HENNESSY ADVISORS INC - Quarter Report: 2021 December (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM

10-Q

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

For the Quarterly Period Ended December 31, 2021

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

For the transition period from

Commission

File Number

001-36423

HENNESSY ADVISORS, INC.

(Exact name of registrant as specified in its charter)


California		68-0176227
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

7250 Redwood Boulevard , Suite 200 Novato, California		94945
(Address of principal executive office)		(Zip code)

(415)

899-1555

(Registrant’s telephone number)

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, no par value	HNNA	The Nasdaq Stock Market LLC
4.875% Notes due 2026	HNNAZ	The Nasdaq Stock Market LLC

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

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.

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 is a shell company (as defined in Rule

12b-2

of the Exchange Act). Yes ☐ No ☒

As of February 7, 2022, there were 7,478,103 shares of common stock issued and outstanding.

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HENNESSY ADVISORS, INC.

TABLE OF CONTENTS


PART I	Financial Information

Item 1	Unaudited Condensed Financial Statements	1

	Balance Sheets	1

	Statements of Income	2

	Statements of Changes in Stockholders’ Equity	3

	Statements of Cash Flows	4

	Notes to Unaudited Condensed Financial Statements	5

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 4	Controls and Procedures	23

PART II	Other Information

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 6	Exhibits	25

	Signatures	26

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PART I: FINANCIAL INFORMATION

Item 1:

Unaudited Condensed Financial Statements

Balance Sheets

(In thousands, except share and per share amounts)


	December 31, 2021		September 30, 2021
	(Unaudited)

Assets
Current assets
Cash and cash equivalents	$	54,502	$	15,836
Investments in marketable securities, at fair value		10		10
Investment fee income receivable		2,826		2,795
Prepaid expenses		563		788
Other accounts receivable		388		277

Total current assets		58,289		19,706

Property and equipment, net of accumulated depreciation of $1,903 and $1,850, respectively		315		311
Operating lease right-of-use asset		920		1,010
Management contracts		80,643		80,643
Other assets		246		235

Total assets	$	140,413	$	101,905

Liabilities and Stockholders’ Equity
Current liabilities
Accrued liabilities and accounts payable	$	2,464	$	4,151
Operating lease liability		361		359
Income taxes payable		848		1,050

Total current liabilities		3,673		5,560

Notes payable, net of issuance costs		38,662		—
Long-term operating lease liability		554		646
Net deferred income tax liability		13,007		12,437

Total liabilities		55,896		18,643

Commitments and contingencies (Note 9 )
Stockholders’ equity
Common stock, no par value, 22,500,000 shares authorized; 7,478,048 shares issued and outstanding as of December 31, 2021, and 7,469,584 as of September 30, 2021		20,339		19,964
Retained earnings		64,178		63,298

Total stockholders’ equity		84,517		83,262

Total liabilities and stockholders’ equity	$	140,413	$	101,905

See Notes to Unaudited Condensed Financial Statements

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Statements of Income

(In thousands, except share and per share amounts)

(Unaudited)


	Three Months Ended December 31,
	2021			2020
Revenue
Investment advisory fees	$	7,938		$	7,208
Shareholder service fees		596			581

Total revenue		8,534			7,789

Operating expenses
Compensation and benefits		2,262			2,104
General and administrative		1,400			1,308
Mutual fund distribution		155			121
Sub-advisory fees		1,877			1,785
Depreciation		53			62

Total operating expenses		5,747			5,380

Net operating income		2,787			2,409
Interest expense		508			—
Other income		(2	)		(1	)

Income before income tax expense		2,281			2,410
Income tax expense		368			637

Net income	$	1,913		$	1,773

Earnings per share
Basic	$	0.26		$	0.24

Diluted	$	0.25		$	0.24

Weighted average shares outstanding
Basic		7,472,680			7,357,883

Diluted		7,522,686			7,367,128

Cash dividends declared per share	$	0.14		$	0.14

See Notes to Unaudited Condensed Financial Statements

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Statements of Changes in Stockholders’ Equity

(In thousands, except share data)

(Unaudited)


	Three Months Ended December 31, 2021
										Total
	Common Stock						Retained			Stockholders’
	Shares			Amount			Earnings			Equity

Balance at September 30, 2021		7,469,584		$	19,964		$	63,298		$	83,262
Net income		—			—			1,913			1,913
Dividends paid								(1,027	)		(1,027	)
Employee restricted stock vested		10,000			—			—			—
Repurchase of vested employee restricted stock for tax withholding		(3,458	)		(31	)		(6	)		(37	)
Shares issued for auto-investments pursuant to the 2021 Dividend Reinvestment and Stock Purchase Plan		193			2			—			2
Shares issued for dividend reinvestment pursuant to the 2021 D ividend Reinvestment and Stock Purchase Plan		1,729			19			—			19
Stock-based compensation		—			388			—			388
Employee restricted stock forfeiture		—			(3	)					(3	)

Balance at December 31, 2021		7,478,048		$	20,339		$	64,178		$	84,517

Statements of Changes in Stockholders’ Equity

(In thousands, except share data)

(Unaudited)


	Three Months Ended December 31, 2020
								Total
	Common Stock				Retained			Stockholders’
	Shares		Amount		Earnings			Equity
Balance at September 30, 2020		7,356,822	$	18,705	$	59,473		$	78,178
Net income		—		—		1,773			1,773
Dividends paid		—		—		(1,011	)		(1,011	)
Shares issued for auto-investments pursuant to the 2018 Dividend Reinvestment and Stock Purchase Plan		652		6		—			6
Shares issued for dividend reinvestment pursuant to the 2018 Dividend Reinvestment and Stock Purchase Plan		2,165		19		—			19
Stock-based compensation		—		352		—			352

Balance at December 31, 2020		7,359,639	$	19,082	$	60,235		$	79,317

See Notes to Unaudited Condensed Financial Statements

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Statements of Cash Flows

(In thousands)

(Unaudited)


	Three Months Ended December 31,
	2021			2020
Cash flows from operating activities
Net income	$	1,913		$	1,773
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		53			62
Change in right-of-use asset and operating lease liability		—			(17	)
Amortization of note issuance costs		55			—
Deferred income taxes		570			313
Employee restricted stock forfeiture		(3	)		—
Stock-based compensation		388			352
Change in operating assets and liabilities
Investment fee income receivable		(31	)		(285	)
Prepaid expenses		225			210
Other accounts receivable		(111	)		54
Other assets		(11	)		(1	)
Accrued liabilities and accounts payable		(1,687	)		(1,733	)
Income taxes payable		(202	)		323

Net cash provided by operating activities		1,159			1,051

Cash flows from investing activities
Purchases of property and equipment		(57	)		(66	)

Net cash used in investing activities		(57	)		(66	)

Cash flows from financing activities
Proceeds from issuance of notes , net of underwriting discount		39,042			—
Payment of issuance costs on notes		(435	)		—
Repurchase of vested employee restricted stock for tax withholding		(37	)		—
Proceeds from shares issued pursuant to the 2018 Dividend Reinvestment and Stock Repurchase Plan		—			6
Proceeds from shares issued pursuant to the 2021 Dividend Reinvestment and Stock Repurchase Plan		2			—
Dividend payments		(1,008	)		(992	)

Net cash provided by (used in) financing activities		37,564			(986	)

Net increase (decrease) in cash and cash equivalents		38,666			(1	)
Cash and cash equivalents at the beginning of the period		15,836			9,955

Cash and cash equivalents at the end of the period	$	54,502		$	9,954

Supplemental disclosures of cash flow information
Cash paid for interest	$	387		$	—
Dividend reinvestment issued in shares	$	19		$	19

See Notes to Unaudited Condensed Financial Statements

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HENNESSY ADVISORS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

(1)	Basis of Financial Statement Presentation

The accompanying condensed balance sheet as of September 30, 2021, which has been derived from audited financial statements, and the unaudited interim condensed financial statements as of and for the three months ended December 31, 2021, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and include the accounts of Hennessy Advisors, Inc. (the “Company,” “we,” “us,” or “our”). Certain information and footnote disclosures in these unaudited interim condensed financial statements, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States, have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission for Quarterly Reports on Form

10-Q.

In the opinion of management, the unaudited interim condensed financial statements reflect all adjustments necessary for a fair statement of the Company’s financial position at December 31, 2021, the Company’s operating results for the three months ended December 31, 2021 and 2020, and the Company’s cash flows for the three months ended December 31, 2021 and 2020. These unaudited interim condensed financial statements and notes should be read in conjunction with the Company’s audited financial statements and notes thereto for fiscal year 2021, which are included in the Company’s Annual Report on

Form 10-K

for the fiscal year ended September 30, 2021.

The preparation of financial statements requires management to make estimates and assumptions. Making estimates requires management to exercise significant judgment. Accordingly, the actual results could differ substantially from those estimates.

The Company’s operating activities consist primarily of providing investment advisory services to 16

open-end

mutual funds branded as the Hennessy Funds. The Company serves as the investment advisor to all classes of the Hennessy Cornerstone Growth Fund, the Hennessy Focus Fund, the Hennessy Cornerstone Mid Cap 30 Fund, the Hennessy Cornerstone Large Growth Fund, the Hennessy Cornerstone Value Fund, the Hennessy Total Return Fund, the Hennessy Equity and Income Fund, the Hennessy Balanced Fund, the Hennessy Energy Transition Fund, the Hennessy Midstream Fund, the Hennessy Gas Utility Fund, the Hennessy Japan Fund, the Hennessy Japan Small Cap Fund, the Hennessy Large Cap Financial Fund, the Hennessy Small Cap Financial Fund, and the Hennessy Technology Fund. The Company also provides shareholder services to shareholders of the Hennessy Funds.

The Company’s operating revenues consist of contractual investment advisory and shareholder service fees paid to it by the Hennessy Funds. The Company earns investment advisory fees from each Hennessy Fund by, among other things:

•

acting as portfolio manager for the fund or overseeing the

sub-advisor

acting as portfolio manager for the fund, which includes managing the composition of the fund’s portfolio (including the purchase, retention, and disposition of portfolio securities in accordance with the fund’s investment objectives, policies, and restrictions), seeking best execution for the fund’s portfolio, managing the use of soft dollars for the fund, and managing proxy voting for the fund;

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•

performing a daily reconciliation of portfolio positions and cash for the fund;

•

monitoring the liquidity of the fund;

•

monitoring the fund’s compliance with its investment objectives and restrictions and federal securities laws;

•

maintaining a compliance program (including a code of ethics), conducting ongoing reviews of the compliance programs of the fund’s service providers (including any

sub-advisor),

including their codes of ethics, as appropriate, conducting onsite visits to the fund’s service providers (including any

sub-advisor)

as feasible, monitoring incidents of abusive trading practices, reviewing fund expense accruals, payments, and fixed expense ratios, evaluating insurance providers for fidelity bond, directors and officers and errors and omissions insurance, and cybersecurity insurance coverage, managing regulatory examination compliance and responses, conducting employee compliance training, reviewing reports provided by service providers, and maintaining books and records;

•

if applicable, overseeing the selection and continued employment of the fund’s

sub-advisor,

reviewing the fund’s investment performance, and monitoring the

sub-advisor’s

adherence to the fund’s investment objectives, policies, and restrictions;

•

overseeing service providers that provide accounting, administration, distribution, transfer agency, custodial, sales, marketing, public relations, audit, information technology, and legal services to the fund;

•

maintaining

in-house

marketing and distribution departments on behalf of the fund;

•

preparing or directing the preparation of all regulatory filings for the fund, including writing and annually updating the fund’s prospectus and related documents;

•

for each annual report of the fund, preparing or reviewing a written summary of the fund’s performance during the most recent

12-month

period ;

•

monitoring and overseeing the accessibility of the fund on

third-party

platforms;

•

paying the incentive compensation of the fund’s compliance officers and employing other staff such as legal, marketing, national accounts, distribution, sales, administrative, and trading oversight personnel, as well as management executives;

•

providing a quarterly compliance certification to the Board of Trustees of Hennessy Funds Trust (the “Funds’ Board of Trustees”); and

•

preparing or reviewing materials for the Funds’ Board of Trustees, presenting to or leading discussions with the Funds’ Board of Trustees, preparing or reviewing all meeting minutes, and arranging for training and education of the Funds’ Board of Trustees.

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The Company earns shareholder service fees from Investor Class shares of the Hennessy Funds by, among other things, maintaining a

toll-free

number that the current investors in the Hennessy Funds may call to ask questions about their accounts or the funds or to get help with processing exchange and redemption requests or changing account options. These fee revenues are earned and calculated daily by the Hennessy Funds’ accountants at U.S. Bank Global Fund Services and are subsequently reviewed by management. The fees are computed and billed monthly, at which time they are recognized in accordance with Accounting Standards Codification 606 — Revenue from Contracts with Customers.

The Company waived a portion of its fees with respect to the Hennessy Cornerstone Large Growth Fund and the Hennessy Energy Transition Fund through the expiration of each fund’s expense limitation agreement on November 30, 2019, and October 25, 2020, respectively. The Company continues to waive a portion of its fees with respect to the Hennessy Midstream Fund and the Hennessy Technology Fund to comply with contractual expense ratio limitations. The fee waivers are calculated daily by the Hennessy Funds’ accountants at U.S. Bank Global Fund Services, reviewed by management, and then charged to expense monthly as offsets to the Company’s revenues. Each waived fee is then deducted from investment advisory fee income and reduces the aggregate amount of advisory fees the Company receives from such fund in the subsequent month. To date, the Company has only waived fees based on contractual obligations, but the Company has the ability to waive fees at its discretion. Any decision to waive fees would apply only on a

going-forward

basis.

The Company’s contractual agreements for investment advisory and shareholder services prove that a contract exists with fixed and determinable fees, and the services are rendered daily. The collectability is deemed probable because the fees are received from the Hennessy Funds in the month subsequent to the month in which the services are provided.

(2)	Management Contracts Purchased

Throughout its history, the Company has completed 10 purchases of the assets related to the management of 30 different mutual funds, some of which were reorganized into already existing Hennessy Funds. In accordance with Financial Accounting Standards Board (“FASB”) guidance, the Company periodically reviews the carrying value of its management contracts asset to determine if any impairment has occurred. The fair value of the management contracts asset was estimated as of September 30, 2021, by applying the income approach and is based on management estimates and assumptions, including

third-party

valuations that utilize appropriate valuation techniques. It was determined there was no impairment as of such date. As of December 31, 2021, management performed a qualitative analysis and determined it was more likely than not that there continued to be no impairment.

Under Accounting Standards Codification 350 — Intangibles – Goodwill and Other, intangible assets that have indefinite useful lives are not amortized but are tested at least annually for impairment. The Company reviews the useful life of the management contracts each reporting period to determine if they continue to have an indefinite useful life.

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(3)	Investment Advisory Agreements

The Company has investment advisory agreements with Hennessy Funds Trust under which it provides investment advisory services to all classes of the 16 Hennessy Funds.

The investment advisory agreements must be renewed annually (except in limited circumstances) by (a) the Funds’ Board of Trustees or the vote of a majority of the outstanding shares of the applicable Hennessy Fund and (b) the vote of a majority of the trustees of Hennessy Funds Trust who are not interested persons of the Hennessy Funds. If an investment advisory agreement is not renewed, it terminates automatically. There are two additional circumstances in which an investment advisory agreement terminates. First, an investment advisory agreement automatically terminates if the Company assigns them to another advisor (assignment includes “indirect assignment,” which is the transfer of the Company’s common stock in sufficient quantities deemed to constitute a controlling block). Second, an investment advisory agreement may be terminated prior to its expiration upon 60 days’ written notice by either the applicable Hennessy Fund or the Company.

As provided in each investment advisory agreement, the Company receives investment advisory fees monthly based on a percentage of the applicable fund’s average daily net asset value.

The Company has entered into

sub-advisory

agreements for the Hennessy Focus Fund, the Hennessy Equity and Income Fund, the Hennessy Energy Transition Fund, the Hennessy Midstream Fund, the Hennessy Japan Fund, and the Hennessy Japan Small Cap Fund. Under each of these

sub-advisory

agreements, the

sub-advisor

is responsible for the investment and reinvestments of the assets of the applicable Hennessy Fund in accordance with the terms of such agreement and the applicable Hennessy Fund’s Prospectus and Statement of Additional Information. The

sub-advisors

are subject to the direction, supervision, and control of the Company and the Funds’ Board of Trustees. The

sub-advisory

agreements must be renewed annually (except in limited circumstances) in the same manner as, and are subject to the same termination provisions as, the investment advisory agreements.

In exchange for the

sub-advisory

services, the Company (not the Hennessy Funds) pays

sub-advisory

fees to the

sub-advisors

out of its own assets.

Sub-advisory

fees are calculated as a percentage of the applicable

sub-advised

fund’s average daily net asset value.

(4)	Fair Value Measurements

The Company applies Accounting Standards Codification 820 — Fair Value Measurement for all financial assets and liabilities, which establishes a framework for measuring fair value and expands disclosures about fair value measurements. The standard defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” It also establishes a fair value hierarchy consisting of the following three levels that prioritize the inputs to the valuation techniques used to measure fair value:

•

Level 1 – Unadjusted, quoted prices in active markets for identical assets or liabilities that an entity has the ability to access at the measurement date;

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•

Level 2 – Other significant observable inputs (including, but not limited to, quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, and

model-derived

valuations in which all significant inputs and significant value drivers are observable in active markets); and

•

Level 3 – Significant unobservable inputs (including the entity’s own assumptions about what market participants would use to price the asset or liability based on the best available information) when observable inputs are not available.

Based on the definitions, the following tables represent the Company’s assets categorized in the Level 1 to Level 3 hierarchies


	December 31, 2021
	Level 1		Level 2		Level 3		Total
	(In thousands)
Money market fund deposits	$	50,597	$	—	$	—	$	50,597
Mutual fund investments		10		—		—		10

Total	$	50,607	$	—	$	—	$	50,607

Amounts included in:
Cash and cash equivalents	$	50,597	$	—	$	—	$	50,597
Investments in marketable securities		10		—		—		10

Total	$	50,607	$	—	$	—	$	50,607



	September 30, 2021
	Level 1		Level 2		Level 3		Total
	(In thousands)
Money market fund deposits	$	11,554	$	—	$	—	$	11,554
Mutual fund investments		10		—		—		10
Total	$	11,564	$	—	$	—	$	11,564

Amounts included in:
Cash and cash equivalents	$	11,554	$	—	$	—	$	11,554
Investments in marketable securities		10		—		—		10
Total	$	11,564	$	—	$	—	$	11,564

There were no transfers between levels during the three months ended December 31, 2021, or the year ended September 30, 2021.

The fair values of receivables, payables, and accrued liabilities approximate their fair values given the short-term nature of those instruments.

The fair value of the 2026 Notes (see Note 7) was approximately $

41.78

million as of December 31, 2021, based on the last trading price of the notes on that date (Level 1).

(5)

Leases

The Company determines if an arrangement is an operating lease at inception. Operating leases are included in operating lease right-of-use assets and current and long-term operating lease liabilities on the Company’s balance sheet. There were no other long-term operating leases as of
December 31, 2021, and September 30, 2021. During the quarter ended March 31, 2021, the Company renewed the lease for its office in Novato, California for an additional

three years. The renewed lease expires on July 31, 2024. The lease renewal created a long-term operating lease as of March 31, 2021, and the Company recorded a right of use asset of $1.1 million on the balance sheet.

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Right-of-use

assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease

right-of-use

assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. The Company’s lease terms may include options to extend the lease when it is reasonably certain that it will exercise any such options. For its leases, the Company concluded that it is not reasonably certain that any renewal options would be exercised, and, therefore, the amounts are not recognized as part of operating lease

right-of-use

assets or operating lease liabilities. Leases with initial terms of 12 months or less, and certain office equipment leases that are deemed insignificant, are not recorded on the balance sheet and are expensed as incurred and included within rent expense under general and administrative expense. Lease expense related to operating leases is recognized on a straight-line basis over the expected lease terms.

The Company’s most significant leases are real estate leases of office facilities. The Company leases office space under

non-cancelable

operating leases. Its principal executive office is located in Novato, California, and it has additional offices in Austin, Texas, Boston, Massachusetts, and Chapel Hill, North Carolina. Only the office lease in Novato, California has been capitalized because the other operating leases have terms of 12 months or less, including leases that are

month-to-month

in nature. The classification of the Company’s operating lease

right-of-use

assets and operating lease liabilities and other supplemental information related to the Company’s operating leases are as follows:


	December 31, 2021
	(In thousands, except years and percentages)
Operating lease right-of-use assets	$	920
Current operating lease liability	$	361
Long-term operating lease liability	$	554
Weighted average remaining lease term		2.6
Weighted average discount rate		0.90	%

For the three months ended December 31, 2021, total rent expense for all offices, which is recorded under general and administrative expense in the statements of income, totaled $0.1 million.

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The undiscounted cash flows for

future

maturities of the Company’s operating lease

liabilities

and the reconciliation to the balance of operating lease liabilities reflected on the Company’s balance sheet are as follows:


	December 31, 2021
	(In thousands)
Remainder of fiscal year 2022	$	273
Fiscal year 2023		374
Fiscal year 2024		286

Total undiscounted cash flows		933

Present value discount		(18	)

Total operating lease liabilities	$	915

(6)	Accrued Liabilities and Accounts Payable

Details relating to accrued liabilities and accounts payable reflected on the Company’s balance sheet are as follows:


	December 31, 2021		September 30, 2021

	(In thousands)
Accrued bonus liabilities	$	801	$	2,738
Accrued sub-advisor fees		623		628
Other accrued expenses		1,040		785

Total accrued liabilities and accounts payable	$	2,464	$	4,151

(7)	Debt Outstanding

On October 20, 2021, the Company completed a public offering of 4.875% notes due 2026 in the aggregate principal amount of $40,250,000 (the “2026 Notes”), which included the full exercise of the underwriters’ overallotment option. The 2026 Notes bear interest at 4.875% per annum, payable on the last day of each calendar quarter and at maturity, beginning December 31, 2021. The 2026 Notes mature on December 31, 2026.

The 2026 Notes are direct unsecured obligations, rank equally in right of payment with any of the Company’s future unsecured unsubordinated indebtedness, senior to any of the Company’s future indebtedness that expressly provides that it is subordinate to the 2026 Notes, effectively subordinate to all of the Company’s existing and future secured indebtedness, and structurally subordinated to all existing and future indebtedness and other obligations of any of the Company’s future subsidiaries.

(8)	Income Taxes

The Company’s effective income tax rates for the three months ended December 31, 2021 and 2020, were 16.1% and 26.4%, respectively. For the three months ended December 31, 2021, the effective income tax rate was lower than the federal statutory rate due to the recognition of a tax benefit related to a California tax refund of $0.2 million.

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The Company is

subject

to income tax in the U.S. federal jurisdiction and multiple state jurisdictions. As of December 31, 2021, the Company has identified 22 major state tax jurisdictions in which is subject to income tax. For state tax jurisdictions with unfiled tax returns, the statutes of limitations remains open indefinitely.

(9)	Commitments and Contingencies

The Company has no commitments and no other significant contingencies with original terms in excess of one year other than operating leases, which are discussed in Note 5.

(10)

Equity

Amended and Restated 2013 Omnibus Incentive Plan

The Company has adopted, and the Company’s shareholders have approved, the Amended and Restated 2013 Omnibus Incentive Plan (the “Omnibus Plan”). Under the Omnibus Plan, participants may be granted RSUs, each of which represents an unfunded, unsecured right to receive a share of the Company’s common stock on the date specified in the recipient’s award. The Company issues new shares of its common stock when it is required to deliver shares to an RSU recipient. The RSUs granted under the Omnibus Plan vest over four years at a rate of 25% per year. The Company recognizes

stock-based

compensation expense on a

straight-line

basis over the four-year vesting term of each award.

A summary of RSU activity is as follows:


	Three Months Ended December 31, 2021
	Shares			Weighted Average Grant Date Fair Value per Share
Non-vested balance at beginning of period		323,810		$	8.87
Granted		—			—
Vested (1)		(41,353	)		(9.37	)
Forfeited		(1,906	)		(8.95	)

Non-vested balance at end of period		280,551		$	8.79

(1)	Represents partially vested RSUs for which the Company already has recognized the associated compensation expense but has not yet issued to employees the related shares of common stock.

Additional information related to RSUs is as follows:


	December 31, 2021
	(In thousands, except years)
Total expected compensation expense related to RSUs	$	17,169
Recognized compensation expense related to RSUs		(14,703	)

Unrecognized compensation expense related to RSUs	$	2,466

Weighted average remaining years to expense for RSUs		2.8

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Dividend Reinvestment and Stock Purchase Plan

In January

2021, the Company adopted a Dividend Reinvestment and Stock Purchase Plan (the “DRSPP”), replacing the previous Dividend Reinvestment and Stock Purchase Plan that had been in place since 2018. The DRSPP provides shareholders and new investors with a convenient and economical means of purchasing shares of the Company’s common stock and reinvesting cash dividends paid on the Company’s common stock. Under the DRSPP and its predecessor plans, the Company issued 1,922 and 2,817 shares of common stock during the three months ended December 31, 2021 and 2020, respectively. The maximum number of shares that may be issued under the DRSPP is 1,470,000, of which 1,458,535 shares remained available for issuance as of December 31, 2021.

Stock Buyback Program

In August 2010, the Company adopted a stock buyback program. The program provides that the Company may repurchase up to 1,500,000 shares of its common stock and has no expiration date. Share repurchases may be made in the open market, in privately negotiated transactions, or otherwise. A total of 596,368 shares remains available for repurchase under the stock buyback program. The Company did not repurchase any shares of its common stock pursuant to the stock buyback program during the three months ended December 31, 2021.

(11)	Earnings per Share and Dividends per Share

Basic earnings per share is determined by dividing net earnings by the weighted average number of shares of common stock outstanding, while diluted earnings per share is determined by dividing net earnings by the weighted average number of shares of common stock outstanding adjusted for the dilutive effect of common stock equivalents, which consist of restricted stock units (“RSUs”).

For the three months ended December 31, 2021 and 2020, the Company excluded

663 and

227,410 common stock equivalents, respectively, from the diluted earnings per share calculations because they were not dilutive. In each case, the excluded common stock equivalents consisted of

non-vested

RSUs.

The Company paid a quarterly cash dividend of $0.1375 per share on November 23, 2021, to shareholders of record as of November 11, 2021.

(12)	Recently Issued and Adopted Accounting Standards

The Company has reviewed accounting pronouncements issued between the filing date of its most recent Form

10-K,

which was November 24, 2021, and the filing date of this Form

10-Q

and has determined that no accounting pronouncements issued would have a material impact on the Company’s financial position, results of operations, or disclosures.

(13)	Subsequent Events

The Company and BP Capital Fund Services, LLC mutually terminated the

sub-advisory

agreement for the Hennessy Energy Transition Fund and the Hennessy Midstream Fund as of January 31, 2022. These funds are now managed internally by the Company.

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking

Statements

This report contains “forward-looking statements” within the meaning of the securities laws, for which we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. In some cases,

forward-looking

statements can be identified by terminology such as “expect,” “anticipate,” “intend,” “may,” “plan,” “will,” “should,” “could,” “would,” “assume,” “believe,” “estimate,” “predict,” “potential,” “project,” “continue,” “seek,” and similar expressions, as well as statements in the future tense. We have based these forward-looking statements on our current expectations and projections about future events, based on information currently available to us.

Forward-looking

statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at which, or means by which, such performance or results will be achieved.

Forward-looking statements are subject to risks, uncertainties, and assumptions, including those described in the section titled “Risk Factors” and elsewhere in our Annual Report on

Form 10-K

for the fiscal year ended September 30, 2021. Unforeseen developments could cause actual performance or results to differ substantially from those expressed in or suggested by the forward-looking statements. Management does not assume responsibility for the accuracy or completeness of these forward-looking statements. There is no regulation requiring an update of any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations.

Our business activities are affected by many factors, including, without limitation, redemptions by mutual fund shareholders, taxes, general economic and business conditions, including those related to the

COVID-19

pandemic, movement of interest rates, competitive conditions, industry regulation, and fluctuations in the stock market, many of which are beyond the control of our management. Further, the business and regulatory environments in which we operate remain complex, uncertain, and subject to change. We expect that regulatory requirements and developments will cause us to incur additional administrative and compliance costs. Notwithstanding the variability in our economic and regulatory environments, we remain focused on the investment performance of the Hennessy Funds and on providing

high-quality

customer service to investors.

Our business strategy centers on (a) the identification, completion, and integration of future acquisitions and (b) organic growth, through both the retention of the mutual fund assets we currently manage and the generation of inflows into the mutual funds we manage. The success of our business strategy may be influenced by the factors discussed in the section titled “Risk Factors” and elsewhere in our Annual Report on

Form 10-K

for the fiscal year ended September 30, 2021. All statements regarding our business strategy, as well as statements regarding market trends and risks and assumptions about changes in the marketplace, are forward-looking by their nature.

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Our Continuing Response to the

COVID-19

Pandemic

We continue to monitor the effects of the

COVID-19

pandemic on our business, particularly focusing on meeting the needs of our employees, our partners, and the Hennessy Funds and their shareholders. Since March 2020, we have remained engaged with key partners and service providers, strengthened our digital marketing and public relations programs, and maintained an effective governance and internal controls program in order to ensure our continued success.

Our employees in Novato, California have returned to the office. We continue to adhere to our Site-Specific Protection Plan for our Novato office, which we regularly update to reflect current local, state, and federal requirements.

We remain committed to providing the same high level of services to the 16 Hennessy Funds and their shareholders.

Overview

Our primary business activity is providing investment advisory services to a family of

open-end

mutual funds branded as the Hennessy Funds. We manage 10 of the 16 Hennessy Funds internally. For the remaining six funds, we have delegated the

day-to-day

portfolio management responsibilities to

sub-advisors,

subject to our oversight. We oversee the selection and continued employment of each

sub-advisor,

review each fund’s investment performance, and monitor each

sub-advisor’s

adherence to each applicable fund’s investment objectives, policies, and restrictions. In addition, we conduct ongoing reviews of the compliance programs of

sub-advisors

and make onsite visits to

sub-advisors,

as feasible. Our secondary business activity is providing shareholder services to shareholders of the Hennessy Funds.

We derive our operating revenues from investment advisory fees and shareholder service fees paid to us by the Hennessy Funds. These fees are calculated as a percentage of the average daily net assets of each Hennessy Fund. The percentage amount of the investment advisory fees varies by fund. The percentage amount of the shareholder service fees is consistent across all funds, but shareholder service fees are charged on Investor Class shares only. The dollar amount of the fees we receive fluctuates with changes in the average net asset value of each Hennessy Fund, which is affected by each fund’s investment performance, purchases and redemptions of shares, general market conditions, and the success of our marketing, sales, and public relations efforts.

On a total return basis, the Dow Jones Industrial Average was up 7.87% for the three months ended December 31, 2021. During the most recent quarter, equity prices rallied despite the emergence of the Omicron variant in November. While the market declined in November, it rallied strongly in December as investors became increasingly comfortable with the idea that the variant, while more transmissible, causes less severe illness. While the economy is expected to slow in 2022 versus its above trend rate in 2021, attention has turned to inflation and the Federal Reserve’s language around trying to rein it in. Despite initial thoughts that elevated rates of inflation were transitory, the consensus is that higher than desired inflation will be a part of the economy in the coming year, if not longer. With this in mind the Federal Reserve has now indicated, in the interest of trying to bring inflation down, that it may start to raise the Federal Funds rate as soon as March 2022. The market ended the year on a positive note as investors returned to the idea that interest rates remain at historically low levels, the unemployment rate has come down significantly, and the economy is expected to grow at a healthy pace in 2022.

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Long-term U.S. bond yields increased during the three months ended December 31, 2021, as elevated rates of inflation have persisted and show no signs of abating in the next several months. The Federal Reserve has acknowledged that it was incorrect in its assumption that high inflation would be a transitory phenomenon and has indicated that it will likely raise interest rates in 2022

The Japanese equity market was down 4.87% in U.S. dollar terms over the three months ended December 31, 2021, as measured by the Tokyo Stock Price Index. During the period, Japanese equities traded lower on concerns around Omicron’s emergence in the region, particularly in China, a key trading partner. Japanese stocks rallied in December as investors focused on news that a rebound in industrial production led by the automotive sector was underway.

In the 12 months ended December 31, 2021, 14 of the 16 Hennessy Funds generated positive returns, as the market recovered quickly from the sharp

pandemic-induced

decline in 2020. Over the longer term, 14 of the Hennessy Funds posted positive annualized returns in each of the

three-year,

five-year,

ten-year,

and since inception periods ended December 31, 2021, the exception being the Hennessy Energy Transition Fund and the Hennessy Midstream Fund, which focus exclusively on the more volatile Energy sector.

As always, we are committed to providing superior service to investors and employing a consistent and disciplined approach to investing based on a

buy-and-hold

philosophy that rejects the idea of market timing. Our goal is to provide products that investors can have confidence in, knowing their money is invested as promised and with their best interests in mind. Accordingly, we continually seek new and improved ways to support investors in the Hennessy Funds, including by providing thought leadership and other resources to help them navigate market disruptions relating to the

COVID-19

pandemic. We operate a robust and

leading-edge

marketing automation and customer relationship management (CRM) system, with a database of over 100,000 financial advisors in addition to retail investors. We utilize this technology both to retain assets and to drive new purchases into the Hennessy Funds. We employ a comprehensive marketing and sales program consisting of content, digital, social media, and traditional marketing initiatives and proactive meetings. In addition, our consistent annual public relations campaign has resulted in the Hennessy brand name appearing on TV, radio, print, or online media on average once every two to three days.

We provide service to nearly 160,000 mutual fund accounts nationwide, including accounts held by shareholders who employ financial advisors to assist them with investing as well as accounts held by retail shareholders who invest directly with us. We serve over 13,500 financial advisors who utilize the Hennessy Funds on behalf of their clients, including nearly 170 who purchased one of our Funds for the first time during the most recent quarter. Approximately 17% of such advisors own two or more Hennessy Funds, and over 520 advisors hold a position of over $500,000, demonstrating strong brand loyalty.

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Total assets under management as of December 31, 2021, was $4.1 billion, an increase of $0.2 billion, or 6.3%, compared to December 31, 2020. The increase in total assets was attributable to market appreciation.

The following table illustrates the

quarter-by-quarter

changes in our assets under management since December 31, 2020:


	Fiscal Quarter Ended

	December 31, 2021			September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020

	(In thousands)
Beginning assets under management	$	4,065,922		$	4,117,560		$	4,023,364		$	3,832,551		$	3,564,597
Acquisition inflows		—			—			—			—			—
Organic inflows		147,461			94,871			301,731			208,253			213,502
Redemptions		(240,160	)		(222,467	)		(351,897	)		(369,846	)		(401,160	)
Market appreciation (depreciation)		99,626			75,958			144,362			352,406			455,612

Ending assets under management	$	4,072,849		$	4,065,922		$	4,117,560		$	4,023,364		$	3,832,551

As stated above, the fees we receive for providing investment advisory and shareholder service are based on average assets under management. The following table shows average assets under management by share class for each quarter since December 31, 2020:


	Fiscal Quarter Ended

	December 31, 2021		September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020

	(In thousands)
Investor Class	$	2,365,152	$	2,385,204	$	2,505,402	$	2,378,675	$	2,308,369
Institutional Class		1,734,121		1,717,046		1,646,013		1,539,714		1,477,001

Total	$	4,099,273	$	4,102,250	$	4,151,415	$	3,918,389	$	3,785,370

The principal asset on our balance sheet, management contracts, represents the capitalized costs incurred in connection with the purchase of the assets related to the management of mutual funds. As of December 31, 2021, this asset had a net balance of $80.6 million, unchanged since September 30, 2021.

On October 20, 2021, we completed a public offering of the 2026 Notes in the aggregate principal amount of $40.25 million, which included the full exercise of the underwriters’ overallotment option. The 2026 Notes mature on December 31, 2026, and may be redeemed in whole or in part at any time or from time to time at our option on or after December 31, 2023. The 2026 Notes bear interest at 4.875% per annum, payable on the last day of each calendar quarter and at maturity, beginning December 31, 2021. The 2026 Notes are direct unsecured obligations, rank equally in right of payment with any of our future unsecured unsubordinated indebtedness, senior to any of our future indebtedness that expressly provides that it is subordinate to the 2026 Notes, effectively subordinate to all of our existing and future secured indebtedness, and structurally subordinated to all existing and future indebtedness and other obligations of any future subsidiaries of ours.

The 2026 Notes are the principal liability on our balance sheet at $38.7 million, net of issuance costs.

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Results of Operations

The following table sets forth items in the statements of income as dollar amounts and as percentages of total revenue:


	Three Months Ended December 31,

	2021						2020

	Amount			Percent of Total Revenue			Amount			Percent of Total Revenue

	(In thousands, except percentages)
Revenue
Investment advisory fees	$	7,938			93.0	%	$	7,208			92.5	%
Shareholder service fees		596			7.0			581			7.5

Total revenue		8,534			100.0			7,789			100.0

Operating expenses
Compensation and benefits		2,262			26.5			2,104			27.0
General and administrative		1,400			16.4			1,308			16.8
Mutual fund distribution		155			1.8			121			1.6
Sub-advisory fees		1,877			22.0			1,785			22.9
Depreciation		53			0.6			62			0.8

Total operating expenses		5,747			67.3			5,380			69.1

Net operating income		2,787			32.7			2,409			30.9
Interest expense		508			6.0			—			—
Other income		(2	)		(0.0	)		(1	)		(0.0	)

Income before income tax expense		2,281			26.7			2,410			30.9
Income tax expense		368			4.3			637			8.1

Net income	$	1,913			22.4	%	$	1,773			22.8	%

Revenue – Investment Advisory Fees and Shareholder Service Fees

Total revenue comprises investment advisory fees and shareholder service fees. Comparing the three months ended December 31, 2020, to the three months ended December 31, 2021, total revenue increased by 9.6%, from $7.8 million to $8.5 million, investment advisory fees increased by 10.1%, from $7.2 million to $7.9 million, and shareholder service fees increased by 2.6%, from $0.58 million to $0.60 million. The increase in investment advisory fees was due to increased average daily net assets of the Hennessy Funds, which was attributable to market appreciation.

We collect investment advisory fees from each of the Hennessy Funds at differing annual rates. These annual rates range between 0.40% and 1.25% of average daily net assets. Average daily net assets of the Hennessy Funds for the three months ended December 31, 2021, was $4.1 billion, which represents an increase of $0.3 billion, or 8.3%, compared to the three months ended December 31, 2020. The Hennessy Fund with the largest average daily net assets for the three months ended December 31, 2021, was the Hennessy Focus Fund, with $1.2 billion. We collect an investment advisory fee from the Hennessy Focus Fund at an annual rate of 0.90% of average daily net assets. However, we pay a

sub-advisory

fee at an annual rate of 0.29% to the fund’s

sub-advisor,

which reduces the net operating profit contribution of the fund to our financial operations. The Hennessy Fund with the second largest average daily assets for the three months ended December 31, 2021, was the Hennessy Japan Fund, with $0.82 billion. We collect an investment advisory fee from the Hennessy Japan Fund at an annual rate of 0.90% of average daily net assets. However, we pay a

sub-advisory

fee at an annual rate between 0.35% and 0.42% (depending on asset level) to the fund’s

sub-advisor,

which reduces the net operating profit contribution of the fund to our financial operations.

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Total assets under management as of December 31, 2021, was $4.1 billion, an increase of $0.2 billion, or 6.3%, compared to December 31, 2020. The increase was attributable to market appreciation.

The Hennessy Funds with the three largest amounts of net inflows were as follows:


Three Months Ended December 31, 2021

Fund Name	Amount
Hennessy Japan Small Cap Fund	$	6 million
Hennessy Large Cap Financial Fund	$	5 million
Hennessy Energy Transition Fund	$	2 million

The Hennessy Funds with the three largest amounts of net outflows were as follows:


Three Months Ended December 31, 2021

Fund Name	Amount
Hennessy Focus Fund	$	(46) million
Hennessy Gas Utility Fund	$	(26) million
Hennessy Cornerstone Mid Cap 30 Fund	$	(13) million

Redemptions as a percentage of assets under management decreased from an average of 3.5% per month during the three months ended December 31, 2020, to an average of 2.0% per month during the three months ended December 31, 2021.

Operating Expenses

Comparing the three months ended December 31, 2020, to the three months ended December 31, 2021, total operating expenses increased by 6.8%, from $5.4 million to $5.7 million. The increase in operating expenses was due to increases in all expense categories other than depreciation, which decreased slightly. As a percentage of total revenue, total operating expenses decreased 1.8 percentage points to 67.3%. Although the dollar value increased, operating expenses decreased as a percentage of total revenue because some of our operating expenses are fixed costs that do not increase with increasing revenue.

Compensation and Benefits Expense

: Comparing the three months ended December 31, 2020, to the three months ended December 31, 2021, compensation and benefits expense increased by 7.5%, from $2.1 million to $2.3 million. As a percentage of total revenue, compensation and benefits expense decreased 0.5 percentage points to 26.5%. The dollar value increase in compensation and benefits expense was due to an increase in

incentive-based

compensation in the current period.

General and Administrative Expense

: Comparing the three months ended December 31, 2020, to the three months ended December 31, 2021, general and administrative expense increased by 7.0%, from $1.3 million to $1.4 million. As a percentage of total revenue, general and administrative expense decreased 0.4 percentage points to 16.4%. The dollar value increase in general and administrative expense was due to the return to

in-person

events related to media, public relations, and other company functions.

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Mutual Fund Distribution Expense

: Mutual fund distribution expense consists of fees paid to various financial institutions that offer the Hennessy Funds as potential investments to their clients. When the Hennessy Funds are purchased through one of these financial institutions, the institution typically charges an

asset-based

fee, which is recorded as mutual fund distribution expense on our statement of operations to the extent paid by us. When the Hennessy Funds are purchased directly, we do not incur any such expense. These fees generally increase or decrease in line with the net assets of the Hennessy Funds held through these financial institutions, which are affected by inflows, outflows, and fund performance. In addition, some financial institutions charge a minimum fee if the average daily net assets of a Hennessy Fund held by such an institution are less than a threshold amount. In such cases, we pay the minimum fee.

Comparing the three months ended December 31, 2020, to the three months ended December 31, 2021, mutual fund distribution expense increased by 28.1%, from $0.12 million to $0.16 million. As a percentage of total revenue, mutual fund distribution expense increased 0.2 percentage points to 1.8%.

Mutual fund distribution expenses are impacted by many factors, including the following:

•

average daily net assets held by financial institutions;

•

the split of average daily net assets held by financial institutions in Institutional Class shares of the Hennessy Funds versus Investor Class shares of the Hennessy Funds; and

•

fee minimums at various financial institutions.

Sub-Advisory

Fees Expense

: Comparing the three months ended December 31, 2020, to the three months ended December 31, 2021,

sub-advisory

fees expense increased by 5.2%, from $1.8 million to $1.9 million. Although the dollar value increased,

sub-advisory

fees expense as a percentage of total revenue decreased 0.9 percentage points to 22.0% because the growth in average daily net assets held by the Hennessy Funds that we internally manage was larger than the growth in average daily net assets of the

sub-advised

Hennessy Funds, thus increasing our revenue relative to

sub-advisory

fees expense paid to

sub-advisors.

Depreciation Expense

: Comparing the three months ended December 31, 2020, to the three months ended December 31, 2021, depreciation expense decreased by 14.5%, from $0.06 million to $0.05 million. As a percentage of total revenue, depreciation expense decreased 0.2 percentage points to 0.6%. The decrease in depreciation expense was due to previously purchased assets being fully depreciated, partially offset by new fixed asset purchases.

Interest Expense

Comparing the three months ended December 31, 2020, to the three months ended December 31, 2021, interest expense increased by 100.0% from $0 to $0.5 million. The increase in interest expense was due to our issuance of $40.25 million in 2026 Notes on October 20, 2021, for which we made our first interest payment on December 31, 2021.

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Income Tax Expense

Comparing the three months ended December 31, 2020, to the three months ended December 31, 2021, income tax expense decreased by 42.2%, from $0.6 million to $0.4 million. The decrease in income tax expense was due primarily to the recognition of a portion of the uncertain tax position related to a California tax refund. During the period ended December 31, 2021, management determined that the position is certain as the apportionment method has been audited, the tax refund has been received, and there have been no further inquiries received from the state tax jurisdiction.

Net Income

Comparing the three months ended December 31, 2020, to the three months ended December 31, 2021, net income increased by 7.9%, from $1.8 million to $1.9 million. The increase in net income was due to the decrease in income tax expense described above.

Critical Accounting Policies

Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States, which require the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. These accounting policies, methods, and estimates are an integral part of the financial statements prepared by management and are based upon management’s current judgments. Those judgments are normally based on knowledge and experience with regard to past and current events and assumptions about future events. Certain accounting policies, methods, and estimates are particularly sensitive because of their significance to the financial statements and because future events affecting them may differ markedly from management’s current judgment. For a discussion of the accounting policies that we believe are most critical to understanding our results of operations and financial position, see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on

Form 10-K

for the fiscal year ended September 30, 2021.

Liquidity and Capital Resources

We continually review our capital requirements to ensure that we have funding available to support our business model. Management anticipates that cash and other liquid assets on hand as of December 31, 2021, will be sufficient to meet our capital requirements for one year from the issuance date of this report, as well as our longer-term capital requirements for periods beyond one year from the issuance date of this report. To the extent that liquid resources and cash provided by operations are not adequate to meet long-term capital requirements, management plans to raise additional capital by seeking to increase our borrowing capacity or accessing the capital markets, or by pursuing both of these options. There can be no assurance that we will be able to raise additional capital.

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Our total assets under management as of December 31, 2021, was $4.1 billion, an increase of $0.2 billion, or 6.3%, compared to December 31, 2020. The primary sources of our revenue, liquidity, and cash flow are our investment advisory fees and shareholder service fees, which are based on and generated by our average assets under management. Our average assets under management for the three months ended December 31, 2021, was $4.1 billion, an increase of $0.3 billion, or 8.3%, compared to the three months ended December 31, 2020. As of December 31, 2021, we had cash and cash equivalents of $54.5 million.

The following table summarizes key financial data relating to our liquidity and use of cash:


	For the Three Months Ended December 31,

	2021			2020

	(In thousands)
Net cash provided by operating activities	$	1,159		$	1,051
Net cash used in investing activities		(57	)		(66	)
Net cash provided by (used in) financing activities		37,564			(986	)

Net increase (decrease) in cash and cash equivalents	$	38,666		$	(1	)

The increase in cash provided by operating activities of $0.1 million was due to increased net income.

The decrease in cash used in investing activities of $0.01 million was due to decreased purchases of property and equipment in the current period.

The increase in cash from financing activities of $38.6 million was due to the issuance of the 2026 Notes on October 20, 2021.

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Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management performed an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as such term is defined in Rules

13a-15(e)

and

15d-15(e)

under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on such evaluation, management, including the Company’s principal executive officer and principal financial officer, concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting as defined in

Rules 13a-15(f)

of the Exchange Act that occurred during the fiscal quarter ended December 31, 2021, and that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II: OTHER INFORMATION

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

We repurchased shares underlying vested restricted stock units (“RSUs”) from an employee to satisfy tax withholding obligations arising in connection with the vesting of RSUs. The stock repurchase is presented in the following table for the three months ended December 31, 2021:


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)



October 1-31, 2021		—		—		—		596,368
November 1-30, 2021		—		—		—		596,368
December 1-31, 2021 (2)		3,458	$	10.60		—		596,368

Total		3,458	$	10.60		—		596,368

(1)

We are authorized to purchase a maximum of 1,500,000 shares under our stock buyback program. We announced the stock buyback program in August 2010, and the program has no expiration date. We did not repurchase any shares pursuant to the stock buyback program during the three months ended December 31, 2021.

(2)	The shares repurchased in December 2021 were not completed pursuant to a plan or program and are therefore not subject to a maximum per plan or program.

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Item 6.

Exhibits

Set forth below is a list of all exhibits to this Quarterly Report on

Form 10-Q.


31.1		Rule 13a-14a Certification of the Principal Executive Officer.

31.2		Rule 13a-14a Certification of the Principal Financial Officer.

32.1		Written Statement of the Principal Executive Officer, Pursuant to 18 U.S.C. § 1350.

32.2		Written Statement of the Principal Financial Officer, Pursuant to 18 U.S.C. § 1350.

101		Financial statements from the Quarterly Report on Form 10-Q of Hennessy Advisors, Inc. for the quarter ended December 31, 2021, filed on February 10, 2022, formatted in XBRL: (i) the Condensed Balance Sheets; (ii) the Condensed Statements of Income; (iii) the Condensed Statements of Changes in Stockholders’ Equity; (iv) the Condensed Statements of Cash Flows; and (v) the Notes to Unaudited Condensed Financial Statements.

104		The cover page for the Company’s Quarterly Report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101.

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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: