UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FormFORM 10-Q

(Mark One)

xQUARTERLY REPORT UNDERPURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended January 31, 2006
Commission file number 0-11306
For the quarterly period ended July 31, 2006
or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________________________________ to __________________________________________

Commission File Number: 0-11306
VALUE LINE, INC.
(Exact name of registrant as specified in its charter)

New York
13-3139843
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization) (I.R.S. Employer Identification No.)


220 East 42nd Street, New York, New York
10017-5891
(addressAddress of principal executive offices)
(zip code) (Zip Code)


(212)907-1500
(Registrant's telephone number, including area code (212) 907-1500code)

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 xNo 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”filer and “largelarge accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer oAccelerated filer oNon-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.


Class
Outstanding at JanuaryJuly 31, 2006
Common stock, $.10 par value
9,981,600 Shares


Part I - Financial Information 
Item 1. Financial Statements 
Value Line, Inc.
 
Consolidated Balance Sheets
 
(in thousands, except share amounts)
 
(unaudited)
 
      
  
Jan. 31,
 
 Apr. 30,
 
  
 2006
 
 2005
 
  
(unaudited)
    
        
Assets       
Current Assets:       
Cash and cash equivalents (including short term       
investments of $9,828 and $5,654, respectively) $10,674 $5,971 
Trading securities  22,407  0 
Securities available for sale  64,244  76,274 
Accounts receivable, net of allowance for doubtful       
accounts of $74 and $52, respectively  2,597  3,096 
Receivable from affiliates  2,834  2,557 
Prepaid expenses and other current assets  1,469  1,468 
Deferred income taxes  32  32 
        
Total current assets  104,257  89,398 
        
Long term assets       
Property and equipment, net  5,549  5,984 
Capitalized software and other intangible assets, net  2,486  3,483 
        
Total long term assets  8,035  9,467 
        
Total assets $112,292 $98,865 
        
Liabilities and Shareholders' Equity       
Current Liabilities:       
Accounts payable and accrued liabilities $4,974 $4,331 
Accrued salaries  1,335  1,247 
Dividends payable  2,495  2,495 
Unearned revenue  30,418  29,748 
Deferred income taxes  7,952  6,176 
        
Total current liabilities  47,174  43,997 
        
Long term liabilities       
Unearned revenue  7,054  10,344 
Deferred charges  381  381 
        
Total long term liabilities  7,435  10,725 
        
Shareholders' Equity:       
Common stock, $.10 par value; authorized 30,000,000       
shares; issued 10,000,000 shares  1,000  1,000 
Additional paid-in capital  991  991 
Retained earnings  41,040  30,798 
Treasury stock, at cost (18,400 shares on 1/31/06       
and 4/30/05)  (354) (354)
Accumulated other comprehensive income, net of tax  15,006  11,708 
        
Total shareholders' equity  57,683  44,143 
        
Total liabilities and shareholders' equity $112,292 $98,865 
 
Part I - Financial Information
The accompanying notes are an integral part of these consolidated financial statements.Item 1. Financial Statements
Value Line, Inc.
Consolidated Condensed Balance Sheets
(in thousands, except share amounts)
 
2
  July 31, Apr. 30, 
  2006 2006 
  (unaudited) 
 
 
      
Assets     
Current Assets:     
Cash and cash equivalents (including short term investments of $10,158 and $14,885, respectively)
 $11,074 $15,331 
Trading securities  22,317  22,314 
Securities available for sale  68,424  65,915 
Accounts receivable, net of allowance for doubtful accounts of $75 and $72, respectively
  3,960  3,037 
Receivable from affiliates  2,641  2,917 
Prepaid expenses and other current assets  1,491  1,617 
Deferred income taxes  88  88 
        
Total current assets  109,995  111,219 
        
Long term assets       
Property and equipment, net  5,264  5,406 
Capitalized software and other intangible assets, net  2,293  2,589 
        
Total long term assets  7,557  7,995 
        
Total assets $117,552 $119,214 
        
Liabilities and Shareholders' Equity       
Current Liabilities:       
Accounts payable and accrued liabilities $3,691 $6,186 
Accrued salaries  1,331  1,495 
Dividends payable  2,495  2,495 
Accrued taxes payable  3,300  560 
Unearned revenue  29,421  28,224 
Deferred income taxes  7,273  8,436 
        
Total current liabilities  47,511  47,396 
        
Long term liabilities       
Unearned revenue  6,089  9,502 
Deferred charges  381  381 
        
Total long term liabilities  6,470  9,883 
        
Shareholders' Equity:       
Common stock, $.10 par value; authorized 30,000,000 shares; issued 10,000,000 shares
  1,000  1,000 
Additional paid-in capital  991  991 
Retained earnings  48,032  44,256 
 Treasury stock, at cost (18,400 shares on 7/31/06 and 4/30/06)
  (354) (354)
Accumulated other comprehensive income, net of tax  13,902  16,042 
        
Total shareholders' equity  63,571  61,935 
        
Total liabilities and shareholders' equity $117,552 $119,214 

Part I - Financial Information
 
Item 1. Financial Statements
 
          
Value Line, Inc.
 
Consolidated Condensed Statements of Income
 
(in thousands, except per share amounts)
 
(unaudited)
 
          
  Three months ended Nine months ended 
  Jan. 31, Jan. 31, 
  2006 2005 2006 2005 
          
Revenues:         
Investment periodicals and         
related publications $11,890 $12,525 $35,963 $37,556 
Licensing fees  1,442  648  3,335  1,716 
Investment management fees & svcs  8,250  7,885  24,160  24,088 
              
Total revenues  21,582  21,058  63,458  63,360 
              
Expenses:             
Advertising and promotion  3,826  5,455  9,902  16,245 
Salaries and employee benefits  4,747  4,812  14,605  15,337 
Production and distribution  1,712  2,106  5,314  6,615 
Office and administration  3,260  2,248  7,967  6,613 
              
Total expenses  13,545  14,621  37,788  44,810 
              
Income from operations  8,037  6,437  25,670  18,550 
Income from securities transactions, net  2,858  1,104  3,571  8,033 
              
Income before income taxes  10,895  7,541  29,241  26,583 
Provision for income taxes  4,201  2,884  11,514  10,187 
              
Net income $6,694 $4,657 $17,727 $16,396 
              
Earnings per share, basic & fully diluted $0.67 $0.46 $1.78 $1.64 
              
Weighted average number of common shares  9,981,600  9,981,600  9,981,600  9,981,600 
The accompanying notes are an integral part of these consolidated financial statements.
 
2
Part I - Financial Information
Item 1. Financial Statements
Value Line, Inc.
Consolidated Condensed Statements of Income
(in thousands, except share & per share amounts)
(unaudited)
  Three months ended 
  July 31,   
  2006 2005 
      
Revenues:     
Investment periodicals and related publications
 $11,541 $12,174 
Licensing fees  1,811  886 
Investment management fees & services  8,039  7,814 
        
Total revenues  21,391  20,874 
        
Expenses:       
Advertising and promotion  3,224  2,606 
Salaries and employee benefits  4,542  5,163 
Production and distribution  1,811  1,775 
Office and administration  1,945  2,167 
        
Total expenses  11,522  11,711 
        
        
Income from operations  9,869  9,163 
Income from securities transactions, net  593  285 
        
Income before income taxes  10,462  9,448 
Provision for income taxes  4,191  3,800 
        
Net income $6,271 $5,648 
        
        
Earnings per share, basic & fully diluted $0.63 $0.57 
        
        
Weighted average number of common shares  9,981,600  9,981,600 

The accompanying notes are an integral part of these consolidated financial statements.
3

Part I - Financial Information
Item 1. Financial Statements
Value Line, Inc.
 Consolidated Condensed Statements of Cash Flows
 (in thousands)
 (unaudited)
      
  For the nine months 
  ended 
  
Jan. 31,
 
Jan. 31,
 
  
2006
 
2005
 
Cash flows from operating activities:
     
Net income $17,727 $16,396 
        
Adjustments to reconcile net income to net cash       
provided by operating activities:       
Depreciation and amortization  1,659  1,800 
Gains on sales of trading securities and       
securities available for sale  (2,430) (8,726)
Unrealized losses on trading securities  125  1,055 
Deferred income taxes  (44) (369)
        
Changes in assets and liabilities:       
Proceeds from sales of trading securities  —  42,205 
Purchases of trading securities  (4,365) (21,815)
(Decrease) in unearned revenue  (2,621) (19)
(Decrease) in deferred charges  (63) (63)
Increase/(decrease) in accounts payable and accrued expenses  706  (143)
Increase/(decrease) in accrued salaries  88  (242)
Decrease in accrued taxes payable  0  (556)
Decrease in prepaid expenses and other current assets  43  578 
Decrease/(increase) in accounts receivable  499  (332)
(Increase)/decrease in receivable from affiliates  (277) 90 
        
Total adjustments  (6,680) 13,463 
        
Net cash provided by operations
  11,047  29,859 
        
Cash flows from investing activities:
       
Purchase of equity securities  (2,463) (1,037)
Proceeds from sales of equity securities  2,430  12,669 
Proceeds from sales of fixed income securities  9,650  9,019 
Purchases of fixed income securities  (8,249) (23,680)
Acquisition of property and equipment  (64) (189)
Expenditures for capitalized software  (163) (563)
        
Net cash provided by/(used in) investing activities
  1,141  (3,781)
        
Cash flows from financing activities:
       
Dividends paid  (7,485) (182,162)
        
Net cash used in financing activities
  (7,485) (182,162)
        
Net increase/(decrease) in cash and cash equivalents  4,703  (156,084)
Cash and cash equivalents at beginning of year
  5,971  178,108 
        
Cash and cash equivalents at end of period
 $10,674 $22,024 
Part I - Financial Information
Item 1. Financial Statements
Value Line, Inc.
Consolidated Condensed Statements of Cash Flows
(in thousands)
(unaudited)
 
  For the three months 
  ended 
  
July 31,
 
July 31,
 
  
2006
 
2005
 
Cash flows from operating activities:
     
Net income $6,271 $5,648 
        
Adjustments to reconcile net income to net cash provided by operating activities:
       
Depreciation and amortization
  555 568 
Unrealized gains on trading securities  (3)  - 
        
Changes in assets and liabilities:       
(Decrease) in unearned revenue  (2,216) (2,655)
(Decrease) in deferred charges  (21) (21)
Increase/(decrease) in accounts payable and accrued expenses
  (2,474) (294)
Increase/(decrease) in accrued salaries  (164) 100 
Increase in accrued taxes payable  2,740  2,960 
(Increase)/decrease in prepaid expenses and other current assets
  126  242 
Decrease/(increase) in accounts receivable  (923) 340 
Decrease/(increase) in receivable from affiliates  276  (299)
        
Total adjustments  (2,104) 941 
        
Net cash provided by operating activities
  4,167  6,589 
        
Cash flows from investing activities:
       
Purchases of equity securities  -  (3)
Proceeds from sales of fixed income securities  125  9,650 
Purchases of fixed income securities  (5,937) - 
Expenditures for capitalized software  (117) (68)
        
Net cash provided by/(used in) investing activities
  (5,929) 9,579 
        
Cash flows from financing activities:
       
Dividends paid  (2,495) (2,495)
        
Net cash used in financing activities
  (2,495) (2,495)
        
Net (decrease)/increase in cash and cash equivalents  (4,257) 13,673 
Cash and cash equivalents at beginning of year
  15,331  5,971 
        
Cash and cash equivalents at end of period
 $11,074 $19,644 
The accompanying notes are an integral part of these consolidated financial statements.
 
4

Part I - Financial Information
 
Item 1. Financial Statements
 
VALUE LINE, INC.
 
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
 
FOR THE NINE MONTHS ENDED JANUARY 31, 2006
 
(in thousands, except share amounts)
 
(unaudited)
 
  Common stock             
              Accumulated   
  Number   Additional       Other   
  of   paid-in Treasury Comprehensive Retained Comprehensive   
  shares Amount capital Stock income earnings income Total 
                  
Balance at April 30, 2005  9,981,600 $1,000 $991  ($354)   $30,798 $11,708 $44,143 
                          
Comprehensive income                         
Net income             $17,727  17,727     17,727 
Other comprehensive income,                         
net of tax:                         
Change in unrealized                         
gains on securities,                         
net of taxes              3,298     3,298  3,298 
Comprehensive income             $21,025          
Dividends declared                 (7,485)    (7,485)
Balance at January 31, 2006  9,981,600 $1,000 $991  ($354)   $41,040 $15,006 $57,683 
Part I - Financial Information
Item 1. Financial Statements
 
VALUE LINE, INC.
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JULY 31, 2006
(in thousands, except share amounts)
(unaudited)
  Common stock             
              Accumulated   
  Number   Additional       Other   
  of   paid-in Treasury Comprehensive Retained Comprehensive   
  shares Amount capital Stock income earnings income Total 
                  
Balance at April 30, 2006  9,981,600 $1,000 $991  ($354)   $44,256 $16,042 $61,935 
                          
Comprehensive income                         
Net income             $6,271  6,271     6,271 
Other comprehensive income, net of tax:
                         
Change in unrealized gains on securities,
                         
net of taxes              (2,140)    (2,140) (2,140)
                          
Comprehensive income             $4,131          
                          
Dividends declared                 (2,495)    (2,495)
                          
Balance at July 31, 2006  9,981,600 $1,000 $991  ($354)   $48,032 $13,902 $63,571 
The accompanying notes are an integral part of these consolidated financial statements.
 
5
 
Part I - Financial Information          
 
Item 1. Financial Statements          
 
VALUE LINE, INC.
 
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
 
FOR THE NINE MONTHS ENDED JANUARY 31, 2005
 
(in thousands, except share amounts)
 
(unaudited)
 
  Common stock             
              Accumulated   
  Number   Additional       Other   
  of   paid-in Treasury Comprehensive Retained Comprehensive   
  shares Amount capital Stock income earnings income Total 
                  
Balance at April 30, 2004  9,981,600 $1,000 $991  ($354)   $19,459 $14,202 $35,298 
                          
Comprehensive income                         
Net income             $16,396  16,396     16,396 
Other comprehensive income,                         
net of tax:                         
Change in unrealized                         
gains on securities, net of taxes              (1,668)    (1,668) (1,668)
Comprehensive income             $14,728          
Dividends declared                 (7,485)    (7,485)
Balance at January 31, 2005  9,981,600 $1,000 $991  ($354)   $28,370 $12,534 $42,541 
Part I - Financial Information
Item 1. Financial Statements
VALUE LINE, INC.
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JULY 31, 2005
(in thousands, except share amounts)
(unaudited)
 
  Common stock             
              Accumulated   
  Number   Additional       Other   
  of   paid-in Treasury Comprehensive Retained Comprehensive   
  shares Amount capital Stock income earnings income Total 
                  
Balance at April 30, 2005  9,981,600 $1,000 $991  ($354)   $30,798 $11,708 $44,143 
                          
Comprehensive income                         
Net income             $5,648  5,648     5,648 
Other comprehensive income, net of tax:
                         
Change in unrealized                         
gains on securities, net of taxes          2,743     2,743  2,743 
                      
Comprehensive income             $8,391          
                          
Dividends declared                 (2,495)    (2,495)
                          
Balance at July 31, 2005  9,981,600 $1,000 $991  ($354)   $33,951 $14,451 $50,039 
The accompanying notes are an integral part of these consolidated financial statements.
6

VALUE LINE, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Significant Accounting Policies - Note 1:
In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of normal recurring accruals except as noted below) considered necessary for a fair presentation. This report should be read in conjunction with the financial statements and footnotes contained in the Company's annual report on Form 10-K, dated July 29, 2005 and Form 10-K Amended, dated August 26, 2005 for the fiscal year ended April 30, 2005. Results of operations covered by this report may not be indicative of the results of operations for the entire year.
Value Line, Inc. (the "Company") is incorporated in New York State and carries on the investment periodicals and related publications and investment management activities formerly performed by Arnold Bernhard & Co., Inc. (the "Parent") which owns approximately 86% of the issued and outstanding common stock of the Company.
Principles of Consolidation:
The consolidated condensed financial statements include the accounts of the Company and all of its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Revenue Recognition:
Subscription revenues are recognized ratably over the terms of the subscriptions. Accordingly, the amount of subscription fees to be earned by servicing subscriptions after the date of the balance sheet is shown as unearned revenue.
Investment management fees (except 12b-1 fees) are recorded as the related services are performed (see note 6). Service and distribution fees collected under rule 12b-1 are recorded in the Consolidated Condensed Statements of Income based upon the average daily net asset values of the respective Value Line mutual funds.
Valuation of Securities:
The Company's securities classified as available for sale consist of shares of the Value Line Mutual Funds and government debt securities accounted for in accordance with Statement of Financial Accounting Standards No.115, "Accounting for Certain Investments in Debt and Equity Securities". The securities are valued at market with unrealized gains and losses on these securities reported, net of applicable taxes, as a separate component of Shareholders' Equity. Realized gains and losses on sales of the securities available for sale are recorded in earnings on trade date and are determined on the identified cost method.
The Company classifies its securities available for sale as current assets. It does so to properly reflect its liquidity and to recognize the fact that it has assets available for sale to fully satisfy its current liabilities should the need arise.
Trading securities held by the Company are valued at market with unrealized gains and losses included in earnings.
Market valuation of securities listed on a securities exchange and over-the-counter securities traded on the NASDAQ national market is based on the closing sales prices on the last business day of each month. In the absence of closing sales prices for such securities, and for other securities traded in the over-the-counter market, the security is valued at the midpoint between the latest available and representative asked and bid prices.
Valuation of open-ended mutual fund shares are based upon the net asset values of the shares as calculated by such funds.
Market valuation of the Company's fixed maturity government debt obligations are valued utilizing quoted prices provided by a third party pricing service.
Advertising Expenses:
The Company expenses advertising costs as incurred.
VALUE LINE, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Significant Accounting Policies - Note 1:
In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of normal recurring accruals except as noted below) considered necessary for a fair presentation. This report should be read in conjunction with the financial statements and footnotes contained in the Company's annual report on Form 10-K, dated July 27, 2006 and Form 10-K Amended, dated August 18, 2006 for the fiscal year ended April 30, 2006. Results of operations covered by this report may not be indicative of the results of operations for the entire year.
Value Line, Inc. (the "Company") is incorporated in New York State. Through its subsidiary, Value Line Publishing, Inc. ("VLP"), it publishes investment periodicals and related publications. Value Line, Inc. performs investment management services. Arnold Bernhard & Co., Inc. (the "Parent") owns approximately 86% of the issued and outstanding common stock of the Company.
Principles of Consolidation:
The consolidated condensed financial statements include the accounts of the Company and all of its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Revenue Recognition:
Subscription revenues are recognized ratably over the terms of the subscriptions. Accordingly, the amount of subscription fees to be earned by servicing subscriptions after the date of the balance sheet is shown as unearned revenue.
Investment management fees (except 12b-1 fees) are recorded as the related services are performed (see note 6). Service and distribution fees under Rule 12b-1 are earned every month based on the average net assets of the respective mutual fund.
Valuation of Securities:
The Company's securities classified as available for sale consist of shares of the Value Line Mutual Funds ("Value Line Funds") and government debt securities accounted for in accordance with Statement of Financial Accounting Standards No.115, "Accounting for Certain Investments in Debt and Equity Securities". The securities are valued at market with unrealized gains and losses on these securities reported, net of applicable taxes, as a separate component of Shareholders' Equity. Realized gains and losses on sales of the securities available for sale are recorded in earnings on trade date and are determined on the identified cost method.
The Company classifies its securities available for sale as current assets. It does so to properly reflect its liquidity and to recognize the fact that it has assets available for sale to fully satisfy its current liabilities should the need arise.
Trading securities held by the Company and subsidiaries are valued at market with unrealized gains and losses included in earnings.
Market valuation of securities listed on a securities exchange and over-the-counter securities traded on the NASDAQ Global Market is based on the closing sales prices on the last business day of each month. In the absence of closing sales prices for such securities, and for other securities traded in the over-the-counter market, the security is valued at the midpoint between the latest available and representative asked and bid prices.
Valuation of open-ended mutual fund shares is based upon the daily net asset values of the shares as calculated by such funds.
The market value of the Company's fixed maturity government debt obligations are determined utilizing quoted prices at the end of each day provided by an outside pricing service.
Advertising Expenses:
The Company expenses advertising costs as incurred.
Income Taxes:
The Company computes its income tax provision in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Deferred tax liabilities and assets are recognized for the expected future tax consequences of events that have been reflected in the Consolidated Condensed Financial Statements. Deferred tax liabilities and assets are determined based on the differences between the book values and the tax bases of particular assets and liabilities, using tax rates currently in effect for the years in which the differences are expected to reverse.
 
7
 
VALUE LINE, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Earnings per share:
Earnings per share are based on the weighted average number of shares of common stock and common stock equivalents outstanding during each year.
 
Reclassification:
Certain items in the prior year financial statements have been reclassified to conform to the current year presentation.
Income Taxes:
The Company computes its income tax provision in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Deferred tax liabilities and assets are recognized for the expected future tax consequences of events that have been reflected in the Consolidated Condensed Financial Statements. Deferred tax liabilities and assets are determined based on the differences between the book values and the tax bases of particular assets and liabilities, using tax rates currently in effect for the years in which the differences are expected to reverse.
Earnings per Share, basic & fully diluted:
Earnings per share are based on the weighted average number of shares of common stock and common stock equivalents outstanding during each year.
Cash and Cash Equivalents:
For purposes of the Consolidated Condensed Statements of Cash Flows, the Company considers all cash held at banks and short term liquid investments with an original maturity of less than three months to be cash and cash equivalents. As of January 31, 2006 and April 30, 2005, cash equivalents included $9,784,000 and $5,546,000 respectively, invested in the Value Line money market funds.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Marketable Securities - Note 2:
Trading Securities:
Securities held by the Company had an aggregate cost of $22,403,000 and a fair market value $22,407,000 at January 31, 2006. There were no trading securities held at April 30, 2005. There were no sales of trading securities in fiscal 2006. The proceeds from sales of trading securities, during the nine months ended January 31, 2005, were $42,205,000 and the related gains on these sales were $2,425,000. Unrealized gains on the trading securities portfolio of $4,000 and unrealized losses of $1,055,000 for the nine months ended January 31, 2006 and 2005, respectively, were included in the Consolidated Condensed Statements of Income.
Securities Available for Sale:
Equity Securities:
The aggregate cost of the equity securities classified as available for sale, which are invested in the Value Line mutual funds, was $21,632,000 and the market value was $44,916,000 at January 31, 2006. The aggregate cost of the equity securities classified as available for sale at April 30, 2005 was $19,169,000 and the market value was $37,209,000. The total gains for equity securities with net gains included in Accumulated Other Comprehensive Income on the Consolidated Condensed Balance Sheet were $23,284,000 and $18,157,000, net of deferred income taxes of $8,149,000 and $6,355,000, as of January 31, 2006 and April 30, 2005, respectively. Losses on equity securities included in Accumulated Other Comprehensive Income at April 30, 2005 were $117,000, net of deferred income taxes of $41,000. The net increase in unrealized holding gains on these securities of $5,244,000 and the decrease of $2,503,000, net of deferred income taxes of $1,835,000 and $875,000, were included in Shareholders' Equity at January 31, 2006 and 2005, respectively.
Cash and Cash Equivalents:
For purposes of the Consolidated Condensed Statements of Cash Flows, the Company considers all cash held at banks and short term liquid investments with an original maturity of less than three months to be cash and cash equivalents. As of July 31, 2006 and April 30, 2006, cash equivalents included $10,097,000 and $14,746,000 respectively, invested in the Value Line money market funds.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Marketable Securities - Note 2:
Trading Securities:
Trading securities held by the Company at July 31, 2006 had an aggregate cost of $22,402,000 and a market value of $22,317,000.Trading securities held by the Company at April 30, 2006 had an aggregate cost of $22,402,000 and a market value of $22,314,000. There were no trading securities held at July 31, 2005. There were no sales and no realized trading gains or losses during the first quarter of fiscal 2007 and 2006. The net changes in unrealized gains of $3,000 for the period ended July 31, 2006 was included in the Consolidated Condensed Statement of Income.
Securities Available for Sale:
Equity Securities:
The aggregate cost of the equity securities classified as available for sale, which consist of investments in the Value Line Funds, was $21,639,000 and the market value was $43,348,000 at July 31, 2006.The aggregate cost of the equity securities classified as available for sale was $21,635,000 and the market value was $46,644,000 at April 30, 2006. The total gains for equity securities with net gains included in Accumulated Other Comprehensive Income on the Consolidated Condensed Balance Sheet were $21,709,000 and $25,009,000, net of deferred taxes of $7,642,000 and $8,803,000, as of July 31 and April 30, 2006, respectively. There were no sales and no realized gains or losses on equity securities during the first three months of fiscal 2007 and 2006. The decrease in gross unrealized gains on these securities of $3,302,000 and the increase of $4,323,000, net of deferred taxes of $1,162,000 and $1,513,000, were included in Shareholders' Equity at July 31, 2006 and 2005, respectively.
Government Debt Securities:
The Company's investments in debt securities are classified as available for sale and valued at market value. The aggregate cost and fair value at July 31, 2006 for U.S. government debt securities classified as available for sale were as follows:
    (In Thousands)   
  Historical Fair Gross Unrealized 
Maturity
 Cost Value Holding Losses 
Due in less than 2 years $12,023 $11,860  ($163)
Due in 2-5 years  13,309  13,216  (93)
Total investment in debt securities $25,332 $25,076  ($256)
 
8
VALUE LINE, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
Realized capital gains from the sales of equity securities classified as available for sale during the nine months ended January 31, 2006 and January 31, 2005 were $2,430,000 and $6,301,000, of which $2,355,000 and $5,861,000, respectively, were reclassified out of Accumulated Other Comprehensive Income into earnings. The proceeds received from the sales of these securities during the nine months ended January 31, 2006 and January 31, 2005 were $2,430,000 and $12,669,000, respectively. Proceeds and capital gains included $75,000 and $433,000 from an installment sale of an investment in a privately held Company, in fiscal 2006 and 2005, respectively.
Government Debt Securities:
The Company's investments in debt securities are available for sale and valued at market value. The aggregate cost and market value at January 31, 2006 for U.S. Government debt securities classified as available for sale were as follows:
The aggregate cost and fair value at April 30, 2006 for U.S. Government debt securities classified as available for sale were as follows:
  
    (In Thousands)   
  Historical Fair Gross Unrealized 
Maturity
 Cost Value Holding Losses 
Due in less than 2 years $10,778 $10,641  ($137)
Due in 2-5 years  8,745  8,630  (115)
Total investment in debt securities $19,523 $19,271  ($252)
 
    (In Thousands)   
  Historical Market Gross Unrealized 
Maturity Cost Value Holding Losses 
Due in less than 2 years $15,103 $14,974  ($129)
Due in 2-5 years  4,420  4,354  (66)
Total investment in debt securities $19,523 $19,328  ($195)
The unrealized losses of $256,000 and $252,000 in U.S. government debt securities net of deferred income tax benefits of $90,000 and $89,000, respectively, were included in Accumulated Other Comprehensive Income on the Consolidated Condensed Balance Sheets as of July 31, 2006 and April 30, 2006.
 
The aggregate cost and market value at April 30, 2005 for U.S. Government debt securities classified as available for sale were as follows:
The average yield on the U.S. Government debt securities classified as available for sale at July 31, 2006 and April 30, 2006 was 3.87% and 3.76%, respectively.
 
    (In Thousands)   
  Historical Market Gross Unrealized 
Maturity Cost Value Holding Losses 
Due in less than 2 years $34,506 $34,481  ($25)
Due in 2-5 years  4,587  4,584  (3)
Total investment in debt securities $39,093 $39,065  ($28)
Proceeds from sales of government debt securities classified as available for sale were $125,000 and $9,650,000 during the three months ended July 31, 2006 and 2005, respectively. There were no related gains or losses on sales of government debt securities during the first three months of fiscal years 2007 or 2006.
For the three months ended July 31, 2006, and 2005, income from securities transactions also included $167,000 and $76,000 of dividend income and $423,000 and $262,000 of interest income, respectively. Income from securities transactions during the first quarter of fiscal 2006 also included $11,000 of related interest expense. There was no interest expense in fiscal 2007.
 
The unrealized losses of $195,000 and $28,000 on U.S. government debt securities net of deferred income taxes of $66,000 and $10,000, respectively, were included in Accumulated Other Comprehensive Income on the Consolidated Condensed Balance Sheets as of January 31, 2006 and April 30, 2005. During the third quarter of fiscal 2006, the Company reclassified $18,038,000 of US Government debt securities from the classification of available for sale to trading securities that resulted in the recognition and reclassification of an unrealized loss of $129,000 from Accumulated Other Comprehensive Income to the Consolidated Condensed Statement of Income.
The average yield on the U.S. Government debt securities classified as available for sale at January 31, 2006 and 2005 was 1.85% and 1.31%, respectively.
Proceeds from sales of government debt securities classified as available for sale were $9,650,000 and $9,019,000 during the first nine months of fiscal year 2006 and 2005, respectively. There were no related gains or losses.
For the nine months ended January 31, 2006, and 2005, income from securities transactions, net also included $358,000 and $161,000 of dividend income; $957,000 and $199,000 of interest income; and $11,000 and $7,000 of related interest expense, respectively.
Supplemental Disclosure of Cash Flow Information - Note 3:
Cash payments for income taxes were $1,450,000 and $686,000 during the three months ended July 31, 2006 and 2005, respectively.
Employees' Profit Sharing and Savings Plan - Note 4:
Substantially all employees of the Company and its subsidiaries are members of the Value Line, Inc. Profit Sharing and Savings Plan (the "Plan"). In general, this is a qualified, contributory plan which provides for a discretionary annual Company contribution which is determined by a formula based upon the salaries of eligible employees and the amount of consolidated net operating income as defined in the Plan. The estimated profit sharing plan contribution, which is included as an expense in salaries and employee benefits in the Consolidated Condensed Statement of Income, was $320,000 and $360,000 for the three months ended July 31, 2006 and 2005, respectively.
Comprehensive Income - Note 5:
The Company has adopted Financial Accounting Standards No. 130, "Reporting Comprehensive Income". Statement No. 130 requires the reporting of comprehensive income in addition to net income from operations. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income.
At July 31, 2006 and April 30, 2006 the Company held both equity securities and U.S. Government debt securities that are classified as Available for Sale on the Consolidated Condensed Balance Sheets. The change in valuation of these securities, net of deferred income taxes, has been recorded in Accumulated Other Comprehensive Income in the Company's Consolidated Condensed Balance Sheets.
 
9
VALUE LINE, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
Supplemental Disclosure of Cash Flow Information - Note 3:The components of comprehensive income that are included in the Statement of Changes in Shareholders' Equity are as follows:
    (In Thousands)   
Three months ended 7-31-06 Before Tax Amount Tax (Expense) or Benefit Net of Tax Amount 
Unrealized Gains on Securities:
       
Unrealized Holding Gains/(Losses) arising during the period  ($3,302)$1,162  ($2,140)
Other Comprehensive income  ($3,302)$1,162  ($2,140)
        
Three months ended 7-31-05       
Unrealized Gains on Securities:
       
Unrealized Holding Gains/(Losses) arising during the period $4,220  ($1,477)$2,743 
Other Comprehensive income $4,220  ($1,477)$2,743 
Related Party Transactions - Note 6:
Cash payments for income taxes were $11,406,000 and $11,111,000 during the nine months ended January 31, 2006 and 2005, respectively.
Employees' Profit Sharing and Savings Plan - Note 4:
Substantially all employees of the Company and its subsidiaries are members of the Value Line, Inc. Profit Sharing and Savings Plan (the "Plan"). In general, this is a qualified, contributory plan which provides for a discretionary annual Company contribution which is determined by a formula based upon the salaries of eligible employees and the amount of consolidated net operating income as defined in the Plan. The estimated profit sharing plan contribution, which is included as an expense in salaries and employee benefits in the Consolidated Condensed Statement of Income, was $911,000 and $797,000 for the nine months ended January 31, 2006 and 2005, respectively.
Comprehensive Income - Note 5:
Statement of Financial Accounting Standards no. 130 requires the reporting of comprehensive income in addition to net income from operations. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income.
At January 31, 2006 and April 30, 2005 the Company held both equity securities and U.S. Government debt securities that are classified as Available for Sale on the Consolidated Condensed Balance Sheets. The change in valuation of these securities, net of deferred income taxes, has been recorded in Accumulated Other Comprehensive Income in the Company's Consolidated Condensed Balance Sheets.
The components of comprehensive income that are included in the Statement of Changes in Shareholders' Equity are as follows:
 
        
    (In Thousands)   
Nine months ended 1-31-06 
Before Tax
Amount
 
Tax (Expense)
or Benefit
 
Net of
Tax Amount
 
Unrealized Gains on Securities:
       
Unrealized Holding Gains/(Losses) arising during the period $7,303  ($2,563)$4,740 
Add: Reclassification adjustments for losses realized in net income  129  (45) 84 
Less: Reclassification adjustments for gains realized in net income  (2,355) 829  (1,526)
Other Comprehensive income $5,077  ($1,779)$3,298 
The Company acts as investment adviser and manager for fourteen open-ended investment companies, the Value Line Funds. The Company earns investment management fees based upon the average daily net asset values of the respective Value Line Funds. The fourteen Value Line Funds have adopted service and distribution plans under rule 12b-1 of the Investment Company Act of 1940. During certain periods prior to December 2004, Value Line Securities, Inc., ("VLS") earned brokerage commission income on securities transactions executed by VLS on behalf of the funds that cleared on a fully disclosed basis through non-affiliated brokers, who received a portion of the gross commission. VLS in November 2004 suspended executing trades through VLS for any of the Value Line Funds.
For the three months ended July 31, 2006 and 2005 investment management fees and 12b-1 service and distribution fees amounted to $7,757,000 and $7,623,000, respectively, which included fee waivers for certain of the Value Line Funds. These amounts included service and distribution fees of $2,107,000 and $2,477,000 earned by Value Line Securities, Inc. ("VLS"). The related receivables from the funds for management advisory fees and service and distribution fees included in Receivables from affiliates were $2,528,000, and $2,751,000 at July 31, 2006 and April 30, 2006, respectively.
For the three months ended July 31, 2006 and 2005, the Company was reimbursed $308,000 and $177,000, respectively, for payments it made on behalf of and services it provided to the Parent. At July 31, and April 30, 2006, Receivables from affiliates included a Receivable from the Parent of $92,000 and $154,000, respectively.
 
Nine months ended 1-31-05       
Unrealized Gains on Securities:
       
Unrealized Holding Gains/(Losses) arising during the period $3,296  ($1,166)$2,130 
Less: Reclassification adjustments for gains realized in net income  (5,861) 2,063  (3,798)
Other Comprehensive income  ($2,565)$897  ($1,668)
From time to time, the Parent has purchased additional shares of Value Line, Inc. in the market when and as the Parent has determined it to be appropriate. As stated several times in the past, the public is reminded that the Parent may make additional purchases from time to time in the future. 
 
10
 
VALUE LINE, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
Federal, State and Local Income Taxes - Note 7:
The Company computes its income tax provision in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes".
The provision for income taxes includes the following:
   
  Three months ended July 31, 
   2006  2005 
  (in thousands) 
Current:
       
Federal $3,346 $3,087 
State and local  904  790 
  $4,250 $3,877 
Deferred:
     
Federal  ($45) ($78)
State and local  (14) 1 
   ($59) ($77)
                             
Total: $4,191 $3,800 
Deferred income taxes are provided for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. The tax effect of temporary differences giving rise to the Company's deferred tax (liability)/assets are primarily a result of unrealized gains on the Company's available for sale securities portfolios.
Business Segments - Note 8:
The Company operates two reportable business segments: Publishing & Licensing and Investment Management. The Publishing & Licensing segment produces investment related periodicals in both print and electronic form, and licensing fees for proprietary information. The Investment Management segment provides advisory services to the Value Line Funds, as well as institutional and individual accounts. The segments are differentiated by the products and services they offer. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company allocates all revenues and expenses, except for depreciation and income from securities transactions related to corporate assets, between the two reportable segments.
11
VALUE LINE, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Disclosure of Reportable Segment Profit and Segment Assets  (in thousands)
  Three months ended July 31, 2006 
  Publishing &   Investment  Total 
  Licensing   Management    
           
Revenues from external customers $13,352 $8,039 $21,391 
Intersegment revenues  25  -  25 
Income from securities transactions  36  243  279 
Depreciation and amortization  528  23  551 
Segment profit  5,439  4,434  9,873 
Segment assets  14,469  72,195  86,664 
Expenditures for segment assets  117  -  117 
           
  Three months ended July 31, 2005
   Publishing &  Investment  Total 
   Licensing  Management          
        
Revenues from external customers $13,060 $7,814 $20,874 
Intersegment revenues  27  -  27 
Income from securities transactions  4  23  27 
Depreciation and amortization  540  24  564 
Segment profit  6,453  2,714  9,167 
Segment assets  13,129  63,516  76,645 
Expenditures for segment assets  68  -  68 
Reconciliation of Reportable Segment Revenues, Operating Profit and Assets
    
  (in thousands) 
  Three months ended July 31, 
   2006  2005 
Revenues
       
Total revenues for reportable segments $21,416 $20,901 
Elimination of intersegment revenues  (25) (27)
Total consolidated revenues $21,391 $20,874 
      
Segment profit
     
        
Total profit for reportable segments  10,152  9,194 
Add: Income from securities transactions     
related to corporate assets  314  258 
Less: Depreciation related to corporate assets  (4) (4)
Income before income taxes $10,462 $9,448 
      
Assets
     
Total assets for reportable segments  86,664  76,645 
Corporate assets  30,888  29,683 
Consolidated total assets $117,552 $106,328 
12
VALUE LINE, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Contingencies - Note 9:
On September 17, 2003 the Company commenced an action in New York Supreme Court, seeking damages in an unspecified amount, against a small mutual fund company pertaining to a contemplated transaction. The Company was countersued for alleged damages in excess of $5,000,000. The action was settled in November 2004 without a material adverse effect on the Company. A related entity of the defendant in the New York action brought suit against the Company and certain Directors in Federal Court in Texas in March, 2004 based on the same transaction. On the Company's motion, that action has been transferred from Texas to New York. On March 2, 2006 the Federal Judge in New York granted the Company's motion dismissing three causes of action. The court allowed one cause of action to continue at this time.
Although the ultimate outcome of the litigation is subject to the inherent uncertainties of any legal proceeding, based upon Counsel's analysis of the factual and legal issues and the Company's meritorious defenses, it is management's belief that the expected outcome of this matter will not have a material adverse effect on the Company's consolidated results of operations and financial condition.
By letter dated June 15, 2005, the staff of the Securities and Exchange Commission informed the Company that it was conducting a preliminary inquiry. Thereafter, the staff has requested documents and information relating to, among other things, trades for the Company's and affiliates' proprietary accounts, the execution of trades through VLS for the Value Line Funds and the fees collected by VLS from the Value Line Funds pursuant to a Service and Distribution Plan. The Company and its subsidiaries are cooperating with the inquiry. Management cannot determine the effect, if any, that the inquiry will have on the results of operation and financial condition.
13

Item 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Liquidity and Capital Resources

The Company had working capital as of July 31, 2006 of $62,484,000. Cash and short-term securities as of July 31, 2006 totaled $79,498,000.
The Company’s cash flow from operations of $4,167,000 for the three months ended July 31, 2006 was 37% lower than fiscal 2006’s cash flow of $6,589,000. The decrease in cash flow from operations was primarily due to the timing of payments for advertising and promotion. Net cash outflows of $5,929,000 from investing activities during the first three months of fiscal 2007 primarily resulted from purchases of fixed income securities. This compared to net cash inflows of $9,579,000 from investing activities last fiscal year.

Related Party Transactions - Note 6:
The Company acts as investment adviser and manager for fourteen open-ended investment companies, the Value Line Family of Funds. The Company earns investment management fees based upon the average daily net asset values of the respective Value Line mutual funds. In addition, effective July 1, 2000, twelve of the fourteen Value Line Mutual Funds adopted a service and distribution plan under rule 12b-1 of the Investment Company Act of 1940. Effective September 18, 2002, the remaining two funds for which Value Line is the adviser adopted a service and distribution plan under rule 12b-1 of the Investment Company Act of 1940. Further, the Company earned brokerage commission income on securities transactions executed by Value Line Securities, Inc. (VLS) on behalf of the funds that cleared on a fully disclosed basis through non-affiliated brokers, who received a portion of the gross commission. Pending a review of effecting trades for the Value Line Funds, VLS in November 2004 suspended effectuation of trades through VLS for any of the Value Line Funds.
For the nine months ended January 31, 2006 investment management fees and 12b-1 service and distribution fees amounted to $23,362,000, which includes fee waivers for certain of the Value Line Mutual Funds. For the nine months ended January 31, 2005, investment management fees, 12b-1 service and distribution fees and brokerage commission income amounted to $23,164,000. The amounts for service and distribution fees during the nine months ended January 31, 2006 and 2005 were $7,498,000 and $7,214,000, respectively. The related receivables from the funds for management advisory fees and 12b-1 service fees included in Receivable from affiliates on the Consolidated Condensed Balance Sheet were $2,721,000 and $2,406,000 at January 31, 2006 and April 30, 2005, respectively.
For the nine months ended January 31, 2006 and 2005, the Company was reimbursed $700,000 and $387,000, respectively, for payments it made on behalf of and services it provided to Arnold Bernhard and Company, Inc. ("Parent"). At January 31, 2006 and April 30, 2005, Receivable from affiliates on the Consolidated Condensed Balance Sheet also included a receivable from the Parent of $83,000 and $107,000, respectively.
From time to time, the Parent has purchased additional shares of Value Line, Inc. in the market when and as the Parent has determined it to be appropriate. As stated several times in the past, the public is reminded that the Parent may make additional purchases from time to time in the future.
Federal, State and Local Income Taxes - Note 7:
The Company computes its tax in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes".
The provision for income taxes includes the following:
    
  Nine months ended January 31, 
  2006 2005 
  (in thousands) 
Current:
     
Federal $9,492 $9,051 
State and local  2,210  1,522 
  $11,702 $10,573 
Deferred:
       
Federal  ($271) ($371)
State and local  83  (15)
   ($188) ($386)
        
Total: $11,514 $10,187 
11
VALUE LINE, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Deferred income taxes are provided for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. The tax effect of temporary differences giving rise to the Company's deferred tax liability are primarily a result of unrealized gains on the Company's available for sale securities portfolios.
Business Segments - Note 8:
The Company operates two reportable business segments: Publishing and Investment Management Services. The publishing segment produces investment related periodicals in both print and electronic form, and licensing fees. The investment management segment provides advisory services to the Value Line family of mutual funds, as well as institutional and individual clients. The segments are differentiated by the products and services they offer.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company allocates all revenues and expenses, except for depreciation and income from securities transactions related to corporate assets, between the two reportable segments.
Disclosure of Reportable Segment Profit and Segment Assets (in thousands)
    
  Nine months ended January 31, 2006 
  Publishing 
Investment Management
Services
 Total 
        
Revenues from external customers $39,298 $24,160 $63,458 
Intersegment revenues  64  0  64 
Income from securities transactions, net  124  327  451 
Depreciation and amortization  1,581  66  1,647 
Segment operating profit  13,408  12,274  25,682 
Segment assets  17,490  73,937  91,427 
Expenditures for segment assets  227  0  227 
    
  Nine months ended January 31, 2005 
  Publishing 
Investment Management
Services
 Total 
        
Revenues from external customers $39,272 $24,088 $63,360 
Intersegment revenues  167  0  167 
Income from securities transactions, net  2  8,031  8,033 
Depreciation and amortization  1,717  71  1,788 
Segment operating profit  10,466  8,096  18,562 
Segment assets  16,140  60,910  77,050 
Expenditures for segment assets  613  139  752 
12
VALUE LINE, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Reconciliation of Reportable Segment Revenues,
Operating Profit and Assets (in thousands)
    
  Nine months ended January 31, 
  2006 2005 
Revenues     
Total revenues for reportable segments $63,522 $63,527 
Elimination of intersegment revenues  (64) (167)
Total consolidated revenues $63,458 $63,360 
        
Segment profit       
Total profit for reportable segments $26,133 $26,595 
Add: Income from securities transactions related to corporate assets  3,120  0 
Less: Depreciation related to corporate assets  (12) (12)
Income before income taxes $29,241 $26,583 
        
Assets       
Total assets for reportable segments $91,427 $77,050 
Corporate assets  20,865  20,654 
Consolidated total assets $112,292 $97,704 
Contingencies - Note 9:
On September 17, 2003 the Company commenced an action in New York Supreme Court, seeking damages in an unspecified amount, against a small mutual fund company pertaining to a contemplated transaction. The Company was countersued for alleged damages in excess of $5,000,000. The action was settled in November, 2004 without a material adverse effect on the Company. A related entity of the defendant in the New York action brought suit against the Company and certain Directors in Federal Court in Texas in March, 2004 based on the same transaction. On the Company's motion, that action has been transferred from Texas to New York. On March 2, 2006 the Federal Judge in New York granted the Company's motion dismissing three causes of action. The court allowed one cause of action to continue at this time. Although the ultimate outcome of the litigation is subject to the inherent uncertainties of any legal proceeding, based upon Counsel's analysis of the factual and legal issues and the Company's meritorious defenses, it is management's belief that the expected outcome of this matter will not have a material adverse effect on the Company's consolidated results of operations and financial condition.
By letter dated June 15, 2005, the staff of the Securities and Exchange Commission requested the Company as part of a preliminary inquiry to provide documents relating to, among other things, trades for the Company's proprietary accounts, and the effectuation and execution of trades through VLS for the Value Line Funds. The Company is cooperating with the preliminary inquiry.
13

Item 2.
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Liquidity and Capital Resources

The Company had working capital as of January 31, 2006 of $57,083,000 which included cash and short-term securities at market value of $74,918,000.
The Company’s cash flows from operations of $11,047,000 for the nine months ended January 31, 2006 was 63% lower than cash flow of $29,859,000 for the comparable period of the prior fiscal year. The decrease in cash flow from operations was primarily due to the liquidation of the Company’s trading securities portfolio during the prior fiscal year. Exclusive of the net cash flows from the trading securities portfolio activity, cash flows from operations were $5,943,000 higher than the prior fiscal year’s. Net cash inflows of $1,141,000 from investing activities during the first nine months of fiscal 2006 primarily resulted from proceeds received from sales of callable U.S. Government debt securities. Net cash outflows of $3,781,000 during the first nine months of the prior fiscal year resulted from sales of equity securities to partially finance the payment of the Company’s special dividend offset by a redeployment of the net proceeds from sales of trading securities and callable fixed income securities into fixed income, government debt obligations. Cash outflows from financing activities of $7,485,000 during the first nine months of fiscal year 2006 represent the payment of the Company’s quarterly dividend of $0.25 per share for each of the first three quarters. Cash outflows from financing activities for the same period of fiscal year 2005 of $182,162,000 reflect the Company’s quarterly dividends of $.25 per share for each of the first three quarters as well as a special $17.50 dividend paid to all shareholders on May 19, 2004.

Management believes that the Company’s cash and other liquid asset resources used in its business together with the future cash flows from operations will be sufficient to finance current and forecasted operations. Management anticipates no borrowing for fiscal year 2006. 2007.

Operating Results of Operations
 
Net income for the nine monthsfirst quarter ended JanuaryJuly 31, 2006 of $17,727,000$6,271,000 or $1.78$0.63 per share was $1,331,000$623,000 or 8%11% above net income of $16,396,000$5,648,000 or $1.64$0.57 per share in fiscal 2005. Net income for the third quarter ended January 31, 2006 of $6,694,000 or $0.67 per share was $2,037,000 or 44% above net income of $4,657,000 or $0.46 per share in the third quarter of fiscal 2005.year 2006. Operating income of $25,670,000 for the nine months ended January 31, 2006 was $7,120,000 above operating income of $18,550,000 for the same period of the last fiscal year, a 38% increase for the period. Operating income of $8,037,000$9,869,000 for the three months ended JanuaryJuly 31, 2006 was $1,600,000 or 25%8% above operating income of $6,437,000 for the same period of$9,163,000 last fiscal year. The Company’s income from securities transactions of $3,571,000 was 56% below last year’s$593,000 for the ninefirst three months ended January 31, 2006. For the third quarter of fiscal 2006, income from securities transactions of $2,858,0002007 was 159%108% above last fiscal year’s third quarter income (see last paragraph).year’s. Shareholders’ equity of $57,683,000$63,571,000 at JanuaryJuly 31, 2006 was 36%27% higher than shareholders’ equity of $42,541,000$50,039,000 at JanuaryJuly 31, 2005. 
 
Subscription revenues of $35,963,000$11,541,000 for the ninefirst three months ended January 31, 2006of fiscal year 2007 were 4%5% below subscription revenues of $12,174,000 for the comparable period of the prior fiscal year. Electronic publications revenues of $8,240,000 were up $168,000 or 2% compared to $8,072,000$2,755,000 for the priorthree months ended July 31, 2006 were level with electronic revenues for the same period last fiscal year. Within electronic publications revenues are revenues generated by institutional subscribers and retail subscribers. Institutional revenues increased $698,000$128,000 or 35%15%, while revenues from retail subscribers were down $530,000$139,000 or 9%7%. Print subscription revenues of $27,723,000$8,786,000 were down $1,761,000$623,000 or 6%7% compared to $29,484,000$9,409,000 for the last fiscal year. SubscriptionLicensing fees for the first three months of fiscal 2007 of $1,811,000 were up $925,000 or 104% compared to $886,000 last fiscal year.
Investment management fees and services revenues of $11,890,000$8,039,000 for the three months ended JanuaryJuly 31, 2006 were 5% below revenues for the comparable period ofup $225,000, or 3%, above the prior fiscal year. Electronic publicationsyear’s revenues of $2,697,000$7,814,000. Investment advisory fees were down $55,000 or 2% comparedup 10% primarily due to $2,752,000an increase in the net assets of the Value Line Mutual Funds, which was partially offset by fee waivers for certain of the prior fiscal year. Institutional electronic publications revenues increased $26,000 or 3%, while revenues from retail electronic publication subscribersValue Line Mutual Funds at July 31, 2006. Total mutual funds net assets as of July 31, 2006 were down $81,000 or 4%. Print subscription revenues of $9,193,000 were down $580,000 or 6% compared to $9,773,000 for the last fiscal year.over $3.5 billion.
 
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Licensing fees for the nine months ended January 31, 2006 of $3,335,000 were up $1,619,000 or 94% compared to $1,716,000 for the same period of fiscal 2005. Licensing fees for the third quarter ended January 31, 2006 of $1,442,000 increased $794,000 or 123% from the comparable period of last fiscal year.
Investment management fees and service revenues of $24,160,000 for the nine months ended January 31, 2006 were up $72,000, which is less than 1% above the prior fiscal year’s revenues of $24,088,000. Beginning November 2004, Value Line Securities, Inc. suspended its business of effecting trades for any of the Value Line Funds, from which it had earned net commission revenues. The decline in brokerage revenues was mostly offset by higher investment advisory fees that resulted primarily from a 10% increase in the net assets of the Value Line family of mutual funds, which includes fee waivers for certain of the Value Line Mutual Funds. Total mutual funds net assets as of January 31, 2006 were $3,604,391,000.
Operating expenses for the ninethree months ended JanuaryJuly 31, 2006 of $37,788,000$11,522,000 were 16%2% below expenses of $44,810,000$11,711,000 for the comparable period of the previous fiscal year. Operating expenses for the third quarter ended January 31, 2006 of $13,545,000 were 7% below expenses of $14,621,000 for the same period last fiscal year. Total advertising and promotional expenses of $9,902,000$3,224,000 for the ninefirst three months ended January 31, 2006of fiscal 2007 were 39% below24% above the prior year’s expenses of $16,245,000. Advertising and promotional expenses for the third quarter ended January 31, 2006 of $3,826,000 were 30% below expenses of $5,455,000 for the prior year.$2,606,000. The decreaseincrease in advertising expenses resulted primarily from the reductionincrease in the frequency of marketing campaigns in fiscal 20062007 for the Company’s investment periodicals. Salaries and employee benefit expenses of $14,605,000$4,542,000 for the third quarter of fiscalthree months ended July 31, 2006 were 5%12% below expenses of $15,337,000$5,163,000 for the prior fiscal year primarily as a result of staff consolidations in the Company.year. Production and distribution expenses for the nine monthsperiod ended JanuaryJuly 31, 2006 of $5,314,000$1,811,000 were 20% below2% above expenses of $6,615,000 for the same period of$1,775,000 in fiscal 2005. Production and distribution expenses for the third quarter of fiscal 2006 of $1,712,000 were 19% below fiscal 2005 expenses.2006. The declineincrease in expenses for the ninefirst three months and third quarter wereof fiscal 2007 was primarily due to the outsourcing of certain data collection services and an increase in U.S postal rates, which were partially offset by lower paper printing and distributionprinting costs that resulted in part from a decrease in circulation of the print products and the elimination of brokerage execution fees.products. Office and administrative expenses for the first ninethree months of fiscal 20062007 of $7,967,000$1,945,000 were 20% higher than10% below the prior fiscal year’s expenses of $6,613,000 and expenses of $3,260,000 for the third quarter of fiscal 2006 were 45% higher than the last fiscal year’s expenses.$2,167,000. The increasedecline in administrative expenses was primarily due to an increasea decrease in professional fees and the additional costs associated with outsourcing certain of the mutual fund administration functions.fees.
 
For the ninethree months ended JanuaryJuly 31, 2006, the Company’s income from securities transactions net, of $3,571,000$593,000 was 56% below108% above securities transactions income of $8,033,000 for the same period of the$285,000 last fiscal year. Income from securities transactions, net, for the ninefirst three months ended January 31, 2006of fiscal 2007 included dividend and interest income of $1,315,000. Capital gains during the first nine months of fiscal 2006 were $2,310,000, of$590,000, which $2,355,000 represented distributions during the quarter ended January 31, 2006 from the Value Line Mutual Funds and $75,000 from an installment sale of an investment in a privately held Company. The income from securities transactions for the first nine months of fiscal 2006 compares to dividend and interest income of $360,000 and capital gains of $6,750,000 from sales of securities included in$338,000 for the Company’s trading and available for sale portfolios included in the nine months ended January 31, 2005. The first nine monthscomparable period of the prior fiscal year included capitalyear. Unrealized gains that resulted from partial sales of the Company’s equityon trading securities in preparation for payment on May 19, 2004 of a special dividend of $17.50 per share to all common shareholders of record as of May 7, 2004 and redeployment of the remaining proceeds in fixed income government obligations. Capital gains for the nine months ofduring fiscal 2005 also included $433,000 from the initial proceeds from an installment sale of an investment in a privately held Company.
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For the third quarter ended January 31, 2006, the Company’s income from securities transactions, net, was $2,858,000, 159% above securities transactions income of $1,104,000 for the same period of the last fiscal year. Income from securities transactions, net, for the three months ended January 31, 2006 included dividend and interest income of $587,000 and capital gains of $2,271,000 of which $2,355,000 represented capital gain distributions from the Value Line Mutual Funds. This compares to dividend and interest income of $186,000 and capital gains of $918,000 from sales of securities included in the Company’s trading and available for sale portfolios, the proceeds of which2007 were reinvested in fixed income government obligations during the three months ended January 31, 2005.$3,000.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This report containsmay contain statements (including certain projections and business trends) accompanied by such phrases as “believe”, “estimate”, “expect”, “anticipate”, “will”, “intend” and other similar or negative expressions, that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to the following:

·demand for and market acceptance of the Company’s new and existing products;
·renewals of subscriptions for the Company’s products;
·adaptation of the Company’s products to new technologies;
·fluctuations in the Company’s assets under management due to broadly based changes in the values of equity and debt securities, redemptions by investors and other factors;
·competitive product and pricing pressures;
·the impact of government regulation on the Company’s business and the uncertainties of litigation and regulatory initiatives and inquiries; and
·other risks and uncertainties, including but not limited to those detailedthe risks described in Item 1A, “Risk Factors” of the Company’s Annual Report on Form 10-K for year ended April 30, 2006, and other risks and uncertainties from time to time in our SEC filings.time.

Any forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.RISK.

Market Risk Disclosures

Value Line, Inc.’sThe Company’s Consolidated Condensed Balance Sheet includes a substantial amount of assets and liabilities whose fair values are subject to market risks. Value Line’sThe Company’s significant market risks are primarily associated with interest rates and equity prices. The following sections address the significant market risks associated with Value Line’sthe Company’s business activities.

Interest Rate Risk

Value Line concentrates its fixed income investmentsThe Company’s management prefers to invest in highly liquid debt securities with extremely low credit risk. Value Line’sThe Company’s strategy is to acquire securities that are attractively priced in relation to the perceived credit risk. Management recognizes and accepts that losses may occur. To limit the price fluctuation in these securities from interest rate changes, Value Line’sthe Company’s management invests primarily in short-term obligations maturing in 1 to 5 years.

The fair values of Value Line’sthe Company’s fixed maturity investments will fluctuate in response to changes in market interest rates. Increases and decreases in prevailing interest rates generally translate into decreases and increases in fair values of those instruments. Additionally, fair values of interest rate sensitive instruments may be affected by prepayment options, relative values of alternative investments, and other general market conditions.
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The following table summarizes the estimated effects of hypothetical increases and decreases in interest rates on assets that are subject to interest rate risk. It is assumed that the changes occur immediately and uniformly to each category of instrument containing interest rate risks. The hypothetical changes in market interest rates do not reflect what could be deemed best or worst case scenarios. Variations in market interest rates could produce significant changes in the timing of repayments due to prepayment options available. For these reasons, actual results might differ from those reflected in the table. Dollars are in thousands.

 Estimated Fair Value after 
 
 Hypothetical Change in Interest Rates
 
   
 Estimated Fair Value After  (bp = basis points)  
 Hypothetical Change in Interest Rates    
      6 mos. 6 mos.  1 yr.  1 yr. 
 (bp = basis points)            
 Fair 50bp 50bp 100bp 100bp  Fair 
50 bp
 
50 bp
 
100 bp
 
100 bp
 
Fixed Income Securities Value increase decrease increase decrease  Value increase  decrease  increase  decrease 
                      
As of January 31, 2006           
As of July 31, 2006              
Investments in securities with fixed maturities $41,735 $41,550 $41,890 $41,560 $41,943  $47,393 $47,325 $47,648 $47,173 $47,635 
                        
As of April 30, 2005            
As of April 30, 2006            
Investments in securities with fixed maturities $39,065 $38,927 $39,253 $38,911 $39,326  $41,585 $41,549 $41,801 $41,514 $41,821 
 
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Management regularly monitors the maturity structure of the Company’s investments in fixed maturity debt obligations in order to maintain an acceptable price risk associated with changes in interest rates.

Equity Price Risk

The carrying values of investments subject to equity price risks are based on quoted market prices or management’s estimates of fair value as of the balance sheet dates. Market prices are subject to fluctuation and, consequently, the amount realized in the subsequent sale of an investment may significantly differ from the reported market value. Fluctuation in the market price of a security may result from perceived changes in the underlying economic characteristics of the issuer, the relative price of alternative investments and general market conditions. Furthermore, amounts realized in the sale of a particular security may be affected by the relative quantity of the security being sold.

Value Line invests a significant levelamount of its assets in equity securities, primarily the Value Line family of equity mutual funds.funds managed by Value Line. Each of these mutual fundfunds invests in a variety of equity positions of various companies thereby diversifying Value Line’s risk. Value Line has also utilized derivative financial instruments in the past to minimize market price risk, although no such derivative financial instruments were utilized during fiscal years 20062007 and 2005.2006.

The table below summarizes Value Line’s equity price risks as of JanuaryJuly 31 2006 and April 30, 20052006 and shows the effects of a hypothetical 30% increase and a 30% decrease in market prices as of those dates. The selected hypothetical changes do not reflect what could be considered the best or worst case scenarios. Dollars are in thousands.
 

      Estimated   
      Fair Value after Hypothetical Percentage 
     Hypothetical Hypothetical Increase (Decrease) in 
Equity Securities
 Fair Value  Price Change Change in Prices Shareholders’ Equity 
As of July 31, 2006 $43,348  30% increase $56,352  13.29%
      30% decrease $30,343  (13.29)%
              
As of April 30, 2006 $46,644  30% increase $60,637  14.69%
      30% decrease $32,651  (14.69)%

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      Estimated Hypothetical 
      Fair Value after Percentage 
     Hypothetical Hypothetical Increase (Decrease) in 
Equity Securities Fair Value Price Change Change in Prices Shareholders’ Equity 
          
As of January 31, 2006 $44,916  30% increase $58,390  15.1%
      30% decrease $31,441  (15.1
)%
              
As of April 30, 2005 $37,209  30% increase $48,372  16.4%
      30% decrease $26,046  (16.4
)%
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Item 4. Disclosure Controls and Procedures

(a)The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Exchange Act Rule 13a - 15(e)), based on their evaluation of these controls and procedures as of the end of the period covered by this report, are appropriately designed to ensure that material information relating to the registrant is made known to such officers and are operating effectively.

(b)The registrant’s principal executive officer and principal financial officer have determined that there have been no changes in the registrant’s internal control over financial reporting that occurred during the registrant’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

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Part II - Other Information


Item 1. Legal Proceedings

Refer to Note 9 (Contingencies) of the consolidated condensed financial statements for discussion of legal proceedings.


Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in Item 1A - Risk Factors in our Annual Report on Form 10-K for the year ended April 30, 2006.
 
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VALUE LINE, INC.

Signatures


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-Q report for the period ended JanuaryJuly 31, 2006 to be signed on its behalf by the undersigned thereunto duly authorized.


   
 
Value Line, Inc.
(Registrant)
 
 		 
 		 
 
Date: March 17,September 13, 2006By:  /s/  Jean Bernhard Buttner
 
Jean Bernhard Buttner
 Chairman & Chief Executive Officer


   
Date: March 17,September 13, 2006By:  /s/ Mitchell E. Appel
 
Mitchell E. Appel
 Chief Financial Officer

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