FORM 10-K
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2006
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or
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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
no. 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 10020
(Address of principal executive
offices)
Telephone Number:
(212) 332-8400
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, par value $1.00 per share
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes o
No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act.
Yes o
No þ
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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendments to this
Form 10-K.
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 o Non-accelerated
filer þ
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
The aggregate market value of the voting stock held by
non-affiliates of the registrant as of June 30, 2006 was
$42,740,488 (based on the closing sale price of $6.25 on
June 30, 2006). For this computation, the registrant has
excluded the market value of all shares of its Common Stock
reported as beneficially owned by executive officers and
directors of the registrant; such exclusion shall not be deemed
to constitute an admission that any such person is an
affiliate of the registrant.
At February 1, 2007, 7,976,341 shares of BKF Capital
Group, Inc. common stock, par value $1.00 per share, were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Items 10, 11, 12, 13 and 14 of Part III of this
Form 10-K
incorporate by reference portions of an amendment to this
Form 10-K
or portions of the definitive Proxy Statement (the Proxy
Statement) of the registrant for its 2007 Annual Meeting
of Stockholders to be held on a date to be determined, which in
either case will be filed with the Securities and Exchange
Commission within 120 days after the end of its fiscal year
ended December 31, 2006.
Special
Note Regarding Forward-Looking Statements
Some of the statements made in this Annual Report on
Form 10-K,
including statements under Item 1. Business and
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations, that are
not historical facts, including, most importantly, those
statements preceded by, followed by, or that include the words
may, believes, expects,
anticipates, or the negation thereof, or similar
expressions constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995. For those statements, BKF Capital Group, Inc.
(BKF Capital) claims the protection of the safe
harbor for forward-looking statements contained in the Reform
Act. These forward-looking statements are based on
BKF Capitals current expectations and are susceptible
to a number of risks, uncertainties and other factors including
the risks described in Item 1A. Risk Factors,
and BKF Capitals actual and achievements may differ
materially from any future achievements expressed or implied by
such forward-looking statements. Such factors include the
following: retention and ability to recruit qualified personnel;
availability, terms and deployment of capital; changes 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 BKF Capitals 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 BKF Capitals
control. BKF will not undertake and specifically declines any
obligation to publicly release the result of any revisions which
may be made to any forward-looking statements to reflect events
or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events. In
addition, it is BKF Capitals policy generally not to make
any specific projections as to future earnings, and BKF Capital
does not endorse any projections regarding future performance
that may be made by third parties.
PART I
Summary
Backround
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 continued through 2006.
As a result, the Company has no operating business and no assets
under management at December 31, 2006. The Companys
principal assets consist of a significant cash position, sizable
net operating tax losses to potentially carry forward, its
status as an Exchange Act Reporting Company and a small revenue
stream consisting of interest and fee sharing payments from
departed portfolio managers. This revenue stream will be
insufficient to cover operating expenses.
As previously disclosed, the Company has been evaluating
strategic alternatives. Currently, the Company has two options:
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Merging with, acquiring or commencing a business potentially
being funded by a capital raising event; or
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Liquidating the Company and distributing a portion of the
Companys remaining cash to stockholders.
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The Company continues to evaluate strategic alternatives: either
commence a new business or liquidate.
See Item 7. Managements
Discussion & Analysis of Financial Condition and
Results of Operation.
Introduction
BKF Capital operates entirely through BKF Asset Management, Inc.
(BKF Asset Management), formerly an SEC-registered
investment adviser, and its related entities. BKF Capital
operated in one business segment, the investment advisory and
asset management business but, as noted above, no longer has an
operating business. BKF Asset Management owns 100% of LEVCO
Securities, Inc. (LEVCO Securities), formerly a
registered
broker-dealer,
and BKF GP, Inc. (BKF GP), which is the general
partner of several investment partnerships, which are referred
to as the BKF Partnerships. BKF Management Co., Inc.
(BKF Management), which is 100%
1
owned by BKF Capital and in turn owns 100% of BKF Asset
Management, provides administrative and management services to
BKF Asset Management and its related companies. BKF Management
and all its subsidiaries are referred to collectively herein as
BKF. Prior to January 3, 2006, BKF Asset
Management, BKF GP and BKF Management were known as John A.
Levin & Co., Inc., Levco GP, Inc. and Levin Management
Co., Inc., respectively.
BKF Capital was incorporated in Delaware in 1954. Its
executive offices are located at One Rockefeller Plaza, New
York, New York 10020. Its telephone number is
(212) 332-8400,
and its website address is www.bkfcapital.com. BKF
Capital makes available its annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to such reports, free of charge, on its website
as soon as reasonably practicable after such reports are
electronically filed with, or furnished to, the Securities and
Exchange Commission.
Services
At December 31, 2006 the Company is not offering any
advisory services. It withdrew its investment advisory
registration as of December 19, 2006.
BKF GP, continues to act as the managing general partner of
several private investment partnerships and will do so until the
partnerships are dissolved or disposed of during 2007.
LEVCO Securities which cleared through Bear Stearns Securities
Corp. (Bear Stearns) on a fully disclosed basis
withdrew its Broker/Dealer license as of November 30, 2006
and ceased to service customer accounts at that time.
The table below shows the assets under management of BKF at the
dates indicated (there are no assets under management at
December 31, 2006):
ASSETS
UNDER MANAGEMENT
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December 31
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Assets
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2005
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2004
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2003
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2002
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($ in millions)
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Long Only Accounts
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Institutional Accounts
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$
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1,450
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$
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2,964
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$
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2,953
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$
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2,562
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Sub-Advisory
Accounts
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325
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2,641
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2,306
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1,861
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Non-Institutional Accounts
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42
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1,713
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1,640
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1,489
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Wrap Fee Accounts
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1,853
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2,319
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2,502
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2,982
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Total Long-Only
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3,670
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9,637
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9,401
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8,894
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Alternative
Investments
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Actively Traded Long-Short Equity
Accounts
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665
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792
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434
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18
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Small-Mid Cap Long-Short Equity
Accounts
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120
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86
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7
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Other Private Investment Funds
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47
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99
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60
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72
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Event Driven Accounts
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2,568
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2,418
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1,849
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Short Biased Accounts
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422
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340
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452
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Total Alternative Strategies
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832
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3,967
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3,259
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2,391
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Total
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$
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4,502
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$
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13,604
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$
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12,660
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$
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11,285
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The growth in assets under management experienced in 2003 and
2004 reflected market appreciation of assets under management
and net inflows into alternative investment strategies, which
was partially offset by net outflows from the long-only
strategies. The losses experienced in 2005 and 2006 resulted
from net outflows across all investment strategies and the
termination of the event-driven, short-biased strategies and
long only. See Item 7. Managements Discussion
and Analysis of Financial Condition and Results of
Operation Results of Operation Year
Ended December 31, 2006 as Compared to Year Ended
December 31, 2005.
2
Employees
As of December 31, 2006, BKF and its subsidiaries employed
3 full time continuing staff members (at December 31, 2005
BKF employed 99 full time staff members).
Regulation
BKFs business continues to be subject to various federal
and state laws and regulations. BKFs registration with the
Securities and Exchange Commission under the Investment Advisers
Act of 1940, as amended was withdrawn on December 19, 2006.
BKF Asset Management is also registered with the Commodity
Futures Trading Commission as a commodity trading advisor and a
commodity pool operator, and BKF GP is registered with that
agency as a commodity pool operator. Those registrations will be
withdrawn when the pools and partnerships are dissolved or
disposed of. Levco Securities broker dealer registration was
formally withdrawn on November 30, 2006. BKF and BKF GP are
members of the National Futures Association. LEVCO Securities
was registered as a broker-dealer under the Securities Exchange
Act of 1934. It withdrew its broker/dealer license as of
November 30, 2006. As a public company, BKF is subject to
provisions of the Securities Exchange Act of 1934, as amended.
The regulations to which BKF was subject are primarily designed
to protect investment advisory clients, and the rules to which
BKF Capital is subject are primarily designed to protect
stockholders. The agencies implementing such regulations have
broad administrative powers, including the power to limit,
restrict or even prohibit entities from carrying on their
business in the event of a failure to comply. Possible sanctions
for significant historical failures include the suspension of
individual employees, limitations on engaging in certain lines
of business for specified periods of time, revocation of
investment adviser, broker-dealer or other registrations,
suspension or revocation of listing privileges, censures and
fines.
In addition to the risks referred to elsewhere in this Annual
Report on
Form 10-K,
the following risks, among others, sometimes have affected, and
in the future could affect, BKFs business, financial
condition or results of operations. The risks described below
are not the only ones facing BKF. Additional risks not presently
known to BKF or that BKF currently deems insignificant may also
impact its business.
The
ability of BKF to continue as an operating company and a going
concern is dependent on its ability to consummate a merger or an
acquisition
and/or to
raise additional capital.
The Companys available options include merging with or
acquiring a third party or liquidating. The Company has no
pending transactions. Any such transaction will be subject to
identifying suitable business and negotiating definitive
agreements. Furthermore, 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. Furthermore, although the
Companys cash position is sufficient to allow it to
operate for a protracted period, the Company believes that it
will need to raise debt or equity capital to finance 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. Furthermore,
certain common stock offerings 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. Furthermore, 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 we
do complete a merger or other transaction you may not have basis
on which to assess the merits of the acquired
business.
Since we have not yet identified a potential target or business
partner, investors have no current basis to evaluate the
possible merits or risks of the target or business
operations. Although we will endeavor to evaluate the risks
inherent in a particular target business, we can not assure you
that we will properly or assess all of the significant risk
factors and accordingly, you may lose your investment in the
Company.
3
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 and contingencies. 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.
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 primarily that 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 asset under management has substantially
reduced BKFs assets, with the remaining assets being
concentrated in cash and cash equivalents and U.S. treasury
bills. 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
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, which ends June 30, 2007,
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 requesting that the one-year
period be extended. There can be no 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.
BKFs
Common Stock has been delisted from 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.
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Item 1B.
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Unresolved
Staff Comments
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None.
BKFs offices are located at One Rockefeller Plaza, New
York, New York. Prior to 2006 the Company ultilized the
56,000 square feet of office space it leased. During 2006
49,000 of the 56,000 square feet originally leased at One
Rockefeller Plaza were either subleased or surrendered back to
the landlord. The Company maintains its offices in the remaining
7,000 square feet. BKF also maintains a business continuity
facility located at Five River Bend, Stamford, Connecticut. This
facility encompasses approximately 5,000 square feet and is
governed by a lease which expires September 30, 2011. The
Company is currently attempting to sublease both facilities.
4
The Company is a defendant in a lawsuit filed in The United
States District Court for the Southern District of New York
(Court) by a former employee alleging improperly withheld
compensation during his employment, improper denial of severance
payments and improperly withheld payments due and owing in an
attempt to coerce the former employee to release claims against
the company. The former employee seeks: (1) an
accounting, (2) $11,575,776 in compensatory and punitive
damages, (3) prejudgment interest and (4)attorneys
fees. The former employees claims include breach of
contract, unjust enrichment, promissory estoppels, quantum
meruit and return of personal property. The Company
answered the complaint on November 30, 2006, and asserted
defenses including, but not limited to estoppel, waiver and
ratification. The Court has entered a Civil Case Management Plan
requiring that the case shall be ready for trial on May 14,
2007. The lawsuit is currently in the discovery phase. The
former employee made a reduced settlement demand and the Company
responded with an offer of $785,000, but no agreement has been
reached. As of December 31, 2006, the Company has provided
an adequate accrual for this offer to settle the matter.
However, there can be no assurances that additional amounts may
not be required to dispose of this lawsuit.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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No matters were submitted to a vote of BKF Capitals
security holders during the fourth quarter of the fiscal year
ended December 31, 2006.
PART II
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Item 5.
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Market
for the Registrants Common Equity, Related Stockholders
Matters and Issuer Purchases of Equity Securities
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BKF Capitals common stock trades over the counter under
the symbol BKFG. Prior to August 29, 2006, the primary
trading market for the Companys common stock was the New
York Stock Exchange. At the close of business on
February 1, 2007, there were 482 holders of record
currently of BKF Capitals common stock.
The following table sets forth for the periods indicated
(i) the high and low reported sale prices per share for the
common stock as reported on the NYSE through the second quarter
of 2006, (ii) the range of high and low bid information
quoted on the OTCBB for the third and fourth quarter of 2006 and
(iii) cash dividends per share of common stock declared
during the period. Market quotations on the OTCBB reflect
inter-dealer prices, without retail
mark-up,
mark-down or commission and may not necessarily represent actual
transactions:
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Stock Price Ranges/
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Bid Information
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Dividend
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2006
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High
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Low
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Declared
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First quarter
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$
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19.01
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$
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12.55
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Second quarter
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$
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10.94
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$
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5.96
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Third quarter
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$
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6.20
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$
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3.90
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Fourth quarter
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$
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4.10
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$
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3.30
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2005
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First quarter
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$
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42.89
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$
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34.85
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$
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0.250
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(a)
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Second quarter
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$
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40.50
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$
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30.97
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$
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0.925
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(b)
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Third quarter
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$
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37.98
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$
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30.00
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$
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0.250
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(c)
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Fourth quarter
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$
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30.99
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$
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16.40
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(a) |
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reflects quarterly dividends of $0.125 declared on
January 18, 2005 and March 23, 2005. |
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(b) |
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special dividend. |
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(c) |
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reflects quarterly dividends of $0.125 declared on July 5,
2005 and September 22, 2005. |
BKF Capital declared no cash dividends in 2006 and declared and
paid $12,124,000 in cash dividends in 2005. The declaration and
payment of dividends by BKF Capital is at the discretion of BKF
Capitals Board of Directors. BKF Capital is a holding
company, and its ability to pay dividends is subject to the
ability of its subsidiaries to
5
provide cash to BKF Capital. BKF Capital has discontinued its
policy of paying quarterly cash dividends and does not expect to
pay dividends in the foreseeable future.
The following table provides information about purchases by BKF
Capital during the periods indicated of equity securities that
are registered by BKF Capital pursuant to Section 12 of the
Exchange Act.
The purchases described below relate to the withholding of
shares from employees in order to satisfy statutory withholding
requirements in connection with the delivery of (i) vested
shares of restricted stock and (ii) the common stock
underlying Restricted Stock Units.
ISSUER
PURCHASES OF EQUITY SECURITIES
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(a)
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(b)
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(c)
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|
(d)
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Maximum Number (or
|
|
|
|
|
|
|
|
|
|
Shares (or Units)
|
|
|
Approximate Dollar Value)
|
|
|
|
|
|
|
|
|
|
Purchased as Part
|
|
|
of Shares (or Units) That
|
|
|
|
Total Number of
|
|
|
|
|
|
of Publicly
|
|
|
May Yet Be Purchased
|
|
|
|
Shares (or Units)
|
|
|
Average Price
|
|
|
Announced Plans
|
|
|
Under the Plans or
|
|
Period
|
|
Purchased
|
|
|
Paid Per Share
|
|
|
Or Programs
|
|
|
Program
|
|
|
1/1/06 - 12/31/06
|
|
|
110,721
|
|
|
$
|
11.51
|
|
|
|
Not Applicable
|
|
|
|
Not Applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
110,721
|
|
|
$
|
11.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
Item 6. Selected
Financial Data
The selected financial data has been derived in part from
BKFs audited 2006, 2005, 2004, 2003, and 2002 consolidated
statements of operations and should be read in conjunction with
such statements and Managements Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere
in this Annual Report on
Form 10-K.
All amounts are in millions, excluding share and per share data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments Management Fees (IMF):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory
|
|
$
|
2.4
|
|
|
$
|
22.1
|
|
|
$
|
25.4
|
|
|
$
|
24.8
|
|
|
$
|
29.0
|
|
Wrap Accounts
|
|
|
3.5
|
|
|
|
8.0
|
|
|
|
9.3
|
|
|
|
10.2
|
|
|
|
16.4
|
|
Event-Driven
|
|
|
|
|
|
|
22.1
|
|
|
|
28.9
|
|
|
|
18.7
|
|
|
|
12.7
|
|
Long-Short
|
|
|
2.7
|
|
|
|
11.4
|
|
|
|
9.3
|
|
|
|
2.4
|
|
|
|
|
|
Short-Biased
|
|
|
|
|
|
|
3.8
|
|
|
|
4.6
|
|
|
|
4.0
|
|
|
|
3.4
|
|
Other Alternative Investments
|
|
|
0.6
|
|
|
|
2.1
|
|
|
|
0.8
|
|
|
|
0.2
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total IMF Fees
|
|
|
9.2
|
|
|
|
69.5
|
|
|
|
78.3
|
|
|
|
60.3
|
|
|
|
61.8
|
|
Incentive Fees and Allocations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Event-Driven
|
|
|
0.2
|
|
|
|
28.9
|
|
|
|
28.6
|
|
|
|
32.2
|
|
|
|
17.4
|
|
Long-Short
|
|
|
8.6
|
|
|
|
13.8
|
|
|
|
8.8
|
|
|
|
5.2
|
|
|
|
0.1
|
|
Short-Biased
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
(2.3
|
)
|
|
|
6.8
|
|
Other
|
|
|
|
|
|
|
2.2
|
|
|
|
2.2
|
|
|
|
0.6
|
|
|
|
0.1
|
|
Other Alternative Investments
|
|
|
1.3
|
|
|
|
2.2
|
|
|
|
1.3
|
|
|
|
0.6
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Incentive Fees
|
|
|
10.1
|
|
|
|
47.2
|
|
|
|
40.9
|
|
|
|
36.3
|
|
|
|
24.6
|
|
Total Fees
|
|
|
19.3
|
|
|
|
116.7
|
|
|
|
119.2
|
|
|
|
96.6
|
|
|
|
86.4
|
|
Commission Income and Other
|
|
|
1.6
|
|
|
|
0.7
|
|
|
|
1.5
|
|
|
|
2.0
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
20.9
|
|
|
|
117.4
|
|
|
|
120.7
|
|
|
|
98.6
|
|
|
|
89.3
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Compensation and Benefits
|
|
|
24.1
|
|
|
|
97.6
|
|
|
|
93.8
|
|
|
|
77.8
|
|
|
|
61.8
|
|
Non-Compensation Expenses
|
|
|
45.9
|
|
|
|
22.3
|
|
|
|
19.7
|
|
|
|
25.7
|
|
|
|
20.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Expenses
|
|
|
70.0
|
|
|
|
119.9
|
|
|
|
113.5
|
|
|
|
103.5
|
|
|
|
82.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before interest,
taxes and amortization
|
|
|
(49.1
|
)
|
|
|
(2.5
|
)
|
|
|
7.2
|
|
|
|
(4.9
|
)
|
|
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
2.8
|
|
|
|
2.7
|
|
|
|
1.6
|
|
|
|
1.5
|
|
|
|
1.0
|
|
Net investment income
consolidated affiliated partnerships (CAP)
|
|
|
0.5
|
|
|
|
3.2
|
|
|
|
1.2
|
|
|
|
2.6
|
|
|
|
(2.9
|
)
|
Minority interest from CAP
|
|
|
(0.1
|
)
|
|
|
(1.3
|
)
|
|
|
(0.7
|
)
|
|
|
(1.7
|
)
|
|
|
3.3
|
|
Amortization of intangibles
|
|
|
(1.1
|
)
|
|
|
(9.4
|
)
|
|
|
(7.0
|
)
|
|
|
(7.0
|
)
|
|
|
(7.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
(47.0
|
)
|
|
|
(7.3
|
)
|
|
|
2.3
|
|
|
|
(9.5
|
)
|
|
|
1.3
|
|
Income tax expense (benefit)
|
|
|
|
|
|
|
8.6
|
|
|
|
4.1
|
|
|
|
(1.1
|
)
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(47.0
|
)
|
|
$
|
(15.9
|
)
|
|
$
|
(1.8
|
)
|
|
$
|
(8.4
|
)
|
|
$
|
(2.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(5.71
|
)
|
|
$
|
(2.08
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(1.26
|
)
|
|
$
|
(0.37
|
)
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(5.71
|
)
|
|
$
|
(2.08
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(1.26
|
)
|
|
$
|
(0.37
|
)
|
Basic weighted average shares
outstanding
|
|
|
8,233,175
|
|
|
|
7,631,580
|
|
|
|
6,949,031
|
|
|
|
6,673,371
|
|
|
|
6,624,313
|
|
Diluted weighted average shares
outstanding
|
|
|
8,233,175
|
|
|
|
7,631,580
|
|
|
|
6,949,031
|
|
|
|
6,673,371
|
|
|
|
6,624,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Summary
Backround
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 continued through 2006.
As a result, the Company has no operating business and no assets
under management at December 31, 2006. The Companys
principal assets consist of a significant cash position, sizable
net operating tax losses to potentially carry forward, its
status as an Exchange Act Reporting Company and a small revenue
stream consisting of interest and fee sharing payments from
departed portfolio managers. This revenue stream will be
insufficient to cover operating expenses.
As previously disclosed, the Company has been evaluating
strategic alternatives. Currently, the Company has two options:
|
|
|
|
|
Merging with, acquiring or commencing a business potentially
being funded by a capital raising event; or
|
|
|
|
Liquidating the Company and distributing a portion of the
Companys remaining cash to stockholders.
|
The Company continues to evaluate strategic alternatives: either
commence a new business or liquidate.
Recent
History: 2005 and 2006
As of January 1, 2005, 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 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 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 for five years).
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 agreements for
2005 for these portfolio managers and others in their group.
During the third quarter of 2005, the Company negotiated with
various 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 alternatives and event
driven strategies which represented 41.4% of the
Companys revenues during 2005 and the managers left the
Company.
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 CIO,
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 with the
senior portfolio managers of its actively traded long-short
equity and small-mid cap long-short equity strategies were
liquidated and the portfolio managers left the Company in April
2006. These strategies represented 23.6% of the Companys
revenues for 2005.
8
The Company also did not enter into a longer term employment
agreement with Mr. Friedman. The Company announced on
July 24, 2006 that Mr. Friedman had resigned and that
the portfolios following the Companys long
only strategies, which represented the remaining
$1.9 billion of assets under management as of June 30,
2006, would be liquidated during the third quarter of 2006. As a
result, the Companys long only strategies have
been liquidated. Currently the Company has no assets under
management nor any operating business.
During the latter half of 2006 the Company sought to execute its
revised strategy to either revive the business or achieve a
business combination. When the probability of quickly achieving
such a combination was substantially lessened the Companys
CEO, John Siciliano and CFO, J. Clarke Gray offered their
resignations to the board of directors to reduce ongoing
expenses. Mr. Sicilianos resignation became effective
January 2, 2007 and Mr. Grays will become
effective June 30, 2007. Two existing board members
Mr. Marvin Olshan and Mr. Harvey J. Bazaar agreed to
assume the roles of Chairman and CEO, respectively. The Company
continues to pursue all opportunities and intends to exhaust all
possibilities before finally deciding to liquidate.
Historically, BKF Capital operated entirely through BKF, an
investment adviser previously registered with the Securities and
Exchange Commission. BKF specialized in managing equity
portfolios for institutional and individual investors. BKF
offered long-only equity strategies and a range of alternative
investment products and other more specialized investment
programs. Most clients were based in the United States, though a
significant portion of investors in the alternative investment
products were located outside the United States.
BKF acts as the managing general partner of a number of
investment partnerships which are in the process of being
liquidated and dissolved.
With respect to accounts previously managed pursuant to its
long-only equity strategies, BKF generally received advisory
fees based on a percentage of the market value of assets under
management, including market appreciation or depreciation and
client contributions and withdrawals. In some cases, BKF
received performance-based fees from accounts pursuing long-only
equity strategies. With respect to private investment vehicles
and separate accounts managed pursuant to similar strategies,
BKF was generally entitled to receive both a fixed management
fee based on a percentage of the assets under management and a
share of net profits.
At December 31, 2006, there were no assets under
management, compared to $4.5 billion a year earlier.
Following is a comparison of BKFs assets under management
as defined by product and client type for the years ended
December 31, 2005 and 2004.
ASSETS
UNDER MANAGEMENT
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Long Only Accounts
|
|
|
|
|
|
|
|
|
Institutional Accounts
|
|
$
|
1,450
|
|
|
$
|
2,964
|
|
Sub-Advisory
Accounts
|
|
|
325
|
|
|
|
2,641
|
|
Non-Institutional Accounts
|
|
|
42
|
|
|
|
1,713
|
|
Wrap Fee Accounts
|
|
|
1,853
|
|
|
|
2,319
|
|
|
|
|
|
|
|
|
|
|
Total Long-Only
|
|
|
3,670
|
|
|
|
9,637
|
|
Alternative
Investments
|
|
|
|
|
|
|
|
|
Actively Traded Long-Short Equity
Accounts
|
|
|
665
|
|
|
|
792
|
|
Small-Mid Cap Long-Short Equity
Accounts
|
|
|
120
|
|
|
|
86
|
|
Other Private Investment Funds
|
|
|
47
|
|
|
|
99
|
|
Event Driven Accounts
|
|
|
|
|
|
|
2,568
|
|
Short Biased Accounts
|
|
|
|
|
|
|
422
|
|
|
|
|
|
|
|
|
|
|
Total Alternative Strategies
|
|
|
832
|
|
|
|
3,967
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,502
|
|
|
$
|
13,604
|
|
|
|
|
|
|
|
|
|
|
9
The reasons for these declines in assets under management are
described in greater detail in Results of
Operations Year Ended December 31, 2006 as
compared to Year Ended December 31, 2005.
The following discussion and analysis of the results of
operations is based on the Consolidated Statements of Financial
Condition at December 31, 2006 and 2005, and the
Consolidated Statements of Operations for the years ended
December 31, 2006, 2005 and 2004 of BKF Capital Group, Inc.
and Subsidiaries (which are included elsewhere herein) and
should be read in conjunction with such financial statements.
The historical results of operations discussed below will not be
indicative of BKF Capitals future results of operations,
especially in light of the Companys current operational
circumstances. It should be noted that certain affiliated
investment partnerships in which BKF Capital 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 Capital and its
affiliates in affiliated investment partnerships changes. These
partnerships and the related minority interests have been
reflected in the consolidated financial statements for the
annual periods ended December 31, 2006, 2005 and 2004,
where appropriate.
Certain statements under this caption Managements
Discussion and Analysis of Financial Condition and Results of
Operations constitute forward-looking
statements under the Private Securities Litigation Reform
Act of 1995. See Special Note Regarding Forward
Looking Statements.
Results
of Operations
Year
Ended December 31, 2006 as Compared to Year Ended
December 31, 2005
Revenues
Total revenues for 2006 were $24.5 million, reflecting a
decrease of 80.1% from $123.2 million in revenues in 2005.
Incentive fees and allocations decreased by 78.6% to
$10.1 million in 2005 from $47.2 million in 2005,
while asset-based management fees declined 86.7% to
$9.2 million in 2006 from $69.5 million in 2005. These
revenue declines were a direct result of the loss of business
described above. The Company no longer has any of these revenue
streams.
Under the terms of an agreement between BKF and John Levin, the
former CEO of BKF, clients of BKF representing approximately
$2.1 billion in assets under management as of
December 31, 2005 (including the short-biased investment
vehicles) began to have their assets managed by an entity owned
and controlled by Mr. Levin as of the beginning of 2006.
These accounts have been excluded from BKFs
$4.5 billion of assets under management as of
December 31, 2005. BKF has an economic stake equal to 15%
of the investment management fees generated for
Mr. Levins firm from such former clients (to the
extent the clients invest in strategies similar to those that
had been utilized by them at BKF) for five years. The fees for
this agreement were $1.4 million in 2006 and are included
in Commission income. Offsetting this increased revenue stream
is a reduction in the revenue generated by the broker-dealer
business (net of clearing charges) which declined from $712,000
in 2005 to $155,000 in 2006. The broker dealer has currently
withdrawn its license and is effectively out of business.
Net realized and unrealized gain on investments and interest and
dividend income from consolidated affiliated partnerships
decreased to $0.50 million in 2006 from $3.2 million
in 2005. Those partnerships have been liquidated and are
currently in the process of being formally dissolved.
Expenses
Total expenses for 2006 were $71.4 million, reflecting a
44.7% decrease from $129.2 million in 2005. Included in the
2006 expenses are $32.8 million of restructuring expenses
which include $14.8 of goodwill amortization, $11.2 million
for losses on leasing activities and severance expense of
$6.8 million. Aside from restructuring expenses the
remaining $38.6 million includes $24.8 million of
employee compensation down from $92.5 million in 2005. This
decrease is directly related to the employee staffing level
declining from 99 employees at December 31, 2005 to 3 one
year later.
Expenses associated with employee equity grants resulted in a
credit in 2006 due to the large number of forfeitures related to
employee terminations.
10
Occupancy and equipment rental decreased 31.3% to
$4.6 million in 2006 from $6.7 million in 2005 due to
subleasing of office space during 2006.
Other operating expenses of BKF Capital for 2006 were
$8.4 million, reflecting an decrease of 44.4% from
$15.1 million in 2005. This decrease is primarily due to
the substantially reduced level of business activity.
The decrease in amortization expense to $1.1 million in
2006 from $9.4 million in 2005 reflects the impairment of
the value of certain investment advisory contracts that were
treated as intangible assets in connection with the 1996
acquisition of BKF Asset Management by BKF Capital. The value of
these contracts is being amortized over a
10-year
period concluding on June 30, 2006. The termination of a
significant portion of these contracts during the third and
fourth quarters of 2005 led to the conclusion that the value of
these contracts had been impaired. The final write off of these
advisory contracts occurred during the first quarter of 2006.
Year
Ended December 31, 2005 as Compared to Year Ended
December 31, 2004
Revenues
Total revenues for 2005 were $123.21 million, reflecting a
decrease of 0.2% from $123.49 million in revenues in 2004.
Incentive fees and allocations increased by 15.2% to
$47.16 million in 2005 from $40.93 million in 2004,
while asset-based management fees declined 11.3% to
$69.49 million in 2005 from $78.32 million in 2004.
The increase in incentive fees resulted primarily from improved
performance in the event-driven and long-short strategies, while
the decline in asset-based fees resulted from decreased assets
under management in the long-only, event-driven, short-biased
and long-short investment strategies. An increase in the
performance of the small-mid cap long-short equity strategy also
contributed to the increase in incentive fees and allocations.
Incentive fees and general partner allocations are accrued on a
quarterly basis but are primarily determined or billed and
allocated, as the case may be, at the end of the applicable
contract year or upon investor withdrawal. Such accruals may be
reversed prior to being earned or allocated as the result of
investment performance.
As the result of being unable to reach an agreement with the
portfolio management team managing its event-driven strategies,
the investment vehicles being managed pursuant to these
strategies were substantially liquidated by year end. These
strategies accounted for $51.0 million in total fees for
2005.
In 2005, BKF experienced or received notification of net
withdrawals and terminations of approximately $6.3 billion
with respect to its long-only strategies.
Under the terms of an agreement between BKF and John Levin, the
former CEO of BKF, clients of BKF representing approximately
$2.1 billion in assets under management as of
December 31, 2005 (including the short-biased investment
vehicles) began to have their assets managed by an entity owned
and controlled by Mr. Levin as of the beginning of 2006.
These accounts have been excluded from BKFs
$4.5 billion of assets under management as of
December 31, 2005. BKF has an economic stake equal to 15%
of the investment management fees generated for
Mr. Levins firm from such former clients (to the
extent the clients invest in strategies similar to those that
had been utilized by them at BKF).
Revenue generated by the broker-dealer business (net of clearing
charges) declined 50.5% to $712,000 in 2005 from
$1.44 million in 2004. This decline was primarily 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
increased to $3.20 million in 2005 from $1.18 million
in 2004. This increase is primarily the result of an increase in
the number of affiliated partnerships being consolidated and an
increase in their cumulative assets under management. 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.
11
Expenses
Total expenses for 2005 were $129.23 million, reflecting an
increase of 7.3% from $120.43 million in 2004. Excluding
amortization of finite life intangibles, total expenses were
$119.82 million, reflecting an increase of 5.7% from
$113.42 million in 2004. Employee compensation and benefits
(excluding grants of equity awards) rose 8.7% to
$92.47 million in 2005 from $85.09 million in 2004.
This increase in compensation expense is primarily attributable
to an increase in fee revenues generated by the long-short
alternative investment strategy and the implementation of the
2005 compensation program adopted by the Board of Directors in
August 2005. The program was geared to maintain compensation
levels for the majority of BKFs personnel at levels
comparable to those earned in 2004..
Expenses associated with employee equity grants decreased 40.5%
to $5.15 million in 2005 from $8.66 million in 2004 as
the result of the vesting and forfeiture of grants.
Occupancy and equipment rental increased 11.1% to
$6.66 million in 2005 from $5.99 million in 2004. This
increase was primarily the result of escalations under the lease
and the taking of additional space to establish an office in
London. In conjunction with the termination of BKFs event
driven strategies, BKF assigned its interest in the London lease
effective February 20, 2006.
Other operating expenses of BKF Capital for 2005 were
$15.19 million, reflecting an increase of 12.3% from
$13.53 million in 2004. This increase primarily reflected
(i) an increase in legal and professional expenses relating
to the proxy contest and (ii) an increase in auditing
expenses, which were partly offset by a decrease in
(x) referral fees for third party marketers and
(y) promotional costs.
The increase in amortization expense to $9.41 million in
2005 from $7.01 million in 2004 reflects the impairment of
the value of certain investment advisory contracts that were
treated as intangible assets in connection with the 1996
acquisition of BKF Asset Management by BKF Capital. The value of
these contracts is being amortized over a
10-year
period concluding on June 30, 2006. The termination of a
significant portion of these contracts during the third and
fourth quarters of 2005 led to the conclusion that the value of
these contracts had been impaired..
Other operating expenses from consolidated affiliated
partnerships increased to $113,000 from $26,000 primarily as the
result of the increase in the number and the cumulative assets
under management of the affiliated partnerships being
consolidated.
Interest expense increased to $239,000 from $118,000. This
expense reflects imputed interest relating to payments being
made in connection with the relinquishment of space pursuant to
the lease amendment entered into during the fourth quarter of
2003, and in 2005 this expense also includes the amount paid in
settlement of a state tax audit.
Operating
Income (Loss)
BKF Capital had an operating loss of $6.02 million in 2005,
as compared to operating income of $3.06 million in 2004.
Excluding amortization of finite life intangibles, and gains and
losses and interest and dividend income relating to the
consolidated affiliated partnerships, BKF Capital had operating
income of $215,000 in 2005, as compared to $8.90 million in
2004.
Income
Taxes
BKF Capital recorded an income tax expense of $8.58 million
in 2005, as compared to an income tax expense of
$4.08 million in 2004. This expense includes a
$6.82 million valuation reserve against its net deferred
tax asset. Management believes that it is not more likely than
not that this deferred tax benefit will be utilized in the
foreseeable future.
Excluding the non-deductible amortization expense and the
valuation allowance, BKF Capital had an effective tax rate of
83.15% in 2005 as compared to an effective tax rate of 43.74% in
2004. The difference in effective tax rates in 2005 and 2004 is
primarily attributable to state and local taxes due to changes
in the allocated income among various taxing jurisdictions.
12
Liquidity
and Capital Resources
BKFs current assets as of December 31, 2006 consist
primarily of cash, short-term investments and receivables. 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.
At December 31, 2006, BKF Capital had cash, cash
equivalents and U.S. Treasury bills of $31.1 million,
as compared to $56.8 million at December 31, 2005. BKF
Capital had receivables of $4.0 million at
December 31, 2006, as compared to $21.8 million at
December 31, 2005. This decrease in cash and cash
equivalents receivables primarily reflects the overall reduction
in the business as described above. The decrease in prepaid
expenses and other assets to $1.7 million at
December 31, 2006 from $2.37 million at
December 31, 2005, primarily reflects the decreased
business activity.
The decrease in fixed assets to $88,000 at December 31,
2006 from $4.8 million at December 31, 2004 primarily
reflects the subleasing activity and the depreciation of assets.
The elimination of investments in securities from consolidated
affiliated partnerships from the $14.6 million at
December 31, 2005, reflects the liquidation of those
investments.
Accrued expenses were $2.5 million at December 31,
2006, as compared to $5.6 million at December 31,
2005. This decrease is primarily attributable to reduced
business activity and related expenses.
Off
Balance Sheet Risk
BKF GP serves as the managing general partner for several
affiliated investment partnerships which trade primarily in
equity securities. As of December 31, 2006 virtually all of
these partnerships investments have been fully liquidated
and the proceeds distributed. There is no General Partner or
limited partners capital remaining in these partnership
unless certain illiquid portfolio positions eventually realize a
value. As of December 31, 2005, total partners
capital in these partnerships was approximately
$157.8 million and the sum total of BKF GPs capital
accounts in the affiliated investment partnerships was
approximately $7.5 million. The financial condition and
results of operations of certain of these affiliated investment
partnerships are not included in BKF Capitals consolidated
statements of financial condition (except to the extent of BKF
GPs equity ownership in 2005). BKF GP has not guaranteed
any of the affiliated investment partnerships obligations,
nor does it have any contractual commitments associated with
them.
Contractual
Obligations
As of December 31, 2006, the Companys contractual
obligations, including payments due by period, are as follows ($
in thousands):
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|
|
|
|
|
|
|
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|
|
|
|
|
|
Payments Due by Period
|
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|
|
Total
|
|
|
2007-2008
|
|
|
2009-2010
|
|
|
2011
|
|
|
Office leases
|
|
$
|
11,677
|
|
|
$
|
4,855
|
|
|
$
|
4,963
|
|
|
$
|
1,859
|
|
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Currently the Company has no assets under management and is not
subject to market risk.
|
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Item 8.
|
Financial
Statements and Supplemental Data
|
The independent auditors reports and financial statements
listed in the accompanying index are included in Item 15 of
this Annual Report on
Form 10-K.
See Index to Financial Statements on
page F-1.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
There are no unresolved disagreements with the Accountants on
Accounting or Financial Disclosure matters. During 2006 the
Company and the accountants disagreed on the period in which to
reflect the write off of goodwill. The disagreement was resolved
by the Company adopting the recommendation of the accountants as
disclosed on Form 8-K filed February 12, 2007.
13
|
|
Item 9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
The Company, under the supervision and with the participation of
its management, including the Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the design and
operation of BKFs disclosure controls and
procedures (as such term is defined in
Rule 13a-15(e)
under the Exchange Act) as of the period covered by this report.
Based on that evaluation, the Chief Executive Officer and the
Chief Financial Officer concluded that the Companys
disclosure controls and procedures are effective in timely
making known to them material information relating to the
Company and its consolidated subsidiaries required to be
disclosed in the Companys reports filed or submitted under
the Exchange Act.
Changes
in Internal Control Over Financial Reporting
There have not been any changes in the Companys internal
control over financial reporting during the quarter ended
December 31, 2006 that have materially affected, or are
reasonably likely to materially affect, its internal control
over financial reporting.
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Item 9B.
|
Other
Information.
|
Not applicable.
Part III
Item 10, 11,
12, 13 and 14
The information required by Items 10, 11, 12, 13 and
14 will be furnished on or prior to April 29, 2007 (and is
hereby incorporated by reference) by an amendment hereto or
pursuant to a definitive proxy statement pursuant to
Regulation 14A which will contain such information.
14
PART IV
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Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a) The following documents are filed as part of this
Form 10-K:
(1) Financial Statements
The following financial statements of BKF Capital Group, Inc.
and Subsidiaries are filed as part of this report under
Item 8-Financial
Statements and Supplementary Data:
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Page
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Number
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Report of Independent Registered
Public Accounting Firm Grant Thornton LLP
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F-2
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Reports of Independent Registered
Public Accounting Firm Eisner LLP
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F-3
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Consolidated Statements of
Financial Condition at December 31, 2006 and 2005
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F-8
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Consolidated Statements of
Operations for the years ended December 31, 2006, 2005 and
2004
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F-9
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Consolidated Statements of Cash
Flows for the years ended December 31, 2006, 2005 and 2004
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F-10
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Consolidated Statements of Changes
in Stockholders Equity for the years ended
December 31, 2006, 2005 and 2004
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F-11
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Notes to Consolidated Financial
Statements
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F-12
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(2) Financial Data Schedules
All schedules are omitted, as the required information is
inapplicable or is included in the financial statements or
related notes.
(3) Exhibits
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Exhibit
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Number
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Description
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3
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.1
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Restated Certificate of
Incorporation of Registrant, as amended (incorporated by
reference Exhibit 3.1 to Registrants Quarterly
Reports on
Form 10-Q
for the periods ended June 30, 2000 June 30, 2001 and
the December 31, 2005 10K.
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3
|
.2
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Bylaws of Registrant (incorporated
by reference to Exhibit 3(ii) to Registrants
Quarterly Report on
Form 10-Q
for the period ended September 30, 2001).
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4
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.1
|
|
|
|
Specimen of Common Stock
Certificate (incorporated by reference to Exhibit 4.1 of
Registrants Annual Report on
Form 10-K/A
for the period ended December 31, 2000).
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10
|
.1
|
|
|
|
Amendment to Lease dated
October 10, 2003 between Rockefeller Center Properties and
John A. Levin, Inc. (incorporated by reference to
Exhibit 10.1 of Registrants Annual Report on
Form 10-K/A
for the period ended December 31, 2003).
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10
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.2
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Lease dated December 20, 1993
between Rockefeller Center Properties and John A.
Levin & Co., Inc., as amended (incorporated by
reference to Exhibit 10.1 of Registrants Annual
Report on
Form 10-K/A
for the period ended December 31, 2000, Exhibit 10.2
to Registrants Quarterly Report on
Form 10-Q
for the period ended June 30, 2001, and Exhibit 10.2
to Registrants Quarterly Report on
Form 10-Q
for the period ended September 30, 2001).
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10
|
.3
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|
Lease dated September 25,
2002 between River Bend Executive Center, Inc. and Levin
Management Co., Inc. (incorporated by reference to
Exhibit 10.1 of Registrants Quarterly Report on
Form 10-Q
for the period ended September 30, 2002).
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10
|
.4
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Registrants 1998 Incentive
Compensation Plan, as amended (incorporated by reference to
Exhibit 10.1 to Registrants Quarterly Report on
Form 10-Q
for the period ended June 30, 2001).
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10
|
.5
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Registrants Deferred
Compensation Plan (incorporated by reference to
Exhibit 10.2 to Registrants Quarterly Report on
Form 10-Q
for the period ended September 30, 2000).
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10
|
.6
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Form of Stock Option Award
Agreement (incorporated by reference to Exhibit 10.5 to
Registrants Annual Report on
Form 10-K/A
for the period ended December 31, 2001).
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15
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|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
10
|
.7
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|
Form of Deferred Stock Award
Agreement (incorporated by reference to Exhibit 4.5 to the
Registration Statement on
Form S-8
filed with the Commission on November 17, 2000).
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10
|
.8
|
|
|
|
Form of Restricted Stock Award
Agreement (incorporated by reference to Exhibit 10.10 to the
Registrants Annual Report on Form 10-K for the period
ended December 31, 2005).
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10
|
.9
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|
Letter Agreement between BKF and
Levin Management Co., Inc. and each of Henry Levin and Frank
Rango dated April 19, 2005 (incorporated by reference to
Exhibit 10.1 of Registrants Report on
Form 8-K
dated April 22, 2005).
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10
|
.10
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Change in Control Agreement
between BKF, Levin Management Co., Inc. and Glenn A. Aigen dated
June 1, 2005 (incorporated by reference to
Exhibit 10.1 of Registrants Report on
Form 8-K
dated June 6, 2005).
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10
|
.11
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Change in Control Agreement
between BKF, Levin Management Co., Inc. and Norris Nissim dated
June 1, 2005 (incorporated by reference to
Exhibit 10.2 of Registrants Report on
Form 8-K
dated June 6, 2005).
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10
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.12
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Retention Agreement between BKF,
Levin Management Co., Inc and Philip Friedman dated
August 11, 2005 (incorporated by reference to
Exhibit 10.1 of Registrants Report on
Form 8-K
dated August 16, 2005).
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10
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.13
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First Amendment to Retention
Agreement between BKF and Philip Friedman dated
November 15, 2005 (incorporated by reference to
Exhibit 10.1 of Registrants Report on
Form 8-K
dated November 16, 2005).
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10
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.14
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Transition/Separation Agreement
between BKF and John A. Levin dated as of August 23, 2005
(incorporated by reference to Exhibit 10.1 of
Registrants Report on
Form 8-K
dated August 24, 2005).
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10
|
.15
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First Amendment to
Transition/Separation Agreement between BKF and John A. Levin
dated December 21, 2005 (incorporated by reference to
Exhibit 10.1 of Registrants Report on
Form 8-K
dated December 28, 2005).
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10
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.16
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Employment Agreement between BKF
and John C. Siciliano dated September 28, 2005
(incorporated by reference to Exhibit 10.3 of
Registrants Quarterly Report on
Form 10-Q
for the period ended September 30, 2005).
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10
|
.17
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Letter Agreement, dated as of
September 28, 2005, among BKF Capital Group, Inc., Levin
Management Co., Inc. and Glenn A. Aigen (incorporated by
reference to Exhibit 10.4 of Registrants Quarterly
Report on
Form 10-Q
for the period ended September 30, 2005).
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10
|
.18
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|
Letter Agreement, dated as of
September 28, 2005, among BKF Capital Group, Inc., Levin
Management Co., Inc. and Norris Nissim (incorporated by
reference to Exhibit 10.5 of Registrants Quarterly
Report on
Form 10-Q
for the period ended September 30, 2005).
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10
|
.19
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|
Transition/Separation Agreement
between BKF and Glenn A. Aigen dated December 20, 2005
(incorporated by reference to Exhibit 10.6 of
Registrants Report on
Form 10-Q
for the period ended September 30, 2005).
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10
|
.20
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|
Separation Agreement and Release
of All Claims between BKF and Henry Levin dated
December 16, 2005 (incorporated by reference to
Exhibit 10.1 of Registrants Report on
Form 8-K
dated December 22, 2005).
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10
|
.21
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|
Employment Agreement between BKF
and Clarke Gray dated as of January 4, 2006 (incorporated
by reference to Exhibit 10.1 of Registrants Report on
Form 8-K
dated January 6, 2006).
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10
|
.22
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|
Transition/Separation Agreement
between BKF and Norris Nissim dated May 5, 2006
(incorporated by reference to Exhibit 10.1 of Registrants
Quarterly Report on
Form 10-Q
for the period ended March 31, 2006).
|
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10
|
.23
|
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|
|
Separation Agreement between BKF
and Philip Friedman dated July 24, 2006 (incorporated by
reference to Exhibit 10.1 of Registrants Report on
Form 8-K
dated July 24, 2006).
|
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10
|
.24
|
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|
|
Sublease Agreement between BKF and
Daylight Forensics and Advisory LLC dated May 16, 2006
(incorporated by reference to Exhibit 10.2 to Registrants
Quarterly Report on
Form 10-Q
for the period ended June 30, 2006).
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16
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|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
10
|
.25
|
|
|
|
First Amendment to the Sublease
Agreement between BKF and Daylight Forensics and Advisory LLC
dated May 16, 2006 (incorporated by reference to Exhibit
10.1 of the Registrants Quarterly Report on
Form 10-Q
for the period September 30, 2006).
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|
10
|
.26
|
|
|
|
Partial Surrender Agreement and
Amendment between BKF and RCPI Landmark Properties, LLC dated
November 22, 2006.*
|
|
10
|
.27
|
|
|
|
Form of Indemnification Agreement
(incorporated by reference to Exhibit 10.1 of the Companys
Current Report on
Form 8-K
dated May 18, 2006).
|
|
10
|
.28
|
|
|
|
Separation Agreement between BKF
and John C. Siciliano dated October 31, 2006*
|
|
10
|
.29
|
|
|
|
Separation Agreement between BKF
and J. Clarke Gray dated October 31, 2006*
|
|
14
|
.1
|
|
|
|
Registrants Code of Ethics
(incorporated by Reference to Exhibit 14.1 of
Registrants Annual Report on
Form 10-K/A
for the period ended December 31, 2003).
|
|
21
|
.1
|
|
|
|
Subsidiaries of the Registrant
(incorporated by reference to Exhibit 21.1 to the
Registrants Annual Report on
Form 10-K/A
for the period ended December 31, 2000).
|
|
23
|
.1
|
|
|
|
Consent of Grant Thornton LLP*
|
|
23
|
.3
|
|
|
|
Consent of Eisner LLP*
|
|
24
|
.1
|
|
|
|
Powers of Attorney (included on
the Signature Pages hereto).*
|
|
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*
|
17
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.
J. Clarke Gray
Senior Vice President
and Chief Financial Officer
Date: March 1, 2007
Each person whose signature appears below hereby constitutes and
appoints Harvey J. Bazaar and J. Clarke Gray and each of them,
his true and lawful
attorney-in-fact
and agent with full power of substitution, for him in any and
all capacities, to execute and cause to be filed with the
Securities and Exchange Commission any and all amendments to the
Annual Report on
Form 10-K,
with exhibits thereto and other documents connected therewith
and to perform any acts necessary to be done in order to file
such documents, and hereby ratifies and confirms all that said
attorney-in-fact
or their substitute or substitutes may do or cause to be done by
virtue hereof.
|
|
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ MARVIN
OLSHAN
Marvin
Olshan
|
|
Director, Chairman of the Board
|
|
March 1, 2007
|
|
|
|
|
|
/s/ HARVEY
J. BAZAAR
Harvey
J. Bazaar
|
|
Director, Chief Executive Officer
|
|
March 1, 2007
|
|
|
|
|
|
/s/ J.
CLARKE GRAY
J.
Clarke Gray
|
|
Senior Vice President and Chief
Financial Officer (Principal Financial and Accounting Officer)
|
|
March 1, 2007
|
|
|
|
|
|
/s/ RONALD
LABOW
Ronald
Labow
|
|
Director
|
|
March 1, 2007
|
|
|
|
|
|
/s/ KEITH
MEISTER
Keith
Meister
|
|
Director
|
|
March 1, 2007
|
|
|
|
|
|
/s/ KURT
N. SCHACHT
Kurt
N. Schacht
|
|
Director
|
|
March 1, 2007
|
18
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
BKF Capital Group, Inc.
We have audited the accompanying consolidated statements of
financial condition of BKF Capital Group, Inc. and subsidiaries
(the Company) (a Delaware corporation) as of
December 31, 2006 and 2005, and the related consolidated
statements of operations, changes in stockholders equity
and cash flows for each of the three years in the periods ended
December 31, 2006. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial
statements of five consolidated affiliated partnerships
(collectively the 2005 CAP), which statements
reflect total assets constituting 21 percent as of
December 31, 2005, and total revenues of 3 percent for
the year then ended. Those statements were audited by another
auditor whose reports thereon have been furnished to us, and our
opinion, insofar as it relates to the amounts included for the
2005 CAP, is based solely on the reports of the other auditor.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other
auditor, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of BKF Capital Group, Inc. and subsidiaries
as of December 31, 2006 and 2005, and the consolidated
results of their operations, changes in stockholders
equity and their consolidated cash flows for each of the three
years in the period ended December 31, 2006 in conformity
with accounting principles generally accepted in the United
States of America.
The accompanying consolidated financial statements have been
prepared assuming the Companys ability to continue as a
going concern. During 2006 and 2005, the Company experienced a
total loss of assets under management and as a result the
Company has had a significant decline in revenues in 2006 and no
longer has an operating business. The Company continues to
evaluate strategic alternatives: either commence a new business
or liquidate. Historically, the Company has funded its cash and
liquidity needs through cash generated from operations; however,
in light of the above, the Company expects cash generated from
current operations will not be sufficient to fund operations and
that the Company will use its existing working capital to fund
operations. These factors, as discussed in Note 1 to the
financial statements, raise substantial doubt about the
Companys ability to continue as a going concern. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
New York, New York
February 26, 2007
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners
Alvarado Capital Partners, L.P.
We have audited the accompanying statement of assets,
liabilities and partnership capital of Alvarado Capital
Partners, L.P. (the Partnership) (a limited
partnership) (in liquidation), including the condensed schedule
of investments as of December 31, 2005, and the related
statements of operations, changes in partnership capital and
financial highlights for the year ended December 31, 2005.
These financial statements (not shown separately herein) are the
responsibility of the Partnerships management. Our
responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements enumerated (not shown
separately herein) above present fairly, in all material
respects, the financial position of Alvarado Capital Partners,
L.P. (in liquidation) as of December 31, 2005, and the
results of its operations, changes in its partnership capital
and financial highlights for the year ended December 31,
2005 in conformity with accounting principles generally accepted
in the United States of America.
New York, New York
January 20, 2006
With respect to Note A
February 17, 2006
F-3
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners
Island Drive Partners II, L.P.
We have audited the accompanying statement of assets,
liabilities and partnership capital of Island Drive
Partners II, L.P. as of December 31, 2005. These
financial statements (not shown separately herein) are the
responsibility of the Partnerships management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements (not shown separately
herein) enumerated above present fairly, in all material
respects, the financial position of Island Drive
Partners II, L.P. as of December 31, 2005, in
conformity with accounting principles generally accepted in the
United States of America.
New York, New York
January 17, 2006
F-4
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners
Fairmount Capital Partners, L.P.
We have audited the accompanying statement of assets,
liabilities and partnership capital, of Fairmount Capital
Partners, L.P. (a limited partnership) including the condensed
schedule of investments as of December 31, 2005, and the
related statements of operations, changes in partnership capital
and financial highlights for the period from April 1, 2005
(commencement of operations) to December 31, 2005. These
financial statements and financial highlights (not shown
separately herein) are the responsibility of the
Partnerships management. Our responsibility is to express
an opinion on these financial statements and financial
highlights based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements (not shown separately
herein) enumerated above present fairly, in all material
respects, the financial position of Fairmount Capital Partners,
L.P. as of December 31, 2005, and the results of its
operations, its changes in partnership capital and financial
highlights for the period from April 1, 2005 (commencement
of operations) to December 31, 2005 in conformity with
accounting principles generally accepted in the United States of
America.
New York, New York
January 17, 2006
F-5
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners
LR Capital Partners, L.P.
We have audited the accompanying statement of assets,
liabilities and partnership capital, of LR Capital Partners,
L.P. (a limited partnership) including the condensed schedule of
investments as of December 31, 2005, and the related
statements of operations, changes in partnership capital and
financial highlights for the period from June 1, 2005
(commencement of operations) to December 31, 2005. These
financial statements and financial highlights (not shown
separately herein) are the responsibility of the
Partnerships management. Our responsibility is to express
an opinion on these financial statements and financial
highlights based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements (not shown separately
herein) enumerated above present fairly, in all material
respects, the financial position of LR Capital Partners, L.P. as
of December 31, 2005, and the results of its operations,
its changes in partnership capital and financial highlights for
the period from June 1, 2005 (commencement of operations)
to December 31, 2005 in conformity with accounting
principles generally accepted in the United States of America.
New York, New York
January 20, 2006
F-6
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners
Levco Debt Opportunity Partners, L.P.
We have audited the accompanying statement of assets,
liabilities and partnership capital of Levco Debt Opportunity
Partners, L.P. (the Partnership) (in liquidation) as
of December 31, 2005. This financial statement (not shown
separately herein) is the responsibility of the
Partnerships management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statement. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statement (not shown separately
herein) enumerated above presents fairly, in all material
respects, the financial position of Levco Debt Opportunity
Partners, L.P. as of December 31, 2005, in conformity with
accounting principles generally accepted in the United States of
America.
New York, New York
January 20, 2006
With respect to Note F
February 9, 2006 and February 28, 2006
F-7
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
(Dollar
amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Assets
|
Cash and cash equivalents
|
|
$
|
3,689
|
|
|
$
|
14,432
|
|
U.S. Treasury bills
|
|
|
27,430
|
|
|
|
42,384
|
|
Investment advisory, incentive
fees and other receivables
|
|
|
3,979
|
|
|
|
21,805
|
|
Investments in securities, at
value (cost $0 and $6,839, respectively)
|
|
|
|
|
|
|
7,685
|
|
Investments in affiliated
partnerships
|
|
|
|
|
|
|
7,696
|
|
Prepaid expenses and other assets
|
|
|
1,698
|
|
|
|
2,373
|
|
Fixed assets (net of accumulated
depreciation of $254 and $8,000, respectively)
|
|
|
88
|
|
|
|
4,783
|
|
Goodwill (net of accumulated
amortization of $23,362 and $8,566)
|
|
|
|
|
|
|
14,796
|
|
Investment advisory contracts (net
of accumulated amortization)
|
|
|
|
|
|
|
1,107
|
|
Consolidated affiliated
partnerships:
|
|
|
|
|
|
|
|
|
Due from broker
|
|
|
|
|
|
|
16,783
|
|
Investments in securities, at
value (cost $0 and $13,841, respectively)
|
|
|
|
|
|
|
14,578
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
36,884
|
|
|
$
|
148,422
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities, minority interest
and stockholders equity
|
Accrued expenses
|
|
$
|
1,444
|
|
|
$
|
5,638
|
|
Accrued commissions and profit
sharing
|
|
|
640
|
|
|
|
43,020
|
|
Accrued restructuring expense
|
|
|
5,217
|
|
|
|
|
|
Accrued lease amendment expense
|
|
|
2,956
|
|
|
|
3,420
|
|
Consolidated affiliated
partnerships:
|
|
|
|
|
|
|
|
|
Securities sold short, at value
(proceeds of $0 and $6,878, respectively)
|
|
|
|
|
|
|
7,084
|
|
Partner contributions received in
advance
|
|
|
|
|
|
|
506
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
10,257
|
|
|
|
59,668
|
|
|
|
|
|
|
|
|
|
|
Minority interest in consolidated
affiliated partnerships
|
|
|
|
|
|
|
13,161
|
|
|
|
|
|
|
|
|
|
|
Stockholders
equity
|
|
|
|
|
|
|
|
|
Common stock, $1 par value,
authorized 15,000,000 shares, issued and
outstanding 7,976,341 and 8,180,057 shares,
respectively
|
|
$
|
7,976
|
|
|
|
8,180
|
|
Additional paid-in capital
|
|
|
75,883
|
|
|
|
88,887
|
|
Accumulated deficit
|
|
|
(57,184
|
)
|
|
|
(10,168
|
)
|
Unearned compensation
restricted stock and restricted stock units
|
|
|
(48
|
)
|
|
|
(11,306
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
26,627
|
|
|
|
75,593
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, minority
interest and stockholders equity
|
|
$
|
36,884
|
|
|
$
|
148,422
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
F-8
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
(Dollar
amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment advisory fees
|
|
$
|
9,248
|
|
|
$
|
69,492
|
|
|
$
|
78,324
|
|
Incentive fees and allocations
|
|
|
10,078
|
|
|
|
47,164
|
|
|
|
40,925
|
|
Commission income (net) and other
|
|
|
1,588
|
|
|
|
712
|
|
|
|
1,438
|
|
Net realized and unrealized gain
on investments
|
|
|
1,410
|
|
|
|
1,120
|
|
|
|
1,020
|
|
Interest income
|
|
|
1,705
|
|
|
|
1,551
|
|
|
|
604
|
|
From consolidated affiliated
partnerships:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized gain
on investments
|
|
|
192
|
|
|
|
2,737
|
|
|
|
1,129
|
|
Interest and dividend income
|
|
|
297
|
|
|
|
432
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
24,518
|
|
|
|
123,208
|
|
|
|
123,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
24,831
|
|
|
|
92,472
|
|
|
|
85,092
|
|
Employee compensation relating to
equity grants (redemptions)
|
|
|
(689
|
)
|
|
|
5,154
|
|
|
|
8,661
|
|
Occupancy & equipment
rental
|
|
|
4,574
|
|
|
|
6,655
|
|
|
|
5,990
|
|
Other operating expenses
|
|
|
8,441
|
|
|
|
15,191
|
|
|
|
13,529
|
|
Amortization of intangibles
|
|
|
1,107
|
|
|
|
9,406
|
|
|
|
7,009
|
|
Interest expense
|
|
|
303
|
|
|
|
239
|
|
|
|
118
|
|
Other operating expenses from
consolidated affiliated partnerships
|
|
|
58
|
|
|
|
113
|
|
|
|
26
|
|
Restructuring Expenses
|
|
|
32,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
71,403
|
|
|
|
129,230
|
|
|
|
120,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(46,885
|
)
|
|
|
(6,022
|
)
|
|
|
3,062
|
|
Minority interest in consolidated
affiliated partnerships
|
|
|
(131
|
)
|
|
|
(1,267
|
)
|
|
|
(749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
(47,016
|
)
|
|
|
(7,289
|
)
|
|
|
2,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
8,576
|
|
|
|
4,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(47,016
|
)
|
|
$
|
(15,865
|
)
|
|
$
|
(1,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
(5.71
|
)
|
|
$
|
(2.08
|
)
|
|
$
|
(0.25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding Basic and Diluted
|
|
|
8,233,175
|
|
|
|
7,631,580
|
|
|
|
6,949,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
F-9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(47,016
|
)
|
|
$
|
(15,865
|
)
|
|
$
|
(1,765
|
)
|
Adjustments to reconcile net
(loss) to net cash provided by operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,361
|
|
|
|
11,590
|
|
|
|
9,169
|
|
Losses resulting from
restructuring expenses
|
|
|
18,462
|
|
|
|
|
|
|
|
|
|
Expense for vesting of restricted
stock and stock units
|
|
|
(675
|
)
|
|
|
5,191
|
|
|
|
8,919
|
|
Loss on disposal of fixed assets
|
|
|
|
|
|
|
309
|
|
|
|
|
|
Tax benefit related to employee
compensation plans
|
|
|
|
|
|
|
878
|
|
|
|
4,432
|
|
Change in deferred tax asset
|
|
|
|
|
|
|
8,391
|
|
|
|
275
|
|
Unrealized (gain) on investments
in securities
|
|
|
|
|
|
|
(484
|
)
|
|
|
(300
|
)
|
Decrease (Increase) in
U.S. treasury bills
|
|
|
14,954
|
|
|
|
(1,918
|
)
|
|
|
(7,971
|
)
|
Decrease (Increase) in investment
advisory and incentive fees receivable
|
|
|
17,826
|
|
|
|
18,204
|
|
|
|
(2,165
|
)
|
Decrease (Increase) in prepaid
expenses and other assets
|
|
|
675
|
|
|
|
4,675
|
|
|
|
(3,192
|
)
|
Decrease in investments in
affiliated investment partnerships
|
|
|
7,696
|
|
|
|
9,666
|
|
|
|
1,604
|
|
Decrease (Increase) in investments
in securities
|
|
|
7,685
|
|
|
|
(1,413
|
)
|
|
|
(1,109
|
)
|
(Decrease) Increase in accrued
expenses
|
|
|
(4,194
|
)
|
|
|
1,554
|
|
|
|
702
|
|
(Decrease) Increase in accrued
commissions and profit sharing
|
|
|
(42,380
|
)
|
|
|
334
|
|
|
|
2,958
|
|
Increase in accrued restructuring
expenses
|
|
|
5,217
|
|
|
|
|
|
|
|
|
|
(Decrease) in accrued lease
amendment expense
|
|
|
(464
|
)
|
|
|
(423
|
)
|
|
|
(692
|
)
|
Changes in operating assets and
liabilities from consolidated affiliated partnerships:
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest in income
|
|
|
131
|
|
|
|
1,267
|
|
|
|
208
|
|
Increase (Decrease) in due from
broker
|
|
|
16,783
|
|
|
|
(15,831
|
)
|
|
|
(952
|
)
|
Increase (Decrease) in securities
|
|
|
14,578
|
|
|
|
(8,061
|
)
|
|
|
(6,517
|
)
|
(Decrease) Increase in securities
sold short
|
|
|
(7,084
|
)
|
|
|
5,785
|
|
|
|
1,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
4,555
|
|
|
|
23,849
|
|
|
|
4,903
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed asset additions
|
|
|
(225
|
)
|
|
|
(464
|
)
|
|
|
(2,234
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing
activities
|
|
|
(225
|
)
|
|
|
(464
|
)
|
|
|
(2,234
|
)
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
(1,274
|
)
|
|
|
(5,897
|
)
|
|
|
(3,505
|
)
|
Dividends paid to shareholders
|
|
|
|
|
|
|
(11,811
|
)
|
|
|
(2,799
|
)
|
Consolidated affiliated
partnerships:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) Increase in partner
contributions received in advance
|
|
|
(506
|
)
|
|
|
506
|
|
|
|
|
|
Partner subscriptions
|
|
|
1,100
|
|
|
|
4,667
|
|
|
|
2,270
|
|
Partner redemptions
|
|
|
(14,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) financing
activities
|
|
|
(15,073
|
)
|
|
|
(12,535
|
)
|
|
|
(4,034
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
and cash equivalents
|
|
|
(10,743
|
)
|
|
|
10,850
|
|
|
|
(1,365
|
)
|
Cash and cash equivalents at the
beginning of the year
|
|
|
14,432
|
|
|
|
3,582
|
|
|
|
4,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the
end of the period
|
|
$
|
3,689
|
|
|
$
|
14,432
|
|
|
$
|
3,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash
flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
15
|
|
|
$
|
|
|
|
$
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes
|
|
$
|
155
|
|
|
$
|
285
|
|
|
$
|
961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
F-10
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
Twelve Months Ended
December 31, 2006
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Unearned
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Compensation
|
|
|
Total
|
|
|
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(1)
|
|
|
|
|
|
|
|
|
|
|
(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(1)
|
|
|
|
|
|
|
|
|
|
|
(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 of restricted stock units
and restricted stock net of forfeitures(2)
|
|
|
(277
|
)
|
|
|
(9,309
|
)
|
|
|
|
|
|
|
10,856
|
|
|
|
1,270
|
|
Issuance of common stock
|
|
|
73
|
|
|
|
(4,499
|
)
|
|
|
|
|
|
|
402
|
|
|
|
(4,024
|
)
|
Grants of stock options
|
|
|
|
|
|
|
804
|
|
|
|
|
|
|
|
|
|
|
|
804
|
|
Net (loss)
|
|
|
|
|
|
|
|
|
|
$
|
(47,016
|
)
|
|
|
|
|
|
|
(47,016
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2006
|
|
$
|
7,976
|
|
|
$
|
75,883
|
|
|
$
|
(57,184
|
)
|
|
$
|
(48
|
)
|
|
$
|
26,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
compensation expense incurred relating to dividend of $313 in
2005 and $18 in 2004 |
|
(2) |
|
includes grants of $162 and forfeitures of $(439). |
F-11
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Organization
and Summary of Significant Accounting Policies
|
Organization
and Basis of Presentation
BKF Capital Group, Inc. (the Company) operates
through a wholly-owned subsidiary, BKF Asset Management Co.,
Inc. and its subsidiaries, all of which are referred to as
BKF. The Company trades on the over the counter
market under the symbol (BKFG).
The Consolidated Financial Statements of BKF 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), BAMs 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. During 2006 the liquidations of the subsidiaries
were commenced and the affiliated partnerships were liquidated.
As a result there were no affiliated partnerships in the
December 31, 2006 Consolidated Financial Statements. Five
investment partnerships were consolidated at December 31,
2005 and one was consolidated at December 31, 2004. In
addition, the operations of five investment partnerships were
included in the statements of operation and cash flows for the
applicable periods during the year ending December 31,
2005. The operations of two investment partnerships were
included in the statements of operation and cash flows for the
applicable periods during the year ended December 31, 2004.
All intercompany transactions have been eliminated in
consolidation.
BAM is an investment advisor which was registered under the
Investment Advisers Act of 1940, as amended; it withdrew its
registration on December 19, 2006. Prior to that time
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. BAM also participated in broker
consulting programs (Wrap Accounts) with several nationally
recognized financial institutions. LEVCO Securities was
registered with the SEC as a broker- dealer and is a member of
the National Association of Securities Dealers, Inc.; it
withdrew its registration on November 30, 2006. BKF GP acts
as the managing general partner of several affiliated investment
partnerships and is registered with the Commodities Futures
Trading Commission as a commodity pool operator.
The accompanying consolidated financial statements have been
prepared and are presented assuming the Companys ability
to continue as a going concern. During 2006 and 2005, the
company experienced a total loss of assets under management and
as a result the Company has had a significant decline in
revenues in 2006 and no longer has a operating business. The
Company continues to evaluate strategic alternatives: either
commence a new business or liquidate. Historically, the Company
has funded its cash and liquidity needs through cash generated
from operations, however, in light of the above, the Company
expects cash generated from current operations will not be
sufficient to fund operations and that the Company will use its
existing working capital to fund operations. As a result the
ability of the Company to continue as a going concern is
at risk.
Consolidation
Accounting Policies
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
F-12
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. All intercompany
accounts have been eliminated.
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.
Cash,
Cash Equivalents and United States Treasury Bills
The Company treats all United States Treasury Bills with
maturities at acquisition of three months or less as cash
equivalents. The U.S. Treasury bills are valued at cost
plus accrued interest, which approximates market value.
Investments in money market funds are valued at net asset value.
The Company maintains substantially all of its cash, cash
equivalents and U.S. Treasury bills invested in interest
bearing instruments at two nationally recognized financial
institutions, which at times may exceed federally insured
limits. As a result the Company is exposed to credit risk
related to the money market funds and the market rate inherent
in both the U.S. Treasury bills and the money market funds.
Investments
in Affiliated Investment Partnerships
BKF GP served as the managing general partner for several
affiliated investment partnerships (AIP), which
primarily engaged in the trading of publicly traded equity
securities, and in the case of one partnership, distressed
F-13
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
corporate debt. Currently all AIP activities have been
terminated and BKF GP is in the process of dissolving those
partnerships. 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 or after the fund is liquidated. 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 8
Related Party Transactions.
Investments
in Securities
Investments in securities are accounted for as trading
securities. Equity securities are stated at quoted market
values and shares in the unconsolidated affiliated onshore and
offshore investment companies are stated at net asset value as
provided by the investment companies independent
administrator. The resulting unrealized gains and losses are
included in net realized and unrealized gain (loss) from
investments. Realized gains and losses are recorded on the
identified cost basis.
Income
Taxes
The Company accounts for income taxes under the liability method
prescribed by Statement of Financial Accounting Standards
(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.
Beginning in 2005 and continuing in 2006, the Companys
review of certain long-lived assets (investment advisory
contracts) indicated that such assets were impaired. These
investment advisory contracts relate to the cost in excess of
the net assets acquired by BKF in June 1996 which were reflected
as goodwill, investment advisory contracts, and employment
contracts in the Consolidated Statements of Financial Condition.
During the latter half of 2005 and into the first half of 2006
the Company was terminated as the investment advisor for all of
the accounts to which the investment advisory contracts relate.
The Company performed continuing valuations 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 $1.1 million in 2006 and $2.4 million in
2005 representing the difference between the fair value as
determined by Income
F-14
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
approach and the carrying value of the group of assets. Such
amounts are reflected in amortization expense in the 2006 and
2005 Consolidated Statement of Operations.
Fixed
Assets
Furniture, fixtures, office and computer equipment and leasehold
improvements are carried at cost, net of accumulated
depreciation and amortization in Fixed Assets in the
consolidated statement of financial condition. Depreciation of
furniture, fixtures, office and computer equipment is provided
over the estimated useful lives of the respective assets.
Leasehold improvements are amortized over the shorter of the
economic life or the term of the lease. Internal use software
that qualifies for capitalization under AICPA Statement of
Position
98-1,
Accounting for the Cost of Computer Software Developed or
Obtained for Internal Use, is capitalized and subsequently
amortized over the estimated useful life of the software,
generally three years.
Effective January 1, 2004, for new additions only, the firm
changed to the straight-line method of depreciation for
furniture, fixtures, and office/computer equipment.
The firms depreciation and amortization is computed using
the methods set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasehold Improvements
|
|
|
|
|
Furniture, Fixtures
|
|
Term of Lease Greater
|
|
Term of Lease Less
|
|
Certain Internal Use
|
|
|
and Equipment
|
|
Than Useful Life
|
|
Than Useful Life
|
|
Software Costs
|
|
Placed in service prior to
January 1, 2004
|
|
Accelerated cost recovery over the
useful life of the asset.
|
|
Straight-line over the useful life
of the asset
|
|
Straight-line over the term of the
lease
|
|
Accelerated cost recovery over the
useful life of the asset
|
Placed in service
on or after January 1, 2004
|
|
Straight-line over the useful life
of the asset
|
|
Straight-line over the useful life
of the asset
|
|
Straight-line over the term of the
lease
|
|
Straight-line over the useful life
of the asset
|
For the year ended December 31, 2004, the effect of the
change from the accelerated cost recovery method of depreciation
used prior to January 1, 2004 to the straight-line method
of depreciation, effective for additions placed in service on or
after January 1, 2004, was an increase in depreciation
expense of approximately $98,000 and $.01 per share.
During 2006 BKF abandoned certain furniture and equipment as a
result of its subleasing and downsizing activities. As a result
approximately $3.7 million was reflected as part of
restructuring expenses in the Consolidated Statement of
Operations.
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. Other
intangible assets with finite lives are amortized over their
useful lives. During 2006 Goodwill of $14.8 million was
fully written off.
See Note 6 Intangible Assets.
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
F-15
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net (loss)
|
|
$
|
(47,016
|
)
|
|
$
|
(15,865
|
)
|
|
$
|
(1,765
|
)
|
Basic weighted-average shares
outstanding
|
|
|
8,233,175
|
|
|
|
7,631,580
|
|
|
|
6,949,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average shares
outstanding
|
|
|
8,233,175
|
|
|
|
7,631,580
|
|
|
|
6,949,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(5.71
|
)
|
|
$
|
(2.08
|
)
|
|
$
|
(0.25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In calculating diluted (loss) per share for the years ended
December 31, 2006, 2005 and 2004, 300,000, 456,807, and
1,280,861 common stock equivalents were excluded due to their
anti-dilutive effect on the calculation.
Fair
Values of Financial Instruments
The fair values of the Companys assets and liabilities
except for fixed assets, goodwill and investment advisory
contracts, which qualify as financial instruments under
Statement of Financial Accounting Standards No. 107,
Disclosures about Fair Value of Financial
Instruments, approximate the carrying amounts presented in
the Consolidated Statements of Financial Condition.
Business
Segments
The Company operated in one business segment, the investment
advisory and asset management business.
Stock-Based
Compensation
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 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. The
Company adopted SFAS 123R using the modified prospective
method and, accordingly, financial statement amounts for prior
periods have not been restated to reflect the fair value method
of recognizing compensation cost relating to stock options.
F-16
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table illustrates the effect on net (loss) and
(loss) per share for prior years if the Company had applied the
fair value recognition provisions of SFAS No. 123
(dollar amounts in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net (loss), as reported
|
|
$
|
(47,016
|
)
|
|
$
|
(15,865
|
)
|
|
$
|
(1,765
|
)
|
Add: Stock-based employee
compensation expense included in reported net loss net of
related tax effects
|
|
|
(663
|
)
|
|
|
4,841
|
|
|
|
4,873
|
|
Deduct: Total stock-based employee
compensation expense determined under the fair value based
method for all awards net of related tax effects
|
|
|
663
|
|
|
|
(5,336
|
)
|
|
|
(4,873
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net (loss)
|
|
$
|
(47,016
|
)
|
|
$
|
(16,360
|
)
|
|
$
|
(1,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted as
reported
|
|
$
|
(5.71
|
)
|
|
$
|
(2.08
|
)
|
|
$
|
(0.25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted pro
forma
|
|
$
|
(5.71
|
)
|
|
$
|
(2.14
|
)
|
|
$
|
(0.25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 non-qualified stock options consistent
with the requirements of SFAS No. 123R for the years
ended December 31, 2006 and 2005.
|
|
|
|
|
Expected dividend yield
|
|
|
0.00
|
%
|
Expected volatility
|
|
|
38.20
|
%
|
Risk-free interest
|
|
|
4.51
|
%
|
Expected term
|
|
|
10 years
|
|
Fair value
|
|
$
|
10.86
|
|
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.
F-17
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 for contributions and
withdrawals 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. At this time FIN 48 will not have a
material impact on the Companys financial statements.
In September 2006, the FASB issued SFAS 157, Fair Value
Measurements, which defines fair value, establishes a
framework for measuring fair value and requires 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 the Companys financial
statements.
In September 2006, the staff of the Securities and Exchange
Commission issued Staff Accounting Bullentin 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 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.
In September 2006, The FASB issued SFAS 158,
Employers Accounting for Defined Benefit Pension and other
Postretirement Plans, which requires an employer to
recognize the overfunded or underfunded status of a defined
benefit postretirement plan (other than a multiemployer plan) as
an asset or liability in its statement of financial position and
to recognize changes in that funded status in the year in which
the changes occur through comprehensive income. SFAS 158
has no effect on the Companys financial statements.
|
|
2.
|
Off-Balance
Sheet Risk
|
LEVCO Securities acted as an introducing broker and all
transactions for its customers were cleared through and carried
by a major U.S. securities firm on a fully disclosed basis.
LEVCO Securities had agreed to indemnify its clearing broker for
losses that the clearing broker sustained from the customer
accounts introduced by LEVCO Securities. In the ordinary course
of its business, however, LEVCO Securities did not accept orders
with respect to client accounts if the funds required for the
client to meet its obligations were not on deposit in the client
account at the time the order was placed.
|
|
3.
|
Investment
Advisory Fees Receivable
|
Included in investment advisory fees receivable are
approximately $0 and $203,000 of accrued incentive fees as of
December 31, 2006 and 2005, respectively for which the full
contract measurement period has not been
F-18
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 would be reversed. There are no investment
advisory fees receivable at December 31, 2006.
In January 2003, the FASB issued FIN 46, which addresses
the application of ARB 51. The interpretation provides a
framework for determining whether an entity should be evaluated
for consolidation based on voting interests or significant
financial support provided to the entity (variable
interests). FIN 46 generally would require that the
assets, liabilities and results of operations of a VIE be
consolidated into the financial statements of the enterprise
that is the primary beneficiary.
An entity is classified as a VIE if (a) total equity is not
sufficient to permit the entity to finance its activities
without additional subordinated financial support or
(b) its equity investors lack (i) the direct or
indirect ability to make decisions about an entitys
activities through voting rights or absorb the expected losses
of the entity if they occur or (ii) the right to receive
the expected residual returns of the entity if they occur. Once
an entity is determined to be a VIE, its assets, liabilities and
results of operations should be consolidated with those of its
primary beneficiary. The primary beneficiary of a VIE is the
entity which either will absorb a majority of the VIEs
expected losses or has the right to receive a majority of the
VIEs expected residual returns. The expected losses and
residual returns of a VIE include expected variability in its
net income or loss and may include fees to decision makers and
fees to guarantors of substantially all VIE assets or
liabilities.
In December 2003, FIN 46R was issued which defines the
criteria necessary to be considered an operating company (i.e.,
voting interest entity) for which the consolidation accounting
guidance of SFAS 94 should be applied. 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.
F-19
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At December 31, 2006 there were no partnerships which
required consolidation. The following tables present the
consolidation of the CAP with BKF as of December 31, 2005.
The consolidating statements of financial condition have been
included to assist investors in understanding the components of
financial condition and operations of BKF and the CAP. A
significant portion of the results of operations have been
separately identified in the consolidated statements of
operations (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
|
BKF
|
|
|
CAP
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
14,432
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
14,432
|
|
U.S. Treasury bills
|
|
|
42,384
|
|
|
|
|
|
|
|
|
|
|
|
42,384
|
|
Investment advisory and incentive
fees receivable
|
|
|
21,805
|
|
|
|
|
|
|
|
|
|
|
|
21,805
|
|
Investments in securities, at
value (cost $6,839)
|
|
|
7,685
|
|
|
|
|
|
|
|
|
|
|
|
7,685
|
|
Investments in affiliated
partnerships
|
|
|
18,199
|
|
|
|
|
|
|
|
(10,503
|
)
|
|
|
7,696
|
|
Prepaid expenses and other assets
|
|
|
2,338
|
|
|
|
35
|
|
|
|
|
|
|
|
2,373
|
|
Fixed assets (net of accumulated
depreciation of $8,000)
|
|
|
4,783
|
|
|
|
|
|
|
|
|
|
|
|
4,783
|
|
Deferred tax asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill (net of accumulated
amortization of $8,566)
|
|
|
14,796
|
|
|
|
|
|
|
|
|
|
|
|
14,796
|
|
Investment advisory contracts (net
of accumulated amortization of $68,981)
|
|
|
1,107
|
|
|
|
|
|
|
|
|
|
|
|
1,107
|
|
Consolidated affiliated
partnerships:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due from broker
|
|
|
|
|
|
|
16,783
|
|
|
|
|
|
|
|
16,783
|
|
Investments in securities, at
value (cost $13,841)
|
|
|
|
|
|
|
14,578
|
|
|
|
|
|
|
|
14,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
127,529
|
|
|
$
|
31,396
|
|
|
$
|
(10,503
|
)
|
|
$
|
148,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities, minority interest
and stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
5,496
|
|
|
$
|
142
|
|
|
$
|
|
|
|
$
|
5,638
|
|
Accrued bonuses
|
|
|
43,020
|
|
|
|
|
|
|
|
|
|
|
|
43,020
|
|
Accrued lease amendment expense
|
|
|
3,420
|
|
|
|
|
|
|
|
|
|
|
|
3,420
|
|
Consolidated affiliated
partnerships:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold short, at value
(proceeds of $6,878)
|
|
|
|
|
|
|
7,084
|
|
|
|
|
|
|
|
7,084
|
|
Partner contributions received in
advance
|
|
|
|
|
|
|
506
|
|
|
|
|
|
|
|
506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
51,936
|
|
|
|
7,732
|
|
|
|
|
|
|
|
59,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest in CAP
|
|
|
|
|
|
|
|
|
|
|
13,161
|
|
|
|
13,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-20
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
|
BKF
|
|
|
CAP
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Stockholders
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $1 par value,
authorized 15,000,000 shares, issued and
outstanding shares 8,180,057
|
|
$
|
8,180
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,180
|
|
Additional paid-in capital
|
|
|
88,887
|
|
|
|
|
|
|
|
|
|
|
|
88,887
|
|
Retained earnings
|
|
|
(10,168
|
)
|
|
|
|
|
|
|
|
|
|
|
(10,168
|
)
|
Unearned compensation
restricted stock and restricted stock units
|
|
|
(11,306
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,306
|
)
|
Capital from consolidated
affiliated partnerships
|
|
|
|
|
|
|
23,664
|
|
|
|
(23,664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
75,593
|
|
|
|
23,664
|
|
|
|
(23,664
|
)
|
|
|
75,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, minority
interest and stockholders equity
|
|
$
|
127,529
|
|
|
$
|
31,396
|
|
|
$
|
(10,503
|
)
|
|
$
|
148,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed assets consist of the following (dollar amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
Useful
|
|
December 31,
|
|
|
|
Life in Years
|
|
2006
|
|
|
2005
|
|
|
Furniture and fixtures
|
|
5-7
|
|
$
|
28
|
|
|
$
|
2,140
|
|
Computer hardware, software and
other
|
|
3-5
|
|
|
314
|
|
|
|
6,189
|
|
Leasehold improvements
|
|
Life of lease
|
|
|
|
|
|
|
4,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
342
|
|
|
|
12,783
|
|
Less accumulated depreciation and
amortization
|
|
|
|
|
254
|
|
|
|
8,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
|
|
$
|
88
|
|
|
$
|
4,783
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was approximately $1.3 million and
$2.1 million, $2.2 million, for the years ended
December 31, 2006, 2005 and 2004, respectively.
During 2006 as a result of the abandonment of certain fixed
assets $3.7 million of expenses is included in restructing
costs in the Consolidated Statement of Operations for the year
ended December 31, 2006.
Effective January 1, 2002, the Company adopted
SFAS No. 142, Goodwill and Other Intangible
Assets. BKF performs an annual impairment review to
determine if the value of the intangible assets has been
impaired. The Company uses the market method to measure the
amount of goodwill impairment. The Company utilizes the public
market price of its stock to determine if there has been an
impairment of its intangible assets. During 2006 the Company
determined that goodwill which it carried as $14.8 million
since January 1, 2002 had become fully impaired because of
the substantial losses the business incurred as a result of the
loss of assets under management due to the loss of key
personnel. The method indicated that the goodwill of
$14.8 million had become fully impaired and as a result the
Company recorded a charge of $14.8 million to fully
amortize the balance during 2006. Such amount is reflected in
restructuring losses in the Consolidated Statement of Operations.
F-21
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company recorded revenue from one of its broker consults
(wrap fee) programs of approximately $3.1 million,
$6.6 million, and $7.5 million, or 12.6%, 5%, and 6%
of total revenues for the years ended December 31, 2006,
2005 and 2004, respectively. In addition, the Company recorded
revenue from two affiliated investment vehicles, one utilizing
the event driven strategy of $179,000, $34.7 million, and
$39.4 million, or 0.7%, 28%, and 32% and one operating
under a long-short strategy of $11.3 million,
$14.8 million, and $12.1 million or 46.1%, 12%, and
10% of total revenues for the years ended December 31,
2006, 2005 and 2004, respectively.
|
|
8.
|
Related
Party Transactions
|
Investment
Advisory Fees From Related Parties
During 2005 and 2004 the Company earned investment advisory fees
from accounts for which members of the Companys Board of
Directors had a controlling discretion. The amounts earned from
these accounts were $2.2 million and $2.2 million, for
the years ended December 31, 2005 and 2004, respectively.
At December 31, 2005 approximately $560,000 were included
in investment advisory and incentive fee receivable relating to
these accounts. There were no such amounts during 2006.
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):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Total AIP assets
|
|
$
|
0
|
|
|
$
|
253,264
|
|
Total AIP liabilities
|
|
|
0
|
|
|
|
(95,482
|
)
|
Total AIP capital balance
|
|
|
0
|
|
|
|
157,782
|
|
AIP net earnings
|
|
|
(7
|
)
|
|
|
23,308
|
|
Companys carrying value
(including incentive allocations)
|
|
|
0
|
|
|
|
7,532
|
|
Companys income on invested
capital (excluding accrued incentive allocations)
|
|
|
0
|
|
|
|
316
|
|
Included in the carrying value of investments in AIP at
December 31, 2006 and 2005 are incentive allocations
approximating $0 million and $5.2 million,
respectively.
Included in the Companys incentive fees and general
partner incentive allocations are approximately
$0.8 million and $4.1 million payable directly to
employee owned and controlled entities (Employee
Entities) for the years ended December 31, 2006 and
2005, respectively. These amounts are included in the
Companys carrying value of the AIP at the end of the
applicable period. 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 $0.8 million and
$4.1 million for the years ended December 31, 2006 and
2005, respectively. These amounts are included in the
Consolidated Statement of Operations.
The Company earned investment advisory fees and incentive
allocations/fees from unconsolidated affiliated domestic
investment partnerships and affiliated offshore investment
vehicles of approximately $7.2 million, $74.6 million,
and $75.3 million for the years ended December 31,
2006, 2005 and 2004, respectively.
Included in investment advisory and incentive fees receivable at
December 31, 2005 are $1.9 million of advisory fees
from AIP and sponsored investment offshore vehicles. Also
included in investment advisory and incentive fees receivable
are $11.2 million of incentive fees from sponsored offshore
investment vehicles at December 31, 2005.
F-22
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Commission
Revenues
Commission revenues earned on securities transactions reflected
on the Consolidated Statements of Operations have been generated
by transactions introduced to a clearing broker by LEVCO
Securities, which acts as a broker for certain investment
advisory accounts of the Company. Commission revenues have been
presented net of the related clearing expenses. Also included in
commission revenues are the Companys portion of fee
sharing arrangements from departed portfolio managers.
The Company adopted a Share Purchase Rights Plan on May 29,
2001 (the Rights Plan). The Rights Plan was
implemented by declaring a dividend, distributable to
stockholders of record on June 18, 2001. With certain
exceptions, the rights become exercisable if a person or group
acquires 10% or more of the Companys outstanding common
stock. Such an acquisition causes each right to be adjusted to
permit the holder (other than such person or any member of such
group) to buy a number of additional shares of common stock of
the Company having a market value of twice the exercise price of
the rights.
The Board of Directors of BKF elected on July 5, 2005 to
redeem all of the outstanding Common Share Purchase Rights (the
Rights) issued under the Rights Agreement, dated as
of June 8, 2001, by and between the Company and Mellon
Investor Services LLC, as Rights Agent, effective immediately,
pursuant to Section 23 of the Rights Agreement. The
redemption price of $.01 per Right (the
Redemption Price) was paid on July 29,
2005 to holders of record of the redeemed Rights on
July 15, 2005. From and after the effectiveness of the
redemption of the Rights, the holders of the redeemed Rights are
entitled to no rights as such except to receive payment of the
Redemption Price.
|
|
10.
|
Commitment,
Contractual Obligations and Contingencies
|
Commitment
During 2006 the Company sublet approximately 33,000 square
feet of excess office space. Those subleases were executed at a
rate which was below the rate of the existing primary lease
obligation. As a result the Company recorded lease reserves of
$4.8 million. In addition, the Company surrended an
additional 18,000 square feet and made a $2.3 million
payment to the new tenant in exchange for a release from
liability on that space. The Company has remaining office space
obligations that require monthly payments plus escalations
through September 2011. At December 31, 2006, the minimum
annual rental commitments under the operating lease and related
sublease income are as follows (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
|
|
|
|
|
|
|
|
Annual
|
|
|
|
|
|
|
|
|
|
Rental
|
|
|
Sublease
|
|
|
|
|
|
|
Payments
|
|
|
Income
|
|
|
Net
|
|
2007
|
|
$
|
2,337
|
|
|
$
|
(1,190
|
)
|
|
$
|
1,147
|
|
2008
|
|
|
2,518
|
|
|
|
(1,581
|
)
|
|
|
937
|
|
2009
|
|
|
2,483
|
|
|
|
(1,658
|
)
|
|
|
825
|
|
2010
|
|
|
2,479
|
|
|
|
(1,659
|
)
|
|
|
820
|
|
2011
|
|
|
1,860
|
|
|
|
(1,245
|
)
|
|
|
615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum payments required
|
|
$
|
11,677
|
|
|
$
|
(7,333
|
)
|
|
$
|
4,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent expense net of subrental income was $2.8 million,
$3.8 million, and $3.2 million, for the years ended
December 31, 2006, 2005 and 2004, respectively. Subrental
income was $346,000 and $91,000, $92,000 (of which $21,000 was
received from an entity controlled by an independent Director of
the Company), for the years ended December 31, 2006, 2005,
and 2004 respectively.
F-23
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Contractual
Obligations
In the ordinary course of business, the Company entered 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 agreed 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.
Contingencies
The Company is a defendant in a lawsuit filed in The United
States District Court for the Southern District of New York
(Court) by a former employee alleging improperly withheld
compensation during his employment, improperly denial of
severance payments and improperly withheld payments due and
owing in an attempt to coerce the former employee to release
claims against the Company. The former employee seeks; (i) an
accounting, (2) $11,575,776 in compensatory and punitive
damages, (3) prejudgment interest and (4) attorneys fees.
The former employees claims include breach of contract,
unjust enrichment, promissory estoppels, quantum meruit and
return of personal property. The Company answered
the complaint on November 30, 2006, and asserted defenses
including, but not limited to estoppel, waiver and ratification.
The Court has entered a Civil Case Management Plan requiring
that the case shall be ready for trial on May 14, 2007. The
lawsuit is currently in the discovery phase. The former employee
made a reduced settlement demand and the Company responded with
an offer of $785,000, but no agreement has been reached. As of
December 31, 2006, the Company has provided an adequate
accrual for this offer to settle the matter. However, there can
be no assurances that additional amounts may not be required to
dispose of this lawsuit.
|
|
11.
|
Employee
Benefit Plans
|
BKF has adopted a Section 401(k) plan. All employees with
three months or more of service are eligible to participate in
the plan. Eligible participants may contribute up to 15% of
their earnings, subject to statutory limitations. BKF may match
contributions by employees who have a minimum of six months
service, up to 100%, subject to statutory limitations. Included
in employee compensation and benefits was $600,000 and $563,000,
of the employee match contributions for the years ended
December 31, 2005 and 2004. There was no company matching
contributions for 2006. During early 2007 the Board resolved to
commence termination of this plan.
|
|
12.
|
Stock-Based
Compensation Plans
|
In December 1998, the shareholders of BKF approved an Incentive
Compensation Plan (Compensation Plan), which was
amended in May 2001 that allows the Company to pay officers and
employees part of their compensation in restricted stock units
(RSU), restricted stock and other forms of
equity-based compensation, including stock options. At
December 31, 2006, the awards authorized and available for
future grants under the Compensation Plan were 2,600,000 and
828,511, respectively. All awards are issued at the discretion
of BKFs Compensation Committee.
F-24
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
A.
|
Restricted
Stock Units
|
RSU activity for the years ended December 31, 2003, 2004
and 2005 is summarized below:
|
|
|
|
|
|
|
RSU
|
|
|
Outstanding balance at:
|
|
|
|
|
December 31, 2003
|
|
|
1,719,357
|
|
Delivered
|
|
|
(367,398
|
)
|
Forfeited
|
|
|
(94,494
|
)
|
|
|
|
|
|
December 31, 2004
|
|
|
1,257,465
|
|
Delivered
|
|
|
(905,291
|
)
|
Forfeited
|
|
|
(168,763
|
)
|
|
|
|
|
|
December, 31, 2005
|
|
|
183,411
|
|
Delivered
|
|
|
(183,411
|
)
|
Forfeited
|
|
|
0
|
|
|
|
|
|
|
December 31, 2006
|
|
|
0
|
|
|
|
|
|
|
Employee compensation expense related to the RSU for the years
ended December 31, 2006, 2005 and 2004 was approximately
($1.1) million, $1.5 million, and $8.3 million,
respectively. See Note 14 Non-Cash Transactions.
There will be no future compensation expense related to RSUs.
Restricted stock activity for the year ended December 31,
2006 is as follows:
|
|
|
|
|
|
|
Restricted
|
|
|
|
Stock
|
|
|
Outstanding balance at:
|
|
|
|
|
December 31, 2004
|
|
|
65,268
|
|
Granted Employees
|
|
|
457,777
|
|
Granted Directors
|
|
|
10,800
|
|
Granted Other
|
|
|
4,491
|
|
Forfeited
|
|
|
(53,185
|
)
|
Restriction Lapse
|
|
|
(106,984
|
)
|
|
|
|
|
|
December 31, 2005
|
|
|
378,167
|
|
Granted Employees
|
|
|
145,000
|
|
Granted Directors
|
|
|
4,592
|
|
Granted Other
|
|
|
12,500
|
|
Delivered
|
|
|
(81,648
|
)
|
Forfeited
|
|
|
(438,495
|
)
|
|
|
|
|
|
December 31, 2006
|
|
|
20,116
|
|
|
|
|
|
|
The restriction on the remaining shares (which are subject to
forfeiture) is expected to be lifted as follows:
F-25
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Employee compensation expense related to restricted stock for
the years ended December 31, 2006 and December 31,
2005 was approximately $(0.4) million and $3.3 million.
In connection with the restricted stock granted to the
directors, the Company recorded directors fees expense of
approximately $13,000 and $367,000 for the year ended
December 31, 2006 and December 31, 2005.
The expected future compensation expense related to restricted
stock is as follows:
|
|
C.
|
Non-Qualified
Stock Options
|
Stock option activity for the years ended December 31,
2004, 2005 and 2006 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Under
|
|
|
Weighted-Avg.
|
|
|
|
Option
|
|
|
Exercise Price
|
|
|
Outstanding balance at:
|
|
|
|
|
|
|
|
|
December 31, 2003
|
|
|
218,279
|
|
|
$
|
13.88
|
|
Exercised
|
|
|
(194,883
|
)
|
|
|
13.74
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
23,396
|
|
|
$
|
15.01
|
|
Granted
|
|
|
250,000
|
|
|
|
18.95
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
273,396
|
|
|
$
|
18.61
|
|
Granted
|
|
|
50,000
|
|
|
|
13.75
|
|
Forfeited
|
|
|
(23,396
|
)
|
|
|
(15.01
|
)
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
300,000
|
|
|
$
|
18.08
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding and exercisable at December 31,
2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Avg.
|
|
Shares
|
|
|
|
|
|
Remaining
|
|
Under
|
|
|
Weighted-Avg.
|
|
|
Contractual
|
|
Option
|
|
|
Exercise Price
|
|
|
Life
|
|
|
|
100,000
|
|
|
$
|
18.95
|
|
|
|
9.00
|
|
|
25,000
|
|
|
|
13.75
|
|
|
|
9.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,000
|
|
|
$
|
17.91
|
|
|
|
9.00
|
|
|
|
|
|
|
|
|
|
|
|
|
There was $804,000 of compensation cost related to non-qualified
stock options recognized in operating results (included in
selling, general and administrative expenses) in the twelve
months ended December 31, 2006.
|
|
13.
|
Non-Cash
Transactions
|
In 2004, the Company withheld 140,626 shares of common
stock for required withholding taxes in connection with the
delivery of 367,398 RSU.
During 2004, the Company granted 9,600 shares of restricted
stock to non-employee directors of the Company with a value of
$274,000 to reduce cash payments to Board members for Board of
Directors meetings. In addition, 56,105 shares of
restricted stock (of which 437 were forfeited as of
December 31, 2004) were granted to several employees
and certain executive officers of the Company, who are subject
to performance based criteria with regard to their 2003
compensation.
In 2005, the Company withheld 388,040 shares of common
stock for required withholding taxes in connection with the
delivery of 905,291 RSU.
F-26
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During 2005, the Company granted 10,800 shares of
restricted stock to non-employee directors of the Company with a
value of $420,760 to reduce cash payments for Board of
Directors. Of the restricted stock, 1,800 shares with a
value of $71,946 were forfeited during the year.
During 2006, the company granted 4,592 shares of restricted
stock to non-employee directors of the Company with a value of
$59,558 to reduce cash payments for Board of Directors fees. Of
the restricted stock, 656 shares with a value of $8,508
were forfeited during the year.
The provision for income taxes consists of the following (dollar
amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
8,576
|
|
|
$
|
1,433
|
|
State and local
|
|
|
|
|
|
|
|
|
|
|
328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
|
|
|
|
8,576
|
|
|
|
1,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
1,276
|
|
State and local
|
|
|
|
|
|
|
|
|
|
|
1,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
|
|
|
|
|
|
|
|
2,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit)
|
|
$
|
|
|
|
$
|
8,576
|
|
|
$
|
4,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006 the Company has a net operating
loss carryforward of approximately $43.5 million.
Since it is not likely that tax receivables will be realized
no current tax credit was recognized. Deferred tax assets arise
from the future tax benefit on deferred and non-cash
compensation, lease amendment loss, unrealized losses on
investment, and depreciation. Deferred tax liabilities arise
from deferred revenues, unrealized gains on investments, and
state and local taxes.
F-27
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tax effects of temporary differences that give rise to
significant portions of deferred tax assets and liabilities,
shown net in the deferred tax asset on the Consolidated
Statements of Financial Condition, consisted of the following
(dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Compensation
|
|
$
|
360
|
|
|
$
|
4,359
|
|
Depreciation
|
|
|
|
|
|
|
420
|
|
Lease reserve
|
|
|
3,199
|
|
|
|
1,542
|
|
Net operating loss carryforward
|
|
|
17,151
|
|
|
|
2,227
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax asset
|
|
$
|
20,710
|
|
|
$
|
8,548
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Deferred state income taxes
|
|
|
(319
|
)
|
|
|
(1,631
|
)
|
Deferred revenues
|
|
|
|
|
|
|
(8
|
)
|
Unrealized gains on investments
|
|
|
|
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
(319
|
)
|
|
|
(1,733
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
|
20,391
|
|
|
|
6,815
|
|
Valuation reserve
|
|
|
(20,391
|
)
|
|
|
(6,815
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The Company has recorded a valuation allowance of approximately
$20.4 million against its net deferred tax asset as of
December 31, 2006. The Company believes that it is not more
likely than not that this deferred tax benefit will be utilized
in the foreseeable future
The Companys provision (benefit) for income taxes differs
from the amount of income tax determined by applying the
applicable U.S. federal statutory income tax rate
principally due to state and local taxes and non-deductible
amortization. The Company has determined that the amortization
expense on intangible assets is non-deductible since the
purchase method of accounting has been applied retroactive to
June 1996.
A reconciliation of income tax expense (benefit) with expected
federal income tax expense (benefit) computed at the applicable
federal tax rate of 35% is as follows (dollar amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Expected income tax expense
(benefit)
|
|
$
|
(16,456
|
)
|
|
$
|
(2,551
|
)
|
|
$
|
810
|
|
Increase in income tax resulting
from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local taxes, net
|
|
|
(4,321
|
)
|
|
|
380
|
|
|
|
890
|
|
Non-deductible amortization
|
|
|
7,201
|
|
|
|
4,536
|
|
|
|
2,453
|
|
Officers life insurance
|
|
|
|
|
|
|
77
|
|
|
|
105
|
|
Other
|
|
|
|
|
|
|
30
|
|
|
|
21
|
|
Valuation Reserve
|
|
|
13,576
|
|
|
|
6,815
|
|
|
|
|
|
Decrease in income tax resulting
from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend on employee equity awards
|
|
|
|
|
|
|
(711
|
)
|
|
|
(201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
|
|
|
$
|
8,576
|
|
|
$
|
4,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
An income tax benefit of approximately $878,000 relating to the
Compensation Plan was allocated to additional paid-in capital in
2005. No such benefit was recognized in 2006.
F-28
BKF
CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
15.
|
Restructuring
Expenses
|
During 2006, the Company established a restructuring reserve to
account for the termination costs associated with employee
separation agreements, losses incurred in subleasing excess
office space including the write-off of leaseholds and equipment
related to those subleases and the write-off of the goodwill
balance. A summary of restructuring expenses follows (dollar
amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
Charged
|
|
|
Paid or
|
|
|
Remaining
|
|
|
|
to Expense
|
|
|
Settled
|
|
|
Liability
|
|
|
Employee termination costs
|
|
$
|
6.8
|
|
|
$
|
5.7
|
|
|
$
|
1.1
|
|
Lease and fixed asset costs
|
|
|
11.2
|
|
|
|
7.1
|
|
|
|
4.1
|
|
Goodwill impairment
|
|
|
14.8
|
|
|
|
14.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
32.8
|
|
|
$
|
27.6
|
|
|
$
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2007 it is expected that further restructuring expenses
of approximately $500,000 will be incurred.
|
|
16.
|
Selected
Quarterly Financial Data (unaudited)
|
The following table sets forth the selected quarterly financial
data (dollar amounts in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
Q1
|
|
|
Q2
|
|
|
Q3
|
|
|
Q4
|
|
|
Total
|
|
|
Revenues
|
|
$
|
19,830
|
|
|
$
|
1,172
|
|
|
$
|
2,179
|
|
|
$
|
1,337
|
|
|
$
|
24,518
|
|
Operating income (loss)
|
|
$
|
(2,561
|
)
|
|
$
|
(20,650
|
)
|
|
$
|
(16,387
|
)
|
|
$
|
(7,287
|
)
|
|
$
|
(46,885
|
)
|
Net income (loss)
|
|
$
|
(2,671
|
)
|
|
$
|
(20,671
|
)
|
|
$
|
(16,387
|
)
|
|
$
|
(7,287
|
)
|
|
$
|
(47,016
|
)
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.32
|
)
|
|
$
|
(2.48
|
)
|
|
$
|
(1.99
|
)
|
|
$
|
(0.92
|
)
|
|
$
|
(5.71
|
)
|
Weighted average shares
outstanding basic
|
|
|
8,301,004
|
|
|
|
8,346,545
|
|
|
|
8,247,534
|
|
|
|
8,040,326
|
|
|
|
8,233,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock price per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
19.01
|
|
|
$
|
10.94
|
|
|
$
|
6.20
|
|
|
$
|
4.10
|
|
|
|
|
|
Low
|
|
$
|
12.55
|
|
|
$
|
5.96
|
|
|
$
|
3.90
|
|
|
$
|
3.30
|
|
|
|
|
|
Close
|
|
$
|
13.00
|
|
|
$
|
6.25
|
|
|
$
|
3.90
|
|
|
$
|
3.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
Q1
|
|
|
Q2
|
|
|
Q3
|
|
|
Q4
|
|
|
Total
|
|
|
Revenues
|
|
$
|
32,885
|
|
|
$
|
29,726
|
|
|
$
|
38,872
|
|
|
$
|
21,725
|
|
|
$
|
123,208
|
|
Operating income (loss)
|
|
$
|
1,104
|
|
|
$
|
(2,034
|
)
|
|
$
|
835
|
|
|
$
|
(5,927
|
)
|
|
$
|
(6,022
|
)
|
Net (loss)
|
|
$
|
(151
|
)
|
|
$
|
(2,177
|
)
|
|
$
|
(6,421
|
)
|
|
$
|
(7,116
|
)
|
|
$
|
(15,865
|
)
|
(Loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.84
|
)
|
|
$
|
(0.90
|
)
|
|
$
|
(2.08
|
)
|
Weighted average shares
outstanding basic and diluted
|
|
|
7,444,477
|
|
|
|
7,529,850
|
|
|
|
7,603,292
|
|
|
|
7,943,712
|
|
|
|
7,631,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock price per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
42.89
|
|
|
$
|
40.50
|
|
|
$
|
37.98
|
|
|
$
|
30.99
|
|
|
|
|
|
Low
|
|
$
|
34.85
|
|
|
$
|
30.97
|
|
|
$
|
30.00
|
|
|
$
|
16.40
|
|
|
|
|
|
Close
|
|
$
|
40.01
|
|
|
$
|
37.91
|
|
|
$
|
30.93
|
|
|
$
|
18.95
|
|
|
|
|
|
F-29