VALUE LINE INC — Interim / Quarterly Report 2006

Mar 17, 2006

10-Q 1 v037738_10q.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended January 31, 2006 Commission file number 0-11306

VALUE LINE, INC.

(Exact name of registrant as specified in its charter)

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

| 220
East 42nd Street, New York, New York | 10017-5891 |
| --- | --- |
| (address
of principal executive offices) | (zip
code) |

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer x

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

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

Class Outstanding at January 31, 2006

Common stock, $.10 par value 9,981,600 Shares

| Part
I - Financial Information | | | | |
| --- | --- | --- | --- | --- |
| Item
1. Financial Statements | | | | |
| Value
Line, Inc. | | | | |
| Consolidated
Balance Sheets | | | | |
| (in
thousands, except share amounts) | | | | |
| (unaudited) | | | | |
| | Jan.
31, | Apr.
30, | | |
| | 2006 | 2005 | | |
| | (unaudited) | | | |
| Assets | | | | |
| Current
Assets: | | | | |
| Cash
and cash equivalents (including short term | | | | |
| investments
of $9,828 and $5,654, respectively) | $ 10,674 | $ | 5,971 | |
| Trading
securities | 22,407 | | 0 | |
| Securities
available for sale | 64,244 | | 76,274 | |
| Accounts
receivable, net of allowance for doubtful | | | | |
| accounts
of $74 and $52, respectively | 2,597 | | 3,096 | |
| Receivable
from affiliates | 2,834 | | 2,557 | |
| Prepaid
expenses and other current assets | 1,469 | | 1,468 | |
| Deferred
income taxes | 32 | | 32 | |
| Total
current assets | 104,257 | | 89,398 | |
| Long
term assets | | | | |
| Property
and equipment, net | 5,549 | | 5,984 | |
| Capitalized
software and other intangible assets, net | 2,486 | | 3,483 | |
| Total
long term assets | 8,035 | | 9,467 | |
| Total
assets | $ 112,292 | $ | 98,865 | |
| Liabilities
and Shareholders' Equity | | | | |
| Current
Liabilities: | | | | |
| Accounts
payable and accrued liabilities | $ 4,974 | $ | 4,331 | |
| Accrued
salaries | 1,335 | | 1,247 | |
| Dividends
payable | 2,495 | | 2,495 | |
| Unearned
revenue | 30,418 | | 29,748 | |
| Deferred
income taxes | 7,952 | | 6,176 | |
| Total
current liabilities | 47,174 | | 43,997 | |
| Long
term liabilities | | | | |
| Unearned
revenue | 7,054 | | 10,344 | |
| Deferred
charges | 381 | | 381 | |
| Total
long term liabilities | 7,435 | | 10,725 | |
| Shareholders'
Equity: | | | | |
| Common
stock, $.10 par value; authorized 30,000,000 | | | | |
| shares;
issued 10,000,000 shares | 1,000 | | 1,000 | |
| Additional
paid-in capital | 991 | | 991 | |
| Retained
earnings | 41,040 | | 30,798 | |
| Treasury
stock, at cost (18,400 shares on 1/31/06 | | | | |
| and
4/30/05) | (354 | ) | (354 | ) |
| Accumulated
other comprehensive income, net of tax | 15,006 | | 11,708 | |
| Total
shareholders' equity | 57,683 | | 44,143 | |
| Total
liabilities and shareholders' equity | $ 112,292 | $ | 98,865 | |

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

2

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

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

3

| Part
I - Financial Information | | | | |
| --- | --- | --- | --- | --- |
| Item
1. Financial Statements | | | | |
| Value
Line, Inc. | | | | |
| Consolidated
Condensed Statements of Cash Flows | | | | |
| (in
thousands) | | | | |
| (unaudited) | | | | |
| | For
the nine months | | | |
| | ended | | | |
| | Jan.
31, | Jan.
31, | | |
| | 2006 | 2005 | | |
| Cash
flows from operating activities: | | | | |
| Net
income | $ 17,727 | $ | 16,396 | |
| Adjustments
to reconcile net income to net cash | | | | |
| provided
by operating activities: | | | | |
| Depreciation
and amortization | 1,659 | | 1,800 | |
| Gains
on sales of trading securities and | | | | |
| securities
available for sale | (2,430 | ) | (8,726 | ) |
| Unrealized
losses on trading securities | 125 | | 1,055 | |
| Deferred
income taxes | (44 | ) | (369 | ) |
| Changes
in assets and liabilities: | | | | |
| Proceeds
from sales of trading securities | — | | 42,205 | |
| Purchases
of trading securities | (4,365 | ) | (21,815 | ) |
| (Decrease)
in unearned revenue | (2,621 | ) | (19 | ) |
| (Decrease)
in deferred charges | (63 | ) | (63 | ) |
| Increase/(decrease)
in accounts payable and accrued expenses | 706 | | (143 | ) |
| Increase/(decrease)
in accrued salaries | 88 | | (242 | ) |
| Decrease
in accrued taxes payable | 0 | | (556 | ) |
| Decrease
in prepaid expenses and other current assets | 43 | | 578 | |
| Decrease/(increase)
in accounts receivable | 499 | | (332 | ) |
| (Increase)/decrease
in receivable from affiliates | (277 | ) | 90 | |
| Total
adjustments | (6,680 | ) | 13,463 | |
| Net
cash provided by operations | 11,047 | | 29,859 | |
| Cash
flows from investing activities: | | | | |
| Purchase
of equity securities | (2,463 | ) | (1,037 | ) |
| Proceeds
from sales of equity securities | 2,430 | | 12,669 | |
| Proceeds
from sales of fixed income securities | 9,650 | | 9,019 | |
| Purchases
of fixed income securities | (8,249 | ) | (23,680 | ) |
| Acquisition
of property and equipment | (64 | ) | (189 | ) |
| Expenditures
for capitalized software | (163 | ) | (563 | ) |
| Net
cash provided by/(used in) investing activities | 1,141 | | (3,781 | ) |
| Cash
flows from financing activities: | | | | |
| Dividends
paid | (7,485 | ) | (182,162 | ) |
| Net
cash used in financing activities | (7,485 | ) | (182,162 | ) |
| Net
increase/(decrease) in cash and cash equivalents | 4,703 | | (156,084 | ) |
| Cash
and cash equivalents at beginning of year | 5,971 | | 178,108 | |
| Cash
and cash equivalents at end of period | $ 10,674 | $ | 22,024 | |

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

4

| Part
I - Financial Information | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Item
1. Financial Statements | | | | | | | | | |
| VALUE
LINE, INC. | | | | | | | | | |
| CONSOLIDATED
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS'
EQUITY | | | | | | | | | |
| FOR
THE NINE MONTHS ENDED JANUARY 31, 2006 | | | | | | | | | |
| (in
thousands, except share amounts) | | | | | | | | | |
| (unaudited) | | | | | | | | | |
| Common
stock | | | | | | | | | |
| | | | | | | | Accumulated | | |
| Number | | | Additional | | | | Other | | |
| of | | | paid-in | Treasury | Comprehensive | Retained | Comprehensive | | |
| shares | | Amount | capital | Stock | income | earnings | income | Total | |
| Balance
at April 30, 2005 | 9,981,600 | $ 1,000 | $ 991 | ($354 | ) | $ 30,798 | $ 11,708 | $ 44,143 | |
| Comprehensive
income | | | | | | | | | |
| Net
income | | | | | $ 17,727 | 17,727 | | 17,727 | |
| Other
comprehensive income, | | | | | | | | | |
| net
of tax: | | | | | | | | | |
| Change
in unrealized | | | | | | | | | |
| gains
on securities, | | | | | | | | | |
| net
of taxes | | | | | 3,298 | | 3,298 | 3,298 | |
| Comprehensive
income | | | | | $ 21,025 | | | | |
| Dividends
declared | | | | | | (7,485 | ) | (7,485 | ) |
| Balance
at January 31, 2006 | 9,981,600 | $ 1,000 | $ 991 | ($354 | ) | $ 41,040 | $ 15,006 | $ 57,683 | |

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

5

| Part
I - Financial Information | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Item
1. Financial Statements | | | | | | | | | | |
| VALUE
LINE, INC. | | | | | | | | | | |
| CONSOLIDATED
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS'
EQUITY | | | | | | | | | | |
| FOR
THE NINE MONTHS ENDED JANUARY 31, 2005 | | | | | | | | | | |
| (in
thousands, except share amounts) | | | | | | | | | | |
| (unaudited) | | | | | | | | | | |
| Common
stock | | | | | | | | | | |
| | | | | | | | Accumulated | | | |
| Number | | | Additional | | | | Other | | | |
| of | | | paid-in | Treasury | Comprehensive | Retained | Comprehensive | | | |
| shares | | Amount | capital | Stock | income | earnings | income | Total | | |
| Balance
at April 30, 2004 | 9,981,600 | $ 1,000 | $ 991 | ($354 | ) | $ 19,459 | $ 14,202 | $ | 35,298 | |
| Comprehensive
income | | | | | | | | | | |
| Net
income | | | | | $ 16,396 | 16,396 | | | 16,396 | |
| Other
comprehensive income, | | | | | | | | | | |
| net
of tax: | | | | | | | | | | |
| Change
in unrealized | | | | | | | | | | |
| gains
on securities, net of taxes | | | | | (1,668 | ) | (1,668 | ) | (1,668 | ) |
| Comprehensive
income | | | | | $ 14,728 | | | | | |
| Dividends
declared | | | | | | (7,485 | ) | | (7,485 | ) |
| Balance
at January 31, 2005 | 9,981,600 | $ 1,000 | $ 991 | ($354 | ) | $ 28,370 | $ 12,534 | $ | 42,541 | |

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

6

| VALUE
LINE, INC. |
| --- |
| NOTES
TO THE CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS |
| Significant
Accounting Policies - Note 1: |
| In
the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting
of
normal recurring accruals except as noted below) considered necessary
for
a fair presentation. This report should be read in conjunction
with the
financial statements and footnotes contained in the Company's annual
report on Form 10-K, dated July 29, 2005 and Form 10-K Amended,
dated
August 26, 2005 for the fiscal year ended April 30, 2005. Results
of
operations covered by this report may not be indicative of the
results of
operations for the entire year. |
| Value
Line, Inc. (the "Company") is incorporated in New York State and
carries
on the investment periodicals and related publications and investment
management activities formerly performed by Arnold Bernhard & Co.,
Inc. (the "Parent") which owns approximately 86% of the issued
and
outstanding common stock of the Company. |
| Principles
of Consolidation: |
| The
consolidated condensed financial statements include the accounts
of the
Company and all of its subsidiaries. All significant intercompany
accounts
and transactions have been eliminated in consolidation. |
| Revenue
Recognition: |
| Subscription
revenues are recognized ratably over the terms of the subscriptions.
Accordingly, the amount of subscription fees to be earned by servicing
subscriptions after the date of the balance sheet is shown as unearned
revenue. |
| Investment
management fees (except 12b-1 fees) are recorded as the related
services
are performed (see note 6). Service and distribution fees collected
under
rule 12b-1 are recorded in the Consolidated Condensed Statements
of Income
based upon the average daily net asset values of the respective
Value Line
mutual funds. |
| Valuation
of Securities: |
| The
Company's securities classified as available for sale consist of
shares of
the Value Line Mutual Funds and government debt securities accounted
for
in accordance with Statement of Financial Accounting Standards
No.115,
"Accounting for Certain Investments in Debt and Equity Securities".
The
securities are valued at market with unrealized gains and losses
on these
securities reported, net of applicable taxes, as a separate component
of
Shareholders' Equity. Realized gains and losses on sales of the
securities
available for sale are recorded in earnings on trade date and are
determined on the identified cost method. |
| The
Company classifies its securities available for sale as current
assets. It
does so to properly reflect its liquidity and to recognize the
fact that
it has assets available for sale to fully satisfy its current liabilities
should the need arise. |
| Trading
securities held by the Company are valued at market with unrealized
gains
and losses included in earnings. |
| Market
valuation of securities listed on a securities exchange and
over-the-counter securities traded on the NASDAQ national market
is based
on the closing sales prices on the last business day of each month.
In the
absence of closing sales prices for such securities, and for other
securities traded in the over-the-counter market, the security
is valued
at the midpoint between the latest available and representative
asked and
bid prices. |
| Valuation
of open-ended mutual fund shares are based upon the net asset values
of
the shares as calculated by such funds. |
| Market
valuation of the Company's fixed maturity government debt obligations
are
valued utilizing quoted prices provided by a third party pricing
service. |
| Advertising
Expenses: |
| The
Company expenses advertising costs as
incurred. |

7

VALUE LINE, INC.

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

| Reclassification: |
| --- |
| Certain
items in the prior year financial statements have been reclassified
to
conform to the current year presentation. |
| Income
Taxes: |
| The
Company computes its income tax provision in accordance with the
provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes". Deferred tax liabilities and assets
are
recognized for the expected future tax consequences of events that
have
been reflected in the Consolidated Condensed Financial Statements.
Deferred tax liabilities and assets are determined based on the
differences between the book values and the tax bases of particular
assets
and liabilities, using tax rates currently in effect for the years
in
which the differences are expected to reverse. |
| Earnings
per Share, basic & fully diluted: |
| Earnings
per share are based on the weighted average number of shares of
common
stock and common stock equivalents outstanding during each
year. |
| Cash
and Cash Equivalents: |
| For
purposes of the Consolidated Condensed Statements of Cash Flows,
the
Company considers all cash held at banks and short term liquid
investments
with an original maturity of less than three months to be cash
and cash
equivalents. As of January 31, 2006 and April 30, 2005, cash equivalents
included $9,784,000 and $5,546,000 respectively, invested in the
Value
Line money market funds. |
| Use
of Estimates: |
| The
preparation of financial statements in conformity with generally
accepted
accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates. |
| Marketable
Securities - Note 2: |
| Trading
Securities: |
| Securities
held by the Company had an aggregate cost of $22,403,000 and a
fair market
value $22,407,000 at January 31, 2006. There were no trading securities
held at April 30, 2005. There were no sales of trading securities
in
fiscal 2006. The proceeds from sales of trading securities, during
the
nine months ended January 31, 2005, were $42,205,000 and the related
gains
on these sales were $2,425,000. Unrealized gains on the trading
securities
portfolio of $4,000 and unrealized losses of $1,055,000 for the
nine
months ended January 31, 2006 and 2005, respectively, were included
in the
Consolidated Condensed Statements of Income. |
| Securities
Available for Sale: |
| Equity
Securities: |
| The
aggregate cost of the equity securities classified as available
for sale,
which are invested in the Value Line mutual funds, was $21,632,000
and the
market value was $44,916,000 at January 31, 2006. The aggregate
cost of
the equity securities classified as available for sale at April
30, 2005
was $19,169,000 and the market value was $37,209,000. The total
gains for
equity securities with net gains included in Accumulated Other
Comprehensive Income on the Consolidated Condensed Balance Sheet
were
$23,284,000 and $18,157,000, net of deferred income taxes of $8,149,000
and $6,355,000, as of January 31, 2006 and April 30, 2005, respectively.
Losses on equity securities included in Accumulated Other Comprehensive
Income at April 30, 2005 were $117,000, net of deferred income
taxes of
$41,000. The net increase in unrealized holding gains on these
securities
of $5,244,000 and the decrease of $2,503,000, net of deferred income
taxes
of $1,835,000 and $875,000, were included in Shareholders' Equity
at
January 31, 2006 and 2005,
respectively. |

8

VALUE LINE, INC.

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

| Realized
capital gains from the sales of equity securities classified as
available
for sale during the nine months ended January 31, 2006 and January
31,
2005 were $2,430,000 and $6,301,000, of which $2,355,000 and $5,861,000,
respectively, were reclassified out of Accumulated Other Comprehensive
Income into earnings. The proceeds received from the sales of these
securities during the nine months ended January 31, 2006 and January
31,
2005 were $2,430,000 and $12,669,000, respectively. Proceeds and
capital
gains included $75,000 and $433,000 from an installment sale of
an
investment in a privately held Company, in fiscal 2006 and 2005,
respectively. |
| --- |
| Government
Debt Securities: |
| The
Company's investments in debt securities are available for sale
and valued
at market value. The aggregate cost and market value at January
31, 2006
for U.S. Government debt securities classified as available for
sale were
as follows: |

| | Historical | (In
Thousands) — Market | Gross
Unrealized | |
| --- | --- | --- | --- | --- |
| Maturity | Cost | Value | Holding
Losses | |
| Due
in less than 2 years | $ 15,103 | $ 14,974 | ($129 | ) |
| Due
in 2-5 years | 4,420 | 4,354 | (66 | ) |
| Total
investment in debt securities | $ 19,523 | $ 19,328 | ($195 | ) |

The aggregate cost and market value at April 30, 2005 for U.S. Government debt securities classified as available for sale were as follows:

| | Historical | (In
Thousands) — Market | Gross
Unrealized | |
| --- | --- | --- | --- | --- |
| Maturity | Cost | Value | Holding
Losses | |
| Due
in less than 2 years | $ 34,506 | $ 34,481 | ($25 | ) |
| Due
in 2-5 years | 4,587 | 4,584 | (3 | ) |
| Total
investment in debt securities | $ 39,093 | $ 39,065 | ($28 | ) |

| The
unrealized losses of $195,000 and $28,000 on U.S. government debt
securities net of deferred income taxes of $66,000 and $10,000,
respectively, were included in Accumulated Other Comprehensive
Income on
the Consolidated Condensed Balance Sheets as of January 31, 2006
and April
30, 2005. During the third quarter of fiscal 2006, the Company
reclassified $18,038,000 of US Government debt securities from
the
classification of available for sale to trading securities that
resulted
in the recognition and reclassification of an unrealized loss of
$129,000
from Accumulated Other Comprehensive Income to the Consolidated
Condensed
Statement of Income. |
| --- |
| The
average yield on the U.S. Government debt securities classified
as
available for sale at January 31, 2006 and 2005 was 1.85% and 1.31%,
respectively. |
| Proceeds
from sales of government debt securities classified as available
for sale
were $9,650,000 and $9,019,000 during the first nine months of
fiscal year
2006 and 2005, respectively. There were no related gains or losses. |
| For
the nine months ended January 31, 2006, and 2005, income from securities
transactions, net also included $358,000 and $161,000 of dividend
income;
$957,000 and $199,000 of interest income; and $11,000 and $7,000
of
related interest expense,
respectively. |

9

VALUE LINE, INC.

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

| Supplemental
Disclosure of Cash Flow Information - Note 3: |
| --- |
| Cash
payments for income taxes were $11,406,000 and $11,111,000 during
the nine
months ended January 31, 2006 and 2005, respectively. |
| Employees'
Profit Sharing and Savings Plan - Note 4: |
| Substantially
all employees of the Company and its subsidiaries are members of
the Value
Line, Inc. Profit Sharing and Savings Plan (the "Plan"). In general,
this
is a qualified, contributory plan which provides for a discretionary
annual Company contribution which is determined by a formula based
upon
the salaries of eligible employees and the amount of consolidated
net
operating income as defined in the Plan. The estimated profit sharing
plan
contribution, which is included as an expense in salaries and employee
benefits in the Consolidated Condensed Statement of Income, was
$911,000
and $797,000 for the nine months ended January 31, 2006 and 2005,
respectively. |
| Comprehensive
Income - Note 5: |
| Statement
of Financial Accounting Standards no. 130 requires the reporting
of
comprehensive income in addition to net income from operations.
Comprehensive income is a more inclusive financial reporting methodology
that includes disclosure of certain financial information that
historically has not been recognized in the calculation of net
income. |
| At
January 31, 2006 and April 30, 2005 the Company held both equity
securities and U.S. Government debt securities that are classified
as
Available for Sale on the Consolidated Condensed Balance Sheets.
The
change in valuation of these securities, net of deferred income
taxes, has
been recorded in Accumulated Other Comprehensive Income in the
Company's
Consolidated Condensed Balance Sheets. |
| The
components of comprehensive income that are included in the Statement
of
Changes in Shareholders' Equity are as
follows: |

| Nine
months ended 1-31-06 | Before
Tax Amount | Tax
(Expense) or
Benefit | | | Net
of Tax
Amount | |
| --- | --- | --- | --- | --- | --- | --- |
| Unrealized
Gains on Securities: | | | | | | |
| Unrealized
Holding Gains/(Losses) arising during the period | $ 7,303 | | ($2,563 | ) | $ 4,740 | |
| Add:
Reclassification adjustments for losses realized in net
income | 129 | | (45 | ) | 84 | |
| Less:
Reclassification adjustments for gains realized in net
income | (2,355 | ) | 829 | | (1,526 | ) |
| Other
Comprehensive income | $ 5,077 | | ($1,779 | ) | $ 3,298 | |

| Nine
months ended 1-31-05 | | | | | | |
| --- | --- | --- | --- | --- | --- | --- |
| Unrealized
Gains on Securities: | | | | | | |
| Unrealized
Holding Gains/(Losses) arising during the period | $ 3,296 | | ($1,166 | ) | $ 2,130 | |
| Less:
Reclassification adjustments for gains realized in net
income | (5,861 | ) | 2,063 | | (3,798 | ) |
| Other
Comprehensive income | ($2,565 | ) | $ 897 | | ($1,668 | ) |

10

VALUE LINE, INC.

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

| Related
Party Transactions - Note 6: |
| --- |
| The
Company acts as investment adviser and manager for fourteen open-ended
investment companies, the Value Line Family of Funds. The Company
earns
investment management fees based upon the average daily net asset
values
of the respective Value Line mutual funds. In addition, effective
July 1,
2000, twelve of the fourteen Value Line Mutual Funds adopted a
service and
distribution plan under rule 12b-1 of the Investment Company Act
of 1940.
Effective September 18, 2002, the remaining two funds for which
Value Line
is the adviser adopted a service and distribution plan under rule
12b-1 of
the Investment Company Act of 1940. Further, the Company earned
brokerage
commission income on securities transactions executed by Value
Line
Securities, Inc. (VLS) on behalf of the funds that cleared on a
fully
disclosed basis through non-affiliated brokers, who received a
portion of
the gross commission. Pending a review of effecting trades for
the Value
Line Funds, VLS in November 2004 suspended effectuation of trades
through
VLS for any of the Value Line Funds. |
| For
the nine months ended January 31, 2006 investment management fees
and
12b-1 service and distribution fees amounted to $23,362,000,
which includes fee waivers for certain of the Value Line Mutual
Funds. For the nine months ended January 31, 2005, investment management
fees, 12b-1 service and distribution fees and brokerage commission
income
amounted to $23,164,000. The amounts for service and distribution
fees
during the nine months ended January 31, 2006 and 2005 were $7,498,000
and
$7,214,000, respectively. The related receivables from the funds
for
management advisory fees and 12b-1 service fees included in Receivable
from affiliates on the Consolidated Condensed Balance Sheet were
$2,721,000 and $2,406,000 at January 31, 2006 and April 30, 2005,
respectively. |
| For
the nine months ended January 31, 2006 and 2005, the Company was
reimbursed $700,000 and $387,000, respectively, for payments it
made on
behalf of and services it provided to Arnold Bernhard and Company,
Inc.
("Parent"). At January 31, 2006 and April 30, 2005, Receivable
from
affiliates on the Consolidated Condensed Balance Sheet also included
a
receivable from the Parent of $83,000 and $107,000,
respectively. |
| From
time to time, the Parent has purchased additional shares of Value
Line,
Inc. in the market when and as the Parent has determined it to
be
appropriate. As stated several times in the past, the public is
reminded
that the Parent may make additional purchases from time to time
in the
future. |
| Federal,
State and Local Income Taxes - Note 7: |
| The
Company computes its tax in accordance with the provisions of Statement
of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes". |
| The
provision for income taxes includes the
following: |

| | Nine
months ended January 31, — 2006 | 2005 | | |
| --- | --- | --- | --- | --- |
| | (in
thousands) | | | |
| Current: | | | | |
| Federal | $ 9,492 | $ | 9,051 | |
| State
and local | 2,210 | | 1,522 | |
| | $ 11,702 | $ | 10,573 | |
| Deferred: | | | | |
| Federal | ($271 | ) | ($371 | ) |
| State
and local | 83 | | (15 | ) |
| | ($188 | ) | ($386 | ) |
| Total: | $ 11,514 | $ | 10,187 | |

11

VALUE LINE, INC.

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

| Deferred
income taxes are provided for temporary differences between the
financial
reporting basis and the tax basis of the Company's assets and liabilities.
The tax effect of temporary differences giving rise to the Company's
deferred tax liability are primarily a result of unrealized gains
on the
Company's available for sale securities portfolios. |
| --- |
| Business
Segments - Note 8: |
| The
Company operates two reportable business segments: Publishing and
Investment Management Services. The publishing segment produces
investment
related periodicals in both print and electronic form, and licensing
fees.
The investment management segment provides advisory services to
the Value
Line family of mutual funds, as well as institutional and individual
clients. The segments are differentiated by the products and services
they
offer. |
| The
accounting policies of the segments are the same as those described
in the
summary of significant accounting policies. The Company allocates
all
revenues and expenses, except for depreciation and income from
securities
transactions related to corporate assets, between the two reportable
segments. |
| Disclosure
of Reportable Segment Profit and Segment Assets (in
thousands) |

| | Nine
months ended January 31, 2006 — Publishing | Investment
Management Services | Total |
| --- | --- | --- | --- |
| Revenues
from external customers | $ 39,298 | $ 24,160 | $ 63,458 |
| Intersegment
revenues | 64 | 0 | 64 |
| Income
from securities transactions, net | 124 | 327 | 451 |
| Depreciation
and amortization | 1,581 | 66 | 1,647 |
| Segment
operating profit | 13,408 | 12,274 | 25,682 |
| Segment
assets | 17,490 | 73,937 | 91,427 |
| Expenditures
for segment assets | 227 | 0 | 227 |

| | Nine
months ended January 31, 2005 — Publishing | Investment
Management Services | Total |
| --- | --- | --- | --- |
| Revenues
from external customers | $ 39,272 | $ 24,088 | $ 63,360 |
| Intersegment
revenues | 167 | 0 | 167 |
| Income
from securities transactions, net | 2 | 8,031 | 8,033 |
| Depreciation
and amortization | 1,717 | 71 | 1,788 |
| Segment
operating profit | 10,466 | 8,096 | 18,562 |
| Segment
assets | 16,140 | 60,910 | 77,050 |
| Expenditures
for segment assets | 613 | 139 | 752 |

12

VALUE LINE, INC.

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

| Reconciliation
of Reportable Segment Revenues, |
| --- |
| Operating
Profit and Assets (in thousands) |

| | Nine
months ended January 31, — 2006 | 2005 | | |
| --- | --- | --- | --- | --- |
| Revenues | | | | |
| Total
revenues for reportable segments | $ 63,522 | $ | 63,527 | |
| Elimination
of intersegment revenues | (64 | ) | (167 | ) |
| Total
consolidated revenues | $ 63,458 | $ | 63,360 | |
| Segment
profit | | | | |
| Total
profit for reportable segments | $ 26,133 | $ | 26,595 | |
| Add:
Income from securities transactions related to corporate
assets | 3,120 | | 0 | |
| Less:
Depreciation related to corporate assets | (12 | ) | (12 | ) |
| Income
before income taxes | $ 29,241 | $ | 26,583 | |
| Assets | | | | |
| Total
assets for reportable segments | $ 91,427 | $ | 77,050 | |
| Corporate
assets | 20,865 | | 20,654 | |
| Consolidated
total assets | $ 112,292 | $ | 97,704 | |

| Contingencies
- Note 9: |
| --- |
| On
September 17, 2003 the Company commenced an action in New York
Supreme
Court, seeking damages in an unspecified amount, against a small
mutual
fund company pertaining to a contemplated transaction. The Company
was
countersued for alleged damages in excess of $5,000,000. The action
was
settled in November, 2004 without a material adverse effect on
the
Company. A related entity of the defendant in the New York action
brought
suit against the Company and certain Directors in Federal Court
in Texas
in March, 2004 based on the same transaction. On the Company's
motion,
that action has been transferred from Texas to New York. On March
2, 2006
the Federal Judge in New York granted the Company's motion dismissing
three causes of action. The court allowed one cause of action to
continue
at this time. Although the ultimate outcome of the litigation is
subject
to the inherent uncertainties of any legal proceeding, based upon
Counsel's analysis of the factual and legal issues and the Company's
meritorious defenses, it is management's belief that the expected
outcome
of this matter will not have a material adverse effect on the Company's
consolidated results of operations and financial
condition. |
| By
letter dated June 15, 2005, the staff of the Securities and Exchange
Commission requested the Company as part of a preliminary inquiry
to
provide documents relating to, among other things, trades for the
Company's proprietary accounts, and the effectuation and execution
of
trades through VLS for the Value Line Funds. The Company is cooperating
with the preliminary inquiry. |

13

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

Liquidity and Capital Resources

The Company had working capital as of January 31, 2006 of $57,083,000 which included cash and short-term securities at market value of $74,918,000.

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

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

Operating Results

Net income for the nine months ended January 31, 2006 of $17,727,000 or $1.78 per share was $1,331,000 or 8% above net income of $16,396,000 or $1.64 per share in fiscal 2005. Net income for the third quarter ended January 31, 2006 of $6,694,000 or $0.67 per share was $2,037,000 or 44% above net income of $4,657,000 or $0.46 per share in the third quarter of fiscal 2005. Operating income of $25,670,000 for the nine months ended January 31, 2006 was $7,120,000 above operating income of $18,550,000 for the same period of the last fiscal year, a 38% increase for the period. Operating income of $8,037,000 for the three months ended January 31, 2006 was $1,600,000 or 25% above operating income of $6,437,000 for the same period of last fiscal year. The Company’s income from securities transactions of $3,571,000 was 56% below last year’s for the nine months ended January 31, 2006. For the third quarter of fiscal 2006, income from securities transactions of $2,858,000 was 159% above last fiscal year’s third quarter income (see last paragraph). Shareholders’ equity of $57,683,000 at January 31, 2006 was 36% higher than shareholders’ equity of $42,541,000 at January 31, 2005.

Subscription revenues of $35,963,000 for the nine months ended January 31, 2006 were 4% below revenues for the comparable period of the prior fiscal year. Electronic publications revenues of $8,240,000 were up $168,000 or 2% compared to $8,072,000 for the prior fiscal year. Within electronic publications revenues are revenues generated by institutional subscribers and retail subscribers. Institutional revenues increased $698,000 or 35%, while revenues from retail subscribers were down $530,000 or 9%. Print subscription revenues of $27,723,000 were down $1,761,000 or 6% compared to $29,484,000 for the last fiscal year. Subscription revenues of $11,890,000 for the three months ended January 31, 2006 were 5% below revenues for the comparable period of the prior fiscal year. Electronic publications revenues of $2,697,000 were down $55,000 or 2% compared to $2,752,000 for the prior fiscal year. Institutional electronic publications revenues increased $26,000 or 3%, while revenues from retail electronic publication subscribers were down $81,000 or 4%. Print subscription revenues of $9,193,000 were down $580,000 or 6% compared to $9,773,000 for the last fiscal year.

14

Licensing fees for the nine months ended January 31, 2006 of $3,335,000 were up $1,619,000 or 94% compared to $1,716,000 for the same period of fiscal 2005. Licensing fees for the third quarter ended January 31, 2006 of $1,442,000 increased $794,000 or 123% from the comparable period of last fiscal year.

Investment management fees and service revenues of $24,160,000 for the nine months ended January 31, 2006 were up $72,000, which is less than 1% above the prior fiscal year’s revenues of $24,088,000. Beginning November 2004, Value Line Securities, Inc. suspended its business of effecting trades for any of the Value Line Funds, from which it had earned net commission revenues. The decline in brokerage revenues was mostly offset by higher investment advisory fees that resulted primarily from a 10% increase in the net assets of the Value Line family of mutual funds, which includes fee waivers for certain of the Value Line Mutual Funds. Total mutual funds net assets as of January 31, 2006 were $3,604,391,000.

Operating expenses for the nine months ended January 31, 2006 of $37,788,000 were 16% below expenses of $44,810,000 for the comparable period of the previous fiscal year. Operating expenses for the third quarter ended January 31, 2006 of $13,545,000 were 7% below expenses of $14,621,000 for the same period last fiscal year. Total advertising and promotional expenses of $9,902,000 for the nine months ended January 31, 2006 were 39% below the prior year’s expenses of $16,245,000. Advertising and promotional expenses for the third quarter ended January 31, 2006 of $3,826,000 were 30% below expenses of $5,455,000 for the prior year. The decrease in advertising expenses resulted primarily from the reduction in the frequency of marketing campaigns in fiscal 2006 for the Company’s investment periodicals. Salaries and employee benefit expenses of $14,605,000 for the third quarter of fiscal 2006 were 5% below expenses of $15,337,000 for the prior fiscal year primarily as a result of staff consolidations in the Company. Production and distribution expenses for the nine months ended January 31, 2006 of $5,314,000 were 20% below expenses of $6,615,000 for the same period of fiscal 2005. Production and distribution expenses for the third quarter of fiscal 2006 of $1,712,000 were 19% below fiscal 2005 expenses. The decline in expenses for the nine months and third quarter were primarily due to lower paper, printing and distribution costs that resulted in part from a decrease in circulation of the print products and the elimination of brokerage execution fees. Office and administrative expenses for the first nine months of fiscal 2006 of $7,967,000 were 20% higher than the prior fiscal year’s expenses of $6,613,000 and expenses of $3,260,000 for the third quarter of fiscal 2006 were 45% higher than the last fiscal year’s expenses. The increase in administrative expenses was primarily due to an increase in professional fees and the additional costs associated with outsourcing certain of the mutual fund administration functions.

For the nine months ended January 31, 2006, the Company’s income from securities transactions, net, of $3,571,000 was 56% below securities transactions income of $8,033,000 for the same period of the last fiscal year. Income from securities transactions, net, for the nine months ended January 31, 2006 included dividend and interest income of $1,315,000. Capital gains during the first nine months of fiscal 2006 were $2,310,000, of which $2,355,000 represented distributions during the quarter ended January 31, 2006 from the Value Line Mutual Funds and $75,000 from an installment sale of an investment in a privately held Company. The income from securities transactions for the first nine months of fiscal 2006 compares to dividend and interest income of $360,000 and capital gains of $6,750,000 from sales of securities included in the Company’s trading and available for sale portfolios included in the nine months ended January 31, 2005. The first nine months of the prior fiscal year included capital gains that resulted from partial sales of the Company’s equity securities in preparation for payment on May 19, 2004 of a special dividend of $17.50 per share to all common shareholders of record as of May 7, 2004 and redeployment of the remaining proceeds in fixed income government obligations. Capital gains for the nine months of fiscal 2005 also included $433,000 from the initial proceeds from an installment sale of an investment in a privately held Company.

15

For the third quarter ended January 31, 2006, the Company’s income from securities transactions, net, was $2,858,000, 159% above securities transactions income of $1,104,000 for the same period of the last fiscal year. Income from securities transactions, net, for the three months ended January 31, 2006 included dividend and interest income of $587,000 and capital gains of $2,271,000 of which $2,355,000 represented capital gain distributions from the Value Line Mutual Funds. This compares to dividend and interest income of $186,000 and capital gains of $918,000 from sales of securities included in the Company’s trading and available for sale portfolios, the proceeds of which were reinvested in fixed income government obligations during the three months ended January 31, 2005.

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

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

· demand for and market acceptance of the Company’s new and existing products;

· renewals of subscriptions for the Company’s products;

· adaptation of the Company’s products to new technologies;

· fluctuations in the Company’s assets under management due to broadly based changes in the values of equity and debt securities, redemptions by investors and other factors;

· competitive product and pricing pressures;

· the impact of government regulation on the Company’s business and the uncertainties of litigation and regulatory initiatives and inquiries; and

· other risks and uncertainties, including but not limited to those detailed from time to time in our SEC filings.

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

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Market Risk Disclosures

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

Interest Rate Risk

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

The fair values of Value Line’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.

16

The following table summarizes the estimated effects of hypothetical increases and decreases in interest rates on assets that are subject to interest rate risk. It is assumed that the changes occur immediately and uniformly to each category of instrument containing interest rate risks. The hypothetical changes in market interest rates do not reflect what could be deemed best or worst case scenarios. Variations in market interest rates could produce significant changes in the timing of repayments due to prepayment options available. For these reasons, actual results might differ from those reflected in the table. Dollars are in thousands.

| | Estimated
Fair Value After | | | | |
| --- | --- | --- | --- | --- | --- |
| | Hypothetical
Change in Interest Rates | | | | |
| | (bp
= basis points) | | | | |
| | Fair | 50bp | 50bp | 100bp | 100bp |
| Fixed
Income Securities | Value | increase | decrease | increase | decrease |
| As
of January 31, 2006 | | | | | |
| Investments
in securities with fixed maturities | $ 41,735 | $ 41,550 | $ 41,890 | $ 41,560 | $ 41,943 |
| As
of April 30, 2005 | | | | | |
| Investments
in securities with fixed maturities | $ 39,065 | $ 38,927 | $ 39,253 | $ 38,911 | $ 39,326 |

Equity Price Risk

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

Value Line invests a significant level of its assets in equity securities, primarily the Value Line family of equity mutual funds. Each mutual fund invests in a variety of equity positions of various companies thereby diversifying Value Line’s risk. Value Line has also utilized derivative financial instruments in the past to minimize market price risk, although no such derivative financial instruments were utilized during fiscal years 2006 and 2005.

The table below summarizes Value Line’s equity price risks as of January 31, 2006 and April 30, 2005 and shows the effects of a hypothetical 30% increase and a 30% decrease in market prices as of those dates. The selected hypothetical changes do not reflect what could be considered the best or worst case scenarios. Dollars are in thousands.

17

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

18

Item 4. Disclosure Controls and Procedures

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

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

19

VALUE LINE, INC.

Signatures

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

| /s/ Jean
Bernhard Buttner |
| --- |
| Jean
Bernhard Buttner |
| Chairman
& Chief Executive Officer |

| Date:
March 17, 2006 |
| --- |
| Mitchell
E. Appel |
| Chief
Financial Officer |

20