UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

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

 

For the quarterly period ended JulyOctober 31, 2022

or

 

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

 

For the transition period from

to

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 incorporation or organization)	(I.R.S. Employer Identification No.)

551 Fifth Avenue, New York, New York	10176-0001
(Address of principal executive offices)	(Zip Code)

 

(212) 907-1500

(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class	Trading symbol	Name of each Exchange on which registered
Common stock, $0.10 par value per share	VALU	The Nasdaq Capital Market

 

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐                   

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒

Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

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 August 31,November 30, 2022
Common stock, $0.10 par value per share	9,471,7599,450,819 shares

 

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VALUE LINE, INC.

TABLE OF CONTENTS

 

		Page No.
			PART I. FINANCIAL INFORMATION
Item 1.	Consolidated Condensed Financial Statements
	Consolidated Condensed Balance Sheets as of JulyOctober 31, 2022 and April 30, 2022	3
	Consolidated Condensed Statements of Income for the three and six months ended JulyOctober 31, 2022 and JulyOctober 31, 2021	4
	Consolidated Condensed Statements of Comprehensive Income for the three and six months ended JulyOctober 31, 2022 and JulyOctober 31, 2021	5
	Consolidated Condensed Statements of Cash Flows for the threesix months ended JulyOctober 31, 2022 and JulyOctober 31, 2021	6
	Consolidated Condensed Statement of Changes in Shareholders’ Equity for the threesix months ended JulyOctober 31, 2022	7
	Consolidated Condensed Statement of Changes in Shareholders’ Equity for the threesix months ended JulyOctober 31, 2021	87
	Notes to Consolidated Condensed Financial Statements	98
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2021
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3033
Item 4.	Controls and Procedures	3235
			PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	3235
Item 1A.	Risk Factors	3235
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3336
Item 4.	Mine Safety Disclosures	3336
Item 5.	Other Information	3336
Item 6.	Exhibits	3437
	Signatures	3538

 

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Part I - Financial Information

Item 1. Financial Statements

Value Line, Inc.

Consolidated Condensed Balance Sheets

(in thousands, except share amounts)

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

Part I - Financial Information

Item 1. Financial Statements

Value Line, Inc.

Consolidated Condensed Statements of Income

(in thousands, except share & per share amounts)

(unaudited)

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

Part I - Financial Information

Item 1. Financial Statements

Value Line, Inc.

Consolidated Condensed Statements of Comprehensive Income

(in thousands)

(unaudited)

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

Part I - Financial Information

Item 1. Financial Statements

Value Line, Inc.

Consolidated Condensed Statements of Cash Flows

(in thousands)

(unaudited)

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

Part I - Financial Information

Item 1. Financial Statements

Value Line, Inc.

Consolidated Condensed Statement of Changes in Shareholders' Equity

For the ThreeSix Months Ended JulyOctober 31, 2022

(in (in thousands, except share amounts)

(unaudited)

Dividends declared per common share were $0.25$0.50 for the threesix months ending JulyOctober 31, 2022.

Part I - Financial Information

Item 1. Financial Statements

Value Line, Inc.

 Consolidated Condensed Statement of Changes in Shareholders' Equity

 For the Six Months Ended October 31, 2021

 (in thousands, except share amounts)

 (unaudited)

Dividends declared per common share were $0.44 for the six months ending October 31, 2021.                                        

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

Part I - Financial Information
Item 1. Financial Statements

Value Line, Inc.

Notes to Consolidated Condensed Statement of Changes in Shareholders' EquityFinancial Statements

For the Three Months Ended July 31, 2021
(in thousands, except share amounts)
(unaudited)

Dividends declared per common share were $0.22 for the three months ending July 31, 2021.

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

Note 1 - Organization and Summary of Significant Accounting Policies:

Value Line, Inc. ("Value Line" or "VLI", and collectively with its subsidiaries, the “Company”) is incorporated in the State of New York. The name "Value  Line" as used to  describe  the Company, its  products, and its  subsidiaries,  is  a registered  trademark of  the Company. The Company's core business  is  producing  investment periodicals  and their underlying  research and making available certain  Value  Line copyrights, Value  Line  trademarks and Value  Line  Proprietary Ranks and other proprietary information,  to third parties  under written  agreements for use in  third-party  managed and marketed investment products and for other purposes. The Company maintains a significant investment in Eulav Asset Management LLC ("EAM") from which it receives a non-voting revenues interest  and a non-voting profits interest. Pursuant to the EAM Declaration of Trust dated as of December 23, 2010  (the "EAM Trust Agreement"), VLI granted EAM the right to use the Value Line name for all existing Value Line Funds and agreed to supply, without charge or expense, the Value Line Proprietary Ranking System information to EAM for use in managing the Value Line Funds.  EAM was established to provide investment management services to the Value Line Mutual Funds ("Value Line Funds" or the "Funds").

The Consolidated  Condensed Balance  Sheets as of  JulyOctober 31,  2022and April  30,2022,which  have been derived  from  the unaudited interim Consolidated Condensed Financial Statements and the audited Consolidated Financial Statements, respectively, were prepared following the interim reporting requirements of the Securities and Exchange Commission (“SEC”).   In the opinion of management,  the  accompanying   Unaudited   Interim   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 audited financial statements and footnotes contained in the Company's Annual Report on Form 10-K for the fiscal  year ended April 30,  2022filed  with  the SEC  on  July 26,  2022 (the  (the “Form 10-K”). Results  of operations  covered by this report may not be indicative of the results of operations for the entire year.

Use of Estimates:

The  preparation  of  financial  statements  in  conformity  with  U.S.   generally  accepted  accounting  principles   ("GAAP")  requires management to make estimates  and assumptions  that affect certain reported amounts and disclosures. Accordingly, actual results may differ from those estimates.

Principles of Consolidation:

The Company follows the guidance in the Financial Accounting Standards Board's ("FASB") Topic 810  “Consolidation” to determine if it should consolidate its investment in a variable interest entity ("VIE"). A VIE is a legal entity in which either (i) equity investors do not have sufficient equity investment at risk to enable the entity to finance its activities independently or (ii) the equity holders at risk lack  the obligation  to absorb losses,  the right to receive  residual returns or the right to make decisions  about the entity’s  activities that most significantly affect the entity's economic performance. A holder of a variable interest in a VIE is required to consolidate the entity  if  it  is  determined  that  it  has a controlling  financial  interest  in  the  VIE  and is  therefore  the  primary  beneficiary.   The determination of a controlling financial interest in a VIE is based on a qualitative assessment to identify the variable interest holder, if any, that has (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (ii) either the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. The accounting guidance requires the Company to perform an ongoing assessment of whether the Company is the primary beneficiary of a VIE and the Company has determined it is not the primary beneficiary of a VIE (see Note 3).

In accordance with FASB's Topic 810,  the assets, liabilities, and results of operations  of subsidiaries  in which the Company has a controlling interest have been consolidated. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company holds a significant non-voting revenues interest (excluding distribution revenues) and a significant non-votingnon- voting profits interest in EULAV Asset Management, a Delaware statutory trust (“EAM” or “EAM Trust”). The Company relied on the guidance in FASB's ASC Topics 323  and 810  in its determination not to consolidate its investment in EAM and to account for such investment under the equity method of accounting. The Company reports the amount it receives for its non-voting revenues and non-votingnon voting profits interests as a separate line item below operating income in the Consolidated Condensed  Statements of Income.

Revenue Recognition:

Depending  upon   the product, subscription  fulfillment  for  Value  Line  periodicals  and related  publications  is  available  in  print  or digitally,  via  internet  access.   The length  of  a subscription  varies  by  product and  offer  received  by  the subscriber.   Generally, subscriptions are offered as annual subscriptions. Subscription revenues, net of discounts, are recognized ratably on a straight line basis when the product is served to the client over the life of the subscription.   Accordingly, the amount of subscription fees  to be earned by fulfilling subscriptions after the date of the balance sheets are shown as unearned revenue within current and long-term liabilities.

Copyright fees are derived from providing certain Value Line trademarks and the Value Line Proprietary Ranks to third parties under written  agreements for use in  selecting  securities  for third  party marketed products, including  unit investment  trusts, annuities  and exchange traded funds ("ETFs"). The Company  earns asset-based copyright fees upon  delivery of the product to the customer as specified in the individual agreements. Revenue is recognized monthly and received either quarterly or in advance over the term of the agreement and, because it is asset-based, will fluctuate as the market value of the underlying portfolio increases or decreases in value.

Value Line, Inc.

Notes to Consolidated Condensed Financial Statements

October 31, 2022

(Unaudited)

Investment in Unconsolidated Entities:

The Company accounts for its  investment in  its  unconsolidated  entity, EAM, using  the equity method of accounting  in accordance with FASB’s ASC 323.   The equity method is an appropriate means of recognizing increases  or decreases measured by GAAP in the economic  resources underlying the investments.   Under the equity method, an investor recognizes its share of the earnings or losses of an investee in the periods for which they are reported by the investee in its financial statements rather than in the period in which an investee declares a dividend or distribution. An investor adjusts the carrying amount of an investment for its share of the earnings or losses recognized by the investee.

The Company’s “interests” in EAM, the investment adviser to and the sole member of the distributor of the Value Line Funds, consist of a "non-voting  revenues interest" and a "non-voting  profits  interest" in  EAM as defined  in  the EAM Trust Agreement. The non-votingnon- voting  revenues interest  entitles  the Company to  receive  a range of 41%  to  55%  of EAM’s  adjusted  gross revenues, excluding EULAV Securities' distribution revenues (“Revenues Interest”). The non-voting profits interest entitles the Company to receive 50% of EAM's  profits, subject to certain limited  adjustments as defined in  the EAM Trust Agreement (“Profits Interest”).   The Revenues Interest and at least 90% of the Profits Interest are to be distributed each quarter to all interest holders of EAM, including Value Line. The Company's Revenues Interest  in  EAM excludes participation  in  the service  and distribution  fees  of EAM's  subsidiary EULAV Securities.   The Company reflects  its  non-voting revenues and non-voting  profits interests  in EAM as non-operating  income under the equity method of accounting.   Although  the Company does not  have control  over the operating  and financial policies  of EAM, pursuant to the EAM Trust Agreement, the Company has a contractual right to receive its share of EAM's revenues and profits.

Valuation of Securities:

The Company's securities  classified as cash equivalents, equity securities and available-for-sale fixed income securities consist of shares of money market funds that invest primarily in short-term U.S. Government securities  and investments in  equities  including ETFs and are valued  in  accordance with  the requirements  of the Fair  Value  Measurements Topic  of the FASB's ASC  820.   The securities classified  as equity  securities  reflected  in  the Consolidated  Condensed  Balance  Sheets are valued  at  market and unrealized gains  and losses are recorded in the Consolidated  Condensed Statements of Income  per FASB  Accounting Standards Update No. 2016-01 ("ASU 2016-01"). The securities classified as available-for-sale  fixed income securities reflected in the Consolidated  Condensed Balance  Sheets are valued  at market and unrealized  gains  and losses,  net of  applicable  taxes, are reported as a separate component of shareholders'  equity. Investment  gains  and losses  on  sales  of the equity  securities are the difference between proceeds from sales and the fair value of the equity securities sold at the beginning of the period or the purchase date, if  later.   Investment  gains  and losses  on  sales  of the available-for-sale  fixed  income  securities  are the difference  between proceeds from sales and the cost of the securities. Investment gains and losses on sales of the securities are recorded in earnings as of the trade date and are determined on the identified cost method.

The Company classifies  its  equity  securities  and available-for-sale  fixed  income  securities  as current assets  to properly  reflect  its liquidity and to recognize the fact that it has liquid assets available-for-sale should the need arise.

Market valuations  of securities  listed  on  a securities  exchange and ETF  shares are based on  the closing  sales  prices  on  the last business  day of each month. The market value  of the Company's fixed  maturity  U.S. Government debt securities  is  determined utilizing publicly quoted market prices. Cash equivalents consist of investments in money market funds that invest primarily in U.S. Government securities valued in accordance with rule 2a-7 under the 1940  Act.

The Fair Value Measurements Topic of FASB's ASC defines fair value as the price that the Company would receive upon  selling an investment  in  a timely  transaction  to an independent  buyer in  the principal  or most advantageous  market for the investment. The Fair Value Measurements Topic established a three-tier hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the information that market participants would use in pricing the asset or liability, including assumptions about risk. Examples of risks include  those inherent in  a particular valuation  technique  used to measure fair value  such as the risk  inherent in  the inputs  to the valuation technique. Inputs are classified as observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the factors market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

Value Line, Inc.

Notes to Consolidated Condensed Financial Statements

October 31, 2022

(Unaudited)

The three-tier hierarchy of inputs is summarized in the three broad levels listed below.

Level 1 – quoted prices in active markets for identical investments

Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments)

The following summarizes the levels of fair value measurements of the Company’s investments:

The Company had no other financial instruments such as futures, forwards and swap contracts. For the periods ended JulyOctober 31, 2022 and April 30, 2022, there were no Level 2 nor Level 3 investments. The Company does not have any liabilities that are subject to fair value measurement.

Advertising expenses:  

The Company expenses advertising costs as incurred.

Income Taxes:

The Company computes its income tax provision in accordance with the Income Tax Topic of the FASB's ASC.  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.  The Company adopted the provisions of ASU 2015-17, Income taxes (Topic 740) and classifies all deferred taxes as long-term liabilities on the Consolidated Condensed Balance Sheets.

The Income Tax Topic of the FASB's ASC establishes for all entities, a minimum threshold for financial statement recognition of the benefit of positions taken in filing tax returns (including whether an entity is taxable in a particular jurisdiction), and requires certain expanded tax disclosures.  As of JulyOctober 31, 2022, management has reviewed the tax positions for the years still subject to tax audit under the statute of limitations, evaluated the implications, and determined that there is no material impact to the Company's 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 period. Any shares that are reacquired during the period are weighted for the portion of the period that they are outstanding.  The Company does not have any potentially dilutive common shares from outstanding stock options, warrants, restricted stock, or restricted stock units.

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 JulyOctober 31, 2022 and April 30, 2022, cash equivalents included $14,033,000$12,066,000 and $28,965,000, respectively, for amounts invested in money market mutual funds that invest in short term U.S. government securities.

Value Line, Inc.

Notes to Consolidated Condensed Financial Statements

October 31, 2022

(Unaudited)

Note 2 - Investments:

Investments held by the Company and its subsidiaries are classified as  equity securities and available-for-sale fixed income securities in accordance with FASB's ASC 321, Investments - Equity Securities and with FASB's ASC 320, Investments - Debt Securities.  All of the Company's securities were readily marketable or had a maturity of twelve months or less and are classified as current assets  on the Consolidated Condensed Balance Sheets.

Equity Securities:

Equity securities on the Consolidated Condensed Balance Sheets, consist of ETFs held for dividend yield that attempt to replicate the performance of certain equity indexes and ETFs that hold preferred shares primarily of financial institutions.  

As of JulyOctober 31, 2022 and April 30, 2022, the aggregate cost of the equity securities, which consist of investments in the SPDR Series Trust S&P Dividend ETF (SDY), First Trust Value Line Dividend Index ETF (FVD), ProShares Trust S&P 500 Dividend Aristocrats ETF (NOBL), IShares DJ Select Dividend ETF (DVY) and other Exchange Traded Funds and common stock equity securities was a combined total $13,211,000$13,212,000 and $13,318,000, respectively, and the fair value was $17,696,000$17,122,000 and $17,647,000, respectively.  

Proceeds from sales of equity securities during the threesix months ended JulyOctober 31, 2022 and JulyOctober 31, 2021, were $576,000$1,016,000 and $34,000,$687,000, respectively.     

The carrying value and fair value of equity securities at JulyOctober 31, 2022 were as follows:

The carrying value and fair value of equity securities at April 30, 2022 were as follows:

Government Debt Securities (Fixed Income Securities):

Fixed income securities consist of certificates of deposits and securities issued by federal, state and local governments within the United States.  

Proceeds from maturities and sales of government debt securities classified as available-for-sale during the threesix months ended JulyOctober 31, 2022 and JulyOctober 31, 2021, were $0 and $2,496,000, respectively. As of JulyOctober 31, 2022, Accumulated Other Comprehensive Income included unrealized losses of $23,000$28,000 net of deferred tax benefit of $5,000.$6,000.  As of April 30, 2022, Accumulated Other Comprehensive Income included unrealized losses of $30,000, net of deferred tax benefit of $6,000.

The aggregate cost and fair value at JulyOctober 31, 2022 of fixed income securities classified as available-for-sale were as follows:

The decrease in gross unrealized losses of $7,000$3,000 on fixed income securities classified as available-for-sale net of deferred income taxes of $2,000,$1,000, was included in Accumulated Other Comprehensive Income on the Consolidated Condensed Balance Sheet as of JulyOctober 31, 2022.  

The aggregate cost and fair value at April 30, 2022 of fixed income securities classified as available-for-sale were as follows:

The increase in gross unrealized losses of $34,000 on fixed income securities classified as available-for-sale net of deferred income tax benefit of $7,000, was included in Accumulated Other Comprehensive Income on the Consolidated Balance Sheet as of April 30, 2022.  

The average yield on the Government debt securities classified as available-for-sale at JulyOctober 31, 2022 and April 30, 2022 was 2.28%2.5% and 0.6%, respectively.

Investment Gains/(Losses):

Investment gains/(losses) were comprised of the following:

Taxable realized gains/(losses) on equity securities sold during fiscal years 2023 and 2022, which are generally the difference between the proceeds from sales and our original cost, were losses of $11,000$9,000 in fiscal 2023 and gains of $2,000$35,000 in fiscal 2022.  

Value Line, Inc.

Notes to Consolidated Condensed Financial Statements

October 31, 2022

(Unaudited)

Investment in Unconsolidated Entities:

Equity Method Investment:

As of JulyOctober 31, 2022 and April 30, 2022, the Company's investment in EAM Trust on the Consolidated Condensed Balance Sheets was $59,115,000$58,940,000 and $59,971,000, respectively.

The value of VLI’s investment in EAM at JulyOctober 31, 2022 and April 30, 2022 reflects the fair value of contributed capital of $55,805,000 at inception which included $5,820,000 of cash and liquid securities in excess of working capital requirements contributed to EAM’s capital account by VLI, plus VLI's share of non-voting revenues and non-voting profits from EAM less distributions, made quarterly to VLI by EAM, during the period subsequent to its initial investment through the dates of the Consolidated Condensed Balance Sheets.

It is anticipated that EAM will have sufficient liquidity and earn enough profit to conduct its current and future operations so the management of EAM will not need additional funding. 

The Company monitors its Investment in EAM Trust for impairment to determine whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of the investment.  Impairment indicators include, but are not limited to the following: (a) a significant deterioration in the earnings performance, asset quality, or business prospects of the investee, (b) a significant adverse change in the regulatory, economic, or technological environment of the investee, (c) a significant adverse change in the general market condition of the industry in which the investee operates, or (d) factors that raise significant concerns about the investee’s ability to continue as a going concern such as negative cash flows, working capital deficiencies, or noncompliance with statutory capital and regulatory requirements.  EAM did not record any impairment losses for its assets during the fiscal years 2023 or 2022.

The components of EAM’s investment management operations, provided to the Company by EAM, were as follows:

(1) Represents EAM's net income, after giving effect to Value Line’s non-voting revenues interest, but before distributions to voting profits interest holders and to the Company in respect of its 50% non-voting profits interest. 

(1) At JulyOctober 31, 2022 and April 30, 2022, EAM's total liabilities included a payable to VLI for its accrued non-voting revenues interest and non-voting profits interest of $2,991,000$2,797,000 and $3,657,000, respectively.

Value Line, Inc.

Notes to Consolidated Condensed Financial Statements

October 31, 2022

(Unaudited)

Note3 - Variable Interest Entity

The Company holds a  non-voting revenues interest and a 50% non-voting profits interest in EAM, the adviser to the Value Line asset management and mutual fund distribution businesses.  EAM is considered to be a VIE in relation to the Company.  The Company makes its determination for consolidation of EAM as a VIE based on a qualitative assessment of the purpose and design of EAM, the terms and characteristics of the variable interests in EAM, and the risks EAM is designed to originate and pass through to holders of variable interests.  Other than EAM, the Company does not have an interest in any other VIEs.

The Company has determined that it does not have a controlling financial interest in EAM because it does not have the power to direct the activities of EAM that most significantly impact its economic performance.  Value Line does not hold any voting stock of EAM and it does not have any involvement in the day-to-day activities or operations of EAM.  Although the EAM Trust Agreement provides Value Line with certain consent rights and contains certain restrictive covenants related to the activities of EAM, these are considered to be protective rights and therefore Value Line does not maintain control over EAM.

In addition, although EAM is expected to be profitable, there is a risk that it could operate at a loss. While all of the profit interest shareholders in EAM are subject to variability based on EAM’s operations risk, Value Line’s non-voting revenues interest in EAM is a preferred interest in the revenues of EAM, rather than a profits interest in EAM, and Value Line accordingly believes it is subject to proportionately less risk than other holders of the profits interests.

The Company has not provided any explicit or implicit financial or other support to EAM other than what was contractually agreed to in the EAM Trust Agreement.  Value Line has no obligation to fund EAM in the future and, as a result, has no exposure to loss beyond its initial investment and any undistributed revenues and profits interests retained in EAM.  The following table presents the total assets of EAM, the maximum exposure to loss due to involvement with EAM, as well as the value of the assets and liabilities the Company has recorded on its Consolidated Condensed Balance Sheets for its interest in EAM.

(1)  Reported within Long-Term Assets on the Consolidated Condensed Balance Sheets.

Value Line, Inc.

Notes to Consolidated Condensed Financial Statements

October 31, 2022

(Unaudited)

Note 4 - Supplementary Cash Flows Information:

Reconciliation of Cash, Cash Equivalents, and Restricted Cash:

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Condensed Statement of Cash Flows that sum to the total of the same such amounts shown in the Consolidated Condensed Statement of Cash Flows.

Income Tax Payments:

The Company made income tax payments as follows:

Note 5 - Employees' Profit Sharing and Savings Plan:

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. For the threesix months ended JulyOctober 31, 2022 and JulyOctober 31, 2021, the estimated profit sharing plan contributions, which are included as expenses in salaries and employee benefits in the Consolidated Condensed Statements of Income, were $137,000$213,000 and $188,000$328,000 in fiscal 2023 and fiscal 2022, respectively. 

Note 6 - Comprehensive Income:

The FASB's ASC Comprehensive Income topic 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 otherwise would not be recognized in the calculation of net income.

As of JulyOctober 31, 2022 and JulyOctober 31, 2021 the Company held fixed income securities consisting of certificates of deposits and securities issued by federal, state, and local governments within the United States that are classified as securities available-for-sale on the Consolidated Condensed Balance Sheets. The change in valuation of fixed income 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 included in the Consolidated  Condensed Statements of Income and Changes in Shareholders' Equity for the threesix months ended JulyOctober 31, 2022 are as follows:

The components of comprehensive income included in the Consolidated Condensed Statements of Income and Changes in Shareholders' Equity for the threesix months ended JulyOctober 31, 2021 are as follows:

Value Line, Inc.

Note 7 - Related Party Transactions:

Investment Management (overview):

The Company has substantial non-voting revenues and non-voting profits interests in EAM, the asset manager to the Value Line Mutual Funds.  Accordingly, the Company does not report this operation as a separate business segment, although it maintains a significant interest in the cash flows generated by this business and receives non-voting revenues and non-voting profits interests, as discussed below. 

Total assets in the Value Line Funds managed and/or distributed by EAM at JulyOctober 31, 2022, were $3.16$2.9 billion, 36.8%42% below total assets of $5.0 billion in the Value Line Funds managed and/or distributed  by EAM at JulyOctober 31, 2021. The reduction in assets was due to a bear market in equities, and particularly in growth stocks in which EAM specializes, and to the termination of a lower-margin business in annuity funds. 

The Company’s non-voting revenues and non-voting profits interests in EAM entitle it to receive quarterly distributions in a range of 41% to 55% of EAM’s revenues (excluding distribution revenues) from EAM’s mutual fund and separate account business and 50% of the residual profits of EAM (subject to temporary increase in certain limited circumstances).  The Voting Profits Interest Holders receive the other 50% of residual profits of EAM.  Distribution is not less than 90% of EAM’s profits payable each fiscal quarter under the provisions of the EAM Trust Agreement.   Value Line’s percent share of EAM’s revenues is calculated each fiscal quarter.  The applicable recent non-voting revenues interest percentage for the firstsecond quarter of fiscal 2023 was 53.65%53.01%.

EAM Trust - VLI's non-voting revenues and non-voting profits interests:

The Company holds non-voting revenues and non-voting profits interests in EAM which entitle the Company to receive from EAM an amount ranging from 41% to 55% of EAM's investment management fee revenues from its mutual fund and separate accounts business.  EAM currently has no separately managed account fees.  The Company recorded income from its non-voting revenues interest and its non-voting profits interests in EAM as follows:   

At JulyOctober 31, 2022, the Company's investment in EAM includes a receivable of $2,991,000$2,797,000 representing the quarterly distribution of the non-voting revenues share and non-voting profits share.  That amount was subsequently paid to the Company.

Transactions with Parent:

During the threesix months ended JulyOctober 31, 2022 and JulyOctober 31, 2021, the Company was reimbursed $62,000$170,000 and $64,000,$175,000,  respectively, for payments it made on behalf of and for services the Company provided to the Parent Company, Arnold Bernhard and Co., Inc. ("Parent").  There were no receivables from the Parent on the Consolidated Condensed Balance Sheets at JulyOctober 31, 2022 and April 30, 2022.  

The Company is a party to a tax-sharing arrangement with the Parent which allocates the tax liabilities of the two Companies between them.   The Company made no federal tax payments of $3,127,000 and $2,300,000 to the Parent during the threesix months ended JulyOctober 31, 2022 and during the three months ended JulyOctober 31, 2021. 

As of JulyOctober 31, 2022, the Parent owned 91.12%91.29% of the outstanding shares of common stock of the Company.

Note 8 - Federal, State and Local Income Taxes:

In accordance with the requirements of the Income Tax Topic of the FASB's ASC, the Company's provision for income taxes includes the following:

Value Line, Inc.

Notes to Consolidated Condensed Financial Statements

October 31, 2022

(Unaudited)

On December 22, 2017 H.R. 1, originally known as the Tax Cuts and Jobs Act (the "Tax Act"), was enacted.  The Tax Act lowered the U.S. federal income tax rate ("Federal Tax Rate") from 35% to 21% effective January 1, 2018.  Accordingly, the Company computes Federal income tax expense using the Federal Tax Rate of 21% in fiscal year 2019 and each year thereafter.  

The overall effective income tax rates, as a percentage of pre-tax ordinary income for the threesix months ended JulyOctober 31, 2022 and JulyOctober 31, 2021 were 24.00%24.15% and 20.99%19.05%, respectively.  The increase in thelower effective tax rate during threesix months ended JulyOctober 31, 2021 as compared to October 31, 2022, is primarily a result of the non-taxable revenue derived from forgiveness of the PPP loan by the SBA during fiscal 2022 (see note 16). The higher effective tax rate during the six months ended October 31, 2022 as compared to JulyOctober 31, 2021, is primarily a result ofalso due to an increase in the state and local income taxestax rate to 3.37% from 0.32% to 3.18%1.11% as a result of changes in state and local income tax allocations, the increase in additional states that the Company is taxed in and the effect on deferred taxes in fiscal 2023. The Company's annualized overall effective tax rate fluctuates due to a number of factors, in addition to changes in tax law, including but not limited to an increase or decrease in the ratio of items that do not have tax consequences to pre-income tax, the Company's geographic profit mix between tax jurisdictions, taxation method adopted by each locality, new interpretations of existing tax laws and rulings and settlements with tax authorities.   

Deferred income taxes, a liability, 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 long-term deferred tax liability are as follows:

At the end of each interim reporting period, the Company estimates the effective income tax rate to apply for the full fiscal year. The Company uses the effective income tax rate determined to provide for income taxes on a year-to-date basis and reflects the tax effect of any tax law changes and certain other discrete events in the period in which they occur.

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory income tax rate to pretax income as a result of the following:

Value Line, Inc.

Notes to Consolidated Condensed Financial Statements

October 31, 2022

(Unaudited)

The Company believes that, as of JulyOctober 31, 2022, there were no material uncertain tax positions that would require disclosure under GAAP.

The Company is included in the consolidated federal income tax return of the Parent.  The Company has a tax sharing agreement which requires it to make tax payments to the Parent equal to the Company's liability/(benefit) as if it filed a separate return.  Beginning with the fiscal year ended April 30, 2017, the Company files combined income tax returns with the Parent on a unitary basis in certain states.

The Company’s federal income tax returns (included in the Parent’s consolidated returns) and state and city tax returns for fiscal years ended 2019 through 2021, are subject to examination by the tax authorities, generally for three years after they are filed with the tax authorities.

Note 9 - Property and Equipment:

Property and equipment are carried at cost.  Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the assets, or in the case of leasehold improvements, over the remaining terms of the leases.  For income tax purposes, depreciation of furniture and equipment is computed using accelerated methods and buildings and leasehold improvements are depreciated over prescribed extended tax lives. Property and equipment, net, on the Consolidated Condensed Balance Sheets was comprised of the following: