What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2020-12-01 compared with 2019-12-03 · 277 added, 275 removed, 121 unchanged (82% of the section changed)

4 unchanged sentences

As of the end of fiscal year 2020, we had 126 holders of record of our common stock.

In addition to the 122 holders of record, there are 47 brokerage firm accounts that represent 1,605 additional individual shareholders for a total of 1,727 shareholders.

In addition to the 126 holders of record, there were 43 brokerage firm accounts that represent 1,554 additional individual shareholders for a total of 1,680 shareholders.

The equity compensation plan information required by Item 201(d) of Regulation S-K is set

1 unchanged sentence

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

We purchased shares pursuant to our stock buyback program and purchased shares underlying vested restricted stock units (RSUs) from

employees to provide withholding and tax payments on behalf of our employees.

We repurchased 270,896 shares of our common stock pursuant to the stock buyback program during fiscal year 2020.

A total of 596,368 shares

remains available for repurchase under the stock buyback program.

We temporarily suspended repurchases under the stock buyback program as of March 24, 2020.

We also repurchased shares underlying vested restricted stock units (RSUs) from

employees to satisfy tax withholding obligations arising in connection with the vesting of RSUs.

The stock repurchases are presented in the following table for the three months ended September 30, 2020:

2 unchanged sentences

Average Price Paid

Total Number of

Shares Purchased as

Part of Publicly

Announced Plans or

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

Shares that May Yet

Be Purchased Under

July 1-31, 2020

1 unchanged sentence

September 1-30, 2020 (2)

September 1-30, 2019 (2)

All of the shares repurchased in August 2019 and 48,486 of the shares repurchased in September 2019 were

purchased pursuant to our stock buyback program, which was announced in August 2010.

We are authorized to purchase a maximum of 1,500,000 shares under the stock buyback program.

The program has no expiration date.

Of the amounts repurchased, 21,500

were purchased in privately negotiated transactions and 51,755 were purchased in open market transactions.

The share repurchases related to RSUs were not completed pursuant to a plan or program and are therefore not

subject to a maximum per a plan or program.

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 September 30, 2020.

The shares repurchased in September 2020 were not completed pursuant to a plan or program and are therefore not

subject to a maximum per plan or program.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

17 unchanged sentences

Our business activities are affected by many factors, including, without limitation, redemptions by mutual fund

shareholders, taxes, general economic and financial conditions, movement of interest rates, competitive conditions, industry regulation, and fluctuations in the stock market, many of which are beyond the control of our management.

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.

while current domestic economic conditions are

relatively stable, further increases in short-term interest rates, policy changes by the administration in Washington, D.C., and developments in international financial markets could influence

economic and financial conditions significantly.

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.

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 (i) the

3 unchanged sentences

marketplace, are forward-looking by their nature.

Our primary business activity is providing investment advisory services to a family of open-end mutual

funds branded as the Hennessy Funds.

OUR CONTINUING RESPONSE TO THE COVID-19 PANDEMIC

In mid-March 2020, in response to the COVID-19 pandemic, we

invoked our business continuity plan to ensure a smooth transition to remote work for our employees.

We have continued to effectively operate the Company and remain committed to providing the same high level of services to the 16 Hennessy Funds and

their shareholders.

Further, we have undertaken various initiatives to ensure our continuing success in the work-from-home environment and to look forward to our

employees returning to the office, including the following:

Regularly engaging with key partners and service providers to garner assurance regarding their ability to

continue to provide high-quality services to us and to the Hennessy Funds;

Strengthening our digital marketing and public relations, including by expanding our online presence and speaking

on and moderating panels at virtual industry-related conferences;

Keeping open lines of communication with our employees as they work from home to help ensure seamless operations,

productive interactions, and early identification of issues;

Creating a thorough

return-to-work plan and training all employees on such plan to prepare for their eventual return to in-office work;

Maintaining effective governance and internal controls in a remote work setting.

Given the dynamic nature of the COVID-19 pandemic and its effects, we will continue to revise our

approach to these initiatives and take any additional actions we deem appropriate to meet the needs of our employees, our partners, and the Hennessy Funds and their shareholders.

While we cannot reasonably estimate the duration and severity of the COVID-19 pandemic or its ultimate impact on our business and revenues, we believe we have positioned ourselves as best as possible to emerge from the current crisis prepared for long-term growth.

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 sub-advisors investment performance, and monitor each sub-advisors adherence to each applicable funds investment objectives, policies, and restrictions.

addition, we conduct ongoing reviews of the compliance programs of sub-advisors and make on-site visits to sub-advisors.

secondary business activity is providing shareholder services to shareholders of each Hennessy Fund.

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 in each Hennessy Fund.

The percentage amount of the investment advisory fees

varies from fund to 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 funds investment performance, purchases and redemptions of shares, general market conditions, and the success of our marketing, sales, and public relations

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 funds investment performance, and monitor each sub-advisors adherence to each applicable funds

investment objectives, policies, and restrictions.

In addition, we conduct ongoing reviews of the compliance programs of sub-advisors and make on-site 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 in 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 funds investment

performance, purchases and redemptions of shares, general market conditions, and the success of our marketing, sales, and public relations efforts.

equities had positive performance for the 12 months ended September 30, 2020, with the S&P 500 ®

Index returning 15.15% and the Dow Jones Industrial Average returning 5.70% for the period (on a total return basis).

It should be noted that during the same period, where large market

capitalization stocks outperformed smaller ones, over half of the S&P 500s return for the period was comprised of only three stocks Apple, Microsoft, and Amazon.

During the recent quarter ended September 30, 2020, equity prices

1 unchanged sentence

Index up 8.93% and the Dow Jones Industrial Average up 8.22%.

Investors appeared to shrug off global growth concerns, heightened geopolitical risk

in the Middle East, and persistent tension around U.S./China trade negotiations.

economy continued to post positive GDP growth, gains in employment, and wage growth.

Perhaps more importantly, the market seems to believe that the Federal

Reserve may lower interest rates again later this year, which should be supportive of equity prices.

After an initial sharp selloff in equities earlier this year, investor panic

over COVID-19 appears to have subsided somewhat, perhaps due to increased optimism about the prospect of FDA approval of a COVID-19 vaccine in the next several months.

In addition, low interest rates, and the expectation that they will remain low for the foreseeable future, have provided a tailwind to equity prices.

Despite a difficult labor market, recent trends appear to show promise as the unemployment rate has

declined significantly.

After peaking at 14.7% in April, the unemployment rate declined to 7.9% in September.

Long-term U.S.

bonds rallied

strongly during the 12 months ended September 30, 2019, as inflation remained benign and below the Federal Reserves target of 2%.

The unemployment rate in the United States remained low at 3.5% with strong growth in average hourly

earnings of 2.9% in September 2019 compared to the year prior.

The Japanese equity market fell 5.77% (in U.S.

dollar terms) over the 12

months ended September 30, 2019, as measured by the Tokyo Stock Price Index.

Despite strong earnings growth, a more progressive corporate governance environment, and impressive gains in corporate productivity, investors appear more focused on

the uncertainty around a U.S./China trade deal.

We strive to provide positive returns for investors in the Hennessy Funds over market

Seven of the Hennessy Funds achieved positive returns for the one-year period ended September 30, 2019, and 14 of the 16 Hennessy Funds achieved positive annualized returns for each of the three-year, five-year, and ten-year periods ended September 30, 2019.

To help drive inflows into the Hennessy Funds, we maintain a marketing database of over

100,000 financial advisors in addition to retail investors.

We employ robust marketing and sales efforts consisting of content, digital, and traditional marketing initiatives and proactive phone and

in-person meetings.

In addition, we maintain an aggressive annual public relations campaign, which 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 250,000 mutual fund accounts nationwide comprising shareholders who employ financial

bonds rallied strongly during the 12 months ended September 30, 2020, as

the Federal Reserve acted quickly in the face of the COVID-19 pandemic to attempt to bring stability to financial markets.

Further, the Federal Reserve has indicated that it is highly unlikely that it will

raise rates in the next few years.

With the unemployment rate still elevated from its 2019 lows and inflation in check, investors appear to take solace in the idea that the Federal Reserve stands ready to support the market given the tools it has at

its disposal.

The Japanese equity market rose 7.38% (in U.S.

dollar terms) over the 12 months ended September 30, 2020, as measured

by the Tokyo Stock Price Index.

Investors appeared heartened by the recent trend in COVID-19 cases in the country and the prospect of a broader economic rebound in Asia.

The replacement of Prime Minister

Shinzo Abe with his close ally Yoshihide Suga suggests that economic growth will continue to be the governments priority.

this backdrop, 9 of the 16 Hennessy Funds posted positive returns for the one-year period ended September 30, 2020.

The longer-term performance numbers remain

strong, with 13 of the Hennessy Funds posting positive returns for the five-year period ended September 30, 2020, and all 14 Hennessy Funds with at least 10 years of operating history posting

positive returns for the 10-year period ended September 30, 2020.

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 through this unprecedented market disruption due to the 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 180,000 mutual fund accounts nationwide, including accounts held by shareholders who employ financial

advisors to assist them with investing and retail shareholders who invest directly with us.

We serve approximately 18,500 financial advisors who utilize the Hennessy Funds on behalf of their clients.

Approximately one in five of those advisors owns

two or more Hennessy Funds, demonstrating strong brand loyalty.

Total assets under management as of the end of fiscal year 2019 was

$4.9 billion, a decrease of $1.3 billion, or 21.4%, compared to the end of fiscal year 2018.

The decrease in total assets during fiscal year 2019 was attributable to net outflows from the Hennessy Funds, partially offset by

market appreciation and the purchase of the assets related to the management of the BP Funds.

The following table illustrates the changes

in our assets under management over the past three years:

We serve approximately 16,000 financial advisors who utilize the Hennessy Funds on behalf of their clients, including 800 advisors who purchased one of

our Funds for the first time during fiscal year 2020.

Approximately 17% of such advisors owns two or more Hennessy Funds, and nearly 550 advisors hold a position of over $500,000, demonstrating strong brand loyalty.

Total assets under management as of the end of fiscal year 2020 was $3.6 billion, a decrease of $1.3 billion, or 26.9%,

compared to the end of fiscal year 2019.

The decrease in total assets during fiscal year 2020 was primarily attributable to net outflows from the Hennessy Funds, but it was further impacted by market depreciation in the quarter ended

March 31, 2020, as a result of the COVID-19 pandemic.

The following table illustrates the

changes in our assets under management over the past three years:

Fiscal Years Ended September 30,

3 unchanged sentences

Organic inflows

Market appreciation

Market appreciation (depreciation)

Ending assets under management

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 over the past three years:

Fiscal Years Ended September 30,

(In thousands)

Average assets under managementInvestor Class

Average assets under managementInstitutional Class

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 the end of fiscal year 2019, this asset had a net balance of $80.6 million compared to $78.2 million as of the end of fiscal year 2018.

increase was due to the purchase of the assets related to the management of the BP Funds.

The principal liability on our balance sheet is

the bank debt incurred in connection with the purchase of the assets related to the management of mutual funds and the repurchase of 1,500,000 shares of our common stock pursuant to the completion of our self-tender offer in

September 2015.

As of the end of fiscal year 2019, this liability had a gross balance of $17.5 million ($17.4 million net of reclassified debt issuance costs of $0.12 million, further discussed in Note 7 under Item 8,

Financial Statements and Supplementary Data), compared to $21.9 million ($21.7 million net of reclassified debt issuance costs of $0.15 million) as of the end of fiscal year 2018.

The decrease was the result of making monthly

loan payments on our bank debt.

2017 CORPORATE TAX REFORM

On December 22, 2017, during our first fiscal quarter of 2018, the 2017 Tax Act was enacted into law.

Among other changes to various

corporate income tax provisions within the existing Internal Revenue Code, the 2017 Tax Act reduced the federal corporate income tax rate from 35% to 21%, effective January 1, 2018.

Although the 2017 Tax Act did not become effective until

January 1, 2018, the start of our second fiscal quarter of 2018, we were required to recognize a reasonable estimate of the effect of the reduced federal corporate income tax rate on our deferred tax liability in the period of enactment.

result, we recorded a one-time non-cash benefit to income tax expense of approximately $4 million, or $0.54 in diluted earnings per share, during our first fiscal

quarter of 2018.

We were also able to blend in the reduced federal corporate income tax rate beginning January 1, 2018, and received the full benefit of the reduced rate beginning October 1, 2018.

As of the end of fiscal year 2020, this asset had a net balance of $80.6 million, unchanged since the end of fiscal year 2019.

The principal liability on our balance sheet has historically been bank debt.

However, on March 26, 2020, we prepaid in full all

principal, accrued interest, and costs and expenses outstanding under our term loan agreement.

The aggregate prepayment amount was $15.4 million.

As a result of this prepayment, as of September 30, 2020, the principal liability on our

balance sheet is the deferred tax liability of $11.5 million generated due to the continued write off of our management contracts asset for tax purposes, which creates a

book-to-tax difference.

RESULTS OF OPERATIONS

The following

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

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

Fiscal Years Ended September 30,

Total Revenue

(In thousands, except percentages)

17 unchanged sentences

$2.6 million.

The decrease in investment advisory fees was mainly due to decreased average daily net assets of the Hennessy Funds.

The decrease in shareholder service fees was due to a decrease in the average daily net

assets held in Investor Class shares of the Hennessy Funds.

Assets held in Investor Class shares of the Hennessy Funds are subject to a shareholder service fee, whereas assets held in Institutional Class shares of the Hennessy Funds

are not subject to a service fee.

The decrease in investment advisory fees was mainly due to decreased average daily net

assets of the Hennessy Funds, which was primarily attributable to net outflows.

In addition, market depreciation that largely resulted from the COVID-19 pandemic had a significant impact on our total assets

under management in the quarter ended March 31, 2020, which put additional downward pressure on our average assets under management for the remainder of our fiscal year 2020.

The decrease in shareholder service fees was due to a decrease in the average daily net assets held in Investor Class shares of the

Hennessy Funds for the same reasons described in the paragraph above.

Assets held in Investor Class shares of the Hennessy Funds are subject to a shareholder service fee, whereas assets held in Institutional Class shares of the Hennessy

Funds are not subject to a service fee.

We collect investment advisory fees from each Hennessy Fund at differing annual rates.

rates range between 0.40% and 1.25% of average daily net assets.

annual rates range between 0.40% and 1.25% of average daily net assets.

Average daily net assets of the Hennessy Funds for fiscal year 2020 was $4.1 billion, which represents a decrease of $1.1 billion, or 21.0%, compared to fiscal year

The Hennessy Fund with the largest average daily net assets for fiscal year 2020 was the Hennessy Focus Fund, with $1.4 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 funds sub-advisor,

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

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 funds 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 fiscal year 2020 was the Hennessy Gas Utility Fund, with $0.7 billion.

We collect an

investment advisory fee from the Hennessy Gas Utility Fund at an annual rate of 0.40% of average daily net assets.

Total assets under

management as of the end of fiscal year 2019 was $4.9 billion, a decrease of $1.3 billion, or 21.4%, compared to the end of fiscal year 2018.

The decrease was attributable to aggregate net outflows from the Hennessy Funds,

partially offset by market appreciation and the purchase of the assets related to the management of the BP Funds.

The Hennessy Funds,

like many actively managed U.S.

mutual funds, experienced net outflows this year.

However, one fund had net inflows for fiscal year 2019 as follows:

Hennessy Japan Fund

The Hennessy Funds with the three largest amounts of net outflows for fiscal year 2019 were as follows:

We collect an investment advisory fee from the Hennessy Gas Utility

Fund at an annual rate of 0.40% of average daily net assets.

Total assets under management as of the end of fiscal year 2020 was

$3.6 billion, a decrease of $1.3 billion, or 26.9%, compared to the end of fiscal year 2019.

The decrease was attributable primarily to net outflows from the Hennessy Funds and secondarily to market depreciation that largely resulted

from the COVID-19 pandemic.

The Hennessy Funds, like many actively managed U.S.

mutual funds,

experienced net outflows this year.

The Hennessy Balanced Fund, with $0.5 million in net inflows, was the only Hennessy Fund with net inflows for fiscal year 2020.

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

Fiscal Year Ended September 30,

Hennessy Focus Fund

$(562) million

Hennessy Mid Cap 30 Fund

(390) million

Hennessy Gas Utility Fund

$(214) million

Redemptions as a percentage of assets under management increased from an average of 3.0% per month during

Hennessy Mid Cap 30 Fund

$(88) million

Redemptions as a percentage of assets under management decreased from an average of 3.7% per month during

fiscal year 2019 to an average of 3.6% per month during fiscal year 2020.

Operating Expenses

Comparing fiscal year 2018 to fiscal year 2019, total operating expenses decreased by 11.4%, from $30.1 million to $26.7 million.

Although the dollar value of operating expenses decreased, as a percentage of total revenue, operating expenses increased 7.3 percentage points to 62.5%.

The dollar value decrease was due to decreases in all expense categories.

Comparing fiscal year 2019 to fiscal year 2020, total operating expenses decreased by 17.3%, from $26.7 million to $22.1 million, due

to decreases in all expense categories other than depreciation expense, which moderately increased.

Although the dollar value decreased, operating expenses as a percentage of total revenue increased 3.6 percentage points to 66.1% because our fixed

costs did not decrease with decreasing revenue.

Compensation and Benefits Expense :

Comparing fiscal year 2018 to fiscal year 2019, compensation and benefits expense decreased by

16.1%, from $13.0 million to $10.9 million.

Although the dollar value of compensation and benefits expense decreased, as a percentage of total revenue, compensation and benefits expense increased 1.7 percentage points to 25.6%.

value decrease was due primarily to a decrease in incentive-based compensation.

Comparing fiscal year 2019 to fiscal year 2020,

compensation and benefits expense decreased by 19.3%, from $10.9 million to $8.8 million, due primarily to a decrease in incentive-based compensation and secondarily to temporary 25% salary

reductions taken voluntarily by our executive officers for the period from May 1, 2020, through September 30, 2020.

Although the dollar value decreased, compensation and benefits expense as a percentage of total revenue increased 0.8

percentage points to 26.4% because our fixed salary and benefits costs did not decrease with decreasing revenue (other than the temporary voluntary salary reductions taken by our executive officers).

General and Administrative Expense :

fiscal year 2018 to fiscal year 2019, general and administrative expense decreased by 1.2%, from $5.9 million to $5.8 million.

Although the dollar value of general and administrative expense decreased, as a percentage of total revenue,

general and administrative expense increased 2.9 percentage points to 13.6%.

The dollar value decrease resulted primarily from decreased professional service fees and business development-related expenses.

Comparing fiscal year 2019 to fiscal year 2020,

general and administrative expense decreased by 14.4%, from $5.8 million to $5.0 million, due mainly to decreased travel and conference-related expense.

Although the dollar value decreased, general and administrative expense as a

percentage of total revenue increased 1.3 percentage points to 14.9% because our fixed costs did not decrease with decreasing revenue.

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 in mutual fund distribution expense in our statement of operations to the extent paid by us.

When the Hennessy Funds are purchased directly, we do not incur any such

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.

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 in mutual fund distribution expense in 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.

Comparing fiscal year 2019 to fiscal year 2020, mutual fund distribution expense decreased by 6.8%, from $0.51 million to

$0.51 million.

Although the dollar value of mutual fund distribution expense decreased, as a percentage of total revenue, mutual fund distribution expense increased 0.2 percentage points to 1.2%.

The dollar value decrease was due to lower

average daily net assets held by financial institutions.

$0.48 million, due to lower average daily net assets of the Hennessy Funds held at financial institutions, which was driven in large part by significant market depreciation in the quarter ended March 31, 2020, that primarily resulted from

the COVID-19 pandemic.

Although the dollar value decreased, mutual fund distribution expense as a percentage of total revenue increased 0.2 percentage points to 1.4%.

Sub-Advisory Fees Expense :

Comparing fiscal year 2018 to fiscal year 2019, sub-advisory fees expense decreased by 11.8%, from $10.5 million to $9.2 million.

Although the dollar value of

sub-advisory fees expense decreased, as a percentage of total revenue, sub-advisory fees expense increased 2.4 percentage points to 21.6%.

The dollar value decrease

resulted from decreased average daily net assets of the sub-advised Hennessy Funds, partially offset by fee increases resulting from the amendment to the sub-advisory

agreement for the Japan Fund and the Japan Small Cap Fund that became effective February 28, 2018, and the new sub-advisory relationship with BP Capital for the BP Funds that became effective

October 26, 2018.

Comparing fiscal year 2019 to fiscal year 2020, sub-advisory fees expense decreased by 17.9%, from $9.2 million to $7.6 million, due to decreased average daily net assets held in the sub-advised Hennessy Funds.

Although the dollar value of sub-advisory fees expense decreased, as a percentage of total revenue, sub-advisory fees expense increased 1.1 percentage points to 22.7%

due to a greater decrease in average daily net assets held by the Hennessy Funds that we internally manage than in average daily net assets of the sub-advised Hennessy Funds.

Depreciation Expense :

Comparing fiscal year 2018 to fiscal year 2019, depreciation expense remained the

same at $0.23 million.

Although the dollar value of depreciation expense remained the same, as a percentage of total revenue, depreciation expense increased 0.1 percentage points to 0.5%.

Comparing fiscal year 2019 to fiscal year 2020, depreciation expense increased by 6.2% from $0.23 million to

$0.24 million as a result of a higher fixed assets purchase base.

As a percentage of total revenue, depreciation expense increased 0.2 percentage points to 0.7%.

Interest Expense

Comparing fiscal year

2018 to fiscal year 2019, interest expense decreased by 11.7%, from $1.2 million to $1.1 million.

The decrease was due primarily to a decrease in our principal loan balance.

2019 to fiscal year 2020, interest expense decreased by 58.8%, from $1.1 million to $0.4 million, due primarily to a decrease in our principal loan balance, which we repaid in full on March 26, 2020.

Income Tax Expense

Comparing fiscal year

2018 to fiscal year 2019, income tax expense increased by 52.8%, from $2.8 million to $4.2 million and our effective income tax rate increased 133.6%, from 11.9% to 27.8%.

These increases reflect the significant impact of the 2017 Tax Act

on our income tax expense and effective income tax rate for fiscal year 2018.

During fiscal year 2018, the 2017 Tax Act required us to record a one-time non-cash

benefit to income tax expense for the accounting remeasurement of our deferred tax liability based on the reduced federal corporate income tax rate.

The resulting income tax expense was reduced by approximately $4 million.

Excluding the impact

of this one-time benefit, our income tax expense would have decreased for fiscal year 2019 compared to fiscal year 2018, due primarily to the decrease in our net operating income and secondarily to the

decrease in the federal corporate income tax rate.

Our effective income tax rate also would have decreased if the impact of the one-time benefit were excluded because we only benefited from the reduced federal

income tax rate, which was effective January 1, 2018, for nine of the 12 months in fiscal year 2018.

Comparing fiscal year 2018 to fiscal year 2019, net income decreased by 46.5%, from $20.6 million to $11.0 million, due primarily to

the decrease in our net operating income and secondarily as a result of the increase in income tax expense discussed above.

2019 to fiscal year 2020, income tax expense decreased by 26.5%, from $4.2 million to $3.1 million, due primarily to lower net operating income in the current period, offset slightly by a higher effective income tax rate that resulted from

paying income taxes to a greater number of states.

Comparing fiscal year 2019 to fiscal year 2020, net income decreased by 28.9%, from $11.0 million to $7.8 million, primarily due to

lower net operating income in the current period, and secondarily due to the higher effective income tax rate discussed above.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have, and have not had, any off-balance sheet arrangements.

We do not have, and have not had, any

off-balance sheet arrangements.

LIQUIDITY AND CAPITAL RESOURCES

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 the end of fiscal year 2019 will be sufficient to meet

our capital requirements for at least 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 either, or both, seeking to increase our borrowing capacity or accessing the capital markets.

There can be no assurance that we will be able to raise additional capital.

Our total assets under management as of the end of fiscal year 2019 was $4.9 billion, a decrease of $1.3 billion, or 21.4%, from the

end of fiscal year 2018.

The primary sources of our revenues, 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 fiscal year 2019 was $5.2 billion.

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 the end of fiscal year 2020 will be sufficient to meet our capital requirements for at least 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 either, or both, seeking bank financing or accessing the capital markets.

There can be no assurance that we will be able to raise

additional capital.

Our total assets under management as of the end of fiscal year 2020 was $3.6 billion, a

decrease of $1.3 billion, or 26.9%, from the end of fiscal year 2019.

The primary sources of our revenues, 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 fiscal year 2020 was $4.1 billion.

As of the end of fiscal year 2020, we had cash and cash equivalents of $10.0 million.

5 unchanged sentences

Net cash used in financing activities

Net (decrease) increase in cash and cash equivalents

The decrease in cash provided by operating activities of $7.1 million from fiscal year 2018 compared to

fiscal year 2019 was due mainly to decreased operating income.

The decrease in cash used for investing activities of $1.9 million

was due to the purchase of the assets related to the management of the Rainier Funds in fiscal year 2018, which was larger than the purchase of the assets related to the management of the BP Funds in fiscal year 2019.

The increase in cash used for financing activities of $5.2 million from fiscal year 2018 compared to fiscal year 2019 was due to shares

repurchased in May, August, and September 2019 under our stock buyback program, as well as an increased dividend rate.

Net decrease in cash and cash equivalents

Comparing fiscal year 2019 to fiscal year 2020, cash provided by operating activities decreased

$3.8 million due mainly to decreased operating income.

Comparing fiscal year 2019 to fiscal year 2020, cash used for investing

activities decreased $1.1 million because the first payment for the purchase of the assets related to the management of the BP Funds in fiscal year 2019 was larger than the second payment for such assets in fiscal year 2020.

Comparing fiscal year 2019 to fiscal year 2020, cash used for financing activities increased $11.3 million, which represents the

difference between the repayment in full of our term loan during fiscal year 2020 compared to the aggregate amount of the regular payments made on our term loan during fiscal year 2019.

Dividend Payments .

We have consistently paid dividends each year since 2005.

Our quarterly dividend rate remained constant during

fiscal year 2020, and dividend payments totaled $4.0 million.

During fiscal year 2019, our Board of Directors increased the quarterly dividend rate twice, (i) from $0.10 per share to $0.11 per share in October 2018 and

1 unchanged sentence

Dividend payments for fiscal year 2019 totaled $3.5 million.

During fiscal year 2018, our Board of Directors increased the quarterly dividend rate from $0.075 per share to $0.10 per share in

January 2018.

Dividend payments for fiscal year 2018 totaled $2.9 million.

Our Bank Loan .

We have an outstanding term loan agreement with U.S.

loan agreement requires monthly payments of $364,583 plus interest calculated based on one of the following, at our option:

(1) the sum of (a) a margin that ranges from 2.25% to 2.75%, depending on our ratio of consolidated debt to consolidated

EBITDA, plus (b) the LIBOR rate;

(2) the sum of (a) a margin that ranges from 0.25% to 0.75%, depending on our

ratio of consolidated debt to consolidated EBITDA, plus (b) the highest rate out of the following three rates:

(i) the prime rate set by U.S.

Bank from time to time;

(ii) the Federal Funds Rate plus 0.50%;

(iii) the one-month LIBOR rate plus 1.00%.

We currently use a

one-month LIBOR rate contract, which must be renewed monthly.

As of the end of fiscal year 2019, the effective rate was 4.350%, which comprised the LIBOR rate of 2.10% as of September 1, 2019, plus a

margin of 2.25% based on our ratio of consolidated debt to consolidated EBITDA as of June 30, 2019.

We intend to continue renewing the LIBOR rate contract on a monthly basis as long as it remains the most favorable option.

We have amended the

term loan agreement to address possible LIBOR changes (see further discussion in Item 1A, Risk Factors).

All borrowings under

the term loan agreement are secured by substantially all of our assets.

The final installment of the then-outstanding principal of $5.8 million plus accrued interest is due May 9, 2022.

As of the end

of fiscal year 2019, we had $17.5 million outstanding under our term loan agreement ($17.4 million net of debt issuance costs).

Our term loan agreement includes certain reporting requirements and loan covenants requiring the maintenance of certain financial ratios.

were in compliance with our loan covenants for fiscal year 2019.

On March 26, 2020, we prepaid in full all principal, accrued interest, and costs and expenses outstanding under our

term loan agreement with U.S.

Bank National Association.

The aggregate prepayment amount of $15.4 million was funded by cash on hand, and we did not incur any prepayment penalties.

Under the term loan agreement, interest was calculated based on

the one-month LIBOR rate plus a margin that ranged from 2.25% to 2.75% depending on our ratio of consolidated debt to consolidated EBITDA.

Prior to repayment, certain debt issuance costs were capitalized and

netted against the underlying loan balance and were then amortized over the term of the loan.

Upon repayment, the unamortized debt issuance costs were charged to interest expense.

Prior to its termination, we were obligated under the term loan agreement to make monthly payments of $364,583 plus interest, the final

installment of which would have been due on May 9, 2022.

CRITICAL ACCOUNTING POLICIES

Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States,

(GAAP), 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 managements 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 managements current judgment.

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.

accounting policies, methods, and estimates are an integral part of the financial statements prepared by management and are based upon managements 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 managements current judgment.

Described below are the accounting policies that we believe are most critical to understanding our results of operations and financial position.

Our operating revenues consist of contractual investment advisory and shareholder service fees.

We earn our investment advisory fees through

portfolio management of the Hennessy Funds, and we earn our shareholder service fees by assisting investors in purchases, sales, distribution, and customer service.

These fee revenues are earned and calculated daily by the Hennessy Funds

Our operating revenues consist of contractual investment advisory and shareholder service

We earn our investment advisory fees through portfolio management of the Hennessy Funds, and we earn our shareholder service fees by assisting investors in purchases, sales, distribution, and customer service.

These fee revenues are earned and

calculated daily by the Hennessy Funds accountants.

In accordance with Financial Accounting Standards Board (FASB) guidance on revenue recognition, we recognize fee revenues monthly.

Our contractual agreements provide persuasive evidence that an arrangement exists with fixed

and determinable fees, and the services are rendered daily.

The collectability is probable as the fees are received from the Hennessy Funds in the month subsequent to the month in which the services are provided.

The management contracts we have purchased are considered intangible assets with an indefinite life and we account for them in accordance with

Accounting Standards Update (ASU) No.

Our contractual agreements provide persuasive

evidence that an arrangement exists with fixed and determinable fees, and the services are rendered daily.

The collectability is probable as the fees are received from the Hennessy Funds in the month subsequent to the month in which the services are

The management contracts we have purchased are considered intangible assets with an indefinite life and we account for them in

accordance with Accounting Standards Update (ASU) No.

2012-02, Intangibles Goodwill and Other (Topic 350):

Testing Indefinite-Lived Intangible Assets for Impairment, as amended.

2012-02, an entity first assesses qualitative factors to determine whether it

is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform a quantitative impairment test in accordance with Subtopic 350-30, Intangibles Goodwill and Other General Intangibles Other than Goodwill. The more-likely-than-not threshold is defined as having

a likelihood of more than 50 percent.

If an entity determines that it is more likely than not that an indefinite-lived intangible asset is impaired, then it must conduct an impairment analysis.

able to forego the annual impairment analysis for fiscal year 2019 as the more-likely-than-not threshold was met as of the end of fiscal year 2019.

The costs related to our purchase of the assets related to the management of mutual funds are capitalized as incurred.

The costs are defined

as an intangible asset per the FASB standard Intangibles Goodwill and Other. The acquisition costs include legal fees, fees for soliciting shareholder approval, and a percent of asset costs to purchase the management

The amounts are included in the management contract asset, totaling $80.6 million as of the end of fiscal year 2019.

ISSUED AND ADOPTED ACCOUNTING STANDARDS

In May 2014, the FASB issued Accounting Standards Update (ASU)

2014-09, Revenue from Contracts with Customers. In addition, the FASB issued related revenue recognition guidance in five ASUs:

principal versus agent considerations (ASU 2016-08), identifying performance obligations and licensing (ASU 2016-10), a revision of certain SEC staff observer comments (ASU

2016-11), implementation guidance (ASU 2016-12), and technical corrections and improvements (ASU 2016-20).

ASU 2014-09 is a comprehensive new revenue recognition standard that supersedes nearly all revenue recognition guidance under GAAP, provides enhancements to the quality and consistency of how revenue is

reported, and improves comparability in financial statements presented under GAAP and International Financial Reporting Standards.

This new standard is effective for fiscal years and interim periods within those years beginning after

December 15, 2017 (our fiscal year 2019).

The adoption of this update did not have a material impact on our financial condition, results of operations, or cash flows.

Testing Indefinite-Lived Intangible Assets for Impairment, as

Pursuant to ASU No.

2012-02, an entity first assesses qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for

determining whether it is necessary to perform a quantitative impairment test in accordance with Subtopic 350-30, Intangibles Goodwill and Other General Intangibles Other than

Goodwill. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent.

If an entity determines that it is more likely than not that an

indefinite-lived intangible asset is impaired, then it must conduct an impairment analysis.

We were able to forego the annual impairment analysis for fiscal year 2020 as the

more-likely-than-not threshold was not met as of the end of fiscal year 2020.

related to our purchase of the assets related to the management of mutual funds are capitalized as incurred.

The costs are defined as an intangible asset per the FASB standard Intangibles Goodwill and Other. The acquisition costs

include legal fees, fees for soliciting shareholder approval, and a percent of asset costs to purchase the management contracts.

The amounts are included in the management contracts asset, totaling $80.6 million as of the end of fiscal

RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842), as

amended in July 2018 by ASU No.

2018-10, Codification Improvements to Topic 842, Leases, and ASU No.

amended, which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements.

The new standard establishes a

right-of-use model that requires a lessee to recognize a right-of-use asset and lease

liability on the balance sheet for all leases with a term longer than 12 months.

Leases must be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

our leases are operating leases.

We adopted the new standard on October 1, 2019, using the modified retrospective method and the transition relief guidance provided by the FASB in ASU No.

Leases (Topic 842):

Targeted Improvements, that replaces existing lease guidance.

The new standard is intended to provide enhanced transparency and comparability by requiring lessees to record

right-of-use assets and corresponding lease liabilities on the balance sheet.

The new guidance will continue to classify leases as either finance or operating, with

classification affecting the pattern of expense recognition on the statement of income.

These ASUs are effective for fiscal years beginning after December 15, 2018 (our fiscal year 2020).

We are currently evaluating the impact of these updates

and anticipate the recognition of additional assets and corresponding liabilities relating to these leases on our balance sheet, but do not expect the adjustments to be material assuming no changes in lease activity.

In January 2017, the FASB issued ASU No.

2017-04, Intangibles Goodwill and Other

Simplifying the Test for Goodwill Impairment. This update eliminates a step from impairment testing to simplify the process, particularly for entities with a zero or negative carrying amount for an intangible asset, and is

effective for annual reporting periods beginning after December 15, 2019 (our fiscal year 2021).

The adoption of this update is not expected to have a material impact on our financial condition, results of operations, or cash flows.

In June 2018, the FASB issued ASU No.

2018-07, Compensation Stock Compensation

Improvements to Nonemployee Share-Based Payment Accounting, which allows companies to account for nonemployee awards in the same manner as employee awards.

This update is effective for fiscal years beginning after

December 15, 2018, and interim periods within those annual periods (our fiscal year 2019).

The adoption of this update did not have a material impact on our financial condition, results of operations, or cash flows.

In August 2018, the FASB issued ASU

Targeted Improvements. As a result, we did not update financial information or provide disclosures required under the new standard for dates and periods prior to October 1, 2019.

In addition, we adopted the

FASBs lessee practical expedient option to combine lease and non-lease components for all asset classes and elected, as an accounting policy, not to recognize right-of-use assets and lease liabilities for leases with terms of 12 months or less.

Non-lease components are fixed costs, such as electricity or common area

maintenance, that can be included in rent payments but are not a part of the underlying asset being capitalized.

There were no such fixed costs associated with our capitalized right of use asset, so this election did not impact our financial

Upon adoption of ASU 2016-02, we recorded $0.7 million in right-of-use assets (which is net of

$0.1 million in deferred rent outstanding just before adoption) and $0.8 million in lease liabilities.

In August 2018, the

FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement. This update eliminates such disclosures as

the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and adds new disclosure requirements for Level 3 measurements.

It is effective for fiscal years beginning after December 15, 2019

(our fiscal year 2021), with early adoption permitted for any eliminated or modified disclosures.

We are currently evaluating the impact of adopting this update, but do not expect it to have a material impact on our financial condition, results of

operations, cash flows, or related disclosures.

Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement. This update eliminates such

disclosures as the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and adds new disclosure requirements for Level 3 measurements.

It is effective for fiscal years beginning after

December 15, 2019 (our fiscal year 2021), with early adoption permitted for any eliminated or modified disclosures.

We are currently evaluating the impact of adopting this update, but do not expect it to have a material impact on our

financial condition, results of operations, cash flows, or related disclosures.

There have been no other significant changes to our critical accounting policies and

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity