VALUE LINE INC - Quarter Report: 2023 July (Form 10-Q)

 

 

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 July 31, 2023

or

☐ 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 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, 2023
Common stock, $0.10 par value per share	9,430,116 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 July 31, 2023 and April 30, 2023	3
	Consolidated Condensed Statements of Income for the three months ended July 31, 2023 and July 31, 2022	4
	Consolidated Condensed Statements of Comprehensive Income for the three months ended July 31, 2023 and July 31, 2022	5
	Consolidated Condensed Statements of Cash Flows for the three months ended July 31, 2023 and July 31, 2022	6
	Consolidated Condensed Statement of Changes in Shareholders’ Equity for the three months ended July 31, 2023	7
	Consolidated Condensed Statement of Changes in Shareholders’ Equity for the three months ended July 31, 2022	8
	Notes to Consolidated Condensed Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	34
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 4.	Mine Safety Disclosures	35
Item 5.	Other Information	35
Item 6.	Exhibits	36
	Signatures	37

 

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Value Line, Inc.

Notes to Consolidated Condensed Financial Statements

July 31, 2023

(Unaudited)

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 July 31, 2023 and April 30, 2023, 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, 2023 filed with the SEC on July 28, 2023 (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-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-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.  

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-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. 

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 July 31, 2023 and April 30, 2023, 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 July 31, 2023, 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 July 31, 2023 and April 30, 2023, cash equivalents included $9,046,000 and $7,240,000, respectively, for amounts invested in money market mutual funds that invest in short term U.S. government securities.

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.  

As of July 31, 2023 and April 30, 2023, 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 $10,162,000 and $10,169,000, respectively, and the fair value was $14,765,000 and $14,546,000, respectively.  

Proceeds from sales of equity securities during the three months ended July 31, 2023 and July 31, 2022, were $516,000 and $576,000, respectively.     

The carrying value and fair value of equity securities at July 31, 2023 were as follows:

The carrying value and fair value of equity securities at April 30, 2023 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 three months ended July 31, 2023 and July 31, 2022, were $15,750,000 and $0, respectively. As of July 31, 2023, Accumulated Other Comprehensive Income included unrealized gains of $204,000 net of deferred taxes of $42,000.  As of April 30, 2023, Accumulated Other Comprehensive Income included unrealized gains of $473,000, net of deferred taxes of $99,000.

The aggregate cost and fair value at July 31, 2023 of fixed income securities classified as available-for-sale were as follows:

The decrease in gross unrealized gains of $270,000 on fixed income securities classified as available-for-sale net of deferred income taxes of $58,000, was included in Accumulated Other Comprehensive Income on the Consolidated Condensed Balance Sheet as of July 31, 2023.  

The aggregate cost and fair value at April 30, 2023 of fixed income securities classified as available-for-sale were as follows:

The increase in gross unrealized gains of $503,000 on fixed income securities classified as available-for-sale net of deferred income tax liability of $105,000, was included in Accumulated Other Comprehensive Income on the Consolidated Balance Sheet as of April 30, 2023.  

The average yield on the Government debt securities classified as available-for-sale at July 31, 2023 and April 30, 2023 was 3.76% and 2.55%, respectively.

Investment Gains/(Losses):

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

Taxable realized gains/(losses) on equity securities sold during fiscal years 2024 and 2023, which are generally the difference between the proceeds from sales and our original cost, were losses of $4,000 in fiscal 2024 and losses of $11,000 in fiscal 2023.  

Investment in Unconsolidated Entities:

Equity Method Investment:

As of July 31, 2023 and April 30, 2023, the Company's investment in EAM Trust on the Consolidated Condensed Balance Sheets was $58,958,000 and $58,775,000, respectively.

The value of VLI’s investment in EAM at July 31, 2023 and April 30, 2023 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 2024 or 2023.

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 July 31, 2023 and April 30, 2023, EAM's total liabilities included a payable to VLI for its accrued non-voting revenues interest and non-voting profits interest of $2,833,000 and $2,601,000, 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 three months ended July 31, 2023 and July 31, 2022, the estimated profit sharing plan contributions, which are included as expenses in salaries and employee benefits in the Consolidated Condensed Statements of Income, were $96,000 and $137,000 in fiscal 2024 and fiscal 2023, 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 July 31, 2023 and July 31, 2022 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 three months ended July 31, 2023 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 July 31, 2023, were $3.47 billion, 9.8% above total assets of $3.16 billion in the Value Line Funds managed and/or distributed by EAM at July 31, 2022. 

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.   

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 July 31, 2023, the Company's investment in EAM includes a receivable of $2,833,000 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 three months ended July 31, 2023 and July 31, 2022, the Company was reimbursed $63,000 and $62,000, 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 July 31, 2023 and April 30, 2023.  

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 to the Parent during the three months ended July 31, 2023 and July 31, 2022.

As of July 31, 2023, the Parent owned 91.55% 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 three months ended July 31, 2023 and July 31, 2022 were 23.87% and 24.00%, respectively. The lower effective tax rate during three months ended July 31, 2023 as compared to July 31, 2022, is primarily a result of a decrease in the state and local income tax rate to 3.10% from 3.18% due to changes in state and local income tax allocations. 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 July 31, 2023, 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 2020 through 2022, 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:

Note 10 - Accounting for the Costs of Computer Software Developed for Internal Use:

The Company has adopted the provisions of the Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of Computer Software Developed for Internal Use".  SOP 98-1 requires companies to capitalize as long-lived assets many of the costs associated with developing or purchasing software for internal use and amortize those costs over the software's estimated useful life in a systematic and rational manner.  Such costs, when incurred, are capitalized and amortized over the expected useful life of the asset, normally 3 to 5 years.  Total amortization expenses during the three months ended July 31, 2023 and July 31, 2022, were $21,000 and $12,000, respectively.  

During the three months ended July 31, 2023 and July 31, 2022, the Company did not incur and did not capitalize expenditures related to third party programmers' costs or to the development of software for internal use.  

Note 11 - Treasury Stock and Repurchase Program:

During October 2022, the Company's Board of Directors approved a renewal of a share repurchase program authorizing the repurchase of shares of the Company’s common stock up to an aggregate purchase price of $3,000,000.  The repurchases may be made from time to time on the open market at prevailing market prices, in negotiated transactions off the market, in block purchases or otherwise. The repurchase program may be suspended or discontinued at any time at the Company’s discretion and has no set price limit and no expiration date.

Treasury stock, at cost, consists of the following:

Note 12 - Lease Commitments:

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”.  This ASU requires that, for leases longer than one year, a lessee recognizes in the statements of financial position a right-of-use asset, representing the right to use the underlying asset for the lease term, and a lease liability, representing the liability to make lease payments. It also requires that for finance leases, a lessee recognizes interest expense on the lease liability, separately from the amortization of the right-of-use asset in the statements of earnings, while for operating leases, such amounts should be recognized as a combined expense. The firm adopted this ASU in May 2019 under a modified retrospective approach. 

The Company adopted ASU 2016-02 using a modified retrospective transition approach as of the Effective Date as permitted by the amendments in ASU 2018-11, which provides an alternative modified retrospective transition method. As a result, the Company was not required to adjust its comparative period financial information for effects of the standard or make the new required lease disclosures for periods before the date of adoption (i.e. May 1, 2019). The Company has elected to employ the transitionary relief offered by the FASB and, therefore, has not reassessed (1) whether existing or expired contracts contain a lease, (2) lease classification for existing or expired leases or (3) the accounting for initial direct costs that were previously capitalized.  

The Company leases office space in New York, NY and a warehouse and appurtenant office space in Lyndhurst, NJ. The Company has evaluated these leases and determined that they are operating leases under the definitions of the guidance of ASU 2016-02.

The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. For operating leases, the right-of-use asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received.

On May 1, 2019, the Company recorded a right-of-use asset in the amount of $9,575,000, which represents the lease liability of $10,340,000 adjusted for previously recorded unamortized lease incentives in the amount of $765,000. The right-of-use asset is amortized over the remaining lease term in the amount equal to the difference between the calculated straight-line expense of the total lease payments less the monthly interest calculated on the remaining lease liability. As of July 31, 2023, the Company had a long-term lease asset of $5,004,000 recorded in property and equipment in its Consolidated Condensed Balance Sheets.

The Company recognizes lease expense, calculated as the remaining cost of the lease allocated over the remaining lease term on a straight-line basis. Lease expense is presented as part of continuing operations in the consolidated condensed statements of income. The Company recognized $375,000 in lease expenses in both fiscal years 2024 and 2023 during the three months ended July 31, 2023 and July 31, 2022, respectively.

For the three months ended July 31, 2023, the Company paid $405,000 in rent relating to the leases. As a payment arising from an operating lease, the $405,000 is classified within operating activities in the consolidated condensed statements of cash flows.

The Company’s leases generally do not provide an implicit interest rate, and therefore the Company estimated an incremental borrowing rate, or IBR, as of the commencement date, to determine the present value of its operating lease liabilities. The IBR is defined under ASC 842 as the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments in a similar economic environment. The following table reconciles the undiscounted future minimum lease payments to the total operating lease liabilities recognized on the Consolidated Condensed Balance Sheet as of July 31, 2023:

* Excludes the three months ended July 31, 2023

Note 13 - Restricted Cash and Deposits:

Restricted Money Market Investment in the noncurrent assets on the Consolidated Condensed Balance Sheet at July 31, 2023, includes $305,000, which represents cash invested in a bank money market fund securing a letter of credit ("LOC") in the amount of $305,000 issued to the sublandlord as a security deposit for the Company's New York City leased corporate office facility.  According to the sublease agreement the LOC and restricted cash were reduced from $469,000 to $305,000 in the third quarter of fiscal year 2022.

Note 14 - Concentration:

During the three months ended July 31, 2023, 33.7% of total publishing revenues of $9,743,000 were derived from a single customer.

Note 15 - Concentration of Credit Risk:

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of July 31, 2023 and July 31, 2022, the Company had $2,620,000 and $5,320,000, respectively, in excess of the FDIC insured limit.  Management has concluded the excess does not represent a material risk, based on the creditworthiness of the counter parties.

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

Cautionary Statement Regarding Forward-Looking Information

In this report, “Value Line,” “we,” “us,” “our” refers to Value Line, Inc. and “the Company” refers to Value Line and its subsidiaries unless the context otherwise requires.

This report contains statements that are predictive in nature, depend upon or refer to future events or conditions (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, as amended. Actual results for Value Line, Inc. (“Value Line” or “the Company”) may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to the following:

These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors which may involve external factors over which we may have no control or changes in our plans, strategies, objectives, expectations or intentions, which may happen at any time at our discretion, could also have material adverse effects on future results. Except as otherwise required to be disclosed in periodic reports required to be filed by public companies with the SEC pursuant to the SEC's rules, we have no duty to update these statements, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, current plans, anticipated actions, and future financial conditions and results may differ from those expressed in any forward-looking information contained herein.

Executive Summary of the Business

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. Value Line markets under well-known brands including Value Line®, the Value Line logo®, The Value Line Investment Survey®, Smart Research, Smarter Investing™ and The Most Trusted Name in Investment Research®. The name "Value Line" as used to describe the Company, its products, and its subsidiaries, is a registered trademark of the Company. EULAV Asset Management Trust (“EAM”) was established to provide the investment management services to the Value Line Funds, institutional and individual accounts and provide distribution, marketing, and administrative services to the Value Line® Mutual Funds ("Value Line Funds"). The Company maintains a significant investment in EAM from which it receives payments in respect of its non-voting revenues and non-voting profits interests.

The Company’s target audiences within the investment research field are individual investors, colleges, libraries, and investment management professionals. Individuals come to Value Line for complete research in one package. Institutional licensees consist of corporations, financial professionals, colleges, and municipal libraries. Libraries and universities offer the Company’s detailed research to their patrons and students. Investment management professionals use the research and historical information in their day-to-day businesses. The Company has a dedicated department that solicits institutional subscriptions.

Payments received for new and renewal subscriptions and the value of receivables for amounts billed to retail and institutional customers are recorded as unearned revenue until the order is fulfilled. As the orders are fulfilled, the Company recognizes revenue in equal installments over the life of the particular subscription. Accordingly, the subscription fees to be earned by fulfilling subscriptions after the date of a particular balance sheet are shown on that balance sheet as unearned revenue within current and long-term liabilities.

The investment periodicals and related publications (retail and institutional) and Value Line copyrights and Value Line Proprietary Ranks and other proprietary information consolidate into one segment called Publishing. The Publishing segment constitutes the Company’s only reportable business segment.

Asset Management and Mutual Fund Distribution Businesses

Pursuant to the EAM Declaration of Trust, the Company maintains an interest in certain revenues of EAM and a portion of the residual profits of EAM but has no voting authority with respect to the election or removal of the trustees of EAM or control of its business.

The business of EAM is managed by its trustees each owning 20% of the voting interest in EAM and by its officers subject to the direction of the trustees. The Company’s non-voting revenues and non-voting profits interests in EAM entitle it to receive 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 will 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.

Business Environment

The U.S. economy performed better than expected during the first half of calendar 2023. The nation’s gross domestic product (GDP) followed up a first-quarter gain of 2.0% with an advance of 2.1% over the second three months of this year. The calls for a recession entering the year have yet to unfold, with output expanding at a moderate pace, fueled by a healthy job market (the nation added 1.54 million jobs over the first six months) and a very resilient consumer. (The consumer sector accounts for roughly two-thirds of the nation’s economic output.) What we did see throughout the first half of the year was a shift in spending from the goods to services sectors, with the travel and leisure industries being the biggest beneficiaries.   

The around-2.0% first-half growth came at a time when the Federal Reserve, in an attempt to tame inflation, is likely in the final stretch of its most restrictive monetary policy course in 40 years. In total, the central bank has hiked the benchmark short-term interest rate 11 times since early 2022, with the hawkish stance raising the federal funds rate from near-zero in the spring of 2022 to a range of 5.25% to 5.50% at the July, 2023 Federal Open Market Committee (FOMC) meeting. There were signs that inflation eased further over the summer months, with both consumer and producer price growth well off their multi-decade highs established in 2021. Meantime, senior Fed officials, as recently as the central bank’s annual Economic Symposium in Jackson Hole, Wyoming, have vowed to keep the federal funds rate well above 5.00% for an extended period to bring price growth closer to its target rate of 2.0%.

As noted, the main cog in this year’s economic growth has been the U.S. consumer, who was emboldened by a tight labor market entering this year. At the start of the second half, personal spending remained strong, increasing 0.8% in July. The pace of spending far outstripped personal income, which rose at a much more pedestrian rate (+0.2%) during the 31-day period. This vibrant spending, which has included a notable shift to services-oriented sectors, has kept the possibility of a recession at bay.

Looking forward, it still remains to be seen how much longer Americans can keep up the noted torrid spending pace. There were signs this summer that individuals and families have changed their spending habits, focusing more on essential items than those deemed to be more discretionary in nature. This included trading down in many cases to less expensive alternative offerings, as higher prices due to inflationary pressures have decreased the spending power of the consumer. This trend comes as savings accounts built up during the coronavirus pandemic shrink and nationwide credit card balances balloon. In addition, student loan repayments are set to resume on October 1^st, which will cut into the discretionary income of many young Americans.

In conclusion, the Fed’s aggressive monetary tightening course has clearly made a dent in inflation, but how much more work still needs to be done remains the elephant in the room. Federal Reserve senior officials have vowed to keep short-term interest rates higher for longer and wait to see what the full effects of the most restrictive monetary policy course in 40 years has on price growth and the overall economy. The current business environment has held up fairly well, but there are some concerns. The higher lending rates have taken a toll on business investment and this may have an impact on economic expansion down the line. There also are signs that the higher-rate environment has had a negative impact on the financial performances of the banking, insurance, and commercial real estate industries. This has led to credit ratings downgrades for a number of financial lenders, which does not make for a good near-term business investment backdrop.

From a stock market perspective, the price-to-earnings ratio of the S&P 500 companies stood at nearly 19 times following the conclusion of the second-quarter earnings season. This high valuation leaves equities vulnerable to some possible selling on any disappointing news from the economic, earnings, or geopolitical fronts.

Results of Operations for the Three Months Ended July 31, 2023 and 2022

The following table illustrates the Company’s key components of revenues and expenses.

During the three months ended July 31, 2023, the Company’s net income of $4,859,000, or $0.52 per share, was 9.0% above net income of $4,458,000, or $0.47 per share, for the three months ended July 31, 2022. During the three months ended July 31, 2023, the Company’s income from operations of $2,747,000 was 7.5% above income from operations of $2,556,000 during the three months ended July 31, 2022. For the three months ended July 31, 2023, operating expenses decreased 5.3% below those during the three months ended July 31, 2022.

During the three months ended July 31, 2023, there were 9,432,573 average common shares outstanding as compared to 9,484,109 average common shares outstanding during the three months ended July 31, 2022.

Total operating revenues

Within investment periodicals and related publications, subscription sales orders are derived from print and digital products. The following chart illustrates the changes in the sales orders associated with print and digital subscriptions.

Sources of subscription sales

During the three months ended July 31, 2023, new sales of print and digital publications increased as a percent of the total gross sales as a result of an increase in new sales orders while conversion and renewal sales of orders decreased from the prior fiscal year.

Unearned subscription revenue as of July 31, 2023, is 5.9% below April 30, 2023 and 3.6% below July 31, 2022. A certain amount of variation is to be expected due to the volume of new orders and timing of long-term renewal contracts, direct mail campaigns and large Institutional Sales orders.

Investment periodicals and related publications revenues

Investment periodicals and related publications revenues of $6,457,000 (excluding copyright fees) during the three months ended July 31, 2023 were 2.0% below publishing revenues of $6,591,000, as compared to the prior fiscal year. The Company continued activity to attract new subscribers, primarily digital subscriptions through various marketing channels, primarily direct mail, e-mail, and by the efforts of our sales personnel. As fewer individual investors manage their own portfolios, total product line circulation at July 31, 2023, was 9.2% below total product line circulation at July 31, 2022. However, Institutional Sales department total sales orders reached a record level in the fiscal year ended April 30, 2023 and this growing, more profitable business with financial advisors and professional investors significantly offsets the long-term trend of declining individual investor circulation.

Circulation also reflected management’s decision to reduce marketing efforts temporarily while the challenging stock market environment persisted. Total print circulation at July 31, 2023 was 14.2% below the total print circulation at July 31, 2022.  During the three months ended July 31, 2023, print publication revenues of $2,382,000 decreased 6.9%, below print publication revenues of $2,558,000 during the same quarter of 2022. Total digital circulation at July 31, 2023 was 2.7% below total digital circulation at July 31, 2022 with the professional clientele offsetting individual subscribers. During the three months ended July 31, 2023, digital revenues of $4,075,000 were up 1.0% as compared to the prior fiscal year. These figures reflect weak investor sentiment, likely temporary, and the ongoing shift from our print services to digital counterparts. Further, publishing revenue is fairly steady, despite the dip in print circulation. Sales of our higher-price, higher-profit, publications have been stronger than sales of lower price “starter” products.

Value Line serves primarily individual and professional investors in stocks, who pay mostly on annual or multi-year subscription plans, for basic services or as much as $100,000 or more annually for comprehensive premium quality research, not obtainable elsewhere. The ongoing goal of adding new subscribers has led us to introduce publications and packages at a range of price points.

The Value Line Proprietary Ranks (the “Ranking System”), a component of the Company’s flagship product, The Value Line Investment Survey, are also utilized in the Company’s copyright business. The Ranking System is made available to EAM for specific uses without charge. During the twelve month period ended July 31, 2023, the combined Ranking System “Rank 1 & 2” stocks’ increase of 11.5% compared to the Russell 2000 Index’s increase of 6.3% during the comparable period.

Copyright fees

During the three months ended July 31, 2023, copyright fees of $3,286,000 were 2.0% below those during the corresponding period in the prior fiscal year.

Investment management fees and services – (unconsolidated)

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 will receive ongoing payments in respect of its non-voting revenues and non-voting profits interests.

Total assets in the Value Line Funds managed and/or distributed by EAM at July 31, 2023, were $3.47 billion, which is $0.31 billion, or 9.8%, above total assets of $3.16 billion in the Value Line Funds managed and/or distributed by EAM at July 31, 2022.

Value Line Mutual Funds

EAM Trust - Results of operations before distribution to interest holders

The gross fees and net income of EAM’s investment management operations during the three months ended July 31, 2023, before interest holder distributions, included total investment management fees earned from the Value Line Funds of $5,428,000, 12b-1 fees and other fees of $1,579,000 and other net gains of $117,000. For the same period, total investment management fee waivers were $48,000 and 12b-1 fee waivers were $25,000. During the three months ended July 31, 2023, EAM's net income was $482,000 after giving effect to Value Line’s non-voting revenues interest of $2,616,000, but before distributions to voting profits interest holders and to the Company in respect of its 50% non-voting profits interest.

The gross fees and net income of EAM’s investment management operations during the three months ended July 31, 2022, before interest holder distributions, included total investment management fees earned from the Value Line Funds of $5,190,000, 12b-1 fees and other fees of $1,559,000 and other net gains of $8,000. For the same period, total investment management fee waivers reversed were $18,000 and 12b-1 fee waivers were $28,000. During the three months ended July 31, 2022, EAM's net income was $466,000 after giving effect to Value Line’s non-voting revenues interest of $2,782,000, but before distributions to voting profits interest holders and to the Company in respect of its 50% non-voting profits interest.

As of July 31, 2023, one of the Value Line Funds has full 12b-1 fees waivers in place, and five funds have partial investment management fee waivers in place. Although, under the terms of the EAM Declaration of Trust, the Company does not receive or share in the revenues from 12b-1 distribution fees, the Company could benefit from the fee waivers to the extent that the resulting reduction of expense ratios and enhancement of the performance of the Value Line Funds attracts new assets.

The Value Line equity and hybrid funds’ assets represent 98.9% and fixed income fund assets represent 1.1%, respectively, of total fund assets under management (“AUM”) as of July 31, 2023. At July 31, 2023, equity and hybrid AUM increased by 10.2% and fixed income AUM decreased by 13.3% as compared to last year at July 31, 2022.

EAM - The Company’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, and 50% of EAM’s net profits, not less than 90% of which is distributed in cash every fiscal quarter.

The Company recorded income from its non-voting revenues interest and its non-voting profits interest in EAM as follows:

Operating expenses

Expenses within the Company are categorized into advertising and promotion, salaries and employee benefits, production and distribution, office and administration. Operating expenses of $6,996,000 during the three months ended July 31, 2023, were 5.3% below those during the three months ended July 31, 2022 as a result of cost controls in fiscal year 2023 and fiscal year 2024.

Advertising and promotion

During three months ended July 31, 2023, advertising and promotion expenses of $772,000 decreased 6.0% as compared to the prior fiscal year. During the three months ended July 31, 2023, decreases were primarily due to decreases in renewal solicitations and institutional & retail sales commissions.

Salaries and employee benefits

During the three months ended July 31, 2023, salaries and employee benefits of $3,740,000 decreased 7.6% below the prior fiscal year, primarily due to decreases in salaries and employee benefits resulting from reduced employee headcount in fiscal year 2024 and a corresponding reduction in profit sharing expense and the company’s share of medical and other expenses for employee benefits.

Production and distribution

During the three months ended July 31, 2023, production and distribution expenses of $1,395,000 increased 14.8% above prior fiscal year primarily due to increases in production support of the Company’s website and maintenance of the Company’s publishing and application software and operating systems offset partially by a decrease in paper and postage expenses resulting from reduced print subscription circulation.

Office and administration

During the three months ended July 31, 2023, office and administrative expenses of $1,089,000 decreased 16.6% below the prior fiscal year, primarily due to decreases in utilities and professional fees.

Concentration

During the three months ended July 31, 2023, 33.7% of total publishing revenues of $9,743,000 were derived from a single customer.

Investment gains / (losses)

During the three months ended July 31, 2023, the Company’s investment gains, primarily derived from dividend and interest income, investment gains recognized on sales of equity securities during the period and unrealized gains recognized on equity securities held at the end of the period in fiscal 2024, resulted in a gain of $755,000. During the three months ended July 31, 2022, the Company’s investment gains, primarily derived from dividend and interest income, investment gains recognized on sales of equity securities during the period and unrealized gains recognized on equity securities held at July 31, 2022 in fiscal 2023, resulted in a gain of $294,000. Proceeds from the sales of equity securities during the three months ended July 31, 2023 and July 31, 2022 were $516,000 and $576,000, respectively.

Effective income tax rate

The overall effective income tax rates, as a percentage of pre-tax ordinary income for the three months ended July 31, 2023 and July 31, 2022 were 23.87% and 24.00%, respectively. The lower effective tax rate during three months ended July 31, 2023 as compared to July 31, 2022, is primarily a result of a decrease in the state and local income taxes from 3.18% to 3.10% due to changes in state and local income tax allocations. 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.          

Lease Commitments

On November 30, 2016, Value Line, Inc. received consent from the landlord at 551 Fifth Avenue, New York, NY to the terms of a new sublease agreement between Value Line, Inc. and ABM Industries, Incorporated commencing on December 1, 2016. Pursuant to the agreement Value Line leased from ABM 24,726 square feet of office space located on the second and third floors at 551 Fifth Avenue, New York, NY (“Building” or “Premises”) beginning on December 1, 2016 and ending on November 29, 2027. Base rent under the sublease agreement is $1,126,000 per annum during the first year with an annual increase in base rent of 2.25% scheduled for each subsequent year, payable in equal monthly installments on the first day of each month, subject to customary concessions in the Company’s favor and pass-through of certain increases in utility costs and real estate taxes over the base year. The Company provided a security deposit represented by a letter of credit in the amount of $469,000 in October 2016, which was reduced to $305,000 on October 3, 2021 and is to be fully refunded after the sublease ends. This Building became the Company’s new corporate office facility. The Company is required to pay for certain operating expenses associated with the Premises as well as utilities supplied to the Premises. The sublease terms provide for a significant decrease (23% initially) in the Company’s annual rental expenditure taking into account free rent for the first six months of the sublease. Sublandlord provided Value Line a work allowance of $417,000 which accompanied with the six months free rent worth $563,000 was applied against the Company’s obligation to pay rent at our NYC headquarters, delaying the actual rent payments until November 2017.

On February 29, 2016, the Company’s subsidiary VLDC and Seagis Property Group LP (the “Landlord”) entered into a lease agreement, pursuant to which VLDC has leased 24,110 square feet of warehouse and appurtenant office space located at 205 Chubb Ave., Lyndhurst, NJ (“Warehouse”) beginning on May 1, 2016 and ending on April 30, 2024 (“Lease”). Base rent under the Lease is $192,880 per annum payable in equal monthly installments on the first day of each month, in advance during fiscal 2017 and will gradually increase to $237,218 in fiscal 2024, subject to customary increases based on operating costs and real estate taxes. The Company provided a security deposit in cash in the amount of $32,146, which will be fully refunded after the lease term expires. The lease is a net lease requiring the Company to pay for certain operating expenses associated with the Warehouse as well as utilities supplied to the Warehouse.

Liquidity and Capital Resources

The Company had working capital, defined as current assets less current liabilities, of $44,141,000 as of July 31, 2023 and $42,788,000 as of April 30, 2023. These amounts include short-term unearned revenue of $15,746,000 and $16,771,000 reflected in total current liabilities at July 31, 2023 and April 30, 2023, respectively. Cash and short-term securities were $64,595,000 and $62,064,000 as of July 31, 2023 and April 30, 2023, respectively.

The Company’s cash and cash equivalents include $9,046,000 and $7,240,000 at July 31, 2023 and April 30, 2023, respectively, invested primarily in commercial banks and in Money Market Funds at brokers, which operate under Rule 2a-7 of the 1940 Act and invest primarily in short-term U.S. government securities.

Cash from operating activities

The Company had cash inflows from operating activities of $5,058,000 during the three months ended July 31, 2023, compared to cash inflows from operations of $5,336,000 during the three months ended July 31, 2022, respectively. The decrease in cash flow from operating activity is primarily a result of lower distributions received from EAM’s non-voting revenues and profits interest during the first quarter of fiscal 2024.

Cash from investing activities

The Company had cash outflows from investing activities of $267,000 during the three months ended July 31, 2023, compared to cash outflows from investing activities of $15,477,000 for the three months ended July 31, 2022, respectively. Cash outflows for the three months ended July 31, 2023 and July 31, 2022, were primarily due to increases in purchases of fixed income securities.

Cash from financing activities

During the three months ended July 31, 2023, the Company’s cash outflows from financing activities were $2,830,000, compared to cash outflows from financing activities of $4,760,000 for the three months ended July 31, 2022. During the three months ended July 31, 2023, cash outflows for financing activities included $188,000 for the repurchase of 4,011 shares of the Company’s common stock under the October 21, 2022 board approved common stock repurchase program. Quarterly dividend payments of $0.28 per share during fiscal year 2024 aggregated $2,642,000. Quarterly regular dividend payments of $0.25 per share during fiscal year 2023 aggregated $2,378,000.

At July 31, 2023 there were 9,430,529 common shares outstanding as compared to 9,474,814 common shares outstanding at July 31, 2022. The Company expects financing activities to continue to include use of cash for dividend payments for the foreseeable future.

Debt and Liquid Assets

Management believes that the Company’s cash and other liquid asset resources used in its business together with future cash flows from operations and from the Company’s non-voting revenues and non-voting profits interests in EAM will be sufficient to finance current and forecasted liquidity needs for the next twelve months and beyond. Management does not anticipate making any borrowings during the next twelve months. As of July 31, 2023, retained earnings and liquid assets were $98,197,000 and $64,595,000, respectively. As of April 30, 2023, retained earnings and liquid assets were $95,979,000 and $62,064,000, respectively. There are no off-balance-sheet arrangements, so none affect the interpretations of reported assets, liquidity, and debt.

Seasonality

Our publishing revenues are comprised of subscriptions which are generally annual subscriptions. Our cash flows from operating activities are minimally seasonal in nature, primarily due to the timing of customer payments made for orders and subscription renewals.

Critical Accounting Estimates and Policies

The Company prepares its Consolidated Financial Statements in accordance with Generally Accepted Accounting Principles as in effect in the United States (U.S. “GAAP”). The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent, and the Company evaluates its estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.

The Company’s critical accounting policy relates to the valuation of EAM. There have been no material changes in our critical accounting policies during the three months ended July 31, 2023. For a complete discussion of our critical accounting policies, refer to “Critical Accounting Policies and Estimates” discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K for fiscal year ended April 30, 2023.

Contractual Obligations

We are a party to lease contracts which will result in cash payments to landlords in future periods. Operating lease liabilities are included in our Consolidated Balance Sheets. Estimated payments of these liabilities in each of the next five fiscal years and thereafter are (in thousands): $1,229 in 2024; $1,429 in 2025; $1,461 in 2026; $1,493 in 2027 and $882 in 2028 totaling $6,494.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Market Risk Disclosures

The Company’s Consolidated Condensed Balance Sheet includes a substantial amount of assets whose fair values are subject to market risks. The Company’s market risks are primarily associated with interest rates and equity price risk. The following sections address the significant market risks associated with the Company’s investment activities.

Interest Rate Risk

         The Company’s strategy has been to acquire debt securities with low credit risk. Despite this strategy management recognizes and accepts the possibility that losses may occur. To limit the price fluctuation in these securities from interest rate changes, the Company’s management invests primarily in short-term obligations maturing within one year.

The fair values of the 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.

Fixed income securities consist of bank certificates of deposits and securities issued by federal, state and local governments within the United States. As of July 31, 2023 the aggregate cost and fair value of fixed income securities classified as available-for-sale were $40,075,000 and $40,279,000, respectively. As of April 30, 2023 the aggregate cost and fair value of fixed income securities classified as available-for-sale were $39,455,000 and $39,928,000, respectively.

         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.

Fixed Income Securities

Management regularly monitors the maturity structure of the Company’s investments in debt securities 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 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.

         The Company’s equity investment strategy has been to acquire equity securities across a diversity of industry groups. The portfolio consists of ETFs held for dividend yield that attempt to replicate the performance of certain equity indexes. In order to maintain liquidity in these securities, the Company’s policy has been to invest in and hold in its portfolio, no more than 5% of the approximate average daily trading volume in any one issue.

As of July 31, 2023 and April 30, 2023, 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 of $10,162,000 and $10,169,000, respectively, and the fair value was $14,765,000 and $14,546,000, respectively.

Equity Securities

Equity Securities

Item 4. CONTROLS AND PROCEDURES

The Company’s management has evaluated, with the participation of the Company’s Principal Executive Officer and Principal Financial Officer, the effectiveness of the Company’s disclosure controls and procedures, (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

Part II – OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

In Part II, Item 1A of this Quarterly Report on Form 10-Q for the period ended July 31, 2023 new risk factors have been added to the risk factors disclosed in Item 1A - Risk Factors in the Company's Annual Report on Form 10-K for the year ended April 30, 2023 filed with the SEC on July 28, 2023. The new risk factors reflect management's continuing analysis of developments in the Company's business environment, rather than any specific event or particular issue.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information with respect to all repurchases of common stock made by or on behalf of the Company during the fiscal quarter ended July 31, 2023. All purchases listed below were made in the open market at prevailing market prices.

All shares were repurchased pursuant to authorization of the Board of Directors.

On October 21, 2022, the Company's Board of Directors approved a share repurchase program authorizing the repurchase of shares of the Company’s common stock up to an aggregate purchase price of $3,000,000. The repurchases may be made from time to time on the open market at prevailing market prices, in negotiated transactions off the market, in block purchases or otherwise. The repurchase program may be suspended or discontinued at any time at the Company’s discretion and has no set expiration date.

Item 4. Mine Safety Disclosures

  Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

VALUE LINE, INC.

Signatures

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

Value Line, Inc.

(Registrant)

Date: September 12, 2023