2. Investment

a) Investment in Qualstar:

On July 3, 2013, Steven N. Bronson, BKF’s Chairman, CEO, and majority shareholder, was appointed Chairman, Chief Executive Officer and President of Qualstar Corporation (“Qualstar”). This resulted in the 18.3% of the Company’s ownership in Qualstar to be accounted for using the equity method, a change from available for sale, on the basis that BKF can assert significant influence over the operations of Qualstar. The retroactive application of the equity method resulted in a decrease to retained earnings at June 30, 2014 of approximately $909,000. In addition, basic and diluted loss per share was restated for the year to $-0.18.

The investment in Qualstar is accounted for using the equity method as prescribed by Accounting Standard Codification Section 323, under which the Company’s carrying amount of its investment in common stock of Qualstar is the initial cost adjusted for the Company’s share of Qualstar’s earnings and losses, and further adjusted for any distributions or dividends. At June 30, 2014 the Company held 2,815,120 common shares of Qualstar, representing approximately 22.97% of the outstanding shares. The investment in Qualstar was approximately $633,000 at June 30, 2014. The market value of the Company’s shares in Qualstar was approximately $3.7 million at June 30, 2014.

During the quarter ended June 30, 2014, the Company recorded a loss on its investment in Qualstar of approximately $499,000. These losses do not include the quarterly results of Qualstar as of June 30, 2014, as Qualstar’s financial statements are not typically available at the time we prepare our financial statements. Therefore, all balances related to the Company’s investment in Qualstar are recorded on a three month (quarterly) lag. This lag is consistent from period to period. The financial results for Qualstar’s quarter ended June 30, 2014 were not available prior to the preparation of our financial statements.

b) Marketable Securities

As of June 30, 2014, the Company held shares of Interlink Electronics. The fair market value of these shares was approximately $1,234,000 at June 30, 2014. For the three months ended June 30, 2014, the unrealized gains on these shares reported in other comprehensive income, was approximately $549,000. During the three months ended June 30, 2014, the Company sold 4,975 shares for net proceeds of approximately $44,000 resulting in realized gains of approximately $35,000 being reclassified from unrealized gains to realized in the statement of operations and comprehensive income. Steven Bronson, BKF’s Chairman, CEO and majority shareholder is also the Chief Executive Officer of Interlink Electronics.