks
specifically enumerated in Item 2. Managements
Discussion and Analysis of Financial Condition and Results of
Operations, and BKFs actual achievements may differ
materially from any future achievements expressed or implied by
such forward-looking statements. Such factors include the
following: retention and ability of qualified personnel; in, or
failure to comply with, government regulations; the costs and
other effects of legal and administrative proceedings;
BKFs ability to consummate a merger or an acquisition
and/or raise additional capital; the effect of laws, rules and
regulations on BKFs ability to make investments in new
businesses and/or pursue strategic alternatives; and other risks
and uncertainties referred to in this document and in BKFs
other current and periodic filings with the Securities and
Exchange Commission, all of which are difficult or impossible to
predict accurately and many of which are beyond BKFs
control. BKF will
25
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 BKFs policy generally not to make any
specific projections as to future earnings, and BKF does not
endorse any projections regarding future performance that may be
made by third parties.
|
|
|
|
|
|
10
|
.1
|
|
Sublease amendment dated
August 3, 2006 dated May 16, 2006 between BKF
Management Co., Inc. and Daylight Forensic and Advisory LLC.
|
|
31
|
.1
|
|
Section 302 Certification of
Chief Executive Officer
|
|
31
|
.2
|
|
Section 302 Certification of
Chief Financial Officer
|
|
32
|
.1
|
|
Section 906 Certification of
Chief Executive Officer
|
|
32
|
.2
|
|
Section 906 Certification of
Chief Financial Officer
|
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BKF Capital Group, Inc.
|
|
|
|
By:
|
/s/ John
C. Siciliano
|
John C. Siciliano
President and
Chief Executive Officer
J. Clarke Gray
Senior Vice President and
Chief Financial Officer
Date: November 9, 2006
27
Exhibit Index
|
|
|
|
|
Exhibit
|
|
Description of
Exhibit
|
|
|
10
|
.1
|
|
Sublease amendment
dated August 3, 2006 dated May 16, 2006 between BKF
Management Co Inc and Daylight Forensic and
Advisory LLC.
|
|
31
|
.1
|
|
Section 302
Certification of Chief Executive Officer
|
|
31
|
.2
|
|
Section 302
Certification of Chief Financial Officer
|
|
32
|
.1
|
|
Section 906
Certification of Chief Executive Officer
|
|
32
|
.2
|
|
Section 906
Certification of Chief Financial Officer
|