BKF CAPITAL GROUP INC - 10-Q Quarterly Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 1-10024

BKF CAPITAL GROUP, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 36-0767530
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

ONE ROCKEFELLER PLAZA 10020
NEW YORK, NEW YORK (Zip Code)
(Address of principal executive offices)

(212) 332-8400
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the 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 [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

As of April 30, 2004, 6,898,903 shares of the registrant's common stock,
$1.00 par value, were outstanding.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLAR AMOUNTS IN THOUSANDS)

See accompanying notes.
2

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

- ---------------

(a) adjusted -- see note 4

See accompanying notes.
3

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
QUARTER ENDED MARCH 31, 2004
(AMOUNTS IN THOUSANDS)
(UNAUDITED)

- ---------------

(1) compensation expense incurred relating to dividend

See accompanying notes.
4

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)

- ---------------

(a) adjusted -- see note 4
See accompanying notes.
5

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BASIS OF PRESENTATION

The consolidated interim financial statements of BKF Capital Group, Inc.
(formerly Baker, Fentress & Company, hereto referred to as "BKF" or the
"Company") and its subsidiaries included herein have been prepared in accordance
with generally accepted accounting principles for interim financial information
and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. These consolidated financial statements are
unaudited and should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 2003. The Company follows the same
accounting policies in the preparation of interim reports. In the opinion of
management, the consolidated financial statements reflect all adjustments, which
are of a normal recurring nature, necessary for a fair presentation of the
financial condition, results of operations and cash flows of the Company for the
interim periods presented and are not necessarily indicative of a full year's
results.

In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the amounts reported in the
financial statements. Actual results could differ from those estimates.

The Company operates through a wholly-owned subsidiary, Levin Management
Co., Inc. and its subsidiaries, all of which are referred to as "Levco". The
Company trades on the New York Stock Exchange, Inc. ("NYSE") under the symbol
"BKF".

The Consolidated Financial Statements of Levco include its wholly-owned
subsidiary, John A. Levin & Co., Inc. ("JALCO"), JALCO's two wholly-owned
subsidiaries, Levco GP Inc. ("Levco GP") and LEVCO Securities, Inc. ("LEVCO
Securities") and certain affiliated investment partnerships for which the
Company is deemed to have controlling interest of the applicable partnership.
One investment partnership was consolidated at March 31, 2004 and two were
consolidated at December 31, 2003. In addition, the operations of two investment
partnerships (which were terminated in March 2003) were included in the
consolidated statements of operations and cash flows for the three-month period
ended March 31, 2003.

JALCO is an investment advisor registered under the Investment Advisers Act
of 1940, as amended, which provides investment advisory services to its clients
which include U.S. and foreign corporations, mutual funds, limited partnerships,
universities, pension and profit sharing plans, individuals, trusts,
not-for-profit organizations and foundations. JALCO also participates in broker
consulting programs (Wrap Accounts) with several nationally recognized financial
institutions. LEVCO Securities is registered with the SEC as a broker-dealer and
is a member of the National Association of Securities Dealers, Inc. Levco 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.

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.

6

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 advisor's
funds are recorded once a written commitment is obtained from the investor.

REVENUE RECOGNITION POLICIES FOR CONSOLIDATED AFFILIATED PARTNERSHIPS ("CAPS")

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.

COMPREHENSIVE INCOME

The Company has not presented consolidated statements of comprehensive
income in accordance with SFAS No. 130 "Reporting Comprehensive Income," because
it does not have any items of "other comprehensive income".

INVESTMENTS IN AFFILIATED INVESTMENT PARTNERSHIPS

Levco GP serves as the managing general partner for several affiliated
investment partnerships ("AIP"), which primarily engage in the trading of
publicly traded equity securities, and in the case of one partnership,
distressed corporate debt. The assets and liabilities and results of operations
of the AIP are not included in the Company's consolidated statements of
financial condition with the exception of Levco GP's equity ownership and
certain AIP whereby Levco 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 Levco GP as the general
partner of the AIP at any time. Levco 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 Levco GP, are recorded based upon the equity
method of accounting. Levco GP's 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 Company's general practice to withdraw the
incentive allocations earned from the AIP within three months after the fiscal
year end. Levco GP has general partner liability with respect to its interest in
each of the AIP and has no investments in the AIP other than its interest in
these partnerships (See Note 5).

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.

7

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INTANGIBLE ASSETS

The cost in excess of net assets of Levco acquired by BKF 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. Investment contracts are amortized straight line over 10 years.

EARNINGS PER SHARE

The Company accounts for Earnings Per Share under SFAS No. 128, "Earnings
Per Share". Basic earnings (loss) per share is calculated by dividing net income
(loss) by the weighted average number of common shares outstanding during the
year. Diluted earnings (loss) per share is computed by dividing net income
(loss) by the total of the weighted average number of shares of common stock
outstanding and common stock equivalents. Diluted earnings (loss) per share is
computed using the treasury stock method.

The following table sets forth the computation of basic and diluted (loss)
per share (dollar amounts in thousands, except per share data):

In calculating diluted (loss) per share for the three months ended March
31, 2004 and 2003 1,916,085 and 2,068,311 common stock equivalents were excluded
due to their anti-dilutive effect on the calculation.

STOCK-BASED COMPENSATION

The Company follows SFAS No. 123, "Accounting for Stock-Based
Compensation," and has adopted the intrinsic value method under APB Opinion No.
25, "Accounting for Stock Issued to Employees," for all arrangements under which
employees receive shares of stock or other equity instruments of the Company, or
if the Company incurs liabilities to employees in amounts based on the price of
its stock. In December 2002, the FASB Issued SFAS No. 148, "Accounting for
Stock-Based Compensation -- Transition and Disclosure, an amendment of FASB
Statement No. 123." SFAS No. 148 provides alternative methods of transition for
a voluntary change to the fair value based method of accounting for stock-based
employee compensation and amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures about the method of accounting for stock-based
compensation. The Company has elected to apply the disclosure provisions of SFAS
No. 123. Under APB Opinion No. 25, no compensation costs were recognized
relating to the option grants because the exercise prices of the options awarded
were equal to the fair market price of the common stock on the dates of the
grants.

8

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 if the Company had applied the fair value recognition provisions of SFAS
No. 123 (dollar amounts in thousands, except per share amounts):

RECLASSIFICATIONS

Certain prior period amounts reflect reclassifications to conform with the
current year's presentation.

SIGNIFICANT ACCOUNTING POLICIES OF CONSOLIDATED AFFILIATED PARTNERSHIPS
("CAPS")

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 CAPs monitor their positions continuously to reduce the
risk of potential loss due to changes in market value or failure of
counterparties to perform.

INVESTMENTS IN UNAFFILIATED INVESTMENT PARTNERSHIPS

The Company's investments in unaffiliated investment partnerships result
from the consolidation of an affiliated investment partnership that invests in
unaffiliated investment partnerships. Investments in unaffiliated investment
partnerships are recorded at fair value, which generally is equal to the CAPs
pro rata interest in the net assets of each unaffiliated investment partnership
(based upon the net asset values reported by the unaffiliated investment
partnerships). The CAP has substantially liquidated as of March 31, 2004 and is
no longer consolidated.

MINORITY INTEREST

Minority interests in the accompanying consolidated statements of financial
condition represent the minority owners' share of the equity of consolidated
investment partnerships. Minority interest in the accompanying consolidated
statements of operations represents the minority owners' share of the income or
loss of consolidated investment partnerships.

PARTNER CONTRIBUTIONS AND WITHDRAWALS

Typically, contributions are accepted monthly and withdrawals are made
quarterly upon the required notification period having been met. The
notification period ranges from thirty to sixty days.

9

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. OFF-BALANCE SHEET RISK

LEVCO Securities acts as an introducing broker and all transactions for its
customers are cleared through and carried by a major U.S. securities firm on a
fully disclosed basis. LEVCO Securities has agreed to indemnify its clearing
broker for losses that the clearing broker may sustain from the customer
accounts introduced by LEVCO Securities. In the ordinary course of its business,
however, LEVCO Securities does not accept orders with respect to client accounts
if the funds required for the client to meet its obligations are not on deposit
in the client account at the time the order is placed.

In the normal course of business, the CAP enter into transactions in
various financial instruments, including derivatives, for trading purposes, in
order to reduce their exposure to market risk. These transactions include option
contracts and securities sold short.

Substantially all of the CAP cash and securities positions are deposited
with one clearing broker for safekeeping purposes. The broker is a member of
major securities exchanges.

3. INVESTMENT ADVISORY FEES RECEIVABLE

Included in investment advisory fees receivable are approximately $7.3
million and $680,000 of accrued incentive fees as of March 31, 2004 and December
31, 2003, respectively, for which the full contract measurement period has not
been reached. The Company has provided for the applicable expenses relating to
this revenue. If the accrued incentive fees are not ultimately realized, a
substantial portion of the related accrued expenses will be reversed.

4. CONSOLIDATION OF CAP

In January 2003, the FASB issued Financial Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46") which addresses the
application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements," to variable interest entities ("VIEs"). 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 entity's 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 VIE's expected losses or has the right to receive a majority of the VIE's
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.

Initially, FIN 46 required a public enterprise with a variable interest in
a VIE created before January 31, 2003, to apply FIN 46 to that VIE as of the
beginning of the first interim or annual reporting period beginning after June
15, 2003. The Company adopted FIN 46 for the applicable periods presented. In
the context of making determination pursuant to FIN 46, BKF also decided to
consolidate certain affiliated investment partnerships in which it may be deemed
to have a controlling interest (See note 1). The consolidation of these
partnerships does not impact the Company's equity or net income. Levco GP has
general partner liability with respect to its interest in each of the CAP.

10

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following tables present the consolidation of the CAP with BKF as of
March 31, 2004 and December 31, 2003. 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):

11

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. INVESTMENTS IN AFFILIATED INVESTMENT PARTNERSHIPS AND RELATED REVENUE

Summary financial information, including the Company's carrying value and
income from the unconsolidated AIP is as follows (dollar amounts in thousands):

Included in the carrying value of investments in AIP at March 31, 2004 and
December 31, 2003 are accrued incentive allocations approximating $2.3 million
and $8.9 million, respectively.

Included in the Company's incentive fees and general partner incentive
allocations are approximately $1.9 million and $1.5 million payable directly to
employee owned and controlled entities ("Employee Entities") for the three
months ended March 31, 2004 and 2003, respectively. These amounts are included
in the Company's 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 $1.9 million and $1.5 million for
the three months ended March 31, 2004 and 2003, respectively. These amounts are
included in the Consolidated Statement of Operations.

The Company recorded investment advisory fees and incentive
allocations/fees from affiliated domestic investment partnerships and affiliated
offshore investment vehicles of approximately $18.0 million and $11.0 million
for the three months ended March 31, 2004, and 2003, respectively.

Included in investment advisory and incentive fees receivable at March 31,
2004 and December 2003 are $5.3 million and $4.3 million, respectively, of
advisory fees from AIP and sponsored investment offshore vehicles. Also included
in investment advisory and incentive fees receivable are $6.9 million and $25.2
million of incentive fees from sponsored offshore investment vehicles at March
31, 2004 and December 31, 2003, respectively.

6. CONTRACTUAL OBLIGATIONS

In the ordinary course of business, BKF enters into contracts with third
parties pursuant to which BKF or the third party provides services to the other.
In many of the contracts, BKF agrees to indemnify the third party under certain
circumstances. The terms of the indemnity vary from contract to contract and the
amount of the indemnification liability, if any, cannot be determined.

7. NON-CASH TRANSACTIONS

On December 11, 2002 the Company issued a tender offer to exchange 333,308
outstanding options for RSU, on a three for one exchange basis. As of January
10, 2003 the tender offer was complete, with a total of 111,105 RSU being
granted in exchange for the options tendered.

In January 2003, the Company granted 10,500 RSU to non-employee directors
of the Company with a value of approximately $192,000. This amount was used to
reduce cash payments for Board of Directors and Committee meetings.

13

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In March 2003, certain executive officers of the Company, who are subject
to performance based criteria with regard to their 2002 compensation, and
several employees were granted 347,365 RSU with a value of approximately $5.7
million.

In the first quarter 2003, the Company withheld 1,520 shares of common
stock in connection with the delivery of 3,894 RSU for required withholding
taxes.

In March 2004, certain executive officers of the Company, who are subject
to performance based criteria with regard to their 2003 compensation, and
several employees were granted 56,105 shares of restricted stock with a value of
approximately $1.4 million which vest over a three year period. The amount
unearned as of March 31, 2004 is recorded as unearned compensation in the
consolidated statement of financial condition.

In the first quarter 2004, the Company withheld 2,389 shares of common
stock in connection with the delivery of 7,002 RSU for required withholding
taxes.

On March 18, 2004 the Company declared a dividend of $0.10 per share
payable on April 20, 2004 in the aggregate amount of approximately $860,000.

8. INCOME TAXES

The Company's provision 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.

Deferred tax assets arise from the future tax benefit on deferred and
non-cash compensation, unrealized losses on investments, depreciation, accrued
lease amendment expense, and utilization of capital losses. Deferred tax
liabilities arise from deferred revenues, unrealized gains on investments, and
state and local taxes.

14

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

INTRODUCTION

BKF operates entirely through Levco, an investment adviser registered with
the Securities and Exchange Commission. Levco specializes in managing equity
portfolios for institutional and individual investors. Levco offers long-only
equity strategies as well as a range of alternative investment products and
other more specialized investment programs. Most clients are based in the United
States, though a significant portion of investors in the alternative investment
products are located outside the United States.

Levco acts as the managing general partner of a number of investment
partnerships and also acts as an adviser to private investment vehicles
organized outside the United States.

With respect to accounts managed pursuant to its long only equity
strategies, Levco generally receives 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, Levco
receives performance-based fees from accounts pursuing long-only equity
strategies. With respect to private investment vehicles and separate accounts
managed pursuant to similar strategies, Levco is 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 March 31, 2004, assets under management at Levco were $13.03 billion, up
from $10.65 billion a year earlier. Following is a comparison of Levco's assets
under management as defined by product and client type:

Levco also has a wholly-owned broker-dealer subsidiary that clears through
Correspondent Services Corporation on a fully disclosed basis. Effective May 12,
2004, Bear Stearns Securities Corp. will replace Correspondent Services
Corporation as the clearing broker. Generally, the customers of the
broker-dealer subsidiary are advisory clients of Levco, and the trades executed
through the broker-dealer are generally placed by Levco in its capacity as
investment adviser.

RISK FACTORS

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 BKF's 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.

15

LEVCO IS DEPENDENT ON KEY PERSONNEL

Levco is largely dependent on the efforts of its senior investment
professionals managing the long only strategies and the event driven,
short-biased and long/short equity products. Levco is also dependent on the
efforts of Mr. John A. Levin, the chairman and chief executive officer of BKF.
The loss of the services of key investment personnel, including Mr. Levin, could
have a material adverse effect on Levco because it could jeopardize its
relationships with clients and result in the loss of those accounts. In the case
of alternative investment strategies, the loss of the senior investment
professionals managing the strategy could result in the discontinuance of the
strategy by Levco. In 2003, the event driven strategies, which are primarily
dependent on two senior portfolio managers, represented approximately 31% of the
asset based investment advisory fees, approximately 89% of the incentive fees
and approximately 53% of BKF's total fees. Levco's key investment personnel,
including Mr. Levin, are not subject to employment contracts.

Levco's future success depends on its ability to retain and attract
qualified personnel to conduct its investment management business. To the extent
that Levco further diversifies its products and strategies, BKF anticipates that
it will be necessary for Levco to add portfolio managers and investment
analysts. No assurance can be given that Levco will succeed in its efforts to
recruit and retain the required personnel. Because of its relatively smaller
size, Levco may have relatively fewer resources with which to recruit and retain
personnel. The loss of key personnel or the inability to recruit and retain
qualified portfolio managers, business and marketing personnel could have a
material adverse effect on Levco's business.

In December 1998, BKF adopted an incentive compensation plan (most recently
amended in 2001) to give Levco the ability to attract and retain talented
professionals with equity-based and cash compensation. Determinations with
regard to the implementation of this plan are made by the Compensation Committee
of the board of directors of BKF on a regular basis. Because BKF is a relatively
small public company, the value of the equity awards that may be offered to
professionals may be limited relative to what competitors may offer. If the
price of BKF stock decreases, no assurance can be given that the equity-based
compensation will serve its purpose to attract and retain talented
professionals.

LEVCO IS DEPENDENT ON A LIMITED NUMBER OF INVESTMENT PRODUCTS

Levco currently derives most of its revenues from two investment
products -- a large cap value strategy and an event-driven alternative
investment product. While the large cap value strategy and the event-driven
investment products may often perform differently in a given investment
environment, adverse developments with regard to any of these products could
have a material adverse effect on Levco's business.

A DECLINE IN THE PERFORMANCE OF THE SECURITIES MARKETS COULD HAVE AN ADVERSE
EFFECT ON LEVCO'S REVENUES

Levco's operations are affected by many economic factors, including the
performance of the securities markets. Declines in the securities markets, in
general, and the equity markets, in particular, would likely reduce Levco's
assets under management and consequently reduce its revenues. In addition, any
continuing decline in the equity markets, failure of these markets to sustain
their prior rates of growth, or continued volatility in these markets could
result in investors' withdrawing from the equity markets or decreasing their
rate of investment, either of which would likely adversely affect Levco. Levco's
rates of growth in assets under management and revenues have varied from year to
year, and there can be no assurance that the growth rates sustained in the past
will continue. Levco is generally a "value" manager, and a general decline in
the performance of "value" securities could have an adverse effect on Levco's
revenues. Levco also offers event-driven and other alternative investment
strategies. The failure to implement these strategies effectively could likewise
impact Levco's revenues.

POOR INVESTMENT PERFORMANCE COULD ADVERSELY AFFECT LEVCO'S FINANCIAL CONDITION

Success in the investment management industry depends largely on investment
performance. Good performance generally stimulates sales of services and
investment products and tends to keep withdrawals and redemptions low. This
generates higher management fees, which are based on the amount of assets under
management and sometimes on investment performance. If Levco experiences poor
performance, this will

16

likely result in decreased sales, decreased assets under management and the loss
of accounts, with corresponding decreases in revenue.

ADVERSE DEVELOPMENTS WITH REGARD TO SIGNIFICANT CUSTOMERS OR RELATIONSHIPS
COULD ADVERSELY AFFECT LEVCO'S REVENUES

As of March 31, 2004, Levco had approximately 280 customers (counting as
single customers each wrap fee program and related family and institutional
accounts and excluding proprietary pooled investment vehicles and other accounts
following alternative investment strategies), of which the ten largest customers
generated approximately $3.8 million of revenues for Levco in the first quarter
of 2004 (including incentive fees), or approximately 16% of BKF's total fees for
the period.

The five largest customers for long-only equity products accounted for
approximately 40% of all asset-based investment advisory fees earned in the
first quarter of 2004 with respect to such products. The loss of any of these
customers could have an adverse effect on BKF's revenues.

In the institutional marketplace, consultants play a key role in selecting
investment managers for their clients. In the event that a consultant advising
current clients of Levco takes a negative view of Levco, Levco could lose a
number of accounts related to that consultant.

A DECREASE IN LEVCO'S MANAGEMENT FEES, THE CANCELLATION OF INVESTMENT
MANAGEMENT AGREEMENTS OR POOR INVESTMENT PERFORMANCE BY THE LEVCO PRIVATE
INVESTMENT FUNDS COULD ADVERSELY AFFECT LEVCO'S RESULTS

Management Fees. Some segments of the investment management industry have
experienced a trend toward lower management fees. Levco must maintain a level of
investment returns and service that is acceptable to clients given the fees they
pay. No assurance can be given that Levco will be able to maintain its current
fee structure or client base. Reduction of the fees for new or existing clients
could have an adverse impact on Levco's profits.

Cancellation of Investment Management Agreements. It is expected that
Levco will derive almost all of its revenue from investment management
agreements. For registered investment companies, a majority of the disinterested
members of each fund's board must approve these agreements at least annually and
the agreements are terminable without penalty on 60 days' notice. The agreements
with Levco's separately-managed account clients generally are terminable by the
client without penalty and with little or no notice. Any failure to renew, or
termination of, a significant number of these agreements could have an adverse
effect on Levco.

Poor Investment Performance of the Private Investment Funds. BKF derives
revenue from incentive fees and general partner incentive allocations earned
with respect to its proprietary unregistered investment funds. Stronger positive
performance by these funds generates higher incentive fees and incentive
allocations because those fees and allocations are based on the performance of
the assets under management. On the other hand, relatively poor performance will
result in lower or no incentive fees or allocations, and will tend to lead to
decreased assets under management and the loss of accounts, with corresponding
decreases in revenue.

LEVCO IS A RELATIVELY SMALL PUBLIC COMPANY IN A HIGHLY COMPETITIVE BUSINESS

Levco competes with a large number of domestic and foreign investment
management firms, commercial banks, insurance companies, broker-dealers and
other firms offering comparable investment services. Many of the financial
services companies with which Levco competes have greater resources and assets
under management than Levco does and offer a broader array of investment
products and services.

Management believes that the most important factors affecting Levco's
ability to attract and retain clients are the abilities, performance records and
reputations of its portfolio managers, the ability to hire and retain key
investment personnel, the attractiveness of investment strategies to potential
investors and competitive fees and investor service. Levco's ability to increase
and retain client assets could be adversely affected if client accounts
underperform client expectations or if key investment personnel leave Levco.
Levco's ability to compete with other investment management firms also depends,
in part, on the relative attractiveness of its
17

investment philosophies and methods under prevailing market conditions. The
absence of significant barriers to entry by new investment management firms in
the institutional managed accounts business increases competitive pressure.
Since Levco is a relatively smaller asset management company, changes in
customers, personnel and products and other business developments may have a
greater impact on Levco they would have on larger, more diversified asset
management companies.

LEVCO IS DEPENDENT ON INFORMATION SYSTEMS AND ADMINISTRATIVE, BACK-OFFICE AND
TRADE EXECUTION FUNCTIONS

Levco is highly dependent on information systems and technology and
depends, to a great extent, on third parties who are responsible for managing,
maintaining and updating these systems. No assurance can be given that Levco's
current systems will continue to be able to accommodate its growth or that the
costs of its outsourcing arrangements will not increase. The failure to
accommodate growth or an increase in costs could have an adverse effect on
Levco.

Success in the investment management industry also depends on the ability
of an investment manager, and third parties with whom the investment manager
contracts, to successfully perform administrative, back-office and trade
execution functions. A failure by Levco or a third party contracted by Levco to
perform such functions could adversely impact Levco's revenues.

CONFLICTS OF INTEREST MAY ARISE AND ADVERSELY AFFECT LEVCO

From time to time, Levco's officers, directors and employees may own
securities which one or more of its clients also own. Although Levco maintains
internal policies regarding individual investments by its officers, directors
and employees which require them to report securities transactions and restrict
certain transactions so as to minimize possible conflicts of interest, possible
conflicts of interest may arise that could have adverse effects on Levco.
Similarly, conflicting investment positions may develop among various investment
strategies managed by Levco. Although Levco has internal policies in place to
address such situations, such conflicts could have adverse effects on Levco.

GOVERNMENT REGULATIONS MAY ADVERSELY AFFECT LEVCO AND BKF

Virtually all aspects of Levco's business are subject to various federal
and state laws and regulations. Levco is registered with the Securities and
Exchange Commission under the Investment Advisers Act of 1940, as amended. The
Investment Advisers Act imposes numerous obligations on registered investment
advisers, including fiduciary, recordkeeping, operational and disclosure
obligations. John A. Levin & Co. is also registered with the Commodity Futures
Trading Commission as a commodity trading advisor and a commodity pool operator,
and Levco GP is registered with that agency as a commodity pool operator. John
A. Levin & Co. and Levco GP are members of the National Futures Association.
LEVCO Securities is registered as a broker-dealer under the Securities Exchange
Act of 1934, is a member of the National Association of Securities Dealers, Inc.
and is a member of the Municipal Securities Rulemaking Board. In addition, Levco
is subject to the Employee Retirement Income Security Act of 1974 and its
regulations insofar as it is a "fiduciary" with respect to certain clients.
Furthermore, BKF, as a publicly traded company listed on the New York Stock
Exchange, is subject to the federal securities laws, including the Securities
Exchange Act of 1934, as amended, and the requirements of the exchange.

These laws and regulations generally grant supervisory agencies and bodies
broad administrative powers, including the power to limit or restrict Levco or
BKF from conducting its business if it fails to comply with these laws and
regulations. If Levco or BKF fails to comply with these laws and regulations,
these agencies may impose sanctions, including the suspension of individual
employees, limitations on business activities for specified periods of time,
revocation of registration, and other censures and fines. Even if in compliance
with all laws and regulations, changes in these laws or regulations could
adversely affect BKF's profitability and operations and its ability to conduct
certain businesses in which it is currently engaged.

18

TERRORIST ATTACKS COULD ADVERSELY AFFECT BKF

Terrorist attacks, including biological or chemical weapons attacks, and
the response to such terrorist attacks, could have a significant impact on New
York City, the local economy, the United States economy, the global economy, and
global financial markets. It is possible that the above factors could have a
material adverse effect on BKF's business, especially given the fact that all
operations are conducted from a single location in New York City and BKF has
incurred lease obligations with regard to this location through September 2011.

Certain statements under this caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" constitute "forward-looking
statements" under the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). See "Part II -- Other Information."

RESULTS OF OPERATIONS

The following discussion and analysis of the results of operations is based
on the Consolidated Statements of Financial Condition and Consolidated
Statements of Operations for BKF Capital Group, Inc. and Subsidiaries. It should
be noted that certain affiliated investment partnerships in which BKF may be
deemed to have a controlling interest have been consolidated. The number and
identity of the partnerships being consolidated may change over time as the
percentage interest held by BKF and its affiliates in affiliated partnerships
changes. The assets, liabilities and related operations of these partnerships
and related minority interest have been reflected in the consolidated financial
statements for the three month periods ended March 31, 2004 and March 31, 2003,
respectively. The consolidation of the partnerships does not impact BKF's equity
or net income.

THREE MONTHS ENDED MARCH 31, 2004 AS COMPARED TO THREE MONTHS ENDED MARCH 31,
2003

Revenues

Total revenues for the first quarter of 2004 were $29.85 million,
reflecting an increase of 36.8% from $21.81 million in revenues in the same
period in 2003. This increase was primarily attributable to (i) a 34.4% gain in
investment advisory fees from $13.83 million in the first quarter of 2003 to
$18.59 million in the first quarter of 2004 and (ii) a 47.0% gain in incentive
fees and general partner incentive allocations from $6.87 million in the first
quarter of 2003 to $10.09 million in the first quarter of 2004. The revenues
generated by the various investment strategies were as follows (all amounts are
in thousands):

The increase in asset-based advisory fees with respect to the event driven
and long/short equity strategies was attributable to net contributions and
appreciation through performance. With respect to long-only investment
strategies, appreciation in assets under management through performance was
partly offset by net withdrawals, and the increases did not generate
correspondingly higher asset-based advisory fees, as the average fees generated
by such assets declined. It should be noted that alternative investment products
tend to operate with targeted asset levels that may fluctuate depending on a
variety of factors, and that contributions to such products may be limited in
order to keep the products near their targeted asset levels. For this reason,
the rates of growth recently experienced by BKF's largest alternative investment
products may not be sustained.

The increase in incentive fees and allocations was primarily attributable
to (i) the increase in assets under management in the event driven and
long/short equity strategies and (ii) the reversal in the first quarter of 2003
of an accrual made with respect to a short-biased account with a June 30 fiscal
year. In addition, accounts pursuing long-only strategies generated
significantly higher performance-based fees in the first quarter of 2004.
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.

Levco continues to be on hold status with respect to the wrap program
through which it managed approximately 82% of its wrap program assets as of
March 31, 2004, i.e., Levco may continue to accept additional contributions from
existing accounts but may not open new accounts in the program. There is no
definite timetable with respect to how long Levco may remain in this status.
Levco is maintaining the service, sales and operational infrastructure required
to support participation in wrap programs.

Revenue generated by the broker-dealer business (net of clearing charges)
declined 3.0% to $478,000 in the first quarter of 2004 from $493,000 in the
first quarter of 2003. This decline was primarily the result of a decrease in
the number of accounts maintained at the broker-dealer, which was partly offset
by revenues generated from the distribution of an unaffiliated investment
partnership.

Net realized and unrealized gains on investments increased by 106.9% to
$209,000 in the first quarter of 2004 from $101,000 in the first quarter of
2003, primarily as the result of increased direct seed capital investments in
proprietary accounts and non-consolidated investment funds.

Revenues from consolidated investment partnerships decreased 7.1% to
$405,000 in the first quarter of 2004 from $436,000 in the first quarter to
2003, as a decrease in dividend and interest income exceeded an increase in net
realized and unrealized gains. The number and identities of the funds included
in the consolidated investment partnerships changed over the period. The
gains/losses on investments 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 Levco GP, Inc., which are
separately identified on the consolidated statements of operations.
20

Expenses

Total expenses for the first quarter of 2004 were $30.06 million,
reflecting an increase of 33.8% from $22.47 million in expenses in the same
period in 2003. Total expenses excluding amortization of finite life intangibles
were $28.31 million in the first quarter of 2004, reflecting an increase of
36.6% from $20.72 million for the first quarter of 2003.

Employee compensation and benefit expense was $21.1 million, reflecting an
increase of 45.6% from $14.49 million in the first quarter of 2003. The
conditions in the industry with respect to both alternative investment and
long-only professionals remain intense. The large increase in compensation
expense relative to the increase in revenues was attributable to (i) an increase
in the percentage of revenues attributable to alternative investment strategies
and (ii) investments made in the development of long-only small cap, long/short
small-mid cap, multi-manager and international equity products. The effort to
develop an international equity product was terminated during the quarter.

The investment teams responsible for the management of alternative
investment products are compensated on a number of different bases, which differ
from the basis on which the investment team managing long-only products is
compensated. This can be expected to result in a higher percentage of the
revenues generated by such alternative strategies being paid as compensation to
personnel directly associated with the investment teams. While revenues relating
to the event driven and long/short alternative investment products increased by
$6.63 million in the first quarter of 2004, compensation expense relating to
personnel associated with these products (including a portion of internal sales
personnel) increased by $4.89 million. Between March 31, 2003 and March 31,
2004, the event driven investment team added five investment professionals,
while the long/short alternative investment team added four investment
professionals. During this same period, the long-only investment team added 5
new members. The investments made with respect to new products that are
reflected in compensation expense increased to $613,000 in the first quarter of
2004 as compared to $468,000 in the same period in 2003.

The increase in employee compensation relating to the vesting of equity
grants to $2.16 million in the first quarter of 2004 from $1.49 million in the
same period in 2003 reflects the grant of restricted stock units in 2003 and
restricted stock in 2004. The expense associated with such grants is being
charged over the vesting periods of the grants.

Occupancy and equipment rental was $1.36 million in the first quarter of
2004, reflecting a 17.5% decrease from $1.64 million in the same period in 2003.
This decrease is attributable to the relinquishment of approximately 21,000
square feet at One Rockefeller Plaza pursuant to a lease amendment entered into
in the fourth quarter of 2003, which was partly offset by escalations in the
lease for the facilities at One Rockefeller Plaza and real estate tax increases.

Other operating expenses were $3.63 million in the first quarter of 2004,
reflecting a 19.7% increase from $3.03 million in the same period in 2003. The
increase was primarily attributable to increases in professional fees relating
to third party marketers (which are primarily related to revenues generated by
alternative investment products), increased insurance premiums, and increases in
auditing and legal expenses.

Interest expense in the first quarter of 2004 was substantially
attributable to 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.

Operating Loss

Operating loss for the first quarter of 2004 was $214,000, as compared to
an operating loss of $661,000 in the same period in 2003, as the increase in
income exceeded the increase in expenses. Operating income excluding the
amortization of finite life intangibles and the total income from consolidated
affiliated partnerships was $1.13 million in the first quarter of 2004,
reflecting an increase of 73.0% from $655,000 in the same period in 2003.

21

Income Taxes

Total income tax expense was $466,000 in the first quarter of 2004,
reflecting an increase of 19.2% from $391,000 for the same period in 2003. This
increase primarily reflects the increase in income before taxes (as determined
without a deduction for the amortization of intangibles). An effective tax rate
of 40.0% (before amortization) was used to make the determination with respect
to the provision for taxes at March 31, 2004, while an effective tax rate of
45.8% (before amortization) was used to calculate the provision for taxes at
March 31, 2003. The decrease in the effective tax rate resulted from the
$174,000 dividend accrual on restricted stock units and restricted stock being
treated as compensation for tax purposes. This will impact all future dividends
paid until the stock underlying restricted stock units or the restricted stock,
as the case may be, is actually delivered.

LIQUIDITY AND CAPITAL RESOURCES

BKF's current assets as of March 31, 2004 consist primarily of cash, short
term investments and investment advisory and incentive fees receivable. While
BKF's daily business operations are not generally capital intensive, BKF
utilizes capital to develop and seed new investment products. The development of
new products is an important element in BKF's business plan, and such seed
capital investments may require substantial financial resources. BKF has
historically met its cash and liquidity needs through cash generated by
operating activities. At March 31, 2004, BKF had cash and cash equivalents of
$40.10 million, compared to $37.44 million at December 31, 2003. This increase
primarily reflects the collection of receivables and the annual withdrawal of
general partner incentive allocations from affiliated investment partnerships,
which were partly offset by the payment of cash bonuses in 2004, which were
accrued in 2003. The decrease in investment advisory and incentive fees
receivable from $37.84 million at December 31, 2003 to $20.92 million at March
31, 2004 primarily reflects the receipt of incentive fees earned in 2003. The
decrease in investments in affiliated investment partnerships from $17.04
million at December 31, 2003 to $9.04 million at March 31, 2004 primarily
reflects the withdrawal of general partner incentive allocations from the
partnerships earned with respect to 2003, which was partially offset by the
accrual of incentive allocations for the three month period ended March 31,
2004. Incentive allocations typically are withdrawn within three months
following the end of the calendar year to pay compensation and other expenses.

The elimination of the investments in unaffiliated partnerships by
consolidated affiliated partnerships reflects the liquidation of a
multi-strategy, multi-manager investment vehicle. The increase in investments in
securities by consolidated investment partnerships to $4.85 million at March 31,
2004 from $3.93 million at December 31, 2003 reflects the increase in assets
under management of a consolidated affiliated investment partnership.

Accrued expenses were $3.09 million at March 31, 2004, as compared to $3.56
million at December 31, 2003. Such expenses were comprised primarily of accruals
for third party marketing fees. Such fees are based on a percentage of accrued
revenue, and such accruals may be reversed based on the subsequent investment
performance of the relevant accounts through the end of the applicable
performance measurement period. The payment of third party marketing fees was
partly offset by the expenses accrued during the first quarter.

Accrued bonuses were $14.70 million at March 31, 2004, as compared to
$39.73 million at December 31, 2003, reflecting the payment of 2003 bonuses and
the accrual for 2004 bonuses. The increase in accrued incentive compensation to
$12.40 million at March 31, 2004 from $10.29 million at December 31, 2003
reflects the expensing of equity awards over their vesting periods.

The increase in securities sold short by consolidated investment
partnerships to $2.59 million at March 31, 2004 from $1.12 million at December
31, 2003 reflects the increase in assets under management of a consolidated
investment partnership. Partner contributions received in advance reflect the
receipt of funds by a consolidated investment vehicle prior to the acceptance of
such funds for investment.

On March 18, 2004, BKF declared a dividend of $0.10 per share payable on
April 20, 2004; BKF anticipates making quarterly dividend payments in the
future.

22

Based upon BKF's current level of operations and anticipated growth, BKF
expects that cash flows from operating activities will be sufficient to finance
its working capital needs for the foreseeable future. Except for its lease
commitments, which are discussed in Note 9 in the Notes to Consolidated
Financial Statements in BKF's Annual Report on Form 10-K for the year ended
December 31, 2003, BKF has no material commitments for capital expenditures.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Since BKF's revenues are largely driven by the market value of Levco's
assets under management, these revenues are exposed to fluctuations in the
equity markets. Management fees for most accounts are determined based on the
market value of the account on the last day of the quarter, so any significant
increases or decreases in market value occurring on or shortly before the last
day of a quarter may materially impact revenues of the current quarter or the
following quarter (with regard to wrap program accounts). Furthermore, since
Levco manages most of its assets in a large cap value style, a general decline
in the performance of value stocks could have an adverse impact on Levco's
revenues. Similarly, a lack of opportunity to implement, or a failure to
successfully implement, Levco's event-driven, long/short and short-biased
strategies could reduce performance based incentive fees and allocations and
thereby negatively impact BKF's revenues. Because BKF is primarily in the asset
management business and manages equity portfolios, changes in interest rates,
foreign currency exchange rates, commodity prices or other market rates or
prices impact BKF only to the extent they are reflected in the equity markets.

ITEM 4. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the
participation of BKF's management, including the CEO and CFO, of the
effectiveness of the design and operation of BKF's disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended). Based on that evaluation, BKF's management,
including the CEO and CFO, concluded that BKF's disclosure controls and
procedures were effective as of the end of the period covered by this report.
There have been no changes in BKF's internal control over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act
of 1934, as amended) that occurred during BKF's most recent quarter that has
materially affected, or is reasonably likely to materially affect, BKF's
internal control over financial reporting.

It should be noted that any system of controls, however well designed and
operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system are met. In addition, the design of any control system
is based in part upon certain assumptions about the likelihood of future events.
Because of these and other inherent limitations of control systems, there is
only reasonable assurance that BKF's controls will succeed in achieving their
stated goals under all potential future conditions.

23

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES

The following table provides information about purchases by BKF during the
quarter ended March 31, 2004 of equity securities that are registered by BKF
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 common stock underlying Restricted Stock Units.

ISSUER PURCHASES OF EQUITY SECURITIES

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5. OTHER INFORMATION

This Quarterly Report on Form 10-Q contains certain statements that are not
historical facts, including, most importantly, information concerning possible
or assumed future results of operations of BKF and statements preceded by,
followed by or that include the words "may," "believes," "expects,"
"anticipates," or the negation thereof, or similar expressions, which constitute
"forward-looking statements" within the meaning of the Reform Act. For those
statements, BKF claims the protection of the safe harbor for forward-looking
statements contained in the Reform Act. These forward-looking statements are
based on BKF's current expectations and are susceptible to a number of risks,
uncertainties and other factors, including the risks specifically enumerated in
"Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations," and BKF's actual results, performance and achievements may
differ materially from any future results, performance or achievements expressed
or implied by such forward-looking statements. Such factors include the
following: retention and ability of qualified personnel; the performance of the
securities markets and of value stocks in particular; the investment performance
of client accounts; the retention of significant client and/or distribution
relationships; competition; the existence or absence of adverse publicity;
changes in business strategy; quality of management; availability, terms and
deployment of capital; business abilities and judgment of personnel; labor and
employee benefit costs; changes in, or failure to comply with, government
regulations; the costs and other effects of legal and administrative
proceedings; and other risks and uncertainties referred to in this document and
in BKF's other current and periodic filings with the Securities and Exchange
Commission, all of which are difficult or impossible to predict accurately and

24

many of which are beyond BKF's 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's policy generally not to make any
specific projections as to future earnings, and BKF does not endorse any
projections regarding future performance that may be made by third parties.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

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

(b) Reports on Form 8-K

None.

25

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

BKF CAPITAL GROUP, INC.

By: /s/ JOHN A. LEVIN

--------------------------------------
John A. Levin
Chairman, Chief Executive Officer
and President

By: /s/ GLENN A. AIGEN
--------------------------------------
Glenn A. Aigen
Senior Vice President and
Chief Financial Officer

Date: May 10, 2004

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