VALU 10-Q Quarter ended Oct. 31, 2022

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 October 31, 2022 and 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, 2022 filed  with  the SEC  on July 26, 2022 (the “Form 10 -K”). Results  of operations  covered by this report may not be indicative of the results of operations for the entire year.

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 October 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 $ 13,212,000 and $ 13,318,000 , respectively, and the fair value was $ 17,122,000 and $ 17,647,000 , respectively.

Proceeds from sales of equity securities during the six months ended October 31, 2022 and October 31, 2021, were $ 1,016,000 and $ 687,000 , respectively.

The carrying value and fair value of equity securities at October 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 six months ended October 31, 2022 and October 31, 2021, were $ 0 and $ 2,496,000 , respectively. As of October 31, 2022, Accumulated Other Comprehensive Income included unrealized losses of $ 28,000 net of deferred tax benefit of $ 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 October 31, 2022 of fixed income securities classified as available-for-sale were as follows:

The decrease in gross unrealized losses of $ 3,000 on fixed income securities classified as available-for-sale net of deferred income taxes of $ 1,000 , was included in Accumulated Other Comprehensive Income on the Consolidated Condensed Balance Sheet as of October 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 October 31, 2022 and April 30, 2022 was 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 $ 9,000 in fiscal 2023 and gains of $ 35,000 in fiscal 2022.

Investment in Unconsolidated Entities:

Equity Method Investment:

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

The value of VLI’s investment in EAM at October 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 October 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 $ 2,797,000 and $ 3,657,000 , respectively.

Note 3 - 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.

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 six months ended October 31, 2022 and October 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 $ 213,000 and $ 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 October 31, 2022 and October 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 six months ended October 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 six months ended October 31, 2021 are as follows:

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 October 31, 2022, were $ 2.9 billion, 42 % below total assets of $ 5.0 billion in the Value Line Funds managed and/or distributed  by EAM at October 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 second quarter of fiscal 2023 was 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 October 31, 2022, the Company's investment in EAM includes a receivable of $ 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 six months ended October 31, 2022 and October 31, 2021, the Company was reimbursed $ 170,000 and $ 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 October 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 federal tax payments of $ 3,127,000 and $ 2,300,000 to the Parent during the six months ended October 31, 2022 and October 31, 2021.

As of October 31, 2022, the Parent owned 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:

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 six months ended October 31, 2022 and October 31, 2021 were 24.15 % and 19.05 %, respectively.  The lower effective tax rate during six months ended October 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 October 31, 2021, is also due to an increase in the state and local income tax rate to 3.37 % from 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:

The Company believes that, as of October 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: