What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2020-12-01 compared with 2019-12-03 · 308 added, 300 removed, 358 unchanged (63% of the section changed)

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ended September 30, 2020, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph

Change in Accounting Principle

As discussed in Note 15 to the financial statements, the Company changed its method of accounting for leases in

2019 due to the adoption of ASU No.

2016-02, Leases (Topic 842), as amended, effective October 1, 2019, using the modified retrospective approach.

Basis for Opinion

These financial statements are the responsibility of the Companys management.

Our responsibility is to express an opinion on the Companys financial

statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in

accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for

the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting.

These financial statements are the

responsibility of the Companys management.

Our responsibility is to express an opinion on the Companys financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight

Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain

reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and

performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the

financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used

and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

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Property and equipment, net of accumulated depreciation of $1,618 and $1,379,

Operating lease

right-of-use asset

Management contracts

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Accrued purchase consideration payable

Operating lease liability

Income taxes payable

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Common stock, no par value, 22,500,000 shares authorized;

7,527,040 shares issued and outstanding as of September 30, 2019, and 7,897,145 as of

September 30, 2018

7,356,822 shares issued and outstanding

as of September 30, 2020, and 7,527,040 as of September 30, 2019

Retained earnings

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Repurchase of vested employee restricted stock for tax withholding

Shares issued for auto-investments pursuant to the 2015 and 2018 Dividend Reinvestment and Stock

Purchase Plans

Shares issued for dividend reinvestment pursuant to the 2015 and 2018 Dividend Reinvestment and

Stock Purchase Plans

Shares issued for auto-investments pursuant to the 2018 Dividend Reinvestment and Stock Purchase

Shares issued for dividend reinvestment pursuant to the 2018 Dividend Reinvestment and Stock

Purchase Plan

Shares repurchased pursuant to a stock buyback program

Stock-based compensation

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Stock-based compensation

Employee restricted stock forfeiture

Balance at September 30, 2020

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Adjustments to reconcile net income to net cash provided by operating activities

right-of-use asset and operating lease liability

Deferred income taxes

Stock-based compensation

Unrealized gains on marketable securities

Interest expense associated with debt issuance cost

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Payment of debt issuance costs on bank loan amendment

Deferred offering costs

Shares repurchased pursuant to stock buyback program

Restricted stock units repurchased for employee tax withholding

Proceeds from shares issued pursuant to the 2015 and 2018

Dividend Reinvestment and Stock Repurchase Plans

Repurchase of vested employee restricted stock for tax withholding

Proceeds from shares issued pursuant to the 2018 Dividend Reinvestment and

Stock Repurchase Plan

Dividend payments

Net cash used in financing activities

Net (decrease) increase in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents at the beginning of the period

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Cash paid for interest

Purchase consideration payable (Note 14)

Purchase consideration payable

See Accompanying Notes to Financial Statements

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

monitoring the liquidity of the fund;

monitoring the funds compliance with its investment objectives and restrictions and federal securities

monitoring compliance with federal securities laws, maintaining a compliance program (including a code of

ethics), conducting ongoing reviews of the compliance programs of the funds service providers (including its sub-advisor, as applicable), conducting on-site visits

to the funds service providers (including its sub-advisor, as applicable), monitoring incidents of abusive trading practices, reviewing fund expense accruals, payments, and fixed expense ratios,

evaluating insurance providers for fidelity bond, D&O/E&O, and cyber insurance coverage, conducting employee compliance training, reviewing reports provided by service providers, and maintaining books and records;

ethics), conducting ongoing reviews of the compliance programs of the funds service providers (including any sub-advisor), conducting on-site visits to the

funds 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, D&O/E&O 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 funds sub-advisor, reviewing the funds investment performance, and monitoring the sub-advisors adherence to the funds investment objectives, policies, and

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updating the funds prospectus and related documents;

preparing or reviewing a written summary of the funds performance for the most recent 12-month period for each annual report of the fund;

preparing or reviewing a written summary of the funds performance during the most recent 12-month period for each annual report of the fund;

monitoring and overseeing the accessibility of the fund on third-party platforms;

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Funds Board of Trustees);

preparing or reviewing all materials for meetings of 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.

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.

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

maintaining an 800 number that the current investors in the Hennessy Funds may call to ask questions about the funds or their accounts, or to get help with processing exchange and redemption requests or changing account options.

fee revenues are earned and calculated daily by the Hennessy Funds accountants at U.S.

maintaining a toll-free number that the current investors in the Hennessy Funds may call to ask questions about the funds or their accounts 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 Recognition.

The Company currently waives a portion

of its fees with respect to the Hennessy Cornerstone Large Growth Fund, the Hennessy BP Midstream Fund, and the Hennessy Technology Fund to comply with contractual expense ratio limitations.

The fees are computed and billed monthly, at which

time they are recognized in accordance with Accounting Standards Codification 606 Revenue Recognition.

waived a portion of its fees with respect to (i) the Hennessy Cornerstone Large Growth Fund through the expiration of the expense limitation agreement on November 30, 2019, (ii) the Hennessy BP Energy Fund during the second half of

fiscal year 2020, and (iii) the Hennessy BP Midstream Fund and the Hennessy Technology Fund throughout fiscal year 2020, in each case 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 an offset to the Companys revenues.

Bank Global Fund Services, reviewed by management, and then charged to expense monthly as offsets to the Companys revenues.

Each waived fee is then deducted from investment advisory fee income and reduces the

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To date, the Company has only waived fees based on contractual obligations, but the Company has the ability to waive fees at its discretion.

to waive fees would only apply on a going-forward basis.

to waive fees would apply only on a going-forward basis.

The Companys

contractual agreements for investment advisory and shareholder services provide persuasive evidence that an arrangement 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.

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.

The Company is subject to risks

and uncertainties as a result of the COVID-19 pandemic, particularly risks and uncertainties related to the increased volatility in the stock market.

The Company cannot reasonably estimate the continued extent

of the impact of the COVID-19 pandemic on the Companys business.

As of the date of issuance of the Companys financial statements, the extent to which the

COVID-19 pandemic may materially impact the Companys financial condition, liquidity, or results of operations remains uncertain.

Cash and Cash Equivalents

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The fair value of receivables, accounts payable, and notes payable has been estimated at carrying value due to the short maturity of these instruments.

The fair value of purchased management contracts is estimated at the cost

of the purchase.

The fair value of marketable securities and money market accounts is based on closing net asset values as reported by securities exchanges registered with the SEC.

Investments in highly liquid financial instruments with remaining maturities of less than one year are classified as short-term

The fair value of marketable securities and money market accounts is based

on closing net asset values as reported by securities exchanges registered with the SEC.

Investments in highly-liquid financial instruments with remaining maturities of less

than one year are classified as short-term investments.

Financial instruments with remaining maturities of greater than one year are classified as long-term investments.

A table of investments is included in Note 3 in this Item 8,

Financial Statements and Supplementary Data.

The Company holds investments in publicly traded mutual funds,

which are accounted for as trading securities.

A table of investments is included in

Note 3 in this Item 8, Financial Statements and Supplementary Data.

The Company holds investments in

publicly traded mutual funds, which are accounted for as trading securities.

Accordingly, unrealized gains of less than $1,000 per year were recognized in operations for fiscal years 2020 and 2019.

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funds, some of which were reorganized into already existing Hennessy Funds.

In accordance with FASB guidance, the Company periodically reviews the carrying value of its purchased management contracts to determine if any impairment has occurred.

fair value of management contracts is based on management estimates and assumptions, including third-party valuations that utilize appropriate valuation techniques.

The fair value of the management contracts was estimated by applying the income

It is the opinion of the Companys management that there was no impairment as of the end of fiscal years 2019 and 2018.

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 life of the management contracts each reporting period to determine if they continue to have an indefinite useful life.

considers the mutual fund management contracts to be intangible assets with an indefinite useful life and no impairment as of the end of fiscal year 2019.

The Company completed its most recent asset purchase on October 26, 2018, when it purchased the assets related to the

management of the BP Capital TwinLine Energy Fund and the BP Capital TwinLine MLP Fund (together, the BP Funds).

This asset purchase added nearly $200 million in assets under management.

was consummated in accordance with the terms and conditions of the Transaction Agreement, dated as of July 10, 2018, between the Company and BP Capital Fund Advisors, LLC (BP

In accordance with FASB guidance, the Company periodically reviews the carrying value of its management contract asset to determine if any impairment has occurred.

value of the management contracts asset was estimated by applying the income approach and is based on management estimates and assumptions, including third-party valuations that utilize appropriate valuation techniques.

It has been determined that

there was no impairment as of the end of fiscal years 2020 and 2019.

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.

The Company considers the management contracts asset to be an intangible asset with an indefinite useful life and no impairment as of the end of fiscal

The Company completed its most recent asset purchase on October 26, 2018, when it purchased the

assets related to the management of the BP Capital TwinLine Energy Fund and the BP Capital TwinLine MLP Fund (together, the BP Funds).

At the completion of the transaction, this asset purchase added nearly $200 million to the

Companys assets under management.

The purchase was consummated in accordance with the terms and conditions of the Transaction Agreement, dated as of July 10, 2018, between the Company and BP Capital Fund Advisors, LLC (BP

Upon completion of the transaction, the assets related to the management of the BP Funds were reorganized into two new series of Hennessy Funds Trust called the Hennessy BP Energy Fund and the Hennessy BP Midstream Fund,

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In connection with the transaction, BP Capital became the sub-advisor to the Hennessy BP Energy Fund and the Hennessy BP Midstream Fund.

In accordance with the Transaction Agreement, the purchase price comprised two payments.

The initial payment of

$1.6 million was funded with available cash in connection with the closing and was based on the aggregate current net asset value of the BP Funds measured as of the close of business on October 25, 2018, the trading day immediately

preceding the closing date of the transaction, plus $100,000.

The second payment of $0.7 million was funded with available cash promptly following the one-year anniversary of the closing and was based on

the aggregate current net asset value of the BP Funds measured as of the close of business on October 25, 2019, the trading day immediately preceding the one-year anniversary of the closing date.

included the amount of the liability for the second payment in our fiscal year 2019 financial statements because it was measurable prior to the filing date of this Annual Report on Form 10-K.

On December 22, 2017, during the Companys first fiscal quarter of 2018, the Tax Cuts and Jobs Act of 2017 (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 the Companys second fiscal quarter of 2018, the Company was required to recognize a reasonable estimate of the effect of the

reduced federal corporate income tax rate on its deferred tax liability in the period of enactment.

As a result, the Company recorded a one-time non-cash benefit to

income tax expense of approximately $4 million, or $0.54 in diluted earnings per share, during its first fiscal quarter of 2018.

The Company was 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.

The Company, under the FASB guidance on

Accounting for Uncertainty in Income Tax, uses a recognition threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a companys income

tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

The Company utilizes a two-step approach for

evaluating uncertain tax positions.

The first step, recognition, requires the Company to determine if the weight of available evidence indicates that a tax position is more likely than not to be sustained upon audit, including resolution of related

appeals or litigation processes, if any.

The second step, measurement, is based on the largest amount of benefit that is more likely than not to be realized on ultimate settlement.

The Company believes the positions taken on the tax returns are fully supported, but tax authorities may challenge these

positions and they may not be fully sustained on examination by the relevant tax authorities.

Accordingly, the income tax provision includes amounts intended to satisfy assessments that may result from these challenges.

Determining the income tax

provision for these potential assessments and recording the related effects requires management judgement and estimates.

The amounts ultimately paid on resolution of an audit could be materially different from the amounts previously included in the

income tax provision and, therefore, could have a material impact on the Companys income tax provision, net income, and cash flows.

The accrual for uncertain tax positions is attributable primarily to uncertainties concerning the tax treatment

of the Companys domestic operations, including the allocation of income among different jurisdictions.

For a further discussion on taxes, refer to Note 10 in this Item 8, Financial Statements and Supplementary Data.

In accordance with the Transaction Agreement, the purchase price comprised

two payments.

The initial payment of $1.6 million was funded with available cash in connection with the closing and was based on the aggregate current net asset value of the BP Funds measured as of the close of business on October 25,

2018, the trading day immediately preceding the closing date of the transaction, plus $100,000.

The second payment of $0.7 million was funded with available cash promptly following the one-year

anniversary of the closing and was based on the aggregate current net asset value of the BP Funds measured as of the close of business on October 25, 2019, the trading day immediately preceding the

one-year anniversary of the closing date.

The Company included the amount of the liability for the second payment in its fiscal year 2019 financial statements because it was measurable prior to the filing date

of the Companys Annual Report on Form 10-K for the fiscal year ended September 30, 2019.

The Company, under the FASB guidance on Accounting for Uncertainty in Income Tax, uses a recognition threshold and

measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a companys income tax return and also provides guidance on derecognition, classification, interest and

penalties, accounting in interim periods, disclosure, and transition.

The Company utilizes a two-step approach for evaluating uncertain tax positions.

The first step, recognition, requires the Company to

determine if the weight of available evidence indicates that a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if any.

The second step, measurement, is based on the

largest amount of benefit that is more likely than not to be realized on ultimate settlement.

The Company believes the

positions taken on the tax returns are fully supported, but tax authorities may challenge these positions and they may not be fully sustained on examination by the relevant tax authorities.

Accordingly, the income tax provision includes amounts

intended to satisfy assessments that may result from these challenges.

Determining the income tax provision for these potential assessments and recording the related effects requires management judgement and estimates.

The amounts ultimately paid on

resolution of an audit could be materially different from the amounts previously included in the income tax provision and, therefore, could have a material impact on the Companys income tax provision, net income, and cash flows.

for uncertain tax positions is attributable primarily to uncertainties concerning the tax treatment of the Companys domestic operations, including the allocation of income among different jurisdictions.

For a further discussion on taxes, refer

to Note 11 in this Item 8, Financial Statements and Supplementary Data.

The Company is subject to income tax in the U.S.

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United States

State Jurisdictions

District of Columbia

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Total State Jurisdictions

For state tax jurisdictions with unfiled tax returns, the statute of limitations will remain

For state tax jurisdictions with unfiled tax returns, the statutes of limitations will remain

open indefinitely.

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units (RSUs).

For fiscal years 2019 and 2018, the Company excluded 184,871 and 0 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 vested RSUs.

For fiscal years 2020 and 2019, the Company excluded 186,520 and 184,871 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.

Amended and Restated 2013 Omnibus Incentive Plan

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Shares available under the Omnibus Plan that are not awarded in one particular year may be awarded in subsequent years.

The compensation committee of the Companys Board of Directors has the authority to determine the awards granted

under the Omnibus Plan, including among other things, the individuals who receive the awards, the times when they receive them, vesting schedules, performance goals, whether an option is an incentive or nonqualified option, and the number of shares

to be subject to each award.

The compensation committee of the Companys Board of Directors has the

authority to determine the awards granted under the Omnibus Plan, including among other things, the individuals who receive the awards, the times when they receive them, vesting schedules, performance goals, whether an option is an incentive or

nonqualified option, and the number of shares to be subject to each award.

However, no participant may receive options or stock appreciation rights under the Omnibus Plan for an aggregate of more than 75,000 shares in any calendar year.

The exercise price and term of each option or stock

appreciation right is fixed by the compensation committee except that the exercise price for each stock option that is intended to qualify as an incentive stock option must be at least equal to the fair market value of the stock on the date of grant

and the term of the option cannot exceed 10 years.

In the case of an incentive stock option granted to a 10% or more shareholder, the exercise price must be at least 110% of the fair market value on the date of grant and cannot exceed five years.

price and term of each option or stock appreciation right is fixed by the compensation committee except that the exercise price for each stock option that is intended to qualify as an incentive stock option must be at least equal to the fair market

value of the stock on the date of grant and the term of the option cannot exceed 10 years.

In the case of an incentive stock option granted to a 10% or more shareholder, the exercise price must be at least 110% of the fair market value on the date

of grant and cannot exceed five years.

Incentive stock options may be granted only within 10 years from the date of adoption of the Omnibus Plan.

The aggregate fair market value (determined at the time the option is granted) of shares with respect to which incentive stock options may be

granted to any one individual, which stock options are exercisable for the first time during any calendar year, may not exceed $100,000.

An optionee may, with the consent of the compensation committee, elect to pay for the shares to be received upon

exercise of his or her options in cash, shares of common stock, or any combination thereof.

Under the Omnibus Plan,

participants may be granted RSUs, each of which represents an unfunded, unsecured right to receive a share of the Companys common stock on the date specified in the recipients 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.

All compensation

costs related to RSUs vested during fiscal years 2019 and 2018 have been recognized in the financial statements.

Company has available up to 3,763,520 shares of the Companys common stock in respect of granted stock awards, in accordance with terms of the Omnibus Plan.

The aggregate fair market value (determined at the time the option is granted) of shares with respect

to which incentive stock options may be granted to any one individual, which stock options are exercisable for the first time during any calendar year, may not exceed $100,000.

An optionee may, with the consent of the compensation committee, elect

to pay for the shares to be received upon exercise of his or her options in cash, shares of common stock, or any combination thereof.

Under the Omnibus Plan, participants may be granted RSUs, each of which represents an unfunded, unsecured right to receive a

share of the Companys common stock on the date specified in the recipients 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

All compensation costs related to RSUs vested during fiscal years 2020 and 2019 have been recognized in the

financial statements.

The Company has available up to 3,678,411 shares of the Companys common stock in respect of

granted stock awards, in accordance with terms of the Omnibus Plan.

A summary of RSU activity is as follows:

Fiscal Years Ended September 30, September 30, 2019 and 2018

Fiscal Years Ended September 30,

Weighted Average

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Non-vested balance at end of year

The Company issued 118,223 net shares of common stock for vested RSUs.

The remainder of the vested RSUs relate

to partially vested RSUs.

While the Company already has recognized the compensation expense related to these partially vested RSUs, it has not yet issued to employees the shares of common stock represented by such partially vested RSUs.

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:

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except years)

Total expected compensation expense for RSUs

Recognized compensation expense for RSUs

Unrecognized compensation expense for RSUS

Total expected compensation expense related to RSUs

Recognized compensation expense related to RSUs

Unrecognized compensation expense related to RSUS

Weighted average remaining period to expense for RSUs

Dividend Reinvestment and Stock Purchase Plan

In January 2018, the Company adopted an updated Dividend Reinvestment and Stock Purchase Plan (the DRSPP),

replacing the previous Dividend Reinvestment and Stock Purchase Plan established in March 2015, to provide shareholders and new investors with a convenient and economical means of purchasing shares of the Companys common stock and reinvesting

cash dividends paid on the Companys common stock.

Under the DRSPP and its predecessor, the Company issued 7,619 and 3,588 shares of common stock in fiscal years 2019 and 2018, respectively.

The maximum number of shares that may be issued

under the DRSPP is 1,550,000 shares, of which 1,539,344 shares remain available for issuance.

Stock Buyback

In January 2018, the Company adopted an updated Dividend Reinvestment and Stock Purchase Plan (the DRSPP) to

provide shareholders and new investors with a convenient and economical means of purchasing shares of the Companys common stock and reinvesting cash dividends paid on the Companys common stock.

Under the DRSPP, the Company issued 9,815

and 7,619 shares of common stock in fiscal years 2020 and 2019, respectively.

The maximum number of shares that may be issued under the DRSPP is 1,550,000 shares, of which 1,529,529 shares remain available for issuance.

Although the Company may issue up to 1,550,000 shares of its common stock under the DRSPP, the Company intends to limit the

issuances to less than 20% of the number of outstanding shares of the Companys common stock in accordance with the listing requirements of The NASDAQ Capital Market.

As of September 30, 2020, the Company had 7,356,822 shares outstanding.

Therefore, the Company will not issue more than 1,471,364 shares of its common stock under the DRSPP without seeking shareholder approval.

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.

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.

The Company repurchased 495,947 shares of its common

stock pursuant to the stock buyback program during fiscal year 2019.

After the repurchases in fiscal year 2019 and aggregate repurchases of 136,789 shares in 2010, a total of 867,264 shares remains available for repurchase under the

stock buyback program.

The Company repurchased 270,986 shares of its 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.

The Company temporarily suspended repurchases under the stock buyback program as of March 24,

Use of Estimates

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Based on the definitions, the following table represents the Companys assets categorized in the Level 1 to

Level 3 hierarchies:

September 30, 2020

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Investments in marketable securities

There were no transfers between levels during either of such fiscal years.

There were no transfers between levels during fiscal years 2020 or 2019.

The cost, gross unrealized gains, gross unrealized losses, and fair market value of the Companys trading investments were

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Companys balance sheets.

Property and Equipment

Property and Equipment, Net

The following table summarizes the Companys property and equipment balances:

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Management Contracts

The costs related to the Companys purchase of the assets related to management contracts are capitalized as incurred.

management contract asset was $80.6 million as of the end of fiscal year 2019 compared to $78.2 million at the end of fiscal year 2018.

The costs are defined as an intangible asset per Accounting Standards

Codification 350 Intangibles Goodwill and Other.

The management contract purchase costs include legal fees, shareholder vote fees and percent of asset costs to purchase the assets related to management contracts.

The costs related to the Companys purchase of the assets related to management contracts are capitalized as incurred and

comprise the management contracts asset.

This asset was $80.6 million as of the end of fiscal year 2020, unchanged from the end of fiscal year 2019.

The Company considers the management contracts asset to be an intangible asset per Accounting

Standards Codification 350 IntangiblesGoodwill and Other.

The purchase costs that comprise the management contracts asset include legal fees, shareholder vote fees, and percent of asset costs to purchase the assets related to

the management contracts.

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 family of Hennessy Funds.

to all classes of the 16 Hennessy Funds.

The investment advisory agreements must be renewed annually (except in

limited circumstances) by (i) the Funds Board of Trustees or by the vote of a majority of the outstanding shares of the applicable Hennessy Fund and (ii) the vote of a majority of the disinterested trustees.

If the investment

advisory agreements are not renewed annually as described above, they terminate automatically.

There are two additional circumstances in which the investment advisory agreements would terminate.

First, an investment advisory agreement automatically

terminates if the Company assigns it to another advisor (assignment includes indirect assignment, which is the transfer of the Companys common stock in sufficient quantities deemed to constitute a controlling block).

Second, either

the applicable Hennessy Fund or the Company may terminate an investment advisory agreement by providing notice to the other party 60 days prior to the expiration of such agreement.

As provided in the investment advisory agreements with each Hennessy Fund, the Company receives monthly investment advisory

fees calculated as a percentage of such funds average daily net assets.

The Company has entered into sub-advisory agreements for the Hennessy Focus Fund, the Hennessy Equity and Income Fund, the Hennessy BP Energy Fund, the Hennessy BP 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 reinvestment of the assets of the applicable Hennessy Fund in

accordance with the terms of such agreement and the applicable Hennessy Funds 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 in the same manner as, and are subject to the same termination provisions as, the investment advisory

In exchange for the sub-advisory services, the Company (not the

Hennessy Funds) pays sub-advisory fees to the sub-advisors based on the amount of each applicable Hennessy Funds average daily net assets.

The Company has an outstanding term loan agreement with U.S.

Bank National Association (U.S.

The term loan

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

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

debt to consolidated earnings before interest, taxes, depreciation, and amortization (excluding, among other things, certain non-cash gains and losses) (EBITDA), plus (b) the LIBOR

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

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

The Company currently uses 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 one-month LIBOR rate

of 2.100% as of September 1, 2019, plus a margin of 2.25% based on the Companys ratio of consolidated debt to consolidated EBITDA as of June 30, 2019.

The Company intends to renew the LIBOR rate contract on a monthly basis as long as

it remains the most favorable option.

The Company has 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 the Companys assets.

The final installment of the then-outstanding principal and interest is due May 9, 2022.

As of the end of fiscal year 2019, the principal amount outstanding under

the term loan agreement was $17.5 million, maturing as follows:

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 would terminate.

First, an investment

advisory agreement automatically terminates if the Company assigns it to another advisor (assignment includes indirect assignment, which is the transfer of the Companys 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 funds 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 BP Energy Fund, the Hennessy BP Midstream Fund, the Hennessy Japan Fund, and the Hennessy Japan Small Cap

Under each of these sub-advisory agreements, the sub-advisor is responsible for the investment of the assets of the applicable Hennessy Fund in accordance with the

terms of such agreement and the applicable Hennessy Funds 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 funds average daily net asset value.

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 Companys balance sheet.

There are no long-term operating leases as of September 30, 2020.

Right of use assets represent the Companys right to use an

underlying asset for the lease term and operating lease liabilities represent the Companys 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.

Companys 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, so 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 Companys 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 Companys operating lease

right-of-use assets and operating lease liabilities and other supplemental information related to the Companys operating leases are as follows:

September 30, 2020

(In thousands,

Fiscal year 2020

Fiscal year 2021

Fiscal year 2022

The term loan agreement includes certain reporting requirements and loan covenants requiring

the maintenance of certain financial ratios.

The Company was in compliance with its loan covenants for fiscal years 2019 and 2018.

During the current fiscal year, the Company evaluated its debt on the amendment date of May 9, 2019, as on prior amendment

dates, and determined the resulting discounted cash flows were not substantially different from the original loan per the conditions set forth in Accounting Standards Codification 470-50

Modifications and Extinguishments.

Furthermore, due to the variable nature of the interest rate, this feature of the loan was examined for potential bifurcation as an embedded derivative, and it was determined that the feature does not require

bifurcation from the host contract.

In connection with securing the financings discussed above, the Company incurred

$0.49 million in loan costs ($0.34 million of which has been expensed in previous years).

The balance of $0.15 million is being amortized on a straight-line basis, which approximates the

effective interest basis, over the 36 months beginning May 2019.

Amortization expense during fiscal years 2019 and 2018 was $0.11 million and $0.15 million, respectively.

The unamortized balance of the loan fees was $0.12 million

as of the end of fiscal year 2019.

In accordance with Accounting Standards Update (ASU) No.

2015-03, the amortization expense of the debt issuance cost is included in interest expense, and the prior period has been reclassified for consistency.

Commitments and Contingencies

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, Boston, and Chapel Hill.

Certain leases provide for renewal options.

The annual minimum future rental commitments under the Companys operating leases

are as follows:

and percentages)

Operating lease

right-of-use assets

Operating lease liability

Weighted average remaining lease term years

Weighted average discount rate

For fiscal year 2020, the Companys lease payments related to its

operating lease right-of-use assets totaled $443,140 and rent expense, which is recorded under general and administrative expense in the statements of income, totaled

The undiscounted cash flows for future maturities of the Companys operating lease liabilities and the

reconciliation to the balance of operating lease liabilities reflected on the Companys balance sheet are as follows:

September 30, 2020

(In thousands)

Fiscal year 2020

Fiscal year 2021

Fiscal year 2021 undiscounted cash flows

Present value discount

Total operating lease liabilities

Accrued Expenses

The details relating to the accrued expenses reflected on the Companys balance sheet are as follows:

September 30, 2020

September 30, 2019

(In thousands)

Accrued bonus liabilities

Accrued sub-advisor fees

Other accrued expenses

Total accrued expenses

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

its term loan agreement with U.S.

Bank National Association.

The aggregate prepayment amount of $15.4 million was funded by cash on hand, and the Company 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 the Companys 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, the Company was 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.

Commitments and Contingencies

The Company has no commitments and no significant contingencies with original terms in excess of one year other than operating

leases, which are discussed in Note 7.

Retirement Plan

1 unchanged sentence

Employees are eligible to participate if they are over 21

years of age and have completed a minimum of one month of service with 80 hours worked in that month.

The Company also made discretionary profit-sharing contributions of $0.19 million and $0.19 million in fiscal years 2019 and 2018,

respectively.

To be eligible for the discretionary profit-sharing contribution, an employee must have completed a minimum of six consecutive months of service with 80 hours of service in each month.

years of age and have completed a minimum of one month of service with at least 80 hours worked in that month.

The Company also made discretionary profit-sharing contributions of $0.19 million and $0.19 million in fiscal years 2020

and 2019, respectively.

To be eligible for the discretionary profit-sharing contribution, an employee must have completed a minimum of six consecutive months of service with at least 80 hours of service in each month.

As of the end of fiscal years 2020 and 2019, the Companys gross liability for unrecognized tax benefits related to

uncertain tax positions increased from $0.35 million to $0.60 million, of which $0.13 million would decrease the Companys effective income tax rate if the tax benefits were recognized.

The Companys net liability for accrued interest and penalties was $0.23 million as of the end of fiscal

The Company has elected to recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense.

The total amount of unrecognized tax benefits can change due to final regulations, audit settlements, tax examinations

activities, lapse of applicable statutes of limitations and the recognition and measurement criteria under the guidance related to accounting for uncertainly in income taxes.

The Company is unable to estimate what this change could be within the

next 12 months, but does not believe it would be material to its financial statements.

The Companys income tax

expense was as follows:

uncertain tax positions was $0.6 million.

If the tax benefits of such amounts were recognized, $0.5 million of such amounts would decrease the Companys effective income tax rate.

The Companys net liability for accrued interest

and penalties was $0.27 million and $0.23 million as of September 30, 2020, and September 30, 2019, respectively.

The Company has elected to recognize interest and penalties related to unrecognized tax benefits as a component of

income tax expense.

During the years ended September 30, 2020, and September 30, 2019, the Company recognized approximately $0.04 million and $0.06 million in interest and penalties.

The Companys activity was as follows:

Fiscal Years Ended September 30,

(In thousands)

The principal reasons for the differences from the federal statutory income tax rate and the

Companys effective tax rate were as follows:

Beginning year balance

Decrease related to prior year tax positions

Increase related to current year tax positions

Lapse of statutes of limitations

Ending year balance

The total amount of unrecognized tax benefits can change due to final regulations, audit

settlements, tax examinations activities, lapse of applicable statutes of limitations, and the recognition and measurement criteria under the guidance related to accounting for uncertainly in income taxes.

The Company is unable to estimate what this

change could be within the next 12 months, but does not believe it would be material to its financial statements.

Companys income tax expense was as follows:

Fiscal Years Ended September 30,

(In thousands)

The principal reasons for the differences from the federal statutory income

tax rate and the Companys effective tax rate were as follows:

Fiscal Years Ended September 30,

Federal statutory income tax rate

1 unchanged sentence

Permanent and other differences

Difference due to executive compensation

Adjustment to beginning deferred taxes

3 unchanged sentences

Effective income tax rate

The tax effects of temporary differences that give rise to significant

portions of deferred tax assets and liabilities were as follows:

The tax effects of temporary differences that give rise to significant portions of deferred tax

assets and liabilities were as follows:

Fiscal Years Ended September 30,

(In thousands)

Current deferred tax assets:

Deferred tax assets

Accrued compensation

4 unchanged sentences

Net deferred tax assets

Noncurrent deferred tax liabilities:

Deferred tax liabilities

Property and equipment

9 unchanged sentences

Weighted average common stock outstanding, diluted

For fiscal years 2019 and 2018, the Company excluded 184,871 and 0 common stock equivalents,

respectively, from the diluted earnings per share calculations because they were not dilutive.

For fiscal years 2020 and 2019, the Company excluded 186,520 and 184,871 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 vested RSUs.

7 unchanged sentences

Recently Issued and Adopted Accounting Standards

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

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 (the Companys fiscal year 2019).

The adoption of this update did not

have a material impact on the Companys financial condition, results of operations, or cash flows.

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.

In February 2016, the FASB issued Accounting Standards Update (ASU)

2016-02, Leases (Topic 842), as 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.

the Companys leases are operating leases.

The Company adopted the new standard on October 1, 2019, using the modified retrospective method and the transition relief guidance provided by the FASB in ASU

2018-11, 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).

Company is currently evaluating the impact of these updates and anticipates the recognition of additional assets and corresponding liabilities relating to these leases on its balance sheet, but does not expect the adjustments to be material assuming

no changes in lease activity.

In January 2017, the FASB issued ASU

2017-04, Intangibles Goodwill and Other (Topic 350):

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 (the Companys fiscal year 2021).

The adoption of this update

is not expected to have a material impact on the Companys financial condition, results of operations, or cash flows.

In June 2018, the FASB issued ASU No.

2018-07, Compensation Stock

Compensation (Topic 718):

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 (the Companys fiscal year 2019).

The adoption of this update did not have a material impact on the Companys financial condition, results of operations, or cash

Targeted Improvements. As a result, the Company did not update financial information or provide disclosures required under the new standard for dates and

periods prior to October 1, 2019.

In addition, the Company 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 the Companys capitalized right of use asset, so this election did not impact its financial statements.

Upon adoption of ASU 2016-02, the Company 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

In August 2018, the FASB issued ASU No.

2018-13, Fair Value

Measurement (Topic 820):

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

8 unchanged sentences

As of the file date of December 1, 2020, for this Annual Report on Form 10-K,

management evaluated the existence of events occurring subsequent to the end of fiscal year 2019, and determined the following to be subsequent events:

On October 26, 2018, the Company completed its 10th asset purchase when it purchased the assets related to the management

of the BP Funds, adding nearly $200 million in assets under management.

In accordance with the Transaction Agreement, the purchase price comprised two payments.

The first payment was funded in connection with the closing, as previously

The second payment of

$0.7 million was funded promptly following the one-year anniversary of the closing with available cash and was based on the aggregate current net

asset value of the BP Funds measured as of the close of business on October 25, 2019, the trading day immediately preceding the one-year anniversary of the closing date.

Related to the final payment, the

Company recorded a journal entry to increase management contracts and accrued purchase consideration payable by $0.7 million each on its September 30, 2019, balance sheet in accordance with ASC 855-10-25, Subsequent Events.

On October 30, 2019, the Company

announced a quarterly cash dividend of $0.1375 per share to be paid on December 3, 2019, to shareholders of record as of November 12, 2019.

The declaration and payment of dividends to holders of the Companys common stock, if

any, are subject to the discretion of the Companys Board of Directors.

The Companys Board of Directors will take into account such matters as general economic and business conditions, the Companys strategic plans, the

Companys financial results and condition, contractual, legal, and regulatory restrictions on the payment of dividends by the Company, and such other factors as the Companys Board of Directors may consider relevant.

management evaluated the existence of events occurring subsequent to the end of fiscal year 2020, and determined the following to be a subsequent event:

On October 30, 2020, the Company announced a quarterly cash dividend of $0.1375 per share to be paid on

December 2, 2020, to shareholders of record as of November 12, 2020.

The declaration and payment of dividends to holders of the Companys common stock, if any, are subject to the discretion of the Companys Board of Directors.

The Companys Board of Directors will take into account such matters as general economic and business conditions, the Companys strategic plans, the Companys financial results and condition, contractual, legal, and regulatory

restrictions on the payment of dividends by the Company, and such other factors as the Companys Board of Directors may consider relevant.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data