Exhibit 99.1

 

 

 

 

 

 

 

EULAV ASSET MANAGEMENT

 

CONSOLIDATED FINANCIAL STATEMENTS

 

APRIL 30, 2021

 

 

 

 

 

 

 

 

 

 

Consolidated Statement of Financial Condition

April 30, 2021

 

ASSETS
Cash and cash equivalents		$	9,118,301
Investments			1,951,164
Receivable from affiliates			3,290,037
Prepaid expenses and other assets			401,278
Total current assets			14,760,780
Furniture and equipment, net			137,139
Intangible asset - management contracts			49,298,783
		$	64,196,702
LIABILITIES AND OWNERS' EQUITY
Accounts payable and accrued liabilities		$	1,587,706
Due to owners – distributions			5,219,580
Total current liabilities			6,807,286
Deferred rent			62,337
Owners' equity			57,327,079
		$	64,196,702

 

See notes to consolidated financial statements

 

Consolidated Statement of Operations

For the Year Ended April 30, 2021

 

Revenues:
Investment management fees		$	29,022,493
12b-1 fees			8,093,341
Sub-transfer agency fees			1,510,445
Dividends, interest and other income			50,664
Change in unrealized gain and realized gain on investments			310,069
Total revenues			38,987,012
Expenses:
Marketing and distribution			11,520,224
Compensation and benefits			5,763,022
Office and administration			1,664,852
Professional fees			600,889
Total expenses			19,548,987
Net income before New York City income taxes			19,438,025
(Refund) Provision for New York City income taxes			(14,202	)
Net income		$	19,452,227

 

See notes to consolidated financial statements

 

Consolidated Statement of Changes in Owners' Equity

For the Year Ended April 30, 2021

 

		April 30,				Net								April 30,
		2020				Income				Distributions				2021
Non-voting revenue interest and non-voting profit interest		$	56,216,623			$	17,321,128			$	(17,224,641	)		$	56,313,110
Class A voting profit interest			916,733				1,917,989				(1,839,548	)			995,174
Class B voting profit interest			10,082				213,110				(204,397	)			18,795
		$	57,143,438			$	19,452,227			$	(19,268,586	)		$	57,327,079

 

See notes to consolidated financial statements

 

Consolidated Statement of Cash Flows

For the Year Ended April 30, 2021

 

Cash flows from operating activities:
Net income		$	19,452,227
Adjustments to reconcile net income to net cash provided by operating activities:
Change in unrealized gain and realized gain on investments			(310,069	)
Depreciation and amortization expense			70,407
Changes in:
Receivable from affiliates			(892,940	)
Prepaid expenses and other assets			462
Accounts payable and accrued liabilities			549,313
Deferred rent			(18,936	)
Net cash provided by operating activities			18,850,464
Cash flows from investing activities:
Purchase of investments			(1,521,436	)
Proceeds from investments			3,168,894
Purchase of furniture and equipment			(1,771	)
Net cash provided by investing activities			1,645,687
Cash flows used in financing activities:
Distributions, net of change in due to owners - distributions			(17,120,671	)
Net increase in cash and cash equivalents			3,375,480
Cash and cash equivalents - April 30, 2020			5,742,821
Cash and cash equivalents - April 30, 2021		$	9,118,301
Supplemental disclosure of cash flow information:
Cash paid for New York City income taxes		$	11,000
Non-cash financing activities:
Change in Due to owners - distributions		$	2,147,915

 

See notes to consolidated financial statements

 

Notes to Consolidated Financial Statements

April 30, 2021

 

 

Note A - Organization and Transactions with Affiliates

 

EULAV Asset Management (“EAM"), a Delaware statutory trust, with no fixed term, was formed on December 23, 2010 as a result of Value Line, Inc. ("VLI") completing the restructuring of its asset management and broker-dealer businesses (the "Restructuring Transaction"). As part of the Restructuring Transaction, EULAV Securities, Inc., a New York corporation and wholly-owned subsidiary of VLI that acted as the distributor of the Value Line mutual funds ("Value Line Funds"), merged into EULAV Securities LLC ("ESLLC"), a Delaware limited liability company. VLI transferred 100% of its interest in ESLLC to EULAV Asset Management LLC, a wholly‑owned subsidiary of VLI that acted as the investment adviser to the Value Line Funds and certain separate accounts. EULAV Asset Management LLC then converted into EAM, which still acts as the investment adviser to the Value Line Funds. ESLLC, a wholly-owned subsidiary of EAM, is a broker-dealer registered with the Securities and Exchange Commission and is a member of the Financial Industry Regulatory Authority. ESLLC claims the exemption from the provisions of SEC Rule 15c3-3 under paragraph (k)(1).

 

The consolidated financial statements include the accounts of EULAV Asset Management and EULAV Securities LLC (collectively, the “Company”) after elimination of inter-company balances and transactions.

 

VLI granted the Company the right to use the Value Line name for all existing Value Line Funds and to supply without charge or expense the Value Line proprietary ranking system information for so long as the Company is the investment adviser to the Value Line Funds.

 

Each of the Value Line Funds has an investment advisory agreement with the Company pursuant to which the Company serves as investment adviser to the Value Line Funds. The Company receives investment management fees from each of the Value Line Funds managed by the Company. The Company and certain of the Value Line Funds have agreed that the Company would waive a portion of the fund's respective advisory fees. The fees received by the Company from the Value Line Funds are net of any contractual fee waivers as described in Note D.

 

Each of the Value Line Funds has a distribution agreement with the Company's wholly owned subsidiary ESLLC pursuant to which ESLLC acts as principal underwriter and distributor of the Value Line Funds for the sale and distribution of their shares. ESLLC is eligible to receive service and distribution fees under Rule 12b-1 of the Investment Company Act of 1940 from the Value Line Funds managed by the Company. ESLLC and certain of the Value Line Funds have agreed to waive all or a portion of the Fund's respective Rule 12b-1 fees. The fees received by ESLLC from the Value Line Funds are net of any contractual fee waivers as described in Note D.

 

ESLLC receives sub-transfer agency fees from certain of the Value Line Funds to compensate financial intermediaries that provide sub-transfer agency and related services to investors that hold their fund shares in omnibus accounts maintained by the financial intermediaries with the Value Line Funds.

 

 

Note B - Summary of Significant Accounting Policies

 

[1]	Use of estimates:

 

The preparation of consolidated 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.

 

[2]	Cash and cash equivalents:

 

The Company considers all cash held at banks and in money market mutual funds to be cash and cash equivalents. The Company maintains cash balances in a financial institution which, at times, may exceed federally insured limits. In the event of a financial institution's insolvency, recovery of cash may be limited.

 

 

Notes to Consolidated Financial Statements

April 30, 2021

 

 

Note B - Summary of Significant Accounting Policies (continued)

 

[3]

Revenues:

 

The revenue recognition guidance of ASC Topic 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance requires an entity to follow a five-step model to (a) identify the contract(s) with a customer, (b) identify the performance obligations in the contract, (c) determine the transaction price, (d) allocate the transaction price to the performance obligations in the contract, and (e) recognize revenue when (or as) the entity satisfies a performance obligation. In determining the transaction price, an entity may include variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized would not occur when the uncertainty associated with the variable consideration is resolved. All revenues that are recognized in the current period are primarily related to performance obligations that have been satisfied in the same period.

 

The performance obligation relating to investment management fees relates to the management of the Client’s account which is an obligation capable of being and distinct within the context of the contracts. The Company believes its performance obligation relating to service, distribution and sub-transfer agency fees is the distribution of the Value Line Funds. This represents a single performance obligation that is continuously provided over the contract period. 

 

Investment management fees consist of management fees from the Value Line Funds. Investment management fees for the Value Line Funds are received on a monthly basis as services are performed and the fees, which generally range from 0.38% to 0.75%, are calculated based on average daily net assets of the Value Line Funds in accordance with each fund's advisory agreement.         

 

Service and distribution fees are received from the Value Line Funds in accordance with service and distribution plans under Rule 12b-1 of the Investment Company Act of 1940. The plans are compensation plans, which means that ESLLC's fees under the plans are payable without regard to actual expenses incurred by ESLLC. ESLLC may earn a profit under the plan. Service and distribution fees are earned on a monthly basis and calculated by State Street Bank based on the average daily net assets of each of the Value Line Funds in accordance with each Fund's prospectus. Expenses incurred by ESLLC include payments to securities dealers, banks, financial institutions and other organizations that provide distribution, marketing, and related services with respect to the distribution of the Value Line Funds' shares.

 

Sub-transfer agency fees are received from the Value Line Funds in accordance with a sub-transfer agency plan approved by the Board of the Value Line Funds. The sub-transfer agency fee, which may be paid directly to the financial intermediary or indirectly via ESLLC, is equal to the lower of (i) the aggregate amount of additional transfer agency fees and expenses that the Value Line Funds would otherwise pay to the Value Line Funds' transfer agent, if each subaccount in the omnibus account maintained by the financial intermediary with the fund were a direct account with the fund and (ii) the amount by which the fees charged

by the financial intermediary for including the fund on its platform and providing shareholder, sub-transfer agency and related services exceed the amount paid under the fund's plan with respect to fund assets attributable to shares held by the financial intermediary in the omnibus account. If the sub-transfer agency fee is paid to financial intermediaries indirectly via ESLLC, ESLLC does not retain any amount thereof and such fee otherwise reduces the amount that ESLLC is contractually obligated to pay to the financial intermediary.

 

 

Notes to Consolidated Financial Statements

April 30, 2021

 

 

Note B - Summary of Significant Accounting Policies (continued)

 

The aforementioned fees received from the Value Line Funds and average daily net assets for the Value Line Funds are calculated by State Street Bank, which serves as the fund accountant, fund administrator and custodian of the Value Line Funds. The Value Line Funds are open-end management companies registered under the Investment Company Act of 1940.

 

Future estimates of payments for revenues are not recognized as there is significant uncertainty as to their amounts, which are dependent upon factors outside the Company’s control, such as fund shareholder activity and market appreciation/depreciation. Additionally, it should be noted that contracts between the Company and its customers do not include performance-based fees.

 

The Company considers that recognizing revenue for both management fees, service and distribution fees, and sub-transfer agency fees over time best represents the transfer of control to the customer for management investment activities. The Company considers that time elapsed to be the method that best represents the transfer of control to the customer for management investment activities.

 

Revenue from contracts with customers
Service and distribution
Service and distribution fees		$	8,093,341
Sub-transfer agency fees			1,510,445
Total service and distribution revenue			9,603,786
Investment management fees
Investment management fees		$	29,022,493
Total investment management fees			29,022,493
Total revenue from contracts with customers		$	38,626,279

 

The revenue from contracts with customers is derived from the Value Line Funds and for the year ended April 30, 2021, approximately 38% of the investment management fees are derived from the Value Line Asset Allocation Fund.

 

 

[4]	Income taxes:

 

The Company, as a trust, has elected to be taxed as a pass-through entity similar to a partnership for federal and state income tax purposes and, accordingly, is not subject to federal and state income taxes. The Company is subject to New York City unincorporated business tax.

 

The Company may recognize tax benefits from any uncertain positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company's policy is to recognize interest and penalties in general and administration expense. The Company had no uncertain tax positions that would require recognition or disclosure in the financial statements and has not recognized in these consolidated financial statements any interest or penalties related to income taxes. The Company is subject to U.S. federal, state and local tax examinations by tax authorities. The previous three years remain open for audit.

 

Tax laws are complex and subject to different interpretations by the taxpayer and taxing authorities. Significant judgment is required when evaluating tax provisions and related uncertainties. Future events such as changes in tax legislation could require a provision for income taxes. Any such changes could significantly affect the amounts reported in the consolidated statement of operations.

 

 

Notes to Consolidated Financial Statements

April 30, 2021

 

 

Note B - Summary of Significant Accounting Policies (continued)

 

[5]	Intangible assets:

 

The value of the intangible asset received as part of the Restructuring Transaction was derived primarily from revenue streams to be earned from management contracts contributed and from the right to use the Value Line name for all existing Value Line Funds and access the Value Line Proprietary Ranking information. This intangible asset was valued at approximately $49,197,000 and it is tested for impairment annually. It has an indefinite useful life and is not being amortized. VLI utilized the services of a third party valuation firm (the "Valuator") to assist in the determination of the fair value of the intangible asset at the time of the Restructuring Transaction.

 

The value of the intangible asset received as part of a fund transaction that occurred in 2016 was derived from the value of the assets in the fund and the value of two selling agreements that were acquired in the transaction. The intangible asset was valued at approximately $350,000 and is being amortized over a 15 year useful life. As of April 30, 2021, the value is approximately $102,000, and accumulated amortization is approximately $248,000. The amount of amortization for the year ended April 30, 2021 was approximately $10,000.

 

EAM utilizes the services of the Valuator to assist in the determination of the fair value of the intangible asset each fiscal year. The Valuator employed several analytical methodologies which were used by the Company to assist in its determination of the fair value of the intangible asset. These methodologies included two market approach methods which referenced actual transactions in the equity of similar enterprises that are traded in private and public markets and one income approach method utilizing discounted cash flows to determine the present value of the future earning capacity that is available to investors in the entity. The Company assesses the recoverability of its intangible asset by determining whether the carrying amount can be recovered through discounted forecasted cash flows if events or changes in circumstances indicate that the asset may be impaired. If discounted forecasted cash flows indicate that the carrying amount will not be recovered, an adjustment will be made to reduce such amounts to fair value based on forecasted future cash discounted at a rate commensurate with the risk associated with achieving such cash flows. Future cash flows are based on trends of historical performance and the Company's estimate of future performance, giving consideration to existing and anticipated competitive and economic conditions. The Company has elected to perform its annual analysis at April 30, its fiscal year-end. No indicators of impairment were identified during the year ended April 30, 2021.

 

 

[6]	Fair Value of Financial Instruments

 

In accordance with Fair Value Accounting, the Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. Financial assets and liabilities recorded on the Statement of Financial Condition are categorized based on the inputs to the valuation techniques as follows:

 

 

Level 1: Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market.

 

Level 2: Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.

 

 

Notes to Consolidated Financial Statements

April 30, 2021

 

 

Note B - Summary of Significant Accounting Policies (continued)

 

Level 3: Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumption about the assumptions a market participant would use in pricing the asset or liability.

 

The following table presents the Company’s assets by level within the fair value hierarchy at April 30, 2021:

 

EAM:
		Carrying Value				Level 1				Level 2				Level 3				Total
Assets:
Cash and cash equivalents		$	9,118,301			$	9,118,301			$	-			$	-			$	9,118,301
Investments			1,951,164				1,951,164				-				-				1,951,164
Receivable from affiliates			3,290,037				-				3,290,037				-				3,290,037
Total Assets		$	14,359,502			$	11,069,465			$	3,290,037			$	-			$	14,359,502

 

The classification of financial instruments valued at fair value as of April 30, 2021 is as follows:

 

		Level 1
Equities		$	1,053,250
Mutual funds/ETFs			897,914
		$	1,951,164

 

Mutual funds/ETFs and equity securities are valued on the last business day of the period at the last available reported price on their primary securities exchange. The Company has approximately $629,000 invested in the Value Line Funds as of April 30, 2021.

 

During the year ended April 30, 2021, the Company recorded change in unrealized gain on investments for $224,000 and realized gain on investments in the amount of $86,000 within change in unrealized gain and realized gain on investments within the Statement of Operations. The Company uses the Average Cost methodology to determine realized gain/(loss) on investments.

 

[7]	New Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases. ASU No. 2016-02 will require lessees to recognize lease assets and lease liabilities relating to operating leases on the balance sheet. The new guidance is effective for the Company beginning May 1, 2021. Management is currently evaluating the implications of ASU No. 2016-02, and its impact on the financial statements has not been determined.

 

 

Note C - Owners' Equity

 

Class A and Class B interest holders are Trustees and holders of the voting profits interests of the Company, and Value Line, Inc. ("VLI") owns the non-voting revenue interests and the non-voting profits interests of the Company.

 

Collectively, the voting profits interests receive 50% of the residual profit of the business, in which the share of Class A voting profits interest is 45% and Class B voting profits interest is 5%, subject to temporary adjustments in certain circumstances, as defined in the Trust agreement.  VLI retains a nonvoting profits interest representing 50% of residual profits, subject to temporary adjustments in certain circumstances and has no power to vote for the election, removal or replacement of the Trustees of the Company. VLI also retains a Non-Voting Revenues Interest in the business ranging from 41% at non-distribution fee (certain investment management fees) revenue levels of $9 million or less to 55% at such revenue levels of $35 million or more. The Company will make distributions to the owners and holders of the revenue interests no later than the tenth day after each respective quarter end, as defined in the Trust agreement.

 

 

Notes to Consolidated Financial Statements

April 30, 2021

 

 

Note D - Related Party Transactions

 

The investment management fees, 12b-1 fees, and sub-transfer agency fees, as described in Note A, are received from the Value Line Funds and are reflected within receivable from affiliates on the consolidated statement of financial condition. For the year ended April 30, 2021, total investment management fee waivers and reimbursements were approximately $121,000, total service and distributions fee waivers were approximately $651,000, and total sub-transfer agency fee waivers were approximately $44,000. Substantially all of the revenue is generated from related parties.

 

 

Note E - Furniture and Equipment

 

Furniture and equipment are carried at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of three to seven years. For the year ended April 30, 2021, depreciation expense was approximately $60,000.

 

Furniture and equipment, net, consist of the following:

 

Furniture and equipment		$	360,815
Less: accumulated depreciation			(223,676	)
		$	137,139

 

 

Note F - Regulatory Requirements

 

For regulatory purposes, ESLLC is subject to the net capital provisions of Rule 15c3-1 under the Securities Exchange Act of 1934, which requires the maintenance of minimum net capital of $5,000 or one-fifteenth of aggregate indebtedness, if greater. At April 30, 2021, ESLLC's net capital, as defined, of approximately $1,524,000 exceeded required net capital by approximately $1,462,000 and the ratio of aggregate indebtedness to net capital was .61 to 1.

 

 

Note G - Employees' Profit Sharing and Savings Plan

 

The employees of the Company are eligible to be members of the Company's 401(k) Plan and Profit Sharing Plan. In general, the Company matched 50% of the first 4% and 100% of the next 2% of each eligible employee's salary for the 401(k) Plan and may at its discretion contribute to the Profit Sharing Plan. For the year ended April 30, 2021, the Company made approximately $203,000 in matching contributions to the 401(k) Plan and its Profit Sharing Plan. This amount was included in compensation and benefits on the consolidated statement of operations.

 

 

Note H - Co-Employee Agreement

 

The Company has a client service agreement with ADP TotalSource as Co-employer (as defined in the client service agreement). ADP TotalSource is an unrelated entity. The Company's employees are on the Co‑employer's payroll and withholding system which is responsible for providing the payroll and tax withholding payments and reports for the Company's employees. In exchange, the Co-employer receives an administrative fee amounting to approximately $46,000 for the year ended April 30, 2021.

 

 

Notes to Consolidated Financial Statements

April 30, 2021

 

 

Note I - Commitment

 

In August 2019, the Company entered into a five year Lease Agreement with Boston Properties to lease office space at 7 Times Square, 16^th Floor, New York NY 10036. In March 2021, the Company entered into a two year Lease Agreement with Sarasota Ellis Associates LLC to lease office space at 1610 Main Street, Suite 912, Sarasota Florida 34236. Future rental commitment under the Leases are as follows:

 

 

Year Ending
April 30,		Amount
2022			433,537
2023			433,725
2024			414,434
2025			211,152
		$	1,492,847

 

 

Rent expense charged to operations for the year ended April 30, 2021 was approximately $392,000, which was included in office and administration on the consolidated statement of operations.

 

 

Note J - Subsequent Events

 

Management has evaluated all subsequent transactions and events through June 23, 2021, the date on which these consolidated financial statements were available to be issued.

 

Markets may be impacted by negative external and /or direct and indirect economic factors such as pandemics, natural disasters, global trade policies and political unrest or uncertainties. The adverse impact of any one or more of these events on the Company could be significant and cause losses. Recently, the outbreak of respiratory disease caused by the coronavirus COVID-19 has had, and is expected to continue to have, a severely adverse impact on the economies of many nations, individual companies and the market in general. The Company cannot predict the likelihood of occurrence or the effects of similar pandemics and epidemics in the future and the Company’s financial performance may be adversely affected.