4. Investments

Qualstar Corporation:

On July 3, 2013, Steven Bronson, BKF’s Chairman, was appointed the interim 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 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 December 31, 2014 and 2013 the Company held 3,020,568 and 2,594,748 common shares of Qualstar, representing approximately 24.65% and 21.18% of the outstanding shares, respectively. The investment in Qualstar was approximately $649,000 and $902,000 at December 31, 2014 and December 31, 2013, respectively. The market value of the Company’s shares in Qualstar was approximately $4 million at December 31, 2014.

During the years ended December 31, 2014 and December 31, 2013, the Company recorded a loss on its investment in Qualstar of approximately $791,000 and $2,073,000, respectively. These losses do not include the quarterly results of Qualstar as of December 31, 2014, as Qualstar’s financial statements are not typically available at the time we prepare our financial statements. Therefore, all balances related to the Company’s investment in Qualstar are recorded on a three month (quarterly) lag. This lag is consistent from period to period. The financial results for Qualstar’s quarters ended December 31, 2014 and December 31, 2013 were available prior to the preparation of our financial statements. If those results had been included the loss on equity investment would have been approximately $3,000 greater than what is reflected in our financial statements for December 31, 2014 and $53,000 greater than what is reflected in our financial statements for December 31, 2013.

As of December 31, 2014, our investment in Qualstar in the aggregate exceeded our proportionate share of the net assets of this equity method investee by approximately $2.6 million. This difference is not amortized.

A summary of financial information for Qualstar is as follows (in thousands):

Year Ended June 30,	2014		2013
Net revenues	$	10,941	$	12,642
Cost of goods sold		8,350		9,187
Gross profit		2,591		3,455
Total operating expenses		8,239		(13,866
Loss from operations		(5,648)		(10,411)
Other income		24		48
Loss before income taxes		(5,624)		(10,363)
Provision (benefit) for income taxes		-
Net loss	$	(5,624)	$	(10,363)

Year Ended June 30,	2014		2013
Current assets	$	12,055	$	14,046
Noncurrent assets		730		6,161
Total assets	$	12,785	$	20,207
Current liabilities	$	3,645	$	5,445
Other long-term liabilities		17		17
Total liabilities	$	3,662	$	5,462
Total shareholders’ equity	$	9,123	$	14,745

Interlink Electronics

At December 2014, the Company holds 335,293 shares of Interlink Electronics which represents approximately 11.4% of Internlink’s outstanding shares. Since, Steven Bronson, BKF’s Chairman is also the Chief Executive Officer of Interlink Electronics and can significantly influence the operational decisions at Interlink, the Company made a change in its accounting for this investment from available-for-sale securities to the equity method. The change in accounting methods did not have a material impact on the financial statements for the previously reported earnings-per-share.

The investment in Interlink Electronics 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 Interlink 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 December 31, 2014 the Company held 335,293 common shares of Interlink, representing approximately 11.4% of the outstanding shares. The investment in Interlink was approximately $2,199,000 at December 31, 2014. The market value of the Company’s shares in Interlink was approximately $5.5 million at December 31, 2014.

During the year ended December 31, 2014, the Company recorded a gain on its investment in Interlink of approximately $57,000. This gain did not include the quarterly results of Interlink as of December 31, 2014, as Interlink’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 Interlink are recorded on a three month (quarterly) lag. This lag is consistent from period to period. The financial results for Interlink’s quarters ended December 31, 2014 were available prior to the preparation of our financial statements. If those results had been included, the gain on equity investment would have been approximately $89,000 greater than what is reflected in our financial statements for December 31, 2014. As of December 31, 2014, our investment in Interlink in the aggregate exceeded our proportionate share of the net assets of this equity method investee by approximately $1.6 million. This difference is not amortized.

Year Ended December 31, 2014,	2014
Net revenues	$	10,278
Cost of goods sold		5,200
Gross profit		5,078
Total operating expenses		3,530
Income from operations		1,548
Other expense		(14)
Income from continuing operations before income taxes		1,534
Income from discontinued operations		34
Provision (benefit) for income taxes		(13)
Net Income	$	1,555

Year Ended June 30,	2014
Current assets	$	5,566
Noncurrent assets		216
Total assets	$	5,782
Current liabilities	$	826
Other long-term liabilities		92
Total liabilities	$	918
Total shareholders’ equity	$	4,864